<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 12, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
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REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PROBUSINESS SERVICES, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 7374 94-2976066
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
</TABLE>
5934 GIBRALTAR DRIVE
PLEASANTON, CA 94588
(510) 734-9990
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
THOMAS H. SINTON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5934 GIBRALTAR DRIVE
PLEASANTON, CA 94588
(510) 734-9990
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
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ALAN K. AUSTIN, ESQ. KENNETH L. GUERNSEY, ESQ.
ELIZABETH R. FLINT, ESQ. KARYN R. SMITH, ESQ.
ELIZABETH M. KURR, ESQ. RICHARD S. JASEN, ESQ.
JOHN L. WHITTLE, ESQ. COOLEY GODWARD LLP
WILSON SONSINI GOODRICH & ROSATI ONE MARITIME PLAZA
PROFESSIONAL CORPORATION 20TH FLOOR
650 PAGE MILL ROAD SAN FRANCISCO, CA 94111
PALO ALTO, CA 94304-1050 (415) 693-2000
(415) 493-9300
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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Common Stock, par value $0.001 per
share............................. 2,300,000 shares $12.00 $27,600,000 $8,364
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</TABLE>
(1) Includes 300,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a) promulgated under the Securities Act of 1933, as
amended.
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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, AS AMENDED, 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.
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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 THE REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 12, 1997
LOGO
2,000,000 SHARES
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by
ProBusiness Services, Inc. ("ProBusiness" or the "Company"). Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$10.00 and $12.00 per share. See "Underwriting" for information relating to the
method of determining the initial public offering price.
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO PROCEEDS TO
PUBLIC UNDERWRITING COMPANY(1)
DISCOUNTS AND
COMMISSIONS
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Per Share......................... $ $ $
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Total(2).......................... $ $ $
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(1) Before deducting expenses payable by the Company, estimated at $950,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 300,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ ,
respectively.
---------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), San Francisco, California, on or about , 1997.
ROBERTSON, STEPHENS & COMPANY WILLIAM BLAIR & COMPANY
The date of this Prospectus is , 1997
<PAGE> 3
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF
PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR THE
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. 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 DATE HEREOF.
UNTIL , 1997, (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
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TABLE OF CONTENTS
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PAGE
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Summary............................................................................... 4
Risk Factors.......................................................................... 6
Use of Proceeds....................................................................... 14
Dividend Policy....................................................................... 14
Capitalization........................................................................ 15
Dilution.............................................................................. 16
Selected Financial Data............................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 18
Business.............................................................................. 25
Management............................................................................ 35
Certain Transactions.................................................................. 43
Principal Stockholders................................................................ 44
Description of Capital Stock.......................................................... 45
Shares Eligible for Future Sale....................................................... 48
Underwriting.......................................................................... 49
Legal Matters......................................................................... 51
Experts............................................................................... 51
Change in Accountants................................................................. 51
Additional Information................................................................ 51
Index to Financial Statements......................................................... F-1
</TABLE>
ProBusiness(R) is a registered trademark of the Company. BeneSphere
Administrators(TM) and Enrollnet(TM) are trademarks of the Company. This
Prospectus also includes trade names and trademarks of companies other than
ProBusiness.
The Company was incorporated in California in October 1984 and intends to
reincorporate in Delaware prior to this offering. The Company's executive
offices are located at 5934 Gibraltar Drive, Pleasanton, California 94588, and
its telephone number is (510) 734-9990.
3
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Financial Statements and Notes
thereto, appearing elsewhere in this Prospectus. Except as otherwise indicated,
all information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option and gives effect to (i) a reincorporation of the Company
in Delaware prior to this offering, (ii) the conversion of all outstanding
shares of the Company's Preferred Stock into Common Stock automatically upon the
completion of this offering and (iii) the issuance of 160,956 shares of Common
Stock upon the net exercise of warrants upon the completion of this offering.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
The Company is a leading provider of employee administrative services for
large employers, typically with over 250 employees. The Company's primary
service offerings are payroll processing, payroll tax filing, human resources
software and benefits administration, including the enrollment and processing of
flexible benefit plans and COBRA programs. The Company's proprietary PC-based
payroll system offers the cost-effective benefits of outsourcing and high levels
of client service, while providing the flexibility, control, customization and
integration of an in-house system. As of January 31, 1997, the Company provided
services to over 1,200 clients and provided payroll services to 400 clients with
an aggregate of approximately 375,000 employees and an average of approximately
900 employees. The Company's clients include: 3Com Corporation, Abbott
Laboratories, Airtouch Communications Inc., AST Research, Inc., Coach
Leatherwear Co., Inc., The Gillette Company, Kellogg USA Inc., LSI Logic
Corporation, Netscape Communications Corp., Sunglass Hut International, Inc.,
TCI Cablevision, Toyota Motor Corporation, Watkins-Johnson Company and
Williams-Sonoma, Inc.
Many large businesses have found that outsourcing non-core functions
reduces costs, improves service, quality and efficiency, allows personnel to
focus on core competencies and enhances productivity through access to advanced
technologies. In recent years, payroll processing and benefits administration
have increased in complexity due to continual changes in regulations and
increasingly sophisticated employee benefits plans. As a result, the demand for
outsourcing employee administrative services has grown significantly and is
expected to continue to grow over the next several years. It is estimated that
third-party payroll and payroll tax services alone generated approximately $3.4
billion in revenue in 1995 and will generate approximately $7.4 billion in
revenue in 2000.
The Company differentiates itself from its competitors through its
proprietary technology, high quality, responsive and professional client service
and focus on the needs of large employers. ProBusiness develops a business
partnership with each client by assessing each client's payroll processing
needs, reengineering and designing the client's payroll systems and processes
and implementing a cost-effective solution. The Company maintains an ongoing
relationship with each client using a strategic team of specialists led by a
personal account manager who proactively manages each client's account and
marshals the resources of the team to meet the client's specific needs.
ProBusiness maintains a low client-to-account manager ratio to offer clients
accessible and responsive account management. The Company believes that its low
client-to-account manager ratio and its focus on client service are key factors
in enabling the Company to achieve a high payroll client retention rate, which
was approximately 90% in 1996.
The Company's objective is to be the premier provider of employee
administrative services for large employers. The Company's strategy to
accomplish its objective includes expanding its client base by increasing its
direct sales force, offering additional services to existing clients, developing
a comprehensive and fully integrated suite of employee administrative services,
and increasing the breadth of its service offerings and features. The Company is
committed to maintaining the high levels of professional and personal service
that it believes have allowed it to establish a competitive advantage in its
industry.
In March 1997, entities affiliated with General Atlantic Partners LLC
("General Atlantic") purchased $10.0 million of Preferred Stock of the Company.
As a result, General Atlantic will own approximately 11.4% of the Company's
outstanding Common Stock upon the completion of this offering. General Atlantic
is a private equity investment firm.
4
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THE OFFERING
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Common Stock offered by the Company............................ 2,000,000 shares
Common Stock to be outstanding after this offering............. 10,057,727 shares(1)
Use of proceeds................................................ To repay indebtedness and for working
capital and potential acquisitions.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol......................... PRBZ
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
-------------------------------------- ----------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996(2) 1995 1996 1996(2)
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<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue............................... $ 4,069 $7,095 $13,863 $17,341 $5,106 $10,199 $11,855
Operating expenses:
Cost of providing services.......... 1,629 2,703 6,435 7,875 2,278 5,238 6,120
General and administrative
expenses.......................... 1,202 1,304 2,054 3,152 801 1,491 2,150
Research and development expenses... 1,202 1,038 1,257 1,482 298 1,308 1,308
Client acquisition costs............ 1,467 2,943 5,388 6,411 2,068 4,628 5,436
Acquisition of in-process
technology........................ -- -- 711 711 -- -- --
------- ------ ------- ------- ------ ------- -------
Total operating expenses.............. 5,500 7,988 15,845 19,631 5,445 12,665 15,014
------- ------ ------- ------- ------ ------- -------
Loss from operations.................. (1,431) (893) (1,982) (2,290) (339) (2,466) (3,159)
Interest expense, net................. 46 86 404 440 117 508 519
------- ------ ------- ------- ------ ------- -------
Net loss.............................. $(1,477) $ (979) $(2,386) $(2,730) $ (456) $(2,974) $(3,678)
======= ====== ======= ======= ====== ======= =======
Pro forma net loss per share(3)....... $ (0.29) $ (0.33) $ (0.36) $ (0.44)
======= ======= ======= =======
Shares used in computing pro forma net
loss per share(3)................... 8,212 8,212 8,294 8,294
======= ======= ======= =======
</TABLE>
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<CAPTION>
DECEMBER 31, 1996
--------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(2)(4)(5)
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BALANCE SHEET DATA:
Cash and cash equivalents............................................... $ 1,254 $ 21,694
Working capital......................................................... 32 18,240
Total assets............................................................ 11,904 35,594
Long-term debt and note payable to stockholder, less current portion.... 8,380 1,159
Capital lease obligations, less current portion......................... 2,179 979
Total stockholders' equity (deficit).................................... (2,886) 26,655
</TABLE>
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(1) Includes 1,149,466 shares of Common Stock issuable upon conversion of
Preferred Stock sold to General Atlantic in March 1997. Excludes as of
December 31, 1996 (i) 568,917 shares of Common Stock subject to outstanding
options; (ii) 121,892 shares of Common Stock issuable upon exercise of
outstanding warrants; (iii) 1,727,628 shares of Common Stock reserved for
future grant under the Company's 1996 Stock Option Plan, which includes an
increase in the number of shares reserved under the 1996 Stock Option Plan
in February 1997; and (iv) 500,000 shares of Common Stock reserved for
issuance under the Company's 1996 Employee Stock Purchase Plan. See
"Management -- Stock Plans" and Notes 3, 4, 6, 7, 10 and 11 of Notes to
Financial Statements -- ProBusiness Services, Inc.
(2) The pro forma statements of operations for the year ended June 30, 1996 and
the six months ended December 31, 1996 have been prepared as if the
acquisitions of BeneSphere Administrators, Inc. and Dimension Solutions,
Inc. had occurred as of July 1, 1995. The pro forma balance sheet as of
December 31, 1996 has been prepared as if the acquisition of BeneSphere
Administrators, Inc. had occurred on December 31, 1996. See Selected
Unaudited Pro Forma Condensed Consolidated Financial Information.
(3) See Note 6 of Notes to Selected Unaudited Pro Forma Condensed Consolidated
Financial Information for an explanation of the determination of the shares
used in computing pro forma net loss per share.
(4) Adjusted to reflect proceeds from the sale of $10.0 million of Preferred
Stock in March 1997 and the repayment of approximately $4.8 million of
outstanding indebtedness from such proceeds.
(5) Adjusted to reflect the sale of the 2,000,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $11.00 per share after
deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company and the receipt and application of the
estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
5
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RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus. In addition to the other information in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing the Common Stock offered by this Prospectus.
OPERATING LOSSES; NEED TO COMMIT TO EXPENSES IN ADVANCE OF REVENUES
The Company has experienced significant operating losses since its
inception and expects to incur significant operating losses in the future due to
continued client acquisition costs, investments in research and development and
costs associated with expanding its sales efforts and operations to new
geographic regions. As of December 31, 1996, the Company had an accumulated
deficit of approximately $15.7 million. The establishment of new client
relationships involves lengthy and extensive sales and implementation processes.
The sales process generally takes three to nine months or longer, and the
implementation process generally takes three to six months or longer. In
connection with the acquisition of each new client, the Company incurs
substantial client acquisition costs, which consist primarily of sales and
implementation expenses and, to a lesser extent, marketing expenses. The
Company's ability to achieve profitability will depend in part upon its ability
to attract and retain new clients, offer new services and features and achieve
market acceptance of new services. There can be no assurance that the Company
will achieve or sustain profitability in the future. The Company has made
acquisitions in the past and intends to pursue acquisitions in the future. In
connection with acquisitions, the Company has in the past incurred and will
likely incur in the future costs associated with adding personnel, integrating
technology and increasing overhead to support the acquired business, acquiring
in-process technology and amortization expenses related to goodwill. As a
result, such acquisitions have had and any future acquisition could have an
adverse effect on the Company's results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
SEASONALITY; FLUCTUATIONS IN QUARTERLY RESULTS
The Company's business is characterized by significant seasonality. As a
result, the Company's revenue has been subject to significant seasonal
fluctuations, with the largest percentage of annual revenue being realized in
the third and fourth fiscal quarters, primarily due to new clients beginning
services in January (the beginning of the tax year and the Company's third
fiscal quarter) and higher interest income earned on tax funds. Further, the
Company's operating expenses are typically higher as a percentage of revenue in
the first and second fiscal quarters as the Company increases personnel to
acquire new clients and to implement and provide services to such new clients, a
large percentage of which begin services in January.
The Company's quarterly operating results have in the past and will in the
future vary significantly depending on a variety of factors, including the
number and size of new clients starting services, the decision of one or more
clients to delay or cancel implementation or ongoing services, interest rates,
seasonality, the ability of the Company to design, develop and introduce new
services and features for existing services on a timely basis, transition costs
to new technologies, expenses incurred for geographic expansion, risks
associated with payroll tax and benefits administration services, price
competition, a reduction in the number of employees of its clients, and general
economic factors. Revenue from new clients represents a significant portion of
quarterly revenue in the third and fourth fiscal quarters. A substantial
majority of the Company's operating expenses, particularly personnel and related
costs, depreciation and rent, is relatively fixed in advance of any particular
quarter. The Company's agreements with its clients generally do not have
significant penalties for cancellation. As a result, any decision by a client to
delay or cancel implementation of the Company's services or the Company's
underutilization of personnel may cause significant variations in operating
results in a
6
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particular quarter and could result in losses for such quarter. As the Company
secures larger clients, the time required for implementing the Company's
services increases, which could contribute to larger fluctuations in revenue.
Interest income earned from investing payroll tax funds, which is a significant
portion of the Company's revenue, is vulnerable to fluctuations in interest
rates. In addition, the Company's business may be affected by shifts in the
general health of the economy, client staff reductions, strikes, acquisitions of
its client by other companies and other downturns. There can be no assurance
that the Company's future revenue and results of operations will not vary
substantially. It is possible that in some future quarter the Company's results
of operations will be below the expectations of public market analysts and
investors. In either case, the market price of the Company's Common Stock could
be materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH ACQUISITIONS
In January 1997, the Company acquired BeneSphere Administrators, Inc.
("BeneSphere"), a provider of benefits administration services. The integration
of BeneSphere's business with the Company's business has placed and will
continue to place a significant burden on the Company's management. Such
integration is subject to risks commonly encountered in making such
acquisitions, including, among others, loss of key personnel of the acquired
company, the difficulty associated with assimilating the personnel and
operations of the acquired company, the potential disruption of the Company's
ongoing business, the maintenance of uniform standards, controls, procedures and
policies, and the impairment of the Company's reputation and relationships with
employees and clients. There can be no assurance that the Company will be
successful in overcoming these risks or any other problems encountered in
connection with its acquisition of BeneSphere.
While the Company has no current agreements or negotiations underway with
respect to any acquisition, the Company intends to make additional acquisitions
of complementary services, technologies or businesses. There can be no assurance
that any future acquisition will be completed or that, if completed, will be
effectively assimilated into the Company's business. In addition, future
acquisitions could result in the issuance of dilutive equity securities, the
incurrence of debt or contingent liabilities, and amortization expenses related
to goodwill and other intangible assets, any of which could have a material
adverse effect on the Company's business, financial condition or results of
operations or on the market price of the Company's Common Stock. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
RISKS ASSOCIATED WITH PAYROLL TAX SERVICE AND BENEFITS ADMINISTRATION SERVICES
The Company's payroll tax service is subject to various risks resulting
from errors and omissions in filing client tax returns and paying tax
liabilities owed to tax authorities on behalf of clients. The Company's clients
calculate and transfer to the Company contributed employer and employee tax
funds. The Company processes the data received from the client and remits the
funds along with a tax return to the appropriate tax authorities when due.
Tracking, processing and paying such tax liabilities is complex. Errors and
omissions have occurred in the past and may occur in the future in connection
with such service. The Company is subject to large cash penalties imposed by tax
authorities for late filings or underpayment of taxes. To date, such penalties
have not been significant. However, there can be no assurance that any
liabilities associated with such penalties will not have a material adverse
effect on the Company's business, financial condition or results of operations.
There can be no assurance that the Company's reserves or insurance for such
penalties will be adequate. In addition, failure by the Company to make timely
or accurate tax return filings or pay tax liabilities when due on behalf of
clients may damage the Company's reputation and could adversely affect its
relationships with existing clients and its ability to gain new clients.
The Company's payroll tax service is also dependent upon government
regulations, which are subject to continuous changes. Failure by the Company to
implement these changes into its services and technology in a timely manner
would have a material adverse effect on the Company's business,
7
<PAGE> 9
financial condition and results of operations. In addition, since a significant
portion of the Company's revenue is derived from interest earned from investing
tax funds, changes in policies relating to withholding federal or state income
taxes or reduction in the time allowed for taxpayers to remit payment for taxes
owed to government authorities would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's benefits administration services are subject to various risks
resulting from errors and omissions in processing and filing COBRA or other
benefit plan forms in accordance with governmental regulations and the
respective plans. The Company processes data received from employees and
employers and is subject to penalties for any late or misfiled plan forms. There
can be no assurance the Company's reserves or insurance for such penalties will
be adequate. In addition, failure to properly file plan forms would have a
material adverse effect on the Company's reputation, which could adversely
affect its relationships with existing clients and its ability to gain new
clients. The Company's benefits administration services are also dependent upon
government regulations which are subject to continuous changes that could reduce
or eliminate the need for benefits administration services.
The Company has access to confidential information and to client funds. As
a result, the Company is subject to potential claims by its clients for the
actions of the Company's employees arising from damages to the client's business
or otherwise. There can be no assurance that the Company's fidelity bond and
errors and omissions insurance will be adequate to cover any such claims. Such
claims could have a material adverse effect on the Company's business, financial
condition or results of operations. See "Business -- Service Offerings."
MANAGEMENT OF GROWTH
The Company's business has grown significantly in size and complexity over
the past three years, which has placed significant demands on the Company's
management, systems, internal controls, and financial and physical resources. In
order to meet such demands, the Company intends to continue to hire new
employees, open new offices to gain clients in new geographic regions and invest
in new equipment or make other capital expenditures. In addition, the Company
expects that it will need to develop further its financial and managerial
controls and reporting systems and procedures to accommodate any future growth.
Failure to expand any of the foregoing areas in an efficient manner could have a
material adverse effect on the Company's business, financial condition or
results of operations. The Company is currently in the process of integrating
BeneSphere's business with the Company's business. The Company intends to
establish a production facility in Southern California and open new sales
offices to gain new clients. In addition, the Company has leased a larger
facility to house its operations in Pleasanton, California, which the Company
expects will be completed in late 1997. There can be no assurance that the
Company will be able to effectively integrate BeneSphere's business or establish
such facilities on a timely basis. In addition, the Company's growth may depend
to some extent on its ability to successfully complete strategic acquisitions to
expand or complement its existing business. There can be no assurance that
suitable acquisitions can be identified, consummated or successfully integrated
into the Company's operations. Any inability to manage growth effectively could
have a material adverse effect on the Company's business, financial condition or
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
INTEREST RATE FLUCTUATIONS
The Company invests tax funds transferred to it by clients until the
Company remits the funds to tax authorities when due. Interest income earned
from investing these funds represents a significant portion of the Company's
revenue. The Company typically invests tax funds in short- to mid-term
investment-grade securities, which are subject to interest rate fluctuations. As
a result, the Company's business, financial condition and results of operations
are significantly impacted by interest rate fluctuations. The Company intends to
minimize the impact of interest rate fluctuations through hedging activities,
although it currently does not do so and no assurance can be given that such
8
<PAGE> 10
activities will be successful. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SUBSTANTIAL COMPETITION
The market for the Company's services is intensely competitive, subject to
rapid change and significantly affected by new service introductions and other
market activities of industry participants. The Company primarily competes with
several public and private payroll service providers such as Automatic Data
Processing, Inc., Ceridian Corporation and Paychex, Inc., as well as smaller,
regional competitors. Many of these companies have longer operating histories,
greater financial, technical, marketing and other resources, greater name
recognition and a larger number of clients than the Company. In addition, many
of these companies offer more services or features than the Company and have
processing facilities located throughout the United States. The Company also
competes with in-house employee services departments and, to a lesser extent,
banks and local payroll companies. With respect to benefits administration
services, the Company competes with insurance companies, benefits consultants
and other local benefits outsourcing companies. The Company may also compete
with marketers of related products and services that may offer payroll or
benefits administration services in the future. The Company has experienced, and
expects to continue to experience, competition from new entrants into its
markets. Increased competition could result in pricing pressures, loss of market
share and loss of clients, any of which could have a material adverse effect on
the Company's business, financial condition or results of operations. The
failure of the Company to compete successfully would have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Business -- Competition."
RELIANCE ON RAPIDLY CHANGING TECHNOLOGY; RISKS OF SOFTWARE DEFECTS
The technologies in which the Company has invested to date are rapidly
evolving and have short life cycles, which requires the Company to anticipate
and rapidly adapt to technological changes. In addition, the Company's industry
is characterized by increasingly sophisticated and varied needs of clients,
frequent new service and feature introductions and emerging industry standards.
The introduction of services embodying new technologies and the emergence of new
industry standards and practices can render existing services obsolete and
unmarketable. The Company's future success will depend, in part, on its ability
to develop advanced technologies, enhance its existing services with
new features, add new services that address the changing needs of its clients,
and respond to technological advances and emerging industry standards and
practices on a timely and cost-effective basis. Several of the Company's
competitors invest substantially greater amounts in research and development
than the Company, which may allow them to introduce new services or features
before the Company. Even if the Company is able to develop new technologies in a
timely manner, it may incur substantial costs in deploying new services and
features to its clients, including costs of additional personnel. If the Company
is unable to develop and introduce new services and new features of existing
services in a timely or cost-effective manner, the Company's business, financial
condition and results of operations could be materially adversely affected. See
"Business -- Service Offerings" and "-- Research and Development."
Application software used by the Company may contain defects or failures
when introduced or when new versions or enhancements are released. The Company
has in the past discovered software defects in certain of its applications, in
some cases only after its systems have been used by clients. There can be no
assurance that future defects will not be discovered in existing or new
applications or releases. Any such occurrence could have a material adverse
effect upon the Company's business, financial condition and results of
operations. See "Business -- Technology" and "-- Research and Development."
DEPENDENCE ON THIRD-PARTY PROVIDERS
The Company depends on third-party courier services to deliver paychecks to
clients. The Company does not have any formal written agreements with any of the
courier services that it uses.
9
<PAGE> 11
Such courier services have been in the past and may be in the future unable to
timely pick up or deliver the paychecks from the Company to its clients for a
variety of reasons, including employee strikes, storms or other adverse weather
conditions, earthquakes or other natural disasters, logistical or mechanical
failures or accidents. Failure by the Company to deliver client paychecks on a
timely basis would have a material adverse effect on the Company's business,
financial condition and results of operations and could damage the Company's
reputation and adversely affect its relationships with existing clients and its
ability to gain new clients.
DISASTER RECOVERY; RISK OF LOSS OF CLIENT DATA
The Company conducts all of its payroll and payroll tax processing and
production at the Company's headquarters located in Pleasanton, California and
intends to establish an alternative processing center and back-up facility in
Southern California. The Company establishes for each client a complete set of
payroll data at the Pleasanton processing center and client headquarters so that
clients are able to process payroll checks based on the data they have on site
if necessary. There can be no assurance that the Company's disaster recovery
procedures are sufficient or that the data recovered at the client site would be
sufficient to allow the client to calculate and produce payroll in a timely
fashion.
The Company's operations are dependent on its ability to protect its
computer systems against damage from a major catastrophe (such as an earthquake
or other natural disaster), fire, power loss, security breach,
telecommunications failure or similar event. No assurance can be given that the
precautions that the Company has taken to protect itself from or minimize the
impact of such events will be adequate. Any damage to the Company's data
centers, failure of telecommunications links or breach of the security of the
Company's computer systems could result in an interruption of the Company's
operations or other loss which may not be covered by the Company's insurance.
Any such event could have a material adverse effect on the Company's business,
financial condition and results of operations.
NEED TO ATTRACT AND RETAIN EXPERIENCED PERSONNEL
The Company's success depends to a significant degree on its ability to
attract and retain experienced employees. There is substantial competition for
experienced personnel, which the Company expects to continue. Many of the
companies with which the Company competes for experienced personnel have greater
financial and other resources than the Company. The Company may in the future
experience difficulty in recruiting sufficient numbers of qualified personnel.
The inability to attract and retain experienced personnel as required could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Competition," "-- Employees" and
"Management."
RISKS ASSOCIATED WITH GEOGRAPHIC EXPANSION
A substantial majority of the Company's revenue has been derived from
clients located in the western United States. The Company's ability to achieve
significant future revenue growth will in large part depend on its ability to
gain new clients throughout the United States. Currently, the Company has eight
sales representatives located outside of California, and the Company intends to
locate additional sales representatives in major metropolitan areas throughout
the United States. The Company opened a sales office in Irvine, California in
February 1995. All production for the Company's clients has been maintained
primarily at the Company's headquarters in Pleasanton, California. The Company
intends to move a portion of the production services to Irvine, California in
late 1997, however, there can be no assurance that such services will be
transferred on time or at all. The Company also expects to open additional sales
offices in the future. This growth has resulted in new and increased
responsibilities for management personnel and has placed and continues to place
a significant strain on the Company's management and operating and financial
systems. The Company will be required to continue to implement and improve its
systems on a timely basis and in such a manner as is necessary to accommodate
the increased number of transactions and clients and the
10
<PAGE> 12
increased size of the Company's operations. Any failure to implement and improve
the Company's systems or to hire and retain the appropriate personnel to manage
its operations would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, an increase in the
Company's operating expenses from its planned expansion will have a material
adverse effect on the Company's business, financial condition and results of
operations if revenue does not increase to support such expansion. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Sales and Marketing."
RISKS ASSOCIATED WITH THE INTRODUCTION OF NEW SERVICES FEATURES
The Company's future business, financial condition and results of
operations will continue to depend upon the Company's ability to add new
services or enhancements to existing services that address the needs of the
market. Failure by the Company to successfully design, develop and introduce new
services or enhancements on a timely basis could prevent the Company from
maintaining existing client relationships, gaining new clients or expanding its
markets and could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Research and
Development."
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend on the performance of the Company's
senior management and other key employees. The Company's senior management team
does not have prior executive management experience in publicly traded
companies. The loss of the services of any senior management or other key
employee could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company generally does not
enter into employment or noncompetition agreements with its employees. If one or
more of the Company's key employees resigns from the Company to join a
competitor or to form a competitor, the loss of such personnel and any resulting
loss of existing or potential clients to any such competitor could have a
material adverse effect on the Company's business, financial condition and
results of operations. In the event of the loss of any key personnel, there can
be no assurance that the Company would be able to prevent the unauthorized
disclosure or use of its technical knowledge, practices, procedures or client
lists by a former employee or that such disclosure or use would not have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Employees" and "Management."
LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company's success is dependent in part upon its proprietary software
technology. The Company has no patents, patent applications or registered
copyrights. The Company relies on a combination of contract, copyright and trade
secret laws to establish and protect its proprietary technology. The Company
distributes its services under software license agreements that grant clients
licenses to use the Company's services and contain various provisions protecting
the Company's ownership and the confidentiality of the underlying technology.
The Company generally enters into confidentiality and/or license agreements with
its employees and existing and potential clients, and limits access to and
distribution of its software, documentation and other proprietary information.
There can be no assurance that the steps taken by the Company in this regard
will be adequate to deter misappropriation or independent third-party
development of the Company's technology. There can be no assurance that the
Company's services and technology do not infringe any existing patents,
copyrights or other proprietary rights of others, or that third parties will not
assert infringement claims in the future. If any such claims are asserted and
upheld, the costs of defense could be substantial and any resulting liability to
the Company could have a material adverse effect on the Company's business,
financial condition or results of operations. See "Business -- Proprietary
Rights."
11
<PAGE> 13
CONCENTRATION OF STOCK OWNERSHIP
Upon completion of this offering, the Company's directors and executive
officers and their respective affiliates will beneficially own approximately
48.2% of the outstanding Common Stock. As a result, these stockholders, if they
act together, will be able to exercise significant influence over all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions, and will have power to influence any
stockholder action or approval requiring a majority vote. Such concentration of
ownership may also have the effect of delaying, deferring or preventing a change
of control of the Company. See "Principal Stockholders" and "Description of
Capital Stock."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after the offering. The initial public
offering price will be determined by negotiation among the Company and the
representatives of the Underwriters based upon several factors and may not be
indicative of the market price of the Company's Common Stock following this
offering. The market price of the Company's Common Stock is likely to be highly
volatile and could be subject to wide fluctuations in response to quarterly
variations in operating results, announcements of technological innovations or
new services by the Company or its competitors, market conditions in the
information services industry, quarterly fluctuations in the Company's operating
results, changes in financial estimates by securities analysts or other events
or factors, many of which are beyond the Company's control. In addition, the
stock market has experienced significant price and volume fluctuations that have
particularly affected the market prices of equity securities of many technology
and services companies and that often have been unrelated to the operating
performance of such companies. These broad market fluctuations may adversely
affect the market price of the Company's Common Stock. In the past, following
periods of volatility in the marketplace for a company's securities, securities
class action litigation often has been instituted. Such litigation could result
in substantial costs and a diversion of management attention and resources,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
SUBSTANTIAL DILUTION
The assumed initial public offering price is substantially higher than the
pro forma net tangible book value per share of the outstanding Common Stock. As
a result, purchasers of the Common Stock offered hereby will incur immediate,
substantial dilution in the amount of $8.71 per share. To the extent that
outstanding options or warrants to purchase the Company's Common Stock are
exercised, there will be further dilution. The Company has in the past granted a
substantial number of options to purchase Common Stock to employees as part of
compensation packages, and the Company expects that it will continue to grant a
substantial number of options in the future. In addition, the Company has
adopted an employee stock purchase plan that will provide employees an
opportunity to purchase shares below prevailing market value. The Company also
may issue shares of its Common Stock in connection with strategic acquisitions
or alliances, which could also result in dilution to stockholders. See
"Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial numbers of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. Upon completion of this offering, the Company will have outstanding an
aggregate of 10,057,727 shares of Common Stock, based upon the number of shares
outstanding as of December 31, 1996 and including 1,149,466 shares of Common
Stock issuable upon conversion of Preferred Stock issued in March 1997. Of these
shares, all of the shares sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), unless such shares are purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act
12
<PAGE> 14
("Affiliates"). The remaining 8,057,727 shares of Common Stock held by existing
stockholders (the "Restricted Shares") are "restricted securities," as that term
is defined in Rule 144 under the Securities Act. Restricted Shares may be sold
in the public market only if registered or if they qualify for an exemption from
registration under Rule 144 or Rule 701 promulgated under the Securities Act. As
a result of contractual restrictions and the provisions of Rule 144 and Rule
701, additional shares will be available for sale in the public market as
follows: (i) approximately 2,000 Restricted Shares will be eligible for
immediate sale on the date of this Prospectus; (ii) approximately 1,000
Restricted Shares will be eligible for sale 90 days after the date of this
Prospectus; (iii) approximately 6,702,341 Restricted Shares will be eligible for
sale upon expiration of the lock-up agreements 180 days after the date of this
Prospectus; and (iv) the remainder of the Restricted Shares will be eligible for
sale from time to time thereafter upon expiration of their respective one-year
holding periods. In addition, certain of the Restricted Shares are subject to
vesting.
As of December 31, 1996, options to purchase 568,917 shares of Common Stock
were outstanding, of which options to purchase 138,416 shares were then
exercisable. The Company intends to file a Form S-8 registration statement under
the Securities Act 90 days after the date of this Prospectus to register
1,727,628 shares of Common Stock reserved for issuance under the Company's 1989
Stock Option Plan and 1996 Stock Option Plan and 500,000 shares of Common Stock
reserved for issuance under the Company's 1996 Employee Stock Purchase Plan. In
addition, warrants to purchase 121,892 shares of Common Stock are outstanding,
all of which will be eligible for sale 180 days after the date of this
Prospectus.
Pursuant to agreements between the Company and certain stockholders and
warrantholders (or their permitted transferees), approximately 6,360,470 shares
of Common Stock and 121,892 shares issuable upon exercise of warrants are
entitled to certain registration rights under the Securities Act. See
"Description of Capital Stock" and "Shares Eligible for Future Sale."
ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the Company's stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. In addition, such Preferred
Stock may have other rights, including economic rights, senior to the Common
Stock, and, as a result, the issuance thereof could have a material adverse
effect on the market value of the Common Stock. The Company has no present plans
to issue shares of Preferred Stock.
In addition, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law, which prohibit the Company
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. The application of Section 203 also could have the effect
of delaying or preventing a change of control of the Company. Further, certain
other provisions of the Company's Amended and Restated Certificate of
Incorporation and Bylaws and of Delaware law could delay or make more difficult
a merger, tender offer or proxy contest involving the Company. These provisions
include a classified board, advance notice procedures for stockholders to
nominate candidates for election as directors of the Company, authorization of
the Board of Directors to alter the number of directors without stockholder
approval, limitations on persons who can call stockholder meetings, lack of
cumulative voting and prohibition of stockholder actions by written consent. See
"Description of Capital Stock -- Preferred Stock" and "-- Delaware Law and
Certain Charter and Bylaw Provisions."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds from the sale of the 2,000,000 shares of Common Stock in
this offering are estimated to be approximately $19.5 million ($22.6 million if
the Underwriters' over-allotment option is exercised in full) at an assumed
initial public offering price of $11.00 per share and after deducting the
estimated underwriters' discounts and commissions and offering expenses payable
by the Company. The Company intends to use approximately $4.3 million of the net
proceeds to repay a substantial portion of the Company's outstanding
indebtedness, which consists of (i) $4.0 million of subordinated debt due in
1998 or 30 days after the completion of this offering, which bears interest at
8.0% per annum and (ii) $250,000 of indebtedness incurred in connection with the
acquisition of Dimension Solutions, Inc. ("Dimension Solutions"), which is due
in 1999 and bears interest at the prime rate plus 2.5%. See "Certain
Transactions" and Note 3 of Notes to the Financial Statements -- ProBusiness
Services, Inc.
The remainder of the net proceeds to the Company of this offering,
approximately $15.2 million, will be used for general corporate purposes,
including capital expenditures and working capital. The Company also may use a
portion of the net proceeds to pay up to $4.5 million of the contingent purchase
price of BeneSphere. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 10 of Notes to the Financial
Statements -- ProBusiness Services, Inc. The Company also may use a portion of
the net proceeds for the acquisition of companies, technology or services that
complement the business of the Company, however, no such transactions currently
are planned or being negotiated. The amounts actually expended may vary
depending upon numerous factors. Pending the foregoing uses, the Company intends
to invest the net proceeds from this offering in investment-grade, short-term,
interest-bearing securities, money market funds or similar short-term
investments.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain its earnings, if any, for use in
its business and does not anticipate paying any cash dividends in the
foreseeable future. In addition, the Company's working capital line of credit
agreement prohibits the payment of cash dividends without the lender's prior
approval.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 on an actual basis and on a pro forma as adjusted basis to
give effect to (i) the acquisition of BeneSphere as if such acquisition had
occurred on December 31, 1996; (ii) the sale of $10.0 million of Preferred
Stock, which will convert into 1,149,466 shares of Common Stock upon completion
of this offering, and the repayment of approximately $4.8 million of outstanding
indebtedness from such proceeds; (iii) the conversion of all outstanding shares
of Preferred Stock into Common Stock automatically upon the completion of this
offering; and (iv) the sale and issuance of the shares of Common Stock offered
hereby at an assumed initial public offering price of $11.00 per share (after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company) and receipt and application of the estimated net
proceeds therefrom. See "Use of Proceeds." This table should be reviewed in
conjunction with the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(in thousands)
<S> <C> <C>
Long-term debt and note payable to stockholder, less current
portion(1)......................................................... $ 8,380 $ 1,159
Capital lease obligations, less current portion(1)................... 2,179 979
Stockholders' equity:
Preferred Stock, $.01 par value; 6,000,000 shares authorized,
2,653,301 shares issued and outstanding, actual; $.001 par
value; 5,000,000 shares authorized, no shares issued and
outstanding, pro forma as adjusted.............................. 27 --
Common Stock, $.01 par value; 20,000,000 shares authorized,
1,440,703 shares issued and outstanding, actual; $.001 par
value; 60,000,000 shares authorized, 10,057,727 shares issued
and outstanding, pro forma as adjusted(2)....................... 14 10
Additional paid-in capital........................................... 13,298 42,999
Accumulated deficit.................................................. (15,681) (15,810)
Note receivable from stockholder..................................... (544) (544)
-------- --------
Total stockholders' equity (deficit)..................... (2,886) 26,655
-------- --------
Total capitalization................................ $ 7,673 $ 28,793
======== ========
</TABLE>
- ---------------
(1) See Notes 3 and 4 of Notes to Financial Statements -- ProBusiness Services,
Inc.
(2) Excludes as of December 31, 1996 (i) 568,917 shares of Common Stock subject
to outstanding options; (ii) 121,892 shares of Common Stock issuable upon
exercise of outstanding warrants; (iii) 1,727,628 shares of Common Stock
reserved for future grant under the Company's 1996 Stock Option Plan, which
includes an increase in the number of shares reserved under the 1996 Stock
Option Plan in February 1997; and (iv) 500,000 shares of Common Stock
reserved for issuance under the Company's 1996 Employee Stock Purchase Plan.
See "Management -- Stock Plans" and Notes 3, 4, 6, 7, 10 and 11 of Notes to
Financial Statements -- ProBusiness Services, Inc.
15
<PAGE> 17
DILUTION
The pro forma net tangible book value of the Company as of December 31,
1996 was approximately $3,493,000 or $0.43 per share of Common Stock. Pro forma
net tangible book value per share represents the amount of the Company's total
net tangible assets less total liabilities, divided by the pro forma number of
shares of Common Stock issued and outstanding at that date, after giving effect
to (i) the acquisition of BeneSphere as if it had occurred on December 31, 1996;
(ii) the issuance of Preferred Stock convertible into 1,149,466 shares of Common
Stock and the repayment of approximately $4.8 million of outstanding
indebtedness at December 31, 1996 from such proceeds; and (iii) the conversion
of all outstanding shares of Preferred Stock into Common Stock automatically
upon the completion of this offering. Net tangible book value dilution per share
to new stockholders represents the difference between the amount paid by
purchasers of shares of Common Stock in the offering made hereby and the pro
forma net tangible book value per share of Common Stock immediately after the
completion of this offering. After giving effect to the sale of the shares of
Common Stock offered hereby at an assumed initial public offering price of
$11.00 per share and after deduction of the estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company, the pro
forma net tangible book value of the Company as of December 31, 1996, would have
been approximately $23,003,000 or $2.29 per share. This represents an immediate
increase in net tangible book value of $1.86 per share to existing stockholders
and an immediate dilution of $8.71 per share to new stockholders purchasing
Common Stock in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $11.00
Pro forma net tangible book value per share at December 31,
1996.......................................................... $ 0.43
Increase in pro forma net tangible book value per share
attributable to new stockholders.............................. 1.86
-------
Pro forma net tangible book value per share after the offering... 2.29
-------
Dilution per share to new stockholders............................. $ 8.71
=======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1996, the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing stockholders
and by purchasers of the shares offered hereby, before deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company, at an assumed initial public offering price of $11.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 8,057,727 80.11% $22,978,000 51.09% $ 2.85
---------
New stockholders.................. 2,000,000 19.89 22,000,000 48.91 11.00
--------- ----- ---------- -----
Total................... 10,057,727 100.00% $44,978,000 100.00%
========= ===== ========== =====
</TABLE>
The foregoing assumes no exercise of options to purchase Common Stock after
December 31, 1996. Excludes, as of December 31, 1996 (i) 568,917 shares of
Common Stock subject to outstanding options; (ii) 121,892 shares of Common Stock
issuable upon exercise of outstanding warrants; (iii) 1,727,628 shares of Common
Stock reserved for future grant under the Company's 1996 Stock Option Plan,
which includes an increase in the number of shares reserved under the 1996 Stock
Option Plan in February 1997; and (iv) 500,000 shares of Common Stock reserved
for issuance under the Company's 1996 Employee Stock Purchase Plan. See
"Management -- Stock Plans" and Notes 3, 4, 6, 7, 10 and 11 of Notes to
Financial Statements -- ProBusiness Services, Inc.
16
<PAGE> 18
SELECTED FINANCIAL DATA
The following selected statements of operations data for the years ended
June 30, 1994, 1995 and 1996 and the six months ended December 31, 1996 and the
balance sheet data at June 30, 1995 and 1996 and December 31, 1996 are derived
from the financial statements of the Company, which have been audited by Ernst &
Young LLP, independent auditors, and are included elsewhere in this Prospectus.
The balance sheet data at June 30, 1994 are derived from financial statements of
the Company that have been audited by Ernst & Young LLP that are not included in
this Prospectus. The statements of operations data for the years ended June 30,
1992 and 1993 and the balance sheet data at June 30, 1992 and 1993 are derived
from unaudited financial statements not included in this Prospectus. The
statements of operations data for the six months ended December 31, 1995 have
been derived from unaudited financial statements that include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the financial information set forth
therein. The results of operations for the six months ended December 31, 1996
are not necessarily indicative of the results to be expected for any future
periods. The pro forma statements of operations data for the six months ended
December 31, 1996 and the year ended June 30, 1996 and the pro forma as adjusted
balance sheet data as of December 31, 1996 have been derived from selected
unaudited pro forma condensed consolidated financial information which is
included elsewhere in this Prospectus. The following selected financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Financial Statements and
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER
YEAR ENDED JUNE 30, 31,
--------------------------------------------------------- ---------------------------
PRO PRO
FORMA FORMA
1992 1993 1994 1995 1996 1996(1) 1995 1996 1996(1)
------- ------- ------- ------ ------- -------- ------ ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue............................... $ 668 $ 1,864 $ 4,069 $7,095 $13,863 $17,341 $5,106 $10,199 $11,855
Operating expenses:
Cost of providing services.......... 537 1,117 1,629 2,703 6,435 7,875 2,278 5,238 6,120
General and administrative
expenses.......................... 637 1,023 1,202 1,304 2,054 3,152 801 1,491 2,150
Research and development expenses... 456 787 1,202 1,038 1,257 1,482 298 1,308 1,308
Client acquisition costs............ 349 701 1,467 2,943 5,388 6,411 2,068 4,628 5,436
Acquisition of in-process
technology........................ -- -- -- -- 711 711 -- -- --
------- ------- ------- ------ ------- ------- ------ ------- -------
Total operating expenses.......... 1,979 3,628 5,500 7,988 15,845 19,631 5,415 12,665 15,014
------- ------- ------- ------ ------- ------- ------ ------- -------
Loss from operations.................. (1,311) (1,764) (1,431) (893) (1,982) (2,290) (339) (2,466) (3,159)
Interest (income) expense, net........ 14 (4) 46 86 404 440 117 508 519
------- ------- ------- ------ ------- ------- ------ ------- -------
Net loss.............................. $(1,325) $(1,760) $(1,477) $ (979) $(2,386) $(2,730) $ (456) $(2,974) $(3,678)
======= ======= ======= ====== ======= ======= ====== ======= =======
Pro forma net loss per share(2)....... $ (0.29) $ (0.33) $ (0.36) $ (0.44)
======= ======= ======= =======
Shares used in computing pro forma net
loss per share(2)................... 8,212 8,212 8,294 8,294
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER
31, 1996
JUNE 30, -----------
---------------------------------------------------
1992 1993 1994 1995 1996 ACTUAL
------ ------ ------ ------ ------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 328 $ 277 $ 114 $ 852 $ 4,041 $ 1,254
Working capital (deficiency)................ 281 255 (119) 69 2,972 32
Total assets................................ 1,101 1,213 2,019 4,134 10,939 11,904
Long-term debt and note payable to
stockholder, less current portion......... 0 22 394 1,016 8,072 8,380
Capital lease obligations, less current
portion................................... 0 83 174 168 253 2,179
Total stockholders' equity (deficit)........ 931 832 705 1,366 (136) (2,886)
<CAPTION>
PRO FORMA
AS ADJUSTED(1)(3)(4)
--------------------
<S> <C<C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 21,694
Working capital (deficiency)................ 18,240
Total assets................................ 35,594
Long-term debt and note payable to
stockholder, less current portion......... 1,159
Capital lease obligations, less current
portion................................... 979
Total stockholders' equity (deficit)........ 26,655
</TABLE>
- ---------------
(1) The pro forma statements of operations for the year ended June 30, 1996 and
the six months ended December 31, 1996 have been prepared as if the
acquisitions of BeneSphere and Dimension Solutions had occurred as of July
1, 1995. The pro forma balance sheet as of December 31, 1996 has been
prepared as if the acquisition of BeneSphere had occurred as of December 31,
1996. See Selected Unaudited Pro Forma Condensed Consolidated Financial
Information.
(2) See Note 6 of Notes to Selected Unaudited Pro Forma Condensed Consolidated
Financial Information for an explanation of the determination of the pro
forma shares used in computing pro forma net loss per share.
(3) Adjusted to reflect proceeds from the sale of $10.0 million of Preferred
Stock in March 1997 and the repayment of approximately $4.8 million of
outstanding indebtedness from such proceeds.
(4) Adjusted to reflect the sale of the shares of Common Stock offered hereby at
an assumed initial public offering price of $11.00 per share and application
of the estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus. The following discussion also should be read in conjunction with the
Financial Statements and Notes thereto included elsewhere in this Prospectus.
OVERVIEW
ProBusiness Services, Inc. is a leading provider of employee administrative
services for large employers. The Company's primary service offerings are
payroll processing, payroll tax filing, human resources software and benefits
administration, including the enrollment and processing of flexible benefit
plans and COBRA programs. The Company's proprietary PC-based payroll system
offers the cost-effective benefits of outsourcing and high levels of client
service, while providing the flexibility, control, customization and integration
of an in-house system.
Since 1992, the Company has experienced significant growth of its revenue,
client base and average client size. Revenue increased from $668,000 in fiscal
1992 to $13.9 million in fiscal 1996, and increased to $10.2 million for the six
months ended December 31, 1996 from $5.1 million for the same period in fiscal
1996. From December 31, 1992 to December 31, 1996, the client base for payroll
services increased from 113 to 376 clients while the average size of the
Company's payroll clients increased from approximately 225 employees to
approximately 775 employees. As of January 31, 1997, the Company serviced
approximately 400 payroll clients with an average of approximately 900 employees
per client. The Company's revenue growth is primarily due to continued growth in
its client base, the introduction of its payroll tax service in fiscal 1996, an
increase in the average size of its clients, the introduction of new features
and other services and a high retention rate of existing clients (approximately
90% for the 12 months ended May 31, 1996). The Company does not anticipate it
will sustain this rate of growth in the future.
The establishment of new client relationships involves lengthy and
extensive sales and implementation processes. The sales process generally takes
three to nine months or longer, and the implementation process generally takes
three to six months or longer. In connection with the acquisition of each new
client, the Company incurs substantial client acquisition costs, which consist
primarily of sales and implementation expenses and, to a lesser extent,
marketing expenses. In addition, the Company's revenue is subject to significant
seasonal fluctuations, with the largest percentage of annual revenue being
realized in the third and fourth fiscal quarters primarily due to new clients
beginning services in January (the beginning of the tax year and the Company's
third fiscal quarter) and higher interest income earned on tax funds. Further,
the Company's operating expenses are typically higher as a percentage of revenue
in the first and second fiscal quarters as the Company increases personnel to
acquire new clients and to implement and provide services to such new clients, a
large percentage of which begin services in January. The Company expects this
pattern to continue. The Company has experienced significant operating losses
since its inception and expects to incur significant operating losses in the
future due to continued client acquisition costs, investments in research and
development and costs associated with expanding its sales efforts and operations
to new geographic regions. As of December 31, 1996, the Company had an
accumulated deficit of approximately $15.7 million. There can be no assurance
that the Company will achieve or sustain profitability in the future.
The Company has made acquisitions of businesses in the past and intends to
pursue acquisitions in the future. In connection with acquisitions, the Company
has in the past incurred and will likely incur in the future costs associated
with adding personnel, integrating technology, increasing overhead to support
the acquired businesses, acquiring in-process technology and amortizing expenses
related to
18
<PAGE> 20
intangible assets. As a result, such acquisitions have had and any future
acquisition could have an adverse effect on the Company's results of operations.
In January 1997, the Company acquired all of the outstanding capital stock
of BeneSphere for an initial purchase price of $3.3 million, with up to an
additional $4.5 million to be paid in quarterly installments, beginning April
1998 through January 2000, if certain financial conditions are met. In
connection with the acquisition of BeneSphere, the Company recorded $2.3 million
of goodwill, which will be amortized ratably over 20 years and could be
increased by up to $4.5 million if the purchase price increases. In May 1996,
the Company acquired substantially all of the business and assets of Dimension
Solutions for a purchase price of $1.3 million. In connection with the
acquisition of Dimension Solutions, the Company recorded a one-time charge of
$711,000 in fiscal 1996 relating to the purchase of in-process technology.
The Company derives its revenue from fees charged to clients for services
and income earned from investing payroll tax funds. The Company typically
invests tax funds collected from clients and their employees in federally
insured or investment-grade securities, which are subject to interest rate
fluctuations. The Company generally recognizes revenue from services when such
services are performed and recognizes income from investments when earned.
Payroll and payroll tax clients generally are subject to contracts with an
initial term of 36 months. Interest income earned on collected, but unremitted
funds amounted to $1.9 million, none and none, for fiscal years 1996, 1995 and
1994, respectively, and $1.7 million and none for the six months ended December
31, 1996 and 1995, respectively. Benefits administration and human resources
software clients generally are subject to contracts with an initial term of 12
months. The Company's contracts generally do not have significant penalties for
cancellation. For the six-month period ended December 31, 1996, no client
accounted for more than 3% of the Company's revenue.
The Company's cost of providing services consists primarily of ongoing
account management, tax operations and production costs and, to a lesser extent,
amortization of capitalized software development costs. The Company capitalizes
software development costs after technological feasibility of the software
relating to a service has been established and amortizes such costs over the
useful life of the software, generally 36 months. General and administrative
expenses consist primarily of personnel costs, professional fees and other
overhead costs for finance and corporate services. Research and development
expenses consist primarily of personnel costs. Client acquisition costs consist
of all sales and implementation expenses and, to a lesser extent marketing
expenses.
As of June 30, 1996, the Company had federal and state net operating loss
carryforwards of approximately $9.0 million and $3.4 million, respectively. At
December 31, 1996, the Company had federal and state net operating loss
carryforwards of approximately $11.5 million and $4.1 million, respectively. The
net operating loss carryforwards will expire at various dates beginning in the
tax year 1997 through 2011, if not utilized. The Company's utilization of the
net operating loss carryforwards may be subject to annual limitations under the
Internal Revenue Code as a result of changes in the Company's ownership, which
limitations could significantly restrict or partially eliminate their
utilization. No income tax expense has been recorded since the Company's
inception.
In March 1997, General Atlantic purchased $10.0 million of Preferred Stock
of the Company, which will convert into 1,149,466 shares of Common Stock
automatically upon the completion of this offering.
19
<PAGE> 21
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
revenue for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------- ---------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Operating expenses:
Cost of providing services..................... 40.0 38.1 46.4 44.6 51.4
General and administrative expenses............ 29.5 18.4 14.8 15.7 14.6
Research and development expenses.............. 29.6 14.6 9.1 5.8 12.8
Client acquisition costs....................... 36.1 41.5 38.9 40.5 45.4
Acquisition of in-process technology........... -- -- 5.1 -- --
----- ----- ----- ----- -----
Total operating expenses.................... 135.2 112.6 114.3 106.6 124.2
----- ----- ----- ----- -----
Loss from operations............................. (35.2) (12.6) (14.3) (6.6) (24.2)
Interest expense, net............................ 1.1 1.2 2.9 2.3 5.0
----- ----- ----- ----- -----
Net loss......................................... (36.3)% (13.8)% (17.2)% (8.9)% (29.2)%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
Revenue. Revenue increased 99.7% to $10.2 million in the six months ended
December 31, 1996 from $5.1 million in the six months ended December 31, 1995,
primarily due to an increase in the number and average size of the Company's
payroll clients, the introduction of the Company's payroll tax service and, to a
lesser extent, the introduction of the Company's human resources software.
Interest income earned on collected but unremitted payroll tax funds amounted to
$1.7 million and none for the six months ended December 31, 1996 and 1995,
respectively.
Cost of Providing Services. Cost of providing services increased 129.9% to
$5.2 million in the six months ended December 31, 1996 from $2.3 million in the
six months ended December 31, 1995 and increased as a percentage of revenue to
51.4% from 44.6%. The increases were primarily due to hiring personnel for the
introduction of the Company's payroll tax service, hiring additional managers
for payroll account management and, to a lesser extent, hiring account
management personnel for the Company's human resources software.
General and Administrative Expenses. General and administrative expenses
increased 86.1% to $1.5 million in the six months ended December 31, 1996 from
$801,000 in the six months ended December 31, 1995 and decreased as a percentage
of revenue to 14.6% from 15.7%. The increase in absolute dollars resulted
primarily from the hiring of additional management and administrative personnel
to support the Company's growth.
Research and Development Expenses. Research and development expenses
increased 338.9% to $1.3 million in the six months ended December 31, 1996 from
$298,000 in the six months ended December 31, 1995 and increased as a percentage
of revenue to 12.8% from 5.8%. The increases were primarily a result of
additional personnel and equipment to develop enhancements and new features to
its existing services. Capitalized software development costs were $403,000 and
$600,000 in the six months ended December 31, 1996 and 1995, respectively.
Client Acquisition Costs. Client acquisition costs increased 123.8% to
$4.6 million in the six months ended December 31, 1996 from $2.1 million in the
six months ended December 31, 1995 and increased as a percentage of revenue to
45.4% from 40.5%. The increases were due to the establishment of a separate
sales force to market the Company's payroll tax service on a stand-alone basis,
increased
20
<PAGE> 22
expenses resulting from the expansion of the Company's payroll sales force, and
implementation expenses relating to an increased number of new clients that
started services in January 1997.
Net Interest Expense. Net interest expense increased 334.2% to $508,000 in
the six months ended December 31, 1996 from $117,000 in the six months ended
December 31, 1995, primarily due to the issuance of promissory notes to certain
investors in October and December 1995 and increased borrowings under the
Company's line of credit.
YEARS ENDED JUNE 30, 1996 AND 1995
Revenue. Revenue increased 95.4% to $13.9 million in fiscal 1996 from $7.1
million in fiscal 1995, primarily due to an increase in the number and average
size of the Company's payroll clients and the introduction of the Company's
payroll tax service in January 1996. Interest income earned on collected but
unremitted payroll tax funds amounted to $1.9 million in fiscal 1996. No
interest income was earned in fiscal 1995.
Cost of Providing Services. Cost of providing services increased 138.1% to
$6.4 million in fiscal 1996 from $2.7 million in fiscal 1995 and increased as a
percentage of revenue to 46.4% from 38.1%. The increases were primarily due to
hiring personnel for the introduction of the Company's payroll tax service,
hiring additional managers for payroll account management and, to a lesser
extent, hiring account management personnel for the Company's human resources
software.
General and Administrative Expenses. General and administrative expenses
increased 57.5% to $2.1 million in fiscal 1996 from $1.3 million in fiscal 1995,
but decreased as a percentage of revenue to 14.8% from 18.4%. The increase in
absolute dollars resulted primarily from the hiring of additional management and
administrative personnel to support the Company's growth.
Research and Development Expenses. Research and development expenses
increased 21.1% to $1.3 million in fiscal 1996 from $1.0 million in fiscal 1995,
but decreased as a percentage of revenue to 9.1% from 14.6%. Research and
development expenses decreased as a percentage of revenue due in part to higher
revenue and an increase in the amount of expenses that were capitalized in
fiscal 1996. Capitalized software development costs were $645,000 in fiscal 1996
and $137,000 in fiscal 1995.
Client Acquisition Costs. Client acquisition costs increased 83.1% to $5.4
million in fiscal 1996 from $2.9 million in fiscal 1995 but decreased as a
percentage of revenue to 38.9% from 41.5%. The increase in absolute dollars was
primarily due to increased expenses resulting from the expansion of the
Company's payroll sales force and, to a lesser extent, implementation expenses
relating to an increased number of new clients.
Acquisition of In-Process Technology. In fiscal 1996, the Company recorded
a one-time charge of $711,000 relating to the purchase of in-process technology
in connection with the Company's acquisition of Dimension Solutions in May 1996.
Net Interest Expense. Net interest expense increased to $404,000 in fiscal
1996 from $86,000 in fiscal 1995, primarily due to the issuance of promissory
notes to certain investors in October and December 1995 and increased borrowings
under the Company's line of credit.
YEARS ENDED JUNE 30, 1995 AND 1994
Revenue. Revenue increased 74.4% to $7.1 million in fiscal 1995 from $4.1
million in fiscal 1994, primarily due to an increase in the number and average
size of the Company's payroll clients.
Cost of Providing Services. Cost of providing services increased 65.9% to
$2.7 million in fiscal 1995 from $1.6 million in fiscal 1994 but decreased as a
percentage of revenue to 38.1% from 40.0%. The increase in absolute dollars was
primarily due to an increase in account management personnel to support the
Company's expanded client base and an increase in production costs.
General and Administrative Expenses. General and administrative expenses
increased 8.5% to $1.3 million in fiscal 1995 from $1.2 million in fiscal 1994,
but decreased as a percentage of revenue to
21
<PAGE> 23
18.4% from 29.5%. The increase in absolute dollars resulted primarily from the
hiring of additional management and administrative personnel to support the
Company's growth.
Research and Development Expenses. Research and development expenses
decreased 13.6% to $1.0 million in fiscal 1995 from $1.2 million in fiscal 1994
and decreased as a percentage of revenue to 14.6% from 29.6%. The decreases were
due to the capitalization of software development costs in fiscal 1995, which
were $137,000. The Company did not capitalize any software development costs in
fiscal 1994.
Client Acquisition Costs. Client acquisition costs increased 100.6% to
$2.9 million in fiscal 1995 from $1.5 million in fiscal 1994 and increased as a
percentage of revenue to 41.5% from 36.1%. The increases were primarily due to
implementation expenses relating to an increased number of new clients and, to a
lesser extent, increased expenses resulting from the expansion of the Company's
payroll sales force.
Net Interest Expense. Net interest expense increased to $86,000 in fiscal
1995 from $46,000 in fiscal 1994, due to increased borrowings under the
Company's line of credit during 1995.
QUARTERLY RESULTS
The following table sets forth selected unaudited quarterly financial
information for each of the six quarters in the period ended December 31, 1996,
as well as such data expressed as a percentage of the Company's revenue for the
periods presented. This information has been derived from unaudited statements
of operations data that, in the opinion of management, are stated on a basis
consistent with the audited financial statements and include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information in accordance with generally accepted
accounting principles. The Company's results of operations for any quarter are
not necessarily indicative of the results to be expected in any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------
1995 1996
------------------ ---------------------------------------
SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- ------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue............................... $2,430 $2,676 $4,056 $ 4,701 $ 4,675 $ 5,524
Operating expenses:
Cost of providing services.......... 1,025 1,253 1,955 2,202 2,288 2,950
General and administrative
expenses......................... 392 409 533 720 622 869
Research and development expenses... 124 174 421 538 625 683
Client acquisition costs............ 968 1,100 1,488 1,832 2,215 2,413
Acquisition of in-process
technology....................... -- -- -- 711 -- --
------ ------ ------ ------- ------- -------
Total operating expenses.............. 2,509 2,936 4,397 6,003 5,750 6,915
Loss from operations.................. (79) (260) (341) (1,302) (1,075) (1,391)
Interest expense, net................. 51 66 121 166 204 304
------ ------ ------ ------- ------- -------
Net loss.............................. $ (130) $ (326) $ (462) $(1,468) $ (1,279) $(1,695)
====== ====== ====== ======= ======= =======
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------
1995 1996
------------------ ---------------------------------------
SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- ------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue............................... 100.0% 100.0 % 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of providing services.......... 42.2 46.8 48.2 46.8 48.9 53.4
General and administrative
expenses......................... 16.1 15.3 13.1 15.3 13.3 15.7
Research and development expenses... 5.2 6.5 10.4 11.5 13.4 12.4
Client acquisition costs............ 39.8 41.1 36.7 39.0 47.4 43.7
Acquisition of in-process
technology....................... -- -- -- 15.1 -- --
------ ------ ------ ------- ------- -------
Total operating expenses.............. 103.3 109.7 108.4 127.7 123.0 125.2
------ ------ ------ ------- ------- -------
Loss from operations.................. (3.3) (9.7) (8.4) (27.7) (23.0) (25.2)
Interest expense, net................. 2.0 2.5 3.0 3.5 4.4 5.5
------ ------ ------ ------- ------- -------
Net loss.............................. (5.3)% (12.2)% (11.4)% (31.2)% (27.4)% (30.7)%
====== ====== ====== ======= ======= =======
</TABLE>
Revenue has increased during the last six quarters primarily as a result of
the increase in the Company's payroll clients, the introduction of the Company's
payroll tax service in January 1996 and, to a lesser extent, the introduction of
the Company's human resources software in May 1996. The Company's revenue is
subject to significant seasonal fluctuations, with the largest percentage of
annual revenue being realized in the third and fourth fiscal quarters primarily
due to new clients beginning services at the beginning of the tax year in
January and higher interest income earned on tax funds.
The Company's operating expenses typically are higher as a percentage of
revenue in the first and second fiscal quarters as the Company increases
personnel to acquire new clients and to implement and provide services to such
new clients, a large percentage of which begin services in January. The Company
expects this pattern to continue. Cost of providing services increased in the
second quarter of fiscal 1997 primarily due to an increase in account management
personnel, costs associated with the Company's payroll tax service and
production costs related to the Company's expanded client base. Cost of
providing services increased in the second and third quarters of fiscal 1996
primarily due to the hiring of personnel for the introduction of the Company's
payroll tax service in the third quarter of fiscal 1996.
The Company's quarterly operating results have in the past and will in the
future vary significantly depending on a variety of factors, including the
number and size of new clients starting services, the decision of one or more
clients to delay or cancel implementation or ongoing services, interest rates,
seasonality, the ability of the Company to design, develop and introduce new
services and features for existing services on a timely basis, transition costs
to new technologies, expenses incurred for geographic expansion, risks
associated with payroll tax and benefits administration services, price
competition, a reduction in the number of employees of its clients, and general
economic factors. Revenue from new clients represents a significant portion of
quarterly revenue in the third and fourth fiscal quarters. A substantial
majority of the Company's operating expenses, particularly personnel and related
costs, depreciation and rent, is relatively fixed in advance of any particular
quarter. The Company's agreements with its clients generally do not have
significant penalties for cancellation. As a result, any decision by a client to
delay or cancel implementation of the Company's services or the Company's
underutilization of personnel may cause significant variations in operating
results in a particular quarter and could result in losses for such quarter. As
the Company secures larger clients, the time required for implementing the
Company's services increases, which could contribute to larger fluctuations in
revenue. Interest income earned from investing payroll tax funds, which is a
significant portion of the Company's revenue, is vulnerable to fluctuations in
interest rates. In addition, the Company's business may be affected by shifts in
the general health of the economy, client staff
23
<PAGE> 25
reductions, strikes, acquisitions of its client by other companies and other
downturns. There can be no assurance that the Company's future revenue and
results of operations will not vary substantially.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
a combination of private sales of equity securities, private debt and bank
borrowings, and to a lesser extent, capital equipment leases. As of December 31,
1996, the Company had raised approximately $13.0 million in private sales of
equity securities. In October and December 1995, the Company issued an aggregate
principal amount of $4.0 million in subordinated promissory notes with an
interest rate of 8% per annum due on the earlier of three years from the date of
issuance of the note or 30 days after completion of this proposed offering. In
March 1997, General Atlantic purchased $10.0 million of Preferred Stock of the
Company.
At December 31, 1996, the Company had $1.3 million of cash and cash
equivalents, a $10.0 million secured revolving line of credit, which expires
April 1998, and a secured equipment lease of $2.0 million, under which the
Company may borrow through July 1997. At December 31, 1996, the Company had
outstanding borrowings of approximately $4.3 million and $1.9 million under
these facilities, respectively. The Company intends to repay a substantial
portion of such outstanding debt from the net proceeds of this offering.
Net cash used in operating activities for the six months ended December 31,
1996 was $2.5 million, compared to net cash used in operating activities for the
same period in fiscal 1996 of $851,000. The cash used in operating activities
for both periods was primarily the result of net losses and increases in prepaid
expenses, accounts receivable and unbilled receivables, which in the six months
ended December 31, 1996 were partially offset by an increase in accrued
liabilities. Net cash used in operating activities for fiscal 1996, 1995 and
1994 was $202,000, $444,000 and $1.3 million, respectively. The decrease in cash
used in operating activities in fiscal 1995 compared to fiscal 1994 was
primarily due to a decline in net losses and an increase in accrued liabilities.
Net cash used in investing activities was $403,000 and $1.5 million for the
six months ended December 31, 1996 and 1995, respectively, and $3.3 million,
$1.4 million and $451,000 for fiscal 1996, 1995 and 1994, respectively. The
increases in net cash used in investing activities during these periods resulted
primarily from capital expenditures for equipment, furniture and fixtures to
support the Company's increased personnel. In addition, the Company capitalized
software development costs of $403,000 and $600,000 for the six months ended
December 31, 1996 and 1995, respectively, and $645,000, $137,000 and none in
fiscal 1996, 1995 and 1994, respectively. The Company expects to make additional
capital expenditures for furniture, equipment and fixtures in connection with
the move of its corporate headquarters and the establishment of an additional
production facility, both planned to occur in late 1997. In addition, the
Company anticipates that it will continue to expend funds for software
development in the future.
Net cash provided by financing activities was $71,000 in the six months
ended December 31, 1996 and $6.7 million, $2.6 million and $1.6 million for the
fiscal years ended 1996, 1995 and 1994, respectively. Net cash provided by
financing activities for fiscal 1996 was primarily through borrowings under the
Company's credit facilities and the issuance of $4.0 million of subordinated
debt in October and December 1995. Financing activities provided cash for fiscal
1995 and 1994 primarily from the issuance of equity securities and borrowings
under credit agreements.
The Company believes that the net proceeds from this offering, together
with existing cash balances and anticipated cash flows from operations, will be
sufficient to meet its working capital and capital expenditure requirements for
at least the next 12 months. The Company may also utilize cash to acquire or
invest in complementary businesses or to obtain the right to use complementary
technologies, although the Company does not have any pending plans to do so. The
Company may sell additional equity or debt securities or obtain additional
credit facilities.
24
<PAGE> 26
BUSINESS
The following Business section contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
ProBusiness is a leading provider of employee administrative services for
large employers, typically with over 250 employees. The Company's primary
service offerings are payroll processing, payroll tax filing, human resources
software and benefits administration, including the enrollment and processing of
flexible benefit plans and COBRA programs. The Company's proprietary PC-based
payroll system offers the cost-effective benefits of outsourcing and high levels
of client service, while providing the flexibility, control, customization and
integration of an in-house system. As of January 31, 1997, the Company provided
services to over 1,200 clients and provided payroll services to 400 clients with
an aggregate of approximately 375,000 active employees and an average of
approximately 900 employees.
The Company differentiates itself from its competitors through its
proprietary technology, high quality, responsive and professional client service
and focus on the needs of large employers. ProBusiness develops a business
partnership with each client by assessing each client's payroll processing
needs, reengineering and designing the client's payroll systems and processes
and implementing a cost-effective solution. The Company maintains an ongoing
relationship with each client using a strategic team of specialists led by a
personal account manager who proactively manages each client's account and
marshals the resources of the team to meet the client's specific needs.
ProBusiness maintains a low client-to-account manager ratio to offer clients
accessible and responsive account management. The Company believes that its low
client-to-account manager ratio and its focus on client service are key factors
in enabling the Company to achieve a high payroll client retention rate, which
was approximately 90% in 1996.
INDUSTRY BACKGROUND
Many large businesses have found that outsourcing non-core functions
reduces costs, improves service, quality and efficiency, allows personnel to
focus on core competencies and enhances productivity through access to advanced
technologies. As a result, the demand for outsourcing employee administrative
services has grown significantly and is expected to continue to grow over the
next several years. It is estimated that third-party payroll and payroll tax
services alone generated approximately $3.4 billion in revenue in 1995 and will
generate approximately $7.4 billion in revenue in 2000.
Payroll processing and benefits administration lend themselves to
outsourcing because both are complex and costly for employers to conduct
internally. Payroll processing involves tracking employee data, calculating
payroll data and producing paychecks and direct deposits, remitting and filing
payroll taxes and generating management reports. Benefits administration
consists of many human resources functions, such as the enrollment and
processing of flexible benefits plans and the administration and management of
COBRA programs. In recent years, payroll processing and benefits administration
have increased in complexity due to continual changes in regulations and
increasingly sophisticated employee benefit plans. For example, large employers
must have the ability to calculate taxes for multiple federal, state and local
government agencies, collect garnishments based on different state laws and make
numerous agency filings. In addition, payroll and benefits administration
systems must keep pace with rapidly evolving business operations as companies
increase in size, expand geographically or add new operations. Finally, these
systems must be flexible and scalable to integrate with increasingly advanced
computer systems as companies adopt new technologies.
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Despite the complexities of payroll processing and the advantages provided
by outsourcing, most large employers continue to process payroll in-house
because they believe their unique business needs require the control and
integration of an in-house system. These in-house payroll systems generally run
on expensive mainframe or minicomputer systems and require customization and
significant ongoing technical support. In addition, such systems typically are
operated and maintained by large payroll departments, which are supported by
dedicated programmers, systems analysts and production personnel. As their
payroll needs change, employers that process their payroll in-house must
continue to make significant investments in personnel, hardware and software to
maintain and upgrade their payroll systems.
Large employers that have outsourced their payroll processing needs have
looked primarily to traditional payroll service providers, which process payroll
data received from clients utilizing mainframe computers located at multiple
regional data centers. This approach utilizes two systems, the client's and the
service provider's, which have different hardware, operating systems, software
applications and data configurations. Maintaining and synchronizing two separate
systems makes it difficult for these service providers to update code, add
features and functionality and provide clients with customization and
integration with their other systems. In addition, the complexities presented by
operating two separate systems often impede the timely identification and
resolution of client payroll processing problems.
Many large employers that choose to outsource their employee administration
functions require a payroll provider that offers a high level of flexibility and
client service. In addition, these employers prefer to have a single service
provider of comprehensive and integrated services for their payroll and other
employee administrative needs. Given the inherent limitations of the technology
used by traditional payroll processing providers, such providers are unable to
deliver a highly responsive and flexible solution. As a result, the Company
believes a significant opportunity exists for service providers that can furnish
large employers with high quality client service and a payroll system that
offers the cost-effective benefits of outsourcing, while providing the same
level of control, customization and integration as an in-house system.
THE PROBUSINESS SOLUTION
The Company's solution provides large employers with the cost-effective
benefits of outsourcing and high levels of client service, while providing the
flexibility, system control, customization and integration of an in-house
system. The Company combines its PC-based technology and personalized client
service to provide a broad range of service offerings, including payroll
processing, payroll tax filing, human resources software and benefits
administration.
Technology. The Company's proprietary PC-based technology for its payroll
services provides a platform for delivering high levels of service together with
the flexibility and control of an in-house system. The Company creates a
mirrored version of each client's system, which allows the Company's account
managers to access client information using the same data, programs and screens
as the client uses on its PC network. This enables the Company to quickly and
easily identify client problems or modify application programs in response to
client requests. The client maintains control by having direct access to all
calculation programs and all historical and transactional data, which also
provides the client with flexibility to respond quickly to employee and
third-party inquiries, to fully analyze payroll data and to generate management
reports.
The Company's system architecture is designed to distribute payroll
processing tasks to multiple low cost, high performance PCs, which enables the
Company to scale its system continually to handle increasing transaction
volumes. The Company's PC-based application software supports the development of
customized solutions for each client that can be easily upgraded and integrated
with a client's other systems. In addition, multiple networked PCs facilitate
exception processing and rapid response that large employers require.
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Client Service. The Company delivers high quality, responsive and
professional service by establishing a business partnership with each client.
The Company assigns each client a personal account manager, who proactively
manages the account and marshals the resources of a strategic team of
specialists to meet the client's specific needs. The Company maintains a low
client-to-account manager ratio to offer clients accessible and responsive
account management. The Company supports each client with functional and
regulatory expertise in payroll, payroll tax and employee benefits, as well as
specialists in pay data interfaces, general ledger interfaces, paid-time-off,
report writing and systems integration. The Company uses its systems integration
expertise to facilitate the integration of its payroll processing system with
the client's existing hardware and software. To support and provide high quality
service, the Company focuses on hiring experienced accounting and technical
professionals from the payroll, accounting, human resources and financial
services industries. The Company promotes its client service culture by
instilling a sense of ownership in each employee through incentive compensation
and recognition of achievements based on providing high quality service to
clients.
Cost Effectiveness. The Company believes that it provides its clients with
a more cost-effective payroll solution than most other third-party providers.
During the implementation process, the Company reengineers the client's payroll
processes and designs a payroll system that integrates with the client's other
systems. Once implementation is completed, integration between payroll and other
systems is improved, eliminating manual tasks and allowing a client to redeploy
specialized personnel to other functions within the organization.
STRATEGY
The Company's objective is to be the premier provider of employee
administrative services for large employers. The Company's strategy is to
continue providing clients with high levels of personal service and developing a
comprehensive and fully integrated suite of employee administrative services.
The Company also intends to expand its client base and provide additional
services to its existing clients. The Company's ongoing strategy includes the
following key factors:
- PROVIDE PREMIER SERVICE. The Company is committed to providing high
levels of personal service and proactive account management,
including maintaining a low client-to-account manager ratio. The
Company believes that its ability to consistently deliver high
quality service is a competitive advantage in the large employer
market and is a key factor in enabling the Company to achieve a high
payroll client retention rate, which was approximately 90% in 1996.
- EXPAND CLIENT BASE. The Company intends to continue adding to its
client base by expanding its direct sales force and locating sales
representatives in major metropolitan areas throughout the United
States, as well as increasing its penetration in existing markets
and pursuing strategic alliances and acquisitions.
- PROVIDE A COMPREHENSIVE AND INTEGRATED SOLUTION. The Company
intends to continue investing substantial resources to further
develop a comprehensive and fully integrated suite of employee
administrative services and extend the functionality of its existing
proprietary technology. The Company's goal is to create a single
data processing system that it can use as a platform to offer a full
range of services to clients, thereby strengthening client
relationships and improving efficiencies for both the Company and
its clients.
- INCREASE SERVICES TO EXISTING CLIENTS. The Company believes that
there is a significant opportunity for it to cross-market its
services to its existing client base, as few of its current clients
use all of the Company's services. In addition, the Company intends
to leverage its relationships with existing clients to market new
services and features.
- PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. The Company intends to
pursue acquisitions and alliances to increase the range of services
and service features it offers, add industry
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<PAGE> 29
and technical expertise, and acquire complementary technology. For
example, in the last year, the Company introduced its human resources
software and its benefits administration services through the
acquisitions of Dimension Solutions and BeneSphere, respectively.
- ATTRACT AND RETAIN HIGHLY QUALIFIED EMPLOYEES. The Company seeks to
continue providing its clients with a high level of service by hiring
professionals who are experienced in their fields. Service personnel
are recruited from payroll, accounting, human resources and financial
services industries, and many have professional experience as
accounting managers or hold Certified Public Accountant or Certified
Payroll Professional accreditations. The Company's employees receive
incentive compensation and recognition of achievements based on
providing high quality service to clients.
The Company's strategy involves substantial risks and uncertainties. There
can be no assurance that the Company will be successful in implementing its
strategy or that its strategy, even if implemented, will lead to successful
achievement of the Company's objectives. If the Company is unable to implement
its strategy effectively, the Company's business, financial condition and
results of operations will be materially adversely affected. See "Risk Factors."
SERVICE OFFERINGS
The Company provides a broad range of employee administrative services,
including payroll processing, payroll tax filing, benefits administration and
human resources software. The Company intends to expand its service offerings
through future acquisitions and to develop enhancements to its existing services
internally.
Payroll Processing. The Company processes time and attendance data to
calculate and produce employee paychecks, direct deposits and reports for its
clients. The Company delivers the paychecks and reports to clients within 24 to
48 hours of the Company's receipt of the data electronically submitted from the
client. The Company's system is highly configurable to meet the specialized
needs of each client yet maintains the ability to provide high volume
processing. The system integrates easily with the client's general ledger, human
resources and time and attendance systems. In addition, the Company offers many
sophisticated features, including the automatic enrollment and tracking of paid
time off, proration of compensation for new hires and integrated garnishment
processing.
Payroll Tax Filing. The Company collects contributed employer and employee
tax funds from clients, deposits such funds with tax authorities when due, files
all tax returns and reconciles the client's account. The Company will also
represent the client before tax authorities in any dispute or inquiry. The
Company introduced its payroll tax service in January 1996 to existing payroll
clients and to corporations who process their payroll in-house.
Benefits Administration. In January 1997, the Company introduced its
benefits administration services through the acquisition of BeneSphere. Such
services include flexible benefits enrollment and processing, COBRA
administration, consolidated billing and eligibility tracking and premium
payment services. Employees can enroll in and choose their flexible spending
benefits through traditional paper-based forms or through World Wide
Web-accessible enrollment sites using the Company's recently introduced
Enrollnet(TM) service.
Human Resources Software. In May 1996, the Company introduced its human
resources software through the acquisition of Dimension Solutions. The Company's
human resources software tracks and reports general employee information,
including compensation, benefits, skills, performance, training, job titles and
medical history. For clients that also use the Company's payroll service, the
human resources data can be transferred to the payroll services system, thus
eliminating the need for duplicate data entry.
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CLIENT SERVICE
The Company believes that its focus and dedication to providing high levels
of client service is a competitive advantage in the large employer market.
ProBusiness develops a business partnership with each client by assessing each
client's payroll processing needs, reengineering and designing the client's
payroll system and process and implementing a cost-effective solution. The
Company maintains an ongoing relationship with each client using a strategic
team that includes a sales representative, a sales analyst, an implementation
manager, an account manager and numerous functional, regulatory and technical
support specialists.
Sales. The Company believes that client service begins with the sales
process. A sales representative and a sales analyst work together to assess a
potential client's payroll processing needs. Based on this assessment, the sales
team then identifies opportunities to reengineer the prospective client's
payroll processes and to design a payroll solution that integrates effectively
with its other systems. The payroll sales cycle typically ranges from three to
nine months or longer.
Implementation. Upon engagement by a client, the Company assigns a team of
technical support specialists, headed by an implementation manager who leads the
transition from the client's former payroll system to the Company's system. The
implementation manager works with the client, the sales analyst and technical
support specialists to integrate the Company's payroll system with the client's
other systems and to customize the system to improve the client's payroll
processes. The Company uses its systems integration expertise to facilitate the
integration of its payroll processing system with the client's existing hardware
and software. The implementation process generally takes three to six months or
longer, depending on the complexity of the client's payroll processes and
systems and the size of the client.
Account Management. An account manager is assigned to each client during
the implementation process and serves as the client's day-to-day contact at the
Company. The account manager coordinates the efforts of the Company's
functional, regulatory and technical support specialists as necessary. The
account manager visits each client regularly and establishes an annual business
plan with the client that details scheduled payroll events such as open
enrollment periods for employee benefits plans or software system changes. This
annual business plan allows the Company to provide clients with uninterrupted
payroll services during these periods. Account managers use the Company's
proprietary CallLog system to record and track all client calls, record client
feedback and help ensure that the client's needs are addressed promptly and
thoroughly. The Company maintains a low client-to-account manager ratio to offer
clients accessible and responsive account management.
Support Specialists. The Company supports each client with functional and
regulatory specialists in payroll, payroll tax and employee benefits, as well as
pay data interfaces, general ledger interfaces, paid-time-off, report writing
and system integration. Each of these specialists is available to speak directly
with clients as needed, meet with clients onsite or support clients indirectly
through the account manager.
The Company is committed to continually monitoring the quality of its
service through client feedback mechanisms. The Company obtains valuable
insights into the needs of its clients through its partnership with each client
and from client responses to surveys, which are conducted semi-annually. The
Company uses this information to develop new technologies, identify new service
offerings, optimize the services provided to existing clients and improve the
level of service provided to clients. The Company also uses client feedback as a
basis for incentive compensation and recognition of achievements.
TECHNOLOGY
The Company's proprietary PC-based technology for its payroll services
provides a platform for delivering high levels of service together with the
flexibility and control of an in-house system. The Company creates a mirrored
version of each client's system, which allows the Company's account
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<PAGE> 31
managers to access client information using the same data, programs and screens
as the client uses on its PC network. This enables the Company to quickly and
easily identify client problems or modify application programs in response to
client requests. The client maintains control by having direct access to all
calculation programs and all historical and transactional data, which also
provides the client with flexibility to respond quickly to employee and
third-party inquiries, to fully analyze payroll data and to generate management
reports.
The Company's system architecture is designed to distribute payroll
processing tasks to multiple low cost, high performance PCs, which enables the
Company to scale its system continually to handle increasing transaction
volumes. The Company's PC-based application software supports the development of
customized solutions for each client that can be easily upgraded and integrated
with a client's other systems. In addition, multiple networked PCs facilitate
exception processing and rapid response that large employers require.
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CLIENTS
The Company targets large companies, typically with over 250 employees,
with complex and changing business needs in diverse industries. As of January
31, 1997, the Company provided services to over 1,200 clients. Of these clients,
400 were payroll clients, with an aggregate of approximately 375,000 active
employees and an average of approximately 900 employees. Although the Company is
extending its national presence, most of the Company's revenue historically has
been derived from clients located in the western United States. For the
six-month period ended December 31, 1996, no client accounted for more than 3%
of the Company's revenue. The Company's agreements with its clients generally do
not have significant penalties for cancellation. Set forth below is a
representative list of the Company's clients as of January 31, 1997, each of
which has over 1,000 employees and from which the Company expects revenue of at
least $25,000 in calendar 1997.
TECHNOLOGY
3Com Corporation
Advanced Micro Devices, Inc.
Airtouch Communications, Inc.
AST Research, Inc.
Atmel Corporation
Bay Networks Inc.
Cadence Design Systems Inc.
Fujitsu, Ltd.
Hitachi America Ltd
Informix Corporation
Integrated Device
Technology, Inc.
Intuit Inc.
KLA Instruments Corporation
LSI Logic Corporation
Netscape Communications
Corp.
Novell, Inc.
Pacific Scientific Company
Quantum Corporation
Read-Rite Corporation
Siemens Business
Communication Systems, Inc.
Silicon Graphics, Inc.
Silicon Systems, Inc.
Solectron Corporation
Storage Technology
Corporation
Sybase, Inc.
TCI Cablevision
VeriFone, Inc.
RETAIL
Childrens Discovery Centers
of America, Inc.
Coach Leatherwear Co., Inc.
Dollar General Corporation
Michaels Stores, Inc.
Natural Wonders, Inc.
St. John Knits Inc.
Sunglass Hut International, Inc.
Williams-Sonoma, Inc.
SERVICES/PUBLISHING
California Casualty Group
CCH Incorporated
Clubcorp International
First Allmerica Life Insurance
Koll Management Services, Inc.
North American Title
Insurance Company
U.S. Computer Services
Ziff Davis Publishing Company
FOOD PRODUCTS AND SERVICES
Bon Appetit Management
Company
Fleming Companies, Inc.
Fresh Choice, Inc.
Kellogg USA Inc.
OreIda Foods Inc.
Pacific Coast Producers
Specialty Restaurants Corp.
OTHER
Abbott Laboratories
Allergan, Inc.
The Gillette Company
Pharmacia & Upjohn, Inc.
Raychem Corporation
Toyota Motor Corporation
Watkins-Johnson Company
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SALES AND MARKETING
The Company employs a direct sales force to gain new payroll and payroll
tax clients and increase the number of services provided to existing clients.
The Company currently targets large employers through direct marketing,
seminars, trade shows and active participation in local chapters of the American
Payroll Association. The Company uses a team selling approach, whereby sales
analysts and sales representatives collaborate to assess a potential client's
needs and develop a cost-effective solution. The payroll sales cycle typically
ranges from three to nine months or longer. The Company primarily utilizes
insurance brokers to attract new benefits administration clients.
The Company believes that its long-term competitiveness depends on
increasing its national presence. The Company believes that locating direct
sales representatives in major metropolitan areas throughout the United States
is the most effective means of increasing its national client base. The Company
seeks to attract and retain experienced industry sales representatives.
The Company's marketing department provides support materials and marketing
communications to sales representatives and promotes public relations, performs
direct mailings and participates in seminars and trade shows.
COMPETITION
The market for the Company's services is intensely competitive, subject to
rapid change and significantly affected by new service introductions and other
market activities of industry participants. The Company primarily competes with
several public and private payroll service providers such as Automatic Data
Processing, Inc., Ceridian Corporation and Paychex, Inc., as well as smaller,
regional competitors. Many of these companies have longer operating histories,
greater financial, technical, marketing and other resources, greater name
recognition and a larger number of clients than the Company. In addition, many
of these companies offer more services or features than the Company and have
processing facilities located throughout the United States. The Company also
competes with in-house employee services departments and, to a lesser extent,
banks and local payroll companies. With respect to benefits administration
services, the Company competes with insurance companies, benefits consultants
and other local benefits outsourcing companies. The Company may also compete
with marketers of related products and services that may offer payroll or
benefits administration services in the future. The Company has experienced, and
expects to continue to experience, competition from new entrants into its
markets. Increased competition could result in pricing pressures, loss of market
share and loss of clients, any of which could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company believes that the principal competitive factors affecting its
market include client service, system functionality and performance, system
scalability, reputation, system cost and geographic location. The failure of the
Company to compete successfully would have a material adverse effect on the
Company's business, financial condition and results of operations.
RESEARCH AND DEVELOPMENT
The Company intends to continue investing substantial resources to further
develop a comprehensive and fully integrated suite of employee administrative
services and extend the functionality of its proprietary payroll processing
systems. The Company has committed resources to the following development
initiatives:
- WINDOWS VERSION PAYROLL. The Company expects to introduce a new version
of its payroll system that will run under Windows 95 and Windows NT.
- ON-LINE SERVICES. The Company intends to provide secure on-line employee
access to its payroll and benefits systems through the World Wide Web
that will provide services such as benefits enrollment, W-4 changes and
time and attendance tracking.
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- INTEGRATED PAYROLL AND HUMAN RESOURCES SYSTEM. The Company expects to
introduce an integrated payroll and human resources system utilizing
client/server technology that will run under Windows 95 and Windows NT.
- JAVA-BASED OBJECT ORIENTED SYSTEM. As a long-term initiative, the
Company is developing a second generation integrated payroll and human
resources system based on object and Inter/internet technology.
The information discussed above in "Research and Development" contains
forward-looking statements that involve risks and uncertainties. Actual events
could differ materially from those anticipated in these forward-looking
statements, as a result of certain factors including those discussed in the
paragraph below.
The technologies in which the Company has invested to date are rapidly
evolving and have short life cycles, which requires the Company to anticipate
and rapidly adapt to technological changes. In addition, the Company's industry
is characterized by increasingly sophisticated and varied needs of clients,
frequent new service and feature introductions and emerging industry standards.
The Company's future success will depend, in part, on its ability to develop
advanced technologies, enhance its existing services with new features, add new
services that address the changing needs of its clients, and respond to
technological advances and emerging industry standards and practices on a timely
and cost-effective basis. If the Company is unable to develop and introduce new
services and new features of existing services in a timely or cost-effective
manner, the Company's business, financial condition and results of operations
could be materially adversely affected. In addition, application software used
by the Company may contain defects or failures when introduced or when new
versions or enhancements are released. The Company has in the past discovered
software defects in certain of its applications, in some cases, only after its
systems have been used by clients. There can be no assurance that future defects
will not be discovered in existing or new applications or releases. Any such
occurrence could have a material adverse effect upon the Company's business,
financial condition and results of operations.
PROPRIETARY RIGHTS
The Company's success is dependent in part upon its proprietary software
technology. The Company has no patents, patent applications or registered
copyrights. The Company relies on a combination of contract, copyright and trade
secret laws to establish and protect its proprietary technology. The Company
distributes its services under software license agreements that grant clients
licenses to use the Company's services and contain various provisions protecting
the Company's ownership and the confidentiality of the underlying technology.
The Company generally enters into confidentiality and/or license agreements with
its employees and existing and potential clients, and limits access to and
distribution of its software, documentation and other proprietary information.
There can be no assurance that the steps taken by the Company in this regard
will be adequate to deter misappropriation or independent third-party
development of the Company's technology.
There can be no assurance that the Company's services and technology do not
infringe any existing patents, copyrights or other proprietary rights of others,
or that third parties will not assert infringement claims in the future. If any
such claims are asserted and upheld, the costs of defense could be substantial
and any resulting liability to the Company could have a material adverse effect
on the Company's business, financial condition and results of operations.
EMPLOYEES
As of February 28, 1997, the Company had 303 full-time employees. The
Company believes that its relations with its employees are good.
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FACILITIES
The Company's headquarters are located in Pleasanton, California and
consist of approximately 52,000 square feet of office space leased pursuant to
multiple leases which terminate between March 1999 and February 2001. In
September 1996, the Company entered into a build-to-suit lease, whereby the
Company will lease approximately 130,000 square feet of office space located in
Pleasanton, California. Upon completion of the facility, estimated to be in late
1997, the Company will relocate its headquarters to the new facility. The term
of the build-to-suit lease expires approximately 11 years from completion of the
facility.
The Company also has a sales and implementation office in Irvine,
California, where it leases approximately 4,500 square feet under a lease which
terminates with respect to 1,750 square feet in February 1997 and with respect
to 2,721 square feet in November 1997. The Company intends to relocate and
expand these facilities in Irvine to include processing and production and
back-up facilities in late 1997. Although the Company believes it will be able
to lease a facility to accommodate its needs in a timely fashion and at
reasonable rates, there can be no assurance that it will be able to do so. Such
failure would have a material adverse effect on the Company's business,
financial condition and results of operations.
BeneSphere's processing operations are located in Bellevue, Washington,
where BeneSphere leases approximately 6,587 square feet under a lease that will
terminate on June 1, 2003.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company as of March 12, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- --------------------------------------------------------
<S> <C> <C>
Thomas H. Sinton.............. 48 Chairman of the Board, President, Chief Executive
Officer, Director
Jane Beule.................... 45 Vice President, Marketing
Jeffrey M. Bizzack............ 36 Executive Vice President, Sales
Mark F. Curtis................ 42 Vice President, Production
Alison M. Elder............... 34 Executive Vice President, BeneSphere Division
Mitchell W. Everton........... 40 Executive Vice President, Tax & Operations
Dwight L. Jackson............. 51 Vice President, Human Resources
Leslie A. Johnson............. 48 Vice President, Client Services
Steven E. Klei................ 36 Vice President, Finance, Chief Financial Officer and
Secretary
Robert E. Schneider........... 39 Vice President, Research & Development
David C. Hodgson(1)........... 40 Director
Michael L. Hughes(2).......... 62 Director
Ronald W. Readmond(1)(2)...... 54 Director
Thomas P. Roddy(2)............ 61 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. Sinton, founder of the Company, has served as a Director of the Company
since the Company's incorporation in October 1984, and from March 1993 to
present, Mr. Sinton has served as the President and Chief Executive Officer of
the Company. Since December 1996 and for a period between September 1989 and
February 1993, Mr. Sinton served as Chairman of the Board. Mr. Sinton holds a
B.A. degree in English Literature, magna cum laude, from Harvard University, an
M.S. degree in Food Science from the University of California at Davis and an
M.B.A. degree from Stanford University. Mr. Sinton received a Fulbright
Fellowship to study at the University of Vienna in Vienna, Austria.
Ms. Beule has served as Vice President, Marketing of the Company since
October 1994. From November 1993 to July 1994, Ms. Beule was Director of Product
Management at Macromedia, Inc., a provider of software products. From February
1992 to November 1993, Ms. Beule held various positions in product management at
Caere Corporation, a provider of software products. From August 1982 to February
1992, Ms. Beule held various positions in marketing and product management at
Hewlett-Packard Company. Ms. Beule holds a B.A. degree from the University of
Wisconsin and an M.B.A. degree from Harvard University. Ms. Beule received a
Fulbright Fellowship to study at the Rheinische Friedrich-Wilhelms Universitaet
in Bonn, Germany.
Mr. Bizzack has served as Executive Vice President, Sales of the Company
since July 1993. From October 1992 to July 1993, Mr. Bizzack served as Vice
President, Sales of the Company. From October 1988 to October 1992, Mr. Bizzack
served as a District Sales Manager of the Company. Mr. Bizzack attended Saint
Mary's College.
Mr. Curtis has served as Vice President, Production of the Company since
March 1993. From November 1987 to February 1993, Mr. Curtis was Director of
Service at Ultratech Stepper, Inc., a
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subsidiary of General Signal Corp., a semi-conductor capital equipment
manufacturing firm. Mr. Curtis holds a B.A. degree in Management from Saint
Mary's College.
Ms. Elder has served as Executive Vice President, BeneSphere Division of
the Company since January 1997 when the Company acquired BeneSphere. From
September 1993 to January 1997, Ms. Elder was founder of the California
operations and held various positions at BeneSphere, most recently serving as
President and Chief Executive Officer. In 1987, Ms. Elder joined the Employee
Benefits Division of Lincoln National Life Insurance as a Flexible Spending
Program specialist and from August 1990 to September 1993 Ms. Elder served as
Western Regional Manager of Plan Management Administrators which was part of
Lincoln National Life Insurance Company. Ms. Elder holds a B.A. degree in
Communication Studies from the University of California, Santa Barbara.
Mr. Everton has served as Executive Vice President, Tax & Operations of the
Company since August 1995, and from July 1993 to July 1995, he served as
Executive Vice President, Operations of the Company. From July 1992 to July
1993, Mr. Everton served as Vice President, Operations of the Company. From June
1986 to July 1992, Mr. Everton held various management positions with Systems
Tax Service, a payroll tax filing company that was acquired by Ceridian
Corporation in 1993. Mr. Everton holds a B.A. degree in Business Economics from
the University of California, Santa Barbara and an M.B.A. degree from the
University of California, Berkeley.
Mr. Jackson has served as Vice President, Human Resources of the Company
since June 1996. From June 1993 to June 1996, Mr. Jackson was founder and
President of Dimension Solutions, which the Company acquired in June 1996. From
February 1992 to June 1993, Mr. Jackson served as a consultant for Marathon
Systems, a software development company. Mr. Jackson holds a B.E.S. in
Electrical Engineering from Brigham Young University.
Ms. Johnson has served as Vice President, Client Services of the Company
since September 1993. From May 1992 to September 1993, Ms. Johnson was Director,
National Accounts for Automatic Data Processing. From January 1976 until her
division was acquired by Automatic Data Processing in May 1992, Ms. Johnson held
several positions at BankAmerica Corporation, most recently as Vice President,
Northern California National Accounts. Ms. Johnson holds a B.A. degree in
Communications from the University of Colorado.
Mr. Klei has served as Vice President, Finance and Chief Financial Officer
of the Company since July 1995 and as Secretary of the Company since August
1996. From April 1993 to July 1995, Mr. Klei was Corporate Controller for Esprit
de Corp, an apparel company. From December 1990 to April 1993, Mr. Klei provided
consulting services to financially troubled companies based on his experience at
New Home Interiors ("New Home"), a regional operator of showrooms for home
products and services. In such capacity, Mr. Klei joined Rainbow Records
("Rainbow"), a retailer of records and videos, as a consultant in December 1990
at which time Rainbow was contemplating a liquidation. Mr. Klei presided over
the orderly liquidation of Rainbow as Chief Financial Officer from April 1991 to
February 1992. Subsequently, Rainbow entered into involuntary bankruptcy and
received final approval from the bankruptcy court in the Northern District of
California in Oakland. Mr. Klei joined Comfort Zone, a retailer of bedroom
furnishings in February 1992 as a consultant and subsequently served as Vice
President and Chief Financial Officer until April 1993. From May 1988 to
December 1990, Mr. Klei was a minority owner and served as Chief Financial
Officer of New Home. In connection with his position at New Home, Mr. Klei
personally guaranteed certain obligations of New Home, which became due upon New
Home's liquidation in 1991. As a result of such obligations, in September 1993,
Mr. Klei applied for and was granted a full discharge of all debts under Chapter
7 of the federal Bankruptcy Code. Mr. Klei holds a B.S. degree in Accounting
from Central Michigan University and is a Certified Public Accountant.
Mr. Schneider has served as Vice President, Research & Development of the
Company since November 1996. From April 1995 to July 1996, Mr. Schneider served
as Senior Vice President of Product Development at Premenos Technology
Corporation, an electronic commerce software company. From February 1989 to
March 1995, Mr. Schneider held several positions at Sybase Inc., most
36
<PAGE> 38
recently as Vice President and Business Unit Manager of the Server Products
Group. Mr. Schneider holds a B.S. degree in Computer Science from University of
San Francisco.
Mr. Hodgson has served as a Director of the Company since March 1997. Mr.
Hodgson is a Managing Member of General Atlantic Partners LLC ("GAP LLC") and
has been with GAP LLC since 1982. Mr. Hodgson is also a director of Baan
Company, N.V., a publicly-traded software company, Walker Interactive, a
publicly-traded software company, and several other privately-held software
companies, in which GAP LLC or one of its affiliates is an investor. Mr. Hodgson
holds an A.B. degree in Mathematics from Dartmouth College and an M.B.A. degree
from Stanford University.
Mr. Hughes has served as a Director of the Company since 1989. From March
1993 to December 1996, Mr. Hughes served as Chairman of the Board. Since 1985,
Mr. Hughes has been Managing and General Partner of the Hughes Investment
Partnership, a partnership engaged in mortgage lending. Mr. Hughes holds a B.S.
degree in Accounting from Benjamin Franklin University and is a Certified Public
Accountant.
Mr. Readmond has served as a Director of the Company since February 1997.
Since January 1997, Mr. Readmond has been an advisor of Barbour Griffith &
Rogers, a lobbying firm, and Chairman of International Equity Partners, L.P., a
private equity and project development company. From August 1989 to December
1996, Mr. Readmond held various positions at Charles Schwab & Co. Inc., most
recently serving as Vice Chairman. Mr. Readmond holds a B.A. degree in Economics
from Western Maryland College.
Mr. Roddy has served as a Director of the Company since 1992. Since 1988,
Mr. Roddy has served as President and Chief Executive Officer of Lafayette
Investments Inc., an investment banking and investment advisory company. Mr.
Roddy holds a B.S. degree in Biochemistry from Villanova University.
Mr. Jackson was appointed an officer of the Company pursuant to the
acquisition agreement between the Company and Dimension Solutions.
Mr. Hodgson was nominated and elected as a Director of the Company pursuant
to an agreement entered into between the Company, General Atlantic and Thomas H.
Sinton and his affiliates, in connection with the sale of Preferred Stock by the
Company to General Atlantic. Under such agreement, General Atlantic and Mr.
Sinton and his affiliates agreed to vote their shares to elect one director to
the Board of Directors designated by General Atlantic until the third annual
meeting of stockholders after this offering.
The Board of Directors presently consists of five members who hold office
until the annual meeting of stockholders or until a successor is duly elected
and qualified. Effective upon the Company's reincorporation into Delaware, the
Board of Directors will be divided into three classes. One class of directors
will be elected annually and its members will hold office for a three-year term
or until their successors are duly elected and qualified, or until their earlier
removal or resignation. The number of directors will initially be five and may
be changed by a resolution of the Board of Directors. Executive officers are
elected by the Board of Directors. There are no family relationships among any
of the directors and executive officers of the Company.
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee oversees actions taken by the
Company's independent auditors, recommends the engagement of auditors and
reviews the results and scope of the audit and other services provided by the
Company's independent auditors, reviews and evaluates the Company's control
functions and reviews the Company's investment policy. The Compensation
Committee was established in November 1996 and will make recommendations to the
Board of Directors concerning salaries and incentive compensation for employees
and consultants of the Company. The Compensation Committee will also administer
the Company's 1996 Stock Option Plan and 1996 Employee Stock Purchase Plan.
Prior to November 1996, the Board of Directors made recommendations regarding
compensation for employees and consultants of the Company. See "-- Stock Plans."
37
<PAGE> 39
DIRECTOR COMPENSATION
Members of the Company's Board of Directors do not receive compensation for
their services as directors. Certain directors have been granted options to
purchase Common Stock in the past, and options may be granted to directors of
the Company in the future. Mr. Roddy has received options to purchase 62,500
shares of the Company's Common Stock, Mr. Hughes has received options to
purchase 160,000 shares of the Company's Common Stock and Mr. Readmond has
received options to purchase 15,000 shares of the Company's Common Stock at
exercise prices ranging from $0.19 to $7.25 per share.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to (i) the Chief
Executive Officer and (ii) the Company's five other most highly compensated
executive officers (collectively with the Chief Executive Officer, the "Named
Executive Officers") for services rendered in all capacities to the Company
during the fiscal year ended June 30, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------
---------------------- NO. OF SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY COMMISSIONS UNDERLYING OPTIONS
- --------------------------------------------- ---- -------- ----------- ------------------
<S> <C> <C> <C> <C>
Thomas H. Sinton............................. 1996 $137,500 $ 0 100,000
President and Chief Executive Officer
Jane Beule................................... 1996 100,000 0 10,000
Vice President, Marketing
Jeffrey M. Bizzack........................... 1996 100,000 48,000 65,400
Executive Vice President, Sales
Mitchell W. Everton.......................... 1996 100,000 0 60,200
Executive Vice President, Tax & Operations
Leslie A. Johnson............................ 1996 100,000 0 10,000
Vice President, Client Services
Steven E. Klei............................... 1996 95,833 0 75,000
Vice President, Finance and Chief Financial
Officer
</TABLE>
38
<PAGE> 40
The following table sets forth information regarding stock options granted
during the fiscal year ended June 30, 1996 to each of the Named Executive
Officers.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------ VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS EXERCISE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO PRICE TERM($)(4)
OPTIONS EMPLOYEES IN PER EXPIRATION ------------------------
NAME GRANTED(#)(1) FISCAL 1996(%)(2) SHARE($)(3) DATE 5% 10%
- -------------------- ------------- ----------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas H. Sinton.... 100,000 6.9% .4350 11/29/2005 1,748,284 2,809,617
Jane Beule.......... 10,000 0.7 .3950 11/29/2005 175,228 281,362
Jeffrey M.
Bizzack........... 33,000 2.3 .3950 11/29/2005 578,254 928,494
32,400 2.2 .3950 3/8/2006 567,740 911,612
Mitchell W. Everton... 38,000 2.6 .3950 11/29/2005 665,868 1,069,174
22,200 1.5 .3950 3/8/2006 389,007 624,623
Leslie A. Johnson... 10,000 0.7 .3950 11/29/2005 175,228 281,362
Steven E. Klei...... 35,000 2.4 .3950 11/29/2005 613,299 984,766
40,000 2.7 .3950 3/8/2006 700,914 1,125,447
</TABLE>
- ---------------
(1) These options were granted under either the Company's 1989 Stock Option Plan
or Executive Stock Option Plan. The options granted are immediately
exercisable, but are subject to repurchase in the event the optionee's
employment with the Company ceases for any reason. The options generally
vest over four years, as to 25% of the shares one year from the grant date
and as to 1/48th of the shares in each successive month thereafter, with
full vesting occurring on the fourth anniversary date. The options have a
term of ten years, subject to earlier termination in certain situations
related to termination of employment. See "Stock Plans."
(2) Based on a total of 1,459,530 options granted to all employees, consultants
and directors during fiscal 1996.
(3) Represents the fair market value of the underlying Common Stock as
determined by the Board of Directors on the date of grant.
(4) The potential realizable value is calculated based on the term of the option
at the time of grant (ten years) and the assumed initial public offering
price of $11.00. Stock price appreciation of 5% and 10% is assumed pursuant
to rules promulgated by the Securities and Exchange Commission and does not
represent the Company's prediction of its stock price performance. The
potential realizable value at 5% and 10% appreciation is calculated by
assuming that the initial public offering price appreciates at the indicated
rate for the entire term of the option and that the option is exercised at
the exercise price and sold on the last day of its term at the appreciated
price.
39
<PAGE> 41
The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on each exercise of stock options during
the year ended June 30, 1996 and the number and value of securities underlying
unexercised options held by the Named Executive Officers at June 30, 1996:
FISCAL YEAR AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT FISCAL YEAR-END IN-THE-MONEY OPTIONS
ON VALUE --------------------------- AT FISCAL YEAR END($)(1)
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE ---------------------------
NAME (#) ($) (#) (#) EXERCISABLE UNEXERCISABLE
- ------------------------ -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas H. Sinton........ 100,000 -- -- -- -- --
Jane Beule.............. 52,000 -- -- -- -- --
Jeffrey M. Bizzack...... 125,400 10,466 -- -- -- --
Mitchell W. Everton..... 50,447 7,060 2,533 47,220 2,166 40,373
Leslie A. Johnson....... 62,000 4,000 -- -- -- --
Steven E. Klei.......... 45,000 -- -- 30,000 -- 25,650
</TABLE>
- ---------------
(1) The amount set forth represents the difference between the estimated fair
market value of $1.25 per share of Common Stock on June 30, 1996, as
determined by the Company's Board of Directors, multiplied by the applicable
number of options.
STOCK PLANS
1989 Stock Option Plan. The Company's 1989 Stock Option Plan (the "1989
Plan") provides for the granting to employees (including officers and employee
directors) of "incentive stock options" within the meaning of the Internal
Revenue Code of 1986, as amended (the "Code") and for the granting to employees,
directors and consultants of nonstatutory stock options. As of December 31,
1996, options to purchase an aggregate of 483,164 shares of Common Stock were
outstanding under the 1989 Plan. In February 1997, the Board of Directors of the
Company increased the shares available for future grants under the 1989 Plan by
1,375,766, for a total of 1,675,048 shares available for future grants under the
1989 Plan. Options granted under the 1989 Plan before the effective date of the
1996 Plan described below will remain outstanding in accordance with their
terms, but no further options will be granted under the 1989 Plan after this
offering.
1996 Stock Option Plan. The Company's 1996 Stock Option Plan (the "1996
Plan") was adopted by the Board of Directors in February 1996 under the name
"Executive Stock Option Plan." The 1996 Plan provides for the granting to
employees (including officers and employee directors) of incentive stock options
and for the granting to employees, directors and consultants of nonstatutory
stock options. In November 1996 and February 1997, the Board of Directors of the
Company approved, effective upon the offering and subject to stockholder
approval, an amendment and restatement of the 1996 Plan to (i) rename the
Executive Stock Option Plan as the "1996 Stock Option Plan" and (ii) authorized
for an increase in the number of shares reserved for issuance under the plan of
any unused or canceled shares under the 1989 Plan plus annual increases equal to
the lesser of (a) 250,000 shares, (b) two percent (2%) of the number of
outstanding shares of Common Stock on such date or (c) a lesser amount
determined by the Board. As of December 31, 1996, options to purchase an
aggregate of 85,753 shares of Common Stock were outstanding under the 1996 Plan
and 1,727,628 (including the number of shares available for future grants under
the 1989 Plan) shares remained available for future grants under the 1996 Plan.
The 1996 Plan is administered by the Board of Directors or a committee appointed
by the Board (the "Administrator") and has a term of ten years.
Subject to the provisions of the 1996 Plan, the Administrator has the
authority to determine the individuals to whom stock options are to be granted,
the number of shares to be covered by each
40
<PAGE> 42
option, the exercise price, the fair market value of the Common Stock, the type
of option, the term of the option, the restrictions, if any, on the exercise of
the option, the terms for the payment of the option price and other terms and
conditions. Incentive stock options granted under the 1996 Plan must have an
exercise price of (i) at least 110% of fair market value of the Common Stock on
the date of grant if granted to an employee who owns stock representing more
than 10% of the voting power of all classes of stock of the Company, any parent
or any subsidiary or (ii) at least 100% of fair market value of the Common Stock
on the date of grant if granted to any other employee. In the case of a
nonstatutory stock option, the per share exercise price is determined by the
Administrator. No participant may be granted in any fiscal year of the Company
an option to purchase more than 125,000 shares, and over the remaining term of
the 1996 Plan such participant may not be granted options to purchase more than
250,000 additional shares. Payments by optionholders upon exercise of an option
may be made (as determined by the Administrator) in cash or such other form of
payment as permitted under the 1996 Plan, including without limitation, by
promissory note or by surrender of certain shares of Common Stock. In addition,
an optionee may pay the exercise price by means of a so-called "cashless
exercise." In the event of a proposed merger of the Company with or into another
corporation, outstanding options may be assumed or equivalent options may be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. In the event that such successor corporation does not
agree to assume options or substitute equivalent options, optionees will have
the right to exercise their options as to all shares subject to such options,
including shares as to which options would not otherwise be exercisable.
1996 Employee Stock Purchase Plan. The Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in
November 1996, subject to stockholder approval. The Company has reserved a total
of 500,000 shares of Common Stock for issuance under the Purchase Plan, with the
number of shares to be increased annually on each anniversary date of the
adoption of the Purchase Plan by a number of shares equal to the lesser of (i)
150,000 shares, (ii) one and one-half percent (1.5%) of the outstanding number
of shares on such date or (iii) a lesser number determined by the Board. The
Purchase Plan, which is intended to qualify under Section 423 of the Code,
permits eligible employees of the Company to purchase Common Stock through
payroll deductions of up to 15% of their base straight time gross earnings and
commissions (but exclusive of payments for overtime, shift premiums, incentive
compensation, incentive payments, bonuses or other payments). An eligible
employee's right to purchase stock under the Purchase Plan may not accrue at a
rate that exceeds $25,000 worth of stock in any calendar year. The price of
Common Stock purchased under the Purchase Plan will be 85% of the lower of the
fair market value of the Common Stock on the first day of an offering period or
last day of the applicable purchase period. Employees may end their
participation in the Purchase Plan at any time during an offering period, and
they will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with the Company. Rights granted
under the Purchase Plan are not transferable by a participant other than by
will, the laws of descent and distribution, or as otherwise provided under the
plan. The Purchase Plan will be implemented by an initial offering period of up
to 24 months commencing on the first trading day on or after the effective date
of the Public Offering and ending on the last trading day on or before April 30,
1999. Subsequent offering periods will last 24 months and will commence on the
first trading day on or after November 1 and May 1 of each year during which the
Purchase Plan is in effect, and will terminate on the last trading day in the
periods ending 24 months later. Each 24-month offering period will consist of
four purchase periods of approximately six months duration. The Purchase Plan
will be administered by the Board of Directors or by a committee appointed by
the Board. Employees are eligible to participate if they are customarily
employed by the Company or any designated subsidiary for at least 20 hours per
week and for more than five months in any calendar year.
401(K) PLAN
The Company maintains a 401(k) retirement savings plan (the "401(k) Plan").
The 401(k) Plan provides that each participant may contribute up to 18% of his
or her pre-tax gross compensation (up to a statutorily prescribed annual limit
of $9,500 in 1996). The percentage elected by certain highly
41
<PAGE> 43
compensated participants may be required to be lower. All amounts contributed by
employee participants and earnings on these contributions are fully vested at
all times. Employee participants may elect to invest their contributions in
various established funds.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Amended and Restated Certificate of Incorporation limits the
liability of directors to the maximum extent permitted by Delaware law. Delaware
law provides that a corporation's certificate of incorporation may contain a
provision eliminating or limiting the personal liability of directors for
monetary damages for breach of their fiduciary duties as directors, except for
liability (i) for any breach of their duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which a director derives an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers and may indemnify its employees and agents to the fullest extent
permitted by law.
The Company intends to enter into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Company's
Amended and Restated Certificate of Incorporation and Bylaws. These agreements,
among other things, indemnify the Company's directors and officers for certain
expenses (including attorneys' fees), judgments, fines and settlement amounts
incurred by any such person in any action or proceeding, including any action by
or in the right of the Company, arising out of such person's services as a
director or officer of the Company, any subsidiary of the Company or any other
company or enterprise to which the person provides services at the request of
the Company. The Company believes that these provisions and agreements are
necessary to attract and retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that might result in a claim for such indemnification.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was formed in November 1996 and is composed of
Messrs. Hodgson and Readmond. No interlocking relationship exists between any
member of the Company's Board of Directors and the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past.
42
<PAGE> 44
CERTAIN TRANSACTIONS
Between May 1994 and September 1995, Thomas H. Sinton, a director and
officer of the Company, and his immediate family loaned an aggregate of
$1,040,000 to the Company at an interest rate of 10.0% per annum. The Company
has paid all such loans in full.
On December 5, 1996, the Company loaned $543,750 at an interest rate of
6.31% per year to Robert E. Schneider, an officer of the Company, to permit Mr.
Schneider to exercise options to purchase Common Stock of the Company. All
principal and interest is due December 5, 2000. As of January 31, 1997, Mr.
Schneider had not paid any amount on the note.
In connection with the acquisition of BeneSphere, the Company assumed a
promissory note issued by BeneSphere on December 31, 1996 to Alison M. Elder, an
officer of the Company, for $275,000. The principal bears interest at a rate of
9.0% per year.
On January 7, 1997, the Company loaned $543,750 at an interest rate of 6.1%
per year to Alison M. Elder, an officer of the Company, to permit Ms. Elder to
exercise options to purchase Common Stock of the Company. All principal and
interest is due January 7, 2001. As of January 31, 1997, Ms. Elder had not paid
any amount on the note.
On January 31, 1997, the Company loaned $250,000 at an interest rate of
6.1% per year to Jeffrey M. Bizzack, an officer of the Company, to permit Mr.
Bizzack to purchase a residence. Accrued interest must be paid on a monthly
basis beginning two years from the date of the note. All principal and accrued
but unpaid interest is due January 31, 2001 unless Mr. Bizzack's employment with
the Company terminates, in which case, the note may become due earlier. As of
January 31, 1997, Mr. Bizzack had not paid any amount on the note.
Information with respect to compensation to directors and executive officers is
set forth under "Management -- Directors Compensation" and "-- Executive
Compensation."
43
<PAGE> 45
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock, as of December 31, 1996 (assuming the automatic
conversion of all outstanding shares of Preferred Stock into shares of Common
Stock effective upon the completion of this offering), and as adjusted to
reflect the sale of the shares of Common Stock offered hereby by (a) each person
or entity known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (b) each director of the Company, (c) each
of the Named Executive Officers, and (d) all directors and executive officers of
the Company as a group. Unless otherwise noted in the footnotes to the table,
(i) the Company believes that the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock indicated as
being beneficially owned by them and (ii) officers and directors can be
contacted at the principal offices of the Company.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES BENEFICIALLY
OWNED(1)
SHARES --------------------
BENEFICIALLY PRIOR TO AFTER
NAME OF BENEFICIAL OWNERS OWNED OFFERING OFFERING
- ------------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Thomas H. Sinton(2)(3)....................................... 2,840,068 35.2% 28.2
General Atlantic Partners, LLC(4)............................ 1,149,466 14.3 11.4
Jane Beule(5)................................................ 52,000 * *
Jeffrey M. Bizzack(6)........................................ 125,400 1.6 1.2
Mitchell W. Everton (7)...................................... 68,642 * *
Leslie A. Johnson(8)......................................... 69,500 * *
Steven E. Klei(9)............................................ 60,167 * *
David C. Hodgson(4).......................................... 1,149,466 14.3 11.4
Michael L. Hughes............................................ 149,288 1.9 1.5
Ronald W. Readmond(10)....................................... 2,012 * *
Thomas P. Roddy(11).......................................... 209,821 2.6 2.1
All directors and executive officers as a group (14
persons)(12)............................................... 4,861,564 60.1 48.2
</TABLE>
- ---------------
* Represents beneficial ownership of less than one percent.
(1) Based on 8,057,727 shares of Common Stock outstanding prior to the offering
and 10,057,727 outstanding upon completion of the offering. A person is
deemed to be the beneficial owner of securities that can be acquired by
such person within 60 days of December 31, 1996 upon the exercise of
warrants or vested options. Calculations of percentage of beneficial
ownership assume the exercise by only the respective named stockholder of
all options and warrants for the purchase of Common Stock held by such
stockholder which are exercisable within 60 days of December 31, 1996.
(2) Includes shares held by the Silas D. Sinton Trust Estate, the Silas Jack
Sinton Family Trust and as a custodian for minor children. Also includes
68,750 shares subject to the Company's repurchase rights.
(3) The address of Mr. Sinton is c/o ProBusiness, Inc., 5934 Gibraltar Dr.,
Pleasanton, CA 94588.
(4) Includes 978,368 shares held by General Atlantic Partners 39, L.P. ("GAP
39") and 171,098 shares held by GAP Coinvestment Partners, L.P. ("GAP
Coinvestment"). The general partner of GAP 39 is GAP LLC. The managing
members of GAP LLC are Steven A. Denning, Stephen P. Reynolds, David C.
Hodgson, J. Michael Cline, William O. Grabe and William E. Ford. The same
managing members of GAP LLC are the general partners of GAP Coinvestment.
Mr. Hodgson is a director of the Company. Mr. Hodgson disclaims beneficial
ownership of shares owned by GAP 39 and GAP Coinvestment, except to the
extent of his pecuniary interests therein. The address for GAP 39, GAP
Coinvestment, GAP LLC and Mr. Hodgson is c/o General Atlantic Service
Corporation, Three Pickwick Plaza, Greenwich, CT 06830.
(5) Includes 22,708 shares subject to the Company's repurchase rights.
(6) Includes 29,803 shares subject to the Company's repurchase rights.
(7) Includes 18,195 shares issuable upon exercise of vested options and 667
shares subject to the Company's repurchase rights.
(8) Includes 17,291 shares subject to the Company's repurchase rights.
(9) Includes 8,833 shares issuable upon exercise of vested options and 34,062
shares subject to the Company's repurchase rights.
(10) Includes 2,012 shares issuable upon exercise of warrants.
(11) Includes 28,730 shares held by the Lafayette Investments Inc. of which Mr.
Roddy is President and Chief Executive Officer and 15,900 shares held by
the Lafayette Investments Inc. 401(k) Plan and Trust.
(12) Includes 27,028 shares issuable upon exercise of vested options, 2,012
shares issuable upon exercise of warrants and 262,152 shares subject the
Company's repurchase rights.
44
<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the authorized capital stock of the
Company will consist of 60,000,000 shares of Common Stock, par value $0.001 per
share ("Common Stock"), and 5,000,000 shares of Preferred Stock, par value
$0.001 per share ("Preferred Stock").
COMMON STOCK
As of December 31, 1996, there were 8,057,727 shares of Common Stock
outstanding held of record by 252 stockholders (including 1,149,466 shares of
Common Stock issuable upon conversion of Preferred Stock issued in March 1997).
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
Common Stock are not entitled to cumulative voting rights with respect to the
election of directors, and as a consequence, minority stockholders will not be
able to elect directors on the basis of their votes alone. Subject to
preferences that may be applicable to any then outstanding shares of Preferred
Stock, holders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors out of funds legally available
therefore. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share ratably
in all assets remaining after payment of liabilities and the liquidation
preference of any then outstanding Preferred Stock. Holders of Common Stock have
no preemptive rights and no right to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and all shares of
Common Stock to be outstanding upon completion of this offering will be, fully
paid and nonassessable.
PREFERRED STOCK
The Board of Directors will have the authority, without further action by
the stockholders, to issue up to 5,000,000 shares of Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. The issuance of Preferred Stock could adversely
affect the voting power of holders of Common Stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plan to issue any shares of Preferred Stock.
WARRANTS
In connection with a loan agreement, which terminated in April 1996,
between Silicon Valley Bank ("SVB") and the Company, the Company issued SVB a
warrant to purchase 9,446 shares of the Company's Series E Preferred Stock at an
exercise price of $7.94 per share, exercisable at any time through January 13,
2000. In connection with an equipment lease, the Company issued LINC Capital
Management ("LINC") a warrant to purchase 10,000 shares of the Company's Series
E Preferred Stock at an exercise price of $7.94 per share, exercisable at any
time through July 31, 2001. In connection with a loan agreement, the Company
issued Coast Business Credit ("Coast") a warrant to purchase 9,500 shares of the
Company's Series E Preferred Stock at an exercise price of $7.94 per share,
exercisable at any time through April 30, 2001. In connection with an amendment
to the loan agreement between Coast and the Company to extend the line of
credit, the Company issued a warrant to Coast to purchase an additional 9,500
shares of the Company's Series E Preferred Stock at an exercise price of $7.94
per share, exercisable through October 25, 2001. In connection with a built-to-
suit lease, the Company issued Britannia Hacienda V Limited Partnership
("Britannia Hacienda") and its partners warrants to purchase an aggregate of
22,500 shares of Series E Preferred Stock at an exercise price of $7.94 per
share, exercisable from the date that part of the construction to be performed
under the lease is substantially complete until the earlier of either five years
from the date
45
<PAGE> 47
of the consummation of a public offering or November 14, 2004. The warrants to
purchase Series E Preferred Stock shall represent the right to purchase shares
of Common Stock upon completion of this offering, at a conversion rate of two
shares of Common Stock for each share of Series E Preferred Stock. In connection
with its acquisition of BeneSphere, the Company issued warrants to purchase an
aggregate of 50,000 shares of Common Stock to two former shareholders of
BeneSphere at an exercise price of $9.00 per share, exercisable at any time
through January 7, 2002.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
Upon completion of this offering, the holders (or their permitted
transferees) of approximately 6,360,470 shares of Common Stock and 121,892
shares issuable upon exercise of warrants (collectively the "Holders") are
entitled to certain rights with respect to the registration of such shares under
the Securities act of 1933, as amended (the "Securities Act"). If the Company
proposes to register its Common Stock, subject to certain exceptions, under the
Securities Act, the Holders are entitled to notice of the registration and are
entitled to include, at the Company's expense, such shares therein, provided
that the managing underwriter has the right to limit a certain number of such
shares included in the registration. These rights do not apply to this offering.
In addition, certain of the Holders may require the Company at its expense on no
more than two occasions to file a registration statement under the Securities
Act with respect to their shares of Common Stock. Such rights may not be
exercised until 180 days after the completion of this offering. In addition,
General Atlantic may request the Company to file a registration statement under
the Securities Act with respect to 1,149,466 shares of Common Stock on one
occasion as long as certain conditions are met. If the Holders, by exercising
their demand registration rights, cause a large number of securities to be
registered and sold in the public market, such sales could have an adverse
effect on the market price for the Company's Common Stock. Moreover, if the
Company were to include in a Company initiated registration shares held by the
Holders pursuant to exercise of their piggyback registration rights, such sales
may have an adverse effect on the Company's ability to raise additional capital.
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Company's Amended and Restated Certificate of Incorporation (the
"Charter") provides for the division of the Board of Directors into three
classes with staggered three-year terms. See "Management -- Executive Officers
and Directors." Under the Charter, any vacancy on the Board of Directors,
however occurring, including a vacancy resulting from an enlargement of the
Board, may only be filled by vote of a majority of the directors then in office.
The classification of the Board of Directors and the limitations on the removal
of directors and filling of vacancies could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.
The Charter also provides that after the completion of this offering, any
action required or permitted to be taken by the stockholders of the Company at
an annual meeting or special meeting of stockholders may only be taken if it is
properly brought before such meeting and may not be taken by written action in
lieu of a meeting. The Charter further provides that special meetings of the
stockholders may only be called by the Chairman of the Board of Directors, the
Chief Executive Officer, the President of the Company, the Board of Directors or
the holders of shares entitled to cast not less than forty percent (40%) of the
votes at that meeting. Under the Bylaws, in order for any
46
<PAGE> 48
matter to be considered "properly brought" before a meeting, a stockholder must
comply with certain requirements regarding advance notice to the Company. The
foregoing provisions could have the effect of delaying until the next
stockholders meeting stockholder actions which are favored by the holders of a
majority of the outstanding voting securities of the Company. These provisions
may also discourage another person or entity from making a tender offer for the
Company's Common Stock, because such person or entity, even if it acquired a
majority of the outstanding voting securities of the Company, would be able to
take action as a stockholder (such as electing new directors or approving a
merger) only at a duly called stockholders meeting, and not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
a corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. The Charter requires the affirmative vote of the
holders of at least 66 2/3% of the shares of capital stock of the Company issued
and outstanding and entitled to vote to amend or repeal any of the foregoing
Charter provisions. The 66 2/3% stockholder vote would be in addition to any
separate class vote that might in the future be required pursuant to the terms
of any series Preferred Stock that might be outstanding at the time any such
amendments are submitted to stockholders. The Bylaws also may be amended or
repealed by a majority vote of the Board of Directors subject to any limitations
set forth in the Bylaws.
TRANSFER AGENT AND REGISTRAR
has been appointed as the transfer agent and
registrar for the Company's Common Stock.
47
<PAGE> 49
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial numbers of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. Upon completion of this offering, the Company will have outstanding an
aggregate of 10,057,727 shares of Common Stock, based upon the number of shares
outstanding as of December 31, 1996, including 1,149,466 shares Common Stock
issuable upon conversion of Preferred Stock issued March 1997. Of these shares,
all of the shares sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act, unless such shares
are purchased by "affiliates" ("Affiliates") of the Company, as that term is
defined in Rule 144 under the Securities Act as amended on April 29, 1997. The
remaining 8,057,727 shares of Common Stock held by existing stockholders (the
"Restricted Shares") are "restricted securities," as that term is defined in
Rule 144 under the Securities Act. Restricted Shares may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rule 144 or Rule 701 promulgated under the Securities Act. As a result of
contractual restrictions and the provisions of Rule 144 and Rule 701, additional
shares will be available for sale in the public market as follows: (i)
approximately 2,000 Restricted Shares will be eligible for immediate sale on the
date of this Prospectus; (ii) approximately 1,000 Restricted Shares will be
eligible for sale 90 days after the date of this Prospectus; (iii) approximately
6,702,341 Restricted Shares will be eligible for sale upon expiration of the
lock-up agreements, 180 days after the date of this Prospectus; and (iv) the
remainder of the Restricted Shares will be eligible for sale from time to time
thereafter upon expiration of their respective two-year holding periods. In
addition, certain of the Restricted Shares are subject to the Company's
repurchase right.
As of December 31, 1996, options to purchase 568,917 shares of Common Stock
were outstanding, of which options to purchase 138,416 shares were then
exercisable. The Company intends to file a Form S-8 registration statement 90
days after the date of this Prospectus of this offering under the Securities Act
to register 1,727,628 shares of Common Stock reserved for issuance under the
Company's 1989 Plan and 1996 Plan and 500,000 shares of Common Stock reserved
for issuance under the Company's Purchase Plan thus permitting the resale of
such shares by non-affiliates in the public market without restriction under the
Securities Act. Such registration statement will become effective immediately
upon filing. In addition, warrants to purchase 121,892 shares of Common Stock
are outstanding, all of which will be eligible for sale 180 days after the date
of this Prospectus.
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has beneficially
owned restricted shares for at least one year but less than two years, will be
entitled to sell in any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then-outstanding shares of the Common Stock
(approximately 10,058 shares immediately after the offering) or (ii) the average
weekly trading volume during the four calendar weeks immediately preceding the
date on which notice of the sale is filed with the Securities and Exchange
Commission. Sales pursuant to Rule 144 are subject to certain requirements
relating to manner of sale, notice and availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not deemed to have been an affiliate of the Company at any time during
the 90 days immediately preceding the sale and who has beneficially owned his or
her shares for at least three years is entitled to sell such shares pursuant to
Rule 144(k) without regard to the limitations described above. In general, under
Rule 701 under the Securities Act as currently in effect, any employee,
consultant or advisor of the Company who purchases shares from the Company in
connection with a compensatory stock or option plan or other written agreement
related to compensation is eligible to resell such shares 90 days after the
effective date of the offering in reliance on Rule 144, but without compliance
with certain restrictions contained in Rule 144.
Prior to this offering, there has been no public market for the Common
Stock of the Company and no predictions can be made as to the effect, if any,
that market sales of shares of Common Stock prevailing from time to time may
have on the market price of the Common Stock. Nevertheless, sales of significant
numbers of shares of the Common Stock in the public market may adversely affect
the market price of the Common Stock offered hereby and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
48
<PAGE> 50
UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC and William Blair & Company, L.L.C. (the
"Representatives"), have severally agreed with the Company, subject to the terms
and conditions of the Underwriting Agreement, to purchase the numbers of shares
of Common Stock set forth opposite their respective names below. The
Underwriters are committed to purchase and pay for all such shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
---------------------------------------------------------------- ----------
<S> <C>
Robertson, Stephens & Company LLC...............................
William Blair & Company, L.L.C. ................................
----------
Total................................................. 2,000,000
==========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer shares of the Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not in excess of $ per share, of which
$ may be reallowed to other dealers. After the initial public offering,
the public offering price, concession and reallowance to dealers may be reduced
by the Representatives. No such reduction shall change the amount of proceeds to
be received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock, at the same price per share as will be paid
for the 2,000,000 shares that the Underwriters have agreed to purchase. To the
extent that the Underwriters exercise such option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage of such
additional shares that the number of shares of Common Stock to be purchased by
it shown in the above table represents as a percentage of the 2,000,000 shares
offered hereby. If purchased, such additional shares will be sold by the
Underwriters on the same terms as those on which the 2,000,000 shares are being
sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Each officer and director and certain holders of shares of the Company's
Common Stock have agreed with the Representatives, for a period of 180 days
after the date of this Prospectus (the "Lock-Up Period"), subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of Common Stock,
any options or warrants to purchase any shares of Common Stock, or any
securities convertible into or exchangeable for shares of Common Stock owned as
of the date of this Prospectus or thereafter acquired directly by such holders
or with respect to which they have or hereafter acquire the power of
disposition, without the prior written consent of Robertson, Stephens & Company
LLC. However, Robertson, Stephens & Company LLC may, in its sole discretion and
at any time without notice, release all or any portion of the securities subject
to lock-up agreements. There are no agreements between the Representatives and
any of the Company's stockholders providing consent by the Representatives to
the sale of shares prior to the expiration of the Lock-Up Period. The Company
has agreed that during the Lock-Up Period, the Company will not, subject to
certain exceptions, without the prior written consent of Robertson, Stephens &
Company LLC, (i) consent to the disposition of any shares held by stockholders
prior to the expiration of the Lock-Up Period or (ii) issue, sell, contract to
sell or otherwise dispose of, any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into, exercisable for or exchangeable for shares of Common Stock, other
49
<PAGE> 51
than the Company's sale of shares in this offering, the issuance of Common Stock
upon the exercise of outstanding options and warrants and the Company's issuance
of options and stock under the existing stock option and stock purchase plans.
See "Shares Eligible for Future Sale."
The Representatives have advised the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock offered hereby will be determined through negotiations between the
Company and the Representatives. Among the factors to be considered in such
negotiations are prevailing market conditions, certain financial information of
the Company, market valuations of other companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant.
Certain persons participating in this offering may engage in transactions,
including syndicate covering transactions or the imposition of penalty bids,
which may involve the purchase of Common Stock on the Nasdaq National Market or
otherwise. Such transactions may stabilize or maintain the market price of the
Common Stock at a level above that which might otherwise prevail in the open
market and, if commenced, may be discontinued at any time.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
50
<PAGE> 52
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
shares of Common Stock offered hereby will be passed upon for the Company by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. As of December 31, 1996, certain members and investment partnerships
of Wilson Sonsini Goodrich & Rosati, P.C., beneficially owned an aggregate of
12,881 shares of the Company's Common Stock. Certain legal matters in connection
with this offering will be passed upon for the Underwriters by Cooley Godward
LLP, San Francisco, California.
EXPERTS
The financial statements of (i) ProBusiness, Inc. as of June 30, 1995 and
1996 and December 31, 1996 and for each of the three years in the period ended
June 30, 1996 and the six-month period ended December 31, 1996, (ii) BeneSphere
Administrators, Inc. as of June 30, 1996 and for the year then ended and (iii)
Dimension Solutions, Inc. as of April 30, 1996 and for the year then ended
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
CHANGE IN ACCOUNTANTS
Effective June 1996, the Company engaged Ernst & Young as its principal
independent auditors to replace Coopers & Lybrand LLP ("Coopers & Lybrand"), who
were dismissed as auditors of the Company effective January 1996. The decision
to change independent auditors was approved by the Company's Audit Committee and
Board of Directors. In connection with audits of the two fiscal years ended June
30, 1995, and in the subsequent interim period, there were no disagreements with
Coopers & Lybrand on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope and procedures which, if not resolved to
the satisfaction of Coopers & Lybrand, would have caused them to make reference
to the matter in their report. The reports of Coopers & Lybrand on the financial
statements of the Company for the past two years did not contain an adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 under the Securities Act,
with respect to the shares of Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. Certain items are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference to such exhibit. A copy of the Registration
Statement, and the exhibits and schedules thereto, may be inspected without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048, and copies of all or any part of the
Registration Statement may be obtained from such offices upon the payment of the
fees prescribed by the Commission. The Commission maintains a World Wide Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the site is http://www.sec.gov.
51
<PAGE> 53
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROBUSINESS SERVICES, INC.
Report of Independent Auditors........................................................ F-2
Balance Sheets........................................................................ F-3
Statements of Operations.............................................................. F-4
Statements of Stockholders' Equity (Deficit).......................................... F-5
Statements of Cash Flows.............................................................. F-6
Notes to Financial Statements......................................................... F-8
BENESPHERE ADMINISTRATORS, INC.
Report of Independent Auditors........................................................ F-21
Balance Sheets........................................................................ F-22
Statements of Operations.............................................................. F-23
Statements of Shareholders' Deficit................................................... F-24
Statements of Cash Flows.............................................................. F-25
Notes to Financial Statements......................................................... F-26
DIMENSION SOLUTIONS, INC.
Report of Independent Auditors........................................................ F-30
Balance Sheet......................................................................... F-31
Statement of Operations............................................................... F-32
Statement of Shareholders' Deficit.................................................... F-33
Statement of Cash Flows............................................................... F-34
Notes to Financial Statements......................................................... F-35
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Introduction.......................................................................... F-38
Statements of Operations for the year ended June 30, 1996............................. F-39
Statements of Operations for the six months ended December 31, 1996................... F-40
Balance Sheet as of December 31, 1996................................................. F-41
Notes to Financial Statements......................................................... F-42
</TABLE>
F-1
<PAGE> 54
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
ProBusiness Services, Inc.
We have audited the accompanying balance sheets of ProBusiness Services,
Inc. as of June 30, 1995 and 1996 and December 31, 1996 and the related
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended June 30, 1996 and for the six month
period ended December 31, 1996. 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 ProBusiness Services, Inc.
at June 30, 1995 and 1996 and December 31, 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1996 and for the six month period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG, LLP
Walnut Creek, California
March 12, 1997
F-2
<PAGE> 55
PROBUSINESS SERVICES, INC.
BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
STOCKHOLDERS'
JUNE 30, EQUITY (DEFICIT)
------------------- DECEMBER 31, DECEMBER 31,
1995 1996 1996 1996
------- -------- ------------ ----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 852 $ 4,041 $ 1,254
Accounts receivable..................... 433 769 1,169
Unbilled receivables.................... 255 585 1,180
Prepaid expenses........................ 113 327 660
------- -------- --------
Total current assets...................... 1,653 5,722 4,263
Equipment, furniture and fixtures, net.... 1,972 3,992 5,933
Other assets.............................. 509 1,225 1,708
------- -------- --------
Total assets.................... $ 4,134 $ 10,939 $ 11,904
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable........................ $ 194 $ 623 $ 680
Accrued liabilities..................... 446 1,458 2,335
Deferred revenue........................ 82 274 370
Notes payable to stockholder............ 236 284 25
Current portion of long-term debt....... 512 -- --
Current portion of capital lease
obligations.......................... 114 111 821
------- -------- --------
Total current liabilities....... 1,584 2,750 4,231
Note payable to stockholder,
non-current............................. -- 250 250
Long-term debt, less current portion...... 1,016 7,822 8,130
Capital lease obligations, less current
portion................................. 168 253 2,179
Commitments
Stockholders' equity (deficit):
Preferred stock, $.01 par value;
authorized: 6,000,000 shares; issued
outstanding: 2,613,301 shares at June
30, 1995 and 2,653,301 shares at June
30 and December 31, 1996; Pro forma:
$.001 par value; authorized:
5,000,000 shares; no shares issued
and outstanding (aggregate
liquidation preference: $12,078,000
at December 31, 1996)................ 27 27 27 $ --
Common stock, $.01 par value;
authorized: 20,000,000 shares; issued
and outstanding: 13,428 shares at
June 30, 1995, 1,214,984 shares at
June 30, 1996 and 1,440,703 shares at
December 31, 1996; Pro forma: $.001
par value; authorized: 60,000,000
shares; issued and outstanding:
6,747,305 shares..................... -- 12 14 7
Additional paid-in capital.............. 11,660 12,532 13,298 13,332
Accumulated deficit..................... (10,321) (12,707) (15,681) (15,681)
Note receivable from stockholder........ -- -- (544) (544)
------- -------- -------- --------
Total stockholders' equity
(deficit)..................... 1,366 (136) (2,886) $ (2,886)
========
------- -------- --------
Total liabilities and
stockholders' equity
(deficit)..................... $ 4,134 $ 10,939 $ 11,904
======= ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 56
PROBUSINESS SERVICES, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------ ------------------
1994 1995 1996 1995 1996
------- ------ ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.................................... $ 4,069 $7,095 $13,863 $5,106 $10,199
Operating expenses:
Cost of providing services............... 1,629 2,703 6,435 2,278 5,238
General and administrative expenses...... 1,202 1,304 2,054 801 1,491
Research and development expenses........ 1,202 1,038 1,257 298 1,308
Client acquisition costs................. 1,467 2,943 5,388 2,068 4,628
Acquisition of in-process technology..... -- -- 711 -- --
------- ------ --------- ------ ---------
Total operating expenses.............. 5,500 7,988 15,845 5,445 12,665
------- ------ --------- ------ ---------
Loss from operations....................... (1,431) (893) (1,982) (339) (2,466)
Interest expense, net...................... 46 86 404 117 508
------- ------ --------- ------ ---------
Net loss................................... $(1,477) $ (979) $(2,386) $ (456) $(2,974)
======= ====== ========= ====== =========
Pro forma net loss per share (Note 1)...... $ (0.29) $ (0.36)
========= =========
Shares used in computing pro forma
net loss per share (Note 1).............. 8,212 8,294
========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE> 57
PROBUSINESS SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------------------- ------------------------------- NOTE TOTAL
ADDITIONAL ADDITIONAL RECEIVABLE STOCKHOLDERS'
PAID-IN PAID-IN ACCUMULATED FROM EQUITY
SHARES AMOUNT CAPITAL SHARES AMOUNT CAPITAL DEFICIT STOCKHOLDER (DEFICIT)
--------- ------ ---------- --------- ------ ---------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, June
30, 1993.... 2,163,189 $ 22 $ 8,675 700 $ -- $ -- $ (7,865) $ -- $ 832
Issuance of
Series D
preferred
stock at
$5.94 per
share, net
of
issuance
costs..... 236,996 2 1,347 -- -- -- -- -- 1,349
Exercise of
stock
options... -- -- -- 2,920 -- 1 -- -- 1
Net loss.... -- -- -- -- -- -- (1,477) -- (1,477)
--------- --- ------- --------- --- ---- -------- ----- -------
Balances, June
30, 1994.... 2,400,185 24 10,022 3,620 -- 1 (9,342) -- 705
Issuance of
Series E
preferred
stock at
$7.94 per
share, net
of
issuance
costs..... 213,116 3 1,635 -- -- -- -- -- 1,638
Exercise of
stock
options... -- -- -- 9,808 -- 2 -- -- 2
Net loss.... -- -- -- -- -- -- (979) -- (979)
--------- --- ------- --------- --- ---- -------- ----- -------
Balances, June
30, 1995.... 2,613,301 27 11,657 13,428 -- 3 (10,321) -- 1,366
Issuance of
Series E
preferred
stock at
$7.94 per
share, net
of
issuance
costs..... 40,000 -- 317 -- -- -- -- -- 317
Exercise of
stock
options... -- -- -- 1,201,556 12 355 -- -- 367
Issuance of
preferred
stock
warrants... -- -- 200 -- -- -- -- -- 200
Net loss.... -- -- -- -- -- -- (2,386) -- (2,386)
--------- --- ------- --------- --- ---- -------- ----- -------
Balances, June
30, 1996.... 2,653,301 27 12,174 1,214,984 12 358 (12,707) -- (136)
Exercise of
stock
options... -- -- -- 225,719 2 605 -- (544) 63
Issuance of
preferred
stock
warrants... -- -- 161 -- -- -- -- -- 161
Net loss.... -- -- -- -- -- -- (2,974) -- (2,974)
--------- --- ------- --------- --- ---- -------- ----- -------
Balances,
December 31,
1996........ 2,653,301 $ 27 $ 12,335 1,440,703 $ 14 $963 $ (15,681) $(544) $(2,886)
========= === ======= ========= === ==== ======== ===== =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 58
PROBUSINESS SERVICES, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
--------------------------- ----------------------
1994 1995 1996 1995 1996
------- ------- ------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss...................................... $(1,477) $ (979) $(2,386) $ (456) $ (2,974)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 230 517 1,146 395 901
Acquisition of in-process technology........ -- -- 711 -- --
Changes in operating assets and liabilities:
Accounts receivable and unbilled
receivables............................ (231) (210) (521) (810) (995)
Prepaid expenses......................... (12) (77) (214) (112) (333)
Other assets............................. (8) (22) 151 (40) (84)
Accounts payable......................... 125 (1) 360 37 57
Accrued liabilities...................... 46 273 650 24 877
Deferred revenue......................... 4 55 (99) 111 96
------ ------ ------ ------ ------
Net cash used in operating activities......... (1,323) (444) (202) (851) (2,455)
INVESTING ACTIVITIES
Purchases of equipment, furniture and
fixtures.................................... (451) (1,281) (2,685) (916) --
Other......................................... -- -- 3 -- --
Capitalization of software development
costs....................................... -- (137) (645) (600) (403)
------ ------ ------ ------ ------
Net cash used in investing activities......... (451) (1,418) (3,327) (1,516) (403)
FINANCING ACTIVITIES
Net decrease in restricted cash............... (284) (41) -- -- --
Borrowings under line of credit agreements.... 283 1,402 5,934 88 11,188
Repayments of borrowings under line of credit
agreements.................................. -- (157) (3,478) (55) (10,687)
Proceeds from note payable.................... 75 -- 4,000 4,000 --
Repayments under note payable................. -- (75) -- -- (259)
Proceeds from notes payable to stockholders... 250 500 250 290 --
Repayments under notes payable to
stockholders................................ -- (566) (227) -- --
Principal payments on capital lease
obligations................................. (63) (103) (128) (55) (234)
Proceeds from issuance of preferred stock..... 1,349 1,638 -- -- --
Proceeds from issuance of common stock........ 1 2 367 53 63
------ ------ ------ ------ ------
Net cash provided by financing activities..... 1,611 2,600 6,718 4,321 71
------ ------ ------ ------ ------
Net (decrease) increase in cash and cash
equivalents................................. (163) 738 3,189 1,954 (2,787)
Cash and cash equivalents, beginning of
period...................................... 277 114 852 852 4,041
------ ------ ------ ------ ------
Cash and cash equivalents, end of period...... $ 114 $ 852 $ 4,041 $ 2,806 $ 1,254
====== ====== ====== ====== ======
</TABLE>
F-6
<PAGE> 59
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
1994 1995 1996 1995 1996
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest.... $ 50 $ 136 $ 377 $ 91 $ 607
====== ====== ====== ====== ======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Purchase of equipment, furniture and
fixtures under capital leases............ $ 198 $ 126 $ 210 $ -- $ 2,644
====== ====== ====== ====== ======
Issuance of warrants in connection with
debt..................................... $ -- $ -- $ 200 $ -- $ 161
====== ====== ====== ====== ======
Note receivable from stockholder issued in
connection with stock option exercise.... $ -- $ -- $ -- $ -- $ 544
====== ====== ====== ====== ======
ACQUISITION OF DIMENSION SOLUTIONS, INC.:
Issuance of Series E preferred stock........ $ -- $ -- $ 317 $ -- $ --
Liabilities assumed......................... -- -- 997 -- --
------ ------ ------ ------ ------
$ -- $ -- $ 1,314 $ -- $ --
====== ====== ====== ====== ======
</TABLE>
See accompanying notes.
F-7
<PAGE> 60
PROBUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS
ENDED DECEMBER 31, 1995 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
ProBusiness Services, Inc. provides employee administrative services for
large employers. The Company's primary service offerings are payroll processing,
payroll tax filing, human resources software and benefits administration,
including the enrollment and processing of flexible benefit plans and COBRA
programs. The Company's proprietary PC-based payroll system offers the
cost-effectiveness of outsourcing and high levels of client service while
providing the flexibility, control, customization and integration of an in-house
system.
On May 23, 1996, the Company acquired substantially all of the business and
assets of Dimension Solutions, Inc. ("Dimension Solutions"), a California
corporation, for $1,314,000. The transaction was recorded under the purchase
method of accounting, and the results of operations of Dimension Solutions, Inc.
have been included in the financial statements of the Company beginning May 24,
1996 (Note 10).
On January 1, 1997, the Company acquired all of the outstanding stock of
BeneSphere Administrators, Inc. ("BeneSphere"), a Washington Corporation, for
$3,255,000, plus contingent payments of up to $4,500,000. The transaction will
be recorded under the purchase method of accounting. Since the acquisition
occurred subsequent to December 31, 1996, no results of operations of BeneSphere
have been included in the historical results of operations (Note 10).
INTERIM FINANCIAL INFORMATION
The consolidated financial statements for the six months ended December 31,
1995 are unaudited but include all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for fair
presentation of its financial position and results of operations. Operating
results for the six months ended December 31, 1996 are not necessarily
indicative of the results that may be expected for any future periods.
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 and the reported amounts of
revenues and expenses during the reported period. Such complex estimates include
provisions for doubtful accounts and penalties and interest relating to payroll
tax processing and estimates regarding the recoverability of capitalized
software. Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures are stated at cost, net of accumulated
depreciation and amortization. Depreciation of equipment, furniture and fixtures
is computed using the straight-line method over the estimated useful lives of
the assets which range from three to seven years. Leasehold
F-8
<PAGE> 61
PROBUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS
ENDED DECEMBER 31, 1995 IS UNAUDITED)
improvements and assets under capital leases are amortized over the shorter of
the life of the asset or the term of the lease.
PAYROLL PROCESSING AND PAYROLL TAX FILING SERVICES
In connection with its payroll processing and payroll tax filing services,
the Company collects funds from clients for payment of payroll taxes, holds such
funds in bank accounts which are segregated from the Company's accounts until
payment is due, remits the funds to the appropriate taxing authority and files
federal, state and local tax returns. For such services, the Company derives its
payroll tax filing revenue from fees charged and from interest income it
receives on tax filing deposits temporarily held pending remittance on behalf of
its clients to taxing authorities. These collected but unremitted funds are not
included in the accompanying balance sheets. Collected but unremitted funds are
invested primarily with high credit quality financial institutions. The amount
of funds held by the Company under these arrangements with customers was $0,
$1,402,000 and $104,417,000 at June 30, 1994, 1995 and 1996, respectively, and
$116,547,000 at December 31, 1996. Interest income earned on collected but
unremitted funds, which is classified as revenue, amounted to approximately $0,
$0 and $1,896,000, for fiscal years 1994, 1995 and 1996 respectively, and $0 and
$1,675,000 for the six months ended December 31, 1995 and 1996, respectively.
The Company's payroll tax service is subject to various risks resulting
from errors and omissions in filing client tax returns and paying tax
liabilities owed to tax authorities on behalf of clients. The Company's clients
calculate and transfer to the Company contributed employer and employee tax
funds. The Company processes the data received from the client and remits the
funds along with a tax return to the appropriate tax authorities when due.
Tracking, processing and paying such tax liabilities is complex. Errors and
omissions have occurred in the past and may occur in the future in connection
with such service. The Company is subject to large cash penalties imposed by tax
authorities for late filings or underpayment of taxes. To date, such penalties
have not been significant. However, there can be no assurance that any
liabilities associated with such penalties will not have a material adverse
effect on the Company's business, financial condition or results of operations.
There can be no assurance that the Company's reserves or insurance for such
penalties will be adequate. In addition, failure by the Company to make timely
or accurate tax return filings and pay tax liabilities when due on behalf of
clients may damage the Company's reputation and adversely affect its
relationships with existing clients and its ability to gain new clients.
The Company's payroll tax service is also dependent upon government
regulations, which are subject to continuous changes. Failure by the Company to
implement these changes into its services and technology in a timely manner
would have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, since a significant portion of
the Company's revenue is derived from interest earned from investing tax funds,
changes in policies relating to withholding federal or state income taxes or
reduction in the time allowed for taxpayers to remit payment for taxes owed to
government authorities would have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company has access to confidential information and to client funds. As
a result, the Company is subject to potential claims by its clients for the
actions of the Company's employees arising from damages to the client's business
or otherwise. There can be no assurance that the Company's fidelity bond and
errors and omissions insurance will be adequate to cover any such claims. Such
claims could have a material adverse effect on the Company's business, financial
condition or results of operations.
F-9
<PAGE> 62
PROBUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS
ENDED DECEMBER 31, 1995 IS UNAUDITED)
The Company's operations are dependent on its ability to protect its
computer systems against damage from a major catastrophe (such as an earthquake
or other natural disaster), fire, power loss, security breach,
telecommunications failure or similar event. No assurance can be given that the
precautions that the Company has taken to protect itself from or minimize the
impact of such events will be adequate. Any damage to the Company's data
centers, failure of telecommunications links or breach of the security of the
Company's computer systems could result in an interruption of the Company's
operations or other loss which may not be covered by the Company's insurance.
Any such event could have a material adverse effect on the Company's business,
financial condition and results of operations.
REVENUE RECOGNITION
Revenue from payroll processing and payroll tax filing services under
client contracts is recognized as the services are performed. Revenue earned in
advance of a client billing is reported as unbilled receivables and is billed in
accordance with the terms of the client contract. Interest income earned on
unremitted payroll tax funds is recognized as earned.
SOFTWARE DEVELOPMENT COSTS
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards No. 86 "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed."
The Company capitalizes software development costs incurred after
establishing technological feasibility of the product prior to the general
release of the service using the product. Costs incurred in connection with the
enhancement of the Company's existing products or after the general release of
the service using the product are expensed in the current period and included in
the research and development costs within the statement of operations. The
Company amortizes the capitalized software development costs on a straight line
basis over the estimated product life, which is generally a 36 month period and
such amortization is included in cost of providing services within the statement
of operations.
CONCENTRATION OF CREDIT RISK
The Company's cash balances are maintained in certificates of deposit,
money market funds and checking accounts with three financial institutions.
The Company's sales are primarily to customers in the western United
States. Credit evaluations are performed as necessary and the Company does not
require collateral from customers.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the FASB issued Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), which establishes a
fair value method of accounting for stock-based compensation plans. The Company
intends to continue to account for employee stock options using the intrinsic
value method under APB Opinion No. 25, "Accounting for Stock Issued to
Employees." SFAS No. 123 will require certain additional disclosures in the
Company's fiscal year 1997 financial statements.
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," which
F-10
<PAGE> 63
PROBUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS
ENDED DECEMBER 31, 1995 IS UNAUDITED)
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the carrying
amount of the assets. The Company has adopted Statement No. 121 in fiscal year
1997, which has not had a material impact.
NET LOSS AND PRO FORMA NET LOSS PER SHARE
Except as noted below, net loss per share is computed using the weighted
average number of common shares outstanding. Common equivalent shares are
excluded from the computation as their effect is antidilutive, except that,
pursuant to applicable Securities and Exchange Commission ("SEC") Staff
Accounting Bulletins, common and common equivalent shares (stock options,
warrants and preferred stock) issued during the period commencing 12 months
prior to the initial filing of a proposed public offering at prices below the
assumed public offering price have been included in the calculation as if they
were outstanding for all periods presented (using the treasury stock method for
stock options and warrants and the as if-converted method for preferred stock at
the estimated initial public offering price). Per share information calculated
on this basis is as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
JUNE 30, DECEMBER 31,
--------------------------------------- --------------------------
1994 1995 1996 1996
----------- ----------- ----------- 1995 -----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss per share................ $ (0.52) $ (0.34) $ (0.80) $ (0.16) $ (0.97)
======== ======== ======= ======= =========
Shares used in calculating net
loss per share.................. 2,859 2,863 2,985 2,904 3,068
======== ======== ======= ======= =========
</TABLE>
Pro forma net loss per share has been computed as described above and also
gives effect to common equivalent shares from convertible preferred stock issued
more than 12 months prior to the proposed initial public offering that will
automatically convert upon completion of the Company's initial public offering
(using the as if-converted method) from the original date of issuance.
2. EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------- DECEMBER 31,
1995 1996 1996
------- ------- ------------
<S> <C> <C> <C>
Equipment and leasehold improvements............... $ 2,710 $ 5,145 $7,584
Furniture and fixtures............................. 532 1,060 1,175
Construction in progress........................... -- -- 90
------- -------
3,242 6,205 8,849
Less accumulated depreciation and amortization..... (1,270) (2,213) (2,916)
------- -------
$ 1,972 $ 3,992 $5,933
======= =======
</TABLE>
Equipment, furniture and fixtures include amounts for assets acquired under
capital leases, principally production, office and computer equipment, of
$434,000, $644,000 and $3,487,000 at June 30, 1995 and 1996, and December 31,
1996, respectively. Accumulated amortization of these assets was $174,000,
$313,000 and $534,000 at June 30, 1995 and 1996 and December 31, 1996,
respectively.
F-11
<PAGE> 64
PROBUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS
ENDED DECEMBER 31, 1995 IS UNAUDITED)
3. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------- DECEMBER 31,
1995 1996 1996
------- ------- ------------
<S> <C> <C> <C>
Borrowings under line of credit agreements......... $ 1,528 $ 3,984 $4,259
Subordinated notes payable......................... -- 3,838 3,871
------- -------
1,528 7,822 8,130
Less current portion............................... (512) -- --
------- -------
$ 1,016 $ 7,822 $8,130
======= =======
</TABLE>
LINE OF CREDIT AGREEMENTS
At June 30, 1996, the Company had a line of credit agreement (the
"Agreement") which provided for borrowings that were limited to the lesser of
$4,000,000 or three times the Company's average monthly cash collections over
the three month period prior to the borrowing date, less $150,000. In October
1996, the Agreement was amended to provide for borrowings that are limited to
the lesser of $10,000,000, of which $1,000,000 is designated as an equipment
acquisition loan, or four times the Company's average monthly cash collections,
as defined, (decreased by a factor of one month for each 30% decrease in the
Company's revenue, measured on a quarterly basis) over the four month period
prior to the borrowing date, less $150,000. Borrowings outstanding under the
Agreement bear interest at the bank's prime rate plus 1% (8.25% at June 30, 1996
and December 31, 1996) and interest is payable monthly. The Company is required
to pay a minimum of $30,000 in interest quarterly plus other renewal fees under
the Agreement. Borrowings outstanding under the Agreement are collateralized by
substantially all of the Company's assets not otherwise encumbered. The
financial covenants of the Agreement require the Company to maintain a minimum
cash balance. The cash balance requirement at June 30, 1996 and December 31,
1996 was not material. The Agreement expires in April 1998, but is subject to
automatic renewal for an additional year at the option of the Company. The
Company has classified the $4,259,000 of borrowings under the Agreement as
non-current liabilities at December 31, 1996 as management expects to maintain
adequate cash collections during fiscal year 1997 to support at least such level
of borrowings.
Equipment acquisition loans bear interest at the bank's prime rate plus 1%.
Borrowings are to be repaid over a 36 month period following a six month period
of payments for interest only. There were no borrowings under the equipment
acquisition loans during fiscal year 1996 or the six months ended December 31,
1996.
In connection with line of credit agreements, the Company issued warrants
in 1995 and 1996 to purchase 9,446 and 9,500 shares, respectively, of the
Company's Series E preferred stock with an exercise price of $7.94 per share
which expire in January 2000 through April 2001. The Company deemed the fair
value of these warrants to be immaterial at the date of issuance.
NOTES PAYABLE TO STOCKHOLDERS
Notes payable to stockholder at June 30, 1995 and 1996 and December 31,
1996, includes notes due to an officer, director and majority stockholder of the
Company. The notes are due on demand and bear interest at the rate of 10%. The
amounts due to this majority stockholder were $236,000, $284,000 and $25,000 at
June 30, 1995 and 1996 and December 31, 1996, respectively.
F-12
<PAGE> 65
PROBUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS
ENDED DECEMBER 31, 1995 IS UNAUDITED)
Note payable to stockholder, non-current at June 30, 1996 and December 31,
1996 includes a $250,000 subordinated note payable, which is payable to a
stockholder, assumed in the acquisition of Dimension Solutions, Inc. The note is
due in fiscal 1999 and bears interest at the prime rate plus 2.5% per annum
(Note 10).
SUBORDINATED NOTES PAYABLE
On October 20, 1995 and December 12, 1995, the Company issued $1,100,000
and $2,900,000, respectively of subordinated notes payable to investors
("Subordinated Notes"). The Subordinated Notes and interest accrued thereon are
due and payable on demand upon the earlier of three years from the date of the
notes or, at the option of the Company or the Subordinated Notes holders, within
30 days after the completion of a public offering of the Company's common stock
which triggers the automatic conversion of the Company's outstanding preferred
stock into common stock. The Subordinated Notes accrue interest at the rate of
8% per annum, and such interest is payable on a quarterly basis.
In connection with the issuance of the Subordinated Notes, the Company
issued warrants to purchase 125,926 shares of the Company's Series E Preferred
Stock at $7.94 per share. The warrants, to the extent not previously exercised,
shall expire on the earlier of (i) the date the underlying Subordinated Notes
are repaid in full, (ii) immediately prior to the completion of a public
offering of the Company's common stock which triggers the automatic conversion
of the Company's outstanding preferred stock into common stock, or (iii) any
sale, consolidation or merger of the Company in which the holders of the
Company's securities before the transaction beneficially own less than 50% of
the outstanding voting securities of the surviving entity after the transaction.
The Company deemed the fair value of warrants to be $200,000, which amount has
been recorded as a reduction of the carrying amount of the Subordinated Notes
and is being amortized using the effective interest method over the term of the
Subordinated Notes.
EQUIPMENT LEASE LINE
On July 9, 1996, the Company entered into an equipment lease line agreement
under which the Company may acquire up to $2,000,000 of equipment through July
1997. In connection with the equipment lease line, the Company issued a warrant
to purchase 10,000 shares of the Company's Series E Preferred Stock at an
exercise price of $7.94 per share. The warrant is exercisable for five years
from the date of the final equipment purchase. The Company deemed the fair value
of this warrant to be immaterial at the date of issuance. As of December 31,
1996, the Company had used approximately $1,870,000 of the equipment lease line.
Amounts outstanding under the agreement are classified as capital lease
obligations in the balance sheet and are secured by the equipment.
F-13
<PAGE> 66
PROBUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS
ENDED DECEMBER 31, 1995 IS UNAUDITED)
4. LEASE OBLIGATIONS
The Company leases its facilities and various equipment under
non-cancellable operating leases which expire at various dates through 2001. The
Company is also obligated under a number of capital equipment leases expiring at
various dates through 2001. The future minimum lease payments under capital and
operating leases subsequent to December 31, 1996 for capital leases and June 30,
1996 for operating leases are summarized as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1997............................................................ $1,187 $ 1,176
1998............................................................ 1,161 1,208
1999............................................................ 1,066 908
2000............................................................ 355 365
2001............................................................ -- 188
----- ------
Total minimum lease payments.................................... 3,769 $ 3,845
======
Less amounts representing interest.............................. (769)
-----
Present value of net minimum capital lease obligations.......... 3,000
Less current portion............................................ (821)
-----
$2,179
=====
</TABLE>
In September 1996, the Company entered into a lease arrangement under which
the lessor will build a facility into which the Company will move its corporate
headquarters. This operating lease will expire approximately eleven years from
completion of the facility and will require the Company to pay a minimum average
monthly lease payment of approximately $167,000 over the life of the lease and
such lease payments are not included in the above table as the completion date
is not known. As part of the build to suit lease agreement, the Company issued a
warrant to purchase 22,500 shares of its Series E Preferred Stock at an exercise
price of $7.94 per share. The warrant is exercisable for the lesser of eight
years from the date of completion or five years from the date of an initial
public offering which triggers conversion of Series E Preferred Stock. The
Company valued the warrants at $161,000.
Rent expense was $248,000, $407,000 and $707,000 for fiscal years 1994,
1995 and 1996, and $305,000 and $624,000 for the six months ended December 31,
1995 and 1996, respectively.
5. INCOME TAXES
As of June 30, 1996, the Company had federal and state net operating loss
carryforwards of approximately $9,028,000 and $3,424,000, respectively. As of
December 31, 1996, the Company had federal and state net operating loss
carryforwards of $11,530,000 and $4,123,000, respectively. The Company also had
federal and state research and development tax credit carryforwards of
approximately $274,000 and $123,000, respectively as of June 30, 1996, and
$385,000 and $168,000, respectively, as of December 31, 1996. The federal net
operating loss and federal credit carryforwards will expire at various dates
beginning with the fiscal year ending 1999 through 2011, if not utilized. The
state net operating loss carryforwards and state credit carryforwards will
expire at various dates beginning with the fiscal year ending 1997 through 2011,
if not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code and similar state
F-14
<PAGE> 67
PROBUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS
ENDED DECEMBER 31, 1995 IS UNAUDITED)
provisions. The annual limitation may result in the expiration of net operating
losses and credits before utilization.
Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------- DECEMBER 31,
1995 1996 1996
------- ------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $ 2,539 $ 3,279 $ 4,172
Research and development credit carryforwards............ 355 397 553
Other.................................................... 98 162 204
------- -------
Gross deferred tax assets.................................. 2,992 3,838 4,929
Less valuation allowance................................... (2,988) (3,597) (4,682)
------- -------
Deferred tax assets........................................ 4 241 247
Deferred tax liabilities:
Capitalized software development costs................... (4) (130) (154)
Other.................................................... -- (111) (93)
------- -------
Gross deferred tax liabilities............................. (4) (241) (247)
------- -------
Net deferred taxes......................................... $ -- $ -- $ --
======= =======
</TABLE>
A valuation allowance has been established and, accordingly, no benefit has
been recognized for the Company's net operating losses and other deferred tax
assets. The net valuation allowance increased by $609,000 during the year ended
June 30, 1996 and $1,085,000 during the six month period ended December 31,
1996. The Company believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability of
the deferred tax assets such that a full valuation allowance has been recorded.
These factors include the Company's history of net losses since its inception
and expected near-term future losses. The Company will continue to assess the
realizability of the deferred tax assets based on actual and forecasted
operating results.
6. STOCKHOLDERS' EQUITY
PREFERRED STOCK
As of June 30, 1996 and December 31, 1996, the Company has authorized
6,000,000 shares of preferred stock, of which 1,500,000 shares have been
designated as Series A, B and C shares, 500,000 shares have been designated as
Series D and E shares and 500,000 shares are undesignated.
F-15
<PAGE> 68
PROBUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS
ENDED DECEMBER 31, 1995 IS UNAUDITED)
Preferred stock consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
SHARES LIQUIDATION
OUTSTANDING PREFERENCE
----------- -----------
<S> <C> <C>
Series
A:................................................ 920,000 $ 3,501
B................................................. 919,400 3,497
C................................................. 260,785 1,288
D................................................. 300,000 1,782
E................................................. 253,116 2,010
--------- -------
Total........................................ 2,653,301 $12,078
========= =======
</TABLE>
Holders of the Company's Series A, B, C, D and E preferred stock are
entitled to receive non-cumulative dividends in the amount of $.02 per share per
annum in preference to holders of the Company's common stock at the discretion
of the Board of Directors. No dividends were declared during fiscal years 1994,
1995 and 1996 and during the six months ended December 31, 1996.
Each holder of preferred stock may, at any time, convert such holder's
preferred stock to shares of common stock. Holders of preferred stock generally
have the same voting rights as holders of common stock. Preferred stock is
initially convertible at the ratio of one share of preferred stock to two shares
of common stock, subject to adjustment to prevent dilution in the event that the
Company issues additional shares. Additionally, conversion is automatic upon the
completion of an underwritten public offering of common stock in which the price
per share is not less than $3.50 per share with aggregate gross proceeds to the
Company of at least $7,000,000.
In the event of the liquidation of the Company, holders of Series A, B, C,
D and E preferred stock are entitled to receive an amount per share equal to
$3.805, $3.804, $4.94, $5.94 and $7.94, respectively, prior and in preference to
any distribution of Company assets to holders of common stock, plus all declared
and unpaid dividends.
STOCK SPLIT
In November 1994, the Company's stockholders authorized a two-for-one split
of its common stock. All references in the accompanying financial statements to
the number of shares of common have been restated to reflect the stock split.
PROPOSED PUBLIC OFFERING OF COMMON STOCK
On November 15, 1996, the Board of Directors authorized the Company to
proceed with an initial public offering of the Company's common stock. If the
offering is consummated under the terms presently anticipated, all of the
currently outstanding preferred stock will automatically convert into 5,306,602
shares of common stock. Prior to the offering, the Company plans to
reincorporate in Delaware and authorize 5,000,000 shares of undesignated
preferred stock, increase the number of authorized shares of common stock to
60,000,000 and adopt a par value of $.001 per share for common and preferred
shares. In addition, the Company will change its name from ProBusiness, Inc. to
ProBusiness Services, Inc. The unaudited pro forma stockholders' equity
(deficit) at December 31, 1996 gives effect to the conversion of all outstanding
shares of convertible preferred stock into 5,306,602 shares of common stock upon
the completion of the Company's initial public offering of shares.
F-16
<PAGE> 69
PROBUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS
ENDED DECEMBER 31, 1995 IS UNAUDITED)
NOTES RECEIVABLE
In December 1996 the Company advanced $544,000 in the form of a note
receivable from a stockholder, who is also an executive officer, in connection
with the exercise of options to purchase common stock. The note is due on
December 2000, bears interest at 6.31% and is full recourse.
In January 1997, the Company advanced $544,000 in the form of a note
receivable from a stockholder, who is also an executive officer, in connection
with the exercise of options to purchase common stock. The note is due on
January 2001, bears interest at 6.10% and is full recourse.
In January 1997, the Company advanced $250,000 against a note receivable
from a stockholder and executive officer. The note is due in January 2001, bears
interest at 6.10% and is full recourse.
7. STOCK OPTION AND STOCK PURCHASE PLANS
STOCK OPTION PLANS
The Company's 1989 Stock Option Plan (the "1989 Plan") provides for the
granting to employees (including officers and employee directors) of "incentive
stock options" within the meaning of the Internal Revenue Code of 1986, as
amended (the "Code") and for the granting to employees, directors and
consultants of nonstatutory stock options. At December 31, 1996, 2,987,248
shares of common stock are reserved for the exercise of stock options under the
1989 Plan. Individuals owning more than 10% of the Company's stock are not
eligible to participate in the plan unless the option's price is at least 110%
of the fair market value of the common stock at the date of grant. Options
issued to employees owning less than 10% of the Company's stock may be granted
at prices of at least 100% (85% for nonemployees) of the fair market value of
the stock at the grant date. Under the terms of the plan, options generally vest
at the rate of 25% on the first anniversary of the vesting commencement date as
defined by the option agreement and ratably on a monthly basis for the remaining
shares thereafter until fully vested at the end of the fourth year. The options
expire at the earlier of ten years from date of grant or six months after
termination of employment with the Company and are not transferable.
In 1996, the Company established the 1996 Executive Stock Option Plan
("Executive Plan") which provides for stock options to employees and
consultants. Under the Executive Plan, the Board of Directors may grant
nonstatutory stock options to employees and consultants and incentive stock
options to employees only. At June 30, 1996 and December 31, 1996, 750,000
shares of common stock are reserved for exercise of stock options under the 1996
Plan. The grant of incentive stock option to an employee who owns stock
representing more than 10% of the voting power of all classes of stock of the
Company must be no less than 110% of the fair market value per share on the date
of grant. Fair market value is determined by the Board of Directors. For all
other employees the options must be no less than 100% of the fair market value
per share on the date of grant. All nonstatutory stock options granted are at a
price that is determined by the Board of Directors. The options generally expire
ten years from the date of grant and are exercisable as determined by the Board
of Directors.
In November 1996, the Board of Directors approved, effective upon the
offering and subject to stockholder approval, an amendment and restatement of
the Executive Plan to rename 1996 Executive Stock Option Plan to the 1996 Stock
Option Plan (the "1996 Plan") and authorized for issuance under the 1996 Plan a
total of 750,000 shares plus any unused or cancelled shares under the 1989 Plan,
and an annual increase to be added on each anniversary date of the adoption of
the 1996 Plan equal to the lesser of (a) 250,000 shares, (b) 2% of the
outstanding shares of common stock on such date or (c) a lesser amount
determined by the Board. The 1996 Plan provides for grants to employees
(including
F-17
<PAGE> 70
PROBUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS
ENDED DECEMBER 31, 1995 IS UNAUDITED)
officers and employee directors) of incentive stock options and for the granting
to employees, directors and consultants of nonqualified stock options.
A summary of the activity under the 1989 and 1996 Plans is set forth below:
<TABLE>
<CAPTION>
EXERCISE PRICE PER NUMBER
SHARE OF SHARES
------------------ -----------
<S> <C> <C>
Outstanding at June 30, 1993................. $0.190 - $0.297 603,646
Granted.................................... 0.247 - 0.395 293,800
Exercised.................................. 0.190 - 0.297 (2,920)
Canceled................................... 0.190 - 0.297 (12,080)
----------- ----------
Outstanding at June 30, 1994................. 0.190 - 0.395 882,446
Granted.................................... 0.295 - 0.395 164,436
Exercised.................................. 0.190 - 0.395 (9,808)
Canceled................................... 0.190 - 0.395 (18,178)
----------- ----------
Outstanding at June 30, 1995................. 0.190 - 0.395 1,018,896
Granted.................................... 0.395 - 4.75 1,459,530
Exercised.................................. 0.190 - 0.435 (1,201,556)
Canceled................................... 0.190 - 0.395 (634,069)
----------- ----------
Outstanding at June 30, 1996................. 0.190 - 4.75 642,801
Granted.................................... 4.753 - 7.25 189,750
Exercised.................................. 0.190 - 7.25 (225,719)
Canceled................................... 0.247 - 7.25 (37,915)
----------- ----------
Outstanding at December 31, 1996............. $0.190 - $ 7.25 568,917
=========== ==========
</TABLE>
As of December 31, 1996, options to purchase 138,416 shares of common stock
were vested and exercisable at an average exercise price of $0.44 per share, and
at December 31, 1996, options to purchase 351,862 shares were available for
future grant. Subsequent to December 31, 1996, the Company increased the shares
available for future grant under the 1989 Plan by 1,375,766, subject to
stockholder approval.
1996 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in November 1996, effective upon the offering
and subject to stockholder approval. The Company has reserved a total of 500,000
shares of common stock for issuance under the Purchase Plan, with an annual
increase to be added on each anniversary date of the adoption of the Purchase
Plan equal to the lesser of (a) 150,000 shares, (b) 1.5% of the outstanding
shares on such date or (c) a lesser amount determined by the Board. The price of
common stock purchased under the Purchase Plan will be 85% of the lower of the
fair market value of the common stock on the first or last day of each purchase
period. The Purchase Plan will be implemented by an initial offering period of
approximately 24 months commencing on the first trading day on or after the
effective date of the offering and ending on the last trading day on or before
April 30, 1998. Subsequent offering periods will last 24 months and will
commence on the first trading day on or after November 1 and May 1 of each year
during which the Purchase Plan is in effect, and will terminate on the last
trading day in the periods ending 24 months later. Each 24-month offering period
will consist of 4 purchase periods of approximately 6 months duration. The
Purchase Plan will be administered by the Board of Directors or
F-18
<PAGE> 71
PROBUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS
ENDED DECEMBER 31, 1995 IS UNAUDITED)
by a committee appointed by the Board. Employees are eligible to participate if
they are customarily employed by the Company or any designated subsidiary for at
least 20 hours per week and for more than 5 months in any calendar year.
8. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Tax Deferred Savings Plan (the "Plan"), for the
benefit of certain qualified employees. Employees may elect to contribute to the
Plan, through payroll deductions of up to 18% of their compensation, subject to
certain limitations. The Company, at its discretion, may make additional
contributions. The Company did not make any contributions to the Plan in fiscal
years 1994, 1995 or 1996 or in the six month period ended December 31, 1996.
9. BALANCE SHEET DETAIL
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------- DECEMBER 31,
1995 1996 1996
------ ------ ------------
<S> <C> <C> <C>
Capitalized software development costs,
net........................................ $ 137 $ 835 $1,036
Covenant-not-to-compete...................... -- 41 34
Prepaid royalties............................ -- 100 100
Deferred loan costs.......................... -- -- 161
Restricted cash deposits..................... 325 -- --
Deposits and other........................... 47 249 377
---- ------
$ 509 $1,225 $1,708
==== ======
</TABLE>
Accumulated amortization for capitalized software development costs was
approximately $0, $172,000 and $330,000 at June 30, 1995 and 1996 and December
31, 1996, respectively.
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------- DECEMBER 31,
1995 1996 1996
------ ------ ------------
<S> <C> <C> <C>
Accrued expenses............................. $ 262 $ 737 $1,271
Accrued tax penalties........................ -- -- 488
Accrued payroll and related expenses......... 100 301 344
Accrued acquisition costs.................... -- 172 124
Other........................................ 84 248 108
---- ------
$ 446 $1,458 $2,335
==== ======
</TABLE>
10. BUSINESS ACQUISITIONS
On May 23, 1996, the Company acquired substantially all of the business and
assets of Dimension Solutions, Inc. The total purchase price of $1,314,000
consisted of the issuance of 40,000 shares of Series E convertible preferred
stock with a fair value of $317,000 and the assumption of $997,000 of Dimension
Solutions, Inc. liabilities (including acquisition costs).
F-19
<PAGE> 72
PROBUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS
ENDED DECEMBER 31, 1995 IS UNAUDITED)
A summary of the purchase price allocation is as follows (in thousands):
<TABLE>
<S> <C>
Current and other assets............................................ $ 318
In-process technology (charged to operations)....................... 711
Developed software.................................................. 225
Covenant-not-to-compete............................................. 60
------
Total purchase price allocation..................................... $1,314
======
</TABLE>
On January 1, 1997, the Company acquired all of the outstanding stock of
BeneSphere Administrators, Inc. The purchase price consisted of $500,000 in
cash, of which $250,000 was paid upon closing and $250,000 is payable on April
30, 1997, warrants to purchase 50,000 shares of common stock at a price of $9.00
per share with an estimated fair value of $160,000 and are exercisable for five
years from the date of grant, the assumption of $2,595,000 of BeneSphere's
liabilities (including acquisition costs) plus contingent payments based on
BeneSphere's revenues in excess of certain base amounts, as defined in the
agreement, over the next two calendar years following the acquisition which
cannot exceed $4,500,000. The contingent payments are payable in cash in four
quarterly payments beginning April 1, 1998 for the calendar year 1997 payment
and April 1, 1999 for the calendar year 1998 payment. Interest shall accrue at a
rate of 9% per annum on all earned but unpaid balances.
A summary of the purchase price allocation is as follows (in thousands):
<TABLE>
<S> <C>
Current and other assets.................................................... $ 673
Goodwill.................................................................... 2,272
Customer list............................................................... 310
------
Total purchase price allocation............................................. $3,255
======
</TABLE>
Goodwill arising from the acquisition will be amortized on a straight-line
basis over 20 years.
The following unaudited pro forma information represents the combined
results of operations as if the acquisitions of Dimension Solutions and
BeneSphere had occurred as of the beginning of the periods presented and does
not purport to be indicative of what would have occurred had the acquisitions
been made as of that date or the results which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
1996 1996
---------- ----------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Pro forma net revenues............................. $ 17,341 $ 11,855
Pro forma net loss................................. (2,730) (3,678)
Pro forma net loss per share....................... $ (0.33) $ (0.44)
</TABLE>
The pro forma results include the historical operations of the Company and
the historical operations of the acquired businesses adjusted to reflect the
amortization of intangible assets resulting from the acquisitions of $247,000
and $76,000 for the year ended June 30, 1996 and the six months ended December
31, 1996, respectively. The pro forma results do not include salaries and
bonuses of $123,000 and $779,000 for the year ended June 30, 1996 and the six
months ended December 31, 1996, respectively, paid to executives of BeneSphere
which will not be incurred on an ongoing basis. The pro forma results do not
include any adjustments for the Company's proposed initial public offering.
F-20
<PAGE> 73
PROBUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS
ENDED DECEMBER 31, 1995 IS UNAUDITED)
11. SUBSEQUENT EVENTS
PRIVATE FINANCING
In March 1997, the Company issued 574,733 shares of $.01 par value Series F
preferred stock to entities affiliated with General Atlantic Partners LLC at
$17.40 per share resulting in gross proceeds of approximately $10 million.
Holders of Series F preferred stock are entitled to receive non-cumulative
dividends in the amount of $.02 per share per annum in preference to holders of
the Company's common stock at the discretion of the Board of Directors. In the
event dividends are paid on any share of common stock, an additional dividend
shall be paid with respect to all outstanding shares of Series F preferred in an
amount equal per share of Series F preferred (on an as-if-converted to common
stock basis) to the amount paid or set aside for each share of common stock.
Each holder of Series F preferred stock, may, at any time, convert such
holder's preferred stock to shares of common stock. Holders of Series F
preferred stock generally have the same voting rights as holders of common
stock. Series F preferred stock is initially convertible at the ratio of one
share of preferred stock to two shares of common stock, subject to adjustment to
prevent dilution in the event that the Company issues additional shares.
Additionally, conversion of Series F preferred stock is automatic upon the
completion of an underwritten public offering of common stock in which the price
per share is not less than $8.70 per share with aggregate gross proceeds to the
Company of at least $10,000,000.
In the event of liquidation of the Company, holders of Series F preferred
stock are entitled to receive an amount per share equal to $17.40 prior and in
preference to any distribution of the Company assets to holders of common stock,
plus all declared and unpaid dividends.
F-21
<PAGE> 74
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
BeneSphere Administrators, Inc.
We have audited the accompanying balance sheet of BeneSphere
Administrators, Inc. as of June 30, 1996 and the related statements of
operations, shareholders' deficit, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides 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 BeneSphere Administrators,
Inc. at June 30, 1996 and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Seattle, Washington
December 20, 1996
F-22
<PAGE> 75
BENESPHERE ADMINISTRATORS, INC.
BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
JUNE 30, ------------
1996
-------- (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 2 $ 5
Accounts receivable............................................... 116 120
Prepaid sales commissions......................................... 200 155
Prepaids and deposits............................................. 22 63
----- -------
Total current assets................................................ 340 343
Furniture, equipment, and improvements, at cost less accumulated
depreciation of $195 and $254 at June 30, 1996 and December 31,
1996, respectively................................................ 259 330
----- -------
Total assets.............................................. $ 599 $ 673
===== =======
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Borrowings under line of credit................................... $ 111 $ 188
Accounts payable.................................................. 125 243
Accrued liabilities............................................... 68 507
Customer deposits................................................. 724 1,032
Bonus payable to shareholder...................................... -- 275
----- -------
Total current liabilities................................. 1,028 2,245
Commitments and contingencies
Shareholders' deficit:
Common stock, no par value:
50,000 shares authorized; 20,000 and 27,156 shares issued and
outstanding at June 30, 1996 and December 31, 1996,
respectively.................................................. 68 332
Accumulated deficit............................................... (497) (1,904)
----- -------
Total shareholders' deficit............................... (429) (1,572)
----- -------
Total liabilities and shareholders' deficit............... $ 599 $ 673
===== =======
</TABLE>
See accompanying notes.
F-23
<PAGE> 76
BENESPHERE ADMINISTRATORS, INC.
STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31,
JUNE 30, ------------------
1996 1995 1996
---------- ------ -------
(UNAUDITED)
<S> <C> <C> <C>
Revenues.................................................... $2,424 $1,046 $ 1,656
Costs and expenses:
Operating costs........................................... 873 364 882
Selling, general, and administrative...................... 1,614 776 2,170
------ ------ ------
Total costs and expenses.................................... 2,487 1,140 3,052
------ ------ ------
Loss from operations........................................ (63) (94) (1,396)
Other expense, net.......................................... 8 3 11
------ ------ ------
Net loss.................................................... $ (71) $ (97) $(1,407)
====== ====== ======
Net loss per common share................................... $(3.55) $(4.85) $(70.21)
====== ====== ======
Number of shares used in calculation of net loss per common
share..................................................... 20,000 20,000 20,039
====== ====== ======
</TABLE>
See accompanying notes.
F-24
<PAGE> 77
BENESPHERE ADMINISTRATORS, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
(In thousands, except share amounts)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ACCUMULATED
SHARES CAPITAL DEFICIT TOTAL
------ ------- ----------- -------
<S> <C> <C> <C> <C>
Balances at June 30, 1995........................ 20,000 $ 68 $ (375) $ (307)
Distributions paid to shareholders............. -- -- (51) (51)
Net loss....................................... -- -- (71) (71)
------ ---- ------- -------
Balances at June 30, 1996........................ 20,000 68 (497) (429)
Issuance of common stock to shareholder in lieu
of cash compensation (unaudited)............ 7,156 264 -- 264
Net loss (unaudited)........................... -- -- (1,407) (1,407)
------ ---- ------- -------
Balances at December 31, 1996 (unaudited)........ 27,156 $ 332 $(1,904) $(1,572)
====== ==== ======= =======
</TABLE>
See accompanying notes.
F-25
<PAGE> 78
BENESPHERE ADMINISTRATORS, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31,
JUNE 30, -----------------
1996 1995 1996
---------- ----- -------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss..................................................... $ (71) $ (97) $(1,407)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Noncash items:
Depreciation and amortization........................... 90 44 59
Loss on disposal of furniture and equipment............. 8 -- --
Issuance of common stock to shareholder in lieu of cash
compensation.......................................... -- -- 264
Changes in operating assets and liabilities:
Accounts receivable..................................... (86) (21) (4)
Prepaid sales commissions............................... (98) (147) 45
Prepaids and deposits................................... (11) (2) (41)
Accounts payable........................................ 90 9 118
Accrued liabilities..................................... (96) (44) 439
Customer deposits....................................... 348 454 308
Bonus payable to shareholder............................ -- -- 275
----- ----- -----
Net cash provided by operating activities.................... 174 196 56
INVESTING ACTIVITY -- purchases of furniture and equipment... (234) (100) (130)
FINANCING ACTIVITIES
Proceeds from line of credit borrowings...................... 439 60 651
Repayments of line of credit borrowings...................... (339) (71) (574)
Distributions paid to shareholders........................... (51) -- --
----- ----- -----
Net cash provided by (used in) financing activities.......... 49 (11) 77
----- ----- -----
Net (decrease) increase in cash and cash equivalents......... (11) 85 3
Cash and cash equivalents, beginning of period............... 13 13 2
----- ----- -----
Cash and cash equivalents, end of period..................... $ 2 $ 98 $ 5
===== ===== =====
Supplemental disclosure of cash flow information:
Interest paid on line of credit borrowings................. $ 3 $ -- $ 11
===== ===== =====
</TABLE>
See accompanying notes.
F-26
<PAGE> 79
BENESPHERE ADMINISTRATORS, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1996
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX-MONTHS
ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
1. REPORTING ENTITY
BeneSphere Administrators, Inc. is the successor corporation to A-Plus
Administrators, Inc. d.b.a. Benefits-Plus Administrators (APA), a Washington
Corporation, and Baransky Reppond, Inc. d.b.a. Benefits-Plus Administrators
(BRI), a California Corporation. In December 1995, BRI was merged into APA (see
Note 3). Subsequent to June 30, 1996, APA's name was changed to BeneSphere
Administrators, Inc. (BAI).
BAI provides benefits administration services which include flexible
benefits enrollment and processing, COBRA administration, and consolidated
billing and eligibility tracking and premium payment services for small and
medium-sized companies located in the Pacific Northwest and northern California.
2. SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED FINANCIAL INFORMATION
The financial statements as of December 31, 1996 and for the six-months
ended December 31, 1996 and 1995 are unaudited. The unaudited financial
statements include all normal recurring adjustments which BAI's management
considers necessary for a fair presentation. Operating results for the six
months ended December 31, 1996 are not necessarily indicative of the results
that may be expected for any future periods.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Such estimates include provisions for doubtful accounts and
estimates of accrued liabilities to be paid. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS
All highly liquid investments with maturities of three months or less when
purchased are considered to be cash equivalents.
FURNITURE, EQUIPMENT, AND IMPROVEMENTS
Furniture, equipment, and improvements are recorded at cost. Depreciation
is computed utilizing accelerated depreciation methods over the estimated useful
lives of the assets, which range from five to seven years.
CUSTOMER DEPOSITS AND PREPAID SALES COMMISSIONS
Customer deposits for set-up and administrative services and related
revenues are deferred and amortized ratably on a monthly basis over a period
that does not exceed the initial term of the contract. Sales commissions
associated with set-up and administrative services are prepaid and recognized
ratably on a monthly basis over the same contract period.
F-27
<PAGE> 80
BENESPHERE ADMINISTRATORS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FINANCIAL INSTRUMENTS
BAI's financial instruments consist of cash and cash equivalents, accounts
receivable and payable, and short-term borrowings. The fair values of these
instruments approximate their recorded values.
CONCENTRATIONS OF CREDIT RISK
BAI's cash balances are maintained in checking accounts with one financial
institution and, as such, are subject to federal deposit insurance limitations.
Credit evaluations of BAI's customers are performed as necessary, and BAI
does not require collateral from its customers. No individual customer or
industry comprises a significant concentration of business for BAI.
PER SHARE DATA
Net loss per common share is computed based on the weighted average number
of common shares outstanding during the period.
3. BUSINESS COMBINATIONS
APA and BRI were members of a controlled group of corporations. Effective
December 31, 1995, BRI was merged into APA through the issuance of 10,000 shares
of APA's common stock for all of BRI's outstanding common stock. The merger has
been accounted for in a manner similar to pooling of interests and, accordingly,
the accompanying financial statements include the accounts of BRI on a
historical cost basis and its operations for all periods prior to the merger.
Details of the results of operations of the previously separate companies for
the six-month period ended December 31, 1995 follow:
<TABLE>
<CAPTION>
REVENUES NET LOSS
-------- --------
(IN THOUSANDS)
<S> <C> <C>
APA.................................... 3$35.... $(72)
BRI.................................... 711 (25)
------ ----
Combined............................... $1,046 $(97)
====== ====
</TABLE>
The shareholders believe that the merger of BRI and APA was a tax-free
transaction. However, should the Internal Revenue Service successfully challenge
BAI on this matter, BAI's shareholders have agreed to reimburse BAI and its
successors for any required tax payments. As a result, no amounts have been
accrued in the accompanying financial statements related to the potential
payment and reimbursement of taxes from the merger.
Under a stock acquisition agreement (the Agreement), BAI's shareholders
agreed to sell all of their outstanding common stock shares to ProBusiness
Services, Inc. (PBI) for cash and additional future consideration as of January
1, 1997. Since the acquisition occurred subsequent to December 31, 1996, no
adjustments to recorded amounts have been included in the historical balance
sheet or results of operations. PBI, a privately held California corporation
which provides payroll processing services, has committed to fund the operations
of BAI through at least January 1, 1998.
4. LINE OF CREDIT
BAI has a line of credit with a bank on which it could borrow up to a
maximum of $275,000 at June 30, 1996 (increased to $425,000 in October 1996).
Outstanding borrowings on the line of credit bear interest at the bank's prime
rate plus 1%, (9.25% at June 30, 1996), are collateralized by
F-28
<PAGE> 81
BENESPHERE ADMINISTRATORS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
substantially all assets of BAI, and are guaranteed by certain shareholders.
Interest on the outstanding borrowings is payable monthly. All outstanding
principal borrowings are due upon demand or, if no demand is made, on January
31, 1997. The line of credit agreement also provides, among other matters,
restrictions on additional financing, mergers, and acquisitions.
5. INCOME TAXES
BRI was a C Corporation under the Internal Revenue Code (IRC) and was,
therefore, subject to corporate income tax. Amounts related to income taxes
payable and temporary differences between the carrying amounts of assets and
liabilities for financial reporting and income tax purposes prior to and at the
date of merger were immaterial.
APA, with the consent of its shareholders, elected to be taxed as an S
Corporation under the IRC. As a result, BAI, as APA's successor, is generally
not subject to corporate income tax, and the shareholders separately report
their respective pro rata shares of BAI's income, deductions, losses, and
credits on their personal income tax returns. It is BAI's practice to accrue and
pay cash distributions to shareholders in amounts sufficient for them to meet
their personal income tax obligations resulting from the S Corporation status.
Retained earnings (accumulated deficit) are charged at the time the estimated
distributions are accrued.
6. RELATED-PARTY TRANSACTIONS
BAI is charged and allocated certain administrative and overhead costs
incurred and paid by various controlled group members on BAI's behalf. These
costs totaled $206,000 for the year ended June 30, 1996, and $62,000 and
$177,000 for the six months ended December 31, 1995 and 1996, respectively, and
are included in selling, general, and administrative expenses.
Effective December 31, 1996, BAI issued 7,156 shares of common stock to an
existing shareholder for past services rendered. A value of $264,000 was
assigned to the common stock by BAI, which was derived by an independent third
party utilizing a discounted cash flows analysis, less a marketability discount.
Payroll withholding taxes in the amount of $240,000 have been accrued by BAI at
December 31, 1996 and will be paid by BAI on behalf of the shareholder. BAI also
agreed to pay a one-time $275,000 cash bonus to the shareholder. Compensation
expense in the amount of $779,000 was recorded in selling, general, and
administrative expenses for the six months ended December 31, 1996 related to
the stock and bonus transactions.
7. 401(K) PLAN
BAI participates in a 401(k) plan sponsored by a controlled group member.
The plan is available to all employees meeting certain eligibility requirements.
Contributions by BAI are based on a matching formula as defined in the plan.
Contribution expense related to the plan totaled $4,000 for the year ended June
30, 1996.
F-29
<PAGE> 82
BENESPHERE ADMINISTRATORS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. LEASE COMMITMENTS
BAI leases office space under noncancelable operating leases which contain
rent escalation clauses and renewal options. In addition to base rent, BAI is
required to pay a pro rata portion of the building's monthly taxes and operating
costs as additional rent. Future minimum base lease payments under noncancelable
operating leases at June 30, 1996 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
JUNE 30 (IN THOUSANDS)
-------------------------------------
<S> <C>
1997................................. $115
1998................................. 115
1999................................. 87
2000................................. 88
2001................................. 100
Thereafter........................... 194
----
$699
====
</TABLE>
Rent expense totaled $97,000 for the year ended June 30, 1996, and $41,000
and $55,000 for the six months ended December 31, 1995 and 1996, respectively.
9. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Accrued taxes payable on shareholder stock
compensation...................................... $ -- $240
Other accrued liabilities........................... 68 267
--- ----
$ 68 $507
=== ====
</TABLE>
F-30
<PAGE> 83
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Dimension Solutions, Inc.
We have audited the accompanying balance sheet of Dimension Solutions, Inc.
as of April 30, 1996 and the related statements of operations, shareholders'
deficit, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 Dimension Solutions, Inc. at
April 30, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
Walnut Creek, California
November 20, 1996
F-31
<PAGE> 84
DIMENSION SOLUTIONS, INC.
BALANCE SHEET
APRIL 30, 1996
(In thousands, except share amounts)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................................... $ 4
Accounts receivable................................................................ 99
Prepaid expenses................................................................... 3
-----
Total current assets................................................................. 106
Equipment, furniture and fixtures (less accumulated depreciation of $50)............. 69
Other assets......................................................................... 5
-----
Total assets............................................................... $ 180
=====
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................................................... $ 59
Accrued expenses................................................................... 88
Customer deposits.................................................................. 320
Note payable to shareholder........................................................ 25
-----
Total current liabilities.................................................. 492
Note payable to shareholder.......................................................... 250
Commitments
Shareholders' equity:
Common stock, no par value, authorized: 100,000 shares; issued and outstanding:
10,000 shares................................................................... 30
Accumulated deficit................................................................ (592)
-----
Total shareholders' deficit................................................ (562)
-----
Total liabilities and shareholders' deficit................................ $ 180
=====
</TABLE>
See accompanying notes.
F-32
<PAGE> 85
DIMENSION SOLUTIONS, INC.
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1996
(In thousands, except share and per share amounts)
<TABLE>
<S> <C>
Revenues........................................................................... $ 1,054
Cost of revenues................................................................... 492
-------
Gross profit....................................................................... 562
Operating expenses
Research and development......................................................... 225
Selling, general and administrative expenses..................................... 458
-------
Total operating expenses........................................................... 683
-------
Loss from operations............................................................... (121)
Interest expense, net.............................................................. 28
-------
Net loss........................................................................... $ (149)
=======
Net loss per share................................................................. $(14.90)
=======
Number of shares used in calculation of the net loss per share..................... 10,000
=======
</TABLE>
See accompanying notes.
F-33
<PAGE> 86
DIMENSION SOLUTIONS, INC.
STATEMENT OF SHAREHOLDERS' DEFICIT
YEAR ENDED APRIL 30, 1996
(In thousands, except share amounts)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------- ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT DEFICIT
------- ------- ------------ --------------
<S> <C> <C> <C> <C>
Balances, April 30, 1995......................... 10,000 $30 $ (443) $ (413)
Net loss....................................... -- -- (149) (149)
------ --- ------- -----
Balances, April 30, 1996......................... 10,000 $30 $ (592) $ (562)
====== === ======= =====
</TABLE>
See accompanying notes.
F-34
<PAGE> 87
DIMENSION SOLUTIONS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED APRIL 30, 1996
(In thousands)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss............................................................................. $(149)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation....................................................................... 25
Changes in operating assets and liabilities:
Accounts receivable............................................................. 12
Prepaid expenses................................................................ (3)
Other assets.................................................................... 1
Accounts payable................................................................ (23)
Accrued expenses................................................................ 2
Customer deposits............................................................... (133)
-----
Net cash used in operating activities................................................ (268)
INVESTING ACTIVITIES
Additions to equipment, furniture and fixtures....................................... (32)
-----
Net cash used in investing activities................................................ (32)
FINANCING ACTIVITIES
Borrowings under line of credit agreement............................................ 185
Proceeds from note payable to shareholder............................................ 25
-----
Net cash provided by financing activities............................................ 210
-----
Net change in cash and cash equivalents.............................................. (90)
Cash, beginning of year.............................................................. 94
-----
Cash, end of year.................................................................... $ 4
=====
Supplemental disclosure of cash flow information:
Cash paid for interest............................................................. $ 25
=====
Supplemental disclosure of noncash financing activities:
Obligation under line-of-credit agreement exchanged for note payable to a
shareholder..................................................................... $ 250
=====
</TABLE>
See accompanying notes.
F-35
<PAGE> 88
DIMENSION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Dimension Solutions, Inc. (the "Company") is a California corporation which
sells personal computer-based human resource management software and maintenance
support to small to medium sized employers throughout the United States.
On May 23, 1996, substantially all of the Company's business and assets
were acquired by ProBusiness, Inc. (the "Purchaser" or "ProBusiness"). No
adjustments to recorded amounts of assets or liabilities resulting from the
acquisition have been included in the accompanying financial statements.
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 the
reported amounts of revenues and expenses during any reported period. Actual
results could differ from these estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation of property and equipment is computed using the
double declining balance method over the estimated useful lives of the assets
which range from three to seven years.
REVENUE RECOGNITION AND DEFERRED IMPLEMENTATION COSTS
The Company recognizes revenue from the sale of human resource management
software when a noncancellable license agreement has been signed, the product
has shipped and all significant contractual obligations have been satisfied. The
Company's revenue recognition policy is in compliance with the provisions of the
American Institute of Certified Public Accountants Statement of Position 91-1,
"Software Revenue Recognition."
Human resource software maintenance revenue is billed annually, in advance.
Customer deposits for software maintenance are deferred and recognized ratably
over the term of the maintenance agreement.
INCOME TAXES
The Company accounts for its income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
PER SHARE DATA
Net loss per common share is computed based on the weighted average number
of common shares outstanding during the year.
2. NOTES PAYABLE TO SHAREHOLDER
On October 15, 1995, the Company received $25,000 in cash in exchange for a
note payable to a shareholder which is due on January 31, 1997. Interest is
payable monthly at a rate equal to the lesser
F-36
<PAGE> 89
DIMENSION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
of the prime rate plus 2 1/2 percent or the maximum allowable rate under
California law. The entire principal amount is payable on the due date.
During the year ended April 30, 1996, the Company had a balance of $250,000
outstanding under a line of credit agreement. This liability was assumed by a
shareholder of the Company. In exchange, the Company signed a note payable with
the shareholder for $250,000. Interest on the note is payable by the Company
from time to time at a rate equal to the lesser of prime plus 2 1/2 percent or
the maximum allowed rate based on California law. The total outstanding
principal is due on the earlier of the closing of an initial public offering by
ProBusiness or December 31, 1999.
3. LEASE OBLIGATIONS
The Company leases its facilities and various equipment under
noncancellable operating leases which expire at various dates through September
1999. The future minimum lease payments under operating leases subsequent to
April 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30, (IN THOUSANDS)
--------------------------------------------- --------------
<S> <C>
1997......................................... $ 60
1998......................................... 57
1999......................................... 57
2000......................................... 24
----
Total minimum lease payments................. $198
====
</TABLE>
Rent expense for the year ended April 30, 1996 was $67,000.
4. INCOME TAXES
Effective June 16, 1994, the Company's stockholders elected to have the
Company taxed as an S Corporation for federal and state income tax purposes,
whereby taxable income is allocated to the individual stockholders. The Company
is subject to a state franchise tax of 1.5% of taxable income.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement No. 109"). Under Statement No. 109, the liability method is used to
account for income taxes. Temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes are immaterial.
5. SHAREHOLDERS' EQUITY
The Company was originally capitalized on June 16, 1994 with $30,000 in
consideration paid by investors who received a total of 10,000 shares of common
stock. No additional capital transactions occurred through April 30, 1996.
6. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Tax Deferred Savings Plan (the "Plan"), for the
benefit of certain qualified employees. Employees may elect to contribute to the
Plan, through payroll deductions subject to certain limitations. The Company may
make contributions in accordance with the Plan. The Company did not make any
contributions to the Plan in 1996.
F-37
<PAGE> 90
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
The selected unaudited pro forma condensed consolidated financial
information for the Company set forth below gives effect to the acquisition of
certain assets and liabilities of Dimension Solutions, Inc. (Dimension) and the
acquisition of BeneSphere Adminstrators, Inc. (BeneSphere). The historical
financial information set forth below has been derived from, and is qualified by
reference to, the financial statements of the Company, Dimension and BeneSphere
and should be read in conjunction with those financial statements and the notes
thereto included elsewhere herein. The selected unaudited pro forma condensed
consolidated statements of operations data for the year ended June 30, 1996 and
the six months ended December 31, 1996 set forth below give effect to the
acquisitions as if they occurred on July 1, 1995. The selected unaudited pro
forma condensed consolidated balance sheet as of December 31, 1996 set forth
below gives effect to the acquisition of BeneSphere as if it occurred on
December 31, 1996. The selected unaudited pro forma condensed consolidated
financial information set forth below reflects certain adjustments, including,
among others, adjustments to reflect the amortization of the excess purchase
prices and the elimination of certain non-recurring expenses. The information
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Financial
Statements -- the Company, Dimension Solutions, Inc. and BeneSphere
Administrators, Inc." The selected unaudited pro forma condensed consolidated
financial information set forth below does not purport to represent what the
consolidated results of operations or financial condition of the Company would
actually have been if the Dimension and BeneSphere acquisitions and related
transactions had in fact occurred on such dates or to project the future
consolidated results of operations or financial condition of the Company.
F-38
<PAGE> 91
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE YEAR ENDED JUNE 30, 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
COMPANY DIMENSION BENESPHERE (2)(3) PRO FORMA
FOR THE FOR THE FOR THE PRO FORMA FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED BUSINESS YEAR ENDED
JUNE 30, APRIL 30, JUNE 30, COMBINATION JUNE 30,
1996(1) 1996 1996 COMBINED ADJUSTMENTS 1996
------------- ------------- ------------ -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue........................... $13,863 $ 1,054 $2,424 $17,341 $ -- $ 17,341
Operating expenses:
Cost of providing services...... 6,435 492 873 7,800 75 7,875
General and administrative
expenses..................... 2,054 458 591 3,103 49 3,152
Research and development
expenses..................... 1,257 225 -- 1,482 -- 1,482
Client acquisition costs........ 5,388 -- 1,023 6,411 -- 6,411
Acquisition of in-process
technology................... 711 -- -- 711 -- 711
------- ------ ------ ------- ----- ----------
Total operating expenses..... 15,845 1,175 2,487 19,507 124 19,631
------- ------ ------ ------- ----- ----------
Loss from operations.............. (1,982) (121) (63) (2,166) (124) (2,290)
Interest expense, net............. 404 28 8 440 440
------- ------ ------ ------- ----- ----------
Net loss.......................... $(2,386) $ (149) $ (71) $(2,606) $(124) $ (2,730)
======= ====== ====== ======= ===== ==========
Pro forma net loss per common
share(5)........................ $ (0.33)
==========
Number of shares used to compute
pro forma net loss per common
share(6)........................ 8,212
==========
</TABLE>
See accompanying notes.
F-39
<PAGE> 92
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
(2)(3)
COMPANY BENESPHERE PRO FORMA PRO FORMA
FOR THE SIX FOR THE SIX BUSINESS FOR THE SIX
MONTHS ENDED MONTHS ENDED COMBINATION MONTHS ENDED
DEC. 31, 1996 DEC. 31, 1996 COMBINED ADJUSTMENTS DEC. 31, 1996
------------- ------------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenue....................... $10,199 1,6$56..... $11,855 $ -- $11,855
Operating expenses:
Cost of providing
services................. 5,238 882 6,120 -- 6,120
General and administrative
expenses................. 1,491 1,362 2,853 (703) 2,150
Research and development
expenses................. 1,308 -- 1,308 -- 1,308
Client acquisition costs.... 4,628 808 5,436 -- 5,436
------- ------- ------- ----- ----------
Total operating
expenses............... 12,665 3,052 15,717 (703) 15,014
------- ------- ------- ----- ----------
Loss from operations.......... (2,466) (1,396) (3,862) 703 (3,159)
Interest expense, net......... 508 11 519 -- 519
------- ------- ------- ----- ----------
Net loss...................... $(2,974) $(1,407) $(4,381) $ 703 $(3,678)
======= ======= ======= ===== ==========
Pro forma net loss per common
share(5).................... $ (0.44)
==========
Number of shares used to
compute pro forma net loss
per common share(6)......... 8,294
==========
</TABLE>
See accompanying notes.
F-40
<PAGE> 93
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
(4)
PRO FORMA
COMPANY BENESPHERE BUSINESS PRO FORMA
AS OF AS OF COMBINATION AS OF
DEC. 31, 1996 DEC. 31, 1996 COMBINED ADJUSTMENTS DEC. 31, 1996
------------- ------------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets................ $ 4,263 $ 343 $ 4,606 $ -- $ 4,606
Equipment, furniture and
fixtures, net............... 5,933 330 6,263 -- 6,263
Other assets.................. 1,708 -- 1,708 -- 1,708
Customer lists................ -- -- -- 310 310
Goodwill...................... -- -- -- 2,272 2,272
-------- ------- -------- ------ --------
Total assets.................. 11$,904..... $ 673 $12,577 2,$582.... $ 15,159
======== ======= ======== ====== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities........... $ 4,231 $ 2,245 $ 6,476 $ 350 $ 6,826
Current-related party
payable..................... -- -- -- 500 500
Long-term debt, less current
portion..................... 8,380...... -- 8,380 -- 8,380
Capital lease obligations,
less current portion........ 2,179 -- 2,179 -- 2,179
Stockholders' equity
(deficit):
Preferred stock............. 27 -- 27 -- 27
Common stock................ 14 332 346 (332) 14
Additional paid-in
capital.................. 13,298 -- 13,298 160 13,458
Accumulated deficit......... (15,681) (1,904) (17,585) 1,904 (15,681)
Stockholder's note.......... (544) -- (544) -- (544)
-------- ------- -------- ------ --------
Total stockholders' equity
(deficit)................... (2,886) (1,572) (4,458) 1,732 (2,726)
-------- ------- -------- ------ --------
Total liabilities and
stockholders' equity
(deficit)................... $ 11,904 $ 673 $12,577 $ 2,582 $ 15,159
======== ======= ======== ====== ========
</TABLE>
See accompanying notes.
F-41
<PAGE> 94
NOTES TO THE SELECTED UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
Pro forma and offering adjustments for the unaudited pro forma condensed
consolidated balance sheet as of December 31, 1996 and statements of operations
for the six months ended December 31, 1996 and for the year ended June 30, 1996,
are as follows:
(1) The operating results for the Company for the year ended June 30, 1996
include 38 days of operations for Dimension which are immaterial and, therefore,
are not adjusted in the pro forma results of operations for the year ended June
30, 1996.
(2) Reflects the amortization of the cost over the fair value of net assets
acquired for the Dimension and BeneSphere acquisitions as follows:
<TABLE>
<CAPTION>
COST OVER
THE FAIR VALUE
OF NET AMORTIZATION
ASSETS ACQUIRED PERIOD
--------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Dimension:
In-process technology....................... $ 711 N/A
Covenants not-to-compete.................... 60 3 yrs
Software.................................... 225 3 yrs
BeneSphere:
Goodwill.................................... 2,272 20 yrs
Customer list............................... 310 8 yrs
</TABLE>
(3) Selling, general and administrative expenses have been reduced by
$123,000 to eliminate salaries paid to executives of BeneSphere during the
period ended June 30, 1996, and $504,000 and $275,000 in stock and cash bonuses,
respectively, paid to the president of BeneSphere during the six months ended
December 31, 1996, which will not be incurred on an ongoing basis as the
salaries have been negotiated for future periods.
(4) To reflect the purchase of all of the outstanding stock of BeneSphere
Administrators, Inc. for a total purchase price of $3,255,000. The purchase
price consisted of a $250,000 cash payment, a $250,000 short-term note payable,
the assumption of BeneSphere's net liabilities (including acquisition costs) and
the value of $160,000 assigned to warrants issued in connection with the
acquisition.
(5) Pro forma net loss per share is computed using the weighted average
number of shares of common stock outstanding. Such pro forma net loss reflects
the impact of the adjustments above.
(6) Pro forma net loss per share is computed using the weighted average
number of shares of common stock outstanding plus common equivalent shares from
convertible preferred stock, that will be converted upon the closing of the
Company's proposed initial public offering (using the if-converted method), have
been included in the computation whether dilutive or anti-dilutive. Pursuant to
the Securities and Exchange Commission Staff Accounting Bulletins, common and
common equivalent shares issued by the Company at proceeds below the assumed
public offering price for the twelve-month period prior to the offering have
been included in the computation as if they were outstanding for all periods
presented (using the treasury stock method at the estimated initial public
offering price) whether dilutive or anti-dilutive.
Historical net loss per share has not been presented for any periods due to
certain material non-recurring charges, which occurred in various periods, and
pro forma adjustments which adjust acquired subsidiaries operations to more
appropriately reflect ongoing operations. Thus, management considers that
historical net loss per share is not indicative of the ongoing entity and has
not presented such information.
F-42
<PAGE> 95
LOGO
<PAGE> 96
APPENDIX -- DESCRIPTION OF GRAPHICS
COVER:
The Front Cover of the Prospectus includes the ProBusiness logo at the
top of the page.
Description of LOGO: The ProBusiness logo consists of the word
"ProBusiness," all in black letters and all in lower case letters except the
"P" and the "B," with a red triangle to the left of a triangular space in the
side of the "P."
INSIDE FRONT COVER:
The Inside Front Cover of the Prospectus includes the headers in italics
"Client Service", "Technology," "Expertise" and "Comprehensive Solutions," each
on a separate line and indented a space from the preceding header. Below the
headers is an arrow pointing to the ProBusiness logo at the bottom right side of
the page. The background photo behind the text depicts ProBusiness service
personnel assisting a client.
At the bottom of the page is the following:
"CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK, INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR
THE IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
'UNDERWRITING.'"
GATEFOLD:
The Gatefold consists of three horizontal tiers, the top and the middle
containing text and photographs and the bottom containing text related to the
text and photographs in the middle tier. The top tier consists of captions
accompanying the following: the ProBusiness logo, a rectangular collage of
photographs and a rectangle containing client logos. In the background of the
top tier is a photograph of ProBusiness service personnel assisting a client.
The middle tier consists of the words "Business Partnership" at the far left in
italics, then three equal-size rectangular photographs and, at the far right, a
collage of four overlapping rectangular photographs. The middle tier
photographs are connected by downward arrows to corresponding captions, which
are in the bottom tier of the gatefold.
Description #1: Description of the left section of the upper tier of
the gatefold: The ProBusiness logo with text below it stating, "ProBusiness is
a leading provider of outsourced payroll processing, payroll tax filing and
benefits administration services to large employers."
Description #2: Description of the center section of the upper tier of
the gatefold: A collage of photographs depicting various documents and items
related to the services provided by ProBusiness.
Caption: "ProBusiness focuses on providing high quality and
cost-effective employee administrative services to large employers." This
caption appears above the collage in Description #2.
Description #3: Description of the right section of the upper tier of
the gatefold: A rectangle containing the logos of the following eight
companies: CCH Incorporated, Sunglass Hut
<PAGE> 97
International, Inc., Fujitsu, Ltd., Informix Corporation, Advanced Micro
Devices, Inc., 3Com Corporation, AST Research, Inc., and AllAmerica.
Caption: "ProBusiness's clients include many large employers in diverse
industries." This caption appears below the rectangle containing the clients'
logos in Description #3.
Description #4: Description of the left section of the middle tier of
the gatefold: "Business Partnership."
Caption: "ProBusiness differentiates itself from its competitors by
establishing a business partnership with each client. The Company develops
relationships with each client by assessing payroll processing needs,
reengineering and designing payroll systems and processes and implementing a
cost-effective solution. The Company maintains an ongoing relationship by
providing proactive account management and technical support." This caption
appears below the text described in Description #4.
Description #5: Description of the left center section of the middle
tier of the gatefold: A rectangular photograph of an account manager of
ProBusiness assisting a client.
Caption: "Client Service - Delivering high quality, responsive and
professional client service is a key competitive advantage of the Company.
Each client works with a personal account manager who serves as the client's
day-to-day contact and is responsible for meeting the client's needs. The
Company believes that its low client-to-account manager ratio is a key factor
in enabling the Company to achieve a high payroll client retention rate." This
caption appears below the photograph in Description #5.
Description #6: Description of the center section of the middle tier of
the gatefold: A rectangular photograph of two employees of the Company using
personal computers in the Company's production facility.
Caption: "Technology - ProBusiness's PC-based, distributed architecture
is reliable, flexible and scalable. This technology enables the Company to
provide high levels of client service and customized solutions for each client
that can be easily upgraded and integrated with the client's other systems."
This caption appears below the photograph in Description #6.
Description #7: Description of the right center section of the middle
tier of the gatefold: A rectangular photograph of a ProBusiness specialist
diagramming a client's payroll system on a white board.
Caption: "Expertise - ProBusiness delivers technical expertise through
specialists in design, process, implementation and systems integration.
The Company delivers functional and regulatory expertise in payroll, payroll tax
and employee benefits." This caption appears below the photograph in
Description #7.
<PAGE> 98
Description #8: Description of the right section of the middle tier of
the gatefold: Rectangular photographs of documents and a computer screen, all
of which relate to the service offerings provided by ProBusiness.
Caption: "Comprehensive Solutions - ProBusiness provides employers with
a broad range of employee administrative services: payroll processing; payroll
tax filing, human resources software and employee benefits administration,
including flexible benefits enrollment and processing and COBRA administration."
This caption appears below the photograph in Description 8.
BACK COVER:
The Back Cover of the Prospectus includes the ProBusiness logo in the
center of the page.
<PAGE> 99
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale and distribution of Common Stock being registered. All amounts are
estimates except the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
Registration fee.................................................. $ 8,364
NASD filing fee................................................... 3,260
Printing expenses................................................. 165,000
Legal fees and expenses........................................... 300,000
Accounting fees and expenses...................................... 400,000
Blue sky fees and expenses........................................ 5,000
Transfer agent and registrar fees and expenses.................... 15,000
Nasdaq National Market application and listing fees............... 43,394
Miscellaneous..................................................... 9,982
-------
Total................................................... $ 950,000
=======
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Article Ninth of the Amended and Restated Certificate
of Incorporation of the Company, and to Article Ninth of the form of the Amended
and Restated Certificate of Incorporation to be effective upon the completion of
this offering filed herewith as Exhibits 3.1 and 3.2; Article VI of the By laws
of the Company, filed herewith as Exhibit 3.3; Section 145 of the Delaware
General Corporation Law; and the form of indemnification agreement filed
herewith as Exhibit 10.11 which, among other things, and subject to certain
conditions, authorize the Company to indemnify, or indemnify by their terms, as
the case may be, the directors and officers of the Company against certain
liabilities and expenses incurred by such persons in connection with claims made
by reason of their being such a director or officer.
Section 8 of the form of the Underwriting Agreement filed as Exhibit 1.1 to
this Registration Statement provides for indemnification by the Underwriters and
their controlling persons, on the one hand, and of the Company and its
controlling persons on the other hand, for certain liabilities arising under the
Securities Act of 1933, as amended (the "Act"), the Exchange Act of 1934, as
amended or otherwise.
The Company intends to obtain directors and officers insurance providing
indemnification for certain of the Company's directors, officers, affiliates,
partners or employees for certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since February 1994, the Company has sold unregistered securities in the
amounts, on the dates and for the aggregate amounts of consideration set forth
below. The shares of Preferred Stock issued or issuable are convertible into
shares of Common Stock at the rate of 2 shares of Common Stock for each share of
Series E Preferred Stock.
(a) In September 1994, the Company issued 197,468 shares of Series E
Preferred Stock to 53 purchasers at $7.94 per share for an aggregate purchase
price of $1,567,896.
II-1
<PAGE> 100
(b) In October 1994, the Company issued an additional 15,648 shares of
Series E Preferred Stock to 4 purchasers at $7.94 per share for an aggregate
purchase price of $124,245.
(c) In January 1995, the Company issued a warrant to purchase 9,446 shares
of its Series E Preferred Stock at an exercise price of $7.94 per share to
Silicon Valley Bank in connection with a line of credit.
(d) In October 1995, the Company issued warrants to purchase 34,630 shares
of Series E Preferred Stock of the Company at an exercise price of $7.94 per
share to 9 stockholders under a loan agreement whereby the Company issued
promissory notes to such stockholders with an aggregate principal amount of
$1,100,000.
(e) In December 1995, the Company issued warrants to purchase 91,296 shares
of Series E Preferred Stock of the Company at an exercise price of $7.94 per
share to 37 stockholders under a loan agreement whereby the Company issued
promissory notes to such stockholders with an aggregate principal amount of
$2,900,000.
(f) In April 1996, the Company issued a warrant to purchase 9,500 shares of
its Series E Preferred Stock at an exercise price of $7.94 per share to Coast
Business Credit ("Coast") in connection with a line of credit.
(g) In May 1996, in connection with its acquisition of Dimension Solutions,
Inc. ("Dimension Solutions") the Company issued 40,000 shares of Series E
Preferred Stock to Dimension Solutions.
(h) In July 1996, the Company issued a warrant to purchase 10,000 shares of
its Series E Preferred Stock at an exercise price of $7.94 per share to LINC
Capital Management in connection with an equipment lease.
(i) In October 1996, the Company issued a warrant to purchase 9,500 shares
of its Series E Preferred Stock at an exercise price of $7.94 per share to Coast
in connection with an amendment to the line of credit.
(j) In November 1996, the Company issued a warrant to purchase 22,500
shares of its Series E Preferred Stock at an exercise price of $7.94 per share
to Britannia Hacienda V Limited Partnership and its partners in connection with
a facilities lease.
(k) In January 1997, the Company issued warrants to purchase an aggregate
of 50,000 shares of its Common Stock at an exercise price of $9.00 per share to
two of the former shareholders of BeneSphere in connection with the Company's
acquisition of BeneSphere.
(l) In March 1997, the Company issued 574,733 shares of Series F Preferred
Stock to two purchasers at $17.40 per share for an aggregate purchase price of
$10,000,354.
(m) Since 1989 and through December 31, 1996, the Company has granted stock
options to purchase 2,180,022 shares of the Company's Common Stock at a weighted
average exercise price of $0.85 per share to employees, consultants and
directors pursuant to its 1996 Stock Option Plan, or predecessor plans. Of these
options, 168,886 have been canceled without being exercised, 1,440,703 have been
exercised and 568,917 remain outstanding.
The sales and issuances of securities described in paragraphs (a) through
(l) were deemed to be exempt from registration under the Securities Act by
virtue of Rule 4(2) of the Securities Act as transactions by an issuer not
involving a public offering. The sales and issuances of securities described in
paragraph (m) were deemed to be exempt from registration from the Securities Act
by virtue of Rule 701 of the Securities Act as they were offered and sold
pursuant to written compensatory benefit plans as provided by Rule 701.
II-2
<PAGE> 101
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization, dated May 23, 1996, between Registrant and
Dimension Solutions.
2.2 Stock Acquisition Agreement, dated January 1, 1997, between Registrant and
BeneSphere Administrators, Inc.
3.1 Amended and Restated Certificate of Incorporation.
3.2 Form of Amended and Restated Certificate of Incorporation, to be effective upon
completion of the offering.
3.3 Bylaws of the Registrant.
4.1 * Specimen Common Stock Certificate of Registrant.
4.2 Amended and Restated Registration Rights Agreement, dated March 12, 1997 between
Registrant, General Atlantic Partners 39, L.P., GAP Coinvestment Partners, L.P.
and certain stockholders of Registrant.
4.3 Warrant to Purchase Stock, dated January 13, 1995, between Registrant and Silicon
Valley Bank and related Antidilution and Registration Rights Agreements.
4.4(a) Warrant to Purchase Stock, dated April 30, 1996, between Registrant and Coast
Business Credit and related Antidilution and Registration Rights Agreement.
4.4(b) Warrant to Purchase Stock, dated October 25, 1996, between Registrant and Coast
Business Credit and related Antidilution and Registration Rights Agreement.
4.5 Warrant to Purchase Series E Preferred Stock, dated July 31, 1996, between
Registrant and LINC Capital Management.
4.6(a) Warrant Purchase Agreement, dated November 14, 1996, between Registrant and
certain purchasers.
4.6(b) Warrant to Purchase Series E Preferred Stock, dated November 14, 1996, between
Registrant and T.J. Bristow and Elizabeth S. Bristow.
4.6(c) Warrant to Purchase Series E Preferred Stock, dated November 14, 1996, between
Registrant and SDK Incorporated.
4.6(d) Warrant to Purchase Series E Preferred Stock, dated November 14, 1996, between
Registrant and Laurence Shushan and Magdalena Shushan.
4.7(a) Warrant to Purchase Common Stock, dated January 7, 1997, between Registrant and
Louis R. Baransky.
4.7(b) Warrant to Purchase Common Stock, dated January 7, 1997, between Registrant and
Ben W. Reppond.
4.8 Form of Note issued by Registrant on October 20, 1995 and December 12, 1995 (see
also Exhibit 10.12).
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Lease Agreement, dated August 12, 1992, First Amendment to Lease, dated March 23,
1994, Second Amendment to Lease dated December 9, 1994, and Third Amendment to
Lease, dated March 16, 1995 between Registrant and Hacienda Park Associates.
10.2 Lease Agreement and Addendum Number One, dated August 26, 1993, and First
Amendment to Lease, dated March 23, 1994, between Registrant and Hacienda Park
Associates.
</TABLE>
II-3
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------
<C> <S>
10.3 Lease Agreement, dated March 23, 1994, First Amendment, dated May 25, 1994 and
Second Amendment, dated October 5, 1994 between Registrant and Hacienda Park
Associates.
10.4 Lease Agreement, dated November 13, 1995, and First Amendment to Lease, dated
February 23, 1996, between Registrant and Hacienda Park Associates.
10.5 Built-to-Suit Lease, dated September 27, 1996, between Registrant and Britannia
Hacienda V Limited Partnership.
10.6 Office Lease, dated March 22, 1996, between Benefits-Plus Administrators, Inc.
and the Trustees under the Will and of the Estate of James Campbell, Deceased and
related Guaranty of Lease.
10.7 1996 Stock Option Plan and related Form of Stock Option Agreement.
10.8 1996 Employee Stock Purchase Plan.
10.9 Employment and Non-competition Agreement, dated May 23, 1996 between Registrant
and Dwight L. Jackson.
10.10 Equipment Lease and Addendum No. 1, dated July 31, 1996, between Registrant and
LINC Capital Management and related Equipment Schedule.
10.11 Form of Indemnification Agreement between Registrant and executive officers and
directors.
10.12 Loan Agreement, dated October 20, 1995 between Registrant and certain investors,
and First Amendment to Loan Agreement, dated December 12, 1995, between
Registrant and certain investors.
10.13 Loan and Security Agreement, dated April 30, 1996, between Registrant and Coast
Business Credit, Amendment Number One, dated October 25, 1996 and Amendment
Number Two, dated January 6, 1997.
10.14 Promissory Note, dated December 5, 1996, between Registrant and Robert Schneider.
10.15 Promissory Note, dated January 7, 1997, between Registrant and Alison Elder.
10.16 Promissory Note, dated January 31, 1997, between Registrant and Jeffrey Bizzack.
10.17 Office Building Lease between Koll Center Irvine Number Two and Registrant dated
November 7, 1994, and Amendments Nos. 1 and 2, thereto.
10.18 Lease (Full Service Office Lease), as amended by and between Callahan Pentz
Properties and Registrant, assigned to Registrant on February 29, 1996.
10.19 Promissory Note, dated December 31, 1996 between BeneSphere Administrators, Inc.
and Alison Elder.
10.20 Series F Stock Purchase Agreement dated March 12, 1997, between Registrant,
General Atlantic Partners 39, L.P. and GAP Coinvestment Partners, L.P.
10.21 Stockholders Agreement dated March 12, 1997 between Registrant, General Atlantic
Partners 39, L.P., GAP Coinvestment Partners, L.P. and Sinton (as defined
therein).
11.0 Statement regarding computation of Registrant's per share earnings.
16.1 Letter re Change in Certifying Accountant.
21.0 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit 5.1).
24.1 Powers of attorney (See page II-6)
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
II-4
<PAGE> 103
(B) FINANCIAL STATEMENT SCHEDULES
SCHEDULE II VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 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 Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Pleasanton,
State of California, on this 12th day of March 1997.
PROBUSINESS SERVICES, INC.
By: /s/ THOMAS H. SINTON
------------------------------------
Thomas H. Sinton
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Thomas H. Sinton and Steven E. Klei, and
each of them singly, as true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities to sign the Registration Statement filed
herewith and any or all amendments to said Registration Statement (including
post-effective amendments and registration statements filed pursuant to Rule 462
and otherwise), and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission
or any regulatory authority granting unto said attorneys-in-fact and agents the
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
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/ THOMAS H. SINTON President, Chief Executive March 12, 1997
- ------------------------------------------ Officer and Director (Principal
Thomas H. Sinton Executive Officer)
/s/ STEVEN E. KLEI Vice President, Finance, Chief March 12, 1997
- ------------------------------------------ Financial Officer and Secretary
Steven E. Klei (Principal Financial and
Accounting Officer)
/s/ DAVID C. HODGSON Director March 12, 1997
- ------------------------------------------
David C. Hodgson
/s/ MICHAEL L. HUGHES Director March 12, 1997
- ------------------------------------------
Michael L. Hughes
/s/ RONALD W. READMOND Director March 12, 1997
- ------------------------------------------
Ronald W. Readmond
/s/ THOMAS P. RODDY Director March 12, 1997
- ------------------------------------------
Thomas P. Roddy
</TABLE>
II-6
<PAGE> 105
SCHEDULE II
PROBUSINESS, INC.
(DOLLARS IN THOUSANDS)
VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
---------------------------- SIX MONTHS ENDED
1994 1995 1996 DECEMBER 31, 1996
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Balance at beginning of year................... $2,105 $2,529 $2,988 $ 3,597
Additions...................................... 424 459 609 1,085
Reductions..................................... -- -- -- --
Balance at end of year......................... $2,529 $2,988 $3,597 $ 4,682
</TABLE>
S-1
<PAGE> 106
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization, dated May 23, 1996, between Registrant and
Dimension Solutions.
2.2 Stock Acquisition Agreement, dated January 1, 1997, between Registrant and
BeneSphere Administrators, Inc.
3.1 Amended and Restated Certificate of Incorporation.
3.2 Form of Amended and Restated Certificate of Incorporation, to be effective upon
completion of the offering.
3.3 Bylaws of the Registrant.
4.1 * Specimen Common Stock Certificate of Registrant.
4.2 Amended and Restated Registration Rights Agreement, dated March 12, 1997, between
Registrant, General Atlantic Partners 39, L.P., GAP Coinvestment Partners, L.P.
and certain stockholders of Registrant.
4.3 Warrant to Purchase Stock, dated January 13, 1995, between Registrant and Silicon
Valley Bank and related Antidilution and Registration Rights Agreements.
4.4(a) Warrant to Purchase Stock, dated April 30, 1996, between Registrant and Coast
Business Credit and related Antidilution and Registration Rights Agreement.
4.4(b) Warrant to Purchase Stock, dated October 25, 1996, between Registrant and Coast
Business Credit and related Antidilution and Registration Rights Agreement.
4.5 Warrant to Purchase Series E Preferred Stock, dated July 31, 1996, between
Registrant and LINC Capital Management.
4.6(a) Warrant Purchase Agreement, dated November 14, 1996, between Registrant and
certain purchasers.
4.6(b) Warrant to Purchase Series E Preferred Stock, dated November 14, 1996, between
Registrant and T.J. Bristow and Elizabeth S. Bristow.
4.6(c) Warrant to Purchase Series E Preferred Stock, dated November 14, 1996, between
Registrant and SDK Incorporated.
4.6(d) Warrant to Purchase Series E Preferred Stock, dated November 14, 1996, between
Registrant and Laurence Shushan and Magdalena Shushan.
4.7(a) Warrant to Purchase Common Stock, dated January 7, 1997, between Registrant and
Louis R. Baransky.
4.7(b) Warrant to Purchase Common Stock, dated January 7, 1997, between Registrant and
Ben W. Reppond.
4.8 Form of Note issued by Registrant on October 20, 1995 and December 12, 1995 (see
also Exhibit 10.12).
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Lease Agreement, dated August 12, 1992, First Amendment to Lease, dated March 23,
1994, Second Amendment to Lease, dated December 9, 1994, and Third Amendment to
Lease, dated March 16, 1995, between Registrant and Hacienda Park Associates.
10.2 Lease Agreement and Addendum Number One, dated August 26, 1993, and First
Amendment to Lease, dated March 23, 1994, between Registrant and Hacienda Park
Associates.
10.3 Lease Agreement, dated March 23, 1994, First Amendment, dated May 25, 1994, and
Second Amendment, dated October 5, 1994, between Registrant and Hacienda Park
Associates.
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------
<C> <S>
10.4 Lease Agreement, dated November 13, 1995, and First Amendment to Lease, dated
February 23, 1996, between Registrant and Hacienda Park Associates.
10.5 Built-to-Suit Lease, dated September 27, 1996, between Registrant and Britannia
Hacienda V Limited Partnership.
10.6 Office Lease, dated March 22, 1996, between Benefits-Plus Administrators, Inc.
and the Trustees under the Will and of the Estate of James Campbell, Deceased and
related Guaranty of Lease.
10.7 1996 Stock Option Plan and related Form of Stock Option Agreement.
10.8 1996 Employee Stock Purchase Plan.
10.9 Employment and Non-competition Agreement, dated May 23, 1996, between Registrant
and Dwight L. Jackson.
10.10 Equipment Lease and Addendum No. 1, dated July 31, 1996, between Registrant and
LINC Capital Management and related Equipment Schedule.
10.11 Form of Indemnification Agreement between Registrant and executive officers and
directors.
10.12 Loan Agreement, dated October 20, 1995, between Registrant and certain investors
and First Amendment to Loan Agreement, dated December 12, 1995, between
Registrant and certain investors.
10.13 Loan and Security Agreement, dated April 30, 1996, between Registrant and Coast
Business Credit, Amendment Number One, dated October 25, 1996, and Amendment
Number Two, dated January 6, 1997.
10.14 Promissory Note, dated December 5, 1996, between Registrant and Robert Schneider.
10.15 Promissory Note, dated January 7, 1997, between Registrant and Alison Elder.
10.16 Promissory Note, dated January 31, 1997, between Registrant and Jeffrey Bizzack.
10.17 Office Building Lease between Koll Center Irvine Number Two and Registrant, dated
November 7, 1994, and Amendments No. 1 and 2 thereto.
10.18 Lease (Full Service Office Lease), as amended by and between Callahan Pentz
Properties and Registrant, assigned to Registrant on February 29, 1996.
10.19 Promissory Note, dated December 31, 1996, between BeneSphere Administrators, Inc.
and Alison Elder.
10.20 Series F Preferred Stock Purchase Agreement, dated March 12, 1997, between
Registrant, General Atlantic Partners 39, L.P. and GAP Coinvestment Partners,
L.P.
10.21 Stockholders Agreement, dated March 12, 1997, between Registrant, General
Atlantic Partners 39, L.P., GAP Coinvestment Partners, L.P. and Sinton (as
defined therein).
11.0 Statement regarding computation of Registrant's per share earnings.
16.1 Letter re Change in Certifying Accountant.
21.0 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit 5.1).
24.1 Powers of attorney (See page II-6).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
2,000,000 SHARES1
PROBUSINESS SERVICES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
____________, 1997
ROBERTSON, STEPHENS & COMPANY LLC
WILLIAM BLAIR & COMPANY, L.L.C.
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
PROBUSINESS SERVICES, INC, a Delaware corporation (the "Company"),
addresses you as the Representatives of each of the persons, firms and
corporations listed in Schedule A hereto (herein collectively called the
"Underwriters") and hereby confirms its agreement with the several Underwriters
as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
2,000,000 shares of its authorized and unissued Common Stock, $0.001 par value
(the "Firm Shares"), to the several Underwriters. The Company also proposes to
grant to the Underwriters an option to purchase up to 300,000 additional shares
of the Company's (the "Option Shares"), as provided in Section 7 hereof. As
used in this Agreement, the term "Shares" shall include the Firm Shares and the
Option Shares. All shares of the Company to be outstanding after giving effect
to the sales contemplated hereby, including the Shares, are hereinafter
referred to as "Common Stock."
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
The Company represents and warrants to and agrees with each Underwriter that:
(a) A registration statement on Form S-1 (File No.
333-_________) with respect to the Shares, including a prospectus subject to
completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
applicable rules and
____________________
1 Plus an option to purchase up to 300,000 additional shares from the
Company to cover over-allotments.
1.
<PAGE> 2
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
pursuant to Rule 462(b) of the Rules and Regulations as may have been required
prior to the date hereof have been similarly prepared and filed with the
Commission; and the Company will file such additional amendments to such
registration statement, such amended prospectuses subject to completion and
such abbreviated registration statements as may hereafter be required. Copies
of such registration statement and amendments, of each related prospectus
subject to completion (the "Preliminary Prospectuses"), and of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
have been delivered to you.
If the registration statement relating to the Shares has been declared
effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) or, if Robertson, Stephens & Company LLC, on
behalf of the several Underwriters, shall agree to the utilization of Rule 434
of the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules
and Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the
Rules and Regulations or as part of a post-effective amendment to the
registration statement (including a final form of prospectus). If the
registration statement relating to the Shares has not been declared effective
under the Act by the Commission, the Company will prepare and promptly file an
amendment to the registration statement, including a final form of prospectus,
or, if Robertson, Stephens & Company LLC, on behalf of the several
Underwriters, shall agree to the utilization of Rule 434 of the Rules and
Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations.
The term "Registration Statement" as used in this Agreement shall mean such
registration statement, including financial statements, schedules and exhibits,
in the form in which it became or becomes, as the case may be, effective
(including, if the Company omitted information from the registration statement
pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434 of the
Rules and Regulations, the information deemed to be a part of the registration
statement at the time it became effective pursuant to Rule 430A(b) or Rule
434(d) of the Rules and Regulations) and, in the event of any amendment thereto
or the filing of any abbreviated registration statement pursuant to Rule 462(b)
of the Rules and Regulations relating thereto after the effective date of such
registration statement, shall also mean (from and after the effectiveness of
such amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company omitted
information from the Registration Statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 430A(b) of the Rules
and Regulations); provided, however, that if in reliance on Rule 434 of the
Rules and Regulations and with the consent of Robertson, Stephens & Company
LLC, on behalf of the several Underwriters, the Company shall have provided to
the Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable,
prior to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus subject
to completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Shares (including the information deemed
to be a part of the Registration Statement at the time it became effective
pursuant to Rule 434(d) of the Rules and Regulations). Notwithstanding the
foregoing, if any revised prospectus shall be provided to the Underwriters by
the Company for use in connection with the offering of the Shares that differs
from the prospectus referred to in the immediately preceding sentence (whether
or not such revised prospectus is
2.
<PAGE> 3
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations), the term "Prospectus" shall refer to such revised prospectus
from and after the time it is first provided to the Underwriters for such use.
If in reliance on Rule 434 of the Rules and Regulations and with the consent of
Robertson, Stephens & Company LLC, on behalf of the several Underwriters, the
Company shall have provided to the Underwriters a term sheet pursuant to Rule
434(b) or (c), as applicable, prior to the time that a confirmation is sent or
given for purposes of Section 2(10)(a) of the Act, the Prospectus and the term
sheet, together, will not be materially different from the prospectus in the
Registration Statement.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all
material respects to the requirements of the Act and the Rules and Regulations
and, as of its date, has not included any untrue statement of a material fact
or omitted to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
and at the time the Registration Statement became or becomes, as the case may
be, effective and at all times subsequent thereto up to and on the Closing Date
(hereinafter defined) and on any later date on which Option Shares are to be
purchased, (i) the Registration Statement and the Prospectus, and any
amendments or supplements thereto, contained and will contain all material
information required to be included therein by the Act and the Rules and
Regulations and will in all material respects conform to the requirements of
the Act and the Rules and Regulations, (ii) the Registration Statement, and any
amendments or supplements thereto, did not and will not include any 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, and
(iii) the Prospectus, and any amendments or supplements thereto, did not and
will not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties contained in this subparagraph
(b) shall apply to information contained in or omitted from the Registration
Statement or Prospectus, or any amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any Underwriter
furnished to the Company by such Underwriter specifically for use in the
preparation thereof.
(c) Each of the Company and the Subsidiary (as defined
below) has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation with full
power and authority (corporate and other) to own, lease and operate its
properties and conduct its business as described in the Prospectus; the Company
owns all of the outstanding capital stock of the Subsidiary free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable interest;
each of the Company and the Subsidiary is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and the Subsidiary considered as one enterprise; no proceeding has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or qualification;
each of the Company and the Subsidiary is in possession of and operating in
compliance with all authorizations, licenses, certificates, consents, orders
and permits from state, federal and other regulatory authorities which are
material to the conduct of its business, all of which are valid and in full
force and effect; neither the Company nor the Subsidiary is in violation of its
respective charter or bylaws or in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
material bond, debenture, note or other evidence of indebtedness, or in any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other
3.
<PAGE> 4
agreement or instrument to which the Company or the Subsidiary is a party or by
which it or the Subsidiary or their respective properties may be bound; and
neither the Company nor the Subsidiary is in material violation of any material
law, order, rule, regulation, writ, injunction, judgment or decree of any
court, government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or the Subsidiary or over their respective
properties of which the Company has knowledge. The Company does not own or
control, directly or indirectly, any corporation, association or other entity
other than BeneSphere Administrators, Inc. (the "Subsidiary").
(d) The Company has full legal right, power and authority
to enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any material bond, debenture, note or other evidence of indebtedness, or
under any material lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other agreement or instrument to which the Company
or the Subsidiary is a party or by which it or the Subsidiary or their
respective properties may be bound, (ii) the charter or bylaws of the Company
or the Subsidiary or (iii) any material law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or the
Subsidiary or over their respective properties of which the Company has
knowledge. No consent, approval, authorization or order of or qualification
with any court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or the Subsidiary or over their respective
properties is required for the execution and delivery of this Agreement and the
consummation by the Company or the Subsidiary of the transactions herein
contemplated, except such as may be required under the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or under state or other
securities or Blue Sky laws, all of which requirements have been satisfied or
will have been satisfied prior to the Closing Date (as hereinafter defined) in
all material respects.
(e) There is not any pending or, to the best of the
Company's knowledge, threatened action, suit, claim or proceeding against the
Company, the Subsidiary or any of their respective officers or any of their
respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or the Subsidiary or over their respective officers or properties or
otherwise which (i) might result in any material adverse change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and the Subsidiary considered as one enterprise or
might materially and adversely affect their properties, assets or rights, (ii)
might prevent consummation of the transactions contemplated hereby or (iii) is
required to be disclosed in the Registration Statement or Prospectus and is not
so disclosed; and there are no agreements, contracts, leases or documents of
the Company or the Subsidiary of a character required to be described or
referred to in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement by the Act or the Rules and Regulations
which have not been accurately described in all material respects in the
Registration Statement or Prospectus or filed as exhibits to the Registration
Statement.
(f) All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal
4.
<PAGE> 5
and state securities laws, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities, and
the authorized and outstanding capital stock of the Company is as set forth in
the Prospectus under the caption "Capitalization" as of the date stated therein
and conforms in all material respects to the statements relating thereto
contained in the Registration Statement and the Prospectus (and such statements
correctly state the substance of the instruments defining the capitalization of
the Company in all material respects); the Firm Shares and the Option Shares
have been duly authorized for issuance and sale to the Underwriters pursuant to
this Agreement and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable, and will be sold free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest; and no preemptive right, co-sale right, registration right, right of
first refusal or other similar right of stockholders exists with respect to any
of the Firm Shares or Option Shares or the issuance and sale thereof other than
those that have been expressly waived prior to the date hereof and those that
will automatically expire upon and will not apply to the consummation of the
transactions contemplated on the Closing Date. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale or transfer of the Shares except
as may be required under the Act or the Exchange Act or under state or other
securities or Blue Sky laws. All issued and outstanding shares of capital
stock of each subsidiary of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, and were not issued in violation
of or subject to any preemptive right or other rights to subscribe for or
purchase shares and are owned by the Company free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest. Except as
disclosed in the Prospectus and the financial statements of the Company, and
the related notes thereto, included in the Prospectus, the Company does not
have has outstanding any options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(g) Ernst & Young LLP, which has examined (i) the
financial statements of the Company, together with the related schedules and
notes, as of December 31, 1996 and June 30, 1996 and for each of the years in
the three (3) years ended June 30, 1996, (ii) the financial statements of
BeneSphere Administrators, Inc., together with the related schedules and notes,
as of June 30, 1996, and for the year then ended; (iii) the financial
statements of Dimension Solutions, together with the related schedules and
notes, as of April 30, 1996 and for the year then ended; and (iv) the selected
unaudited pro forma condensed consolidated financial information of the
Company, all as filed with the Commission as a part of the Registration
Statement, which are included in the Prospectus, are independent accountants
within the meaning of the Act and the Rules and Regulations; the audited
financial statements of the Company, together with the related schedules and
notes, and the unaudited condensed consolidated financial information, forming
part of the Registration Statement and Prospectus, fairly present the financial
position and the results of operations of the Company and the Subsidiary at the
respective dates and for the respective periods to which they apply; and all
audited financial statements of the Company, together with the related
schedules and notes, and the unaudited condensed consolidated financial
information (other than the selected and summary financial and statistical data
included in the Registration Statement), filed with the Commission as part of
the Registration Statement, have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved except as may be otherwise stated therein. The selected and summary
financial and statistical data included in the Registration Statement present
fairly the information shown therein and have been
5.
<PAGE> 6
compiled on a basis consistent with the audited financial statements presented
therein. No other financial statements or schedules are required to be
included in the Registration Statement.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has
not been (i) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and the Subsidiary considered as one enterprise (ii) any transaction that is
material to the Company and the Subsidiary considered as one enterprise, except
transactions entered into in the ordinary course of business, (iii) any
obligation, direct or contingent, that is material to the Company and the
Subsidiary considered as one enterprise, incurred by the Company or the
Subsidiary, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock or outstanding indebtedness of the Company
or the Subsidiary that is material to the Company and the Subsidiary considered
as one enterprise, (v) any dividend or distribution of any kind declared, paid
or made on the capital stock of the Company or the Subsidiary, or (vi) any loss
or damage (whether or not insured) to the property of the Company or the
Subsidiary which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and the Subsidiary
considered as one enterprise.
(i) Except as set forth in the Registration Statement and
Prospectus (i) each of the Company and the Subsidiary has good and marketable
title to all properties and assets described in the Registration Statement and
Prospectus as owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest, other than such as would
not have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and the
Subsidiary considered as one enterprise, (ii) the agreements to which the
Company or the Subsidiary is a party described in the Registration Statement
and Prospectus are valid agreements, enforceable by the Company and the
Subsidiary (as applicable) except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles and, to the best of the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default under any of such agreements, and (iii) each of the Company and the
Subsidiary has valid and enforceable leases for all properties described in the
Registration Statement and Prospectus as leased by it, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles. Except as set
forth in the Registration Statement and Prospectus, each of the Company and the
Subsidiary owns or leases all such properties as are necessary to its
operations as described in the Prospectus.
(j) The Company and the Subsidiary have timely filed all
necessary federal, state and foreign income and franchise tax returns and have
paid all taxes shown thereon as due, and there is no tax deficiency that has
been or, to the best of the Company's knowledge, might be asserted against the
Company or the Subsidiary that might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and the Subsidiary considered as one enterprise; and
all tax liabilities are adequately provided for on the books of the Company and
the Subsidiary.
(k) The Company and the Subsidiary maintain insurance
with insurers of recognized financial responsibility of the types and in the
amounts generally deemed adequate for their respective business and consistent
with insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the
6.
<PAGE> 7
Company or the Subsidiary against theft, damage, destruction, acts of vandalism
and all other risks customarily insured against, all of which insurance is in
full force and effect; neither the Company nor the Subsidiary has been refused
any insurance coverage sought or applied for; and neither the Company nor the
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and the Subsidiary considered as one enterprise.
(l) To the best of Company's knowledge, no labor
disturbance by the employees of the Company or the Subsidiary exists or is
imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal third-party service
providers that might be expected to result in a material adverse change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and the Subsidiary considered as one enterprise. No
collective bargaining agreement exists with any of employees of the Company or
the Subsidiary and, to the best of the Company's knowledge, no such agreement
is imminent.
(m) Each of the Company and the Subsidiary owns or
possesses adequate rights to use all patents, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names and copyrights that
are necessary to conduct its businesses in all material respects as described
in the Registration Statement and Prospectus; no patents, patent rights, trade
secrets, trademarks, service marks, trade names or copyrights have expired or
terminated except such as would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and the Subsidiary considered as one enterprise; no
patents, patent rights, inventions, trade secrets, know-how, trademarks,
service marks, trade names and copyrights that are necessary to conduct the
Company's or the Subsidiary's businesses as described in the Registration
Statement and Prospectus will expire or terminate prior to four years from the
date of this Agreement; the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of the
Company or the Subsidiary by others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names or
copyrights; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, might
have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and the
Subsidiary considered as one enterprise.
(n) The Common Stock has been approved for quotation on
the Nasdaq National Market, subject to official notice of issuance.
(o) The Company has been advised concerning the
Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the
future to conduct, its affairs in such a manner as to ensure that it will not
become an "investment company" or a company "controlled" by an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date, or any date on which
Option Shares are to be purchased, as the case may be, and (ii) completion of
the distribution of the Shares, any offering material in connection with the
offering and
7.
<PAGE> 8
sale of the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act.
(q) Neither the Company nor the Subsidiary has at any
time during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws of
the United States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company and each
beneficial owner of shares representing at least ___% of the Company's
outstanding Common Stock has agreed in writing that such person will not, for a
period beginning the date of the writing and ending 180 days from the date of
the Prospectus (the "Lock-up Period"), offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities")
now owned or hereafter acquired directly by such person or with respect to
which such person has or hereafter acquires the power of disposition, otherwise
than (i) as a bona fide gift or gifts, provided the donee or donees thereof
agree in writing to be bound by this restriction, (ii) as a distribution to
partners or stockholders of such person, provided that the distributees thereof
agree in writing to be bound by the terms of this restriction, or (iii) with
the prior written consent of Robertson, Stephens & Company LLC. The foregoing
restriction has been expressly agreed to preclude the holder of the Securities
from engaging in any hedging or other transaction which is designed to or
reasonably expected to lead to or result in a Disposition of Securities during
the Lock-up Period, even if such Securities would be disposed of by someone
other than such holder. Such prohibited hedging or other transactions would
include, without limitation, any short sale (whether or not against the box) or
any purchase, sale or grant of any right (including, without limitation, any
put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities.
Furthermore, such person has also agreed and consented to the entry of stop
transfer instructions with the Company's transfer agent against the transfer of
the Securities held by such person except in compliance with this restriction.
The Company has provided to counsel for the Underwriters a complete and
accurate list of all securityholders of the Company and the number and type of
securities held by each securityholder. The Company has provided to counsel
for the Underwriters true, accurate and complete copies of all of the
agreements pursuant to which its officers, directors and stockholders have
agreed to such or similar restrictions (the "Lock-up Agreements") presently in
effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or other stockholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of Robertson, Stephens & Company LLC.
(t) Except as set forth in the Registration Statement and
Prospectus, (i) each of the Company and the Subsidiary is in compliance with
all rules, laws and regulations relating to the use, treatment, storage and
disposal of toxic substances and protection of health or the environment
("Environmental Laws") which are applicable to its business, (ii) neither the
Company nor the Subsidiary has received notice from any governmental authority
or third party of an asserted claim under Environmental Laws, which claim is
required to be disclosed in the Registration Statement and the
8.
<PAGE> 9
Prospectus, (iii) to its knowledge, neither the Company nor the Subsidiary has
conducted any activities that would require it to make future material capital
expenditures to comply with Environmental Laws and (iv) no property which is
owned, leased or occupied by the Company or the Subsidiary has been designated
as a Superfund site pursuant to the Comprehensive Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), or
otherwise designated as a contaminated site under applicable state or local
law.
(u) Each of the Company and the Subsidiary maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(v) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or the Subsidiary or any of the members of
the families of any of them that are required to be disclosed in the
Registration Statement and Prospectus that are not so disclosed.
(w) The Company has complied with all provisions of
Section 517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $_____ per share, the
respective number of Firm Shares as hereinafter set forth. The obligation of
each Underwriter to the Company shall be to purchase from the Company that
number of Firm Shares which is set forth opposite the name of such Underwriter
in Schedule A hereto (subject to adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by wire
transfer of same-day funds, paid to an account designated by of the Company, at
the offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto,
CA 94304-1050 (or at such other place as may be agreed upon among the
Representatives and the Company), at 7:00 A.M., San Francisco time (a) on the
third (3rd) full business day following the first day that Shares are traded,
(b) if this Agreement is executed and delivered after 1:30 P.M., San Francisco
time, the fourth (4th) full business day following the day that this Agreement
is executed and delivered or (c) at such other time and date not later than
seven (7) full business days following the first day that Shares are traded as
the Representatives and the Company may determine (or at such time and date to
which payment and delivery shall have been postponed pursuant to Section 10
hereof), such time and date of payment and delivery being herein called the
"Closing Date;" provided, however, that if the Company has not made available
to the Representatives copies of the Prospectus within the time provided in
Section 4(d) hereof, the Representatives may, in their sole discretion,
postpone the Closing Date until no later than two (2) full business days
following delivery of copies of the Prospectus to the Representatives. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location
9.
<PAGE> 10
including, without limitation, in New York City, as you may reasonably request
for checking at least one (1) full business day prior to the Closing Date and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to the Closing Date. If the
Representatives so elect, delivery of the Firm Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior to
the Closing Date for the Firm Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public
offering price of $_____ per share. After the initial public offering, the
several Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), on the inside
front cover concerning stabilization and over-allotment by the Underwriters,
and under the second, sixth and ninth paragraphs under the caption
"Underwriting" in any Preliminary Prospectus and in the Prospectus constitutes
the only information furnished by the Underwriters to the Company for inclusion
in any Preliminary Prospectus, the Prospectus or the Registration Statement and
you, on behalf of the respective Underwriters, represent and warrant to the
Company that the statements made therein do not include any 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, in the light of the circumstances
under which they were made, not misleading.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with
the several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto,
to become effective as promptly as possible; the Company will use its best
efforts to cause any abbreviated registration statement pursuant to Rule 462(b)
of the Rules and Regulations as may be required subsequent to the date the
Registration Statement is declared effective to become effective as promptly as
possible; the Company will notify you, promptly after it shall receive notice
thereof, of the time when the Registration Statement, any subsequent amendment
to the Registration Statement or any abbreviated registration statement has
become effective or any supplement to the Prospectus has been filed; if the
Company omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence
satisfactory to you that the Prospectus and term sheet meeting the requirements
of Rule 434(b) or (c), as applicable, of the Rules and Regulations, have been
filed, within the time period prescribed, with the Commission pursuant to
subparagraph (7) of Rule 424(b) of the Rules and Regulations; if for any reason
the filing of the final form of Prospectus is required under Rule 424(b)(3) of
the Rules and Regulations,
10.
<PAGE> 11
it will provide evidence satisfactory to you that the Prospectus contains such
information and has been filed with the Commission within the time period
prescribed; it will notify you promptly of any request by the Commission for
the amending or supplementing of the Registration Statement or the Prospectus
or for additional information; promptly, upon your request, it will prepare and
file with the Commission any amendments or supplements to the Registration
Statement or Prospectus which, in the reasonable opinion of counsel for the
several Underwriters ("Underwriters' Counsel"), may be necessary or advisable
in connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if,
at any time when a prospectus relating to the Shares is required to be
delivered under the Act, any event shall have occurred as a result of which the
Prospectus or any other prospectus relating to the Shares as then in effect
would include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; in case any
Underwriter is required to deliver a prospectus nine (9) months or more after
the effective date of the Registration Statement in connection with the sale of
the Shares, it will prepare as promptly as practicable upon request, but at the
expense of such Underwriter, such amendment or amendments to the Registration
Statement and such prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act; and it will
file no amendment or supplement to the Registration Statement or Prospectus
which shall not previously have been submitted to you a reasonable time prior
to the proposed filing thereof or to which you shall reasonably object in
writing, subject, however, to compliance with the Act and the Rules and
Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceeding for that purpose; and it will promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may reasonably designate and to continue such qualifications in effect for
so long as may be required for purposes of the distribution of the Shares,
except that the Company shall not be required in connection therewith or as a
condition thereof to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction in which it is not otherwise
required to be so qualified or to so execute a general consent to service of
process. In each jurisdiction in which the Shares shall have been qualified as
above provided, the Company will make and file such statements and reports in
each year as are or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as
available, and, in the case of the Prospectus and any term sheet or abbreviated
term sheet under Rule 434, in no event later than the first (1st) full business
day following the first day that Shares are traded, copies of the Registration
Statement (three of which will be signed and which will include all exhibits),
each Preliminary Prospectus, the Prospectus and any amendments or supplements
to such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, all in such quantities as you may from time to
time reasonably request. Notwithstanding the foregoing, if Robertson, Stephens
& Company LLC, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the Company shall provide
to you copies of a Preliminary Prospectus updated in all respects through the
date specified by you in such quantities as you may from time to time
reasonably request.
11.
<PAGE> 12
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration
Statement, an earnings statement (which will be in reasonable detail but need
not be audited) complying with the provisions of Section 11(a) of the Act and
covering a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of three (3) years after the date
hereof, the Company will furnish to its stockholders as soon as practicable
after the end of each respective period, annual reports (including financial
statements audited by independent certified public accountants), and will
furnish to you and the other several Underwriters hereunder, upon request (i)
statements of operations of the Company for each of the first three (3)
quarters in the form filed with the Commission as part of the Company's
quarterly report on Form 10-Q, (ii) concurrently with furnishing to its
stockholders, a balance sheet of the Company as of the end of such fiscal year,
together with statements of operations, of stockholders' equity and of cash
flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants,
(iii) as soon as they are available, copies of all reports (financial or other)
mailed to stockholders, (iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the Commission, any
securities exchange or the National Association of Securities Dealers, Inc.
("NASD"), (v) every material press release and every material news item or
article in respect of the Company or its affairs which was generally released
to stockholders or prepared by the Company or the Subsidiary, and (vi) any
additional information of a public nature concerning the Company or the
Subsidiary, or its business which you may reasonably request. During such
three (3) year period, if the Company shall have active subsidiaries, the
foregoing financial statements shall be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and
shall be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale
of the Shares being sold by it in the manner set forth under the caption "Use
of Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
(j) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder (other than
for noncompliance with paragraph (e) of Section 6 hereof), or if the Company
shall terminate this Agreement pursuant to Section 11(a) hereof, or if the
Underwriters shall terminate this Agreement pursuant to Section 11(b)(i), the
Company will reimburse the several Underwriters for all out-of-pocket expenses
(including fees and disbursements of Underwriters' Counsel) incurred by the
Underwriters in investigating or preparing to market or marketing the Shares.
(k) If at any time during the ninety (90) day period
after the Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of which in
your reasonable opinion the market price of the Common Stock has been or is
likely
12.
<PAGE> 13
to be materially affected (regardless of whether such rumor, publication or
event necessitates a supplement to or amendment of the Prospectus), the Company
will, after written notice from you advising the Company to the effect set
forth above, forthwith prepare, consult with you concerning the substance of
and disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication or
event.
(l) During the Lock-up Period, the Company will not,
without the prior written consent of Robertson Stephens & Company LLC, effect
the Disposition of, directly or indirectly, any Securities other than the sale
of the Firm Shares and the Option Shares hereunder and the Company's issuance
of (i) options or Common Stock under the Company's presently authorized 1989
Stock Option Plan, as amended, 1996 Stock Option Plan and 1996 Employee Stock
Purchase Plan (the "Stock Plans"); (ii) Common Stock upon exercise of any
warrants of the Company outstanding as set forth in the Registration Statement
and Prospectus; (iii) securities pursuant to equipment or lease financing
activities entered into in the ordinary course of the Company's business; or
(iv) securities to a strategic partner of the Company in conjunction with an
agreement involving a service, technical, manufacturing and/or marketing
collaboration.
(m) During a period of ninety (90) days from the
effective date of the Registration Statement, the Company will not file a
registration statement registering shares under the Stock Plans or any other
employee benefit plan.
5. EXPENSES.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and
expenses in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto; the printing of this Agreement, the Blue Sky Survey and
any instruments related to any of the foregoing; the issuance and delivery of
the Shares hereunder to the several Underwriters, including transfer taxes, if
any, the cost of all certificates representing the Shares and transfer agents'
and registrars' fees; the fees and disbursements of counsel for the Company;
all fees and other charges of the Company's independent certified public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary Prospectus
and the Prospectus, and any amendments or supplements to any of the foregoing;
NASD filing fees and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD filings and
Blue Sky qualifications); and all other expenses directly incurred by the
Company in connection with the performance of their obligations hereunder.
(ii) In addition to its other obligations under
Section 8(a) hereof, the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(a) hereof, it will reimburse the Underwriters on a
monthly basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to reimburse
the Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the
13.
<PAGE> 14
Company together with interest, compounded daily, determined on the basis of
the prime rate (or other commercial lending rate for borrowers of the highest
credit standing) listed from time to time in The Wall Street Journal which
represents the base rate on corporate loans posted by a substantial majority of
the nation's thirty (30) largest banks (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within thirty
(30) days of a request for reimbursement shall bear interest at the Prime Rate
from the date of such request.
(b) In addition to their other obligations under Section
8(b) hereof, the Underwriters severally and not jointly agree that, as an
interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding described in Section 8(b) hereof, they will
reimburse the Company on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii) and 5(b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of the
Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be commenced
by service of a written demand for arbitration or a written notice of intention
to arbitrate, therein electing the arbitration tribunal. In the event the
party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand or
notice is authorized to do so. Any such arbitration will be limited to the
operation of the interim reimbursement provisions contained in Sections
5(a)(ii) and 5(b) hereof and will not resolve the ultimate propriety or
enforceability of the obligation to indemnify for expenses which is created by
the provisions of Sections 8(a) and 8(b) hereof or the obligation to contribute
to expenses which is created by the provisions of Section 8(d) hereof.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date
and any later date on which Option Shares are to be purchased, as the case may
be, of the representations and warranties of the Company herein, to the
performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become
effective not later than 2:00 P.M., San Francisco time, on the date following
the date of this Agreement, or such later date as shall be consented to in
writing by you; and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel.
14.
<PAGE> 15
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of
the Shares, shall have been reasonably satisfactory to Underwriters' Counsel,
and such counsel shall have been furnished with such papers and information as
they may reasonably have requested to enable them to pass upon the matters
referred to in this Section.
(c) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, there shall not have been any
change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and the Subsidiary considered as
one enterprise from that set forth in the Registration Statement or Prospectus,
which, in your reasonable judgment, is material and adverse and that makes it,
in your reasonable judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus;
(d) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
the following opinion of counsel for the Company, dated the Closing Date or
such later date on which Option Shares are to be purchased addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for each
of the Underwriters, to the effect that:
(i) Each of the Company and the Subsidiary has
been duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation;
(ii) Each of the Company and the Subsidiary has
the corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus;
(iii) Each of the Company and the Subsidiary is
duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction, if any, in which the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in
good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business
of the Company and the Subsidiary considered as one enterprise. To
such counsel's knowledge, the Company does not own or control,
directly or indirectly, any corporation, association or other entity
other than BeneSphere Administrators, Inc.;
(iv) The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus under
the caption "Capitalization" as of the date stated therein, the issued
and outstanding shares of capital stock of the Company have been duly
and validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right;
(v) The Firm Shares or the Option Shares, as the
case may be, to be issued by the Company pursuant to the terms of this
Agreement have been duly authorized and, upon issuance and delivery
against payment therefor in accordance with the terms hereof, will be
duly and validly issued and fully paid and nonassessable, and will not
have been issued in violation
15.
<PAGE> 16
of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right;
(vi) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and deliver
to the Underwriters the Shares to be issued and sold by it hereunder;
(vii) This Agreement has been duly authorized by
all necessary corporate action on the part of the Company and has been
duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of the Company, enforceable in accordance with its terms,
except insofar as indemnification provisions may be limited by
applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general
equitable principles;
(viii) The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted
or are pending or threatened under the Act;
(ix) The Registration Statement and the
Prospectus, and each amendment or supplement thereto (other than the
financial statements, including supporting schedules, and financial
data derived therefrom, as to which such counsel need express no
opinion), as of the effective date of the Registration Statement,
complied as to form in all material respects with the requirements of
the Act and the applicable Rules and Regulations;
(x) The information in the Prospectus under the
caption "Description of Capital Stock," to the extent that it
constitutes matters of law or legal conclusions, has been reviewed by
such counsel and is a fair summary of such matters and conclusions;
and the forms of certificates evidencing the Common Stock and filed as
exhibits to the Registration Statement comply with Delaware law;
(xi) The description in the Registration Statement
and the Prospectus of the charter and bylaws of the Company and of
federal statutes and the General Corporation Law of the State of
Delaware are accurate summaries thereof and fairly present the
information required to be presented by the Act and the applicable
Rules and Regulations;
(xii) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company is a
party of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to
the Registration Statement which are not described or referred to
therein or filed as required;
(xiii) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than
performance of the Company's indemnification obligations hereunder,
concerning which no opinion need be expressed) will not (a) result in
any violation of the Company's charter or bylaws or (b) to such
counsel's knowledge, result in a material breach or violation of any
of the terms and provisions of, or constitute a material default
under, any material bond, debenture, note or other evidence of
indebtedness, or any material lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other
16.
<PAGE> 17
agreement or instrument known to such counsel to which the Company is
a party or by which its properties are bound, or any applicable
statute, rule or regulation known to such counsel or, to such
counsel's knowledge, any material order, writ or decree of any court,
government or governmental agency or body having jurisdiction over the
Company or over any of its properties or operations;
(xiv) No consent, approval, authorization or order
of or qualification with any court, government or governmental agency
or body having jurisdiction over the Company or over any of its
properties or operations is necessary in connection with the
consummation by the Company of the transactions herein contemplated,
except such as have been obtained under the Act or such as may be
required under state or other securities or Blue Sky laws in
connection with the purchase and the distribution of the Shares by the
Underwriters;
(xv) To such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against the
Company or the Subsidiary of a character required to be disclosed in
the Registration Statement or the Prospectus by the Act or the Rules
and Regulations, other than those described therein;
(xvi) To such counsel's knowledge, neither the
Company nor the Subsidiary is presently (a) in material violation of
its respective charter or bylaws or (b) in material breach of any
applicable statute, rule or regulation known to such counsel or, to
such counsel's knowledge, any order, writ or decree of any court or
governmental agency or body having jurisdiction over the Company or
the Subsidiary or over any of their properties or operations; and
(xvii) To such counsel's knowledge, except as set
forth in the Registration Statement and Prospectus, no holders of
Common Stock or other securities of the Company have registration
rights with respect to securities of the Company and, except as set
forth in the Registration Statement and Prospectus, all holders of
securities of the Company having rights known to such counsel to
registration of such shares of Common Stock or other securities,
because of the filing of the Registration Statement by the Company
have, with respect to the offering contemplated thereby, waived such
rights or such rights have expired by reason of lapse of time
following notification of the Company's intent to file the
Registration Statement.
In addition, such counsel shall state that such counsel has
participated in conferences with certain officers and other representatives of
the Company, its independent certified public accountants and you and your
counsel, at which such conferences the contents of the Registration Statement
and the Prospectus and related matters were discussed, and although they have
not verified the accuracy, completeness or fairness of such information,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on which
Option Shares are to be purchased, the Registration Statement (other than the
financial statements, including supporting schedules, and other financial and
statistical information derived therefrom, as to which such counsel need
express no comment) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or at the Closing Date or any later
date on which the Option Shares are to be purchased, as the case may be, the
Prospectus (except as aforesaid) contained any untrue statement of a material
fact or omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
17.
<PAGE> 18
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or the State of California and
Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, and of government
officials, in which case their opinion is to state that they are so relying and
that they have no knowledge of any material misstatement or inaccuracy in any
such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
an opinion of Cooley Godward LLP in form and substance satisfactory to you,
with respect to the sufficiency of all such corporate proceedings and other
legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
a letter from Ernst & Young LLP addressed to the Underwriters, dated the
Closing Date or such later date on which Option Shares are to be purchased, as
the case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a date
not more than five (5) business days prior to the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth
in the Original Letter are accurate as of the Closing Date or such later date
on which Option Shares are to be purchased, as the case may be, and (ii)
setting forth any revisions and additions to the statements and conclusions set
forth in the Original Letter which are necessary to reflect any changes in the
facts described in the Original Letter since the date of such letter, or to
reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in
your sole judgment, impracticable or inadvisable to proceed with the public
offering of the Shares as contemplated by the Prospectus. The Original Letter
from Ernest & Young LLP shall be addressed to or for the use of the
Underwriters in form and substance satisfactory to the Underwriters and shall
(i) represent, to the extent true, that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations; (ii) set forth their opinion with
respect to their examination of (A) the balance sheets of the Company as of
December 31, 1996 and June 30, 1996 and related consolidated statements of
operations, stockholders' equity and cash flows for the six (6) months ended
December 31, 1996 and the twelve (12) months ended June 30, 1996, (B) the
balance sheet of BeneSphere Administrators, Inc. as of June 30, 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended and (C) the balance sheet of Dimension Solutions,
Inc. as of April 30, 1996 and the related statements of operations,
shareholders' deficit and cash flows for the year then ended; (iii) state that
Ernest & Young LLP has performed the procedures set out in Statement on
Auditing Standards No. 71 ("SAS 71") for a review of interim financial
information and providing the report of Ernst & Young LLP as described in SAS
71 on the financial statements for the quarter in the quarter ended March 31,
1997 (the "Quarterly Financial Statements"); (iv) state that in the course of
such review, nothing came to their attention that leads them to believe that
any material modifications need to be made to any of the Quarterly Financial
Statements in order for them to be in compliance with generally accepted
accounting
18.
<PAGE> 19
principles consistently applied across the periods presented; and (v) address
other matters agreed upon by Ernest & Young LLP and you. In addition, you
shall have received from Ernst & Young LLP a letter addressed to the Company
and made available to you for the use of the Underwriters stating that their
review of the Company's system of internal accounting controls, to the extent
they deemed necessary in establishing the scope of their examination of the
Company's financial statements as of December 31, 1996 did not disclose any
weaknesses in internal controls that they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
a certificate of the Company, dated the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, signed by the
Chief Executive Officer and Chief Financial Officer of the Company, to the
effect that, and you shall be satisfied that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on and as
of the Closing Date or any later date on which Option Shares are to be
purchased, as the case may be, and the Company has complied with all
the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date or any later
date on which Option Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued and, to the best of the
Company's knowledge, no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery of
such certificate, the Registration Statement and the Prospectus
contained all material information required to be included therein by
the Act and the Rules and Regulations and in all material respects
conformed to the requirements of the Act and the Rules and
Regulations, the Registration Statement did not and does not include
any 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, the Prospectus did not and does not include
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and, since
the effective date of the Registration Statement, there has occurred
no event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of
which information is given in the Registration Statement and
Prospectus, there has not been (a) any material adverse change in the
condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and the Subsidiary considered as one
enterprise, (b) any transaction that is material to the Company and
the Subsidiary considered as one enterprise, except transactions
entered into in the ordinary course of business, (c) any obligation,
direct or contingent, that is material to the Company and the
Subsidiary considered as one enterprise, incurred by the Company or
the Subsidiary except obligations incurred in the ordinary course of
business, (d) any change in the capital stock or outstanding
indebtedness of the Company or the Subsidiary that is material to the
Company and the Subsidiary considered as one enterprise, (e) any
dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or the Subsidiary or (f) any loss or
damage (whether or not insured) to the property of the Company or the
Subsidiary which has
19.
<PAGE> 20
been sustained or will have been sustained which has a material
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and the
Subsidiary considered as one enterprise.
(h) The Company shall have obtained and delivered to you
an agreement from each officer and director of the Company and each beneficial
owner of shares representing at least ___% of the Company's outstanding Common
Stock in writing prior to the date hereof that such person will not, during the
Lock-up Period, effect the Disposition of any Securities now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be
bound by this restriction, (ii) as a distribution to partners or stockholders
of such person, provided that the distributees thereof agree in writing to be
bound by the terms of this restriction, or (iii) with the prior written consent
of Robertson, Stephens & Company LLC. The foregoing restriction shall have
been expressly agreed to preclude the holder of the Securities from engaging in
any hedging or other transaction which is designed to or reasonably expected to
lead to or result in a Disposition of Securities during the Lock-up Period,
even if such Securities would be disposed of by someone other than the such
holder. Such prohibited hedging or other transactions would including, without
limitation, any short sale (whether or not against the box) or any purchase,
sale or grant of any right (including, without limitation, any put or call
option) with respect to any Securities or with respect to any security (other
than a broad-based market basket or index) that includes, relates to or derives
any significant part of its value from Securities. Furthermore, such person
will have also agreed and consented to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the Securities held
by such person except in compliance with this restriction.
(i) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request (including
certificates of officers of the Company) as to the accuracy of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
7. OPTION SHARES.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters, for the purpose
of covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase up to an aggregate of
300,000 Option Shares at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such option may be exercised by the Representatives
on behalf of the several Underwriters on one (1) or more occasions in whole or
in part during the period of thirty (30) days after the date on which the Firm
Shares are initially offered to the public, by giving written notice to the
Company. The number of Option Shares to be purchased by each Underwriter upon
the exercise of such option shall be the same proportion of the total number of
Option Shares to be purchased by the several Underwriters pursuant to the
exercise of such option as the number of Firm Shares purchased by such
Underwriter (set forth in Schedule A hereto)
20.
<PAGE> 21
bears to the total number of Firm Shares purchased by the several Underwriters
(set forth in Schedule A hereto), adjusted by the Representatives in such
manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by wire transfer of same-day funds, paid
to an account designated by the Company. Such delivery and payment shall take
place at the offices of Wilson Sonsini Goodrich & Rosati, PC, 650 Page Mill
Road, Palo Alto, CA 94304-1050 or at such other place as may be agreed upon
among the Representatives and the Company (i) on the Closing Date, if written
notice of the exercise of such option is received by the Company at least two
(2) full business days prior to the Closing Date, or (ii) on a date which shall
not be later than the third (3rd) full business day following the date the
Company receives written notice of the exercise of such option, if such notice
is received by the Company less than two (2) full business days prior to the
Closing Date.
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may
be made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior to
the date of payment and delivery for the Option Shares to be purchased by such
Underwriter or Underwriters. Any such payment by you shall not relieve any
such Underwriter or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section
7(a) hereof, the obligations of the several Underwriters to purchase such
Option Shares will be subject (as of the date hereof and as of the date of
payment and delivery for such Option Shares) to the accuracy of and compliance
with the representations, warranties and agreements of the Company herein, to
the accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, to the conditions set forth in Section 6 hereof, and to
the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be reasonably
satisfactory in form and substance to you and to Underwriters' Counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may reasonably request in order to evidence the accuracy and completeness
of any of the representations, warranties or statements, the performance of any
of the covenants or agreements of the Company or the satisfaction of any of the
conditions herein contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject under the Act, the
Exchange Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities (or actions in respect thereof) arising out of
or based upon (i) any breach of any representation, warranty, agreement or
covenant of the Company herein contained, (ii) any untrue
21.
<PAGE> 22
statement or alleged untrue statement of any material fact contained in the
Registration Statement or 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 untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, and
agrees to reimburse each Underwriter for any legal or other expenses reasonably
incurred by it in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus in
reliance upon, and in conformity with, written information relating to any
Underwriter furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof and, provided further,
that the indemnity agreement provided in this Section 8(a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of material fact or
omission or alleged omission to state therein a material fact purchased Shares,
if a copy of the Prospectus in which such untrue statement or alleged untrue
statement or omission or alleged omission was corrected had not been sent or
given to such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the Company
with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person,
if any, who controls any Underwriter within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any liabilities
which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees
to indemnify and hold harmless the Company against any losses, claims, damages
or liabilities, joint or several, to which the Company may become subject under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of such Underwriter herein contained, (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or 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 untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or the omission or alleged omission to state therein a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in the case of subparagraphs (ii)
and (iii) of this Section 8(b) to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished
to the Company by such Underwriter, directly or through you, specifically for
use in the preparation thereof, and agrees to reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement, each director of
the Company and each person, if any, who controls the Company within the
22.
<PAGE> 23
meaning of the Act or the Exchange Act. This indemnity agreement shall be in
addition to any liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section 8 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; provided,
however, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a)
or 8(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on all claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made
pursuant to this Section 8 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 8 provides for indemnification in such case, all the parties
hereto shall contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such
proportion so that the Underwriters severally and not jointly are responsible
pro rata for the portion represented by the percentage that the underwriting
discount bears to the initial public offering price, and the Company is
responsible for the remaining portion, provided, however, that (i) no
Underwriter shall be required to contribute any amount in excess of the amount
by which the underwriting discount applicable to the Shares purchased by such
Underwriter exceeds the
23.
<PAGE> 24
amount of damages which such Underwriter has otherwise required to pay and (ii)
no person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
is not guilty of such fraudulent misrepresentation. The contribution agreement
in this Section 8(d) shall extend upon the same terms and conditions to, and
shall inure to the benefit of, each person, if any, who controls any
Underwriter or the Company within the meaning of the Act or the Exchange Act
and each officer of the Company who signed the Registration Statement and each
director of the Company.
(e) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel during
the negotiations regarding the provisions hereof including, without limitation,
the provisions of this Section 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is
made in the Registration Statement and Prospectus as required by the Act and
the Exchange Act.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter within the meaning of the Act or the Exchange Act, or by or on
behalf of the Company, or any of its officers, directors or controlling persons
within the meaning of the Act or the Exchange Act, and shall survive the
delivery of the Shares to the several Underwriters hereunder or termination of
this Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or
Underwriters shall fail to take up and pay for the number of Firm Shares agreed
by such Underwriter or Underwriters to be purchased hereunder upon tender of
such Firm Shares in accordance with the terms hereof, and if the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters so
agreed but failed to purchase does not exceed 10% of the Firm Shares, the
remaining Underwriters shall be obligated, severally in proportion to their
respective commitments hereunder, to take up and pay for the Firm Shares of
such defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or
underwriters shall have been substituted as aforesaid by such postponed Closing
Date, the Closing Date may, at the option of the Company, be postponed for a
further twenty-four (24) hours, if necessary, to allow the Company the
privilege of finding another underwriter or underwriters, satisfactory to you,
to purchase the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If it shall be arranged for the remaining
Underwriters or substituted underwriter or underwriters to take up the Firm
Shares of the defaulting Underwriter or Underwriters as provided in this
Section 10, (i) the Company shall have
24.
<PAGE> 25
the right to postpone the time of delivery for a period of not more than seven
(7) full business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement, supplements to the Prospectus or
other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of
their underwriting obligation. If the remaining Underwriters shall not take up
and pay for all such Firm Shares so agreed to be purchased by the defaulting
Underwriter or Underwriters or substitute another underwriter or underwriters
as aforesaid and the Company shall not find or shall not elect to seek another
underwriter or underwriters for such Firm Shares as aforesaid, then this
Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, the Company shall not be liable to any
Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than
for some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier
of (i) 6:30 A.M., San Francisco time, on the first full business day following
the effective date of the Registration Statement, or (ii) the time of the
initial public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which the
Shares are first generally offered by the Underwriters to the public by letter,
telephone, telegram or telecopy, whichever shall first occur. By giving notice
as set forth in Section 12 before the time this Agreement becomes effective,
you, as Representatives of the several Underwriters, or the Company, may
prevent this Agreement from becoming effective without liability of any party
to any other party, except as provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as
hereinafter specified at any time on or prior to the Closing Date or on or
prior to any later date on which Option Shares are to be purchased, as the case
may be, (i) if the Company shall have failed, refused or been unable to perform
any agreement on its part to be performed, or because any other condition of
the Underwriters' obligations hereunder required to be fulfilled is not
fulfilled, including, without limitation, any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse, or (ii) if additional
material governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the New York Stock
Exchange or on the American Stock Exchange or in the over the counter market by
the NASD, or trading in securities generally shall have been suspended on
either such exchange or in the over the counter market by the NASD, or if a
banking moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a
25.
<PAGE> 26
loss by strike, fire, flood, earthquake, accident or other calamity of such
character as to interfere materially with the conduct of the business and
operations of the Company regardless of whether or not such loss shall have
been insured, or (iv) if there shall have been a material adverse change in the
general political or economic conditions or financial markets as in your
reasonable judgment makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have been an
outbreak or escalation of hostilities or of any other insurrection or armed
conflict or the declaration by the United States of a national emergency which,
in the reasonable opinion of the Representatives, makes it impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated
by the Prospectus. In the event of termination pursuant to subparagraph (i)
above, the Company shall remain obligated to pay costs and expenses pursuant to
Sections 4(j), 5 and 8 hereof. Any termination pursuant to any of
subparagraphs (ii) through (v) above shall be without liability of any party to
any other party except as provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed
by letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. NOTICES. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to you
shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; and if sent to the Company,
such notice shall be mailed, delivered, telegraphed (and confirmed by letter)
or telecopied (and confirmed by letter) to 5934 Gilbraltar Drive, Pleasanton,
CA 94588, telecopier number (510) 847-3817, Attention: Thomas H. Sinton, Chief
Executive Officer, with a copy to Wilson Sonsini Goodrich & Rosati, 650 Page
Mill Road, Palo Alto, CA 94304-1050, telecopier number: (415) 493-6811,
Attention: Alan K. Austin.
13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person or entity, other than the parties hereto and their respective executors,
administrators, successors and assigns, and the controlling persons within the
meaning of the Act or the Exchange Act, officers and directors referred to in
Section 8 hereof, any legal or equitable right, remedy or claim in respect of
this Agreement or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company under this Agreement, you shall act
on behalf of each of the several Underwriters, and the Company shall be
entitled to act and rely upon any statement, request, notice or agreement made
or given by you jointly or by Robertson, Stephens & Company LLC on behalf of
you.
14. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
26.
<PAGE> 27
15. COUNTERPARTS. This Agreement may be signed in several
counterparts, each of which will constitute an original.
If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among the Company and the several Underwriters.
Very truly yours,
PROBUSINESS SERVICES, INC.
By
-----------------------------------
Thomas H. Sinton
President and Chief Executive
Officer
ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN:
ROBERTSON, STEPHENS & COMPANY LLC
WILLIAM BLAIR & COMPANY, L.L.C.
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By
-----------------------------------------
ROBERTSON, STEPHENS &
COMPANY LLC
By
-----------------------------------------
ROBERTSON, STEPHENS &
COMPANY GROUP, L.L.C.
By
-----------------------------------------
Authorized Signatory
27.
<PAGE> 28
SCHEDULE A
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF
FIRM SHARES
TO BE
PURCHASED
<S> <C>
Robertson, Stephens & Company LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William Blair & Company, L.L.C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
---------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000
===============
</TABLE>
A-1.
<PAGE> 1
Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
PROBUSINESS, INC.
AND
DIMENSION SOLUTIONS
DATED AS OF MAY 23, 1996
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INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
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Exhibit A Subordination Agreement
Exhibit B Eighteenth Amendment to Registration Rights Agreement
Exhibit C Assignment and Assumption Agreement
Exhibit D Bill of Sale
Exhibit E Trademark Assignment
Exhibit F Copyright Assignment
Exhibit G Seller Schedules
Exhibit H Employment and Noncompetition Agreement
Exhibit I Cara Agreement
Attachment 1 California Administrative Code
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INDEX OF SCHEDULES
SELLER SCHEDULE DESCRIPTION
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1.1(a) Retained Assets
1.1(a)(ii) Intellectual Property and Patents
1.1(a)(iii) Software Products
1.1(a)(vi) Inventory
1.1(b) Assumed Liabilities
2.1 Articles of Incorporation and Bylaws of Dimension Solutions
2.2 Capitalization
2.4 Governmental and Third Party Consents
2.5 Seller Financials
2.6 Undisclosed Liabilities
2.7 No Changes
2.8(b) Tax Returns and Audits
2.10(a) Liens on Property
2.10(b) Asset List
2.11 Intellectual Property
2.12 Assumed Contracts
2.13 Interested Party Transactions
2.14 Governmental Authorizations
2.15 Litigation
2.18 Environmental Matters
2.20(a) Employees
2.20(b) Employee Grievances
2.20(c) Employee Benefit Plans and Employees
2.20(d) Employee Plan Compliance
2.21 Insurance of Assets
6.3(n) Persons to Enter Into Employment and Noncompetition
Agreements
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TABLE OF CONTENTS
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ARTICLE I - THE ACQUISITION.......................................................................................... 1
1.1 Purchase of Assets.................................................................................... 1
1.2 Consideration......................................................................................... 4
1.3 Instruments of Transfer............................................................................... 5
1.4 Closing............................................................................................... 6
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF SELLER................................................................ 7
2.1 Organization of Seller................................................................................ 7
2.2 Seller Capital Structure.............................................................................. 7
2.3 Subsidiaries.......................................................................................... 8
2.4 Authority; Consents................................................................................... 8
2.5 Seller Financial Statements........................................................................... 8
2.6 No Undisclosed Liabilities............................................................................ 9
2.7 No Changes............................................................................................ 9
2.8 Tax and Other Returns and Reports..................................................................... 10
2.9 Restrictions on Business Activities................................................................... 12
2.10 Title of Properties; Absence of Liens and Encumbrances................................................ 12
2.11 Intellectual Property................................................................................. 12
2.12 Agreements, Contracts and Commitments................................................................. 13
2.13 Interested Party Transactions......................................................................... 14
2.14 Governmental Authorization............................................................................ 14
2.15 Litigation............................................................................................ 14
2.16 Accounts Receivable................................................................................... 14
2.17 Minute Books.......................................................................................... 15
2.18 Environmental Matters................................................................................. 15
2.19 Brokers' and Finders' Fees; Third Party Expenses...................................................... 15
2.20 Employee Benefit Plans................................................................................ 16
2.21 Insurance............................................................................................. 17
2.22 Compliance with Laws.................................................................................. 17
2.23 Complete Copies of Materials.......................................................................... 17
2.24 Inventories........................................................................................... 17
2.25 No Insolvency......................................................................................... 18
2.26 Issuance of Shares.................................................................................... 18
2.27 Representations Complete.............................................................................. 18
2.28 Only Representations.................................................................................. 19
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ARTICLE III - REPRESENTATIONS AND WARRANTIES OF BUYER................................................................ 19
3.1 Organization, Standing and Power...................................................................... 19
3.2 Authority; Consents................................................................................... 19
3.3 Litigation............................................................................................ 19
3.4 Brokers' and Finders' Fees; Third Party Expenses...................................................... 19
3.5 Authorization of Shares............................................................................... 19
3.6 Amendments to Registration Rights Agreement........................................................... 20
3.7 Representations Complete.............................................................................. 20
ARTICLE IV - COVENANTS OF SELLER..................................................................................... 20
4.1 Conduct of Business of Seller......................................................................... 20
4.2 No Solicitation....................................................................................... 22
4.3 Covenant Not to Compete............................................................................... 22
4.4 Discharge of Debts.................................................................................... 23
ARTICLE V - ADDITIONAL AGREEMENTS.................................................................................... 23
5.1 Seller Shareholder Approval........................................................................... 23
5.2 Access to Information................................................................................. 24
5.3 Confidentiality....................................................................................... 24
5.4 Expenses.............................................................................................. 24
5.5 Public Disclosure..................................................................................... 24
5.6 Consents.............................................................................................. 25
5.7 Best Efforts.......................................................................................... 25
5.8 Notification of Certain Matters....................................................................... 25
5.9 Additional Documents and Further Assurances........................................................... 25
5.10 Employee Benefits..................................................................................... 25
5.11 Tax Returns........................................................................................... 26
5.12 Bulk Sales............................................................................................ 26
5.13 Employment Agreements................................................................................. 26
5.14 Securities Laws....................................................................................... 26
5.15 Closing Statement..................................................................................... 29
5.16 Settlement of Litigation and Other Disputes........................................................... 29
5.17 Updating of Schedules................................................................................. 29
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ARTICLE VI - CONDITIONS TO THE ACQUISITION........................................................................... 29
6.1 Conditions to Obligations of Each Party to Effect the Acquisition..................................... 29
6.2 Additional Conditions to Obligations of Seller........................................................ 29
6.3 Additional Conditions to the Obligations of Buyer. .................................................. 30
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER...................................................................... 33
7.1 Termination........................................................................................... 33
7.2 Effect of Termination................................................................................. 34
7.3 Amendment............................................................................................. 34
7.4 Extension; Waiver..................................................................................... 34
ARTICLE VIII - INDEMNITY AGREEMENT................................................................................... 34
8.1 Agreement to Indemnify; Offset........................................................................ 34
8.2 Expiration of Indemnification and Representations and Warranties...................................... 35
8.3 Claims................................................................................................ 35
8.4 Objections to Claims.................................................................................. 36
8.5 Resolution of Conflicts; Arbitration.................................................................. 36
8.6 Third Party Claims.................................................................................... 37
8.7 Remedies.............................................................................................. 37
8.8 Representative........................................................................................ 37
ARTICLE IX - GENERAL PROVISIONS...................................................................................... 38
9.1 Notices............................................................................................... 38
9.2 Interpretation........................................................................................ 39
9.3 Counterparts.......................................................................................... 39
9.4 Entire Agreement...................................................................................... 39
9.5 Severability.......................................................................................... 39
9.6 Other Remedies........................................................................................ 40
9.7 Governing Law......................................................................................... 40
9.8 Rules of Construction................................................................................. 40
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ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer. (a) The issuer of any security
upon which a restriction on transfer has been imposed pursuant to Sections
260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to be
delivered to each issuee or transferee of such security at the time the
certificate evidencing the security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of
the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the
transferor's ancestors, descendants, or spouse; or to a transferee by a
trustee or custodian for the account of the transferee or the
transferee's ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state,
territory or country who is neither domiciled in this state to the
knowledge of the broker-dealer, nor actually present in this state if
the sale of such securities is not in violation of any securities law
of the foreign state, territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting
syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for
which the Commissioner's written consent is obtained or under this rule
not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113
or 25121 of the Code, of the securities to be transferred, provided
that no order under Section 25140 or subdivision (a) of Section 25143
is in effect with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code, provided that no order under Section 25140 or
subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or countries
who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law
or to the administrator of the unclaimed property law of another state;
or
(15) by the State Controller pursuant to the Unclaimed Property Law
or by the administrator of the unclaimed property law of another state
if, in either such case, such person (i) discloses to potential
purchasers at the sale that transfer of the securities is restricted
under this rule, (ii) delivers to each purchaser a copy of this rule,
and (iii) advises the Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does
not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification
requirement by subdivision (f) of Section 25102; provided that any such
transfer is on the condition that any certificate evidencing the
security issued to such transferee shall contain the legend required by
this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
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<PAGE> 8
AGREEMENT AND
PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of May 23, 1996 by and between ProBusiness, Inc., a California
corporation ("Buyer"), Dimension Solutions, a California corporation ("Seller"),
Dwight L. Jackson, Stephen P. Blanding, Kirk G., Ward, Stephen P. Blanding and
Mayno W. Blanding Family Trust dated 8/3/92 and Ward Family Revocable Trust
dated 3/28/94 ("Seller's Affiliates and Shareholders").
RECITALS
A. The Boards of Directors of each of Seller and Buyer believe it is in
the best interests of each company and their respective shareholders that Buyer
acquire all of the assets of, and assume certain of the liabilities of Seller
(the "Acquisition") in exchange for 40,000 shares of Series E Preferred Stock of
Buyer and to enter into an employment agreement with Dwight L. Jackson,
President of Seller, as Vice President, Human Resources Systems of Buyer.
B. Seller is engaged in the business of developing, manufacturing and
licensing computer software programs for the human resource market (the
"Business").
C. Immediately after the Closing (as defined below), Buyer will enter
into a License Agreement with Cara Information Technology Ltd. to license a file
server version of specified software modules acquired by Buyer pursuant to this
Agreement.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE ACQUISITION
1.1 Purchase of Assets.
(a) Purchase and Sale of Assets. On the terms and subject to
the conditions set forth in this Agreement, Seller agrees to sell, convey,
transfer, assign and deliver to Buyer and Buyer agrees to purchase and acquire
from Seller on the Closing Date (as defined in Section 1.4(a)), all of Seller's
right, title and interest in and to all of the assets and properties of Seller
(collectively the "Assets" and specifically excluding those assets set forth on
Schedule 1.1(a) (the "Excluded Assets")) in their current condition and free and
clear of all liens, pledges, charges, claims, security interests or other
encumbrances of any sort (collectively, "Liens"), including without limitation,
the following:
(i) all cash, cash equivalents and accounts
receivable of Seller;
<PAGE> 9
(ii) all patents, patent applications, copyrights,
trademarks, service marks, trade names, trade secrets, proprietary information,
technology rights and licenses, proprietary rights and processes, customer
lists, know-how, research and development in progress, and any and all other
intellectual property including, without limitation, all things authored,
discovered, developed, made, perfected, improved, designed, engineered, devised,
acquired, produced, conceived or first reduced to practice by Seller or any of
its employees in the course of their employment by Seller and that pertain to or
are used in the Business, or that are relevant to an understanding or to the
development of the Business or to the performance by the products of the
Business of their intended functions or purposes, whether tangible or
intangible, in any stage of development, including without limitation
enhancements, designs, technology, improvements, inventions, works of
authorship, formulas, processes, routines, subroutines, techniques, concepts,
object code, flow charts, diagrams, coding sheets, source code, listings and
annotations, programmers' notes, information, work papers, work product and
other materials of any types whatsoever, and all rights of any kind in or to any
of the foregoing (collectively, the "Intellectual Property") used or held for
use in the Business. All Intellectual Property is listed on Schedule 1.1(a)(ii)
hereto, as well as all licenses used for such Intellectual Property;
(iii) all rights and ownership of all existing
software products of Seller (the "Products"), including but not limited to those
listed on Schedule 1.1(a)(iii), any other computer programs developed or under
development by Seller, and all copies of the Products (including revisions and
updates in process), and all technical, design, development, installation,
operation and maintenance information concerning the Products, including source
code, source documentation, source listings and annotations, engineering
notebooks, test data and test results, all in sufficient detail to permit a
reasonably skilled software developer not involved in the development of the
Products to maintain, enhance and correct errors in the Products without
assistance from or reference to any other persons or materials as well as all
reference manuals and support materials normally distributed to end-users and
potential end-users in connection with the distribution of the Products
(collectively, the foregoing shall be hereinafter referred to as, the "Software
Products"). Notwithstanding the foregoing, Seller shall not be required to
prepare or produce any documentation to satisfy the provisions of this
subparagraph;
(iv) all of Seller's claims against any parties
relating to any right, property or asset included in the Assets, or against any
party to a Contract (as defined in Section 2.12 herein) if Seller's rights under
such Contracts are assigned and transferred to Buyer at the Closing, including
without limitation, unliquidated rights under manufacturers' and vendors'
warranties or guaranties;
(v) all of Seller's rights (including, without
limitation, any leasehold interests) under any software development contracts,
licenses and any other contracts to which Seller is a party or by which it is
bound, including without limitation, those set forth in Schedule 2.12 if
Seller's rights under such Contracts are assigned and transferred to Buyer at
the Closing;
(vi) all inventory, wherever located, owned by
Seller; the inventory referred to herein shall include, but is not limited to,
those items described in Schedule 1.1(a)(vi) hereto;
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(vii) all fixed assets, equipment and supplies of the
Seller wherever located (including leasehold improvements);
(viii) all governmental permits, licenses or
approvals owned or held by Seller associated with the ownership, use or
operation of the Assets; and
(ix) the corporate name "Dimension Solutions," "First
Resource" and "First Resource Development"; provided, that for a period of one
year following the Closing Date, the Seller shall be authorized to use such
names for the purpose of winding down the corporation.
(b) Assumption of Liabilities.
(i) Buyer shall not assume any liabilities or
obligations of Seller (other than those expressly assumed pursuant to this
Section 1.1(b)), including without limitation, any liabilities for employment,
income, sales, property or other taxes incurred or accrued by Seller, except as
provided in Section 1.2(c). It is further expressly agreed that Buyer shall not
assume any liabilities for third party claims of infringement of intellectual
property rights on products sold by the Seller through the Closing Date or the
damages, if any, as set forth in Section 1.1(b)(iii). At the Closing, Buyer
shall assume the following obligations and liabilities of Seller (collectively,
the "Assumed Liabilities"): (A) all obligations and liabilities of Seller under
or related to any software development contracts, licenses and any other
contracts to which Seller is a party or by which it is bound as set forth on
Schedule 2.12 if Seller's rights under such contracts are assigned and
transferred to Buyer at the Closing (B) those obligations and liabilities of
Seller set forth in Schedule 1.1(b) hereto (including the promissory notes set
forth in Section 1.1(b)(ii) below, which are expressly agreed to be assumed
subject to the conditions specified in Section 1.1(b)(ii) and the lease
agreement set forth in Section 1.1(b)(iii) below, which is expressly agreed to
be assumed subject to the conditions specified in Section 1.1(b)(iii)), and (C)
all obligations pursuant to Sections 1.2(c), 1.3(a)(iv) and 5.13 hereunder.
Buyer expressly is not assuming any obligations or liabilities, whether accrued,
absolute, contingent, matured, unmatured or other, of Seller except for the
Assumed Liabilities.
(ii) Buyer specifically assumes the promissory notes
between Seller and Kirk G. Ward and Stephen P. Blanding dated April 30, 1996 for
an aggregate principal amount of $250,000 (the "$250,000 Note") and BARW dated
October 15, 1995 for an aggregate principal amount of $25,000 as set forth in
Schedule 1.1(b), subject to Seller's delivery to Buyer of a Subordination
Agreement executed by each of Kirk G. Ward and Stephen P. Blanding, attached
hereto as Exhibit A binding each of Mr. Ward and Mr. Blanding and their
successors and assignees, to subordinate payment by Buyer of any and all
indebtedness, liabilities, guarantees and other obligations of Buyer to Mr. Ward
and Mr. Blanding now existing or hereinafter arising to the payment to Coast
Business Credit ("Coast"), a division of Southern Pacific Thrift and Loan
Association and other creditors who are banking and equipment leasing
institutions ("Institutional Creditors") of Buyer, of all indebtedness,
liabilities, guarantees and other obligations of Buyer to Coast and such other
Institutional Creditors, now existing or hereinafter arising and including such
terms and conditions as more specifically set fourth in Exhibit A attached
hereto.
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(iii) Buyer specifically assumes the obligations
under the lease agreement by and between Seller and AJ Partners Limited
Partnership ("Lessor"), managed by Draper and Kramer of California, Incorporated
dated July 18, 1994 (the "Lease Agreement") and both parties will use their best
efforts to obtain a consent to a formal assignment pursuant to the Lease
Agreement. It is expressly agreed that Buyer shall not assume any liabilities
for damages arising out of any failure on the part of Buyer or Seller to obtain
written consent under Section 12 of the Lease Agreement of Lessor to Seller's
assignment of the rights and obligations under the Lease Agreement to Buyer
prior to the Closing Date and Assumed Liabilities under this Agreement expressly
excludes any such damages.
(c) Risk of Loss. In the event any of the Assets are
unavailable for delivery to Buyer on the Closing Date as a result of risks for
which such Assets were insured by Seller, Buyer may at its option elect (i) to
require Seller to deliver to Buyer assignments of such Seller's rights under its
insurance policies, if any, applicable to such Assets and to close on that
basis, or (ii) to not close due to the failure of a condition to closing if the
amount of the loss reasonably can be expected to be in excess of $25,000. Seller
hereby agrees to make such assignment of rights if Buyer so elects.
1.2 Consideration.
(a) Consideration for Assets. Subject to the terms and
conditions set forth in this Agreement (including, without limitation, the
provisions of Article VI hereof), as full payment for the transfer of the Assets
by Seller to Buyer, Buyer shall issue to Seller at the Closing 40,000 shares of
Series E Preferred Stock of Buyer (the "Shares") with a fair market value of
$7.94 per share for an aggregate purchase price of $317,600 (the "Purchase
Price"). As of the Closing Date, the shares are convertible into 80,000 shares
of Common Stock of Buyer and shall have rights, privileges and preferences as
set forth in the Seller's Articles of Incorporation, as amended and in effect as
of the date hereof. In addition, Buyer shall grant Seller registration rights
with respect to the Shares pursuant to Eighteenth Amendment to the Registration
Rights Agreement dated as of December 1, 1989, as amended (the "Registration
Rights Agreement") attached hereto as Exhibit B whereby the Common Stock
issuable upon the conversion of the Shares shall be deemed "Registrable
Securities" and Seller shall be deemed a "Holder" under the Registration Rights
Agreement.
(b) Seller's C Reorganization. Seller intends for the
transactions contemplated by this Agreement to (i) constitute a "sale of assets
reorganization" within the meaning of Section 181(c) of the California
Corporations Code, and (ii) qualify as a non-taxable stock for assets
reorganization within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"). Buyer and Seller desires to adopt
this Agreement as a plan of reorganization in accordance with the provisions of
Section 368(a)(1)(C) of the Code. Seller will, pursuant to the plan of
reorganization, and immediately after the receipt of the Shares, distribute the
Shares to the shareholders of Seller. The Shares will be distributed to the
shareholders of Seller in proportion to the number of shares each holds in
Seller. In addition, Seller shall, pursuant to the plan of reorganization, and
as soon as practicable following the Closing Date, and in no event later than
December 31, 1996, distribute all of its remaining assets to its shareholders in
liquidation and therefore formally dissolve pursuant to Section 1900 et seq. of
the California Corporations Code.
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Buyer makes no representations or warranties as to whether the transactions
contemplated by this Agreement constitute a "sale of assets reorganization"
within the meaning of Section 181(c) of the California Corporations Code, or
that such transactions qualify as a non-taxable stock for assets reorganization
within the meaning of Section 368(a)(1)(C) of the Code. The parties agree that
such qualifications are for the benefit of Seller, and are not conditions to
this Agreement.
(c) Transfer Taxes. Buyer shall pay and promptly discharge
when due sales and use tax ("Sales Taxes") imposed or levied by the State of
California by reason of the sale of the Assets to Buyer.
1.3 Instruments of Transfer.
(a) Transfer of Customers.
(i) Intent. It is the intent of parties hereto that
all of the Business and all of Seller's backlog, if any, relating to the
Business be transferred to Buyer. Accordingly, the parties agree to use their
best efforts to facilitate such transfer of customers as soon as possible.
(ii) Purchase Order Data. Seller shall provide or
make available to Buyer, at the closing (A) a list of all outstanding written
customer orders, purchase orders and other customer commitments from Seller's
current customers, (B) the names of all customers (the "Current Customers") and
(C) data regarding Seller's standard cost of sales for the items covered by such
orders and shall provide upon request such other information as is (AA) relevant
to profitability on such items, (BB) available to Seller without incurring undue
effort or expense and (CC) requested by Buyer.
(iii) Transfer of Orders; Assignments. Prior to such
Closing, Seller and Buyer agree to cooperate with each other in conducting joint
contacts with the Current Customers (as appropriate) for the purpose of
attempting to obtain such customers' consent to transfer orders from Seller to
Buyer (or to issue new orders to Buyer for the same or similar items) and to
assign Seller's rights and obligations under the Contracts to Buyer, if such
Contracts are assigned to Buyer, as of the Closing.
(iv) Assumption of Obligation. To the extent that
Seller's backlog is transferred or assigned to Buyer or that Buyer accepts a new
purchase order from a Current Customer, Buyer agrees to assume and perform all
obligations thereunder and to use reasonable efforts to fill the order in
accordance with its terms.
(b) Instruments of Transfer. The sale, assignment, transfer,
conveyance and delivery of the Assets shall be made by such bills of sale and
other recordable instruments of assignment, transfer and conveyance as Buyer
shall reasonably request.
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1.4 Closing.
(a) Closing. Unless this Agreement is earlier terminated
pursuant to Section 7.1, the closing of the transactions contemplated by this
Agreement shall be consummated (the "Closing") at the offices of Wilson,
Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA 94304-1050, at
5:00 p.m., Pacific Daylight Savings time, on May 23, 1996, or at such other time
or place as the parties shall mutually agree (the "Closing Date").
(b) Delivery. At the Closing:
(i) Seller shall deliver to Buyer a copy of the
Subordination Agreement executed by each of Kirk G. Ward and Stephen P. Blanding
pursuant to Section 1.1(b)(ii) in the form attached hereto as Exhibit A;
(ii) Buyer shall deliver to Seller an instrument of
assumption of liabilities by which Buyer shall assume the Assumed Liabilities as
of the Closing in the form attached hereto as Exhibit C;
(iii) Seller shall deliver to Buyer all bills of
sale, endorsements, assignments, consents to assignments to the extent obtained
and other instruments and documents as Buyer may reasonably request to sell,
convey, assign, transfer and deliver to Buyer good title to all the Assets free
and clear of any and all Liens in the form attached hereto as Exhibit D;
(iv) Seller shall deliver to Buyer a Trademark
Assignment in the form attached hereto as Exhibit E;
(v) Seller shall deliver to Buyer a Copyright
Assignment in the form attached hereto as Exhibit F;
(vi) Seller shall deliver to Buyer UCC termination
statements duly executed by the holders of all security interests of record with
respect to all outstanding UCC-1 financing statements evidencing security
interests in any of the Assets excluding the tax liens filed by the Internal
Revenue Service (the "IRS") on November 10, 1994 and November 16, 1994 in the
amount of $17,998.57 and $4,026.46, respectively, and the tax liens filed by the
State of California Employment Development Department on March 23, 1995 in the
amount of $4,586.97, with respect to liens on the assets of First Resource, a
California corporation ("First Resource") and including the UCC-1 financing
statement filed by Scott Valley Bank on October 12, 1994 with respect to a lien
on substantially all of the assets of Seller;
(vii) Buyer shall deliver a stock certificate issued
in the name of Buyer representing the Shares;
(viii) Seller shall deliver to Buyer evidence
satisfactory to Buyer that the loan agreement with Scott Valley Bank has been
assigned to the shareholders of the Seller and that Scott
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<PAGE> 14
Valley Bank has terminated all security interests, security agreements and
guaranties affecting or relating to the Assets; and
(ix) Seller and Buyer shall deliver or cause to be
delivered to one another such other instruments and documents necessary or
appropriate to evidence the due execution, delivery and performance of this
Agreement.
(c) Taking of Necessary Action; Further Action. If, at any
time after the Closing Date, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest Buyer with full right,
title and possession to all Assets, the officers and directors of Seller are
fully authorized in the name Seller or otherwise to take, and will take, all
such lawful and necessary and/or desirable action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER,
SELLER'S AFFILIATES AND SHAREHOLDERS
Each of Seller and each of Seller's Affiliates and Shareholders,
jointly and severally represents and warrants to Buyer as follows that, except
as set forth in the disclosure schedules dated as of the date hereof and
supplied by Seller to Buyer and attached hereto as Exhibit G (the "Seller
Schedules" and Seller Schedules shall specifically reference the Sections of
this Agreement to which the disclosure therein applies):
2.1 Organization of Seller. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
Seller has the corporate power to own its property and to carry on its business
as now being conducted and as proposed to be conducted. Seller is duly qualified
to do business and in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the Business, the Assets (or Buyer's interest therein or use
thereof following the Closing), or the financial condition or results of
operations of Seller (any of which is hereinafter referred to as a "Material
Adverse Effect"). Schedule 2.1 includes a complete and correct list of all
foreign jurisdictions in which the Seller is qualified to do business. Seller
has delivered a true and correct copy of its Articles of Incorporation and
Bylaws, each as amended to date, to Buyer, copies of each are attached to
Schedule 2.1.
2.2 Seller Capital Structure. Seller's authorized and outstanding
capital stock, and the number, type and holder of outstanding securities
carrying the right to acquire any of Seller's capital stock, at the date hereof
is correctly stated in Schedule 2.2. All the outstanding shares of Seller's
capital stock are duly authorized and validly issued. All outstanding securities
carrying the right to acquire any of Seller's capital stock issued by Seller are
validly outstanding, and the shares of Seller's capital stock reserved for
issuance upon the exercise thereof are duly authorized and, upon issuance in
accordance with the terms thereof (including due payment of the exercise price
set forth therein) will be validly issued, fully paid and nonassessable. Except
as set forth in Schedule 2.2, there are no
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securities of Seller issued or outstanding, and there are no options, calls,
subscriptions, warrants, rights, agreements or commitments of any character
obligating Seller, contingently or otherwise, to issue shares of its capital
stock or to register shares of its capital stock under the Securities Act of
1933, or any other applicable securities laws (Federal or state), or holders of
any such securities.
2.3 Subsidiaries. Seller does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
2.4 Authority; Consents. Subject only to the approval of the
Acquisition and this Agreement by Seller's shareholders as contemplated by
Section 6.1(a) hereof, Seller has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Seller, subject only to the approval of the
Acquisition by Seller's shareholders as contemplated by Section 6.1(a). This
Agreement has been duly executed and delivered by Seller and constitutes the
valid and binding obligation of Seller, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy and similar
laws and general principles of equity. Except as set forth on Schedule 2.4,
subject only to the approval of the Acquisition and this Agreement by Seller's
shareholders as contemplated by Section 6.1(a) hereof, the execution and
delivery of this Agreement by Seller does not, and, as of the Closing, the
consummation of the transactions contemplated hereby will not, materially
conflict with, or result in any material violation of, or material default under
(with or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (any such event, a "Conflict") (i) any provision of the Articles
of Incorporation or Bylaws of Seller or (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Seller or its properties or assets. To Seller's knowledge, no
consent, waiver, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other federal, state, county, local or foreign governmental authority,
instrumentality, agency or Commission having jurisdiction over Seller
("Governmental Entity") or any third party (so as to enable Seller to assign
Buyer all of its rights and benefits under the Contracts), is required by or
with respect to Seller in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for such consents, waivers, authorizations, filings, approvals and registrations
which are set forth on Schedule 2.4.
2.5 Seller Financial Statements. Schedule 2.5 sets forth Seller's
unaudited balance sheet as of December 31, 1995 and the related unaudited
statement of income for the twelve-month period then ended; Seller's unaudited
balance sheet as of March 31, 1996 and the related unaudited statement of income
for the three-month period then ended; and Seller's unaudited balance sheet as
of April 30, 1996 (the "Balance Sheet") and the related unaudited statement of
income for the four-month period then ended (collectively, all such balance
sheets and related statement of income shall hereinafter be referred to as
"Seller Financials"). Except as set forth in Schedule 2.5, Seller Financials
have been
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internally prepared by Seller in good faith and compiled by an accountant on an
accrual basis and on a basis consistent with financial statements prepared by
Seller for prior periods. Seller is not aware that the Seller Financials are
inconsistent with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated (except that they do not contain
footnotes); however, the Seller Financials have not been reviewed or audited by
an accountant.
2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6,
Seller does not have any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements consistent with generally accepted accounting
principles), which individually or in the aggregate, (i) has not been reflected
in the Balance Sheet, or (ii) has not arisen in the ordinary course of Seller's
business since April 30, 1996.
2.7 No Changes. Except as set forth in Schedule 2.7, since April 30,
1996, there has not been, occurred or arisen any:
(a) transaction by Seller except in the ordinary course of
business as conducted on that date;
(b) capital expenditure or commitment by Seller, either
individually or in the aggregate, exceeding $5,000;
(c) material adverse change in the condition (financial or
otherwise), liabilities, assets, business or prospects of Seller;
(d) destruction of, damage to or loss of any assets, business
or customer of Seller (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(f) declaration, setting aside or payment of a dividend or
other distribution with respect to the capital stock of Seller, or any direct or
indirect redemption, purchase or other acquisition by Seller of any of its
capital stock;
(g) increase in the salary or other compensation payable or to
become payable by Seller to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by Seller, of a bonus or other additional salary or
compensation to any such person.
(h) acquisition, sale or transfer of any Asset except in the
ordinary course of business as conducted on that date;
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(i) amendment or termination of any contract, agreement or
license to which Seller was/is a party or by which it was/is bound, except in
the ordinary course;
(j) loan by Seller to any person or entity, incurring by
Seller of any indebtedness, guaranteeing by Seller of any indebtedness, issuance
or sale of any debt securities of Seller or guaranteeing of any debt securities
of others;
(k) waiver or release of any right or claim of Seller,
including any write-off or other compromise of any account receivable of Seller;
(l) the commencement or notice or, to the knowledge of Seller,
threat of commencement of any lawsuit or proceeding against or investigation of
Seller or its affairs;
(m) notice to Seller of any claim of ownership by a third
party of Seller's Intellectual Property or of infringement by Seller of any
third party's Intellectual Property rights;
(n) issuance or sale by Seller of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities;
(o) change in pricing or royalties set or charged by Seller;
(p) to Seller's knowledge, any event or condition of any
character that has or could be reasonably expected to have a Material Adverse
Effect; or
(q) negotiation or agreement by Seller or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (p) (other than negotiations with Buyer and its representatives
regarding the transactions contemplated by this Agreement).
2.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement,
"Tax" or, collectively, "Taxes", means any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule
2.8(b) and Section 2.8(c) below:
(i) Seller has prepared and timely filed all federal,
state, local and foreign returns, estimates, information statements and reports
("Returns") relating to any and all Taxes
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<PAGE> 18
concerning or attributable to Seller, the Assets or Seller's business operations
which, as of the date hereof, it is required to file and such Returns were true
and accurate and were completed in accordance with applicable law when filed.
(ii) Seller (A) has paid all Taxes it is required to
pay and (B) has collected or withheld with respect to its employees all federal
and state income taxes, FICA, FUTA and other Taxes required to be withheld.
(iii) Seller has not been delinquent in the payment
of any Tax nor is there any Tax deficiency outstanding, proposed or assessed
against Seller.
(iv) No audit or other examination of any Return of
Seller is presently in progress, nor has Seller been notified of any request for
such an audit or other examination.
(v) Seller does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or reserved
against on the Balance Sheet, whether asserted or unasserted, contingent or
otherwise, and Seller has no knowledge of any basis for the assertion of any
such liability attributable to Seller, the Assets or Seller's business
operations.
(vi) There are (and as of immediately following the
Closing there will be) no Liens on the Assets of Seller relating to or
attributable to Taxes.
(c) First Resource IRS Liens. On August 26, 1994 Seller
purchased the assets and assumed certain liabilities, excluding the First
Resource Tax Liabilities (as defined below), of First Resource pursuant to the
Asset Purchase Agreement by and among First Resource and Seller dated July 15,
1994 (the "First Resource Acquisition Agreement"). On November 10, 1994 and
November 16, 1994, the IRS filed Notices of Federal Tax Liens (as defined below)
on the assets of First Resource in the amounts of $17,998.57 and $4,026.46,
respectively (the "First Resource Tax Liabilities"). Seller acquired the assets
and assumed certain liabilities, excluding the First Resource Tax Liabilities,
of First Resource as a purchaser within the meaning of Section 6323(h)(6) of the
Internal Revenue Code of 1986, as amended (the "Code") on August 26, 1994 (i)
prior to the filing by the IRS of any notice ("Notice of Federal Tax Lien") of
the liens relating to the First Resource Tax Liabilities, meeting the
requirements of Section 6323(f) of the Code and (ii) without actual notice of
the First Resource Tax Liabilities or the filing or potential filing of any
Notice of Federal Tax Lien by the IRS with respect to the First Resource Tax
Liabilities. Furthermore, the First Resource Tax Liabilities or any fact related
thereto was not brought to the attention of Seller until after August 26, 1994
and would not have been brought to Seller's attention if Seller had exercised
due diligence through reasonable routines for communicating significant
information to Seller and compliance with such routines (including the
performance of a title search).
(d) For purposes of this Section , references to Seller include
any predecessor or transferror with respect to Seller and any person with whom
Seller files or has filed a consolidated or combined Tax return or with respect
to whom Seller may have transferee, secondary or other shared liability for
Taxes.
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2.9 Restrictions on Business Activities. There is no agreement,
commitment, judgment, injunction, order or decree binding upon Seller or the
Assets which has or could reasonably be expected to have the effect of
prohibiting or impairing any use by Buyer of the Assets following the Closing or
the conduct of the Business as currently conducted.
2.10 Title of Properties; Absence of Liens and Encumbrances.
(a) Title to Assets. Except as set forth in Schedule 2.10(a),
Seller has good and marketable title to all of the Assets, all of the Assets are
free and clear of restrictions on or conditions to transfer or assignment, and
at the Closing, Seller will sell, convey, assign, transfer and deliver to Buyer
good title to all of the Assets, free and clear of any mortgages, liens,
pledges, encumbrances, claims, conditions and restrictions, of any contingent or
otherwise. The assets constitute all of the assets owned by Seller, other than
the Excluded Assets, and include all of the assets which are reasonably
necessary for the continued conduct of the operations of Seller. The Assets are
all located at Seller's principal place of business in Newark, California.
(b) Assets, Property, Plant and Equipment. Schedule 2.10(b)
hereto contains a true and complete list of all assets, properties,
improvements, machinery, equipment, furniture and fixtures, office supplies and
other tangibles included in the Assets. Between the date hereof and the Closing
Date, none of such Assets shall have been disposed of other than in the ordinary
course of business or due to normal wear and tear. All real and tangible
personal property material to the business or financial condition of Seller,
including machinery, equipment and fixtures, included in the Assets and
currently used by Seller in its manufacturing operations is, and at the Closing
Date will be, in good operating condition and repair, ordinary wear and tear
excepted. To the best of Seller's and Seller's Affiliates' and Shareholders'
knowledge the present use of Seller's premises conforms, and at the Closing Date
will conform, with all applicable ordinances and regulations and all building,
zoning, health, safety, air and water pollution and other laws and regulations,
and all permits necessary thereunder have been obtained and are, and immediately
prior to the Closing will be, in full force and effect. Seller does not own any
real property.
2.11 Intellectual Property. Except as set forth in Schedule 2.11,
(a) Schedule 1.1(a)(ii) lists all Intellectual Property, as
well as all licenses for such Intellectual Property, which are used in or
necessary to Seller's business as it is now conducted or contemplated to be
conducted. Seller owns a valid right or license to use the Intellectual Property
being used or held for use to conduct the Business, and the conduct of the
Business currently and in the past does not conflict with and has not conflicted
with valid intellectual property rights of others. All Intellectual Property
used or held for use in the conduct of the Business owned by Seller is so owned
free and clear of all Liens and no other person, including without limitation
any present or former employee, officer or director of Seller, has any right
whatsoever therein. Seller has not infringed or otherwise violated and is not
infringing or violating any intellectual property rights of any other person or
entity. Seller has taken appropriate steps to protect its Intellectual Property
and Seller does not have any obligation to compensate any person or entity for
the use of any Intellectual Property used in the conduct of the Business nor has
Seller granted to any person or entity any
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license, option or other rights to use in any manner any of the Intellectual
Property so used in the Business, whether requiring the payment of royalties or
not. No former or current employee of Seller has any right whatsoever to any
Intellectual Property being used or held for use by Seller. No proceedings have
been instituted or, to the knowledge of Seller or any of its directors or
officers, threatened, nor has any claim been made, against Seller alleging any
such infringement or violation. For the Intellectual Property which Seller uses,
but does not own, Seller is licensed to use such Intellectual Property and is
not in breach or, or default under, such license agreements. Such licensed
Intellectual Property is so indicated with an asterisk on Schedule 1.1(a)(ii).
(b) Seller has all right, title and interest in and to the
Software Products. No person or entity other than Seller owns any right, title
or interest in the Software Products including, without limitation, any right to
manufacture, use, copy, distribute or sublicense any object code or source code
thereof. The Software Products are (i) not subject to any Liens, (ii) not
subject to any pending or, to Seller's knowledge, threatened challenge of
infringement of the rights of others, nor to the knowledge of Seller is there
any basis for a challenge of infringement of any such rights of others, and
(iii) freely transferable and assignable to Buyer and will not be rendered
invalid or adversely affected in any way by virtue of the execution, delivery
and performance of this Agreement.
(c) Pursuant to Section 1.5 of the First Resource Acquisition
Agreement, Buyer is not and will not be in the future liable to First Resource
for any royalties under Sections 1.5.2.2. and 1.5.2.3. of the First Resource
Acquisition Agreement in excess of the Assumed Liabilities (as defined in
Section 1.5 of the First Resource Acquisition Agreement) as may be increased by
any Indemnifiable Losses (as defined in Section 1.5 of the First Resource
Acquisition Agreement). In addition, the escrow has been terminated pursuant to
Section 1.6 of the First Resource Acquisition Agreement.
2.12 Agreements, Contracts and Commitments. Set forth on Schedule 2.12
is a list of all agreements, contracts and commitments, written or oral, to
which Seller is a party or by which it is bound (the "Contracts"). Those
Contracts, if any, marked with an asterisk on Schedule 2.12 shall not be
assigned by Seller to Buyer at the Closing.
(a) Except for such (i) breaches, violations and defaults,
(ii) alleged breaches, violations and defaults, and (iii) events that would
constitute a breach, violation or default with the lapse of time, giving of
notice, or both, noted in Schedule 2.12 and those which reasonably would not be
expected to have a Material Adverse Effect, Seller has not breached, violated or
defaulted under, or received notice that it has breached, violated or defaulted
under, any of the terms or conditions of any Contract. Each Contract is in full
force and effect and, except as otherwise disclosed in Schedule 2.12, is not
subject to any default thereunder of which Seller has knowledge by any party
obligated to Seller pursuant thereto. Each Contract represents the entire
understanding between the Seller on the one hand and the party(s) with whom the
Contract is entered into on the other hand and there are no promises, agreements
or understandings between such parties other than those that are expressly set
forth in the Contracts.
(b) Seller has no contract or commitment which may restrict
the use of or adversely affect an Asset and has no contract which will or is
expected to result in a loss to Buyer in
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operating the Assets or which will or is expected to have an adverse effect on
the assets or the Buyer after the Closing.
(c) Seller has not given a power of attorney, which is
currently in effect, to any person, firm, entity or corporation for any purpose
whatsoever in connection or associated with or in any way affecting any of the
Assets or the Business, except pursuant to this Agreement or documents required
hereby.
2.13 Interested Party Transactions. Except as set forth on Schedule
2.13, no officer, director or shareholder of Seller (nor any ancestor, sibling,
descendant or spouse of any of such persons, or any trust, partnership or
corporation in which any of such persons has or has had an interest), has or has
had, directly or indirectly, (i) material interest in any entity which furnished
or sold, or furnishes or sells, services or products that Seller furnishes or
sells, or proposes to furnish or sell, or (ii) any material interest in any
entity that purchases from or sells or furnishes to Seller any goods or services
or (iii) a beneficial interest in any contract or agreement set forth in
Schedule 2.12.
2.14 Governmental Authorization. Schedule 2.14 accurately lists each
consent, license, permit, grant or other authorization issued to Seller by a
Governmental Entity (i) pursuant to which Seller currently operates or holds any
interest in any of the Assets or (ii) which is required for the operation of the
Business or the holding of any such interest (herein collectively called "Seller
Authorizations"), which Seller Authorizations are in full force and effect and
constitute all Seller Authorizations required to permit Seller to operate or
conduct its Business or hold any interest in the Assets.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no
action, suit or proceeding of any nature pending or, to Seller's knowledge,
threatened against Seller, the Assets or any of its officers or directors in
their respective capacities as such, nor, to the knowledge of Seller, is there
any basis therefor. Except as set forth in Schedule 2.15, there is no
investigation pending or threatened against Seller, its properties or any of its
officers or directors (nor, to the knowledge of Seller, is there any basis
therefor) by or before any Governmental Entity. Schedule 2.15 sets forth, with
respect to any pending or threatened action, suit, proceeding or investigation,
the forum, the parties thereto, the subject matter thereof and the amount of
damages claimed or other remedy requested. No Governmental Entity has at any
time notified Seller of any challenge or question regarding the legal right of
Seller to manufacture, offer or sell any of its products in the present manner
or style thereof.
2.16 Accounts Receivable.
(a) Seller has made available to Buyer a list of all accounts
receivable of Seller reflected on the Balance Sheet ("Accounts Receivable")
along with a range of days elapsed since invoice.
(b) All Accounts Receivable of Seller arose in the ordinary
course of business, are carried at values determined in accordance with
generally accepted accounting principles consistently applied. Seller has no
reason to believe that the Accounts Receivable are not collectible except to the
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extent of reserves therefor set forth in the Balance Sheet. No person has any
Lien on any of such Accounts Receivable and no request or agreement for
deduction or discount has been made with respect to any of such Accounts
Receivable.
2.17 Minute Books. The minute books of Seller made available to Buyer
contain accurate summaries of the meetings of directors (or committees thereof)
and shareholders and actions by written consent which such summaries purport to
summarize.
2.18 Environmental Matters.
(a) Hazardous Material. To the best of Seller's and Seller's
Affiliates' and Shareholders' knowledge, as of the Closing and with the
exception of common toxic office supplies such as glue or toner for photocopy
machines, no substance (a "Hazardous Material") that has been designated by any
Governmental Entity to be radioactive, toxic, hazardous or otherwise a danger to
health or the environment, including, without limitation, PCBs, asbestos, and
ureaformaldehyde is present in, on or under any property, including the land and
the improvements, ground water and surface water thereof, that Seller has at any
time owned, operated, occupied or leased ("Seller Facility").
(b) Hazardous Materials Activities. At no time prior to the
Closing has Seller transported, stored, used, sold, disposed of, manufactured,
released or exposed its employees or others to Hazardous Materials ("Hazardous
Materials Activities") in violation of any rule, regulation, treaty or statute
promulgated by any Governmental Entity to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity ("Environmental Laws).
(c) Permits. No environmental approvals, permits, licenses,
clearances or consents ("Environmental Permits") are necessary for the conduct
of Seller's Hazardous Material Activities, if any.
(d) Environmental Liabilities. Except as disclosed on Schedule
2.18, no action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim is pending or, to the knowledge of Seller, threatened
concerning or relating to any Seller Facility, any Environmental Permit or any
Hazardous Materials Activity involving Seller. Seller is not aware of any fact
or circumstance which could involve Seller in any environmental litigation or
impose upon Seller any environmental liability.
(e) Capital Expenditures. Except as set forth on Schedule
2.18, Seller is not aware of any capital expenditures which are required in
order to comply with Environmental Laws.
2.19 Brokers' and Finders' Fees; Third Party Expenses. Seller has not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby. Schedule 2.19 sets
forth the principal terms and conditions of any agreement, written or oral, with
respect to such fees.
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2.20 Employee Benefit Plans.
(a) Schedule 2.20(a) contains a complete and correct
description of all employment, compensation, confidentiality, non-competition,
invention and consulting agreements relating to persons employed by Seller
("Business Employees"), whether written or oral (other than oral employment
agreements terminable at will by either Seller or the employees without
liability to Seller) and a list of each Business Employee and such Business
Employee's aggregate annual compensation. Except as set forth in Schedule
2.20(a) Seller does not have any outstanding commitment or agreement to effect
any general wage or salary increase for any of the Business Employees.
(b) Seller is not a party to or otherwise subject to any
collective bargaining agreement, nor is Seller a party to or otherwise subject
to any contract or other agreement for the employment of any employee which is
not terminable (without liability) on notice of thirty (30) days or less, except
as indicated on Schedule 2.20(b). Except as set forth in Schedule 2.20(b), there
are no suits, actions or administrative, arbitration or other proceedings
pending or threatened against Seller or affecting Seller or its business
concerning labor disputes, grievances, petitions for union recognition or
organization or charges of unfair labor practices.
(c) Schedule 2.20(c) contains a true and correct list of
employee benefit plans maintained by or on behalf of Seller with respect to
Business Employees including (but not limited to) any pension, profit sharing
and other retirement plans, severance pay, vacation pay, medical, dental and
life insurance plans, bonus, compensation and deferred compensation plans, and
stock options or other stock benefit plans (collectively, the "Plans"). Each
Plan described in Schedule 2.20(c) is and has been administered in accordance
with the terms and is in material compliance with all applicable requirements of
applicable laws, including (but not limited to) the requirements imposed by the
Internal Revenue Code of 1986, as amended, and the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"). Except for Seller's 401(k) plan listed in
Schedule 2.20(c), Seller has no Plan that is subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). All filings, and all
contributions or other payments required by applicable law with respect to the
participation of the Business Employees in any Plan or to be made by Seller with
respect to any Plan have been timely made. In no event shall Buyer have any
liability in connection with the administration of any Plans or practices.
Seller has no liabilities to any Business Employee or beneficiary of a Business
Employee other than as specifically set forth in Schedule 2.20(c) to this
Agreement. Except as set forth on Schedule 2.20(c), the execution of this
Agreement and the consummation of the transactions contemplated hereby will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Seller compensation or employment plan or
agreement, trust or loan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any Employee.
(d) Employment Matters. Except as set forth on Schedule
2.20(d), Seller (i) is in compliance in all material respects with all
applicable federal and state laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and
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hours, in each case, with respect to Employees; (ii) has withheld all amounts
required by law or by agreement to be withheld from the wages, salaries and
other payments to Employees; (iii) is not liable for any arrears of wages or any
taxes or any penalty for failure to comply with any of the foregoing; and (iv)
(other than routine payments to be made in the normal course of business and
consistent with past practice) is not liable for any payment to any trust or
other fund or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits for
Employees.
2.21 Insurance. Schedule 2.21 lists all insurance policies and fidelity
bonds covering the Assets or the Business. There is no claim by Seller pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
payable under all such policies and bonds have been paid and Seller is otherwise
in full compliance with the terms of such policies and bonds (or other policies
and bonds providing substantially similar insurance coverage). Such policies of
insurance and bonds are of the type and in amounts customarily carried by
persons conducting businesses similar to those of Seller and to the best of
Seller's and Seller's Affiliates' and Shareholders' knowledge meet applicable
federal, state and local requirements, if any, for such insurance. Seller has no
knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
2.22 Compliance with Laws. To the best of Seller's and Seller's
Affiliates' and Shareholders' knowledge, Seller is in compliance with all
statutes, laws, rules and regulations with respect to or affecting the conduct
of its business and the ownership and operation of the Assets where failure to
comply would have a material adverse affect on Seller, Seller's business or the
Assets. Seller is not subject to any order, injunction or decree issued by any
governmental body, agency, authority or court which could impair the ability of
Seller to consummate the transactions contemplated hereby or which could have a
material adverse effect on Seller's financial condition.
2.23 Complete Copies of Materials. Seller has delivered or made
available true and complete copies of each document (or summaries of same) that
has been requested by Buyer or its counsel.
2.24 Inventories. All of the inventories of Seller reflected on the
Balance Sheet and Seller's books and records on the date hereof were purchased,
acquired or produced in the ordinary and regular course of business and in a
manner consistent with Seller's regular inventory practices and are set forth on
Seller's books and records in accordance with the practices and principles of
Seller consistent with the method of treating said items in prior periods. None
of the inventory of Seller reflected on the Balance Sheet or on Seller's books
and records as of the date hereof (in either case net of the reserve therefor)
is obsolete, defective or in excess of the needs of the business of Seller
reasonably anticipated during the next six months. The presentation of inventory
on the Balance Sheet conforms to generally accepted accounting principles and
such inventory is stated at the lower of cost (determined using the first-in,
first-out method) or net realizable value. Notwithstanding the foregoing, Seller
represents to Buyer that it carries no inventory on the Balance Sheet and on its
books and records as of the date hereof, as it only maintains a master set of
disks for its Products.
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2.25 No Insolvency. No petition has been filed by or against Seller for
relief under any applicable bankruptcy, insolvency or similar law; no decree or
order for relief has been entered in respect of Seller, voluntarily or
involuntarily, under any such law; and, no receiver, liquidator, sequestrator,
trustee, custodian or other officer has been appointed with respect to the
Seller or its assets and liabilities pursuant to any such law. No warrant of
attachment, execution or similar process has ben executed against Seller or any
of its assets or properties. Seller has not made any assignment for the benefit
of creditors.
2.26 Issuance of Shares.
(a) Seller will acquire the Shares for its own account, not as
a nominee or agent, and not with a view to the sale or distribution of any part
thereof, and Seller has no present intention of selling, granting any
participation in or otherwise distributing the same. Seller understands and
acknowledges that the issuance of the Shares pursuant to this Agreement will
not, and any issuance of Common Stock upon conversion thereof may not, be
registered under the Securities Act of 1933, as amended (the "Act") on the
ground that the issuance provided for in this Agreement is exempt pursuant to
Section 4(2) of the Act and that the Buyer's reliance on such exemption is
predicated on Seller's representations set forth herein. The Seller covenants
that in no event will it make any disposition of any of the Shares, or any
Common Stock acquired upon the conversion thereof, except in accordance with the
Registration Rights Agreement, which Seller shall become a party to upon the
execution of Seller and Buyer of the Eighteenth Amendment to the Registration
Rights Agreement. The Seller understands and acknowledges that there is no
public market for the trading of the Shares, or the Common Stock acquired upon
conversion thereof, and therefore, such Shares, and the Common Stock acquired
upon conversion thereof, must be held indefinitely unless it is subsequently
registered under the Act or an exemption from such registration is available,
and except for the Registration Rights Agreement, the Buyer is under no
obligation to register either the Shares or the Common Stock.
(b) Seller has business or financial experience or a financial
advisor, who is not affiliated with Buyer and who is not being compensated by
Buyer or any affiliate or selling agent of Buyer, directly or indirectly, who
has business or financial experience, that could be reasonably assumed to have
the capacity to protect Seller's own interest in connection with the issuance of
the Shares pursuant to this Agreement.
2.27 Representations Complete. None of the representations or
warranties made by Seller and Seller's Affiliates and Shareholders (as modified
by Seller Schedules), nor any statement made in any Exhibit or certificate
furnished by Seller and Seller's Affiliates and Shareholders pursuant to this
Agreement, contains or will contain at the Closing Date, any untrue statement of
a material fact, or omits or will omit at the Closing Date to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading. There is no
fact, circumstance or condition of any kind or nature whatsoever known to Seller
which reasonably would be expected to have a Material Adverse Effect on the
Business as
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conducted by the Seller through the Closing, which has not been set forth in
this Agreement, except those facts concerning general economic, legislative,
regulatory or other matters such as may generally impact all businesses of the
type operated by Seller.
2.28 Only Representations. Other than as set forth in this Agreement,
the Exhibits and Schedules hereto, Seller makes no representations or warranties
to Buyer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
3.1 Organization, Standing and Power. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Buyer has the corporate power to own its properties and to carry on
its business as now being conducted and is duly qualified to do business and is
in good standing in each jurisdiction in which the failure to be so qualified
would have a material adverse effect on the ability of Buyer to consummate the
transactions contemplated hereby.
3.2 Authority; Consents. Buyer has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Buyer. This Agreement has been
duly executed and delivered by Buyer and constitutes the valid and binding
obligation of Buyer, enforceable in accordance with its terms except as such
enforceability may be limited by bankruptcy or similar laws and general
principles of equity. The consummation of the transactions contemplated by this
Agreement will not materially conflict with any provision of the Articles of
Incorporation or Bylaws of Buyer. To Buyer's knowledge, no consent, waiver,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity or any third party, is required by or with respect
to Buyer in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby except for filings made in
compliance with federal or state securities laws.
3.3 Litigation. There is no action, suit or proceeding of any nature
pending or, to Buyer's knowledge, threatened against Buyer that would in any
material way impair Buyer's ability to execute this Agreement and consummate the
transactions contemplated hereunder.
3.4 Brokers' and Finders' Fees; Third Party Expenses. Buyer has not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
3.5 Authorization of Shares. The Buyer has authorized and reserved the
issuance of the Shares and the Common Stock acquired upon conversion thereof.
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3.6 Amendments to Registration Rights Agreement. The Second, Third and
Fifth amendments to the Registration Rights Agreement were entered into by Buyer
and the parties set forth therein for the sole purpose of including additional
shares of Buyer's Preferred Stock as "Registerable Securities" and the
Purchasers (as defined therein) as "Holders" under the Registration Rights
Agreement.
3.7 Representations Complete. None of the representations or warranties
made by Buyer, nor any statement made in any Exhibit or certificate furnished by
Buyer pursuant to this Agreement, contains or will contain at the Closing Date,
any untrue statement of a material fact, or omits or will omit at the Closing
Date to state any material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which made,
not misleading.
ARTICLE IV
COVENANTS OF SELLER
4.1 Conduct of Business of Seller. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing Date, Seller agrees (except to the extent that Buyer
shall otherwise consent in writing), to carry on its business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, to pay its debts and Taxes when due, maintain insurance against loss
or damage to the Assets and such other insurance with respect to the Assets as
heretofore been maintained, to pay or perform other obligations when due, and,
to the extent consistent with such business, use all reasonable efforts
consistent with past practice and policies to preserve intact Seller's present
business organizations, keep available the services of its present officers and
key employees and preserve their relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it,
all with the goal of preserving unimpaired the Assets, including without
limitation, Seller's goodwill and the Business at the Closing Date. Seller shall
promptly notify Buyer of any event or occurrence or emergency not in the
ordinary course of business of Seller, and any event which could have a Material
Adverse Effect. Except as expressly contemplated by this Agreement, Seller shall
not, without the prior written consent of Buyer (which shall be given, or
reasonably withheld, in the cases of clauses (f), (g) and (h) below, within one
business day after receipt of written request therefor):
(a) Enter into any commitment or transaction not in the
ordinary course of business;
(b) Transfer to any person or entity any rights to Seller's
Intellectual Property;
(c) Enter into or amend any agreements pursuant to which any
other party is granted marketing, distribution or similar rights of any type or
scope with respect to any products of Seller;
(d) Amend or otherwise modify (or agree to do so), except in
the ordinary course of business, or violate the terms of the agreements set
forth or described in Seller Schedules;
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(e) Commence any litigation;
(f) Declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of Seller, or repurchase, redeem or
otherwise acquire, directly or indirectly, any shares of its capital stock (or
options, warrants or other rights exercisable therefor);
(g) Except for the issuance of shares of capital stock of
Seller upon exercise or conversion of options described in Schedule 2.2, issue,
deliver or sell or authorize or propose the issuance, delivery or sale of, or
purchase or propose the purchase of, any shares of its capital stock or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities;
(h) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(i) Acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to the
business of Seller;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business;
(k) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities of Seller or guarantee
any debt securities of others;
(l) Grant any severance or termination pay (i) to any director
or officer or (ii) to any other employee;
(m) Adopt or amend any employee benefit plan, or enter into
any employment contract, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its employees;
(n) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(o) Pay, discharge or satisfy, in an amount in excess of
$5,000 (in any one case) or $15,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in Seller Financials (or
the notes thereto);
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(p) Enter into any strategic alliance or joint marketing
arrangement or agreement; or
(q) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (p) above, or any other action that
would (i) prevent Seller from performing or cause Seller not to perform its
covenants hereunder or (ii) result in making the representations and warranties
in Article II untrue.
4.2 No Solicitation. Until (i) the Closing Date, (ii) 60 days following
the date of termination of this Agreement pursuant to the provisions of Section
7.1(b)(i) or 7.1(d) hereof or (iii) the date of termination of this Agreement
pursuant to any other provision of Section 7.1 hereof, as the case may be,
Seller will not (nor will Seller permit any of Seller's officers, directors,
agents, representatives or Affiliates to) directly or indirectly, take any of
the following actions with any party other than Buyer and its designees:
(a) solicit, encourage, initiate or participate in any
negotiations or discussions with respect to, any offer or proposal to acquire
all or any portion of Seller's business and properties or capital stock whether
by merger, purchase of assets, tender offer or otherwise,
(b) except as required by law (in the opinion of outside
counsel), including fiduciary duties required by law, disclose any information
not customarily disclosed to any person other than its attorneys or financial
advisors concerning Seller's business and properties or afford to any person or
entity access to its properties, books or records, or
(c) assist or cooperate with any person to make any proposal
to purchase all or any part of Seller's capital stock or assets, other than
selling products of Seller in the ordinary course of business.
In the event Seller shall receive any offer or proposal, directly or
indirectly, of the type referred to in clause (a) or (c) above, or any request
for disclosure or access pursuant to clause (b) above, Seller shall immediately
inform Buyer as to any such offer or proposal.
4.3 Covenant Not to Compete. For a period of three (3) years from the
Closing, Seller will not directly or indirectly engage in any Competitive
Activities (as hereinafter defined).
4.3.1 The term "Competitive Activities" as used herein shall
mean:
(a) Directly or indirectly engaging in, continuing in
or carrying on in the Business (as defined in the Recitals hereof), including
owning or controlling any financial interest in any corporation, partnership,
firm or other form of business organization which competes with or is engaged in
or carries on any aspect of the Business;
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(b) Consulting with, advising or assisting in any
way, whether or not for consideration, any corporation which is now, becomes or
may become a competitor of Buyer in any aspect with respect to the Business,
including, without limitation, advertising or otherwise endorsing the products
of any such competitor or otherwise serving as an intermediary for any such
competitor; soliciting customers or sales representatives or otherwise
soliciting orders for the sale of any products associated with the Business
(other than solely for the benefit of Buyer at its request); loaning money or
rendering any other form of financial assistance to or engaging in any form of
business transaction on other than an arms' length basis with any such
competitor; soliciting, inducing or attempting to induce any employee of Buyer
to leave his or her employment with Buyer; and
(c) Engaging in any practice the purpose of which is
to evade the provisions of this covenant not to compete or commit any act which
is detrimental to the successful use and operation of the Assets by Buyer after
Closing or which may adversely affect the Assets; provided, however, that the
term "Competitive Activities" shall not include the ownership of securities of
corporations which are listed on a national securities exchange or traded in the
national over-the-counter market in an amount which shall not exceed 5% of the
outstanding shares of such corporation. The parties agree that the geographic
scope of this covenant not to compete shall extend worldwide. The parties agree
that Buyer may sell, assign or otherwise transfer this covenant not to compete,
in whole or in part, to any person, corporation, firm or entity that purchases
all or a substantial part of the Assets.
4.4 Discharge of Debts. To the extent necessary and required to
transfer, convey, assign and deliver the Assets to Buyer on the Closing Date
free and clear of all liens and encumbrances, Seller shall hereafter promptly
and fully satisfy and discharge all of its debts, liabilities and obligations
when due, or shall obtain full releases from the same or make sufficient
provisions to pay the same or to be released therefrom, all to the satisfaction
of Buyer. Seller shall not make any distribution to its shareholders until all
liabilities and obligations incurred on or prior to the Closing, and all
liabilities and obligations arising out of any contract, agreement or other
arrangement entered into on or prior to the Closing, have been paid and
discharged in full or an amount sufficient therefor has been set aside for
payment thereof.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Seller Shareholder Approval. As promptly as practicable after the
execution of this Agreement, Seller shall submit this Agreement and the
transactions contemplated hereby to its shareholders for approval and adoption
as provided by California Law and its Articles of Incorporation and Bylaws.
Seller shall use its best efforts to solicit and obtain the written consent, or
vote at a duly convened meeting, of its shareholders sufficient to approve the
Acquisition and this Agreement and to enable the Closing to occur as promptly as
practicable. The materials submitted to Seller's shareholders shall include
information regarding Seller, the terms of the Acquisition and this Agreement
and the recommendation of the Board of Directors of Seller in favor of the
Acquisition and this Agreement (subject to applicable fiduciary duties).
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5.2 Access to Information. Seller shall afford Buyer and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Closing Date to (a) all of
Seller's properties, books, contracts, commitments and records, and (b) all
other information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of Seller as Buyer may reasonably
request. Seller agrees to maintain and retain any and all information regarding
its business operations on or prior to the Closing Date necessary for Buyer to
calculate the availability to it of tax credits for research activities under
Section 41 of the Code. Seller agrees to provide to Buyer and its accountants,
counsel and other representatives copies of internal financial statements
promptly upon request. No information or knowledge obtained in any investigation
pursuant to this Section 5.2 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Acquisition.
5.3 Confidentiality. In addition to the obligations of each party
pursuant to the existing mutual confidentiality agreement, each of the parties
hereto hereby agrees to keep such information or knowledge obtained in any
investigation pursuant to Section 1.3 or 5.2, or pursuant to the negotiation and
execution of this Agreement or the effectuation of the transactions contemplated
hereby, confidential; provided, however, that the foregoing shall not apply to
information or knowledge which (a) a party can demonstrate was already lawfully
in its possession prior to the disclosure thereof by the other party, (b) is
generally known to the public and did not become so known through any violation
of law or this Agreement, (c) became known to the public through no fault of
such party, (d) is later lawfully acquired by such party from other sources, (e)
is required to be disclosed by order of court or government agency with subpoena
powers or (f) which is disclosed in the course of any litigation between any of
the parties hereto.
5.4 Expenses. Whether or not the Acquisition is consummated, all fees
and expenses incurred in connection with the Acquisition including, without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties ("Third Party Expenses") incurred by a party
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, shall be the
obligation of the respective party incurring such fees and expenses, except
Buyer shall pay up to $20,000 of legal and accounting fees incurred by Seller.
5.5 Public Disclosure. Unless otherwise required by law or a court of
competent jurisdiction, for a period of five years from the Closing Date, no
disclosure (whether or not in response to an inquiry) of any of the specific
details of this Agreement and the transactions contemplated thereby, including
without limitation, disclosure of the consideration paid for the assets
purchased and the indemnification arrangements provided for herein, shall be
made by Seller, (other than to Seller's legal counsel and other advisers as
shall be reasonably necessary) unless such disclosure is specifically approved
by Buyer and Buyer may, at its sole discretion, withhold such approval.
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5.6 Consents. Seller shall use its best efforts to obtain all necessary
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Acquisition so as to transfer to Buyer all rights of Seller
thereunder as of the Closing.
5.7 Best Efforts. Subject to the terms and conditions provided in this
Agreement and to the fiduciary duties of the board of directors of Seller under
applicable law as advised by outside counsel, each of the parties hereto shall
use its best efforts to take promptly, or cause to be taken, all actions, and to
do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations: to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and to remove
any injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement; provided that Buyer shall not be required to agree to any
divestiture by Buyer or any of Buyer's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Buyer or its
subsidiaries or affiliates, or the imposition of any material limitation on the
ability of any of them to conduct their businesses or to own or exercise control
of such assets (including without limitation the Assets), properties and stock.
5.8 Notification of Certain Matters. Seller shall give prompt notice to
Buyer, and Buyer shall give prompt notice to Seller, of (i) the occurrence or
non-occurrence of any event, the occurrence or non-occurrence of which is likely
to cause any representation or warranty of Seller and Buyer, respectively,
contained in this Agreement to be untrue or inaccurate at or prior to the
Closing Date and (ii) any failure of Seller or Buyer, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 5.8 shall not limit or otherwise affect any remedies
available to the party receiving such notice.
5.9 Additional Documents and Further Assurances. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.10 Employee Benefits. Except as provided in Section 5.13 immediately
prior to the closing, Seller will terminate each of its Business Employees and
will discharge all of its obligations to such employees with respect to accrued
salary, accrued vacation and sick time, benefit plans and insurance plans, other
than accrued vacation and sick time of Business Employees who accept offers of
employment from Buyer as set forth below in this Section . Seller shall use its
best efforts to assist Buyer in hiring and retaining the services of Business
Employees of Seller whom Buyer desires to employ. Seller understands and agrees
that (a) Buyer is under no obligation to offer employment with Buyer to any
Business Employees of Seller, (b) it is within the sole discretion of Buyer to
determine to whom offers of employment with Buyer will be extended and from whom
such offers will be withheld, and (c) those Business Employees of Seller who are
given offers of employment with Buyer will become, upon their acceptance of such
offers, new employees of Buyer with their employment
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commencing on the Closing Date for all purposes, including but not limited to
that of determining their eligibility for Buyer's employment benefits; provided,
however, that Buyer will waive all applicable pre-existing condition clauses
relating to insurance-based employment benefits, and will assume all vacation
and sick time accrued for such Business Employees immediately prior to the
Closing Date. Any Business Employee accepting employment with Buyer will be
required as a condition precedent to such employment to execute Buyer's standard
form of confidentiality and proprietary information agreement and take such
other actions generally required by Buyer of its new employees.
5.11 Tax Returns. Except for the Sales Taxes and other Taxes Buyer
agrees to pay pursuant to Sections 1.1(b) and 1.2(c) hereof, Seller shall be
responsible for and pay when due (i) all of Taxes of Seller attributable to or
levied or imposed upon the Assets relating or pertaining to the period (or that
portion of any period) ending on or prior to the Closing Date and (ii) all Taxes
attributable to, levied or imposed upon, or incurred in connection with the
Seller's business operations. Seller shall continue to timely file within the
time period for filing, or any extension granted with respect thereto, all of
Seller's Tax Returns required to be filed in connection with the Assets and any
portion of any such Tax Returns connected therewith shall be true and correct
and completed in accordance with applicable laws.
5.12 Bulk Sales. Seller shall, promptly upon request by Buyer, provide
all such information and execute and deliver such documents as Buyer may
reasonably request in order to enable Seller, through the efforts of Buyer, to
comply with the bulk sales laws of any jurisdiction.
5.13 Employment Agreements. Buyer shall offer the persons listed in
Schedule 6.3(n) the opportunity to enter into employment and noncompetition
agreements with Buyer to become effective following the Closing. Effective upon
the Closing, Dwight L. Jackson shall be offered employment pursuant to the terms
set forth in the Employment and Noncompetition Agreement attached hereto as
Exhibit F. Pursuant to action to be taken by the Board of Directors of Buyer at
its next Board meeting at which stock options are granted (and, in any event,
within sixty (60) days of the Closing Date), Dwight L. Jackson shall be granted
a stock option to purchase 10,000 shares of the Buyer's Common Stock at an
exercise price equal to the then-current fair market value of the stock as
determined by the Buyer's Board of Directors.
5.14 Securities Laws.
(a) Securities Laws Representations and Covenants of Buyer.
(1) This Agreement is made with Seller in reliance
upon Seller's representation to Buyer, which by Seller's execution of this
Agreement Seller hereby confirms, that the Shares to be received by Seller will
be acquired for investment for Seller's own account, not as a nominee or agent,
and not with a view to the sale or distribution of any part thereof, and that
Seller has no present intention of selling, granting any participation in, or
otherwise distributing the same.
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By executing this Agreement, Seller further represents that Seller has no
contract, undertaking, agreement or arrangement with any person to sell,
transfer, or grant participation to such person or to any third person, with
respect to any of the Shares.
(2) Seller acknowledges and understands that the
Shares, and any Common Stock acquired upon the conversion thereof, must be held
indefinitely unless it is subsequently registered under the Securities Act or an
exemption from such registration is available, and that, except as otherwise
provided in the Registration Rights Agreement, Buyer is under no obligation to
register either the Shares of Common Stock.
(3) Seller understands and acknowledges that the
offering of the Shares pursuant to this Agreement will not be registered under
the Securities Act on the grounds that the offering and sale of securities
contemplated by this Agreement are exempt from registration pursuant to Section
4(2) of the Securities Act, and that the Buyer's reliance upon such exemption is
predicated upon Seller's representations set forth in this Agreement.
(4) Unless there is in effect a registration
statement under the Securities Act covering the proposed transaction, Seller
covenants that in no event will Seller dispose of any of the Shares (other than
pursuant to Rule 144 promulgated by the Securities and Exchange Commission under
the Securities Act ("Rule 144") or any similar or analogous rule) unless and
until (i) Seller shall have notified the Buyer of the proposed disposition and
shall have furnished the Buyer with a statement of the circumstances surrounding
the proposed disposition and (ii) if requested by the Buyer, Seller shall have
furnished Buyer with an opinion of counsel satisfactory in form and substance to
the Buyer and Buyer's counsel to the effect that (x) such disposition may
legally be made in the manner proposed without registration under the Securities
Act and (y) appropriate action necessary on the part of Seller for compliance
with the Securities Act and any applicable state, local or foreign law has been
taken; provided however, no such opinion need be obtained with respect to
Seller's distribution of the Shares to its Shareholders pursuant to Section
1.2(b) hereof if such Shareholders agree to be subject to the terms hereof. Each
certificate evidencing the Shares transferred as above provided shall bear the
appropriate restrictive legend set forth below, except that such certificate
shall not bear such legend if the transfer was made in compliance with Rule 144
or if the opinion of counsel referred to above is to the further effect that
such legend is not required in order to establish compliance with any provisions
of the Securities Act.
(5) Seller represents that: (i) Seller has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of Seller's prospective investment in the
Shares; (ii) Seller has received all the information it has requested from Buyer
and considers necessary or appropriate for deciding whether to purchase the
Shares; (iii) any financial information, financial projections or other
forward-looking financial or statistical data received by Seller from Buyer has
been reviewed by Seller with the knowledge and understanding that the foregoing
constitutes no more than Buyer's reasonable belief as to results which may be
achieved, and that no representation, warranty or assurance is, can be or has
been made that any such results,
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financial or otherwise, will actually be achieved by Buyer; (iv) Seller has the
ability to bear the economic risks of Seller's prospective investment; and (v)
Seller is able, without materially impairing its financial condition, to hold
the Shares for an indefinite period of time and to suffer complete loss on its
investment.
(b) Legends.
(1) All certificates for the Shares shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND
ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144
PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE
SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED
EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT,
OR (ii) IN COMPLIANCE WITH RULE 144, OR (iii)
PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION OR COMPLIANCE IS
NOT REQUIRED AS TO SAID SALE, OFFER OR DISTRIBUTION."
(2) "IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER
OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO
RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN
THE COMMISSIONER'S RULES."
(3) The certificate evidencing the Shares shall also
bear any legend required pursuant to any state, local
or foreign law governing such securities. A permit to
qualify the issuance of these Shares has been ordered
by the California Department of Corporations (the
"Permit") and the certificate evidencing the Shares
shall bear the legend as set forth in Section
5.14(b)(2) required as a condition to the issuance of
the Permit. Buyer shall file a Post-Effective
Amendment No. 1 to the Permit immediately following
the Closing to file an executed copy of this
Agreement with the California Department of
Corporations to allow the distribution of the Shares
by Seller to its Shareholders pursuant to Section
1.2(b) hereof.
(c) Seller understands that transfer of the Shares may be
restricted by Section 260.141.11 of the Rules of the California Corporations
Commissioner, a copy of which is attached as Attachment 1.
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5.15 Closing Statement. Within 45 days after the Closing Date, Seller
shall prepare and deliver to the Buyer the following: (i) an income statement
(the "Closing Income Statement") for the period from March 31, 1996 through the
Closing Date (the "Stub Period") and (ii) a balance sheet as of the Closing Date
(the "Closing Balance Sheet"; collectively, the Closing Income Statement and the
Closing Balance Sheet shall be referred to as the "Closing Statement"). Such
Closing Statement shall, among other things, set forth the net worth of the
Company as of the Closing Date. The Closing Statement shall be prepared in good
faith with Buyer's reasonable assistance to the extent of Buyer's ability and in
accordance with generally accepted accounting principles applied on a consistent
basis.
5.16 Settlement of Litigation and Other Disputes. Seller shall use its
best efforts to settle any litigation matters arising between the date hereof
and the Closing Date, prior to the Closing on terms and conditions satisfactory
to Buyer.
5.17 Updating of Schedules. Seller shall deliver to Buyer at least one
full day prior to the Closing Date Supplemental Schedules which shall reflect
any changes or additions required to update the disclosure set forth in the
Schedules to make it true and correct as of the Closing Date.
ARTICLE VI
CONDITIONS TO THE ACQUISITION
6.1 Conditions to Obligations of Each Party to Effect the Acquisition.
The respective obligations of each party to this Agreement to effect the
Acquisition shall be subject to the satisfaction at or prior to the Closing Date
of the following conditions:
(a) Corporate Approvals. This Agreement and the Acquisition
shall have been approved and adopted by the requisite vote of the shareholders
of Seller.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Acquisition shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Acquisition, which makes the consummation of the Acquisition illegal.
6.2 Additional Conditions to Obligations of Seller. The obligations of
Seller to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Closing Date of
each of the following conditions, any of which may be waived, in writing,
exclusively by Seller:
(a) Representations, Warranties and Covenants. The
representations and warranties of Buyer in this Agreement shall be true and
correct on and as of the Closing Date as though such representations and
warranties were made on and as of such time and Buyer shall have
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performed and complied with all covenants, obligations, agreements and
conditions of this Agreement required to be performed and complied with by it as
of the Closing Date.
(b) Certificate of Buyer. Seller shall have been provided with
a certificate duly executed on behalf of Buyer by its President to the effect
that, as of the Closing Date:
(i) all representations and warranties made by Buyer
in this Agreement are true and complete; and
(ii) all covenants, obligations, agreements and
conditions of this Agreement to be performed by Buyer on or before such date
have been so performed.
(c) Registration Rights Agreement. Buyer and Seller shall have
executed and delivered the Eighteenth Amendment to the Registration Rights
Agreement pursuant to Section 1.2(a) hereof and attached hereto as Exhibit B.
(d) Employment and Noncompetition Agreement. Buyer and Dwight
L. Jackson shall have executed and delivered the Employment and Noncompetition
Agreement pursuant to Section 5.13 hereof and attached hereto as Exhibit H.
6.3 Additional Conditions to the Obligations of Buyer. The obligations
of Buyer to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Date of each of the following conditions, any of which may be waived, in
writing, exclusively by Buyer:
(a) Representations, Warranties and Covenants. The
representations and warranties of Seller and Seller's Affiliates and
Shareholders in this Agreement shall be true and correct on and as of the
Closing Date as though such representations and warranties were made on and as
of such time and Seller and Seller's Affiliates and Shareholders shall have
performed and complied with all covenants, obligations, agreements and
conditions of this Agreement required to be performed and complied with by it as
of the Closing Date.
(b) Certificate of Seller and Seller's Affiliates and
Shareholders. Buyer shall have been provided with a certificate executed on
behalf of Seller by its President and by each of Seller's Affiliates and
Shareholders to the effect that, as of the Closing Date:
(i) all representations and warranties made by Seller
and Seller's Affiliates and Shareholders in this Agreement are true and
complete; and
(ii) all covenants, obligations, agreements and
conditions of this Agreement to be performed by Seller and Seller's Affiliates
and Shareholders on or before such date have been so performed.
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(c) Claims. There shall not have occurred any claims (whether
or not asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or the Business, the Assets
or financial condition of Seller or Buyer.
(d) Third Party Consents. Any and all consents, waivers, and
approvals required from third parties relating to the Contracts so as to assign
all rights of Seller thereunder to Buyer as of the Closing shall have been
obtained except as set forth in 6.4(b) hereof and except for any consent, waiver
and approval by Oracle Corporation, a California corporation ("Oracle") pursuant
to Section 8.5 of the Business Alliance Program Agreement between Oracle and
Seller dated February 15, 1996.
(e) Payment of Outstanding Liabilities. To the extent
necessary and required to transfer, convey, assign and deliver the Assets to
Buyer on the Closing Date free and clear of all liens and encumbrances, Seller
will have taken any and all necessary actions to pay off and/or obtain full
releases from all of its liabilities and obligations, or will have made
sufficient provisions to so pay or obtain releases, to the satisfaction of
Buyer.
(f) Bulk Sales Law Compliance. In connection with the
transactions contemplated hereby, Seller shall have complied fully with its
obligations pursuant to Section 5.12 of this Agreement and there shall have been
no intervention by any creditor of Seller prior to the Closing, except as
disclosed in Schedule 6.3(f).
(g) Satisfaction of Bank Debt. Seller shall have delivered to
Buyer evidence satisfactory to Buyer that the loan from Scott Valley Bank has
been assigned to Stephen P. Blanding and Kirk G. Ward and that Scott Valley Bank
has terminated all security interests, security agreements and guarantees
affecting or relating to the Assets.
(h) Termination of UCC Financing Statements. Buyer shall have
been furnished with UCC termination statements with respect to all UCC-1
financing statements evidencing security interests in any of the Assets
excluding the tax liens filed by the IRS on November 10, 1994 and November 16,
1994 in the amount of $17,998.57 and $4,026.46, respectively, and the tax liens
filed by the State of California Employment Development Department on March 23,
1995 in the amount of $4,586.97, with respect to liens on the assets of First
Resource, and including the UCC-1 financing statement filed by Scott Valley Bank
on October 12, 1994 with respect to a lien on substantially all of the assets of
Seller.
(i) Subordination Agreement. Seller shall have delivered to
Buyer a copy of the Subordination Agreement executed by each of Kirk G. Ward and
Stephen P. Blanding pursuant to Section 1.1(b)(ii) hereof.
(j) Settlement of Outstanding Disputes. Buyer shall have
received evidence of the settlement of any litigations and/or disputes described
in the Schedules, including a general release from each such litigant or
disputant, as the case may be, on terms and in a form satisfactory to it.
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(k) No Injunctions or Restraints on Conduct of Business. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or provision challenging Buyer's proposed acquisition of the Assets,
or limiting or restricting Buyer's conduct or operation of the Business (or its
own business) following the Acquisition shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending.
(l) Governmental Approvals. All consents, approvals, orders
and authorizations of, and registrations, declarations and filings with, and
expirations of waiting periods imposed by, any governmental entity, domestic or
foreign, necessary for the consummation of the transactions contemplated by this
Agreement shall have been obtained or filed or have occurred.
(m) No Material Adverse Changes. There shall not have occurred
any material adverse change in the Business, the Assets or the results of
operations or financial condition of Seller.
(n) Employment and Noncompetition Agreements. Buyer and Dwight
L. Jackson shall have entered into the Employment and Noncompetition Agreement
in the form attached hereto as Exhibit H. Buyer and the persons listed in
Schedule 6.3(n) shall have entered into the Buyer's standard form of
confidentiality and proprietary information agreement.
(o) Third Party Rights. No third party shall have any right of
any nature whatsoever (including, without limitation, any right to receive
royalty payments) in respect of any of the Assets, except rights to use Products
pursuant to licenses granted by Seller in the ordinary course of business.
(p) Certificates. Seller shall have obtained certificates of
good standing from the California Secretary of State as to the good standing of
the Seller and from the California Franchise Tax Board as to due payment by
Seller of all taxes due, and shall have provided Buyer with true and correct
certified copies thereof.
(q) Due Diligence. Buyer shall have completed to its
satisfaction the due diligence process outlined in Section 5.2 hereof.
(r) Closing Documents. Buyer shall have received, in form and
substance satisfactory to Buyer and its counsel, each and every other closing
document required to be delivered to it pursuant to this Agreement.
6.4 Condition Subsequent to Obligations of Buyer.
(a) Cara Agreement. Within twenty (20) days after the Closing,
Buyer and Cara Information Technology LTD ("Cara") shall enter into a license
agreement (the "Cara Agreement") substantially in the form attached hereto as
Exhibit I and Cara shall pay by wire transfer, upon the written instructions
from Buyer to Cara, an aggregate of $100,000 of the license fees as set forth in
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the Cara Agreement of which $75,000 shall be paid upon execution of the Cara
Agreement and an additional $25,000 shall be paid upon delivery of the
Documentation by Buyer to Cara at such respective times. In no event shall the
Cara Agreement be entered into between Seller and Cara prior to the Closing. In
addition, Seller hereby guarantees two payments of $50,000 each (for an
aggregate of $100,000) by Cara to Buyer to be paid six (6) months and twelve
(12) months, respectively, from the date of the Cara Agreement.
(b) Third Party Consents. Within twenty (20) days after the
Closing, Seller shall have obtained and delivered to Buyer all consents,
waivers, and approvals required from Smithware, Inc., a Tennessee Corporation
("Smithware") in accordance with the Software Distribution Agreement dated as of
April 19, 1996 by and between Seller and Smithware and from Programmed
Intelligence Corporation, a Georgia corporation ("IQ") in accordance with the
Software Distribution License Agreement dated as of October 19, 1989, as
amended, by and between Seller and IQ to assign all rights of Seller thereunder
to Buyer as of the Closing.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. Except as provided in Section 7.2 below, this
Agreement may be terminated and the Acquisition abandoned at any time prior to
the Closing Date:
(a) by mutual consent of Seller and Buyer;
(b) by Buyer or Seller if: (i) the Closing has not occurred by
June 15, 1996; (ii) there shall be a final nonappealable order of a federal or
state court in effect preventing consummation of the Acquisition; or (iii) there
shall be any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the Acquisition by any Governmental Entity that would
make consummation of the Acquisition illegal;
(c) by Buyer if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Acquisition by any Governmental Entity, which would: (i)
prohibit Buyer's ownership or operation of all or a substantial portion of the
Business or the Assets or (ii) compel Buyer to dispose of or hold separate all
or a substantial portion of the Business or the Assets of Buyer as a result of
the Acquisition;
(d) by Buyer if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Seller and such breach has not been cured within five (5) business
days after written notice to Seller (provided that, no cure period shall be
required for a breach which by its nature cannot be cured);
(e) by Seller if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement
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contained in this Agreement on the part of Buyer and such breach has not been
cured within five (5) business days after written notice to Buyer (provided
that, no cure period shall be required for a breach which by its nature cannot
be cured).
7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Buyer or Seller, or
their respective officers, directors or shareholders, provided that each party
shall remain liable for any breaches of this Agreement prior to its termination;
and provided further that, the provisions of Sections 4.2, 4.3, 5.3, 5.4, 5.5
and Article 8 of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
7.3 Amendment. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of each of
the parties hereto.
7.4 Extension; Waiver. At any time prior to the Closing Date, Buyer on
the one hand, and Seller, on the other, may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations of the other party
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
ARTICLE VIII
INDEMNITY AGREEMENT
8.1 Agreement to Indemnify; Offset.
(a) Each of Seller and Seller's Affiliates and Shareholders
hereby agree, jointly and severally, to indemnify and hold Buyer, and its
directors, officers and affiliates (collectively, the "Indemnitees"), harmless
against and in respect of any loss, cost, expense (including expenses of
investigation), claim, liability, deficiency, judgment or damage, including
reasonable legal and accounting fees and expenses, which exceed $15,000 in the
aggregate (hereinafter, individually, a "Loss", and collectively, "Losses")
incurred by Buyer, its officers, directors, or affiliates, directly or
indirectly, (i) as a result of any inaccuracy in or breach of a representation
or warranty of Seller or any of Seller's Affiliates and Shareholders contained
in this Agreement or any failure by Seller or any of Seller's Affiliates and
Shareholders to perform or comply with any covenant or condition contained in
this Agreement and (ii) by reason of Seller's failure to satisfy or discharge in
a timely manner any liability or obligation of Seller that is not an Assumed
Liability. Notwithstanding the foregoing, Seller and Seller's Affiliates and
Shareholders shall only be liable to Indemnitees for any and all Losses in
excess of an aggregate total of $15,000 from the sum of all Losses combined.
(b) Prior to the earlier to occur (the "Offset Date") of (i)
the closing of an initial public offering of the Buyer that triggers the
automatic conversion of the Series E Preferred Stock of
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Buyer into Common Stock of the Buyer (an "IPO") or (ii) twenty-four (24) months
from the date of this Agreement, Buyer, for purposes of calculating the amount
of interest payable to Kirk G. Ward and Stephen P. Blanding under the $250,000
Note, only and not as a permanent reduction of the principal balance thereof,
shall offset the amount of any Losses for which Seller and Seller's Affiliates
and Shareholders are liable to any of the Indemnitees against the amount of
principal outstanding under the $250,000 Note.
(c) At the Offset Date, in addition to any rights of offset or
other rights that Buyer or any of the other Indemnitees may have at Common Law
or otherwise, Seller shall have the option to either: (i) cause Buyer to
withhold and deduct any sum that may be owed to any Indemnitee under this
Agreement from any amount otherwise payable by Buyer to Kirk G. Ward and Stephen
P. Blanding under the $250,000 Note or (ii) deliver to Buyer the number of
shares equal to the quotient of (1) the amount of such Losses, (2) divided by
the greater of (x) $7.94 per share (as adjusted for stock splits and stock
dividends) or (y) the most recent purchase price per share of the Company's
Capital Stock. The withholding and deduction of any such sum against the
$250,000 Note shall first be used to pay down any principal, if any owed and any
accrued interest or other fees or sums owed thereafter by Buyer to Seller or any
of Seller's Affiliates and Shareholders and shall operate as a complete
discharge (to the extent of such sum) of the obligation to pay the amount from
which such sum was deducted.
8.2 Expiration of Indemnification and Representations and Warranties.
(a) Except as otherwise provided in Sections 8.1(c) and 8.2(b)
hereof, the indemnification obligations under Section 8.1 hereof and the
representations and warranties contained in this Agreement (except for those
referred to in Section 8.2(b) hereof) shall terminate eighteen (18) months from
the date of this Agreement, but shall not terminate as to any Loss (or a
potential claim by an appropriate party) asserted in good faith prior to such
date by Delivery (as defined below) of an Officer's Certificate (as defined
below) pursuant to Section 8.3 hereof.
(b) The indemnification obligations under Section 8.1 hereof
with respect to a breach of the representations and warranties contained in (i)
Section 2.8(c) of this Agreement shall not terminate until twenty-four (24)
months; and (ii) Section 2.11(c) of this Agreement shall terminate forty-eight
(48) months after the date of this Agreement, but shall not terminate as to any
Loss (or a potential claim by an appropriate party) asserted in good faith prior
to such date. The representations and warranties contained in Sections 2.8(c)
and 2.11(c) shall survive until expiration of the respective periods set forth
in the foregoing clauses (i) and (ii), respectively. In addition, the
representations and warranties of Buyer in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive for a period of one (1) year
from the Closing Date.
8.3 Claims. Upon Delivery (as defined below) of notice to Seller by the
Buyer at any time on or before the last day prior to expiration of
indemnification as set forth in Section 8.2 herein of a certificate signed by
any officer of Buyer (an "Officer's Certificate"):
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(a) stating that Buyer (or any of its directors, officers or
affiliates) has paid or properly accrued or reasonably anticipates that it will
have to pay or accrue Losses in an aggregate stated amount to which such party
is entitled to indemnity pursuant to this Agreement, and
(b) specifying in reasonable detail the individual items of
Losses included in the amount so stated, the date each such item was paid or
properly accrued, or the basis for such anticipated liability, and the nature of
the misrepresentation, breach of warranty or covenant or condition to which such
item is related,
the Seller or any of Seller's Affiliates or Shareholders shall, subject to the
provisions of Section 8.4 hereof, either (i) deliver to Buyer as promptly as
practicable but in no event later than thirty (30) calendar days from the date
of Delivery, the amount of cash equal to such Losses as indemnity payable by
wire transfer or certified check, or, in the event any amounts remain due under
the $250,000 Note and/or any of Seller or Seller's shareholders are the
beneficial holders of any of the Shares, (ii) notify Indemnitees as promptly as
practical but in no event later than thirty (30) calendar days from the date of
Delivery, that such indemnification shall be offset in accordance with Sections
8.1(b) and (c) hereof.
8.4 Objections to Claims. At the time of delivery of any Officer's
Certificate to Seller (the "Delivery"), a duplicate copy of such certificate
shall be delivered to Seller's Affiliates and Shareholders. After the expiration
of such thirty (30) day period, Seller or any of Seller's Affiliates and
Shareholders shall make payment to Buyer in accordance with Section 8.3 hereof;
provided that, no such payment may be made if Seller shall object in a written
statement to the claim made in the Officer's Certificate, and such statement
shall have been delivered to Buyer prior to the expiration of such thirty (30)
day period. Notwithstanding any other provision of this Agreement, the parties
hereto hereby agree that, upon receipt of reasonable evidence of any claimed or
asserted Tax liability which attaches or may attach to the Assumed Assets by
operation of law or otherwise or for which Buyer is liable in connection with
the purchase of the Assumed Assets and which is an Indemnifiable Loss hereunder,
the Seller or any of Seller's Affiliates and Shareholders shall deliver to
Buyer, as promptly as practicable, an amount sufficient for Buyer to discharge
such Tax liability. In the event Seller objects or disputes the payment or
satisfaction of any such Tax liability, Seller's sole recourse shall be to file
a claim of refund or such other appropriate claim with the governmental body to
which such payment is made by Buyer.
8.5 Resolution of Conflicts; Arbitration.
(a) In case Seller shall so object in writing to any claim or
claims made in any Officer's Certificate, Seller and Buyer shall attempt in good
faith to agree upon the rights of the respective parties with respect to each of
such claims; provided, however, that there shall be no presumption that Buyer
has not attempted to agree in good faith if Buyer chooses to demand arbitration
of the matter in the manner set forth in paragraph (b) below after fifteen (15)
days following Seller's objection. If Seller and Buyer should so agree, a
memorandum setting forth such agreement shall be prepared and signed by each of
Buyer and Seller.
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(b) If no such agreement can be reached after good faith
negotiation, either Buyer or Seller may demand arbitration of the matter unless
the amount of the Loss is at issue in pending litigation with a third party, in
which event arbitration shall not be commenced until such amount is ascertained
or both parties agree to arbitration; and, in either such event, the matter
shall be settled by arbitration conducted by three arbitrators. Buyer and Seller
shall each select one arbitrator, and the two arbitrators so selected shall
select a third arbitrator. The decision of a majority of the arbitrators so
selected as to the validity and amount of any claim in such Officer's
Certificate shall be binding and conclusive upon the parties to this Agreement.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Alameda County, California under the rules then in effect of the American
Arbitration Association. For purposes of this Section 8.5, in any arbitration
hereunder in which any claim or the amount thereof stated in the Officer's
Certificate is at issue, Buyer shall be deemed to be the "Non-Prevailing Party"
in the event that the arbitrators award Buyer less than fifty percent (50%) of
the disputed amount (in addition to any amount not in dispute); otherwise,
Seller shall be deemed to be the Non-Prevailing Party. The Non-Prevailing Party
to an arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the expenses,
including, without limitation, reasonable attorneys' fees and costs, incurred by
the other party to the arbitration.
8.6 Third Party Claims. In the event Buyer becomes aware of a
third-party claim that Buyer believes may result in a demand of indemnification,
Buyer shall notify Seller of such claim, and the Seller shall be entitled, at
its expense, to participate in any defense of such claim. Buyer shall have the
right in its sole discretion to settle any such claim; provided, however, that
except with the written consent of Seller (which shall not be unreasonably
withheld), no settlement of any such claim with third party claimants shall
alone be determinative of the amount of liability of Seller. In the event that
Seller has not consented in writing to any such settlement, Buyer and Seller
shall resolve by arbitration any dispute as to the amount to which Buyer is
entitled under Section 8.1 hereof in respect of such settlement in the manner
set forth in this Section 8.
8.7 Remedies. Seller and each of Seller's Affiliates and Shareholders
hereby acknowledge that Buyer may seek any available remedy to enforce the
indemnity obligations of Seller and Seller's Affiliates and Shareholders set
forth in Section 8.1 hereof.
8.8 Representative. Seller and the Seller's Affiliates and Shareholders
hereby agree that effective upon the execution of this Agreement, they shall be
collectively represented by Stephen P.
Blanding (the "Representative") in accordance with the following terms:
(i) The Representative is hereby empowered to give and receive
notices and communications, to agree to the reimbursable amount of any Loss, to
negotiate, enter into settlements and compromises of and to take all actions on
behalf of the Seller and the Seller's Affiliates and Shareholders necessary for
the accomplishment of the foregoing.
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(ii) In the event that the Representative shall die, become
incapacitated, resign or otherwise be unable to fulfill his duties or terminate
his status as such, his successor shall be elected by the vote or consent of the
majority in interest of the Seller's Affiliates and Shareholders as soon as
reasonably practicable thereafter.
(iii) The Representative shall receive no compensation for his
services but shall be reimbursed by the Seller's Affiliates and Shareholders for
reasonable expenses incurred in the course of performance of such services.
(iv) A decision, act, consent or instruction of the
Representative shall constitute a decision of the Seller and Seller's Affiliates
and Shareholders and shall be conclusive and binding upon the Seller and
Seller's Affiliates and Shareholders, and Buyer may rely upon any decision, act,
consent or instruction of the Representative as being the decision, act, consent
or instruction of the Seller and Seller's Affiliates and Shareholders.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via telecopy (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Buyer, to:
ProBusiness, Inc.
5934 Gibraltar
Pleasanton, California 94588
Attention: Chief Financial Officer
Telecopy No.: (510) 847-3817
with a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Alan K. Austin, Esq.
Telecopy No.: (415) 493-6811
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(b) if to Seller, to:
Dimension Solutions
39899 Balentine Drive
Suite 335
Newark, California 94560
Attention: Dwight Jackson
Telecopy No.: (510) 623-0550
with a copy to:
Morgan, Miller & Blair
1676 North California Blvd.
Suite 200
Walnut Creek, California 94596
Attention: Bruce Ring
Telecopy No.: (510) 943-1106
9.2 Interpretation. When a reference is made in this Agreement to
Schedules or Exhibits, such reference shall be to a Schedule or Exhibit to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement. This Agreement, the Schedules and Exhibits
hereto: (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof; (b) are not intended to confer upon any other person any rights or
remedies hereunder, unless expressly provided otherwise; and (c) shall not be
assigned by operation of law or otherwise; provided, however, that Seller may
assign its rights and obligations hereunder to its shareholders.
9.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto.
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<PAGE> 47
9.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
9.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
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<PAGE> 48
IN WITNESS WHEREOF, each of Buyer, Seller and Seller's Affiliates and
Shareholders has caused this Agreement to be signed by their duly authorized
respective officers, all as of the date first written above.
PROBUSINESS, INC.
By:
---------------------------------
Name: Thomas H. Sinton
Title: President
DIMENSION SOLUTIONS
By:
---------------------------------
Name: Dwight L. Jackson
Title: President
Seller's Shareholders
---------------------------------
Dwight L. Jackson
---------------------------------
Stephen P. Blanding
---------------------------------
Kirk G. Ward
---------------------------------
Stephen P. Blanding and Mayno W. Blanding
Family Trust
By:
----------------------------
Title:
--------------------------
---------------------------------
Ward Family Revocable Trust dated 3/28/94
By:
----------------------------
Title:
--------------------------
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<PAGE> 1
Exhibit 2.2
STOCK ACQUISITION AGREEMENT
AMONG
PROBUSINESS, INC.,
BENESPHERE ADMINISTRATORS, INC.,
AND
ALISON ELDER, BEN REPPOND AND LOUIS BARANSKY
DATED AS OF JANUARY 1, 1997
<PAGE> 2
INDEX OF EXHIBITS
Exhibit Description
- ------- -----------
Exhibit A Warrant to Purchase Common Stock
Exhibit B-1 Form of Legal Opinion of Steinhart & Falconer LLP,
Special Counsel to the Company
Exhibit B-2 Form of Legal Opinion of Peter Lewicki, Counsel to the Company
and Ben Reppond and Louis Baransky
<PAGE> 3
INDEX OF SCHEDULES
COMPANY SCHEDULE DESCRIPTION
- -----------------------------------
1.6(b) Statement of Operations
1.6(c) Accounting Policies of Buyer
2.1 Jurisdictions Where Qualified to do Business
2.2(a) Stockholder List
2.2(b) Option List
2.4 Governmental and Third Party Consents
2.5 Company Financials
2.6 Undisclosed Liabilities
2.7 No Changes
2.8 Tax Returns and Audits
2.9 Restrictions on Business Activities
2.10(a) Leased Real Property
2.10(b) Liens on Property
2.10(c) Equipment
2.11 Intellectual Property; Form of Confidentiality Agreement
2.12(a) Agreements, Contracts and Commitments
2.12(b) Breaches
2.13 Interested Party Transactions
2.14 Governmental Authorizations
2.15 Litigation
2.18 Environmental Matters
2.19 Expenses of Transaction
2.20(b) Employee Benefit Plans and Employees
2.20(d) Employee Plan Compliance
2.20(g) Post Employment Obligations
2.20(h)(i) Effect of Transaction
2.20(h)(ii) Excess Parachute Payments
2.20(j) Labor
2.21 Insurance
2.24 Warranties; Indemnities
2.25 1997 Calendar Year Financial Forecast and 1998 Calendar
Year Financial Forecast
2.26 Customer List
2.27 Individual Representations and Warranties
5.2 Contracts
7.1 Participating Persons
<PAGE> 4
TABLE OF CONTENTS
PAGE
ARTICLE I THE PURCHASE AND SALE .................................... 1
1.1 The Purchase and Sale .............................. 1
1.2 Purchase Price ..................................... 1
1.3 The Closing ........................................ 2
1.4 Deliveries by the Sellers and the Company .......... 2
1.5 Deliveries by the Buyer............................. 3
1.6 Earnout Payments ................................... 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLERS ............... 5
2.1 Organization of the Company ........................ 5
2.2 Company Capital Structure........................... 5
2.3 Subsidiaries ....................................... 6
2.4 Authority .......................................... 6
2.5 Company Financial Statements ....................... 7
2.6 No Undisclosed Liabilities.......................... 7
2.7 No Changes.......................................... 7
2.8 Tax and Other Returns and Reports .................. 9
2.9 Restrictions on Business Activities ................ 10
2.10 Title of Properties; Absence of Liens and
Encumbrances; Condition of Equipment ............... 11
2.11 Intellectual Property............................... 11
2.12 Agreements, Contracts and Commitments .............. 13
2.13 Interested Party Transactions ...................... 14
2.14 Governmental Authorization ......................... 15
2.15 Litigation ......................................... 15
2.16 Accounts Receivable ................................ 15
2.17 Minute Books ....................................... 15
2.18 Environmental Matters............................... 15
2.19 Brokers' and Finders' Fees; Third Party Expenses ... 16
2.20 Employee Benefit Plans.............................. 17
2.21 Insurance .......................................... 20
2.22 Compliance with Laws ............................... 20
2.23 Complete Copies of Materials........................ 20
2.24 Warranties; Indemnities............................. 20
2.25 Financial Forecasts................................. 20
2.26 Customer Lists...................................... 20
2.27 Individual Representatives and Warranties........... 20
2.28 Representations Complete............................ 21
-i-
<PAGE> 5
TABLE OF CONTENTS
(continued)
Page
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYERS............21
3.1 Organization, Standing and Power....................21
3.2 Authority...........................................22
3.3 Cash Consideration..................................22
ARTICLE IV CONDUCT PRIOR TO THE CLOSING.........................22
4.1 Conduct of Business of the Company..................22
4.2 No Solicitation.....................................24
4.3 S Status............................................25
ARTICLE V ADDITIONAL AGREEMENTS.................................25
5.1 Access to Information...............................25
5.2 Confidentiality.....................................25
5.3 Expenses............................................25
5.4 Public Disclosure...................................26
5.5 Consents............................................26
5.6 FIRPTA Compliance...................................26
5.7 Reasonable Best Efforts.............................26
5.8 Notification of Certain Matters.....................26
5.9 Additional Documents and Further Assurances.........26
5.10 Tax Matters.........................................26
5.11 Intercompany Line of Credit.........................27
5.12 Financial Information...............................28
5.13 Release of Obligations..............................28
5.14 Insurance...........................................28
ARTICLE VI CONDITIONS TO THE ACQUISITION........................28
6.1 Conditions to Obligations of Each Party
to Effect the Acquisition...........................28
6.2 Additional Conditions to Obligations of Company
and Sellers.........................................29
6.3 Additional Conditions to the Obligations of Buyer...29
ARTICLE VII REMEDIES FOR BREACHES OF THE AGREEMENT..............31
7.1 Survival of Representations and Warranties;
Liability Threshold.................................31
7.2 Indemnification.....................................31
7.3 Matters Involving Third Parties.....................32
7.4 Procedure for Asserting Claims......................32
7.5 No Indemnity for Corporate Agents...................32
7.6 Resolution of Conflicts: Arbitration................33
7.7 Right to Set Off....................................33
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<PAGE> 6
TABLE OF CONTENTS
(continued)
Page
----
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER ...................... 33
8.1 Termination ......................................... 33
8.2 Effect of Termination ............................... 34
8.3 Amendment ........................................... 34
8.4 Extension; Waiver ................................... 34
ARTICLE IX GENERAL PROVISIONS ....................................... 35
9.1 Notices ............................................. 35
9.2 Interpretation ...................................... 36
9.3 Counterparts ........................................ 36
9.4 Entire Agreement; Assignment ........................ 36
9.5 Severability ........................................ 36
9.6 Other Remedies ...................................... 36
9.7 Governing Law ....................................... 37
9.8 Rules of Construction ............................... 37
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<PAGE> 7
AGREEMENT AND
PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of May 23, 1996 by and between ProBusiness, Inc., a California
corporation ("Buyer"), Dimension Solutions, a California corporation ("Seller"),
Dwight L. Jackson, Stephen P. Blanding, Kirk G., Ward, Stephen P. Blanding and
Mayno W. Blanding Family Trust dated 8/3/92 and Ward Family Revocable Trust
dated 3/28/94 ("Seller's Affiliates and Shareholders").
RECITALS
A. The Boards of Directors of each of Seller and Buyer believe it is in
the best interests of each company and their respective shareholders that Buyer
acquire all of the assets of, and assume certain of the liabilities of Seller
(the "Acquisition") in exchange for 40,000 shares of Series E Preferred Stock of
Buyer and to enter into an employment agreement with Dwight L. Jackson,
President of Seller, as Vice President, Human Resources Systems of Buyer.
B. Seller is engaged in the business of developing, manufacturing and
licensing computer software programs for the human resource market (the
"Business").
C. Immediately after the Closing (as defined below), Buyer will enter
into a License Agreement with Cara Information Technology Ltd. to license a file
server version of specified software modules acquired by Buyer pursuant to this
Agreement.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE ACQUISITION
1.1 Purchase of Assets.
(a) Purchase and Sale of Assets. On the terms and subject to the
conditions set forth in this Agreement, Seller agrees to sell, convey, transfer,
assign and deliver to Buyer and Buyer agrees to purchase and acquire from Seller
on the Closing Date (as defined in Section 1.4(a)), all of Seller's right, title
and interest in and to all of the assets and properties of Seller (collectively
the "Assets" and specifically excluding those assets set forth on Schedule
1.1(a) (the "Excluded Assets")) in their current condition and free and clear of
all liens,
<PAGE> 8
pledges, charges, claims, security interests or other encumbrances of
any sort (collectively, "Liens"), including without limitation, the following:
(i) all cash, cash equivalents and accounts receivable of Seller;
(ii) all patents, patent applications, copyrights, trademarks,
service marks, trade names, trade secrets, proprietary information, technology
rights and licenses, proprietary rights and processes, customer lists, know-how,
research and development in progress, and any and all other intellectual
property including, without limitation, all things authored, discovered,
developed, made, perfected, improved, designed, engineered, devised, acquired,
produced, conceived or first reduced to practice by Seller or any of its
employees in the course of their employment by Seller and that pertain to or are
used in the Business, or that are relevant to an understanding or to the
development of the Business or to the performance by the products of the
Business of their intended functions or purposes, whether tangible or
intangible, in any stage of development, including without limitation
enhancements, designs, technology, improvements, inventions, works of
authorship, formulas, processes, routines, subroutines, techniques, concepts,
object code, flow charts, diagrams, coding sheets, source code, listings and
annotations, programmers' notes, information, work papers, work product and
other materials of any types whatsoever, and all rights of any kind in or to any
of the foregoing (collectively, the "Intellectual Property") used or held for
use in the Business. All Intellectual Property is listed on Schedule 1.1(a)(ii)
hereto, as well as all licenses used for such Intellectual Property;
(iii) all rights and ownership of all existing software products of
Seller (the "Products"), including but not limited to those listed on Schedule
1.1(a)(iii), any other computer programs developed or under development by
Seller, and all copies of the Products (including revisions and updates in
process), and all technical, design, development, installation, operation and
maintenance information concerning the Products, including source code, source
documentation, source listings and annotations, engineering notebooks, test data
and test results, all in sufficient detail to permit a reasonably skilled
software developer not involved in the development of the Products to maintain,
enhance and correct errors in the Products without assistance from or reference
to any other persons or materials as well as all reference manuals and support
materials normally distributed to end-users and potential end-users in
connection with the distribution of the Products (collectively, the foregoing
shall be hereinafter referred to as, the "Software Products"). Notwithstanding
the foregoing, Seller shall not be required to prepare or produce any
documentation to satisfy the provisions of this subparagraph;
(iv) all of Seller's claims against any parties relating to any
right, property or asset included in the Assets, or against any party to a
Contract (as defined in Section 2.12 herein) if Seller's rights under such
Contracts are assigned and transferred to Buyer at the Closing, including
without limitation, unliquidated rights under manufacturers' and vendors'
warranties or guaranties;
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<PAGE> 9
(v) all of Seller's rights (including, without limitation, any
leasehold interests) under any software development contracts, licenses and any
other contracts to which Seller is a party or by which it is bound, including
without limitation, those set forth in Schedule 2.12 if Seller's rights under
such Contracts are assigned and transferred to Buyer at the Closing;
(vi) all inventory, wherever located, owned by Seller; the
inventory referred to herein shall include, but is not limited to, those items
described in Schedule 1.1(a)(vi) hereto;
(vii) all fixed assets, equipment and supplies of the Seller
wherever located (including leasehold improvements);
(viii) all governmental permits, licenses or approvals owned or
held by Seller associated with the ownership, use or operation of the Assets;
and
(ix) the corporate name "Dimension Solutions," "First Resource"
and "First Resource Development"; provided, that for a period of one year
following the Closing Date, the Seller shall be authorized to use such names for
the purpose of winding down the corporation.
(b) Assumption of Liabilities.
(i) Buyer shall not assume any liabilities or obligations of
Seller (other than those expressly assumed pursuant to this Section 1.1(b)),
including without limitation, any liabilities for employment, income, sales,
property or other taxes incurred or accrued by Seller, except as provided in
Section 1.2(c). It is further expressly agreed that Buyer shall not assume any
liabilities for third party claims of infringement of intellectual property
rights on products sold by the Seller through the Closing Date or the damages,
if any, as set forth in Section 1.1(b)(iii). At the Closing, Buyer shall assume
the following obligations and liabilities of Seller (collectively, the "Assumed
Liabilities"): (A) all obligations and liabilities of Seller under or related to
any software development contracts, licenses and any other contracts to which
Seller is a party or by which it is bound as set forth on Schedule 2.12 if
Seller's rights under such contracts are assigned and transferred to Buyer at
the Closing (B) those obligations and liabilities of Seller set forth in
Schedule 1.1(b) hereto (including the promissory notes set forth in Section
1.1(b)(ii) below, which are expressly agreed to be assumed subject to the
conditions specified in Section 1.1(b)(ii) and the lease agreement set forth in
Section 1.1(b)(iii) below, which is expressly agreed to be assumed subject to
the conditions specified in Section 1.1(b)(iii)), and (C) all obligations
pursuant to Sections 1.2(c), 1.3(a)(iv) and 5.13 hereunder. Buyer expressly is
not assuming any obligations or liabilities, whether accrued, absolute,
contingent, matured, unmatured or other, of Seller except for the Assumed
Liabilities.
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<PAGE> 10
(ii) Buyer specifically assumes the promissory notes between
Seller and Kirk G. Ward and Stephen P. Blanding dated April 30, 1996 for an
aggregate principal amount of $250,000 (the "$250,000 Note") and BARW dated
October 15, 1995 for an aggregate principal amount of $25,000 as set forth in
Schedule 1.1(b), subject to Seller's delivery to Buyer of a Subordination
Agreement executed by each of Kirk G. Ward and Stephen P. Blanding, attached
hereto as Exhibit A binding each of Mr. Ward and Mr. Blanding and their
successors and assignees, to subordinate payment by Buyer of any and all
indebtedness, liabilities, guarantees and other obligations of Buyer to Mr. Ward
and Mr. Blanding now existing or hereinafter arising to the payment to Coast
Business Credit ("Coast"), a division of Southern Pacific Thrift and Loan
Association and other creditors who are banking and equipment leasing
institutions ("Institutional Creditors") of Buyer, of all indebtedness,
liabilities, guarantees and other obligations of Buyer to Coast and such other
Institutional Creditors, now existing or hereinafter arising and including such
terms and conditions as more specifically set fourth in Exhibit A attached
hereto.
(iii) Buyer specifically assumes the obligations under the lease
agreement by and between Seller and AJ Partners Limited Partnership ("Lessor"),
managed by Draper and Kramer of California, Incorporated dated July 18, 1994
(the "Lease Agreement") and both parties will use their best efforts to obtain a
consent to a formal assignment pursuant to the Lease Agreement. It is expressly
agreed that Buyer shall not assume any liabilities for damages arising out of
any failure on the part of Buyer or Seller to obtain written consent under
Section 12 of the Lease Agreement of Lessor to Seller's assignment of the rights
and obligations under the Lease Agreement to Buyer prior to the Closing Date and
Assumed Liabilities under this Agreement expressly excludes any such damages.
(c) Risk of Loss. In the event any of the Assets are unavailable for
delivery to Buyer on the Closing Date as a result of risks for which such Assets
were insured by Seller, Buyer may at its option elect (i) to require Seller to
deliver to Buyer assignments of such Seller's rights under its insurance
policies, if any, applicable to such Assets and to close on that basis, or (ii)
to not close due to the failure of a condition to closing if the amount of the
loss reasonably can be expected to be in excess of $25,000. Seller hereby agrees
to make such assignment of rights if Buyer so elects.
1.2 Consideration.
(a) Consideration for Assets. Subject to the terms and conditions set
forth in this Agreement (including, without limitation, the provisions of
Article VI hereof), as full payment for the transfer of the Assets by Seller to
Buyer, Buyer shall issue to Seller at the Closing 40,000 shares of Series E
Preferred Stock of Buyer (the "Shares") with a fair market value of $7.94 per
share for an aggregate purchase price of $317,600 (the "Purchase Price"). As of
the Closing Date, the shares are convertible into 80,000 shares of Common Stock
of Buyer and shall have rights, privileges and preferences as set forth in the
Seller's Articles of Incorporation, as amended and in effect as of the date
hereof. In addition, Buyer shall grant Seller registration rights with respect
to the Shares pursuant to Eighteenth Amendment to the Registration Rights
-4-
<PAGE> 11
Agreement dated as of December 1, 1989, as amended (the "Registration Rights
Agreement") attached hereto as Exhibit B whereby the Common Stock issuable upon
the conversion of the Shares shall be deemed "Registrable Securities" and Seller
shall be deemed a "Holder" under the Registration Rights Agreement.
(b) Seller's C Reorganization. Seller intends for the transactions
contemplated by this Agreement to (i) constitute a "sale of assets
reorganization" within the meaning of Section 181(c) of the California
Corporations Code, and (ii) qualify as a non-taxable stock for assets
reorganization within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"). Buyer and Seller desires to adopt
this Agreement as a plan of reorganization in accordance with the provisions of
Section 368(a)(1)(C) of the Code. Seller will, pursuant to the plan of
reorganization, and immediately after the receipt of the Shares, distribute the
Shares to the shareholders of Seller. The Shares will be distributed to the
shareholders of Seller in proportion to the number of shares each holds in
Seller. In addition, Seller shall, pursuant to the plan of reorganization, and
as soon as practicable following the Closing Date, and in no event later than
December 31, 1996, distribute all of its remaining assets to its shareholders in
liquidation and therefore formally dissolve pursuant to Section 1900 et seq. of
the California Corporations Code. Buyer makes no representations or warranties
as to whether the transactions contemplated by this Agreement constitute a "sale
of assets reorganization" within the meaning of Section 181(c) of the California
Corporations Code, or that such transactions qualify as a non-taxable stock for
assets reorganization within the meaning of Section 368(a)(1)(C) of the Code.
The parties agree that such qualifications are for the benefit of Seller, and
are not conditions to this Agreement.
(c) Transfer Taxes. Buyer shall pay and promptly discharge when due
sales and use tax ("Sales Taxes") imposed or levied by the State of California
by reason of the sale of the Assets to Buyer.
1.3 Instruments of Transfer.
(a) Transfer of Customers.
(i) Intent. It is the intent of parties hereto that all of the
Business and all of Seller's backlog, if any, relating to the Business be
transferred to Buyer. Accordingly, the parties agree to use their best efforts
to facilitate such transfer of customers as soon as possible.
(ii) Purchase Order Data. Seller shall provide or make available to
Buyer, at the closing (A) a list of all outstanding written customer orders,
purchase orders and other customer commitments from Seller's current customers,
(B) the names of all customers (the "Current Customers") and (C) data regarding
Seller's standard cost of sales for the items covered by such orders and shall
provide upon request such other information as is (AA) relevant to profitability
on such items, (BB) available to Seller without incurring undue effort or
expense and (CC) requested by Buyer.
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<PAGE> 12
(iii) Transfer of Orders; Assignments. Prior to such Closing,
Seller and Buyer agree to cooperate with each other in conducting joint contacts
with the Current Customers (as appropriate) for the purpose of attempting to
obtain such customers' consent to transfer orders from Seller to Buyer (or to
issue new orders to Buyer for the same or similar items) and to assign Seller's
rights and obligations under the Contracts to Buyer, if such Contracts are
assigned to Buyer, as of the Closing.
(iv) Assumption of Obligation. To the extent that Seller's backlog
is transferred or assigned to Buyer or that Buyer accepts a new purchase order
from a Current Customer, Buyer agrees to assume and perform all obligations
thereunder and to use reasonable efforts to fill the order in accordance with
its terms.
(b) Instruments of Transfer. The sale, assignment, transfer, conveyance
and delivery of the Assets shall be made by such bills of sale and other
recordable instruments of assignment, transfer and conveyance as Buyer shall
reasonably request.
1.4 Closing.
(a) Closing. Unless this Agreement is earlier terminated pursuant to
Section 7.1, the closing of the transactions contemplated by this Agreement
shall be consummated (the "Closing") at the offices of Wilson, Sonsini, Goodrich
& Rosati, 650 Page Mill Road, Palo Alto, CA 94304-1050, at 5:00 p.m., Pacific
Daylight Savings time, on May 23, 1996, or at such other time or place as the
parties shall mutually agree (the "Closing Date").
(b) Delivery. At the Closing:
(i) Seller shall deliver to Buyer a copy of the Subordination
Agreement executed by each of Kirk G. Ward and Stephen P. Blanding pursuant to
Section 1.1(b)(ii) in the form attached hereto as Exhibit A;
(ii) Buyer shall deliver to Seller an instrument of assumption of
liabilities by which Buyer shall assume the Assumed Liabilities as of the
Closing in the form attached hereto as Exhibit C;
(iii) Seller shall deliver to Buyer all bills of sale,
endorsements, assignments, consents to assignments to the extent obtained and
other instruments and documents as Buyer may reasonably request to sell, convey,
assign, transfer and deliver to Buyer good title to all the Assets free and
clear of any and all Liens in the form attached hereto as Exhibit D;
(iv) Seller shall deliver to Buyer a Trademark Assignment in the
form attached hereto as Exhibit E;
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<PAGE> 13
(v) Seller shall deliver to Buyer a Copyright Assignment in the
form attached hereto as Exhibit F;
(vi) Seller shall deliver to Buyer UCC termination statements
duly executed by the holders of all security interests of record with respect to
all outstanding UCC-1 financing statements evidencing security interests in any
of the Assets excluding the tax liens filed by the Internal Revenue Service (the
"IRS") on November 10, 1994 and November 16, 1994 in the amount of $17,998.57
and $4,026.46, respectively, and the tax liens filed by the State of California
Employment Development Department on March 23, 1995 in the amount of $4,586.97,
with respect to liens on the assets of First Resource, a California corporation
("First Resource") and including the UCC-1 financing statement filed by Scott
Valley Bank on October 12, 1994 with respect to a lien on substantially all of
the assets of Seller;
(vii) Buyer shall deliver a stock certificate issued in the name
of Buyer representing the Shares;
(viii) Seller shall deliver to Buyer evidence satisfactory to Buyer
that the loan agreement with Scott Valley Bank has been assigned to the
shareholders of the Seller and that Scott Valley Bank has terminated all
security interests, security agreements and guaranties affecting or relating to
the Assets; and
(ix) Seller and Buyer shall deliver or cause to be delivered to
one another such other instruments and documents necessary or appropriate to
evidence the due execution, delivery and performance of this Agreement.
(c) Taking of Necessary Action; Further Action. If, at any time after
the Closing Date, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest Buyer with full right, title and
possession to all Assets, the officers and directors of Seller are fully
authorized in the name Seller or otherwise to take, and will take, all such
lawful and necessary and/or desirable action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER,
SELLER'S AFFILIATES AND SHAREHOLDERS
Each of Seller and each of Seller's Affiliates and Shareholders,
jointly and severally represents and warrants to Buyer as follows that, except
as set forth in the disclosure schedules dated as of the date hereof and
supplied by Seller to Buyer and attached hereto as Exhibit G (the "Seller
Schedules" and Seller Schedules shall specifically reference the Sections of
this Agreement to which the disclosure therein applies):
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<PAGE> 14
2.1 Organization of Seller. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
Seller has the corporate power to own its property and to carry on its business
as now being conducted and as proposed to be conducted. Seller is duly qualified
to do business and in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the Business, the Assets (or Buyer's interest therein or use
thereof following the Closing), or the financial condition or results of
operations of Seller (any of which is hereinafter referred to as a "Material
Adverse Effect"). Schedule 2.1 includes a complete and correct list of all
foreign jurisdictions in which the Seller is qualified to do business. Seller
has delivered a true and correct copy of its Articles of Incorporation and
Bylaws, each as amended to date, to Buyer, copies of each are attached to
Schedule 2.1.
2.2 Seller Capital Structure. Seller's authorized and outstanding
capital stock, and the number, type and holder of outstanding securities
carrying the right to acquire any of Seller's capital stock, at the date hereof
is correctly stated in Schedule 2.2. All the outstanding shares of Seller's
capital stock are duly authorized and validly issued. All outstanding securities
carrying the right to acquire any of Seller's capital stock issued by Seller are
validly outstanding, and the shares of Seller's capital stock reserved for
issuance upon the exercise thereof are duly authorized and, upon issuance in
accordance with the terms thereof (including due payment of the exercise price
set forth therein) will be validly issued, fully paid and nonassessable. Except
as set forth in Schedule 2.2, there are no securities of Seller issued or
outstanding, and there are no options, calls, subscriptions, warrants, rights,
agreements or commitments of any character obligating Seller, contingently or
otherwise, to issue shares of its capital stock or to register shares of its
capital stock under the Securities Act of 1933, or any other applicable
securities laws (Federal or state), or holders of any such securities.
2.3 Subsidiaries. Seller does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
2.4 Authority; Consents. Subject only to the approval of the
Acquisition and this Agreement by Seller's shareholders as contemplated by
Section 6.1(a) hereof, Seller has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Seller, subject only to the approval of the
Acquisition by Seller's shareholders as contemplated by Section 6.1(a). This
Agreement has been duly executed and delivered by Seller and constitutes the
valid and binding obligation of Seller, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy and similar
laws and general principles of equity. Except as set forth on Schedule 2.4,
subject only to the approval of the Acquisition and this Agreement by Seller's
shareholders as contemplated by Section 6.1(a) hereof, the execution and
delivery of this Agreement by Seller does not, and, as of
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the Closing, the consummation of the transactions contemplated hereby will not,
materially conflict with, or result in any material violation of, or material
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under (any such event, a "Conflict") (i) any provision of
the Articles of Incorporation or Bylaws of Seller or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Seller or its properties or assets. To Seller's
knowledge, no consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or Commission having jurisdiction over Seller
("Governmental Entity") or any third party (so as to enable Seller to assign
Buyer all of its rights and benefits under the Contracts), is required by or
with respect to Seller in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for such consents, waivers, authorizations, filings, approvals and registrations
which are set forth on Schedule 2.4.
2.5 Seller Financial Statements. Schedule 2.5 sets forth Seller's
unaudited balance sheet as of December 31, 1995 and the related unaudited
statement of income for the twelve-month period then ended; Seller's unaudited
balance sheet as of March 31, 1996 and the related unaudited statement of income
for the three-month period then ended; and Seller's unaudited balance sheet as
of April 30, 1996 (the "Balance Sheet") and the related unaudited statement of
income for the four-month period then ended (collectively, all such balance
sheets and related statement of income shall hereinafter be referred to as
"Seller Financials"). Except as set forth in Schedule 2.5, Seller Financials
have been internally prepared by Seller in good faith and compiled by an
accountant on an accrual basis and on a basis consistent with financial
statements prepared by Seller for prior periods. Seller is not aware that the
Seller Financials are inconsistent with generally accepted accounting principles
applied on a basis consistent throughout the periods indicated (except that they
do not contain footnotes); however, the Seller Financials have not been reviewed
or audited by an accountant.
2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6,
Seller does not have any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements consistent with generally accepted accounting
principles), which individually or in the aggregate, (i) has not been reflected
in the Balance Sheet, or (ii) has not arisen in the ordinary course of Seller's
business since April 30, 1996.
2.7 No Changes. Except as set forth in Schedule 2.7, since April 30,
1996, there has not been, occurred or arisen any:
(a) transaction by Seller except in the ordinary course of business
as conducted on that date;
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(b) capital expenditure or commitment by Seller, either
individually or in the aggregate, exceeding $5,000;
(c) material adverse change in the condition (financial or
otherwise), liabilities, assets, business or prospects of Seller;
(d) destruction of, damage to or loss of any assets, business or
customer of Seller (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of Seller, or any direct or
indirect redemption, purchase or other acquisition by Seller of any of its
capital stock;
(g) increase in the salary or other compensation payable or to
become payable by Seller to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by Seller, of a bonus or other additional salary or
compensation to any such person.
(h) acquisition, sale or transfer of any Asset except in the
ordinary course of business as conducted on that date;
(i) amendment or termination of any contract, agreement or license
to which Seller was/is a party or by which it was/is bound, except in the
ordinary course;
(j) loan by Seller to any person or entity, incurring by Seller of
any indebtedness, guaranteeing by Seller of any indebtedness, issuance or sale
of any debt securities of Seller or guaranteeing of any debt securities of
others;
(k) waiver or release of any right or claim of Seller, including
any write-off or other compromise of any account receivable of Seller;
(l) the commencement or notice or, to the knowledge of Seller,
threat of commencement of any lawsuit or proceeding against or investigation of
Seller or its affairs;
(m) notice to Seller of any claim of ownership by a third party of
Seller's Intellectual Property or of infringement by Seller of any third party's
Intellectual Property rights;
(n) issuance or sale by Seller of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities;
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<PAGE> 18
(o) change in pricing or royalties set or charged by Seller;
(p) to Seller's knowledge, any event or condition of any character that
has or could be reasonably expected to have a Material Adverse Effect; or
(q) negotiation or agreement by Seller or any officer or employees
thereof to do any of the things described in the preceding clauses (a) through
(p) (other than negotiations with Buyer and its representatives regarding the
transactions contemplated by this Agreement).
2.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or,
collectively, "Taxes", means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule 2.8(b) and
Section 2.8(c) below:
(i) Seller has prepared and timely filed all federal, state,
local and foreign returns, estimates, information statements and reports
("Returns") relating to any and all Taxes concerning or attributable to Seller,
the Assets or Seller's business operations which, as of the date hereof, it is
required to file and such Returns were true and accurate and were completed in
accordance with applicable law when filed.
(ii) Seller (A) has paid all Taxes it is required to pay and (B)
has collected or withheld with respect to its employees all federal and state
income taxes, FICA, FUTA and other Taxes required to be withheld.
(iii) Seller has not been delinquent in the payment of any Tax nor
is there any Tax deficiency outstanding, proposed or assessed against Seller.
(iv) No audit or other examination of any Return of Seller is
presently in progress, nor has Seller been notified of any request for such an
audit or other examination.
(v) Seller does not have any liabilities for unpaid federal,
state, local and foreign Taxes which have not been accrued or reserved against
on the Balance Sheet, whether asserted or unasserted, contingent or otherwise,
and Seller has no knowledge of any basis for the assertion of any such liability
attributable to Seller, the Assets or Seller's business operations.
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(vi) There are (and as of immediately following the Closing there
will be) no Liens on the Assets of Seller relating to or attributable to Taxes.
(c) First Resource IRS Liens. On August 26, 1994 Seller purchased the
assets and assumed certain liabilities, excluding the First Resource Tax
Liabilities (as defined below), of First Resource pursuant to the Asset Purchase
Agreement by and among First Resource and Seller dated July 15, 1994 (the "First
Resource Acquisition Agreement"). On November 10, 1994 and November 16, 1994,
the IRS filed Notices of Federal Tax Liens (as defined below) on the assets of
First Resource in the amounts of $17,998.57 and $4,026.46, respectively (the
"First Resource Tax Liabilities"). Seller acquired the assets and assumed
certain liabilities, excluding the First Resource Tax Liabilities, of First
Resource as a purchaser within the meaning of Section 6323(h)(6) of the Internal
Revenue Code of 1986, as amended (the "Code") on August 26, 1994 (i) prior to
the filing by the IRS of any notice ("Notice of Federal Tax Lien") of the liens
relating to the First Resource Tax Liabilities, meeting the requirements of
Section 6323(f) of the Code and (ii) without actual notice of the First Resource
Tax Liabilities or the filing or potential filing of any Notice of Federal Tax
Lien by the IRS with respect to the First Resource Tax Liabilities. Furthermore,
the First Resource Tax Liabilities or any fact related thereto was not brought
to the attention of Seller until after August 26, 1994 and would not have been
brought to Seller's attention if Seller had exercised due diligence through
reasonable routines for communicating significant information to Seller and
compliance with such routines (including the performance of a title search).
(d) For purposes of this Section, references to Seller include any
predecessor or transferror with respect to Seller and any person with whom
Seller files or has filed a consolidated or combined Tax return or with respect
to whom Seller may have transferee, secondary or other shared liability for
Taxes.
2.9 Restrictions on Business Activities. There is no agreement,
commitment, judgment, injunction, order or decree binding upon Seller or the
Assets which has or could reasonably be expected to have the effect of
prohibiting or impairing any use by Buyer of the Assets following the Closing or
the conduct of the Business as currently conducted.
2.10 Title of Properties; Absence of Liens and Encumbrances.
(a) Title to Assets. Except as set forth in Schedule 2.10(a), Seller
has good and marketable title to all of the Assets, all of the Assets are free
and clear of restrictions on or conditions to transfer or assignment, and at the
Closing, Seller will sell, convey, assign, transfer and deliver to Buyer good
title to all of the Assets, free and clear of any mortgages, liens, pledges,
encumbrances, claims, conditions and restrictions, of any contingent or
otherwise. The assets constitute all of the assets owned by Seller, other than
the Excluded Assets, and include all of the assets which are reasonably
necessary for the continued conduct of the operations of Seller. The Assets are
all located at Seller's principal place of business in Newark, California.
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(b) Assets, Property, Plant and Equipment. Schedule 2.10(b) hereto
contains a true and complete list of all assets, properties, improvements,
machinery, equipment, furniture and fixtures, office supplies and other
tangibles included in the Assets. Between the date hereof and the Closing Date,
none of such Assets shall have been disposed of other than in the ordinary
course of business or due to normal wear and tear. All real and tangible
personal property material to the business or financial condition of Seller,
including machinery, equipment and fixtures, included in the Assets and
currently used by Seller in its manufacturing operations is, and at the Closing
Date will be, in good operating condition and repair, ordinary wear and tear
excepted. To the best of Seller's and Seller's Affiliates' and Shareholders'
knowledge the present use of Seller's premises conforms, and at the Closing Date
will conform, with all applicable ordinances and regulations and all building,
zoning, health, safety, air and water pollution and other laws and regulations,
and all permits necessary thereunder have been obtained and are, and immediately
prior to the Closing will be, in full force and effect. Seller does not own any
real property.
2.11 Intellectual Property. Except as set forth in Schedule 2.11,
(a) Schedule 1.1(a)(ii) lists all Intellectual Property, as well
as all licenses for such Intellectual Property, which are used in or necessary
to Seller's business as it is now conducted or contemplated to be conducted.
Seller owns a valid right or license to use the Intellectual Property being used
or held for use to conduct the Business, and the conduct of the Business
currently and in the past does not conflict with and has not conflicted with
valid intellectual property rights of others. All Intellectual Property used or
held for use in the conduct of the Business owned by Seller is so owned free and
clear of all Liens and no other person, including without limitation any present
or former employee, officer or director of Seller, has any right whatsoever
therein. Seller has not infringed or otherwise violated and is not infringing or
violating any intellectual property rights of any other person or entity. Seller
has taken appropriate steps to protect its Intellectual Property and Seller does
not have any obligation to compensate any person or entity for the use of any
Intellectual Property used in the conduct of the Business nor has Seller granted
to any person or entity any license, option or other rights to use in any manner
any of the Intellectual Property so used in the Business, whether requiring the
payment of royalties or not. No former or current employee of Seller has any
right whatsoever to any Intellectual Property being used or held for use by
Seller. No proceedings have been instituted or, to the knowledge of Seller or
any of its directors or officers, threatened, nor has any claim been made,
against Seller alleging any such infringement or violation. For the Intellectual
Property which Seller uses, but does not own, Seller is licensed to use such
Intellectual Property and is not in breach or, or default under, such license
agreements. Such licensed Intellectual Property is so indicated with an asterisk
on Schedule 1.1(a)(ii).
(b) Seller has all right, title and interest in and to the
Software Products. No person or entity other than Seller owns any right, title
or interest in the Software Products including, without limitation, any right to
manufacture, use, copy, distribute or sublicense any object code or source code
thereof. The Software Products are (i) not subject to any Liens,
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(ii) not subject to any pending or, to Seller's knowledge, threatened challenge
of infringement of the rights of others, nor to the knowledge of Seller is there
any basis for a challenge of infringement of any such rights of others, and
(iii) freely transferable and assignable to Buyer and will not be rendered
invalid or adversely affected in any way by virtue of the execution, delivery
and performance of this Agreement.
(c) Pursuant to Section 1.5 of the First Resource Acquisition
Agreement, Buyer is not and will not be in the future liable to First Resource
for any royalties under Sections 1.5.2.2. and 1.5.2.3. of the First Resource
Acquisition Agreement in excess of the Assumed Liabilities (as defined in
Section 1.5 of the First Resource Acquisition Agreement) as may be increased by
any Indemnifiable Losses (as defined in Section 1.5 of the First Resource
Acquisition Agreement). In addition, the escrow has been terminated pursuant to
Section 1.6 of the First Resource Acquisition Agreement.
2.12 Agreements, Contracts and Commitments. Set forth on Schedule 2.12
is a list of all agreements, contracts and commitments, written or oral, to
which Seller is a party or by which it is bound (the "Contracts"). Those
Contracts, if any, marked with an asterisk on Schedule 2.12 shall not be
assigned by Seller to Buyer at the Closing.
(a) Except for such (i) breaches, violations and defaults, (ii) alleged
breaches, violations and defaults, and (iii) events that would constitute a
breach, violation or default with the lapse of time, giving of notice, or both,
noted in Schedule 2.12 and those which reasonably would not be expected to have
a Material Adverse Effect, Seller has not breached, violated or defaulted under,
or received notice that it has breached, violated or defaulted under, any of the
terms or conditions of any Contract. Each Contract is in full force and effect
and, except as otherwise disclosed in Schedule 2.12, is not subject to any
default thereunder of which Seller has knowledge by any party obligated to
Seller pursuant thereto. Each Contract represents the entire understanding
between the Seller on the one hand and the party(s) with whom the Contract is
entered into on the other hand and there are no promises, agreements or
understandings between such parties other than those that are expressly set
forth in the Contracts.
(b) Seller has no contract or commitment which may restrict the use of
or adversely affect an Asset and has no contract which will or is expected to
result in a loss to Buyer in operating the Assets or which will or is expected
to have an adverse effect on the assets or the Buyer after the Closing.
(c) Seller has not given a power of attorney, which is currently in
effect, to any person, firm, entity or corporation for any purpose whatsoever in
connection or associated with or in any way affecting any of the Assets or the
Business, except pursuant to this Agreement or documents required hereby.
2.13 Interested Party Transactions. Except as set forth on Schedule 2.13,
no officer, director or shareholder of Seller (nor any ancestor, sibling,
descendant or spouse of any of such
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persons, or any trust, partnership or corporation in which any of such persons
has or has had an interest), has or has had, directly or indirectly, (i)
material interest in any entity which furnished or sold, or furnishes or sells,
services or products that Seller furnishes or sells, or proposes to furnish or
sell, or (ii) any material interest in any entity that purchases from or sells
or furnishes to Seller any goods or services or (iii) a beneficial interest in
any contract or agreement set forth in Schedule 2.12.
2.14 Governmental Authorization. Schedule 2.14 accurately lists each
consent, license, permit, grant or other authorization issued to Seller by a
Governmental Entity (i) pursuant to which Seller currently operates or holds any
interest in any of the Assets or (ii) which is required for the operation of the
Business or the holding of any such interest (herein collectively called "Seller
Authorizations"), which Seller Authorizations are in full force and effect and
constitute all Seller Authorizations required to permit Seller to operate or
conduct its Business or hold any interest in the Assets.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no
action, suit or proceeding of any nature pending or, to Seller's knowledge,
threatened against Seller, the Assets or any of its officers or directors in
their respective capacities as such, nor, to the knowledge of Seller, is there
any basis therefor. Except as set forth in Schedule 2.15, there is no
investigation pending or threatened against Seller, its properties or any of its
officers or directors (nor, to the knowledge of Seller, is there any basis
therefor) by or before any Governmental Entity. Schedule 2.15 sets forth, with
respect to any pending or threatened action, suit, proceeding or investigation,
the forum, the parties thereto, the subject matter thereof and the amount of
damages claimed or other remedy requested. No Governmental Entity has at any
time notified Seller of any challenge or question regarding the legal right of
Seller to manufacture, offer or sell any of its products in the present manner
or style thereof.
2.16 Accounts Receivable.
(a) Seller has made available to Buyer a list of all accounts
receivable of Seller reflected on the Balance Sheet ("Accounts Receivable")
along with a range of days elapsed since invoice.
(b) All Accounts Receivable of Seller arose in the ordinary course
of business, are carried at values determined in accordance with generally
accepted accounting principles consistently applied. Seller has no reason to
believe that the Accounts Receivable are not collectible except to the extent of
reserves therefor set forth in the Balance Sheet. No person has any Lien on any
of such Accounts Receivable and no request or agreement for deduction or
discount has been made with respect to any of such Accounts Receivable.
2.17 Minute Books. The minute books of Seller made available to Buyer
contain accurate summaries of the meetings of directors (or committees thereof)
and shareholders and actions by written consent which such summaries purport to
summarize.
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2.18 Environmental Matters.
(a) Hazardous Material. To the best of Seller's and Seller's
Affiliates' and Shareholders' knowledge, as of the Closing and with the
exception of common toxic office supplies such as glue or toner for photocopy
machines, no substance (a "Hazardous Material") that has been designated by any
Governmental Entity to be radioactive, toxic, hazardous or otherwise a danger to
health or the environment, including, without limitation, PCBs, asbestos, and
ureaformaldehyde is present in, on or under any property, including the land and
the improvements, ground water and surface water thereof, that Seller has at any
time owned, operated, occupied or leased ("Seller Facility").
(b) Hazardous Materials Activities. At no time prior to the
Closing has Seller transported, stored, used, sold, disposed of, manufactured,
released or exposed its employees or others to Hazardous Materials ("Hazardous
Materials Activities") in violation of any rule, regulation, treaty or statute
promulgated by any Governmental Entity to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity ("Environmental Laws).
(c) Permits. No environmental approvals, permits, licenses,
clearances or consents ("Environmental Permits") are necessary for the conduct
of Seller's Hazardous Material Activities, if any.
(d) Environmental Liabilities. Except as disclosed on Schedule
2.18, no action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim is pending or, to the knowledge of Seller, threatened
concerning or relating to any Seller Facility, any Environmental Permit or any
Hazardous Materials Activity involving Seller. Seller is not aware of any fact
or circumstance which could involve Seller in any environmental litigation or
impose upon Seller any environmental liability.
(e) Capital Expenditures. Except as set forth on Schedule 2.18,
Seller is not aware of any capital expenditures which are required in order to
comply with Environmental Laws.
2.19 Brokers' and Finders' Fees; Third Party Expenses. Seller has not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby. Schedule 2.19 sets
forth the principal terms and conditions of any agreement, written or oral, with
respect to such fees.
2.20 Employee Benefit Plans.
(a) Schedule 2.20(a) contains a complete and correct description
of all employment, compensation, confidentiality, non-competition, invention and
consulting agreements relating to persons employed by Seller ("Business
Employees"), whether written or oral (other
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<PAGE> 24
than oral employment agreements terminable at will by either Seller or the
employees without liability to Seller) and a list of each Business Employee and
such Business Employee's aggregate annual compensation. Except as set forth in
Schedule 2.20(a) Seller does not have any outstanding commitment or agreement to
effect any general wage or salary increase for any of the Business Employees.
(b) Seller is not a party to or otherwise subject to any
collective bargaining agreement, nor is Seller a party to or otherwise subject
to any contract or other agreement for the employment of any employee which is
not terminable (without liability) on notice of thirty (30) days or less, except
as indicated on Schedule 2.20(b). Except as set forth in Schedule 2.20(b), there
are no suits, actions or administrative, arbitration or other proceedings
pending or threatened against Seller or affecting Seller or its business
concerning labor disputes, grievances, petitions for union recognition or
organization or charges of unfair labor practices.
(c) Schedule 2.20(c) contains a true and correct list of employee
benefit plans maintained by or on behalf of Seller with respect to Business
Employees including (but not limited to) any pension, profit sharing and other
retirement plans, severance pay, vacation pay, medical, dental and life
insurance plans, bonus, compensation and deferred compensation plans, and stock
options or other stock benefit plans (collectively, the "Plans"). Each Plan
described in Schedule 2.20(c) is and has been administered in accordance with
the terms and is in material compliance with all applicable requirements of
applicable laws, including (but not limited to) the requirements imposed by the
Internal Revenue Code of 1986, as amended, and the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"). Except for Seller's 401(k) plan listed in
Schedule 2.20(c), Seller has no Plan that is subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). All filings, and all
contributions or other payments required by applicable law with respect to the
participation of the Business Employees in any Plan or to be made by Seller with
respect to any Plan have been timely made. In no event shall Buyer have any
liability in connection with the administration of any Plans or practices.
Seller has no liabilities to any Business Employee or beneficiary of a Business
Employee other than as specifically set forth in Schedule 2.20(c) to this
Agreement. Except as set forth on Schedule 2.20(c), the execution of this
Agreement and the consummation of the transactions contemplated hereby will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Seller compensation or employment plan or
agreement, trust or loan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any Employee.
(d) Employment Matters. Except as set forth on Schedule 2.20(d),
Seller (i) is in compliance in all material respects with all applicable federal
and state laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each case,
with respect to Employees; (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other payments to
Employees; (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to
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comply with any of the foregoing; and (iv) (other than routine payments to be
made in the normal course of business and consistent with past practice) is not
liable for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits for Employees.
2.21 Insurance. Schedule 2.21 lists all insurance policies and fidelity
bonds covering the Assets or the Business. There is no claim by Seller pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
payable under all such policies and bonds have been paid and Seller is otherwise
in full compliance with the terms of such policies and bonds (or other policies
and bonds providing substantially similar insurance coverage). Such policies of
insurance and bonds are of the type and in amounts customarily carried by
persons conducting businesses similar to those of Seller and to the best of
Seller's and Seller's Affiliates' and Shareholders' knowledge meet applicable
federal, state and local requirements, if any, for such insurance. Seller has no
knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
2.22 Compliance with Laws. To the best of Seller's and Seller's
Affiliates' and Shareholders' knowledge, Seller is in compliance with all
statutes, laws, rules and regulations with respect to or affecting the conduct
of its business and the ownership and operation of the Assets where failure to
comply would have a material adverse affect on Seller, Seller's business or the
Assets. Seller is not subject to any order, injunction or decree issued by any
governmental body, agency, authority or court which could impair the ability of
Seller to consummate the transactions contemplated hereby or which could have a
material adverse effect on Seller's financial condition.
2.23 Complete Copies of Materials. Seller has delivered or made
available true and complete copies of each document (or summaries of same) that
has been requested by Buyer or its counsel.
2.24 Inventories. All of the inventories of Seller reflected on the
Balance Sheet and Seller's books and records on the date hereof were purchased,
acquired or produced in the ordinary and regular course of business and in a
manner consistent with Seller's regular inventory practices and are set forth on
Seller's books and records in accordance with the practices and principles of
Seller consistent with the method of treating said items in prior periods. None
of the inventory of Seller reflected on the Balance Sheet or on Seller's books
and records as of the date hereof (in either case net of the reserve therefor)
is obsolete, defective or in excess of the needs of the business of Seller
reasonably anticipated during the next six months. The presentation of inventory
on the Balance Sheet conforms to generally accepted accounting principles and
such inventory is stated at the lower of cost (determined using the first-in,
first-out method) or net realizable value. Notwithstanding the foregoing, Seller
represents to Buyer that it carries no inventory on the Balance Sheet and on its
books and records as of the date hereof, as it only maintains a master set of
disks for its Products.
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2.25 No Insolvency. No petition has been filed by or against Seller for
relief under any applicable bankruptcy, insolvency or similar law; no decree or
order for relief has been entered in respect of Seller, voluntarily or
involuntarily, under any such law; and, no receiver, liquidator, sequestrator,
trustee, custodian or other officer has been appointed with respect to the
Seller or its assets and liabilities pursuant to any such law. No warrant of
attachment, execution or similar process has ben executed against Seller or any
of its assets or properties. Seller has not made any assignment for the benefit
of creditors.
2.26 Issuance of Shares.
(a) Seller will acquire the Shares for its own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part
thereof, and Seller has no present intention of selling, granting any
participation in or otherwise distributing the same. Seller understands and
acknowledges that the issuance of the Shares pursuant to this Agreement will
not, and any issuance of Common Stock upon conversion thereof may not, be
registered under the Securities Act of 1933, as amended (the "Act") on the
ground that the issuance provided for in this Agreement is exempt pursuant to
Section 4(2) of the Act and that the Buyer's reliance on such exemption is
predicated on Seller's representations set forth herein. The Seller covenants
that in no event will it make any disposition of any of the Shares, or any
Common Stock acquired upon the conversion thereof, except in accordance with the
Registration Rights Agreement, which Seller shall become a party to upon the
execution of Seller and Buyer of the Eighteenth Amendment to the Registration
Rights Agreement. The Seller understands and acknowledges that there is no
public market for the trading of the Shares, or the Common Stock acquired upon
conversion thereof, and therefore, such Shares, and the Common Stock acquired
upon conversion thereof, must be held indefinitely unless it is subsequently
registered under the Act or an exemption from such registration is available,
and except for the Registration Rights Agreement, the Buyer is under no
obligation to register either the Shares or the Common Stock.
(b) Seller has business or financial experience or a financial
advisor, who is not affiliated with Buyer and who is not being compensated by
Buyer or any affiliate or selling agent of Buyer, directly or indirectly, who
has business or financial experience, that could be reasonably assumed to have
the capacity to protect Seller's own interest in connection with the issuance of
the Shares pursuant to this Agreement.
2.27 Representations Complete. None of the representations or
warranties made by Seller and Seller's Affiliates and Shareholders (as modified
by Seller Schedules), nor any statement made in any Exhibit or certificate
furnished by Seller and Seller's Affiliates and Shareholders pursuant to this
Agreement, contains or will contain at the Closing Date, any untrue statement of
a material fact, or omits or will omit at the Closing Date to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading. There is no
fact, circumstance or condition of any kind or nature whatsoever known to Seller
which reasonably would be expected to have a
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Material Adverse Effect on the Business as conducted by the Seller through the
Closing, which has not been set forth in this Agreement, except those facts
concerning general economic, legislative, regulatory or other matters such as
may generally impact all businesses of the type operated by Seller.
2.28 Only Representations. Other than as set forth in this Agreement,
the Exhibits and Schedules hereto, Seller makes no representations or warranties
to Buyer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
3.1 Organization, Standing and Power. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Buyer has the corporate power to own its properties and to carry on
its business as now being conducted and is duly qualified to do business and is
in good standing in each jurisdiction in which the failure to be so qualified
would have a material adverse effect on the ability of Buyer to consummate the
transactions contemplated hereby.
3.2 Authority; Consents. Buyer has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Buyer. This Agreement has been
duly executed and delivered by Buyer and constitutes the valid and binding
obligation of Buyer, enforceable in accordance with its terms except as such
enforceability may be limited by bankruptcy or similar laws and general
principles of equity. The consummation of the transactions contemplated by this
Agreement will not materially conflict with any provision of the Articles of
Incorporation or Bylaws of Buyer. To Buyer's knowledge, no consent, waiver,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity or any third party, is required by or with respect
to Buyer in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby except for filings made in
compliance with federal or state securities laws.
3.3 Litigation. There is no action, suit or proceeding of any nature
pending or, to Buyer's knowledge, threatened against Buyer that would in any
material way impair Buyer's ability to execute this Agreement and consummate the
transactions contemplated hereunder.
3.4 Brokers' and Finders' Fees; Third Party Expenses. Buyer has not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
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3.5 Authorization of Shares. The Buyer has authorized and reserved the
issuance of the Shares and the Common Stock acquired upon conversion thereof.
3.6 Amendments to Registration Rights Agreement. The Second, Third and
Fifth amendments to the Registration Rights Agreement were entered into by Buyer
and the parties set forth therein for the sole purpose of including additional
shares of Buyer's Preferred Stock as "Registerable Securities" and the
Purchasers (as defined therein) as "Holders" under the Registration Rights
Agreement.
3.7 Representations Complete. None of the representations or warranties
made by Buyer, nor any statement made in any Exhibit or certificate furnished by
Buyer pursuant to this Agreement, contains or will contain at the Closing Date,
any untrue statement of a material fact, or omits or will omit at the Closing
Date to state any material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which made,
not misleading.
ARTICLE IV
COVENANTS OF SELLER
4.1 Conduct of Business of Seller. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing Date, Seller agrees (except to the extent that Buyer
shall otherwise consent in writing), to carry on its business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, to pay its debts and Taxes when due, maintain insurance against loss
or damage to the Assets and such other insurance with respect to the Assets as
heretofore been maintained, to pay or perform other obligations when due, and,
to the extent consistent with such business, use all reasonable efforts
consistent with past practice and policies to preserve intact Seller's present
business organizations, keep available the services of its present officers and
key employees and preserve their relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it,
all with the goal of preserving unimpaired the Assets, including without
limitation, Seller's goodwill and the Business at the Closing Date. Seller shall
promptly notify Buyer of any event or occurrence or emergency not in the
ordinary course of business of Seller, and any event which could have a Material
Adverse Effect. Except as expressly contemplated by this Agreement, Seller shall
not, without the prior written consent of Buyer (which shall be given, or
reasonably withheld, in the cases of clauses (f), (g) and (h) below, within one
business day after receipt of written request therefor):
(a) Enter into any commitment or transaction not in the ordinary
course of business;
(b) Transfer to any person or entity any rights to Seller's
Intellectual Property;
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(c) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution or similar rights of any type or scope
with respect to any products of Seller;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of the agreements set forth or
described in Seller Schedules;
(e) Commence any litigation;
(f) Declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of Seller, or repurchase, redeem or
otherwise acquire, directly or indirectly, any shares of its capital stock (or
options, warrants or other rights exercisable therefor);
(g) Except for the issuance of shares of capital stock of Seller
upon exercise or conversion of options described in Schedule 2.2, issue, deliver
or sell or authorize or propose the issuance, delivery or sale of, or purchase
or propose the purchase of, any shares of its capital stock or securities
convertible into, or subscriptions, rights, warrants or options to acquire, or
other agreements or commitments of any character obligating it to issue any such
shares or other convertible securities;
(h) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(i) Acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
Seller;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business;
(k) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities of Seller or guarantee
any debt securities of others;
(l) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee;
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(m) Adopt or amend any employee benefit plan, or enter into any
employment contract, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its employees;
(n) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(o) Pay, discharge or satisfy, in an amount in excess of $5,000
(in any one case) or $15,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in Seller Financials (or
the notes thereto);
(p) Enter into any strategic alliance or joint marketing
arrangement or agreement; or
(q) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (p) above, or any other action that
would (i) prevent Seller from performing or cause Seller not to perform its
covenants hereunder or (ii) result in making the representations and warranties
in Article II untrue.
4.2 No Solicitation. Until (i) the Closing Date, (ii) 60 days
following the date of termination of this Agreement pursuant to the provisions
of Section 7.1(b)(i) or 7.1(d) hereof or (iii) the date of termination of this
Agreement pursuant to any other provision of Section 7.1 hereof, as the case may
be, Seller will not (nor will Seller permit any of Seller's officers, directors,
agents, representatives or Affiliates to) directly or indirectly, take any of
the following actions with any party other than Buyer and its designees:
(a) solicit, encourage, initiate or participate in any
negotiations or discussions with respect to, any offer or proposal to acquire
all or any portion of Seller's business and properties or capital stock whether
by merger, purchase of assets, tender offer or otherwise,
(b) except as required by law (in the opinion of outside counsel),
including fiduciary duties required by law, disclose any information not
customarily disclosed to any person other than its attorneys or financial
advisors concerning Seller's business and properties or afford to any person or
entity access to its properties, books or records, or
(c) assist or cooperate with any person to make any proposal to
purchase all or any part of Seller's capital stock or assets, other than selling
products of Seller in the ordinary course of business.
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In the event Seller shall receive any offer or proposal, directly or
indirectly, of the type referred to in clause (a) or (c) above, or any request
for disclosure or access pursuant to clause (b) above, Seller shall immediately
inform Buyer as to any such offer or proposal.
4.3 Covenant Not to Compete. For a period of three (3) years from the
Closing, Seller will not directly or indirectly engage in any Competitive
Activities (as hereinafter defined).
4.3.1 The term "Competitive Activities" as used herein shall mean:
(a) Directly or indirectly engaging in, continuing in or
carrying on in the Business (as defined in the Recitals hereof), including
owning or controlling any financial interest in any corporation, partnership,
firm or other form of business organization which competes with or is engaged in
or carries on any aspect of the Business;
(b) Consulting with, advising or assisting in any way,
whether or not for consideration, any corporation which is now, becomes or may
become a competitor of Buyer in any aspect with respect to the Business,
including, without limitation, advertising or otherwise endorsing the products
of any such competitor or otherwise serving as an intermediary for any such
competitor; soliciting customers or sales representatives or otherwise
soliciting orders for the sale of any products associated with the Business
(other than solely for the benefit of Buyer at its request); loaning money or
rendering any other form of financial assistance to or engaging in any form of
business transaction on other than an arms' length basis with any such
competitor; soliciting, inducing or attempting to induce any employee of Buyer
to leave his or her employment with Buyer; and
(c) Engaging in any practice the purpose of which is to
evade the provisions of this covenant not to compete or commit any act which is
detrimental to the successful use and operation of the Assets by Buyer after
Closing or which may adversely affect the Assets; provided, however, that the
term "Competitive Activities" shall not include the ownership of securities of
corporations which are listed on a national securities exchange or traded in the
national over-the-counter market in an amount which shall not exceed 5% of the
outstanding shares of such corporation. The parties agree that the geographic
scope of this covenant not to compete shall extend worldwide. The parties agree
that Buyer may sell, assign or otherwise transfer this covenant not to compete,
in whole or in part, to any person, corporation, firm or entity that purchases
all or a substantial part of the Assets.
4.4 Discharge of Debts. To the extent necessary and required to
transfer, convey, assign and deliver the Assets to Buyer on the Closing Date
free and clear of all liens and encumbrances, Seller shall hereafter promptly
and fully satisfy and discharge all of its debts, liabilities and obligations
when due, or shall obtain full releases from the same or make sufficient
provisions to pay the same or to be released therefrom, all to the satisfaction
of Buyer. Seller shall not make any distribution to its shareholders until all
liabilities and obligations incurred on or prior to the Closing, and all
liabilities and obligations arising out of any contract, agreement or other
arrangement entered
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into on or prior to the Closing, have been paid and discharged in full or an
amount sufficient therefor has been set aside for payment thereof.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Seller Shareholder Approval. As promptly as practicable after the
execution of this Agreement, Seller shall submit this Agreement and the
transactions contemplated hereby to its shareholders for approval and adoption
as provided by California Law and its Articles of Incorporation and Bylaws.
Seller shall use its best efforts to solicit and obtain the written consent, or
vote at a duly convened meeting, of its shareholders sufficient to approve the
Acquisition and this Agreement and to enable the Closing to occur as promptly as
practicable. The materials submitted to Seller's shareholders shall include
information regarding Seller, the terms of the Acquisition and this Agreement
and the recommendation of the Board of Directors of Seller in favor of the
Acquisition and this Agreement (subject to applicable fiduciary duties).
5.2 Access to Information. Seller shall afford Buyer and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Closing Date to (a) all of
Seller's properties, books, contracts, commitments and records, and (b) all
other information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of Seller as Buyer may reasonably
request. Seller agrees to maintain and retain any and all information regarding
its business operations on or prior to the Closing Date necessary for Buyer to
calculate the availability to it of tax credits for research activities under
Section 41 of the Code. Seller agrees to provide to Buyer and its accountants,
counsel and other representatives copies of internal financial statements
promptly upon request. No information or knowledge obtained in any investigation
pursuant to this Section 5.2 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Acquisition.
5.3 Confidentiality. In addition to the obligations of each party
pursuant to the existing mutual confidentiality agreement, each of the parties
hereto hereby agrees to keep such information or knowledge obtained in any
investigation pursuant to Section 1.3 or 5.2, or pursuant to the negotiation and
execution of this Agreement or the effectuation of the transactions contemplated
hereby, confidential; provided, however, that the foregoing shall not apply to
information or knowledge which (a) a party can demonstrate was already lawfully
in its possession prior to the disclosure thereof by the other party, (b) is
generally known to the public and did not become so known through any violation
of law or this Agreement, (c) became known to the public through no fault of
such party, (d) is later lawfully acquired by such party from other sources, (e)
is required to be disclosed by order of court or government agency with subpoena
powers or (f) which is disclosed in the course of any litigation between any of
the parties hereto.
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5.4 Expenses. Whether or not the Acquisition is consummated, all fees
and expenses incurred in connection with the Acquisition including, without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties ("Third Party Expenses") incurred by a party
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, shall be the
obligation of the respective party incurring such fees and expenses, except
Buyer shall pay up to $20,000 of legal and accounting fees incurred by Seller.
5.5 Public Disclosure. Unless otherwise required by law or a court of
competent jurisdiction, for a period of five years from the Closing Date, no
disclosure (whether or not in response to an inquiry) of any of the specific
details of this Agreement and the transactions contemplated thereby, including
without limitation, disclosure of the consideration paid for the assets
purchased and the indemnification arrangements provided for herein, shall be
made by Seller, (other than to Seller's legal counsel and other advisers as
shall be reasonably necessary) unless such disclosure is specifically approved
by Buyer and Buyer may, at its sole discretion, withhold such approval.
5.6 Consents. Seller shall use its best efforts to obtain all necessary
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Acquisition so as to transfer to Buyer all rights of Seller
thereunder as of the Closing.
5.7 Best Efforts. Subject to the terms and conditions provided in this
Agreement and to the fiduciary duties of the board of directors of Seller under
applicable law as advised by outside counsel, each of the parties hereto shall
use its best efforts to take promptly, or cause to be taken, all actions, and to
do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations: to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and to remove
any injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement; provided that Buyer shall not be required to agree to any
divestiture by Buyer or any of Buyer's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Buyer or its
subsidiaries or affiliates, or the imposition of any material limitation on the
ability of any of them to conduct their businesses or to own or exercise control
of such assets (including without limitation the Assets), properties and stock.
5.8 Notification of Certain Matters. Seller shall give prompt notice to
Buyer, and Buyer shall give prompt notice to Seller, of (i) the occurrence or
non-occurrence of any event, the occurrence or non-occurrence of which is likely
to cause any representation or warranty of Seller and Buyer, respectively,
contained in this Agreement to be untrue or inaccurate at or prior to the
Closing Date and (ii) any failure of Seller or Buyer, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided,
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however, that the delivery of any notice pursuant to this Section 5.8 shall not
limit or otherwise affect any remedies available to the party receiving such
notice.
5.9 Additional Documents and Further Assurances. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.10 Employee Benefits. Except as provided in Section 5.13 immediately
prior to the closing, Seller will terminate each of its Business Employees and
will discharge all of its obligations to such employees with respect to accrued
salary, accrued vacation and sick time, benefit plans and insurance plans, other
than accrued vacation and sick time of Business Employees who accept offers of
employment from Buyer as set forth below in this Section. Seller shall use its
best efforts to assist Buyer in hiring and retaining the services of Business
Employees of Seller whom Buyer desires to employ. Seller understands and agrees
that (a) Buyer is under no obligation to offer employment with Buyer to any
Business Employees of Seller, (b) it is within the sole discretion of Buyer to
determine to whom offers of employment with Buyer will be extended and from whom
such offers will be withheld, and (c) those Business Employees of Seller who are
given offers of employment with Buyer will become, upon their acceptance of such
offers, new employees of Buyer with their employment commencing on the Closing
Date for all purposes, including but not limited to that of determining their
eligibility for Buyer's employment benefits; provided, however, that Buyer will
waive all applicable pre-existing condition clauses relating to insurance-based
employment benefits, and will assume all vacation and sick time accrued for such
Business Employees immediately prior to the Closing Date. Any Business Employee
accepting employment with Buyer will be required as a condition precedent to
such employment to execute Buyer's standard form of confidentiality and
proprietary information agreement and take such other actions generally required
by Buyer of its new employees.
5.11 Tax Returns. Except for the Sales Taxes and other Taxes Buyer
agrees to pay pursuant to Sections 1.1(b) and 1.2(c) hereof, Seller shall be
responsible for and pay when due (i) all of Taxes of Seller attributable to or
levied or imposed upon the Assets relating or pertaining to the period (or that
portion of any period) ending on or prior to the Closing Date and (ii) all Taxes
attributable to, levied or imposed upon, or incurred in connection with the
Seller's business operations. Seller shall continue to timely file within the
time period for filing, or any extension granted with respect thereto, all of
Seller's Tax Returns required to be filed in connection with the Assets and any
portion of any such Tax Returns connected therewith shall be true and correct
and completed in accordance with applicable laws.
5.12 Bulk Sales. Seller shall, promptly upon request by Buyer, provide
all such information and execute and deliver such documents as Buyer may
reasonably request in order to enable Seller, through the efforts of Buyer, to
comply with the bulk sales laws of any jurisdiction.
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5.13 Employment Agreements. Buyer shall offer the persons listed in
Schedule 6.3(n) the opportunity to enter into employment and noncompetition
agreements with Buyer to become effective following the Closing. Effective upon
the Closing, Dwight L. Jackson shall be offered employment pursuant to the terms
set forth in the Employment and Noncompetition Agreement attached hereto as
Exhibit F. Pursuant to action to be taken by the Board of Directors of Buyer at
its next Board meeting at which stock options are granted (and, in any event,
within sixty (60) days of the Closing Date), Dwight L. Jackson shall be granted
a stock option to purchase 10,000 shares of the Buyer's Common Stock at an
exercise price equal to the then-current fair market value of the stock as
determined by the Buyer's Board of Directors.
5.14 Securities Laws.
(a) Securities Laws Representations and Covenants of Buyer.
(1) This Agreement is made with Seller in reliance upon
Seller's representation to Buyer, which by Seller's execution of this Agreement
Seller hereby confirms, that the Shares to be received by Seller will be
acquired for investment for Seller's own account, not as a nominee or agent, and
not with a view to the sale or distribution of any part thereof, and that Seller
has no present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, Seller further represents
that Seller has no contract, undertaking, agreement or arrangement with any
person to sell, transfer, or grant participation to such person or to any third
person, with respect to any of the Shares.
(2) Seller acknowledges and understands that the Shares, and
any Common Stock acquired upon the conversion thereof, must be held indefinitely
unless it is subsequently registered under the Securities Act or an exemption
from such registration is available, and that, except as otherwise provided in
the Registration Rights Agreement, Buyer is under no obligation to register
either the Shares of Common Stock.
(3) Seller understands and acknowledges that the offering of
the Shares pursuant to this Agreement will not be registered under the
Securities Act on the grounds that the offering and sale of securities
contemplated by this Agreement are exempt from registration pursuant to Section
4(2) of the Securities Act, and that the Buyer's reliance upon such exemption is
predicated upon Seller's representations set forth in this Agreement.
(4) Unless there is in effect a registration statement under
the Securities Act covering the proposed transaction, Seller covenants that in
no event will Seller dispose of any of the Shares (other than pursuant to Rule
144 promulgated by the Securities and Exchange Commission under the Securities
Act ("Rule 144") or any similar or analogous rule) unless and until (i) Seller
shall have notified the Buyer of the proposed disposition and shall have
furnished the Buyer with a statement of the circumstances surrounding the
proposed disposition and (ii) if requested by the Buyer, Seller shall have
furnished Buyer with an opinion of counsel satisfactory in form and substance to
the Buyer and Buyer's counsel to the effect that (x) such disposition may
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legally be made in the manner proposed without registration under the Securities
Act and (y) appropriate action necessary on the part of Seller for compliance
with the Securities Act and any applicable state, local or foreign law has been
taken; provided however, no such opinion need be obtained with respect to
Seller's distribution of the Shares to its Shareholders pursuant to Section
1.2(b) hereof if such Shareholders agree to be subject to the terms hereof. Each
certificate evidencing the Shares transferred as above provided shall bear the
appropriate restrictive legend set forth below, except that such certificate
shall not bear such legend if the transfer was made in compliance with Rule 144
or if the opinion of counsel referred to above is to the further effect that
such legend is not required in order to establish compliance with any provisions
of the Securities Act.
(5) Seller represents that: (i) Seller has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of Seller's prospective investment in the Shares; (ii)
Seller has received all the information it has requested from Buyer and
considers necessary or appropriate for deciding whether to purchase the Shares;
(iii) any financial information, financial projections or other forward-looking
financial or statistical data received by Seller from Buyer has been reviewed by
Seller with the knowledge and understanding that the foregoing constitutes no
more than Buyer's reasonable belief as to results which may be achieved, and
that no representation, warranty or assurance is, can be or has been made that
any such results, financial or otherwise, will actually be achieved by Buyer;
(iv) Seller has the ability to bear the economic risks of Seller's prospective
investment; and (v) Seller is able, without materially impairing its financial
condition, to hold the Shares for an indefinite period of time and to suffer
complete loss on its investment.
(b) Legends.
(1) All certificates for the Shares shall bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") AND ARE "RESTRICTED SECURITIES" AS DEFINED
IN RULE 144 PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT
BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED EXCEPT
(i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SHARES UNDER THE ACT, OR (ii) IN COMPLIANCE WITH RULE
144, OR (iii) PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY
TO THE CORPORATION THAT SUCH REGISTRATION OR COMPLIANCE IS NOT
REQUIRED AS TO SAID SALE, OFFER OR DISTRIBUTION."
(2) "IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
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CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
(3) The certificate evidencing the Shares shall also bear any
legend required pursuant to any state, local or foreign law
governing such securities. A permit to qualify the issuance of
these Shares has been ordered by the California Department of
Corporations (the "Permit") and the certificate evidencing the
Shares shall bear the legend as set forth in Section
5.14(b)(2) required as a condition to the issuance of the
Permit. Buyer shall file a Post-Effective Amendment No. 1 to
the Permit immediately following the Closing to file an
executed copy of this Agreement with the California Department
of Corporations to allow the distribution of the Shares by
Seller to its Shareholders pursuant to Section 1.2(b) hereof.
(c) Seller understands that transfer of the Shares may be
restricted by Section 260.141.11 of the Rules of the California Corporations
Commissioner, a copy of which is attached as Attachment 1.
5.15 Closing Statement. Within 45 days after the Closing Date, Seller
shall prepare and deliver to the Buyer the following: (i) an income statement
(the "Closing Income Statement") for the period from March 31, 1996 through the
Closing Date (the "Stub Period") and (ii) a balance sheet as of the Closing Date
(the "Closing Balance Sheet"; collectively, the Closing Income Statement and the
Closing Balance Sheet shall be referred to as the "Closing Statement"). Such
Closing Statement shall, among other things, set forth the net worth of the
Company as of the Closing Date. The Closing Statement shall be prepared in good
faith with Buyer's reasonable assistance to the extent of Buyer's ability and in
accordance with generally accepted accounting principles applied on a consistent
basis.
5.16 Settlement of Litigation and Other Disputes. Seller shall use its
best efforts to settle any litigation matters arising between the date hereof
and the Closing Date, prior to the Closing on terms and conditions satisfactory
to Buyer.
5.17 Updating of Schedules. Seller shall deliver to Buyer at least one
full day prior to the Closing Date Supplemental Schedules which shall reflect
any changes or additions required to update the disclosure set forth in the
Schedules to make it true and correct as of the Closing Date.
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ARTICLE VI
CONDITIONS TO THE ACQUISITION
6.1 Conditions to Obligations of Each Party to Effect the Acquisition.
The respective obligations of each party to this Agreement to effect the
Acquisition shall be subject to the satisfaction at or prior to the Closing Date
of the following conditions:
(a) Corporate Approvals. This Agreement and the Acquisition shall
have been approved and adopted by the requisite vote of the shareholders of
Seller.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Acquisition shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Acquisition, which makes the consummation of the Acquisition illegal.
6.2 Additional Conditions to Obligations of Seller. The obligations of
Seller to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Closing Date of
each of the following conditions, any of which may be waived, in writing,
exclusively by Seller:
(a) Representations, Warranties and Covenants. The representations
and warranties of Buyer in this Agreement shall be true and correct on and as of
the Closing Date as though such representations and warranties were made on and
as of such time and Buyer shall have performed and complied with all covenants,
obligations, agreements and conditions of this Agreement required to be
performed and complied with by it as of the Closing Date.
(b) Certificate of Buyer. Seller shall have been provided with a
certificate duly executed on behalf of Buyer by its President to the effect
that, as of the Closing Date:
(i) all representations and warranties made by Buyer in this
Agreement are true and complete; and
(ii) all covenants, obligations, agreements and conditions of
this Agreement to be performed by Buyer on or before such date have been so
performed.
(c) Registration Rights Agreement. Buyer and Seller shall have
executed and delivered the Eighteenth Amendment to the Registration Rights
Agreement pursuant to Section 1.2(a) hereof and attached hereto as Exhibit B.
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(d) Employment and Noncompetition Agreement. Buyer and Dwight L.
Jackson shall have executed and delivered the Employment and Noncompetition
Agreement pursuant to Section 5.13 hereof and attached hereto as Exhibit H.
6.3 Additional Conditions to the Obligations of Buyer. The obligations
of Buyer to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Date of each of the following conditions, any of which may be waived, in
writing, exclusively by Buyer:
(a) Representations, Warranties and Covenants. The representations
and warranties of Seller and Seller's Affiliates and Shareholders in this
Agreement shall be true and correct on and as of the Closing Date as though such
representations and warranties were made on and as of such time and Seller and
Seller's Affiliates and Shareholders shall have performed and complied with all
covenants, obligations, agreements and conditions of this Agreement required to
be performed and complied with by it as of the Closing Date.
(b) Certificate of Seller and Seller's Affiliates and Shareholders.
Buyer shall have been provided with a certificate executed on behalf of Seller
by its President and by each of Seller's Affiliates and Shareholders to the
effect that, as of the Closing Date:
(i) all representations and warranties made by Seller and
Seller's Affiliates and Shareholders in this Agreement are true and complete;
and
(ii) all covenants, obligations, agreements and conditions of
this Agreement to be performed by Seller and Seller's Affiliates and
Shareholders on or before such date have been so performed.
(c) Claims. There shall not have occurred any claims (whether or
not asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or the Business, the Assets
or financial condition of Seller or Buyer.
(d) Third Party Consents. Any and all consents, waivers, and
approvals required from third parties relating to the Contracts so as to assign
all rights of Seller thereunder to Buyer as of the Closing shall have been
obtained except as set forth in 6.4(b) hereof and except for any consent, waiver
and approval by Oracle Corporation, a California corporation ("Oracle") pursuant
to Section 8.5 of the Business Alliance Program Agreement between Oracle and
Seller dated February 15, 1996.
(e) Payment of Outstanding Liabilities. To the extent necessary and
required to transfer, convey, assign and deliver the Assets to Buyer on the
Closing Date free and clear of all liens and encumbrances, Seller will have
taken any and all necessary actions to pay off and/or obtain full releases from
all of its liabilities and obligations, or will have made sufficient provisions
to so pay or obtain releases, to the satisfaction of Buyer.
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(f) Bulk Sales Law Compliance. In connection with the transactions
contemplated hereby, Seller shall have complied fully with its obligations
pursuant to Section 5.12 of this Agreement and there shall have been no
intervention by any creditor of Seller prior to the Closing, except as disclosed
in Schedule 6.3(f).
(g) Satisfaction of Bank Debt. Seller shall have delivered to Buyer
evidence satisfactory to Buyer that the loan from Scott Valley Bank has been
assigned to Stephen P. Blanding and Kirk G. Ward and that Scott Valley Bank has
terminated all security interests, security agreements and guarantees affecting
or relating to the Assets.
(h) Termination of UCC Financing Statements. Buyer shall have been
furnished with UCC termination statements with respect to all UCC-1 financing
statements evidencing security interests in any of the Assets excluding the tax
liens filed by the IRS on November 10, 1994 and November 16, 1994 in the amount
of $17,998.57 and $4,026.46, respectively, and the tax liens filed by the State
of California Employment Development Department on March 23, 1995 in the amount
of $4,586.97, with respect to liens on the assets of First Resource, and
including the UCC-1 financing statement filed by Scott Valley Bank on October
12, 1994 with respect to a lien on substantially all of the assets of Seller.
(i) Subordination Agreement. Seller shall have delivered to Buyer a
copy of the Subordination Agreement executed by each of Kirk G. Ward and Stephen
P. Blanding pursuant to Section 1.1(b)(ii) hereof.
(j) Settlement of Outstanding Disputes. Buyer shall have received
evidence of the settlement of any litigations and/or disputes described in the
Schedules, including a general release from each such litigant or disputant, as
the case may be, on terms and in a form satisfactory to it.
(k) No Injunctions or Restraints on Conduct of Business. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or provision challenging Buyer's proposed acquisition of the Assets,
or limiting or restricting Buyer's conduct or operation of the Business (or its
own business) following the Acquisition shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending.
(l) Governmental Approvals. All consents, approvals, orders and
authorizations of, and registrations, declarations and filings with, and
expirations of waiting periods imposed by, any governmental entity, domestic or
foreign, necessary for the consummation of the transactions contemplated by this
Agreement shall have been obtained or filed or have occurred.
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(m) No Material Adverse Changes. There shall not have occurred any
material adverse change in the Business, the Assets or the results of operations
or financial condition of Seller.
(n) Employment and Noncompetition Agreements. Buyer and Dwight L.
Jackson shall have entered into the Employment and Noncompetition Agreement in
the form attached hereto as Exhibit H. Buyer and the persons listed in Schedule
6.3(n) shall have entered into the Buyer's standard form of confidentiality and
proprietary information agreement.
(o) Third Party Rights. No third party shall have any right of any
nature whatsoever (including, without limitation, any right to receive royalty
payments) in respect of any of the Assets, except rights to use Products
pursuant to licenses granted by Seller in the ordinary course of business.
(p) Certificates. Seller shall have obtained certificates of good
standing from the California Secretary of State as to the good standing of the
Seller and from the California Franchise Tax Board as to due payment by Seller
of all taxes due, and shall have provided Buyer with true and correct certified
copies thereof.
(q) Due Diligence. Buyer shall have completed to its satisfaction
the due diligence process outlined in Section 5.2 hereof.
(r) Closing Documents. Buyer shall have received, in form and
substance satisfactory to Buyer and its counsel, each and every other closing
document required to be delivered to it pursuant to this Agreement.
6.4 Condition Subsequent to Obligations of Buyer.
(a) Cara Agreement. Within twenty (20) days after the Closing,
Buyer and Cara Information Technology LTD ("Cara") shall enter into a license
agreement (the "Cara Agreement") substantially in the form attached hereto as
Exhibit I and Cara shall pay by wire transfer, upon the written instructions
from Buyer to Cara, an aggregate of $100,000 of the license fees as set forth in
the Cara Agreement of which $75,000 shall be paid upon execution of the Cara
Agreement and an additional $25,000 shall be paid upon delivery of the
Documentation by Buyer to Cara at such respective times. In no event shall the
Cara Agreement be entered into between Seller and Cara prior to the Closing. In
addition, Seller hereby guarantees two payments of $50,000 each (for an
aggregate of $100,000) by Cara to Buyer to be paid six (6) months and twelve
(12) months, respectively, from the date of the Cara Agreement.
(b) Third Party Consents. Within twenty (20) days after the
Closing, Seller shall have obtained and delivered to Buyer all consents,
waivers, and approvals required from Smithware, Inc., a Tennessee Corporation
("Smithware") in accordance with the Software Distribution Agreement dated as of
April 19, 1996 by and between Seller and Smithware and from
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Programmed Intelligence Corporation, a Georgia corporation ("IQ") in accordance
with the Software Distribution License Agreement dated as of October 19, 1989,
as amended, by and between Seller and IQ to assign all rights of Seller
thereunder to Buyer as of the Closing.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. Except as provided in Section 7.2 below, this
Agreement may be terminated and the Acquisition abandoned at any time prior to
the Closing Date:
(a) by mutual consent of Seller and Buyer;
(b) by Buyer or Seller if: (i) the Closing has not occurred by June
15, 1996; (ii) there shall be a final nonappealable order of a federal or state
court in effect preventing consummation of the Acquisition; or (iii) there shall
be any statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the Acquisition by any Governmental Entity that would make
consummation of the Acquisition illegal;
(c) by Buyer if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Acquisition by any Governmental Entity, which would: (i) prohibit Buyer's
ownership or operation of all or a substantial portion of the Business or the
Assets or (ii) compel Buyer to dispose of or hold separate all or a substantial
portion of the Business or the Assets of Buyer as a result of the Acquisition;
(d) by Buyer if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
Seller and such breach has not been cured within five (5) business days after
written notice to Seller (provided that, no cure period shall be required for a
breach which by its nature cannot be cured);
(e) by Seller if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of Buyer
and such breach has not been cured within five (5) business days after written
notice to Buyer (provided that, no cure period shall be required for a breach
which by its nature cannot be cured).
7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Buyer or Seller, or
their respective officers, directors or shareholders, provided that each party
shall remain liable for any breaches of this Agreement prior to its termination;
and provided further that, the provisions of Sections 4.2, 4.3, 5.3, 5.4, 5.5
and
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Article 8 of this Agreement shall remain in full force and effect and survive
any termination of this Agreement.
7.3 Amendment. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of each of
the parties hereto.
7.4 Extension; Waiver. At any time prior to the Closing Date, Buyer on
the one hand, and Seller, on the other, may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations of the other party
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
ARTICLE VIII
INDEMNITY AGREEMENT
8.1 Agreement to Indemnify; Offset.
(a) Each of Seller and Seller's Affiliates and Shareholders hereby
agree, jointly and severally, to indemnify and hold Buyer, and its directors,
officers and affiliates (collectively, the "Indemnitees"), harmless against and
in respect of any loss, cost, expense (including expenses of investigation),
claim, liability, deficiency, judgment or damage, including reasonable legal and
accounting fees and expenses, which exceed $15,000 in the aggregate
(hereinafter, individually, a "Loss", and collectively, "Losses") incurred by
Buyer, its officers, directors, or affiliates, directly or indirectly, (i) as a
result of any inaccuracy in or breach of a representation or warranty of Seller
or any of Seller's Affiliates and Shareholders contained in this Agreement or
any failure by Seller or any of Seller's Affiliates and Shareholders to perform
or comply with any covenant or condition contained in this Agreement and (ii) by
reason of Seller's failure to satisfy or discharge in a timely manner any
liability or obligation of Seller that is not an Assumed Liability.
Notwithstanding the foregoing, Seller and Seller's Affiliates and Shareholders
shall only be liable to Indemnitees for any and all Losses in excess of an
aggregate total of $15,000 from the sum of all Losses combined.
(b) Prior to the earlier to occur (the "Offset Date") of (i) the
closing of an initial public offering of the Buyer that triggers the automatic
conversion of the Series E Preferred Stock of Buyer into Common Stock of the
Buyer (an "IPO") or (ii) twenty-four (24) months from the date of this
Agreement, Buyer, for purposes of calculating the amount of interest payable to
Kirk G. Ward and Stephen P. Blanding under the $250,000 Note, only and not as a
permanent
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reduction of the principal balance thereof, shall offset the amount of any
Losses for which Seller and Seller's Affiliates and Shareholders are liable to
any of the Indemnitees against the amount of principal outstanding under the
$250,000 Note.
(c) At the Offset Date, in addition to any rights of offset or
other rights that Buyer or any of the other Indemnitees may have at Common Law
or otherwise, Seller shall have the option to either: (i) cause Buyer to
withhold and deduct any sum that may be owed to any Indemnitee under this
Agreement from any amount otherwise payable by Buyer to Kirk G. Ward and Stephen
P. Blanding under the $250,000 Note or (ii) deliver to Buyer the number of
shares equal to the quotient of (1) the amount of such Losses, (2) divided by
the greater of (x) $7.94 per share (as adjusted for stock splits and stock
dividends) or (y) the most recent purchase price per share of the Company's
Capital Stock. The withholding and deduction of any such sum against the
$250,000 Note shall first be used to pay down any principal, if any owed and any
accrued interest or other fees or sums owed thereafter by Buyer to Seller or any
of Seller's Affiliates and Shareholders and shall operate as a complete
discharge (to the extent of such sum) of the obligation to pay the amount from
which such sum was deducted.
8.2 Expiration of Indemnification and Representations and Warranties.
(a) Except as otherwise provided in Sections 8.1(c) and 8.2(b)
hereof, the indemnification obligations under Section 8.1 hereof and the
representations and warranties contained in this Agreement (except for those
referred to in Section 8.2(b) hereof) shall terminate eighteen (18) months from
the date of this Agreement, but shall not terminate as to any Loss (or a
potential claim by an appropriate party) asserted in good faith prior to such
date by Delivery (as defined below) of an Officer's Certificate (as defined
below) pursuant to Section 8.3 hereof.
(b) The indemnification obligations under Section 8.1 hereof with
respect to a breach of the representations and warranties contained in (i)
Section 2.8(c) of this Agreement shall not terminate until twenty-four (24)
months; and (ii) Section 2.11(c) of this Agreement shall terminate forty-eight
(48) months after the date of this Agreement, but shall not terminate as to any
Loss (or a potential claim by an appropriate party) asserted in good faith prior
to such date. The representations and warranties contained in Sections 2.8(c)
and 2.11(c) shall survive until expiration of the respective periods set forth
in the foregoing clauses (i) and (ii), respectively. In addition, the
representations and warranties of Buyer in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive for a period of one (1) year
from the Closing Date.
8.3 Claims. Upon Delivery (as defined below) of notice to Seller by the
Buyer at any time on or before the last day prior to expiration of
indemnification as set forth in Section 8.2 herein of a certificate signed by
any officer of Buyer (an "Officer's Certificate"):
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(a) stating that Buyer (or any of its directors, officers or
affiliates) has paid or properly accrued or reasonably anticipates that it will
have to pay or accrue Losses in an aggregate stated amount to which such party
is entitled to indemnity pursuant to this Agreement, and
(b) specifying in reasonable detail the individual items of Losses
included in the amount so stated, the date each such item was paid or properly
accrued, or the basis for such anticipated liability, and the nature of the
misrepresentation, breach of warranty or covenant or condition to which such
item is related,
the Seller or any of Seller's Affiliates or Shareholders shall, subject to the
provisions of Section 8.4 hereof, either (i) deliver to Buyer as promptly as
practicable but in no event later than thirty (30) calendar days from the date
of Delivery, the amount of cash equal to such Losses as indemnity payable by
wire transfer or certified check, or, in the event any amounts remain due under
the $250,000 Note and/or any of Seller or Seller's shareholders are the
beneficial holders of any of the Shares, (ii) notify Indemnitees as promptly as
practical but in no event later than thirty (30) calendar days from the date of
Delivery, that such indemnification shall be offset in accordance with Sections
8.1(b) and (c) hereof.
8.4 Objections to Claims. At the time of delivery of any Officer's
Certificate to Seller (the "Delivery"), a duplicate copy of such certificate
shall be delivered to Seller's Affiliates and Shareholders. After the expiration
of such thirty (30) day period, Seller or any of Seller's Affiliates and
Shareholders shall make payment to Buyer in accordance with Section 8.3 hereof;
provided that, no such payment may be made if Seller shall object in a written
statement to the claim made in the Officer's Certificate, and such statement
shall have been delivered to Buyer prior to the expiration of such thirty (30)
day period. Notwithstanding any other provision of this Agreement, the parties
hereto hereby agree that, upon receipt of reasonable evidence of any claimed or
asserted Tax liability which attaches or may attach to the Assumed Assets by
operation of law or otherwise or for which Buyer is liable in connection with
the purchase of the Assumed Assets and which is an Indemnifiable Loss hereunder,
the Seller or any of Seller's Affiliates and Shareholders shall deliver to
Buyer, as promptly as practicable, an amount sufficient for Buyer to discharge
such Tax liability. In the event Seller objects or disputes the payment or
satisfaction of any such Tax liability, Seller's sole recourse shall be to file
a claim of refund or such other appropriate claim with the governmental body to
which such payment is made by Buyer.
8.5 Resolution of Conflicts; Arbitration.
(a) In case Seller shall so object in writing to any claim or
claims made in any Officer's Certificate, Seller and Buyer shall attempt in good
faith to agree upon the rights of the respective parties with respect to each of
such claims; provided, however, that there shall be no presumption that Buyer
has not attempted to agree in good faith if Buyer chooses to demand arbitration
of the matter in the manner set forth in paragraph (b) below after fifteen (15)
days following Seller's objection. If Seller and Buyer should so agree, a
memorandum setting forth such agreement shall be prepared and signed by each of
Buyer and Seller.
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(b) If no such agreement can be reached after good faith
negotiation, either Buyer or Seller may demand arbitration of the matter unless
the amount of the Loss is at issue in pending litigation with a third party, in
which event arbitration shall not be commenced until such amount is ascertained
or both parties agree to arbitration; and, in either such event, the matter
shall be settled by arbitration conducted by three arbitrators. Buyer and Seller
shall each select one arbitrator, and the two arbitrators so selected shall
select a third arbitrator. The decision of a majority of the arbitrators so
selected as to the validity and amount of any claim in such Officer's
Certificate shall be binding and conclusive upon the parties to this Agreement.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Alameda County, California under the rules then in effect of the American
Arbitration Association. For purposes of this Section 8.5, in any arbitration
hereunder in which any claim or the amount thereof stated in the Officer's
Certificate is at issue, Buyer shall be deemed to be the "Non-Prevailing Party"
in the event that the arbitrators award Buyer less than fifty percent (50%) of
the disputed amount (in addition to any amount not in dispute); otherwise,
Seller shall be deemed to be the Non-Prevailing Party. The Non-Prevailing Party
to an arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the expenses,
including, without limitation, reasonable attorneys' fees and costs, incurred by
the other party to the arbitration.
8.6 Third Party Claims. In the event Buyer becomes aware of a
third-party claim that Buyer believes may result in a demand of indemnification,
Buyer shall notify Seller of such claim, and the Seller shall be entitled, at
its expense, to participate in any defense of such claim. Buyer shall have the
right in its sole discretion to settle any such claim; provided, however, that
except with the written consent of Seller (which shall not be unreasonably
withheld), no settlement of any such claim with third party claimants shall
alone be determinative of the amount of liability of Seller. In the event that
Seller has not consented in writing to any such settlement, Buyer and Seller
shall resolve by arbitration any dispute as to the amount to which Buyer is
entitled under Section 8.1 hereof in respect of such settlement in the manner
set forth in this Section 8.
8.7 Remedies. Seller and each of Seller's Affiliates and Shareholders
hereby acknowledge that Buyer may seek any available remedy to enforce the
indemnity obligations of Seller and Seller's Affiliates and Shareholders set
forth in Section 8.1 hereof.
8.8 Representative. Seller and the Seller's Affiliates and Shareholders
hereby agree that effective upon the execution of this Agreement, they shall be
collectively represented by Stephen P. Blanding (the "Representative") in
accordance with the following terms:
(i) The Representative is hereby empowered to give and receive
notices and communications, to agree to the reimbursable amount of any Loss, to
negotiate, enter into settlements and compromises of and to take all actions on
behalf of the Seller and the Seller's Affiliates and Shareholders necessary for
the accomplishment of the foregoing.
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(ii) In the event that the Representative shall die, become
incapacitated, resign or otherwise be unable to fulfill his duties or terminate
his status as such, his successor shall be elected by the vote or consent of the
majority in interest of the Seller's Affiliates and Shareholders as soon as
reasonably practicable thereafter.
(iii) The Representative shall receive no compensation for his
services but shall be reimbursed by the Seller's Affiliates and Shareholders for
reasonable expenses incurred in the course of performance of such services.
(iv) A decision, act, consent or instruction of the Representative
shall constitute a decision of the Seller and Seller's Affiliates and
Shareholders and shall be conclusive and binding upon the Seller and Seller's
Affiliates and Shareholders, and Buyer may rely upon any decision, act, consent
or instruction of the Representative as being the decision, act, consent or
instruction of the Seller and Seller's Affiliates and Shareholders.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via telecopy (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Buyer, to:
ProBusiness, Inc.
5934 Gibraltar
Pleasanton, California 94588
Attention: Chief Financial Officer
Telecopy No.: (510) 847-3817
with a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Alan K. Austin, Esq.
Telecopy No.: (415) 493-6811
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(b) if to Seller, to:
Dimension Solutions
39899 Balentine Drive
Suite 335
Newark, California 94560
Attention: Dwight Jackson
Telecopy No.: (510) 623-0550
with a copy to:
Morgan, Miller & Blair
1676 North California Blvd.
Suite 200
Walnut Creek, California 94596
Attention: Bruce Ring
Telecopy No.: (510) 943-1106
9.2 Interpretation. When a reference is made in this Agreement to
Schedules or Exhibits, such reference shall be to a Schedule or Exhibit to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement. This Agreement, the Schedules and Exhibits
hereto: (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof; (b) are not intended to confer upon any other person any rights or
remedies hereunder, unless expressly provided otherwise; and (c) shall not be
assigned by operation of law or otherwise; provided, however, that Seller may
assign its rights and obligations hereunder to its shareholders.
9.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the
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application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto.
9.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
9.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
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<PAGE> 50
IN WITNESS WHEREOF, each of Buyer, Seller and Seller's Affiliates and
Shareholders has caused this Agreement to be signed by their duly authorized
respective officers, all as of the date first written above.
PROBUSINESS, INC.
By:________________________________________
Name: Thomas H. Sinton
Title: President
DIMENSION SOLUTIONS
By:________________________________________
Name: Dwight L. Jackson
Title: President
Seller's Shareholders
___________________________________________
Dwight L. Jackson
___________________________________________
Stephen P. Blanding
___________________________________________
Kirk G. Ward
___________________________________________
Stephen P. Blanding and Mayno W. Blanding
Family Trust
By:________________________________________
Title:_____________________________________
Ward Family Revocable Trust dated 3/28/94
By:________________________________________
Title:_____________________________________
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<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PROBUSINESS SERVICES, INC.
FIRST: The name of the corporation is ProBusiness Services, Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle, Delaware 19801. The name of its
registered agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: This Corporation is authorized to issue two classes of shares
to be designated, respectively, Common Stock and Preferred Stock. The total
number of shares of capital stock that the Corporation is authorized to issue
is sixty-eight million four hundred seventy- four thousand nine hundred
eighteen (68,474,918). The total number of shares of Common Stock this
corporation shall have authority to issue is sixty million (60,000,000), $0.001
par value, and the total number of shares of Preferred Stock this corporation
shall have authority to issue is eight million four hundred seventy-four
thousand nine hundred eighteen (8,474,918), $0.00l par value. Nine hundred
twenty thousand (920,000) of the shares of Preferred Stock are designated
Series A Preferred Stock ("SERIES A PREFERRED"), nine hundred nineteen thousand
four hundred (919,400) of the shares of Preferred Stock are designated Series B
Preferred Stock ("SERIES B PREFERRED"), two hundred sixty thousand seven
hundred eighty-five (260,785) of the shares of Preferred Stock are designated
Series C Preferred Stock ("SERIES C PREFERRED"), three hundred thousand
(300,000) of the shares of Preferred Stock are designated Series D Preferred
("SERIES D PREFERRED"), five hundred thousand (500,000) of the shares of
Preferred Stock are designated Series E Preferred Stock ("SERIES E PREFERRED"),
and 574,733 shares shall be designated Series F Preferred Stock ("SERIES F
PREFERRED"). The undesignated Preferred Stock may be issued from time to time
in one or more series pursuant to a resolution or resolutions providing for
such issue duly adopted by the Board of Directors (authority to do so being
hereby expressly vested in the Board). The Board of Directors is further
authorized to determine or alter the rights, preferences, privileges, and
restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock and to fix the number of shares of any series of Preferred Stock and the
designation of any such series of Preferred Stock. The Board of Directors
within the limits and restrictions stated in any resolution or resolutions of
the Board of Directors originally fixing the number of shares constituting any
series of Preferred Stock, may
<PAGE> 2
increase or decrease (but not below the number of shares of any such series
then outstanding) the number of shares of any such series subsequent to the
issue of shares of that series.
The powers, preferences and rights, and the qualifications,
limitations, and restrictions relating to the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and
Series F Preferred are as follows:
1. Dividends.
(a) The holders of the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and
Series F Preferred shall be entitled to receive, when as and if declared by the
Board of Directors, dividends in the amount of Two Cents ($.02) per share per
annum out of funds legally available therefore. Such dividends shall not be
cumulative and no right to such dividends shall accrue to holders of Preferred
Stock unless declared by the Board of Directors.
(b) No dividends or other distributions shall be made
with respect to the Common Stock, other than dividends payable solely in Common
Stock, during any fiscal year of the Corporation unless at the same time all
dividends with respect to the Preferred Stock for that fiscal year have been
declared and paid or set apart. In the event dividends are paid on any share
of Common Stock, an additional dividend shall be paid with respect to all
outstanding shares of Series F Preferred in an amount equal per share of Series
F Preferred (on an as-if-converted to Common Stock basis) to the amount paid or
set aside for each share of Common Stock. Except as set forth in this Section
1(b), no dividend shall be paid on or declared and set apart for the shares of
any series of Preferred Stock for any dividend period unless at the same time a
like proportionate dividend for the same dividend period, ratably in proportion
to the respective annual dividend rates fixed therefor shall be paid on or
declared and set apart for the shares of all other such series of Preferred
Stock.
(c) For purposes of this Section 1, unless the context
otherwise requires, a "distribution" shall mean the transfer of cash or other
property without consideration whether by way of dividend or otherwise, payable
other than in Common Stock or the purchase or redemption of shares of the
Corporation (other than purchases of Common Stock issued to or held by
employees, officers, directors or consultants of the Corporation or its
subsidiaries on the termination of their employment or services pursuant to
agreements providing for the right of said repurchase) for cash or property.
2. Liquidation Preference. In the event of any liquidation,
dissolution, or winding up of the Corporation, either voluntary or involuntary,
distributions to the stockholders of the Corporation shall be made in the
following manner:
(a) The holders of the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and
Series F Preferred shall be entitled to receive the amount of $3.805, $3.804,
$4.94, $5.94, $7.94, and $17.40 respectively per share for each share of Series
A
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<PAGE> 3
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E
Preferred, and Series F Preferred then held by them, adjusted for any
combinations, consolidations, or stock distributions or dividends with respect
to such shares and, in addition, an amount equal to all declared but unpaid
dividends on the shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred and Series F Preferred then
held by them. The Preferred Stock shall rank on a parity as to the receipt of
the respective preferential amounts for each such series upon the occurrence of
such event. If the assets and funds legally available for distribution to the
holders of Preferred Stock shall be insufficient to permit the payment to such
holders of the preferential amounts to which each such series of Preferred
Stock is entitled, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed among the holders of Preferred
Stock pro rata according to their respective liquidation preferences. After
payment has been made to the holders of the Preferred Stock of the full amounts
to which they shall be entitled as aforesaid, the entire remaining assets and
funds of the Corporation legally available for distribution, if any, shall be
distributed ratably among the holders of the Preferred Stock and the Common
Stock in a manner such that the amount distributed to each holder of capital
stock of the Corporation shall equal the amount obtained by multiplying the
entire assets and funds of the Corporation legally available for distribution
hereunder by a fraction, the numerator of which shall be the sum of the number
of shares of Common Stock then held by the holder and the number of shares of
Common Stock issuable upon conversion of the shares of Preferred Stock then
held by the holder, and the denominator of which shall be the sum of the total
number of shares of Common Stock then outstanding and the total number of
shares of Common Stock issuable upon conversion of the total number of shares
of Preferred Stock then outstanding.
(b) For purposes of this Section 2, a merger or
consolidation of the Corporation with or into any other corporation or
corporations, or the merger of any other corporation or corporations into the
Corporation, in which consolidation or merger the stockholders of the
Corporation receive distributions in cash or securities of another corporation
or corporations as a result of such consolidation or merger, or a sale of all
or substantially all of the assets of the Corporation, shall not be treated as
a liquidation, dissolution or winding up of the Corporation, unless both (i)
the stockholders of this Corporation receive in such consolidation, merger or
sale of assets less than fifty percent (50%) of the voting equity securities of
the successor or surviving corporation and (ii) the amount of cash and/or
securities received by the stockholders of this Corporation is less than the
liquidation preference of the Preferred Stock, in which case such
consolidation, merger or sale of assets shall be treated as a liquidation,
dissolution or winding up.
3. Voting Rights. Except as otherwise required by law or by
Section 4 hereof, the holder of each share of Common Stock issued and
outstanding shall have one vote and the holder of each share of Preferred Stock
shall be entitled to the number of votes equal to the number of shares of
Common Stock into which such share of Preferred Stock could be converted at the
record date for determination of the stockholders entitled to vote on such
matters, or, if no such record date is established, at the date such vote is
taken or any written consent of stockholders is solicited, such votes to be
counted together with all other shares of stock of the Corporation having
general voting power and not separately as a class. Fractional votes by the
holders of Preferred Stock shall not,
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<PAGE> 4
however, be permitted and any fractional voting rights shall (after aggregating
all shares into which shares of Preferred Stock held by each holder could be
converted) be rounded to the nearest whole number. Holders of Common Stock and
Preferred Stock shall be entitled to notice of any stockholders; meeting in
accordance with the Bylaws of the Corporation.
4. Conversion. The holders of the Preferred Stock have
conversion rights as follows (the "CONVERSION RIGHTS"):
(a) Right to Convert. Each share of Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after
the date of issuance of such share at the office of the Corporation or any
transfer agent for the Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined in the case of the Series
A Preferred by dividing $3.805 by the Series A Conversion Price, in the case of
Series B Preferred by dividing $3.804 by the Series B Conversion Price, in the
case of the Series C Preferred by dividing $4.94 by the Series C Conversion
Price, in the case of the Series D Preferred by dividing $5.94 by the Series D
Conversion Price, in the case of the Series E Preferred by dividing $7.94 by
the Series E Conversion Price, and in the case of Series F Preferred by
dividing $17.40 by the Series F Conversion Price determined in each case as
hereinafter provided, in effect at the time of the conversion. The price at
which shares of Common Stock shall be deliverable upon conversion of the Series
A Preferred ("SERIES A CONVERSION PRICE") shall initially be $1.9025 per share
of Common Stock. The price at which shares of Common Stock shall be delivered
upon conversion of the Series B Preferred ("SERIES B CONVERSION PRICE") shall
initially be $1.902 per share of Common Stock. The price at which shares of
Common Stock shall be delivered upon conversion of the Series C Preferred
("SERIES C CONVERSION PRICE") shall initially be $2.47 per share of Common
Stock. The price at which shares of Common Stock shall be delivered upon
conversion of the Series D Preferred ("SERIES D CONVERSION PRICE") shall
initially be $2.97 per share of Common Stock. The price at which shares of
Common Stock shall be delivered upon conversion of the Series E Preferred
("SERIES E CONVERSION PRICE") shall initially be $3.97 per share of Common
Stock. The price at which shares of Common Stock shall be deliverable upon
conversion of the Series F Preferred ("SERIES F CONVERSION PRICE") shall
initially be $8.70 per share of Common Stock. The term "Conversion Price" as
used herein shall refer to the respective Conversion Price of each series of
Preferred Stock. Upon conversion, all declared and unpaid dividends on the
Preferred Stock shall be paid either in cash or in shares of Common Stock of
the Corporation, at the election of the Corporation, wherein the shares of
Common Stock shall be valued at the fair market value at the time of such
conversion, as determined by the Board of Directors of the Corporation.
(b) Automatic Conversion. Each share of Preferred Stock
shall automatically be converted into shares of Common Stock at the then
effective Conversion Price:
(i) Upon the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Corporation to the public at a price per
share (prior to underwriter commissions and offering expenses) of: (1) with
respect to the
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<PAGE> 5
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred, not less than $3.50 per share (appropriately adjusted
for any recapitalization) and an aggregate offering price to the public of not
less than $7,000,000 and (2) with respect to the Series F Preferred, $8.70 per
share (appropriately adjusted for any recapitalization) and an aggregate
offering price to the public of not less than $10,000,000. In the event of the
automatic conversion of the Preferred Stock upon a public offering as
aforesaid, the person(s) entitled to receive the Common Stock issuable upon
such conversion of Preferred Stock shall not be deemed to have converted such
Preferred Stock until immediately prior to the closing of such sale of
securities; or
(ii) With respect to the Series F Preferred on the
date immediately after the Price (as defined below) of the Common Stock of the
Corporation remains at or above $8.70 per share for thirty (30) consecutive
trading days on any established stock exchange or national market system.
"Price" shall be the closing sale price for the Corporation's Common Stock (or
the closing bid, if no sales were reported) as quoted on any established stock
exchange or a national market system including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, for the last market trading day prior to the time
of determination as reported in the Wall Street Journal.
(c) Mechanics of Conversion. No fractional shares of
Common Stock shall be issued upon conversion of Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the fair market
value at the time of such conversion, as determined by the Board of Directors
of the Corporation. Before any holder of Preferred Stock shall be entitled to
convert the same into full shares of Common Stock and to receive certificates
therefor, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Preferred Stock, and shall give written notice to the Corporation at such
office that he elects to convert the same; provided, however, that in the event
of an automatic conversion pursuant to Section 4(b), the outstanding shares of
Preferred Stock shall be converted automatically without any further action by
the holders of such shares and whether or not the certificates representing
such shares are surrendered to the Corporation or its transfer agent, and
provided further that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such automatic
conversion unless the certificates evidencing such shares of Preferred Stock
are either delivered to the Corporation or its transfer agent as provided
above, or the holder notifies the Corporation or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates.
The Corporation shall, as soon as practicable after such delivery, or
such agreement and indemnification in the case of a lost certificate, issue and
deliver at such office to such holder of Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock. Such conversion shall
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<PAGE> 6
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Preferred Stock to be converted, or in
the case of automatic conversion on the date of closing of the offering, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
(d) Adjustments to Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this
Section 4(d), the following definitions shall apply:
(1) "Options" shall mean rights, options
or warrants to subscribe for, purchase or otherwise acquire either Common Stock
or Convertible Securities.
(2) "Original Issue Date" shall mean
October 13, 1989.
(3) "Convertible Securities" shall mean
any evidences of indebtedness, shares (other than the 920,000 shares of Series
A Preferred, 919,400 shares of Series B Preferred, 260,785 shares of Series C
Preferred, 300,000 shares of Series D Preferred, 500,000 shares of Series E
Preferred, or 574,333 shares of Series F Preferred authorized herein) or other
securities convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or, pursuant to Section
4(d)(iii), deemed to be issued) by the Corporation after the Original Issue
Date, other than shares of Common Stock issued or issuable at any time:
(A) upon conversion of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E
Preferred, or Series F Preferred;
(B) to officers, directors, and
employees of, and consultants to, the Corporation on terms approved by the
Board of Directors;
(C) as a dividend or distribution
on Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred, Series E Preferred, or Series F Preferred or any event for which
adjustment is made pursuant to subparagraph (d)(vi) hereof;
(D) by way of dividend or other
distribution on shares of Common Stock excluded from the definition of
Additional Shares of Common Stock by the foregoing clauses (A), (C), or this
clause (D) or on shares of Common Stock so excluded.
(E) upon conversion of any
convertible notes which were issued by the Company prior to December 1, 1989.
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<PAGE> 7
(ii) No Adjustment of Conversion Price. No
adjustment in the Conversion Price of a particular share of Preferred Stock
shall be made in respect of the issuance of Additional Shares of Common Stock
unless the consideration per share for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less than the Conversion
Price in effect on the date of, and immediately prior to such issue, for such
share of Preferred Stock.
(iii) Deemed Issue of Additional Shares of Common
Stock.
(1) Options and Convertible Securities.
Except as otherwise provided in Section 4(d)(ii), in the event the Corporation
at any time or from time to time after the Original Issue Date shall issue any
Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any
such Options or Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as
of the time of such issue or, in case such a record date shall have been fixed,
as of the close of business on such record date, provided that Additional
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 4(d)(v) hereof) of such
Additional Shares of Common Stock would be less than the Conversion Price in
effect on the date of and immediately prior to such issue, or such record date,
as the case may be, and provided further that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Corporation, or decrease in
the number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such
Options or any rights of conversion or exchange under such Convertible
Securities that shall not have been exercised, the Conversion Price computed
upon the original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon
such expiration, be recomputed as if;
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<PAGE> 8
(I) in the case of Convertible
Securities or Options for Common Stock, the only Additional Shares of
Common Stock issued were shares of Common Stock, if any, actually
issued upon the exercise of such Options or the conversion or exchange
of such Convertible Securities and the consideration received therefor
was the consideration actually received by the Corporation for the
issue of all such Options, whether or not exercised, plus the
consideration actually received by the Corporation upon such exercise,
or for the issue of all such Convertible Securities which were
actually converted or exchanged, plus the additional consideration, if
any, actually received by the Corporation upon such conversion or
exchange, and
(II) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time of issue of such
Options, and the consideration received by the Corporation for the Additional
Shares of Common Stock deemed to have been then issued was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration deemed to have been received by the
Corporation upon the issue of the Convertible Securities with respect to which
such Options were actually exercised;
(D) no readjustment pursuant to
clause (B) or (C) above shall have the effect of increasing the Conversion
Price to an amount that exceeds the lower of (i) the Conversion Price on the
original adjustment date or (ii) the Conversion Price that would have resulted
from any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date; and
(E) in the case of any Options that
expire by their terms not more than 90 days after the date of issue thereof, no
adjustment of the Conversion Price shall be made until the expiration or
exercise of all such Options.
(2) Stock Dividends. In the event the
Corporation at any time or from time to time after the Original Issue Date
shall declare or pay any dividend on the Common Stock payable in Common Stock,
then and in any such event, Additional Shares of Common Stock shall be deemed
to have been issued immediately after the close of business on the record date
for the determination of holders of any class of securities entitled to receive
such dividend; provided, however, that if such record date is fixed and such
dividend is not fully paid, the only Additional Shares of Common Stock deemed
to have been issued will be the number of shares of Common Stock actually
issued in such dividend, and such shares will be deemed to have been issued as
of the close of business on such record date, and the Conversion Price shall be
recomputed accordingly.
(iv) Adjustment of Conversion Price Upon Issuance
of Additional Shares of Common Stock. In the event this Corporation shall
issue Additional Shares of Common Stock without consideration or for a
consideration per share less than the Conversion Price in effect on the date of
and immediately prior to such issue, then and in such event, such Conversion
Price shall be reduced, concurrently with such issue, to a price determined by
multiplying such Conversion Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding
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<PAGE> 9
immediately prior to such issue plus the number of shares of Common Stock that
the aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Conversion
Price; and the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; and provided further that, for
purposes of this Section 4(d)(iv), all shares of Common Stock issuable upon
conversion of all outstanding shares of Preferred Stock and all outstanding
Convertible Securities, and upon exercise of all outstanding Options (excluding
shares of Common Stock issuable upon the exercise of outstanding options
granted to officers, directors, and employees of, and consultants to, the
Corporation on terms approved by the Board of Directors), shall be deemed to be
outstanding, and immediately after any Additional Shares of Common Stock are
deemed issued pursuant to Section 4(d)(iii), such Additional Shares of Common
Stock shall be deemed to be outstanding.
(v) Determination of Consideration. For purposes
of this Section 4(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common stock shall be computed as follows:
(1) Cash and Property. Such
consideration shall:
(A) insofar as it consists of cash,
be computed at the aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of
property other than cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board; and
(C) in the event Additional Shares
of Common Stock are issued together with other shares or securities or other
assets of the Corporation for consideration that covers both, be the proportion
of such consideration so received, computed as provided in clauses (A) and (B)
above, as determined in good faith by the Board.
(2) Options and Convertible Securities.
The consideration per share received by the Corporation for Additional Shares
of Common Stock deemed to have been issued pursuant to Section 4(d)(iii)(1),
relating to Options and Convertible Securities, shall be determined by dividing
(A) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of
such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment
of such consideration) payable to the Corporation upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the
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<PAGE> 10
exercise of such Options for Convertible Securities and the conversion or
exchange of such Convertible Securities by
(B) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.
(3) Stock Dividends. Any Additional
Shares of Common Stock relating to stock dividends shall be deemed to have been
issued for no consideration.
(vi) Adjustments for Subdivisions, Combinations or
Consolidation of Common Stock. In the event the outstanding shares of Common
Stock shall be subdivided (by stock split or otherwise), into a greater number
of shares of Common Stock, the Conversion Price then in effect shall,
concurrently with the effectiveness of such subdivision, be proportionately
decreased. In the event the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, the Conversion Price then in effect shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
(vii) Adjustments for Other Distributions. In the
event the Corporation at any time or from time to time makes, or fixes a record
date for the determination of holders of Common Stock entitled to receive any
distribution payable in securities of the Corporation other than shares of
Common Stock and other than as otherwise adjusted in this Section 4 or as
otherwise provided in Section l(b), then and in each such event provision shall
be made so that the holders of Preferred Stock shall receive upon conversion
thereof, in addition to the number of shares of Common Stock receivable
thereupon, the amount of securities of the Corporation that they would have
received had their Preferred Stock been converted into Common Stock on the date
of such event and had they thereafter, during the period from the date of such
event to and including the date of conversion, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 4 with respect to
the rights of the holders of the Preferred Stock.
(viii) Adjustments for Reclassification, Exchange
and Substitution. If the Common Stock issuable upon conversion of the
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of
shares provided for above), the Conversion Price then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted such that the Preferred Stock shall be convertible
into, in lieu of the number of shares of Common Stock that the holders would
otherwise have been entitled to receive, a number of shares of such other class
or classes of stock equivalent to the number of shares of Common Stock that
would have been subject to receipt by the holders upon conversion of the
Preferred Stock immediately before that change.
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<PAGE> 11
(e) No Impairment. Except as provided in Section 5, the
Corporation will not, by amendment of its Certificate of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation but will at all times in
good faith assist in the carrying out of all the provisions of this Section 4
and in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the Preferred Stock
against impairment.
(f) Certificate as to Adjustments. Upon the occurrence
of each adjustment or readjustment of the Conversion Price pursuant to this
Section 4, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price at the time in effect and (iii) the number of shares
of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of Preferred Stock.
(g) Notices of Record Date. In the event that this
Corporation shall propose at any time:
(i) to declare any dividend or distribution upon
its Common Stock, whether in cash, property, stock or other securities, whether
or not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the
holders of any class or series of its stock any additional shares of stock of
any class or series or other rights;
(iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or
(iv) to merge or consolidate with or into any
other corporation, or sell, lease or convey all or substantially all of its
property or business, or to liquidate, dissolve or wind up; then, in connection
with each such event, this Corporation shall send to the holders of the
Preferred Stock:
(1) at least 20 days' prior written
notice of the date on which a record shall be taken for such dividend,
distribution or subscription rights (and specifying the date on which the
holders of Common Stock shall be entitled thereto) or for determining rights to
vote in respect of the matters referred to in (iii) and (iv) above; and
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<PAGE> 12
(2) in the case of the matters referred
to in (iii) and (iv) above, at least 20 days' prior written notice of the date
when the same shall take place (and specifying the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event or the record date
for the determination of such holders if such record date is earlier).
Each such written notice shall be delivered personally or given by
first class mail, postage prepaid, addressed to the holders of the Preferred
Stock at the address for each such holder as shown on the books of this
Corporation.
5. Covenants
(a) In addition to any other rights provided by law, so
long as any shares of Preferred Stock shall be outstanding, this Corporation
shall not, without first obtaining the affirmative vote or written consent of
the holders of not less than a majority of the then outstanding shares of
Preferred Stock voting together as a class:
(i) amend or repeal any provision of, or add any
provision to, this Corporation's Certificate of Incorporation (except for the
filing with the Delaware Secretary of State of any Certificate of Designation
that is not within the meaning of Section 5(a)(ii) below) if such action would
materially and adversely directly alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of, any
Preferred Stock;
(ii) authorize or issue shares of any class of
stock having any preference or priority as to dividends or assets superior to
or on parity with any such preference or priority of the Preferred Stock;
(iii) merge or consolidate with any other
corporation or sell, lease or convey all or substantially all of the assets of
the Corporation; or
(iv) pay or declare any dividend on the shares of
Common Stock.
(b) In addition to any other rights provided by law, so
long as any shares of Preferred Stock shall be outstanding, this Corporation
shall not, without first obtaining the affirmative vote or written consent of
the holders of not less than a majority of the then outstanding shares of
Preferred Stock and Common Stock voting together as a single class, issue
shares of Preferred Stock of any series in excess of 920,000 shares of Series A
Preferred, 919,400 shares of Series B Preferred, 260,785 shares of Series C
Preferred, 300,000 shares of Series D Preferred, 500,000 shares of Series E
Preferred and 574,333 shares of Series F Preferred.
(c) In addition to any other rights provided by law, so
long as any shares of Series F Preferred shall be outstanding, this Corporation
shall not, without first obtaining the affirmative vote or written consent of
the holders of not less than a majority of the then outstanding shares of
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<PAGE> 13
Series F Preferred voting as a single class, issue shares of Series F Preferred
in excess of 574,333 shares of Series F Preferred.
FIFTH: "Qualified Public Offering" as used in this Certificate of
Incorporation shall mean the Corporation's initial firm commitment underwritten
public offering pursuant to an effective registration under the Securities Act
of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Corporation to the public. For the management of the business
and for the conduct of the affairs of the Corporation, and in further
definition, limitation and regulation of the powers of the Corporation, of its
directors and of its stockholders or any class thereof, as the case may be, it
is further provided that, effective upon the closing of a Qualified Public
Offering, and at such time as the securities of the Corporation are (i) listed
on the New York Stock Exchange or the American Stock Exchange or (ii)
designated as qualified for trading as a national market security on the
National Association of Securities Dealers Automatic Quotation System (or any
successor national market system) if the Corporation has a least 800 holders of
its equity securities as of the record date of its most recent annual meeting
of stockholders:
1. The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted from time to time by the Board
of Directors.
The Board of Directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned
to each class in accordance with a resolution or resolutions adopted by the
Board of Directors. At the first annual meeting of stockholders following the
date hereof, the term of office of the Class I directors shall expire and Class
I directors shall be elected for a full term of three years. At the second
annual meeting of stockholders following the date hereof, the term of office of
the Class II directors shall expire and Class II directors shall be elected for
a full term of three years. At the third annual meeting of stockholders
following the date hereof, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose
terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his or her successor is duly elected and qualified
or until his or her death, resignation or removal. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of any
incumbent director.
Any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other causes unless the Board of
Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, except as otherwise provided by
law, be filled only by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors and not by the
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<PAGE> 14
stockholders. Newly created directorships resulting from any increase in the
number of directors shall, unless the Board of Directors determines by
resolution that any such newly created directorship shall be filled by the
stockholders, be filled only by the affirmative vote of the directors then in
office, even though less than a quorum of the Board of Directors and not by the
stockholders. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of directors
in which the new directorship was created or the vacancy occurred and until
such director's successor shall have been elected and qualified.
2. In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, alter,
amend, or repeal the Bylaws of the Corporation.
3. The directors of the Corporation need not be elected by
written ballot unless a stockholder demands election by written ballot at the
meeting and before voting begins, or unless the Bylaws so provide.
4. No action shall be taken by the stockholders of the
Corporation except at an annual or special meeting of the stockholders called
in accordance with the Bylaws and no action shall be taken by the stockholders
by written consent.
5. Advance notice of stockholder nomination for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in
the Bylaws of the Corporation.
6. Special meetings of the stockholders of the Corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the President, (iii) the Chief Executive Officer, (iv) the
Board of Directors or (v) the holders of shares entitled to cast not less than
forty percent (40%) of the votes at the meeting, and shall be held at such
place, on such date, and at such time as the Board of Directors shall fix.
SIXTH: Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside of the
State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the Bylaws of the Corporation.
SEVENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon the stockholders herein are granted subject to this right.
EIGHTH: Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the voting stock required by law, this
Certificate of Incorporation or any Certificate of Designation, the affirmative
vote of the holders of at least sixty-six and two- thirds percent (66-2/3%) of
the voting power of all of the
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<PAGE> 15
then-outstanding shares of the voting stock, voting together as a single class,
shall be required to alter, amend or repeal Article Fifth or this Article
Eighth.
NINTH: The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under Delaware
law.
A director of the corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
after approval by the stockholders of this Article to authorize corporate
action further eliminating or limiting the personal liability of directors,
then the liability of a director shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of this Article Ninth shall be prospective
and shall not affect the rights under this Article Ninth in effect at the time
of the alleged occurrence of any act or omission to act giving rise to
liability or indemnification.
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<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PROBUSINESS SERVICES, INC.
FIRST: The name of the corporation is ProBusiness Services, Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Delaware 19801. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
FOURTH: This Corporation is authorized to issue two classes of shares
to be designated, respectively, Common Stock and Preferred Stock. The total
number of shares of capital stock that the Corporation is authorized to issue is
sixty-five million (65,000,000). The total number of shares of Common Stock this
corporation shall have authority to issue is sixty million (60,000,000), $0.001
par value, and the total number of shares of Preferred Stock this corporation
shall have authority to issue is five million (5,000,000), $0.00l par value. The
undesignated Preferred Stock may be issued from time to time in one or more
series pursuant to a resolution or resolutions providing for such issue duly
adopted by the Board of Directors (authority to do so being hereby expressly
vested in the Board). The Board of Directors is further authorized to determine
or alter the rights, preferences, privileges, and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and to fix the number
of shares of any series of Preferred Stock and the designation of any such
series of Preferred Stock. The Board of Directors within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series of Preferred
Stock, may increase or decrease (but not below the number of shares of any such
series then outstanding) the number of shares of any such series subsequent to
the issue of shares of that series.
FIFTH: "Qualified Public Offering" as used in this Certificate of
Incorporation shall mean the Corporation's initial firm commitment underwritten
public offering pursuant to an effective registration under the Securities Act
of 1933, as amended, covering the offer and sale of Common Stock for the account
of the Corporation to the public. For the management of the business and for the
conduct of the affairs of the Corporation, and in further definition, limitation
and
<PAGE> 2
regulation of the powers of the Corporation, of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided
that, effective upon the closing of a Qualified Public Offering, and at such
time as the securities of the Corporation are (i) listed on the New York Stock
Exchange or the American Stock Exchange or (ii) designated as qualified for
trading as a national market security on the National Association of Securities
Dealers Automatic Quotation System (or any successor national market system) if
the Corporation has a least 800 holders of its equity securities as of the
record date of its most recent annual meeting of stockholders:
1. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed exclusively
by one or more resolutions adopted from time to time by the Board of Directors.
The Board of Directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the date
hereof, the term of office of the Class I directors shall expire and Class I
directors shall be elected for a full term of three years. At the second annual
meeting of stockholders following the date hereof, the term of office of the
Class II directors shall expire and Class II directors shall be elected for a
full term of three years. At the third annual meeting of stockholders following
the date hereof, the term of office of the Class III directors shall expire and
Class III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his or her successor is duly elected and qualified or until
his or her death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other causes unless the Board of
Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, except as otherwise provided by
law, be filled only by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors and not by the stockholders. Newly created directorships resulting
from any increase in the number of directors shall, unless the Board of
Directors determines by resolution that any such newly created directorship
shall be filled by the stockholders, be filled only by the affirmative vote of
the directors then in office, even though less than a quorum of the Board of
Directors and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been elected and
qualified.
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<PAGE> 3
2. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend,
or repeal the Bylaws of the Corporation.
3. The directors of the Corporation need not be elected by written
ballot unless a stockholder demands election by written ballot at the meeting
and before voting begins, or unless the Bylaws so provide.
4. No action shall be taken by the stockholders of the Corporation
except at an annual or special meeting of the stockholders called in accordance
with the Bylaws and no action shall be taken by the stockholders by written
consent.
5. Advance notice of stockholder nomination for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
6. Special meetings of the stockholders of the Corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the President, (iii) the Chief Executive Officer, (iv) the Board
of Directors or (v) the holders of shares entitled to cast not less than forty
percent (40%) of the votes at the meeting, and shall be held at such place, on
such date, and at such time as the Board of Directors shall fix.
SIXTH: Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
SEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this right.
EIGHTH: Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the voting stock required by law, this Certificate
of Incorporation or any Certificate of Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the voting stock, voting together
as a single class, shall be required to alter, amend or repeal Article Fifth or
this Article Eighth.
NINTH: The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under Delaware
law.
A director of the corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability
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<PAGE> 4
(i) for any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Delaware General
Corporation Law is amended after approval by the stockholders of this Article to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director shall be eliminated or
limited to the fullest extent permitted by the Delaware General Corporation Law,
as so amended.
Any repeal or modification of this Article Ninth shall be prospective
and shall not affect the rights under this Article Ninth in effect at the time
of the alleged occurrence of any act or omission to act giving rise to liability
or indemnification.
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EXHIBIT 3.3
BYLAWS
OF
PROBUSINESS SERVICES, INC.
(A DELAWARE CORPORATION)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the
Certificate of Incorporation of the corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside
the State of Delaware designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING
(a) The annual meeting of stockholders shall be held each year
on a date and at a time designated by the board of directors. In the absence of
such designation, the annual meeting of stock holders shall be held on the
second Wednesday in November of each year at 10:00 a.m. However, if such day
falls on a legal holiday, then the meeting shall be held at the same time and
place on the next succeeding full business day. At the meeting, directors shall
be elected, and any other proper business may be transacted.
<PAGE> 2
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be: (A)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the board of directors, (B) otherwise properly brought before
the meeting by or at the direction of the board of directors, or (C) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not less than one hundred
twenty (120) calendar days in advance of the date specified in the corporation's
proxy statement released to stockholders in connection with the previous year's
annual meeting of stockholders; provided, however, that in the event that no
annual meeting was held in the previous year or the date of the annual meeting
has been changed by more than thirty (30) days from the date contemplated at the
time of the previous year's proxy statement, notice by the stockholder to be
timely must be so received a reasonable time before the solicitation is made. A
stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a
proponent to a stockholder proposal. Notwithstanding the foregoing, in order to
include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the board of directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the board of directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the board of directors, shall be made pursuant to
timely notice in writing to the secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 2.2. Such stockholder's notice
shall set forth (i) as to each person, if any, whom the stockholder proposes to
nominate for election or re-election as a director: (A) the name, age, business
address and residence address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of the
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<PAGE> 3
corporation which are beneficially owned by such person, (D) a description of
all arrangements or understandings between the stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nominations are to be made by the stockholder, and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for elections of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a director if elected); and (ii) as to such
stockholder giving notice, the information required to be provided pursuant to
paragraph (b) of this Section 2.2. At the request of the board of directors, any
person nominated by a stockholder for election as a director shall furnish to
the secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrants, determine and declare at the
meeting that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if he should so determine, he shall so declare
at the meeting, and the defective nomination shall be disregarded.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by (i)
the chairman of the Board of Directors, (ii) the president, (iii) the chief
executive officer, (iv) the Board of Directors, or (v) the holders of shares
entitled to cast not less than forty percent (40%) of the votes at the meeting,
but such special meetings may not be called by any other person or persons.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the chief executive
officer, the president, or the secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
officer receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.5
and 2.6, that a meeting will be held at the time requested by the person or
persons who called the meeting, not less than ten (10) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after the receipt of the request, the person or persons requesting the
meeting may give the notice. Nothing contained in this paragraph of this Section
2.3 shall be construed as limiting, fixing, or affecting the time when a meeting
of stockholders called by action of the board of directors may be held.
2.4 ORGANIZATION
Meetings of stockholders shall be presided over by the chairman of the
board, if any, or in his absence by the vice chairman of the board, if any, or
in his absence by the chief executive officer, if any, or in his absence by the
president, if any, or in his absence a vice president, or in the absence of the
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<PAGE> 4
foregoing persons by a chairman designated by the board of directors, or in the
absence of such designation by a chairman chosen at the meeting. The secretary
shall act as secretary of the meeting, but in his absence the chairman of the
meeting may appoint any person to act as secretary of the meeting.
2.5 NOTICE OF STOCKHOLDERS' MEETINGS
Except as set forth in Section 2.3, all notices of meetings of
stockholders shall be sent or otherwise given in accordance with Section 2.6 of
these Bylaws not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify the place, date, and hour of the
meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted (no business other than that specified in the notice
may be transacted) or (ii) in the case of the annual meeting, those matters
which the board of directors, at the time of giving the notice, intends to
present for action by the stockholders (but any proper matter may be presented
at the meeting for such action). The notice of any meeting at which directors
are to be elected shall include the name of any nominee or nominees who, at the
time of the notice, the board intends to present for election.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that stockholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
The presence in person or by proxy of the holders of a majority the
voting power of the shares entitled to vote thereat constitutes a quorum for the
transaction of business at all meetings of stockholders; provided, however,
that in the case of any vote to be taken by classes, the holders of a majority
of the votes entitled to be cast by the stockholders of a particular class shall
constitute a quorum for the transaction of business by such class. The
stockholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum, if any action
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taken (other than adjournment) is approved by at least a majority of the voting
power of the shares required to constitute a quorum.
2.8 ADJOURNED MEETING; NOTICE
Any stockholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the majority of
the voting power of the shares represented at that meeting, either in person or
by proxy. In the absence of a quorum, no other business may be transacted at
that meeting except as provided in Section 2.7 of these Bylaws.
When any meeting of stockholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at the meeting at which the
adjournment is taken. However, if a new record date for the adjourned meeting is
fixed or if the adjournment is for more than thirty (30) days from the date set
for the original meeting, then notice of the adjourned meeting shall be given.
Notice of any such adjourned meeting shall be given to each stockholder of
record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 2.5 and 2.6 of these Bylaws. At any adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting.
2.9 VOTING
Voting at any meeting of stockholders need not be by ballot; provided,
however, that elections for directors shall be by written ballot, unless
otherwise provided for in the Certificate of Incorporation.
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.11 of these Bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Each stockholder shall be entitled to that number of votes for each
share held as it set forth in the Certificate of Incorporation of the
corporation, as amended or restated, or in the resolution or resolutions adopted
by the board of directors providing for the issuance of such stock, except as
may otherwise be required by law.
Any stockholder entitled to vote on any matter may vote part of the
shares in favor of the proposal and refrain from voting the remaining shares or,
except when the matter is the election of directors, may vote them against the
proposal; but if the stockholder fails to specify the number of shares which the
stockholder is voting affirmatively, it will be conclusively presumed that the
stockholder's approving vote is with respect to all shares which the stockholder
is entitled to vote.
If a quorum is present, the affirmative vote of the voting power of the
shares represented, in person or by proxy, and voting at a duly held meeting
(which shares voting affirmatively also
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constitute at least a majority of the voting power of the required quorum) shall
be the act of the stockholders, unless the vote of a greater number or a vote by
classes is required by law or by the Certificate of Incorporation.
2.10 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of stockholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though they had been taken at a meeting duly held after regular call and notice,
if a quorum be present either in person or by proxy, and if, either before or
after the meeting, each person entitled to vote, who was not present in person
or by proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of stockholders. All such waivers, consents,
and approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only stockholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date.
If the board of directors does not so fix a record date, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held. The record date for any other purpose shall be as provided in
Article VIII of these Bylaws.
2.12 PROXIES
Every person entitled to vote for Directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and
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filed with the secretary of the corporation, but no such proxy shall be voted or
acted upon after three (3) years from its date, unless the proxy provides for a
longer period. A proxy shall be deemed signed if the stockholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the stockholder or the stockholder's
attorney-in-fact. A duly executed proxy shall be irrevocable if it states that
it is irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A stockholder may revoke any
proxy which is not irrevocable by attending the meeting and voting in person or
by filing an instrument in writing revoking the proxy or another duly executed
proxy bearing a later date with the secretary of the corporation.
2.13 INSPECTORS OF ELECTION
Before any meeting of stockholders, the board of directors may appoint
an inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any stockholder or a stockholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The number
of inspectors shall be either one (1) or three (3). If inspectors are appointed
at a meeting pursuant to the request of one (1) or more stockholders or proxies,
then the holders of a majority of the voting power of shares or their proxies
present at the meeting shall determine whether one (1) or three (3) inspectors
are to be appointed. If any person appointed as inspector fails to appear or
fails or refuses to act, then the chairman of the meeting may, and upon the
request of any stockholder or a stockholder's proxy shall, appoint a person to
fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the
election or vote with fairness to all stockholders.
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ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and to any limitations in the Certificate of Incorporation or these Bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
3.2 NUMBER AND TERM OF OFFICE
The authorized number of directors shall be five (5). An indefinite
number of directors may be fixed, or the definite number of directors may be
changed, by a duly adopted amendment to the Certificate of Incorporation or by
an amendment to this bylaw adopted by the vote or written consent of holders of
a majority of the voting power of the outstanding shares entitled to vote or by
resolution of a majority of the board of directors.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
If for any cause, the directors shall not have been elected at an annual
meeting, they may be elected as soon thereafter as convenient at a special
meeting of the stockholders called for that purpose in the manner provided in
these Bylaws.
3.3 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the chief executive officer, the president, the secretary
or the board of directors, unless the notice specifies a later time for that
resignation to become effective. If the resignation of a director is effective
at a future time, the board of directors may elect a successor to take office
when the resignation becomes effective.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
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(i) Vacancies in the board of directors may be filled by a
majority of the remaining directors, even if less than a quorum, or by a sole
remaining director. Each director so elected shall hold office until the next
annual meeting of the stockholders and until a successor has been elected and
qualified.
(ii) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(iii) Whenever the holders of any class or classes of stock
or series thereof are entitled to elect one or more directors by the provisions
of the Certificate of Incorporation, vacancies and newly created directorships
of such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent (10%) of the total number of the then outstanding
shares having the right to vote for such directors, summarily order an election
to be held to fill any such vacancies or newly created directorships, or to
replace the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.4 REMOVAL
Subject to any limitations imposed by law, and unless otherwise
provided in the Certificate of Incorporation, the board of directors, or any
individual director, may be removed from office at any time by the affirmative
vote of the holders of at least a majority of the voting power of the then
outstanding shares of the capital stock of the corporation entitled to vote at
an election of directors.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
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Regular meetings of the board of directors may be held at any place
within or outside the State of Delaware that has been designated from time to
time by resolution of the board of directors. In the absence of such a
designation, regular meetings shall be held at the principal executive office of
the corporation. Special meetings of the board of directors may be held at any
place within or outside the State of Delaware that has been designated in the
notice of the meeting or, if not stated in the notice or if there is no notice,
at the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be
held at such time and place as shall be fixed by the vote of the stockholders at
the annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
if the times of such meetings are fixed by the board of directors.
3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the chief executive
officer, the president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least seven (7) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not
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specify the purpose or the place of the meeting, if the meeting is to be held at
the principal executive office of the corporation.
3.9 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.12 of these Bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
Certificate of Incorporation and applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.10 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.11 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
3.12 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not
be given if announced unless the meeting is adjourned for more than twenty-four
(24) hours. If the meeting is adjourned for more than twenty-four (24) hours,
then notice of the time and place of the adjourned meeting shall be given before
the adjourned meeting takes place, in the manner specified in Section 3.8 of
these Bylaws, to the directors who were not present at the time of the
adjournment.
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board of
directors individually or collectively consent in writing to that action. Such
action by written consent shall have the same force and effect as a
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unanimous vote of the board of directors. Such written consent and any
counterparts thereof shall be filed with the minutes of the proceedings of the
board.
3.14 ORGANIZATION
Meetings of the board of directors shall be presided over by the
chairman of the board, if any, or in his absence by the vice chairman of the
board, if any, or in his absence by the chief executive officer, or in his
absence, the president, or in their absence by a chairman chosen at the meeting.
The secretary shall act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
3.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.16 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board of
directors. The board of directors may designate one (1) or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. The appointment of members or alternate members of a
committee requires the
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vote of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, but no such committee shall have the power or authority to (i) amend
the Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the board of directors as provided in Section 151(a)
of the General Corporation Law of Delaware, fix any of the preferences or rights
of such shares relating to dividends, redemption, dissolution, any distribution
of assets of the corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the same
or any other class or classes of stock of the corporation), (ii) adopt an
agreement of merger or consolidation under Sections 251, 252, 255, 256, 257,
258, 263 or 264 of the General Corporation Law of Delaware, (iii) recommend to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, (iv) recommend to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or (v) amend
the Bylaws of the corporation; and, unless the board resolution establishing the
committee, the Bylaws or the Certificate of Incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these Bylaws, Section
3.5 (place of meetings), Section 3.7 (regular meetings), Section 3.8 (special
meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice),
Section 3.11 (adjournment), Section 3.12 (notice of adjournment), and Section
3.13 (action without meeting), with such changes in the context of those Bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these Bylaws.
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ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a chairman of the board, a
chief executive officer, a president, a secretary and a chief financial officer.
The corporation may also have, at the discretion of the board of directors, one
or more vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 5.3 of these Bylaws. Any number of offices may be
held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these Bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the chief executive
officer to appoint, such other officers as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these Bylaws or as the board of
directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Bylaws for regular appointments to that office.
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5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall serve
as the corporation's general manager, and shall have general supervision,
direction and control of the corporation's business and its officers, and, if
present, preside at meetings of the stockholders and the board of directors and
exercise and perform such other powers and duties as may from time to time be
assigned to him by the board of directors or as may be prescribed by these
Bylaws. If there is no chief executive officer, then the chairman of the board
shall also be the chief executive officer of the corporation and shall have the
powers and duties prescribed in Section 5.7 of these Bylaws. The chairman of the
board shall report to the board of directors.
5.7 CHIEF EXECUTIVE OFFICER
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the chief executive officer of the corporation shall, subject to the control of
the board of directors, have general supervision, direction, and control of the
business and the officers of the corporation. He shall preside at all meetings
of the stockholders and, in the absence or nonexistence of a chairman of the
board, at all meetings of the board of directors. He shall have the general
powers and duties of management usually vested in the chief executive officer of
a corporation, and shall have such other powers and duties as may be prescribed
by the board of directors or these Bylaws.
5.8 PRESIDENT
The president may assume and perform the duties of the chief executive
officer in the absence or disability of the chief executive officer or chairman
of the board or whenever the office of the chief executive officer or chairman
of the board is vacant. The president of the corporation shall exercise and
perform such powers and duties as may from time to time be assigned to him by
the board of directors or as may be prescribed by these Bylaws. The president
shall have authority to execute in the name of the corporation bonds, contracts,
deeds, leases and other written instruments to be executed by the corporation.
In the absence or nonexistence of the chairman of the board or chief executive
officer, he shall preside at all meetings of the stockholders and, in the
absence or nonexistence of a chairman of the board or the chief executive
officer, at all meetings of the board of directors and shall perform such other
duties as the board of directors may from time to time determine.
5.9 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these Bylaws,
the chairman of the board or the chief executive officer.
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5.10 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and stockholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these Bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these Bylaws.
5.11 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable times
be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the board of directors. He or she shall disburse the funds of
the corporation as may be ordered by the board of directors, shall render to the
chief executive officer and directors, whenever they request it, an account of
all of his or her transactions as chief financial officer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or these Bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS
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6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation; provided, however, that the corporation
may modify the extent of such indemnification by individual contracts with its
directors and executive officers and, provided, further, that the corporation
shall not be required to indemnify any director or officer in connection with
any proceeding (or part thereof) initiated by such person unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the board of directors of the corporation, (iii) such
indemnification is provided by the corporation, in its sole discretion, pursuant
to the powers vested in the corporation under the General Corporation Law of
Delaware or (iv) such indemnification is required to be made pursuant to an
individual contract. For purposes of this Section 6.1, a "director" or "officer"
of the corporation includes any person (i) who is or was a director or officer
of the corporation, (ii) who is or was serving at the request of the corporation
as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
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6.4 EXPENSES
The corporation shall advance to any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a director or officer, of the
corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, prior to the final disposition of the proceeding, promptly
following request therefor, all expenses incurred by any director or officer in
connection with such proceeding upon receipt of an undertaking by or on behalf
of such person to repay said amounts if it should be determined ultimately that
such person is not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 6.5, no advance shall be made by the corporation to an officer of the
corporation (except by reason of the fact that such officer is or was a director
of the corporation in which event this paragraph shall not apply) in any action,
suit or proceeding, whether civil, criminal, administrative or investigative, if
a determination is reasonably and promptly made (i) by the board of directors by
a majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the corporation
6.5 NON-EXCLUSIVITY OF RIGHTS
The rights conferred on any person by this Bylaw shall not be exclusive
of any other right which such person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding office.
The corporation is specifically authorized to enter into individual contracts
with any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
General Corporation Law of Delaware.
6.6 SURVIVAL OF RIGHTS
The rights conferred on any person by this Bylaw shall continue as to a
person who has ceased to be a director, officer, employee or other agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
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6.7 AMENDMENTS
Any repeal or modification of this Bylaw shall only be prospective and
shall not affect the rights under this Bylaw in effect at the time of the
alleged occurrence of any action or omission to act that is the cause of any
proceeding against any agent of the corporation.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position
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as a director. The Court of Chancery is hereby vested with the exclusive
jurisdiction to determine whether a director is entitled to the inspection
sought. The Court may summarily order the corporation to permit the director to
inspect any and all books and records, the stock ledger, and the stock list and
to make copies or extracts therefrom. The Court may, in its discretion,
prescribe any limitations or conditions with reference to the inspection, or
award such other and further relief as the Court may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the chief executive officer, the president,
any vice president, the chief financial officer, the secretary or assistant
secretary of this corporation, or any other person authorized by the board of
directors or the chief executive officer or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority herein granted may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any other lawful
action (other than action by stockholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
stockholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
If the board of directors does not so fix a record date, then the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board adopts the applicable resolution
or the sixtieth (60th) day before the date of that action, whichever is later.
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<PAGE> 21
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by, the chairman or vice-chairman
of the board of directors, or the chief executive officer or the president or
vice-president, and by the chief financial officer, the secretary or an
assistant secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he or
she were such officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
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<PAGE> 22
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the 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 shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the 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.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board of directors may require;
the board of directors may require indemnification of the corporation secured by
a bond or other adequate security sufficient to protect the corporation against
any claim that may be made against it, including any expense or liability, on
account of the alleged loss, theft or destruction of the certificate or the
issuance of the replacement certificate.
8.7 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of Delaware shall
govern the construction of these Bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
ARTICLE IX
AMENDMENTS
Subject to Section 6.7 hereof, the Bylaws of the corporation may be
adopted, amended or repealed and new Bylaws adopted by the affirmative vote of
stockholders holding a majority of the voting power of stock entitled to vote or
by the board of directors.
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ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of
directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the voting power of the outstanding stock of the
corporation entitled to vote thereon votes for the proposed dissolution, then a
certificate stating that the dissolution has been authorized in accordance with
the provisions of Section 275 of the General Corporation Law of Delaware and
setting forth the names and residences of the directors and officers shall be
executed, acknowledged, and filed and shall become effective in accordance with
Section 103 of the General Corporation Law of Delaware. Upon such certificate's
becoming effective in accordance with Section 103 of the General Corporation Law
of Delaware, the corporation shall be dissolved.
Whenever stockholders holding a majority of the voting power of stock
entitled to vote on a dissolution consent in writing, either in person or by
duly authorized attorney, to a dissolution, no meeting of directors or
stockholders shall be necessary. The consent shall be filed and shall become
effective in accordance with Section 103 of the General Corporation Law of
Delaware. Upon such consent's becoming effective in accordance with Section 103
of the General Corporation Law of Delaware, the corporation shall be dissolved.
If the consent is signed by an attorney, then the original power of attorney or
a photocopy thereof shall be attached to and filed with the consent. The consent
filed with the Secretary of State shall have attached to it the affidavit of the
secretary or some other officer of the corporation stating that the consent has
been signed by or on behalf of all the stockholders entitled to vote on a
dissolution; in addition, there shall be attached to the consent a certification
by the secretary or some other officer of the corporation setting forth the
names and residences of the directors and officers of the corporation.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
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(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation that the required
vote for action by the board of directors cannot be obtained and the
stockholders are unable to terminate this division; or
(iii) the corporation has abandoned its business and has
failed within a reasonable time to take steps to dissolve, liquidate or
distribute its assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
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<PAGE> 25
BYLAWS
OF
PROBUSINESS SERVICES, INC.
(A DELAWARE CORPORATION)
<PAGE> 26
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
CORPORATE OFFICES......................................................... 1
1.1 REGISTERED OFFICE................................................ 1
1.2 OTHER OFFICES.................................................... 1
ARTICLE II
MEETINGS OF STOCKHOLDERS.................................................. 1
2.1 PLACE OF MEETINGS................................................ 1
2.2 ANNUAL MEETING................................................... 1
2.3 SPECIAL MEETING.................................................. 3
2.5 NOTICE OF STOCKHOLDERS' MEETINGS................................. 4
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE..................... 4
2.7 QUORUM........................................................... 4
2.8 ADJOURNED MEETING; NOTICE........................................ 4
2.9 VOTING........................................................... 5
2.10 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT................ 5
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS...... 6
2.12 PROXIES.......................................................... 6
2.13 INSPECTORS OF ELECTION........................................... 7
ARTICLE III
DIRECTORS................................................................. 8
3.1 POWERS........................................................... 8
3.2 NUMBER AND TERM OF OFFICE........................................ 8
3.3 RESIGNATION AND VACANCIES........................................ 8
3.4 REMOVAL.......................................................... 9
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE......................... 9
3.6 FIRST MEETINGS................................................... 10
3.7 REGULAR MEETINGS................................................. 10
3.8 SPECIAL MEETINGS; NOTICE......................................... 10
</TABLE>
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<PAGE> 27
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
3.9 QUORUM........................................................ 10
3.10 WAIVER OF NOTICE.............................................. 11
3.11 ADJOURNMENT................................................... 11
3.12 NOTICE OF ADJOURNMENT......................................... 11
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING............. 11
3.14 ORGANIZATION.................................................. 11
3.15 FEES AND COMPENSATION OF DIRECTORS............................ 11
3.16 APPROVAL OF LOANS TO OFFICERS................................. 12
ARTICLE IV
COMMITTEES............................................................. 12
4.1 COMMITTEES OF DIRECTORS....................................... 12
4.2 MEETINGS AND ACTION OF COMMITTEES............................. 13
ARTICLE V
OFFICERS............................................................... 14
5.1 OFFICERS...................................................... 14
5.2 ELECTION OF OFFICERS.......................................... 14
5.3 SUBORDINATE OFFICERS.......................................... 14
5.4 REMOVAL AND RESIGNATION OF OFFICERS........................... 14
5.5 VACANCIES IN OFFICES.......................................... 14
5.6 CHAIRMAN OF THE BOARD......................................... 15
5.7 CHIEF EXECUTIVE OFFICER....................................... 15
5.9 VICE PRESIDENTS............................................... 15
5.10 SECRETARY..................................................... 16
5.11 CHIEF FINANCIAL OFFICER....................................... 16
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS..... 16
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS..................... 16
6.2 INDEMNIFICATION OF OTHERS..................................... 17
6.3 INSURANCE..................................................... 17
6.4 EXPENSES...................................................... 18
6.5 NONEXCLUSIVITY OF RIGHTS...................................... 18
6.6 SURVIVAL OF RIGHTS............................................ 18
</TABLE>
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<PAGE> 28
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
6.7 AMENDMENTS.................................................... 19
ARTICLE VII
RECORDS AND REPORTS.................................................... 19
7.1 MAINTENANCE AND INSPECTION OF RECORDS......................... 19
7.2 INSPECTION BY DIRECTORS....................................... 19
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.............................. 20
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS................ 20
ARTICLE VIII
GENERAL MATTERS........................................................ 20
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING......... 20
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS..................... 21
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED............ 21
8.4 STOCK CERTIFICATES; PARTLY PAID SHARES........................ 21
8.5 SPECIAL DESIGNATION ON CERTIFICATES........................... 22
8.6 LOST CERTIFICATES............................................. 22
8.7 CONSTRUCTION; DEFINITIONS..................................... 22
ARTICLE IX
AMENDMENTS............................................................. 22
ARTICLE X
DISSOLUTION............................................................ 23
ARTICLE XI
CUSTODIAN.............................................................. 23
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES................... 23
11.2 DUTIES OF CUSTODIAN........................................... 24
</TABLE>
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<PAGE> 1
EXHIBIT 4.2
PROBUSINESS, INC.
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"Agreement") is made as of this 12th day of March, 1997, by and among
ProBusiness, Inc., a California corporation (the "Company"), General Atlantic
Partners 39, L.P. ("GAP L.P.") and GAP Coinvestment Partners, L.P. ("GAP
Coinvestment") (collectively, the "Purchasers"), and the Holders (as defined in
the Registration Rights Agreement, dated December 1, 1989, as amended, between
the Company and the Original Holders) (the "Original Holders").
RECITALS
A. The Company and the Original Holders entered into the Original
Agreement which provided the Original Holders with certain registration rights
on the Common Stock issued or issuable to such Original Holders upon conversion
of Preferred Stock or warrants to purchase Preferred Stock of the Company held
by such Original Holders.
B. In connection with the purchase and sale of the Company's
Series F Preferred Stock to the Purchasers pursuant to the Series F Preferred
Stock Purchase Agreement (the "Stock Purchase Agreement") dated the date hereof
between the Company and the Purchasers, the Company and the Purchasers desire
to provide for certain registration rights on the Common Stock issuable to the
Purchasers upon conversion of the Series F Preferred Stock issued to them under
the Stock Purchase Agreement.
C. Pursuant to Section 2.4 of the Original Agreement, the
Original Agreement can be amended by a writing signed by the Company and the
Original Holders of a majority of the Registerable Securities (as defined in
the Original Agreement).
D. The Company, the Purchasers and the Original Holders of a
majority of the Registerable Securities (as defined in the Original Agreement)
wish to amend and restate the Original Agreement.
In consideration of the mutual covenants set forth herein, the parties
hereby agree to amend and restate the Original Agreement as follows:
1. Restrictions on Transferability of Securities; Compliance with
Securities Act.
1.1 Restrictions on Transferability. The Registrable
Securities (as defined herein) shall not be transferable except upon the
conditions specified in this Section 1, which conditions are
<PAGE> 2
intended to ensure compliance with the provisions of the Securities Act. Each
Holder (as defined herein) will cause any proposed transferee of the
Registrable Securities held by a Holder to agree to take and hold such
securities subject to the provisions and upon the conditions specified in this
Section 1.
1.2 Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
"Affiliate" shall mean, with respect to any Person,
any other Person who controls, is controlled by or is under common control with
such Person. In addition, the following shall be deemed to be Affiliates of
GAP L.P.: (a) General Atlantic Partners, L.L.C. ("GAP LLC"), the members of GAP
LLC and the limited partners of GAP L.P.; (b) any Affiliate of GAP LLC, the
members of GAP LLC and the limited partners of GAP L.P.; and (c) any limited
liability company or partnership a majority of whose members or partners, as
the case may be, are members of GAP LLC. In addition, GAP L.P. and GAP
Coinvestment shall be deemed to be Affiliates of one another.
"Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
"Holder" shall mean (i) the Purchasers; (ii) the
holders of Series A, Series B, Series C, Series D and Series E Preferred Stock
or warrants to purchase Series E Preferred Stock except for Silicon Valley Bank
and Coast Business Credit; (iii) any transferee under Section 1.15 hereof; or
(iv) any person made a party to this Agreement pursuant to Section 2.6 hereof,
as long as the aforementioned hold outstanding Registrable Securities or
Registrable Securities that have not been transferred without complying with
Section 1.15 hereof or of the Original Agreement, or have not been sold to the
public.
"Initial Public Offering" shall have the meaning as set
forth in Section 1.11.2.
"Person" means any individual, firm, corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, limited liability company, governmental authority or other
entity of any kind, and shall include any successor (by merger or otherwise) of
such entity.
"Registrable Securities" means (i) shares of the
Company's Common Stock issued or issuable pursuant to the conversion of the
Company's Preferred Stock and (ii) any Common Stock of the Company issued or
issuable in respect of the shares of the Company's Common Stock or other
securities issued or issuable pursuant to the conversion of the Company's
Preferred Stock, upon any stock split, stock dividend, recapitalization, or
similar event; provided, however, Registerable Securities shall not include any
such shares that were transferred by a Holder to a transferee that did not
comply with Section 1.15 hereof or of the Original Agreement.
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<PAGE> 3
The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or
ordering of the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses
incurred in complying with Sections 1.5, 1.6 and 1.7 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company).
"Restricted Securities" shall mean the securities of
the Company required to bear the legend set forth in Section 1.3 hereof (or any
similar legend).
"Securities Act" shall mean the Securities Act of
1933, as amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting
discounts, selling commissions and stock transfer taxes applicable to the
securities registered by the Holders and all fees and disbursements of counsel
for any Holder.
1.3 Restrictive Legend. Each certificate representing
shares of Registrable Securities shall (unless otherwise permitted by the
provisions of Section 1.4 below) be stamped or otherwise imprinted with a
legend in the following form (in addition to any legend required under
applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE SALE OR DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SAID ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF
THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT
NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION."
1.4 Notice of Proposed Transfers. The Holder of each
certificate representing Restricted Securities by acceptance thereof agrees to
comply in all respects with the provisions of this
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Section 1.4. Prior to any proposed transfer of any Restricted Securities,
unless there is in effect a registration statement under the Securities Act
covering the proposed transfer, the Holder thereof shall give written notice to
the Company of such Holder's intention to effect such transfer. Each such
notice shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall, if the Company so requests, be accompanied
(except in transactions in compliance with Rule 144) by either (i) an
unqualified written opinion of legal counsel who shall be reasonably
satisfactory to the Company addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the Holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the Holder to the
Company; provided, however, that no opinion or no action letter need be
obtained with respect to a transfer to (A) a partner, active or retired, of a
Holder, (B) the estate of any such partner, or (C) an Affiliate of a Purchaser,
if the transferee agrees to be subject to the terms hereof. Each certificate
evidencing the Restricted Securities transferred as above provided shall bear
the appropriate restrictive legend set forth in Section 1.3 above, except that
such certificate shall not bear such restrictive legend if in the opinion of
counsel for the Company such legend is not required in order to establish
compliance with any provisions of the Securities Act.
1.5 Requested Registration.
1.5.1 Request for Registration. In case the
Company shall receive from any Holder or Holders of greater than fifty percent
(50%) of the Registrable Securities then outstanding a written request that the
Company effect any registration, qualification or compliance with respect to
thirty percent (30%) or more of the Registrable Securities, or with respect to
a lesser number of shares of Registrable Securities if the reasonably
anticipated aggregate sales price to the public of the shares proposed to be
sold, net of underwriting discounts and commissions, exceeds $7,000,000, the
Company will:
(i) promptly give written notice of the
proposed registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its
diligent efforts to effect such registration, qualification or compliance
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under applicable blue sky
or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request received by the Company within twenty
(20) days after receipt of such written notice from the
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<PAGE> 5
Company; provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 1.5.1:
(A) In any particular jurisdiction
in which the Company would be required to execute a general consent to service
of process in effecting such registration, qualification or compliance, unless
the Company is already subject to service in such jurisdiction and except as
may be required by the Securities Act, Blue Sky or other state securities laws;
(B) After the Company has effected
two such registrations pursuant to this subparagraph 1.5.1, such registrations
have been declared or ordered effective and the securities offered pursuant to
such registrations have been sold;
(C) During the period starting with
the date sixty (60) days prior to the Company's estimated date of filing of,
and ending on the date one hundred eighty (180) days immediately following the
effective date of, any registration statement pertaining to securities of the
Company (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;
(D) If the Company shall furnish to
such Holders a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its shareholders for a registration statement to
be filed in the near future, then the Company's obligation to use its best
efforts to register, qualify or comply under this Section 1.5.1 shall be
deferred for a period not to exceed 180 days from the date of receipt of
written request from the Holders referred to in Section 1.5.1 above; or
(E) If the Company and the Holders
are unable to obtain the commitment of the underwriter selected by the Holders
(subject to the consent of the Company, which shall not be unreasonably
withheld) to firmly underwrite the offer.
Subject to the foregoing clauses (A) through (E), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable, after receipt of the request or
requests of the Holder or Holders.
1.5.2 Purchasers' Request for Registration. In case
the Company shall receive from any Purchaser or Purchasers holding Registerable
Securities then outstanding a written request that the Company effect any
registration, qualification or compliance with respect to Registrable
Securities with a reasonably anticipated aggregate sales price to the public of
shares proposed to be sold, net of underwriting discounts and commissions,
exceeding $7,000,000, the Company will:
(i) promptly give written notice of the
proposed registration, qualification or compliance to all other Holders; and
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<PAGE> 6
(ii) as soon as practicable, use its
diligent efforts to effect such registration, qualification or compliance
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under applicable blue sky
or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request received by the Company within twenty
(20) days after receipt of such written notice from the Company;
Provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 1.5.2:
(A) In any particular jurisdiction
in which the Company would be required to execute a general consent to service
of process in effecting such registration, qualification or compliance, unless
the Company is already subject to service in such jurisdiction and except as
may be required by the Securities Act, Blue Sky or other state securities laws;
(B) Prior to two (2) years after
an Initial Public Offering of the Company;
(C) After the Company has effected
one (1) such registration pursuant to this subparagraph 1.5.2, such
registration has been declared or ordered effective and the securities offered
pursuant to such registration have been sold;
(D) During the period starting with
the date sixty (60) days prior to the Company's estimated date of filing of,
and ending on the date one hundred eighty (180) days immediately following the
effective date of any registration statement pertaining to securities of the
Company (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;
(E) If the Company shall furnish to
Purchasers a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its shareholders for a registration statement to
be filed in the near future, then the Company's obligation to use its best
efforts to register, qualify or comply under this Section 1.5.2 shall be
deferred for a period not to exceed 180 days from the date of receipt of
written request from Purchasers; or
(F) If the Company and the
Purchasers are unable to obtain the commitment of the underwriter selected by
Purchasers (subject to the consent of the Company, which shall not be
unreasonably withheld) to firmly underwrite the offer.
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<PAGE> 7
Subject to the foregoing clauses (A) through (F), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable, after receipt of the request of the
Purchasers.
1.5.3 Underwriting. In the event a registration
pursuant to Section 1.5 is for a registered public offering involving an
underwriting, the Company shall so advise the Holders in the written notice
referred to in Sections 1.5.1(i) and 1.5.2(i). The right of any Holder to
registration pursuant to Section 1.5 shall be conditioned upon such Holder's
participation in such underwriting, and the inclusion of such Holder's
Registrable Securities in the underwriting shall be limited to the extent
provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting
agreement in customary form with the managing underwriter selected for such
underwriting by (i) a majority in interest of the Holders (subject to the
consent of the Company which shall not be unreasonably withheld) in connection
with a registration pursuant to Section 1.5.1, or (ii) the Purchasers (subject
to the consent of the Company which shall not be unreasonably withheld) in
connection with a registration pursuant to Section 1.5.2. Notwithstanding any
other provision of this Section 1.5, if the managing underwriter advises the
Holders or Purchasers, as the case may be, initiating the registration in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then, subject to the provisions of Sections 1.5.1 and 1.5.2,
the Company shall so advise all Holders and the number of shares that may be
included in the registration and underwriting shall be allocated (i) in the
case of a registration pursuant to Section 1.5.1, among all Holders thereof in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement and (ii) in the case of a registration pursuant to Section 1.5.2, (A)
first among the Purchasers in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Purchasers at the
time of filing the registration statement and (B) second to the extent
available, to any Holder other than a Purchaser in proportion, as nearly as
practicable, to the respective amounts of Registerable Securities held by such
Holders at the time of filing the registration statement. No Registrable
Securities excluded from the underwriting by reason of the managing
underwriter's marketing limitation shall be included in such registration. To
facilitate the allocation of shares in accordance with the above provisions,
the Company may round the number of shares allocated to any Holder or holder to
the nearest 100 shares.
If any Holder disapproves of the terms of the underwriting, such
person may elect to withdraw therefrom by written notice to the Company, the
managing underwriter and the other Holders. The Registrable Securities and/or
other securities so withdrawn shall also be withdrawn from registration;
provided, however, that, if by the withdrawal of such Registrable Securities a
greater number of Registrable Securities held by other Holders may be included
in such registration (up to the maximum of any limitation imposed by the
underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section 1.5.3. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from
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<PAGE> 8
such registration, and shall not be transferred in a public distribution prior
to one hundred eighty (180) days after the effective date of the registration
statement relating thereto, or such other shorter period of time as the
underwriters may require; provided however, with respect to any Purchaser, for
any registration after the date two years after an Initial Public Offering of
the Company, such Purchaser shall only be subject to the transfer restrictions
contained in this Section 1.5.3 if they register shares in such registration.
1.6 Company Registration.
1.6.1 Notice of Registration. If at any time after
the completion of the Company's initial public offering the Company shall
determine to register any of its securities, either for its own account or the
account of a security holder or holders exercising their respective demand
registration rights, other than (i) a registration relating solely to employee
benefit plans, or (ii) a registration relating solely to a Commission Rule 145
transaction, the Company will:
(i) promptly give to each Holder written
notice thereof; and
(ii) include in such registration (and
any related qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within 20 days after receipt of such written
notice from the Company, by any Holder or Holders, or by any other holders of
the securities granted registration rights by the Company.
1.6.2 Underwriting. In the event the Company gives
notice of a registered public offering pursuant to Section 1.6 involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Section 1.6.1. In such event the right of any Holder
to registration pursuant to Section 1.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting shall be subject to the limitations
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 1.6, if the underwriter determines that marketing
factors require a limitation of the number of shares to be underwritten, the
managing underwriter may limit the number of securities to be included in the
secondary portion of such registration. The Company shall so advise all
Holders and the other holders distributing their securities through such
underwriting, and the number of shares of Registrable Securities and other
securities that may be included in the registration and underwriting shall be
allocated among all holders thereof in proportion, as nearly as practicable, to
the respective amounts of securities entitled to inclusion in such registration
held by all such holders at the time of filing the registration statement. To
facilitate the allocation of shares in accordance with the above provisions,
the Company may round the number of shares allocated to any Holder or holder to
the nearest 100 shares. If any Holder or holder disapproves of the terms of
any such underwriting, he may elect to withdraw therefrom by written notice to
the Company and the managing underwriter. Any securities excluded or withdrawn
from such underwriting shall be
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<PAGE> 9
withdrawn from such registration, and shall not be transferred in a public
distribution prior to one hundred eighty (180) days after the effective date of
the registration statement relating thereto, or such other shorter period of
time as the underwriters may require; provided however, with respect to any
Purchaser, for any registration after the date two years after an Initial
Public Offering of the Company, such Purchaser shall only be subject to the
transfer restrictions contained in this Section 1.6.2 if they register shares
in such registration.
1.6.3 Right to Terminate Registration. The Company
shall have the right to terminate or withdraw any registration initiated by it
under this Section 1.6 prior to the effectiveness of such registration whether
or not any Holder or holder has elected to include securities in such
registration.
1.7 Registration on Form S-3.
1.7.1 If any Holder or Holders request that the
Company file a registration statement on Form S-3 (or any successor form to
Form S-3) for a public offering of shares of Registrable Securities the
reasonably anticipated aggregate price to the public of which would exceed
$1,500,000 and the Company is entitled to use Form S-3 to register the
Registrable Securities for such an offering, the Company shall use its best
efforts to cause such Registrable Securities to be registered for the offering
on such form and to cause such Registrable Securities to be qualified in such
jurisdictions as the Holder or Holders may reasonably request; provided,
however, that the Company shall not be required to effect more than one
registration pursuant to this Section 1.7 in any twelve (12) month period or in
excess of two registrations under this Section 1.7.
1.7.2 Notwithstanding the foregoing, the Company
shall not be obligated to take any action pursuant to this Section 1.7: (i) in
any particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act, Blue Sky
or other state securities laws; (ii) during the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and ending
on the date six (6) months immediately following the effective date of, any
registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective; or (iii) if the Company shall furnish to such Holder a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors it would be seriously detrimental to the Company or
its shareholders for registration statements to be filed in the near future, in
which event the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed one hundred
eighty (180) days from the receipt of the request to file such registration by
such Holder.
1.8 Expenses of Registration. All Registration Expenses
incurred in connection with two registrations, qualifications or compliance
pursuant to Section 1.5.1 or pursuant to Sections 1.6 and 1.7, shall be borne
by the Company. Registration Expenses incurred in connection
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<PAGE> 10
with a registration, qualification or compliance pursuant to Section 1.5.2
shall be borne by the Purchasers unless either (i) the Company registers shares
for its own account or (ii) Holders (other than the Purchasers) holding greater
than 20% of the Registerable Securities register shares in connection with such
registration, qualification or compliance, in which case the Company shall bear
all Registration Expenses associated with the registration, qualification or
compliance. Unless otherwise stated, all Selling Expenses relating to
securities registered by the Holders shall be borne by the Holders of such
securities pro rata on the basis of the number of shares so registered.
1.9 Registration Procedures. In the case of each
registration, qualification or compliance effected by the Company pursuant to
this Section 1, the Company will keep each Holder advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof. At its expense the Company will:
1.9.1 Keep such registration,
qualification or compliance effective for a period of one hundred twenty (120)
days or until the Holder or Holders have completed the distribution described
in the registration statement relating thereto, whichever first occurs; and
1.9.2 Furnish such number of prospectuses
and other documents incident thereto as a Holder from time to time may
reasonably request.
1.10 Termination of Registration Rights. The registration
rights granted pursuant to this Section 1 shall terminate as to each Holder at
such time as all Registrable Securities acquired by such Holder pursuant to
this Agreement can be sold within a given three-month period without compliance
with the registration requirements of the Securities Act pursuant to Rule 144
or other applicable exemption supported by a written opinion of legal counsel
for the Company which shall be reasonably satisfactory in form and substance to
legal counsel for such Holder.
1.11 Lock-up Agreement.
1.11.1 In consideration for the Company agreeing to
its obligations under this Section 1, each Holder, other than a Purchaser, and
each transferee of any such Holder pursuant to Section 1.15 hereof agrees (but
only if each officer, director, shareholder owning beneficially ten percent
(10%) or more of the Company's equity securities, and each shareholder selling
shares in such offering also agrees), in connection with any registration of
the Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
or other securities of the Company (other than those included in the
registration) without the prior written consent of the underwriters, for one
hundred eighty (180) days from the date of the final prospectus related to the
offering. The Company may impose stop-transfer instructions with respect to
such securities subject to the foregoing restriction until the end of said
period.
1.11.2 In consideration for the Company agreeing to
its obligations under this Section 1, each Purchaser and each transferee of
such Purchaser pursuant to Section 1.15 hereof agrees (but only if each
officer, director, shareholder owning beneficially ten percent (10%) or more
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<PAGE> 11
of the Company's equity securities, and each shareholder selling shares in such
offering also agrees), in connection with the first registration (an "Initial
Public Offering") of the Company's securities for its own account to be offered
to the general public (other than a registration relating to a Rule 145
transaction or with respect to an employee benefit plan) and in connection with
any subsequent registration of the Company's securities that occurs within the
two-year period after the closing of an Initial Public Offering, not to sell,
make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Securities or other securities of the
Company (other than those included in the registration) without the prior
written consent of the underwriters, for one hundred eighty (180) days from the
date of the final prospectus related to the offering. The Company may impose
stop-transfer instructions with respect to such securities subject to the
foregoing restriction until the end of said period.
1.12 Indemnification.
1.12.1 The Company will indemnify each Holder, each
of its officers, directors and partners, such Holder's legal counsel and
independent accountants, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Section 1, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading, or any violation by the Company of the Securities Act or
of any rule or regulation promulgated under the Securities Act applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers, directors and partners, each
person controlling such Holder, and each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder or underwriter and stated to be specifically for
use therein.
1.12.2 Each Holder will, if Registrable Securities
held by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, its legal counsel and independent
accountants, each underwriter, if any, of the Company's securities covered by
such a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of such Holder's officers and directors and each person
controlling such Holder within the meaning of
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<PAGE> 12
Section 15 of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse the Company, such Holders, such directors,
officers, persons, underwriters and control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided, however, that the obligations of such Holders hereunder shall be
limited to an amount equal to the proceeds to each such Holder of Registrable
Securities sold as contemplated herein, unless such liability arises out of or
is based upon willful conduct of such Holder.
1.12.3 Each party entitled to indemnification under
this Section 1.12 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld), and the Indemnified Party may participate in
such defense at such party's expense, and provided further that the failure of
any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless the failure
to give such notice is materially prejudicial to an Indemnifying Party's
ability to defend such action and provided further, that the Indemnifying Party
shall not assume the defense for matters as to which there is a conflict of
interest or separate and different defenses. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
1.13 Information by Holder. The Holder or Holders of
Registrable Securities included in any registration shall furnish to the
Company such information regarding such Holder or Holders, the Registrable
Securities held by them and the distribution proposed by such Holder or Holders
as the Company may request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this Section
1.
1.14 Rule 144 Reporting. With a view to making available
the benefits of certain rules and regulations of the Commission which may at
any time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use its best efforts to:
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<PAGE> 13
1.14.1 Make and keep public information available,
as those terms are understood and defined in Rule 144 under the Securities Act,
at all times after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to the
general public;
1.14.2 Use its best efforts then to file with the
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (at any time after it has become subject to such
reporting requirements);
1.14.3 So long as a Holder owns any Restricted
Securities, to furnish to the Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of said
Rule 144 (at any time after ninety (90) days after the effective date of an
Initial Public Offering) and of the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), a copy of the
most recent annual or quarterly report of the Company, and such other reports
and documents of the Company as a Holder may reasonably request in availing
itself of any rule or regulation of the Commission allowing a Holder to sell
any such securities without registration.
1.15 Transfer of Registration Rights. The rights to cause
the Company to register securities granted Holders under Sections 1.5, 1.6 and
1.7 may be assigned to a transferee or assignee in connection with transfer or
assignment of not less than twenty percent (20%) of the Restricted Securities
originally acquired by a Holder pursuant to this Agreement, provided that (i)
the Company is given written notice of such assignment at least thirty (30)
days prior to such assignment, and (ii) such proposed transferee or assignee is
acceptable to the Company, which acceptance shall not be unreasonably withheld.
In addition, rights to cause the Company to register securities may be freely
assigned to any constituent partner of a Holder, where such Holder is a
partnership, or to any parent or subsidiary corporation or any officer,
director or principal shareholder thereof, where such Holder is a corporation,
or to any Affiliate of a Holder. For the purposes of this Section 1.15, all
shares of Restricted Securities transferred to former partners or Affiliates of
any Holder that is an institutional investor may be aggregated in meeting any
minimum number of shares required to be held by such Holder, or partners,
former partners or Affiliates thereof.
2. Miscellaneous.
2.1 No Inconsistent Agreements. The Company shall not,
after the date hereof, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement
or grant any additional registration rights to any Person or with respect to
any securities which are not Registrable Securities which are prior in right to
or inconsistent with the rights granted in this Agreement, except as provided
in Section 2.6.
2.2 Remedies. The Holders, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, shall be
entitled to specific performance of their rights under this Agreement. The
Company agrees that monetary damages would not be adequate
-13-
<PAGE> 14
compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive in any action for
specific performance the defense that a remedy at law would be adequate.
2.3 Governing Law. This Agreement shall be governed in
all respects by and construed in all respects in accordance with the laws of
the State of California.
2.4 Successors and Assigns. Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, assigns, heirs, transferees, executors and
administrators of the parties hereto. 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. The Company shall use commercially reasonable efforts to
attempt to cause its successors or assigns (whether by merger, consolidation or
otherwise) to enter into a new registration rights agreement with the Holders
on terms substantially similar to this Agreement as a condition of such
transaction.
2.5 Entire Agreement. This Agreement constitutes the
full and entire understanding and agreement between the parties with regard to
registration rights and shall supersede all previous registration rights
contained in any agreement(s) previously entered into between the parties
hereto.
2.6 Amendment and Waiver. This Agreement, or any
provision hereof, may be amended or waived only in writing signed by (i) the
Company, (ii) each Purchaser and (iii) Holders of a majority of the Registrable
Securities, and any amendment or waiver so approved shall be binding upon all
Holders (including any transferee of Registerable Securities); provided,
however, that during any twelve-month period, the Company may, upon approval by
the Board of Directors of the Company, at any time and from time to time, amend
this Agreement, without the consent of the Purchasers and the Holders of a
majority of the Registrable Securities, to add as parties to and Holders under
this Agreement any holders of the Company's Registrable Securities as long as
(i) the number of securities held by such holders, in the aggregate does not
exceed one percent (1%) of the Company's outstanding capital stock and (ii)
such new Holder shall be granted identical rights provided to the Holders that
are not Purchasers. Outstanding capital stock of the Company shall be
calculated as if all of the Company's outstanding convertible securities
(including preferred stock, options and warrants) had been exercised or
converted into Common Stock.
2.7 Delays or Omissions. No delay or omission to
exercise any right, power or remedy accruing to the Company or to any Holder
upon any breach or default of any party hereto under this Agreement shall
impair any such right, power or remedy of the Company or such Holder nor shall
it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of the
Company or any Holder of any breach or default under this Agreement or any
waiver on the part of the Company or
-14-
<PAGE> 15
any Holder of any provisions or conditions of this Agreement must be in writing
and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to the Company or any Holder, shall be cumulative and not alternative.
2.8 Notices, etc. All notices and other communications
required or permitted under this Agreement shall be in writing and shall be
mailed by registered or certified mail, postage prepaid, or otherwise delivered
by hand or by messenger, addressed (a) if to a Holder or any other holder of
any Registrable Securities, at such address as such Holder or holder shall have
furnished the Company in writing, or, until any such Holder or holder so
furnishes an address to the Company, then to and at the address of the last
Holder or holder who has so furnished an address to the Company, (b) if to the
Company, at the address of its principal executive officers and addressed to
the attention of the Corporate Secretary, or at such other address as the
Company shall have furnished to the Holder and (c) if to a Purchaser, at the
address set forth in the Stock Purchase Agreement (including a copy to counsel
as indicated therein).
2.9 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
2.10 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
2.11 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
PROBUSINESS CENTERS, INC.
By:
-----------------------
Thomas H. Sinton
President and Chief Executive Officer
<PAGE> 17
PROBUSINESS, INC.
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
PURCHASERS' SIGNATURE PAGE
GENERAL ATLANTIC PARTNERS, 39, L.P.
GAP COINVESTMENT PARTNERS, L.P.
General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
- ---------------------------------------------------
(Printed Name of Purchaser)
- ---------------------------------------------------
(Signature)
- ---------------------------------------------------
(Title, if Applicable)
-17-
<PAGE> 18
PROBUSINESS, INC.
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
ORIGINAL HOLDERS' SIGNATURE PAGE
---------------------------
(Printed Name of Holder)
---------------------------
(Signature)
---------------------------
(Title, if Applicable)
-18-
<PAGE> 1
EXHIBIT 4.3
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
CORPORATION: PROBUSINESS CENTERS, INC, A CALIFORNIA CORPORATION
NUMBER OF SHARES: 9,446
CLASS OF STOCK: SERIES E PREFERRED
INITIAL EXERCISE PRICE: $7.94 PER SHARE
ISSUE DATE: JANUARY 13, 1995
EXPIRATION DATE: JANUARY 13, 2000
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth of this Warrant.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant Section 1.4.
1.3 INTENTIONALLY OMITTED.
1.4 Fair Market Value. If the Shares are traded in a public
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day
1
<PAGE> 2
immediately before Holder delivers its Notice of Exercise to the Company. If the
Shares are not traded in a public market, the Board of Directors of the Company
shall determine fair market value in its reasonable good faith judgment. The
foregoing notwithstanding, if Holder advises the Board of Directors in writing
that Holder disagrees with such determination, then the Company and Holder shall
promptly agree upon a reputable investment banking firm to undertake such
valuation. If the valuation of such investment banking firm is greater than that
determined by the Board of Directors, then all fees and expenses of such
investment banking firm shall be paid by the Company. In all other
circumstances, such fees and expenses shall be paid by Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after
Holder exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the
Company.
1.7.1. "Acquisition". For the purpose of this
Warrant, "Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. Assumption of Warrant. If upon the closing of
any Acquisition the successor entity assumes the obligations of this Warrant,
then this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly.
1.7.3. Nonassumption. If upon the closing of any
Acquisition the successor entity does not assume the obligations of his Warrant
and Holder has not otherwise exercised this Warrant in full, then the
unexercised portion of this Warrant shall be deemed to have been automatically
converted pursuant to Section 1.2 and thereafter Holder shall participate in the
acquisition on the same terms as other holders of the same class of securities
of the Company.
1.7.4. Purchase Right. Notwithstanding the foregoing,
at the election of Holder, the Company shall purchase the unexercised portion of
this Warrant for cash upon
2
<PAGE> 3
the closing of any Acquisition for an amount equal to (a) the fair market value
of any consideration that would have been received by Holder in consideration of
the Shares had Holder exercised the unexercised portion of this Warrant
immediately before the record date for determining the shareholders entitled to
participate in the proceeds of the Acquisition, less (b) the aggregate Warrant
Price of the Shares, but in no event less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or
pays a dividend on its common stock (or the Shares if the Shares are securities
other than common stock) payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
or, if the Shares are securities other than common stock, subdivides the Shares
in a transaction that increases the amount of common stock into which the Shares
are convertible, then upon exercise of this Warrant, for each Share acquired,
Holder shall receive, without cost to Holder, the total number and kind of
securities to which Holder would have been entitled had Holder owned the Shares
of record as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding
Shares are combined or consolidated, by reclassification or otherwise, into a
lesser number of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The Warrant Price and
the number of Shares issuable upon exercise of this Warrant or, if the Shares
are Preferred Stock, the number of shares of common stock issuable upon
conversion of the Shares, shall be subject to adjustment, from time to time in
the manner set forth on Exhibit A in the event of Diluting Issuances (as defined
on Exhibit A).
3
<PAGE> 4
2.5 No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the Company
takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.6 Fractional Shares. No fractional Shares shall be issuable
upon exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the factional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby
represents and warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first
page of this Warrant is not greater than (i) the price per share at which the
Shares were last issued in an arms-length transaction in which at least $500,000
of the Shares were sold and (ii) the fair market value of the Shares as of the
date of this Warrant.
(b) All Shares which may be issued upon the exercise
of the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any
time (a) to declare any dividend or distribution upon its common stock, whether
in cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any
4
<PAGE> 5
class or series or other rights; (c) to effect any reclassification or
recapitalization of common stock; (d) to merge or consolidate with or into any
other corporation, or sell, lease, license, or convey all or substantially all
of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of
registration rights the opportunity to participate in an underwritten public
offering of the company's securities for cash, then, in connection with each
such event, the Company shall give Holder (1) at least 20 days prior written
notice of the date on which a record will be taken for such dividend,
distribution, or subscription rights (and specifying the date on which the
holders of common stock will be entitled thereto) or for determining rights to
vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in
the case of the matters referred to in (c) and (d) above at least 20 days prior
written notice of the date when the same will take place (and specifying the
date on which the holders of common stock will be entitled to exchange their
common stock for securities or other property deliverable upon the occurrence of
such event); and (3) in the case of the matter referred to in (e) above, the
same notice as is given to the holders of such registration rights.
3.3 Information Rights. So long as the Holder holds this
Warrant and/or any of the Shares, the Company shall deliver to the Holder (a)
promptly after mailing, copies of all notices or other written communications to
the shareholders of the Company, (b) within ninety (90) days after the end of
each fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) such other financial statements required under and in accordance with any
loan documents between Holder and the Company (or if there are no such
requirements [or if the subjet loan(s) no longer are outstanding]), then within
forty-five (45) days after the end of each of the first three quarters of each
fiscal year, the Company's quarterly, unaudited financial statements.
3.4 Registration Under Securities Act of 1933, as amended. The
Company agrees that the Shares or, if the Shares are convertible into common
stock of the Company, such common stock, shall be subject to the registration
rights set forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
4.1 Term; Notice of Expiration. This Warrant is exercisable,
in whole or in part, at any time and from time to time on or before the
Expiration Date set forth above. The Company shall give Holder written notice of
Holder's right to exercise this Warrant in the form attached as Appendix 2 not
more than 90 days and not less than 30 days before the Expiration Date. If the
notice is not so given, the Expiration Date shall automatically be extended
until 30 days after the date the Company delivers the notice to Holder.
4.2 Legends. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
5
<PAGE> 6
PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant
and the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder s notice of
proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section
4.2, Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5 Notices. All notices and other communications from the
Company to the Holder, or vice versa, shall be deemed delivered and effective
when given personally or mailed by first-class registered or certified mail,
postage prepaid, at such address as may have been furnished to the Company or
the Holder, as the case may be, in writing by the Company or such holder from
time to time.
4.6 Waiver. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought.
4.7 Attorneys Fees. In the event of any dispute between the
parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other party all
costs incurred in such dispute, including reasonable attorneys' fees.
6
<PAGE> 7
4.8 Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to its principles regarding conflicts of law.
"COMPANY"
PROBUSINESS CENTERS, INC.
By: /s/ Thomas H. Sinton
-------------------------------------
Name: Thomas H. Sinton
-----------------------------------
(Print)
Title: Chairman of the Board, President,
or Vice President
By: /s/ Mitchell Everton
-------------------------------------
Title: EVP - OPERATIONS & ASST SECRETARY
----------------------------------
(Print)
Title: Chief Financial Officer, Secretary
Assistant Treasurer, or Assistant
Secretary
7
<PAGE> 8
APPENDIX I
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ____________ shares of the
Common/Series _________ Preferred [strike one) Stock of ________________________
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to _______________________ of the Shares covered by
the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
__________________________
(Name)
__________________________
__________________________
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
________________________________________
(Signature)
_________________________
(Date)
8
<PAGE> 9
APPENDIX 2
Notice that Warrant Is About to Expire
____________________, ______
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear _____________________________
This is to advise you that the Warrant issued to you described below
will expire on _____________________, 19_________.
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price per Share:
Number of Shares Issuable:
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
________________________________________
(Name of Issuer)
By______________________________________
Its_____________________________________
9
<PAGE> 10
EXHIBIT A
Anti-Dilution Provisions
(For Common Stock Warrants Where Exercise Price Equals
Price of Preferred Stock Which Has Anti-Dilution Protection)
In the event of the issuance (a "Diluting Issuance") by the Company,
after the Issue Date of the Warrant, of securities at a price per share less
than the then conversion price of the Company's Series _ Preferred Stock, then
the number of Shares issuable upon exercise of the Warrant shall be adjusted as
a result of Diluting Issuances in the same proportion as the number of shares of
common stock issuable upon conversion of the Company's Series _ Preferred Stock
(the "Preferred Stock") are adjusted pursuant to those provisions (the
"Provisions") of the Company's Articles (Certificate) of Incorporation which
adjust the conversion price of the Preferred Stock in the event of Diluting
Issuances.
The Company agrees that the Provisions, as in effect on the Issue Date,
shall be deemed to remain in full force and effect during the term of the
Warrant notwithstanding (a) any subsequent amendment, waiver or termination
thereof by the Company's shareholders or (b) the conversion of the Preferred
Stock.
Under no circumstances shall the aggregate Warrant Price payable by the
Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.
10
<PAGE> 11
EXHIBIT "A"
SILICON VALLEY BANK
ANTIDILUTION AGREEMENT
THIS ANTIDILUTION AGREEMENT is entered into as of January 13, 1995, by
and between Silicon Valley Bank ("Purchaser") and the Company whose name appears
on the last page of this Antidilution Agreement.
RECITALS
A. Concurrently with the execution of this Antidilution Agreement, the
Purchaser is purchasing from the Company a Warrant to Purchase Stock (the
"Warrant") pursuant to which Purchaser has the right to acquire from the Company
the Shares (as defined in the Warrant).
B. By this Antidilution Agreement, the Purchaser and the Company desire
to set forth the adjustment in the number of Shares issuable upon exercise of
the Warrant as a result of a Diluting Issuance (as defined in Exhibit A to the
Warrant).
C. Capitalized terms used herein shall have the same meaning as set
forth in the Warrant.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and conditions hereinafter set forth, the parties hereto mutually
agree as follows:
1. Definitions. As used in this Antidilution Agreement, the following
terms have the following respective meanings:
(a) "Option" means any right, option, or warrant to subscribe
for, purchase, or otherwise acquire common stock or Convertible Securities.
(b) "Convertible Securities" means any evidences of
indebtedness, shares of stock, or other securities directly or indirectly
convertible into or exchangeable for common stock.
(c) "Issue" means to grant, issue, sell, assume, or fix a
record date for determining persons entitled to receive, any security (including
Options), whichever of the foregoing is the first to occur.
(d) "Additional Common Shares" means all common stock
(including reissued shares) issued (or deemed to be issued pursuant to Section
2) after the date of the Warrant. Additional Common Shares does not include,
however, any common stock issued in a transaction described in Sections 2.1 and
2.2 of the Warrant; any common stock Issued upon conversion of preferred stock
outstanding on the date of the Warrant; the Shares;
1
<PAGE> 12
or common stock Issued as incentive or in a nonfinancing transaction to
employees, officers, directors, or consultants to the Company.
(e) The shares of common stock ultimately Issuable upon
exercise of an Option (including the shares of common stock ultimately Issuable
upon conversion or exercise of a Convertible Security Issuable pursuant to an
Option) are deemed to be Issued when the Option is Issued. The shares of common
stock ultimately Issuable upon conversion or exercise of a Convertible Security
(other than a Convertible Security Issued pursuant to an Option) shall be deemed
Issued upon Issuance of the Convertible Security.
2. Deemed Issuance of Additional Common Shares. The shares of common
stock ultimately Issuable upon exercise of an Option (including the shares of
common stock ultimately Issuable upon conversion or exercise of a Convertible
Security Issuable pursuant to an Option) are deemed to be Issued when the Option
is Issued. The shares of common stock ultimately Issuable upon conversion or
exercise of a Convertible Security (other than a Convertible Security Issued
pursuant to an Option) shall be deemed Issued upon Issuance of the Convertible
Security. The maximum amount of common stock Issuable is determined without
regard to any future adjustments permitted under the instrument creating the
Options or Convertible Securities.
3. Adjustment of Warrant Price for Diluting Issuances.
3.1 Ratchet Adjustment. If the Company issues Additional
Common Shares after the date of the Warrant and the consideration per Additional
Common Share (determined pursuant to Section 9) is less than the Warrant Price
in effect immediately before such Issue, the Warrant Price shall be reduced to
the lesser of:
(a) the amount of such consideration per Additional Common
Share; or
(b) if the Company's common stock is traded on a national
securities exchange or the National Association of Securities Dealers Automated
Quotation System, the last reported bid or sale price of the Company's common
stock on the first trading day following a public announcement of the Issuance.
3.2 Adjustment of Number of Shares. Upon each adjustment of
the Warrant Price, the number of Shares issuable upon exercise of the Warrant
shall be increased to equal the quotient obtained by dividing (a) the product
resulting from multiplying (i) the number of Shares issuable upon exercise of
the Warrant and (ii) the Warrant Price, in each case as in effect immediately
before such adjustment, by (b) the adjusted Warrant Price.
3.3 Securities Deemed Outstanding. For the purpose of this
Section 3, all securities issuable upon exercise of any outstanding Convertible
Securities or Options, warrants, or other rights to acquire securities of the
Company shall be deemed to be outstanding.
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<PAGE> 13
4. No Adjustment for Issuances Following Deemed Issuances. No
adjustment to the Warrant Price shall be made upon the exercise of Options or
conversion of Convertible Securities.
5. Adjustment Following Changes in Terms of Options or Convertible
Securities. If the consideration payable to, or the amount of common stock
Issuable by, the Company increases or decreases, respectively, pursuant to the
terms of any outstanding Options or Convertible Securities, the Warrant Price
shall be recomputed to reflect such increase or decrease. The recomputation
shall be made as of the time of the Issuance of the Options or Convertible
Securities. Any changes in the Warrant Price that occurred after such Issuance
because other Additional Common Shares were Issued or deemed Issued shall also
be recomputed.
6. Recomputation Upon Expiration of Options or Convertible Securities.
The Warrant Price computed upon the original Issue of any Options or Convertible
Securities, and any subsequent adjustments based thereon, shall be recomputed
when any Options or rights of conversion under Convertible Securities expire
without having been exercised. In the case of Convertible Securities or Options
for common stock, the Warrant Price shall be recomputed as if the only
Additional Common Shares Issued were the shares of common stock actually Issued
upon the exercise of such securities, if any, and as if the only consideration
received therefor was the consideration actually received upon the Issue,
exercise or conversion of the Options or Convertible Securities. In the case of
Options for Convertible Securities, the Warrant Price shall be recomputed as if
the only Convertible Securities Issued were the Convertible Securities actually
Issued upon the exercise thereof, if any, and as if the only consideration
received therefor was the consideration actually received by the Company
(determined pursuant to Section 9), if any, upon the Issue of the Options for
the Convertible Securities.
7. Limit on Readjustments. No readjustment of the Warrant Price
pursuant to Sections 5 or 6 shall increase the Warrant Price more than the
amount of any decrease made in respect of the Issue of any Options or
Convertible Securities.
8. 30 Day Options. In the case of any Options that expire by their
terms not more than 30 days after the date of Issue thereof, no adjustment of
the Warrant Price shall be made until the expiration or exercise of all such
Options.
9. Computation of Consideration. The consideration received by the
Company for the Issue of any Additional Common Shares shall be computed as
follows:
(a) Cash shall be valued at the amount of cash received by the
Corporation, excluding amounts paid or payable for accrued interest or accrued
dividends.
(b) Property. Property other than cash shall be computed at
the fair market value thereof at the time of the Issue as determined in good
faith by the Board of Directors of the Company.
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<PAGE> 14
(c) Mixed Consideration. The consideration for Additional
common Shares Issued together with other property of the Company for
consideration that covers both shall be determined in good faith by the Board of
Directors.
(d) Options and Convertible Securities. The consideration per
Additional Common Share for Options and Convertible Securities shall be
determined by dividing:
(i) the total amount, if any, received or receivable by
the Company for the Issue of the Options or Convertible Securities, plus the
minimum amount of additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such consideration) payable to the Company upon
exercise of the Options or conversion of the Convertible Securities, by
(ii) the maximum amount of common stock (as set forth in
the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) ultimately Issuable upon the
exercise of such Options or the conversion of such Convertible Securities.
10. General.
10.1 Governing Law. This Antidilution Agreement shall be
governed in all respects by the laws of the State of California as such laws are
applied to agreements between California residents entered into and to be
performed entirely within California.
10.2 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
10.3 Entire Agreement. Except as set forth below, this
Antidilution Agreement and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof.
10.4 Notices, etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by first
class mail, postage prepaid, certified or registered mail, return receipt
requested, addressed (a) if to Purchaser at Purchaser's address as set forth
below, or at such other address as Purchaser shall have furnished to the Company
in writing, or (b) if to the Company, at the Company's address set forth below,
or at such other address as the Company shall have furnished to the Purchaser in
writing.
10.5 Severability. In case any provision of this Antidilution
Agreement shall be invalid, illegal, or unenforceable, the validity, legality
and enforceability of the remaining provisions of this Antidilution Agreement
shall not in any way be affected or impaired thereby.
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<PAGE> 15
10.6 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Antidilution Agreement.
10.7 Counterparts. This Antidilution Agreement may be executed
in any number of counterparts, each of which shall be an original, but all of
which together shall constitute one instrument.
PURCHASER COMPANY
SILICON VALLEY BANK PROBUSINESS CENTERS, INC.
By: /s/ Illegible By: /s/ Mitchell Everton
------------------------------- -------------------------------------
Name: /s/ Illegible Name: EVP - Operations
----------------------------- -----------------------------------
(Print) (Print)
Title: Vice President Title: Chairman of the Board,
---------------------------- President or Vice President
Address: 3000 Lakeside Drive Address: 5934 Gibraltar
-------------------------- --------------------------------
Santa Clara, CA Pleasanton, CA 94588
-------------------------- --------------------------------
95054
-------------------------- --------------------------------
5
<PAGE> 16
EXHIBIT "B"
SILICON VALLEY BANK
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of January 13,
1995, by and between Silicon Valley Bank ("Purchaser") and the Company whose
name appears on the last page of this Agreement.
RECITALS
A. Concurrently with the execution of this Agreement, the Purchaser is
purchasing from the Company a Warrant to Purchase Stock (the "Warrant") pursuant
to which Purchaser has the right to acquire from the Company the Shares (as
defined in the Warrant).
B. By this Agreement, the Purchaser and the Company desire to set forth
the registration rights of the Shares all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(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 Securities Act
of 1933, as amended (the "Securities Act"), and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (i) the
Shares (if Common Stock) or all shares of Common Stock of the Company issuable
or issued upon conversion of the Shares and (ii) any Common 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, any stock referred to in (i).
(c) The terms "Holder" or "Holders" means the Purchaser
or qualifying transferees under subsection 1.8 hereof who hold Registrable
Securities.
(d) The term "SEC" means the Securities and Exchange
Commission.
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<PAGE> 17
1.2 Company Registration.
(a) Registration. If at any time or from time to time, the Company
shall determine to register any of its securities, for its own account or the
account of any of its shareholders, other than a registration on Form S-1 or S-8
relating solely to employee stock option or purchase plans, or a registration on
Form S-4 relating solely to an SEC Rule 145 transaction, or a registration on
any other form (other than Form S-1, S-2, S-3 or S-18, or their successor forms)
or any successor to such forms, which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of Registrable Securities, the Company will:
(i) promptly give to each Holder written notice thereof (which
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within 30 days after receipt of such written
notice from the Company, by any Holder or Holders, except as set forth in
subsection 1.2(b) below.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to subsection 1.2(a)(i). In such event the right of any Holder to
registration pursuant to this subsection 1.2 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 and the other shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company.
1.3 Expenses of Registration. All expenses incurred in connection with
any registration, qualification or compliance pursuant to this Section 1
including without limitation, all registration, filing and qualification fees,
printing expenses, fees and disbursements of counsel for the Company and
expenses of any special audits incidental to or required by such registration,
shall be borne by the Company except the Company shall not be required to pay
underwriters' fees, discounts or commissions relating to Registrable Securities.
All expenses of any registered offering not otherwise borne by the Company shall
be borne pro rata among the Holders participating in the offering and the
Company.
2
<PAGE> 18
1.4 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Registration Rights Agreement, the Company will keep each Holder participating
therein advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. Except as
otherwise provided in subsection 1.3, at its expense the Company will:
(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 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 Securities 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 Securities 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 Securities Act or 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.
1.5 Indemnification.
(a) The Company will indemnify each Holder of Registrable
Securities and each of its officers, directors and partners, and each person
controlling such Holder, with respect to which such registration, qualification
or compliance has been effected pursuant to this Rights Agreement, and each
underwriter, if any, and each person who controls any underwriter of the
Registrable Securities held by or issuable to such Holder, against all claims,
losses, expenses,
3
<PAGE> 19
damages and liabilities (or actions in respect thereto) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on 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, or any violation or
alleged violation by the Company of the Securities Act, the Securities Exchange
Act of 1934, as amended, ("Exchange Act") or any state securities law applicable
to the Company or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any such state law and relating to action or inaction
required of the Company in connection with any such registration, qualification
of compliance, and will reimburse each such Holder, each of its officers,
directors and partners, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, within a
reasonable amount of time after incurred for any reasonable legal and any other
expenses incurred in connection with investigating, defending or settling any
such claim, loss, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 1.5(a) shall not apply to
amounts paid in settlement of any such claim, loss, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld); and provided further, that the Company will
not be liable in any such case to the extent that any such claim, loss, damage
or liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by an instrument duly executed
by such Holder or underwriter specifically for use therein.
(b) Each Holder will, if Registrable Securities held by or
issuable to such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company within the meaning of the Securities Act, and each other
such Holder, each of its officers, directors and partners and each person
controlling such Holder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, partners, persons or underwriters for any reasonable legal or any
other expenses incurred in connection with investigating, defending or
settling any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by such Holder specifically for use therein; provided, however,
that the indemnity agreement contained in this subsection 1.5(b) shall not apply
to amounts paid in settlement of any such claim, loss, 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 the
total amount for which any Holder shall be liable under this subsection 1.5(b)
shall not in any event
4
<PAGE> 20
exceed the aggregate proceeds received by such Holder from the sale of
Registrable Securities held by such Holder in such registration.
(c) Each party entitled to indemnification under this
subsection 1.5 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
prejudice to the Indemnifying Party; and provided further, 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. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
1.6 Information by Holder. Any Holder or Holders of Registrable
Securities included in any registration shall promptly furnish to the Company
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to herein.
1.7 Rule 144 Reporting. With a view to making available to Holders the
benefits of certain rules and regulations of the SEC which may permit the sale
of the Registrable Securities to the public without registration, the Company
agrees at all times to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, after 90 days after the effective
date of the first registration filed by the Company for an offering of its
securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
(c) so long as a Holder owns any Registrable Securities, to
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general
5
<PAGE> 21
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed by the Company as the Holder may reasonably request in complying with
any rule or regulation of the SEC allowing the Holder to sell any such
securities without registration.
1.8 Transfer of Registration Rights. Holders' rights to cause
the Company to register their securities and keep information available, granted
to them by the Company under subsections 1.2 and 1.7 may be assigned to a
transferee or assignee of a Holder's Registrable Securities not sold to the
public, provided, that the Company is given written notice by such Holder at the
time of or within a reasonable time after said transfer, stating the name and
address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being assigned. The Company may
prohibit the transfer of any Holders' rights under this subsection 1.8 to any
proposed transferee or assignee who the Company reasonably believes is a
competitor of the Company.
2. General.
2.1 Waivers and Amendments. With the written consent of the
record or beneficial holders of at least a majority of the Registrable
Securities, the obligations of the Company and the rights of the Holders of the
Registrable Securities under this agreement may be waived (either generally or
in a particular instance, either retroactively or prospectively, and either for
a specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such modification, amendment or waiver shall reduce
the aforesaid percentage of Registrable Securities without the consent of all of
the Holders of the Registrable Securities. Upon the effectuation of each such
waiver, consent, agreement of amendment or modification, the Company shall
promptly give written notice thereof to the record holders of the Registrable
Securities who have not previously consented thereto in writing. This Agreement
or any provision hereof may be changed, waived, discharged or terminated only by
a statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, except to the extent
provided in this subsection 2.1.
2.2 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
2.3 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
2.4 Entire Agreement. Except as set forth below, this
Agreement and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
6
<PAGE> 22
2.5 Notices, etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by first
class mail, postage prepaid, certified or registered mail, return receipt
requested, addressed (a) if to Holder, at such Holder's address as set forth
below, or at such other address as such Holder shall have furnished to the
Company in writing, or (b) if to the Company, at the Company's address set forth
below, or at such other address as the Company shall have furnished to the
Holder in writing.
2.6 Severability. In case any provision of this Agreement
shall be invalid, illegal, or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement or any provision of
the other Agreements shall not in any way be affected or impaired thereby.
2.7 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
7
<PAGE> 23
2.8 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
PURCHASER COMPANY
SILICON VALLEY BANK PROBUSINESS CENTERS, INC.
By: /s/ Illegible By: /s/ Mitch Everton
------------------------------- -------------------------------------
Name: Illegible Name: Mitch Everton
------------------------------- -------------------------------------
(Print) (Print)
Title: Vice President Title: Chairman of the Board,
President or Vice President
Address: 3000 Lakeside Dr. Address: 5934 Gibraltal
-------------------------- --------------------------------
Santa Clara, CA 95054 Pleasanton, CA 94588
-------------------------- --------------------------------
8
<PAGE> 1
EXHIBIT 4.4(a)
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: ProBusiness, Inc, a California corporation
Number of Shares: 9,500
Class of Stock: Series E Preferred
Initial Exercise Price: $7.94 per share
Issue Date: April 30, 1996
Expiration Date: April 30, 2001
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, COAST BUSINESS CREDIT ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of ProBusiness, Inc. (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth of this Warrant.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by delivering
a duly executed Notice of Exercise in substantially the form attached as
Appendix 1 to the principal office of the Company. Unless Holder is exercising
the conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.4.
1.3 INTENTIONALLY OMITTED.
1.4 Fair Market Value. If the Shares (or the Company's Common Stock
into which the Shares are convertible) are traded in a public market, the fair
market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's Common Stock into which the
<PAGE> 2
Shares are convertible) reported for the business day immediately before Holder
delivers its Notice of Exercise to the Company. If the Shares (or the Company's
Common Stock into which the Shares are convertible) are not traded in a public
market, the Board of Directors of the Company shall determine fair market value
in its reasonable good faith judgment. The foregoing notwithstanding, if Holder
advises the Board of Directors in writing that Holder disagrees with such
determination, then the Company and Holder shall promptly agree upon a reputable
investment banking firm to undertake such valuation. If the valuation of such
investment banking firm is greater than that determined by the Board of
Directors, then all fees and expenses of such investment banking firm shall be
paid by the Company. In all other circumstances, such fees and expenses shall be
paid by Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1 For the purpose of this Warrant, "Acquisition" means any
sale, license, or other disposition of all or substantially all of the assets of
the Company, or any reorganization, consolidation, or merger of the Company
where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
1.7.2 Assumption of Warrant. If upon the closing of any
Acquisition the successor entity assumes the obligations of this Warrant, then
this Warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
1.7.3 Nonassumption. If upon the closing of any Acquisition
the successor entity does not assume the obligations of this Warrant and Holder
has not otherwise exercised this Warrant in full, then the unexercised portion
of this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the acquisition on the
same terms as other holders of the same class of securities of the Company.
-2-
<PAGE> 3
1.7.4 Purchase Right. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive upon exercise or
conversion of this Warrant, the number and kind of securities and property that
Holder would have received for the Shares if this Warrant had been exercised
immediately before such reclassification, exchange, substitution, or other
event. Such an event shall include any automatic conversion of the outstanding
or issuable securities of the Company of the same class or series as the Shares
to common stock pursuant to the terms of the Company's Articles of Incorporation
upon the closing of a registered public offering of the Company's common stock.
The Company or its successor shall promptly issue to Holder a new Warrant for
such new securities or other property. The new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The Warrant Price and the
number of Shares issuable upon exercise of this Warrant shall be subject to
adjustment, from time to time in the manner set forth on Exhibit A. In addition,
the number of shares of Common Stock issuable upon
-3-
<PAGE> 4
conversion of the Shares is subject to adjustment as provided in the Company's
Articles of Incorporation, as amended (the "Articles").
2.5 No Impairment. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder an amount computed by
multiplying the factional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of
this Warrant is not greater than (i) the price per share at which the Shares
were last issued in an arms-length transaction in which at least $500,000 of the
Shares were sold and (ii) the fair market value of the Shares as of the date of
this Warrant.
(b) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
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<PAGE> 5
3.2 Notice of Certain Events. If the Company proposes at any time (a)
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) to offer holders of registration rights the
opportunity to participate in an underwritten public offering of the Company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) such other financial statements required under and in accordance with any
loan documents between Holder and the Company (or if there are no such
requirements (or if the subject loan(s) no longer are outstanding)), then within
forty-five (45) days after the end of each of the first three quarters of each
fiscal year, the Company's quarterly, unaudited financial statements.
3.4 Registration Under Securities Act of 1933, as Amended. The Company
agrees that the Shares or, if the Shares are convertible into common stock of
the Company, such common stock, shall be subject to the registration rights set
forth on Exhibit B.
ARTICLE 4. MISCELLANEOUS.
4.1 Term; Notice of Expiration. This Warrant is exercisable, in whole
or in part, at any time and from time to time on or before the Expiration Date
set forth above. The Company shall give Holder written notice of Holder's right
to exercise this Warrant in the form attached as Appendix 2 not more than 90
days and not less than 30 days before the Expiration Date. If the notice is not
so given, the Expiration Date shall automatically be extended until 30 days
after the date the Company delivers the notice to Holder.
-5-
<PAGE> 6
4.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in SEC Rule 144(c), Holder represents that it has complied with SEC Rule 144(d)
and (e) in reasonable detail, the selling broker represents that it has complied
with SEC Rule 144(f), and the Company is provided with a copy of Holder's notice
of proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.3,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, as amended, the Company shall have the right to
refuse to transfer any portion of this Warrant to any person who directly
competes with the Company.
4.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or Holder, as
the case may be, in writing by the Company or such Holder from time to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
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<PAGE> 7
4.7 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
-7-
<PAGE> 8
4.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
"COMPANY"
PROBUSINESS, INC.
By: ______________________________
Name: ____________________________
(Print)
Title: ___________________________
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<PAGE> 9
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ______ shares of the
Common/Series ________ Preferred [strike one] Stock of _______________________
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to _____________________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
__________________________
(Name)
__________________________
__________________________
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
_______________________________
(Signature)
__________________________
(Date)
<PAGE> 10
APPENDIX 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
(Date)
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear _____________________
This is to advise you that the Warrant issued to you described below
will expire on ______________________, 19___.
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price per Share:
Number of Shares Issuable:
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
_________________________________________
(Name of Issuer)
By ______________________________________
Its _____________________________________
<PAGE> 11
EXHIBIT A
ANTIDILUTION AGREEMENT
THIS ANTIDILUTION AGREEMENT is entered into as of April 30, 1996, by
and between Coast Business Credit ("Purchaser") and the Company whose name
appears on the last page of this Antidilution Agreement.
RECITALS
A. Concurrently with the execution of this Antidilution Agreement, the
Purchaser is purchasing from the Company a Warrant to Purchase Stock (the
"Warrant") pursuant to which Purchaser has the right to acquire from the Company
the Shares (as defined in the Warrant).
B. By this Antidilution Agreement, the Purchaser and the Company desire
to set forth the adjustment in the number of Shares issuable upon exercise of
the Warrant in the event the Company issues Additional Common Shares (as defined
below).
C. Capitalized terms used herein, but not otherwise defined herein,
shall have the same meaning as set forth in the Warrant.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. Definitions. As used in this Antidilution Agreement, the following
terms have the following respective meanings:
(a) "Option" means any right, option, or warrant to subscribe
for, purchase, or otherwise acquire common stock or Convertible Securities.
(b) "Convertible Securities" means any evidences of
indebtedness, shares of stock, or other securities directly or indirectly
convertible into or exchangeable for common stock.
(c) "Issue" means to grant, issue, sell, assume, or fix a
record date for determining persons entitled to receive, any security (including
Options), whichever of the foregoing is the first to occur.
(d) "Additional Common Shares" means all common stock
(including reissued shares) issued (or deemed to be issued pursuant to Section
2) after the date of the Warrant. Additional Common Shares does not include,
however, any common stock issued in a transaction described in Sections 2.1 and
2.2 of the Warrant; any common stock Issued upon conversion of preferred stock
outstanding on the date of the Warrant; the Shares; or common stock Issued as
<PAGE> 12
incentive or in a nonfinancing transaction to employees, officers, directors, or
consultants to the Company.
2. Deemed Issuance of Additional Common Shares. The shares of common
stock ultimately Issuable upon exercise of an Option (including the shares of
common stock ultimately Issuable upon conversion or exercise of a Convertible
Security Issuable pursuant to an Option) are deemed to be Issued when the Option
is Issued. The shares of common stock ultimately Issuable upon conversion or
exercise of a Convertible Security (other than a Convertible Security Issued
pursuant to an Option) shall be deemed Issued upon Issuance of the Convertible
Security. The maximum amount of common stock Issuable is determined without
regard to any future adjustments permitted under the instrument creating the
Options or Convertible Securities.
3. Adjustment of Warrant Price for Diluting Issuances.
3.1 Ratchet Adjustment. The number of shares of common stock
into which the Shares are convertible is subject to adjustment as provided in
the Company's Articles of Incorporation, as amended (the "Articles"). The
adjustments provided for in this Section 3 shall be made after giving effect to
any adjustment made pursuant to the Articles. For purposes of this Section 3,
the term "Converted Warrant Price" shall mean the Series E Conversion Price (as
defined in the Company's Articles) in effect immediately after an Issuance of
Additional Common Shares. As of the date of this Antidilution Agreement the
Series E Conversion Price is $3.97 per share of Common Stock. If the Company
issues Additional Common Shares after the date of the Warrant and the
consideration per Additional Common Share (determined pursuant to Section 9) is
less than the Converted Warrant Price in effect immediately before such Issue,
the Warrant Price shall be reduced to an amount equal to the product of (a) the
quotient of the Warrant Price divided by Converted Warrant Price and (b) the
lesser of:
(i) the amount of such consideration per Additional
Common Share; or
(ii) if the Company's common stock is traded on a
national securities exchange or the National Association of Securities Dealers
Automated Quotation System, the last reported bid or sale price of the Company's
common stock on the first trading day following a public announcement of the
Issuance.
3.2 Adjustment of Number of Shares. Upon each adjustment of
the Warrant Price, the number of Shares issuable upon exercise of the Warrant
shall be increased to equal the quotient obtained by dividing (a) the product
resulting from multiplying (i) the number of Shares issuable upon exercise of
the Warrant and (ii) the Warrant Price, in each case as in effect immediately
before such adjustment, by (b) the adjusted Warrant Price; provided however, the
maximum number of Shares issuable upon exercise of the Warrant, as a result of
an adjustment pursuant to this Section 3.2, shall not exceed 11,400 Shares.
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<PAGE> 13
3.3 Attached as Annex 1 hereto is a copy of an example
demonstrating the adjustment formulas set forth in Sections 3.1 and 3.2.
4. No Adjustment for Issuances Following Deemed Issuances. No
adjustment to the Warrant Price shall be made upon the exercise of Options or
conversion of Convertible Securities.
5. Adjustment Following Changes in Terms of Options or Convertible
Securities. If the consideration payable to, or the amount of common stock
Issuable by, the Company increases or decreases, respectively, pursuant to the
terms of any outstanding Options or Convertible Securities, the Warrant Price
shall be recomputed to reflect such increase or decrease. The recomputation
shall be made as of the time of the Issuance of the Options or Convertible
Securities. Any changes in the Warrant Price that occurred after such Issuance
because other Additional Common Shares were Issued or deemed Issued shall also
be recomputed.
6. Recomputation Upon Expiration of Options or Convertible Securities.
The Warrant Price computed upon the original Issue of any Options or Convertible
Securities, and any subsequent adjustments based thereon, shall be recomputed
when any Options or rights of conversion under Convertible Securities expire
without having been exercised. In the case of Convertible Securities or Options
for common stock, the Warrant Price shall be recomputed as if the only
Additional Common Shares Issued were the shares of common stock actually Issued
upon the exercise of such securities, if any, and as if the only consideration
received therefor was the consideration actually received upon the Issue,
exercise or conversion of the Options or Convertible Securities. In the case of
Options for Convertible Securities, the Warrant Price shall be recomputed as if
the only Convertible Securities Issued were the Convertible Securities actually
Issued upon the exercise thereof, if any, and as if the only consideration
received therefor was the consideration actually received by the Company
(determined pursuant to Section 9), if any, upon the Issue of the Options for
the Convertible Securities.
7. Limit on Readjustments. No readjustment of the Warrant Price
pursuant to Sections 5 or 6 shall increase the Warrant Price more than the
amount of any decrease made in respect of the Issue of any Options or
Convertible Securities.
8. 30 Day Options. In the case of any Options that expire by their
terms not more than 30 days after the date of Issue thereof, no adjustment of
the Warrant Price shall be made until the expiration or exercise of all such
Options.
9. Computation of Consideration. The consideration received by the
Company for the Issue of any Additional Common Shares shall be computed as
follows:
(a) Cash shall be valued at the amount of cash received by the
Company, excluding amounts paid or payable for accrued interest or accrued
dividends.
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<PAGE> 14
(b) Property. Property other than cash shall be computed at
the fair market value thereof at the time of the Issue as determined in good
faith by the Board of Directors of the Company.
(c) Mixed Consideration. The consideration for Additional
Common Shares Issued together with other property of the Company for
consideration that covers both shall be determined in good faith by the Board of
Directors.
(d) Options and Convertible Securities. The consideration per
Additional Common Share for Options and Convertible Securities shall be
determined by dividing:
(i) the total amount, if any, received or receivable
by the Company for the Issue of the Options or Convertible Securities, plus the
minimum amount of additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such consideration) payable to the Company upon
exercise of the Options or conversion of the Convertible Securities, by
(ii) the maximum amount of common stock (as set forth
in the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) ultimately Issuable upon the
exercise of such Options or the conversion of such Convertible Securities.
10. General.
10.1 Governing Law. This Antidilution Agreement shall be
governed in all respects by the laws of the State of California as such laws are
applied to agreements between California residents entered into and to be
performed entirely within California.
10.2 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
10.3 Entire Agreement. This Antidilution Agreement and the
other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
10.4 Notices, etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by first
class mail, postage prepaid, certified or registered mail, return receipt
requested, addressed (a) if to Purchaser at Purchaser's address as set forth
below, or at such other address as Purchaser shall have furnished to the Company
in writing, or (b) if to the Company, at the Company's address set forth below,
or at such other address as the Company shall have furnished to the Purchaser in
writing.
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<PAGE> 15
10.5 Severability. In case any provision of this Antidilution
Agreement shall be invalid, illegal, or unenforceable, the validity, legality
and enforceability of the remaining provisions of this Antidilution Agreement
shall not in any way be affected or impaired thereby.
10.6 Titles and Subtitles. The titles of the sections and
subsections of this Antidilution Agreement are for convenience of reference only
and are not to be considered in construing this Antidilution Agreement.
10.7 Counterparts. This Antidilution Agreement may be executed
in any number of counterparts, each of which shall be an original, but all of
which together shall constitute one instrument.
-5-
<PAGE> 16
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
executed as of the date hereof.
<TABLE>
<S> <C>
"PURCHASER" "COMPANY"
COAST BUSINESS CREDIT PROBUSINESS CENTERS, INC.
By: __________________________ By: _____________________________
Name: ________________________ Name: ___________________________
(Print) (Print)
Title: _______________________ Title: __________________________
Address: 12121 Wilshire Boulevard, Suite 1111 Address: 5934 Gibralter, Suite 201
Los Angeles, California 90025 Pleasanton, California 94588
</TABLE>
-6-
<PAGE> 17
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into
as of April 30, 1996, by and between Coast Business Credit ("Purchaser") and the
Company whose name appears on the last page of this Agreement.
RECITALS
A. Concurrently with the execution of this Agreement, the Purchaser is
purchasing from the Company a Warrant to Purchase Stock (the "Warrant") pursuant
to which Purchaser has the right to acquire from the Company the Shares (as
defined in the Warrant).
B. By this Agreement, the Purchaser and the Company desire to set forth
the registration rights of the Shares all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and conditions hereinafter set forth, the parties hereto mutually
agree as follows:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(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 Securities Act
of 1933, as amended (the "Securities Act"), and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (i) the
Shares (if Common Stock) or all shares of Common Stock of the Company issuable
or issued upon conversion of the Shares and (ii) any Common 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, any stock referred to in (i).
(c) The terms "Holder" or "Holders" means the
Purchaser or qualifying transferees under subsection 1.8 hereof who hold
Registrable Securities.
(d) The term "SEC" means the Securities and Exchange
Commission.
<PAGE> 18
1.2 Company Registration.
(a) Registration. If at any time or from time to
time, the Company shall determine to register any of its securities, for its own
account or the account of any of its shareholders, other than a registration on
Form S-1 or S-8 relating solely to employee stock option or purchase plans, or a
registration on Form S-4 relating solely to an SEC Rule 145 transaction, or a
registration on any other form (other than Form S-1, S-2, S-3 or S-18, or their
successor forms) or any successor to such forms, which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) promptly give to each Holder written
notice thereof (which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable blue
sky or other state securities laws); and
(ii) include in such registration (and
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made within 30 days after
receipt of such written notice from the Company, by any Holder or Holders,
subject to such Holder's or Holders' entering into an underwriting agreement as
provided in Subsection 1.2(b) below.
(b) Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to subsection 1.2(a)(i). In such event the right of any
Holder to registration pursuant to this subsection 1.2 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 and the other shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company.
1.3 Expenses of Registration. All expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section 1 including without limitation, all registration, filing and
qualification fees, printing expenses, fees and disbursements of counsel for the
Company and expenses of any special audits incidental to or required by such
registration, shall be borne by the Company except the Company shall not be
required to pay underwriters fees, discounts or commissions relating to
Registrable Securities. All expenses of any registered offering not otherwise
borne by the Company shall be borne pro rata among the Holders Participating in
the offering and the Company.
1.4 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder participating therein advised in writing as to
the initiation of each registration, qualification
-2-
<PAGE> 19
and compliance and as to the completion thereof. Except as otherwise provided in
subsection 1.3, at its expense the Company will:
(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 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 Securities 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 Securities 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 Securities Act or 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.
1.5 Indemnification.
(a) The Company will indemnify each Holder of
Registrable Securities and each of its officers, directors and partners, and
each person controlling such Holder, with respect to which such registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter of the
Registrable Securities held by or issuable to such Holder, against all claims,
losses, expenses, damages and
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<PAGE> 20
liabilities (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on 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, or any violation or
alleged violation by the Company of the Securities Act, the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or any state securities law
applicable to the Company or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any such state law and relating to action or
inaction required of the Company in connection with any such registration,
qualification of compliance, and will reimburse each such Holder, each of its
officers, directors and partners, and each person controlling such Holder, each
such underwriter and each person who controls any such underwriter, within a
reasonable amount of time after incurred for any reasonable legal and any other
expenses incurred in connection with investigating, defending or settling any
such claim, loss, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 1.5(a) shall not apply to
amounts paid in settlement of any such claim, loss, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld); and provided further, that the Company will
not be liable in any such case to the extent that any such claim, loss, damage
or liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by an instrument duly executed
by such Holder or underwriter specifically for use therein.
(b) Each Holder will, if Registrable Securities held
by or issuable to such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company within the meaning of the Securities Act, and each other
such Holder, each of its officers, directors and partners and each person
controlling such Holder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, partners, persons or underwriters for any reasonable legal or any
other expenses incurred in connection with investigating, defending or settling
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder specifically for use therein; provided, however,
that the indemnity agreement contained in this subsection 1.5(b) shall not apply
to amounts paid in settlement of any such claim, loss, 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 the
total amount for which any Holder shall be liable under this subsection 1.5(b)
shall
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<PAGE> 21
not in any event exceed the aggregate proceeds received by such Holder from the
sale of Registrable Securities held by such Holder in such registration.
(c) Each party entitled to indemnification under this
subsection 1.5 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
prejudice to the Indemnifying Party; and provided further, 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. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
1.6 Information by Holder. Any Holder or Holders of
Registrable Securities included in any registration shall promptly furnish to
the Company such information regarding such Holder or Holders and the
distribution proposed by such Holder or Holders as the Company may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to herein.
1.7 Rule 144 Reporting. With a view to making available to
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees at all times to:
(a) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, after 90 days after the
effective date of the first registration filed by the Company for an offering of
its securities to the general public;
(b) file with the SEC in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
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<PAGE> 22
(c) so long as a Holder owns any Registrable
Securities, to furnish to such Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after 90 days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as the Holder may reasonably request in
complying with any rule or regulation of the SEC allowing the Holder to sell any
such securities without registration.
1.8 Transfer of Registration Rights. Holders' rights to cause
the Company to register their securities and keep information available, granted
to them by the Company under this Agreement may be assigned to a transferee or
assignee of a Holder's Registrable Securities not sold to the public, provided,
that the Company is given written notice by such Holder at the time of or within
a reasonable time after said transfer, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
rights are being assigned. The Company may prohibit the transfer of any Holders'
rights under this subsection 1.8 to any proposed transferee or assignee who the
Company reasonably believes is a competitor of the Company.
2. General.
2.1 Waivers and Amendments. With the written consent of the
record or beneficial Holders owning at least a majority of the Registrable
Securities, the obligations of the Company and the rights of the Registrable
Securities under this Agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively, and either for a
specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such modification, amendment or waiver shall reduce
the aforesaid percentage of Registrable Securities without the consent of all of
the Holders of the Registrable Securities. Upon the effectuation of each such
waiver, consent, agreement of amendment or modification, the Company shall
promptly give written notice thereof to the record holders of the Registrable
Securities who have not previously consented thereto in writing. This Agreement
or any provision hereof may be changed, waived, discharged or terminated only by
a statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, except to the extent
provided in this subsection 2.1
2.2 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
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<PAGE> 23
2.3 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
2.4 Entire Agreement. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
2.5 Notices, etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by first
class mail, postage prepaid, certified or registered mail, return receipt
requested, addressed (a) if to Holder, at such Holder's address as set forth
below, or at such other address as such Holder shall have furnished to the
Company in writing, or (b) if to the Company, at the Company's address set forth
below, or at such other address as the Company shall have furnished to the
Holder in writing.
2.6 Severability. In case any provision of this Agreement
shall be invalid, illegal, or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby.
2.7 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
2.8 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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<PAGE> 24
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
executed as of the date hereof.
<TABLE>
<S> <C>
"PURCHASER" "COMPANY"
COAST BUSINESS CREDIT PROBUSINESS, INC.
By: _________________________________ By: _____________________________
Name: _______________________________ Name: ___________________________
(Print) (Print)
Title: ______________________________ Title: __________________________
Address: 12121 Wilshire Boulevard, Suite 1111 Address: 5934 Gibralter, Suite 201
Los Angeles, California 90025 Pleasanton, California 94588
</TABLE>
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<PAGE> 1
EXHIBIT 4.4(b)
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: ProBusiness, Inc, a California corporation
Number of Shares: 9,500
Class of Stock: Series E Preferred
Initial Exercise Price: $7.94 per share
Issue Date: October 25, 1996
Expiration Date: October 25, 2001
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, COAST BUSINESS CREDIT ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of ProBusiness, Inc. (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth of this Warrant.
ARTICLE 3. EXERCISE.
3.1 Method of Exercise. Holder may exercise this Warrant by delivering
a duly executed Notice of Exercise in substantially the form attached as
Appendix 1 to the principal office of the Company. Unless Holder is exercising
the conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
3.2 Conversion Right. In lieu of exercising this Warrant as specified
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.4.
3.3 INTENTIONALLY OMITTED.
3.4 Fair Market Value. If the Shares (or the Company's Common Stock
into which the Shares are convertible) are traded in a public market, the fair
market value of the Shares
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<PAGE> 2
shall be the closing price of the Shares (or the closing price of the Company's
Common Stock into which the Shares are convertible) reported for the business
day immediately before Holder delivers its Notice of Exercise to the Company. If
the Shares (or the Company's Common Stock into which the Shares are convertible)
are not traded in a public market, the Board of Directors of the Company shall
determine fair market value in its reasonable good faith judgment. The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that Holder
disagrees with such determination, then the Company and Holder shall promptly
agree upon a reputable investment banking firm to undertake such valuation. If
the valuation of such investment banking firm is greater than that determined by
the Board of Directors, then all fees and expenses of such investment banking
firm shall be paid by the Company. In all other circumstances, such fees and
expenses shall be paid by Holder.
3.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
3.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
3.7 Repurchase on Sale, Merger, or Consolidation of the Company.
3.7.1 For the purpose of this Warrant, "Acquisition" means any
sale, license, or other disposition of all or substantially all of the assets of
the Company, or any reorganization, consolidation, or merger of the Company
where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
3.7.2 Assumption of Warrant. If upon the closing of any Acquisition
the successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
3.7.3 Nonassumption. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the acquisition on the
same terms as other holders of the same class of securities of the Company.
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<PAGE> 3
3.7.4 Purchase Right. Notwithstanding the foregoing, at the election of
Holder, the Company shall purchase the unexercised portion of this Warrant for
cash upon the closing of any Acquisition for an amount equal to (a) the fair
market value of any consideration that would have been received by Holder in
consideration of the Shares had Holder exercised the unexercised portion of this
Warrant immediately before the record date for determining the shareholders
entitled to participate in the proceeds of the Acquisition, less (b) the
aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 4. ADJUSTMENTS TO THE SHARES.
4.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
4.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive upon exercise or
conversion of this Warrant, the number and kind of securities and property that
Holder would have received for the Shares if this Warrant had been exercised
immediately before such reclassification, exchange, substitution, or other
event. Such an event shall include any automatic conversion of the outstanding
or issuable securities of the Company of the same class or series as the Shares
to common stock pursuant to the terms of the Company's Articles of Incorporation
upon the closing of a registered public offering of the Company's common stock.
The Company or its successor shall promptly issue to Holder a new Warrant for
such new securities or other property. The new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
4.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
4.4 Adjustments for Diluting Issuances. The Warrant Price and the
number of Shares issuable upon exercise of this Warrant shall be subject to
adjustment, from time to time in the manner set forth on Exhibit A. In addition,
the number of shares of Common Stock issuable upon
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<PAGE> 4
conversion of the Shares is subject to adjustment as provided in the Company's
Articles of Incorporation, as amended (the "Articles").
4.5 No Impairment. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
4.6 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder an amount computed by
multiplying the factional interest by the fair market value of a full Share.
4.7 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 5. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
5.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this
Warrant is not greater than (i) the price per share at which the Shares were
last issued in an arms-length transaction in which at least $500,000 of the
Shares were sold and (ii) the fair market value of the Shares as of the date of
this Warrant.
(b) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
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<PAGE> 5
5.2 Notice of Certain Events. If the Company proposes at any time (a)
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) to offer holders of registration rights the
opportunity to participate in an underwritten public offering of the Company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
5.3 Information Rights. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) such other financial statements required under and in accordance with any
loan documents between Holder and the Company (or if there are no such
requirements (or if the subject loan(s) no longer are outstanding)), then within
forty-five (45) days after the end of each of the first three quarters of each
fiscal year, the Company's quarterly, unaudited financial statements.
5.4 Registration Under Securities Act of 1933, as Amended. The Company
agrees that the Shares or, if the Shares are convertible into common stock of
the Company, such common stock, shall be subject to the registration rights set
forth on Exhibit B.
ARTICLE 6. MISCELLANEOUS.
6.1 Term; Notice of Expiration. This Warrant is exercisable, in whole
or in part, at any time and from time to time on or before the Expiration Date
set forth above. The Company shall give Holder written notice of Holder's right
to exercise this Warrant in the form attached as Appendix 2 not more than 90
days and not less than 30 days before the Expiration Date. If the notice is not
so given, the Expiration Date shall automatically be extended until 30 days
after the date the Company delivers the notice to Holder.
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<PAGE> 6
6.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
6.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in SEC Rule 144(c), Holder represents that it has complied with SEC Rule 144(d)
and (e) in reasonable detail, the selling broker represents that it has complied
with SEC Rule 144(f), and the Company is provided with a copy of Holder's notice
of proposed sale.
6.4 Transfer Procedure. Subject to the provisions of Section 4.3,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, as amended, the Company shall have the right to
refuse to transfer any portion of this Warrant to any person who directly
competes with the Company.
6.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or Holder, as
the case may be, in writing by the Company or such Holder from time to time.
6.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
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<PAGE> 7
6.7 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
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<PAGE> 8
6.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
"COMPANY"
PROBUSINESS, INC.
By: ____________________________
Name: __________________________
(Print)
Title: _________________________
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<PAGE> 9
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ______ shares of the
Common/Series ________ Preferred [strike one] Stock of _______________________
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to _____________________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
_________________________
(Name)
_________________________
_________________________
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
___________________________________
(Signature)
_________________________
(Date)
<PAGE> 10
APPENDIX 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
(Date)
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear __________________________
This is to advise you that the Warrant issued to you described below
will expire on ______________________, 19___.
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price per Share:
Number of Shares Issuable:
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
_________________________________________
(Name of Issuer)
By ______________________________________
Its _____________________________________
<PAGE> 11
EXHIBIT A
ANTIDILUTION AGREEMENT
THIS ANTIDILUTION AGREEMENT is entered into as of October 25, 1996, by
and between Coast Business Credit ("Purchaser") and the Company whose name
appears on the last page of this Antidilution Agreement.
RECITALS
A. Concurrently with the execution of this Antidilution Agreement, the
Purchaser is purchasing from the Company a Warrant to Purchase Stock (the
"Warrant") pursuant to which Purchaser has the right to acquire from the Company
the Shares (as defined in the Warrant).
B. By this Antidilution Agreement, the Purchaser and the Company desire
to set forth the adjustment in the number of Shares issuable upon exercise of
the Warrant in the event the Company issues Additional Common Shares (as defined
below).
C. Capitalized terms used herein, but not otherwise defined herein,
shall have the same meaning as set forth in the Warrant.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. Definitions. As used in this Antidilution Agreement, the following
terms have the following respective meanings:
(a) "Option" means any right, option, or warrant to subscribe for,
purchase, or otherwise acquire common stock or Convertible Securities.
(b) "Convertible Securities" means any evidences of indebtedness,
shares of stock, or other securities directly or indirectly convertible into or
exchangeable for common stock.
(c) "Issue" means to grant, issue, sell, assume, or fix a record
date for determining persons entitled to receive, any security (including
Options), whichever of the foregoing is the first to occur.
(d) "Additional Common Shares" means all common stock (including
reissued shares) issued (or deemed to be issued pursuant to Section 2) after the
date of the Warrant. Additional Common Shares does not include, however, any
common stock issued in a transaction described in Sections 2.1 and 2.2 of the
Warrant; any common stock Issued upon conversion of preferred stock outstanding
on the date of the Warrant; the Shares; or common stock Issued as
<PAGE> 12
incentive or in a nonfinancing transaction to employees, officers, directors, or
consultants to the Company.
2. Deemed Issuance of Additional Common Shares. The shares of common
stock ultimately Issuable upon exercise of an Option (including the shares of
common stock ultimately Issuable upon conversion or exercise of a Convertible
Security Issuable pursuant to an Option) are deemed to be Issued when the Option
is Issued. The shares of common stock ultimately Issuable upon conversion or
exercise of a Convertible Security (other than a Convertible Security Issued
pursuant to an Option) shall be deemed Issued upon Issuance of the Convertible
Security. The maximum amount of common stock Issuable is determined without
regard to any future adjustments permitted under the instrument creating the
Options or Convertible Securities.
3. Adjustment of Warrant Price for Diluting Issuances.
3.1 Ratchet Adjustment. The number of shares of common stock into
which the Shares are convertible is subject to adjustment as provided in the
Company's Articles of Incorporation, as amended (the "Articles"). The
adjustments provided for in this Section 3 shall be made after giving effect to
any adjustment made pursuant to the Articles. For purposes of this Section 3,
the term "Converted Warrant Price" shall mean the Series E Conversion Price (as
defined in the Company's Articles) in effect immediately after an Issuance of
Additional Common Shares. As of the date of this Antidilution Agreement the
Series E Conversion Price is $3.97 per share of Common Stock. If the Company
issues Additional Common Shares after the date of the Warrant and the
consideration per Additional Common Share (determined pursuant to Section 9) is
less than the Converted Warrant Price in effect immediately before such Issue,
the Warrant Price shall be reduced to an amount equal to the product of (a) the
quotient of the Warrant Price divided by Converted Warrant Price and (b) the
lesser of:
(i) the amount of such consideration per Additional
Common Share; or
(ii) if the Company's common stock is traded on a
national securities exchange or the National Association of Securities Dealers
Automated Quotation System, the last reported bid or sale price of the Company's
common stock on the first trading day following a public announcement of the
Issuance.
3.2 Adjustment of Number of Shares. Upon each adjustment of the
Warrant Price, the number of Shares issuable upon exercise of the Warrant shall
be increased to equal the quotient obtained by dividing (a) the product
resulting from multiplying (i) the number of Shares issuable upon exercise of
the Warrant and (ii) the Warrant Price, in each case as in effect immediately
before such adjustment, by (b) the adjusted Warrant Price; provided however, the
maximum number of Shares issuable upon exercise of the Warrant, as a result of
an adjustment pursuant to this Section 3.2, shall not exceed 11,400 Shares.
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<PAGE> 13
3.3 Attached as Annex 1 hereto is a copy of an example
demonstrating the adjustment formulas set forth in Sections 3.1 and 3.2.
4. No Adjustment for Issuances Following Deemed Issuances. No
adjustment to the Warrant Price shall be made upon the exercise of Options or
conversion of Convertible Securities.
5. Adjustment Following Changes in Terms of Options or Convertible
Securities. If the consideration payable to, or the amount of common stock
Issuable by, the Company increases or decreases, respectively, pursuant to the
terms of any outstanding Options or Convertible Securities, the Warrant Price
shall be recomputed to reflect such increase or decrease. The recomputation
shall be made as of the time of the Issuance of the Options or Convertible
Securities. Any changes in the Warrant Price that occurred after such Issuance
because other Additional Common Shares were Issued or deemed Issued shall also
be recomputed.
6. Recomputation Upon Expiration of Options or Convertible Securities.
The Warrant Price computed upon the original Issue of any Options or Convertible
Securities, and any subsequent adjustments based thereon, shall be recomputed
when any Options or rights of conversion under Convertible Securities expire
without having been exercised. In the case of Convertible Securities or Options
for common stock, the Warrant Price shall be recomputed as if the only
Additional Common Shares Issued were the shares of common stock actually Issued
upon the exercise of such securities, if any, and as if the only consideration
received therefor was the consideration actually received upon the Issue,
exercise or conversion of the Options or Convertible Securities. In the case of
Options for Convertible Securities, the Warrant Price shall be recomputed as if
the only Convertible Securities Issued were the Convertible Securities actually
Issued upon the exercise thereof, if any, and as if the only consideration
received therefor was the consideration actually received by the Company
(determined pursuant to Section 9), if any, upon the Issue of the Options for
the Convertible Securities.
7. Limit on Readjustments. No readjustment of the Warrant Price
pursuant to Sections 5 or 6 shall increase the Warrant Price more than the
amount of any decrease made in respect of the Issue of any Options or
Convertible Securities.
8. 30 Day Options. In the case of any Options that expire by their
terms not more than 30 days after the date of Issue thereof, no adjustment of
the Warrant Price shall be made until the expiration or exercise of all such
Options.
9. Computation of Consideration. The consideration received by the
Company for the Issue of any Additional Common Shares shall be computed as
follows:
(a) Cash shall be valued at the amount of cash received by the
Company, excluding amounts paid or payable for accrued interest or accrued
dividends.
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<PAGE> 14
(b) Property. Property other than cash shall be computed at the
fair market value thereof at the time of the Issue as determined in good faith
by the Board of Directors of the Company.
(c) Mixed Consideration. The consideration for Additional Common
Shares Issued together with other property of the Company for consideration that
covers both shall be determined in good faith by the Board of Directors.
(d) Options and Convertible Securities. The consideration per
Additional Common Share for Options and Convertible Securities shall be
determined by dividing:
(i) the total amount, if any, received or receivable
by the Company for the Issue of the Options or Convertible Securities, plus the
minimum amount of additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such consideration) payable to the Company upon
exercise of the Options or conversion of the Convertible Securities, by
(ii) the maximum amount of common stock (as set forth
in the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) ultimately Issuable upon the
exercise of such Options or the conversion of such Convertible Securities.
10. General.
10.1 Governing Law. This Antidilution Agreement shall be governed
in all respects by the laws of the State of California as such laws are applied
to agreements between California residents entered into and to be performed
entirely within California.
10.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
10.3 Entire Agreement. This Antidilution Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof.
10.4 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Purchaser at Purchaser's address as set forth below, or at
such other address as Purchaser shall have furnished to the Company in writing,
or (b) if to the Company, at the Company's address set forth below, or at such
other address as the Company shall have furnished to the Purchaser in writing.
-4-
<PAGE> 15
10.5 Severability. In case any provision of this Antidilution
Agreement shall be invalid, illegal, or unenforceable, the validity, legality
and enforceability of the remaining provisions of this Antidilution Agreement
shall not in any way be affected or impaired thereby.
10.6 Titles and Subtitles. The titles of the sections and
subsections of this Antidilution Agreement are for convenience of reference only
and are not to be considered in construing this Antidilution Agreement.
10.7 Counterparts. This Antidilution Agreement may be executed in
any number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
-5-
<PAGE> 16
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
executed as of the date hereof.
<TABLE>
<S> <C>
"PURCHASER" "COMPANY"
COAST BUSINESS CREDIT PROBUSINESS CENTERS, INC.
By: ______________________________ By: ____________________________
Name: ____________________________ Name: __________________________
(Print) (Print)
Title: ___________________________ Title: _________________________
Address: 12121 Wilshire Boulevard, Suite 1111 Address: 5934 Gibralter, Suite 201
Los Angeles, California 90025 Pleasanton, California 94588
</TABLE>
-6-
<PAGE> 17
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into
as of October 25, 1996, by and between Coast Business Credit ("Purchaser") and
the Company whose name appears on the last page of this Agreement.
RECITALS
A. Concurrently with the execution of this Agreement, the Purchaser is
purchasing from the Company a Warrant to Purchase Stock (the "Warrant") pursuant
to which Purchaser has the right to acquire from the Company the Shares (as
defined in the Warrant).
B. By this Agreement, the Purchaser and the Company desire to set forth
the registration rights of the Shares all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and conditions hereinafter set forth, the parties hereto mutually
agree as follows:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(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 Securities Act
of 1933, as amended (the "Securities Act"), and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (i) the
Shares (if Common Stock) or all shares of Common Stock of the Company issuable
or issued upon conversion of the Shares and (ii) any Common 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, any stock referred to in (i).
(c) The terms "Holder" or "Holders" means the
Purchaser or qualifying transferees under subsection 1.8 hereof who hold
Registrable Securities.
(d) The term "SEC" means the Securities and Exchange
Commission.
<PAGE> 18
1.2 Company Registration.
(a) Registration. If at any time or from time to
time, the Company shall determine to register any of its securities, for its own
account or the account of any of its shareholders, other than a registration on
Form S-1 or S-8 relating solely to employee stock option or purchase plans, or a
registration on Form S-4 relating solely to an SEC Rule 145 transaction, or a
registration on any other form (other than Form S-1, S-2, S-3 or S-18, or their
successor forms) or any successor to such forms, which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) promptly give to each Holder written
notice thereof (which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable blue
sky or other state securities laws); and
(ii) include in such registration (and
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made within 30 days after
receipt of such written notice from the Company, by any Holder or Holders,
subject to such Holder's or Holders' entering into an underwriting agreement as
provided in Subsection 1.2(b) below.
(b) Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to subsection 1.2(a)(i). In such event the right of any
Holder to registration pursuant to this subsection 1.2 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 and the other shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company.
1.3 Expenses of Registration. All expenses incurred in connection
with any registration, qualification or compliance pursuant to this Section 1
including without limitation, all registration, filing and qualification fees,
printing expenses, fees and disbursements of counsel for the Company and
expenses of any special audits incidental to or required by such registration,
shall be borne by the Company except the Company shall not be required to pay
underwriters fees, discounts or commissions relating to Registrable Securities.
All expenses of any registered offering not otherwise borne by the Company shall
be borne pro rata among the Holders Participating in the offering and the
Company.
1.4 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder participating therein advised in writing as to
the initiation of each registration, qualification
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<PAGE> 19
and compliance and as to the completion thereof. Except as otherwise provided in
subsection 1.3, at its expense the Company will:
(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 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 Securities 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 Securities 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 Securities Act or 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.
1.5 Indemnification.
(a) The Company will indemnify each Holder of
Registrable Securities and each of its officers, directors and partners, and
each person controlling such Holder, with respect to which such registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter of the
Registrable Securities held by or issuable to such Holder, against all claims,
losses, expenses, damages and
-3-
<PAGE> 20
liabilities (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on 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, or any violation or
alleged violation by the Company of the Securities Act, the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or any state securities law
applicable to the Company or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any such state law and relating to action or
inaction required of the Company in connection with any such registration,
qualification of compliance, and will reimburse each such Holder, each of its
officers, directors and partners, and each person controlling such Holder, each
such underwriter and each person who controls any such underwriter, within a
reasonable amount of time after incurred for any reasonable legal and any other
expenses incurred in connection with investigating, defending or settling any
such claim, loss, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 1.5(a) shall not apply to
amounts paid in settlement of any such claim, loss, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld); and provided further, that the Company will
not be liable in any such case to the extent that any such claim, loss, damage
or liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by an instrument duly executed
by such Holder or underwriter specifically for use therein.
(b) Each Holder will, if Registrable Securities held
by or issuable to such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company within the meaning of the Securities Act, and each other
such Holder, each of its officers, directors and partners and each person
controlling such Holder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, partners, persons or underwriters for any reasonable legal or any
other expenses incurred in connection with investigating, defending or settling
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder specifically for use therein; provided, however,
that the indemnity agreement contained in this subsection 1.5(b) shall not apply
to amounts paid in settlement of any such claim, loss, 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 the
total amount for which any Holder shall be liable under this subsection 1.5(b)
shall
-4-
<PAGE> 21
not in any event exceed the aggregate proceeds received by such Holder from the
sale of Registrable Securities held by such Holder in such registration.
(c) Each party entitled to indemnification under this
subsection 1.5 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
prejudice to the Indemnifying Party; and provided further, 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. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
1.6 Information by Holder. Any Holder or Holders of
Registrable Securities included in any registration shall promptly furnish to
the Company such information regarding such Holder or Holders and the
distribution proposed by such Holder or Holders as the Company may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to herein.
1.7 Rule 144 Reporting. With a view to making available to
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees at all times to:
(a) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, after 90 days after the
effective date of the first registration filed by the Company for an offering of
its securities to the general public;
(b) file with the SEC in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
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<PAGE> 22
(c) so long as a Holder owns any Registrable
Securities, to furnish to such Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after 90 days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as the Holder may reasonably request in
complying with any rule or regulation of the SEC allowing the Holder to sell any
such securities without registration.
1.8 Transfer of Registration Rights. Holders' rights to cause
the Company to register their securities and keep information available, granted
to them by the Company under this Agreement may be assigned to a transferee or
assignee of a Holder's Registrable Securities not sold to the public, provided,
that the Company is given written notice by such Holder at the time of or within
a reasonable time after said transfer, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
rights are being assigned. The Company may prohibit the transfer of any Holders'
rights under this subsection 1.8 to any proposed transferee or assignee who the
Company reasonably believes is a competitor of the Company.
2. General.
2.1 Waivers and Amendments. With the written consent of the
record or beneficial Holders owning at least a majority of the Registrable
Securities, the obligations of the Company and the rights of the Registrable
Securities under this Agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively, and either for a
specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such modification, amendment or waiver shall reduce
the aforesaid percentage of Registrable Securities without the consent of all of
the Holders of the Registrable Securities. Upon the effectuation of each such
waiver, consent, agreement of amendment or modification, the Company shall
promptly give written notice thereof to the record holders of the Registrable
Securities who have not previously consented thereto in writing. This Agreement
or any provision hereof may be changed, waived, discharged or terminated only by
a statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, except to the extent
provided in this subsection 2.1
2.2 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
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<PAGE> 23
2.3 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
2.4 Entire Agreement. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
2.5 Notices, etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by first
class mail, postage prepaid, certified or registered mail, return receipt
requested, addressed (a) if to Holder, at such Holder's address as set forth
below, or at such other address as such Holder shall have furnished to the
Company in writing, or (b) if to the Company, at the Company's address set forth
below, or at such other address as the Company shall have furnished to the
Holder in writing.
2.6 Severability. In case any provision of this Agreement
shall be invalid, illegal, or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby.
2.7 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
2.8 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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<PAGE> 24
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
executed as of the date hereof.
<TABLE>
<S> <C>
"PURCHASER" "COMPANY"
COAST BUSINESS CREDIT PROBUSINESS, INC.
By: _____________________________ By: ___________________________
Name: ___________________________ Name: _________________________
(Print) (Print)
Title: __________________________ Title: _________________________
Address: 12121 Wilshire Boulevard, Suite 1111 Address: 5934 Gibralter, Suite 201
Los Angeles, California 90025 Pleasanton, California 94588
</TABLE>
-8-
<PAGE> 1
Exhibit 4.5
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, IN A TRANSACTION THAT, IN THE VIEW OF COUNSEL TO THE ISSUER, IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT PURSUANT TO RULE 144 THEREUNDER
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT 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 THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN
EXEMPTION FROM SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO
THESE SECURITIES ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED, SUCH EXEMPTION BEING AVAILABLE.
THIS WARRANT IS NOT TRANSFERABLE WITHOUT THE CONSENT OF THE ISSUER.
July 31, 1996
WARRANT TO PURCHASE SERIES E PREFERRED STOCK
This Warrant is issued, for good and valuable consideration of $1.00,
receipt of which is hereby acknowledged, to LINC Capital Management, a division
of Scientific Leasing, Inc., a Delaware corporation (the "Warrantholder"), by
ProBusiness, Inc., a California corporation (the "Company"). Unless otherwise
stated, all capitalized terms herein have the meaning provided in the Master
Lease Financing Agreement No. 6403 between the Warrantholder and the Company
dated as of July 31, 1996.
1. Purchase of Shares. Subject to the terms and conditions hereinafter
set forth, the Warrantholder is entitled, upon surrender of this Warrant at the
principal office of the Company (or at such other place as the Company shall
notify the holder hereof in writing), to purchase from the Company 10,000 fully
paid and nonassessable shares of Series E Preferred Stock of the Company (the
"Shares") at an exercise price of $7.94 per share, subject to adjustment as
provided in Section 7 hereof (the "Warrant Price"), payable in cash or by check
unless exercised pursuant to Section 4 hereof.
2. Exercise Period. The purchase rights represented by this Warrant, to
the extent not previously exercised, shall expire five years from the date of
the Warrant (the "Expiration Date").
3. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 2 above, the Warrantholder may exercise,
in whole or in part, the purchase rights evidenced hereby. Such exercise shall
be effected by:
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(i) the surrender of this Warrant, together with the Form of
Subscription attached hereto as Exhibit 1, duly completed and executed by the
Warrantholder, to the Secretary of the Company at its principal offices; and
(ii) the payment to the Company of an amount equal to the aggregate
purchase price for the Shares being purchased, unless exercised pursuant to
Section 4 hereof.
4. Cashless Exercise. Prior to the Expiration Date and in lieu of
exercising this Warrant as specified in Section 3, the Warrantholder may from
time to time convert this Warrant, in whole or in part (but not for a fraction
of a share), into a number of Shares determined by dividing (a) the aggregate
fair market value of the Shares or other securities otherwise issuable upon
exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b)
the fair market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 5.
5. Fair Market Value. The fair market value per share of the Shares
shall be equal to: (i) if the Shares or shares of Common Stock issuable upon
conversion of the Shares are traded in a public market, the closing price
(reported for the business day immediately before the Warrantholder delivers its
Form of Subscription to the Company) per Share or the price per share of the
Common Stock multiplied, as applicable, by the quotient of (x) $7.94 divided by
(y) the Series E Conversion Price (as defined in the Company's Articles of
Incorporation), as applicable, or (ii) if the Shares or Common Stock issuable
upon the conversion of the Shares are not traded in a public market, the Board
of Directors of the Company shall determine fair market value per share of the
Shares in its reasonable good faith judgment, which amount shall equal the fair
market value per share of the Common Stock on an as converted basis.
6. Certificates for Shares; Partial Exercise. Upon the exercise of the
purchase rights evidenced by this Warrant, one or more certificates for the
Shares so purchased shall be issued as soon as practicable thereafter. In the
case of a partial exercise, unless the purchase rights evidenced hereby have
expired, the Company shall issue to the Warrantholder a new Warrant for the
number of Shares, if any, which remain exercisable hereunder.
7. Adjustment of Number of Shares and Warrant Price. The number and
kind of securities purchasable upon the exercise of the purchase rights
evidenced by this Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the occurrence of certain events, as follows:
(i) Subdivision or Combination of Shares. If the Company at any
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its Series E Preferred Stock, whether by way of stock split, stock
dividend, recapitalization or otherwise, the Warrant Price shall, in the case of
a subdivision, be proportionately decreased or, in the case of a combination, be
proportionately increased.
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(ii) Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price, the number of Shares of Series E Preferred Stock purchasable
hereunder shall, in the case of an increase in the Warrant Price, be
proportionately decreased or, in the case of a decrease in the Warrant Price, be
proportionately increased, in either case to the nearest whole share.
(iii) Reclassification, Consolidation or Merger. In case of any
reclassification or change of outstanding securities of the class purchasable
upon exercise of this Warrant (other than as set forth in Section 7(i)) the
Company shall execute a new Warrant providing that the Warrantholder shall have
the right to exercise such new Warrant for, in lieu of each share of Series E
Preferred Stock theretofore purchasable hereunder at such time, the kind and
amount of shares of stock, other securities, money and property receivable upon
such reclassification or change, by a holder of one share of Series E Preferred
Stock. Such new Warrant shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
7. The provisions of this Section 7(iii) shall apply similarly to successive
reclassifications and changes.
8. Notice of Adjustments. Whenever the Warrant Price shall be adjusted
pursuant to Section 7 hereof, the Company shall deliver to the Warrantholder a
certificate signed by its chief financial officer describing, in reasonable
detail, the event requiring the adjustment and the Warrant Price and, as
applicable, the kind and amount of shares of stock, other securities, money or
property purchasable hereunder after giving effect to such adjustment.
9. Fractional Shares. No fractional shares shall be issued in
connection with any exercise hereunder, but in lieu of any such fractional
shares the Company shall make a cash payment therefor upon the basis of the
Warrant Price then in effect.
10. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Series E Preferred
Stock and Common Stock issuable upon conversion of such Series E Preferred
Stock, free from all preemptive rights with respect thereto, as will be
sufficient to permit the exercise of this Warrant for the full number of Shares
specified herein. The Company further covenants that such Shares, when issued
pursuant to the exercise of this Warrant and Common Stock issuable upon
conversion of the Shares, will be duly and validly issued, fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issuance thereof.
11. Rights Prior to Exercise. Prior to exercise of this Warrant, except
as set forth in paragraphs (i) and (ii) below, the Warrant shall not entitle the
Warrantholder to any rights of a shareholder with respect to the Shares,
including (without limitation) the right to vote such Shares, receive preemptive
rights or be notified of shareholder meetings, nor shall the Warrant entitle
such Warrantholder to any notice or other communication concerning the business
or affairs of the Company.
(i) Liquidating Dividends. If the Company declares or pays a dividend
upon the Series E Preferred Stock payable otherwise than in cash out of
earnings or earned surplus (determined in accordance with generally
accepted accounting principles, consistently applied) (a "Liquidating
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Dividend"), then the Company shall pay to the Warrantholder at the time
of payment thereof the Liquidating Dividend which would have been paid
to such Warrantholder on the Shares had this Warrant been fully
exercised immediately prior to the date on which a record is taken for
such Liquidating Dividend, or, if no record is taken, the date as of
which the record holders of Series E Preferred Stock entitled to such
dividends are to be determined.
(ii) Purchase Rights. If at any time the Company grants, issues or
sells any options, convertible securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders
of Series E Preferred Stock (the "Purchase Rights"), then the
Warrantholder shall be entitled to acquire, upon the terms applicable
to such Purchase Rights, the aggregate Purchase Rights which such
Warrantholder could have acquired if such Warrantholder had held the
number of shares of Common Stock acquirable upon complete exercise of
this Warrant immediately before the date on which a record is taken for
the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Series E
Preferred Stock are to be determined for the grant, issue or sale of
such Purchase Rights.
12. Representations of Warrantholder. The Warrantholder hereby
represents and warrants to the Company, with respect to its purchase of the
Warrant and the underlying securities issuable upon the exercise of the Warrant,
that the representations and warranties made by the Warrantholder to the Company
in the Investment Representation Statement attached hereto as Exhibit 2 are true
and correct in all material respects as of the date of this Warrant.
13. Registration Rights. The registration rights of the Warrantholder
with respect to this Warrant and the underlying securities are set forth in the
Registration Rights Agreement dated December 1, 1989 between the Company and the
persons named therein as amended by the Nineteenth Amendment to the Registration
Rights Agreement, dated as of the date hereof, by and between the Company and
the Warrantholder (collectively the "Registration Rights Agreement").
14. Assignment and Transfer. This Warrant may be assigned or otherwise
transferred by the Warrantholder with prior written notice to the Company,
provided, however, the Company shall have the right to refuse to transfer any
portion of this Warrant to any person who directly competes with the Company,
unless the Company has a class of stock registered under the Securities Exchange
Act of 1934, as amended. The terms and provisions of this Warrant shall inure to
the benefit of, and be binding upon, the Company and its successors and assigns.
15. Governing Law. This Warrant shall be governed by the laws of the
State of California, excluding the conflicts of laws provisions thereof.
16. Rights and Obligations Survive Exercise of Warrant. The rights and
obligations of the Company, of the Warrantholder and of the holder of shares of
Series E Preferred Stock issued upon exercise of this Warrant, referred to in
Sections 13 and 14 shall survive the exercise of this Warrant.
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17. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the Company and the Warrantholder.
18. Notices. Any notice, request or other document required or
permitted to be given or delivered to the Warrantholder hereof or to the Company
shall be delivered or shall be sent by certified mail, postage prepaid, to each
such Warrantholder or the Company at the address indicated therefor underneath
the signatures of the respective parties on the last page of this Warrant or
such other address as either may from time to time provide to the other.
19. Binding Effect on Successors. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets. All of the obligations of
the Company relating to the Series E Preferred Stock issuable upon the exercise
of this Warrant shall survive the exercise and termination of this Warrant. All
of the covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof.
20. Lost Warrants. The Company represents and warrants to the
Warrantholder hereof that upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction, or mutilation of this Warrant and,
in the case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation
upon surrender and cancellation of such Warrant, the Company, at its expense,
will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
21. Legends. This Warrant and the Shares (and the securities issuable
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THE SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT THEREOF UNDER SUCH ACT OR
PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED.
22. California Corporate Securities Law. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS WARRANT 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 THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS AN EXEMPTION FROM SUCH
QUALIFICATION IS AVAILABLE. THE RIGHTS
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OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED, OR SUCH EXEMPTION BEING AVAILABLE.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers, thereunto duly authorized this 31st day of July, 1996.
WARRANTHOLDER: COMPANY:
LINC CAPITAL MANAGEMENT, PROBUSINESS, INC.
A DIVISION OF SCIENTIFIC 5934 Gibraltar, Suite 201
LEASING, INC. Pleasanton, CA 94566
303 East Wacker Drive
Chicago, IL 60601
By:___________________________ By:___________________________
Thomas H. Sinton, President
Title:________________________
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4.8 Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of California, without
giving effect to its principles regarding conflicts of law.
"COMPANY"
PROBUSINESS CENTERS, INC.
By: /s/
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EXHIBIT 1
FORM OF SUBSCRIPTION
(TO be signed only upon exercise of Warrant)
TO:______________
The undersigned, the Warrantholder, hereby irrevocably elects to
exercise the purchase right represented by such Warrant for, and to purchase
thereunder, _____________, (______)(1) shares of Series E Preferred Stock of
ProBusiness, Inc. (the "Company") and herewith makes payment of _____________
Dollars ($________ ) therefor, and requests that the certificates for such
shares be issued in the name of, and delivered to, ____________, whose address
is __________________.
The undersigned represents that it is acquiring such Series E Preferred
Stock for its own account for investment and not with a view to or for sale in
connection with any distribution thereof and in order to induce the issuance of
such Series E Preferred Stock certifies to the Company that the representation
and warranties made by Warrantholder set forth in the Investment Representation
Statement attached as Exhibit A to the Warrant are true and correct as of the
date hereof.
DATED: ______________
_____________________________________
(Signature must conform in all respects to name of
Warrantholder as specified on the face of the Warrant)
_____________________________________
_____________________________________
_____________
(1) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised), in either case without making any
adjustment for additional Series E Preferred Stock or any other stock
or other securities or property or cash which, pursuant to the
adjustment provisions of the Warrant, may be deliverable upon exercise.
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Exhibit 4.6(a)
WARRANT PURCHASE AGREEMENT
This Warrant Purchase Agreement (the "Agreement") is made and entered
into as of November 14, 1996 by ProBusiness, Inc., a California corporation (the
"Company") and T. J. Bristow and Elizabeth S. Bristow (collectively, "Bristow"),
Magdalena Shushan and Laurence Shushan (collectively, "Shushan"), and SDK
Incorporated, a Delaware corporation ("SDK") (collectively, "Purchasers" and
individually, a "Purchaser").
1. Issuance of Warrant. In consideration for the execution by Britannia
Hacienda V Limited Partnership, a Delaware limited partnership ("Landlord") of
the Build-to-Suit Lease dated September 27, 1996 between the Company and
Landlord (the "Lease Agreement"), the Company shall issue to each Purchaser, as
assignee of part of Landlord's rights under Section 17.19 of the Lease
Agreement, concurrently with the execution of this Agreement, a Warrant in the
form attached to this Agreement as Exhibit A ("Warrant") exercisable for up to
1,800 shares (in the case of Bristow), 450 shares (in the case of Shushan) or
20,250 shares (in the case of SDK), respectively, of the Company's Series E
Preferred Stock ("Shares") at a price of $7.94 per share, beginning on the date
that Landlord notifies the Company that the work to be constructed by Landlord
pursuant to Section 2.4 and Exhibit C of the Lease Agreement on the shell and
core of the Building (as that term is defined in the Lease Agreement) and the
first phase of the interior improvements of the Building (as more particularly
described in the Lease Agreement) is substantially complete (as that term is
defined in the Lease Agreement) and such work is, in fact, substantially
complete. The period during which the purchase rights represented by the
Warrants are exercisable (the "Exercise Period") shall end on the earlier of:
(i) five (5) years after the date of the consummation of a public offering of
the Company that triggers the automatic conversion of Series E Preferred Stock
of the Company into Common Stock under the Company's Articles of Incorporation
(an "Initial Public Offering") or (ii) eight (8) years from the date of the
Warrants. The terms for exercise of the Warrants are set forth in the Warrants.
The Warrant issued to Bristow shall be registered, for record purposes, in favor
of "T. J. Bristow and Elizabeth S. Bristow, husband and wife, as community
property;" the Warrant issued to Shushan shall be registered, for record
purposes, in favor of "Laurence Shushan and Magdalena Shushan, husband and wife,
as community property."
2. Investment Representations.
2.1 Each Purchaser severally represents and warrants to the
Company as follows:
(a) The Purchaser is aware of the Company's business
affairs and financial condition and has acquired sufficient information about
the Company to reach an informed and knowledgeable decision to acquire its
Warrant and the Shares or underlying securities issuable thereunder. The
Purchaser is acquiring its Warrant and will acquire the Shares or underlying
securities issuable thereunder for its own account for investment purposes only
and not with a view to, or for resale in connection with, any "distribution" for
purposes of the Securities Act of 1933, as amended (the "Act").
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(b) The Purchaser understands that its Warrant and
the Shares or underlying securities issuable thereunder have not been registered
under the Act in reliance upon a specific exemption, which exemption depends
upon, among other things, the bona fide nature of the Purchaser's investment
intent as expressed herein. In this connection, the Purchaser understands that,
in the view of the Securities and Exchange Commission ("SEC"), the statutory
basis for such exemption may be unavailable if the Purchaser's representation
was predicated solely upon a present intention to hold its Warrant or the Shares
or underlying securities issuable thereunder for a period of one year or any
other fixed period in the future.
(c) The Purchaser further understands that its
Warrant and the Shares or underlying securities issuable thereunder must be held
indefinitely unless subsequently registered under the Act or unless an exemption
from registration is otherwise available. Moreover, the Purchaser understands
that the Company is under no obligation to register the Warrants or the Shares
or underlying securities issuable thereunder except as provided in the Twentieth
Amendment to Registration Rights Agreement attached hereto as Exhibit B and
executed concurrently herewith. In addition, the Purchaser understands that its
Warrant and the Shares or underlying securities issuable thereunder will be
imprinted with a legend which prohibits the transfer of the Warrant or the
Shares or underlying securities issuable thereunder unless they are registered
or such registration is not required in the opinion of counsel reasonably
satisfactory to the Company.
(d) The Purchaser is aware of the provisions of Rule
144, promulgated under the Act, which in substance, permit limited public resale
of "restricted securities" acquired, directly or indirectly from the issuer (or
from an affiliate of the issuer), in a non-public offering subject to the
satisfaction of certain conditions, including, in case the Purchaser has held
the securities less than three years or is an affiliate of the Company: (1) the
resale occurring not less than two years after the party has purchased and paid
for the securities to be sold; (2) the availability of certain public
information about the Company; (3) the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said terms are defined under the Securities Exchange Act of 1934); (4)
the amount of securities being sold during any three-month period not exceeding
certain specified limitations and (5) the filing of a Notice of Sale on Form 144
as appropriate.
(e) The Purchaser further understands that at the
time it wishes to sell its Warrant or the Shares or underlying securities
issuable thereunder there may be no public market upon which to make such a
sale, and that, even if such a public market then exists the Company may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, the Purchaser would be precluded from selling its Warrant or Shares
or underlying securities issuable thereunder under Rule 144 unless (1) a
three-year minimum holding period had been satisfied and (2) the Purchaser was
not at the time of sale nor at any time during the three-month period prior to
such sale an affiliate of the Company.
(f) The Purchaser further understands that in the
event all of the applicable requirements of Rule 144 are not satisfied,
registration under the Act, compliance with
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Regulation A or some other registration exemption will be required; and that,
notwithstanding the fact that Rule 144 is not exclusive, the staff of the SEC
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales and that such
persons and their respective brokers who participate in such transaction do so
at their own risk.
2.2 Legends.
(a) Each Warrant shall be endorsed with the following
legend (in addition to any legend required by applicable state securities laws):
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, IN A TRANSACTION THAT, IN THE VIEW OF COUNSEL
TO THE COMPANY, IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT PURSUANT TO RULE 144 THEREUNDER OR PURSUANT TO AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT.
(b) Each certificate representing Shares or
underlying securities shall be endorsed with the following legend (in addition
to any legend required by applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, IN A TRANSACTION THAT, IN THE VIEW OF COUNSEL TO THE COMPANY, IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT PURSUANT TO RULE
144 THEREUNDER OR PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.
The Company need not register a transfer of any Warrant or of Shares or
underlying securities issued thereunder unless the conditions specified in the
foregoing legend are satisfied. The Company may also instruct its transfer agent
not to register the transfer of any Warrant or any of the Shares or underlying
securities issued thereunder unless the conditions specified in the foregoing
legends are satisfied.
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2.3 Removal of Legends and Transfer Restrictions. The legend
relating to the Act endorsed on each Warrant or stock certificate pursuant to
Section 2.2 and the stop transfer instructions with respect to the Warrants or
the Shares or underlying securities represented by such certificate shall be
removed and the Company shall issue a certificate without such legend to the
holder of the applicable Warrant or Shares or underlying securities if such
Shares or underlying securities are registered under the Act and a prospectus
meeting the requirements of Section 10 of the Act is available, or if such
holder provides to the Company an opinion of counsel for such holder of the
Warrant or Shares or underlying securities reasonably satisfactory to the
Company or a no-action letter or interpretive opinion of the staff of the SEC to
the effect that a public sale, transfer or assignment of such Shares or
underlying securities may be made without registration and without compliance
with any restriction such as Rule 144.
3. Lock-Up Agreement. Each Purchaser hereby agrees not to sell, make
any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any of the underlying securities issuable upon exercise of its
Warrant for a period of up to 180 days after a firm commitment underwritten
initial public offering of the Company, other than a transfer or distribution to
Landlord, to any partner of Landlord, or to any affiliate of such Purchaser or
of Landlord or of any such partner of Landlord, and then only so long as such
transferee agrees in writing to be bound by the restrictions set forth in this
Section and so long as the number of any such partners or affiliates who are
transferees or distributees does not exceed five (5) in the aggregate (a
"Permitted Transfer"). Moreover, in connection with any registration of the
Company's securities, upon request of the Company or the underwriters managing
any underwritten offering of the Company's securities, each Purchaser hereby
agrees not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any underlying securities issued or
issuable upon exercise of its Warrant (other than those included in the
registration or other than a Permitted Transfer) without the prior written
consent of the Company or such underwriters, as the case may be, for such period
of time (not to exceed 180 days) from the effective date of such registration as
the Company or the underwriters may specify. Furthermore, each Purchaser hereby
agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the underlying securities
issuable upon exercise of the Warrant held by such Purchaser except in
compliance with this Lock-Up Agreement.
4. Notices. All notices and other communications required or permitted
hereunder shall be effective upon receipt and shall be in writing and may be
delivered in person or by telecopy, electronic mail, overnight delivery service
or by first-class U.S. mail, certified or registered, return receipt requested,
postage prepaid, addressed (a) if to Purchasers, at 1939 Harrison Street, Suite
412, Oak land, California 94612, with a copy to 33 West Monroe Street, Suite
2610, Chicago, Illinois 60603, or at such other address as any Purchaser
furnishes in writing to the Company or (b) if to the Company, at 5934
Gibraltar, Pleasanton, California 94566, or at such other address as the Company
shall have furnished to Purchasers in writing.
5. Assignment. No Purchaser shall assign this Agreement or any rights
or obligations under it without the prior consent of the Company, except as
expressly provided below. Subject to
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the foregoing, this Agreement shall bind and benefit the respective parties to
this Agreement and their successors and assigns. Notwithstanding the
restrictions set forth above, each Purchaser shall be entitled to transfer its
Warrant and/or to assign such Purchaser's rights under this Agreement, without
the Company's consent but with prior or concurrent written notice to the
Company, to Landlord or to any partner of Landlord or to any affiliate of such
Purchaser or of Landlord or of any such partner of Landlord (so long as the
number of such partners or affiliates does not exceed five (5) in the
aggregate), subject to compliance with federal and state securities laws and
to each transferee's agreement to be bound by the terms of this Agreement and
the Warrant.
6. Governing Law. This Agreement shall be governed in all respects by
the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
7. Waiver. The waiver of one breach or default hereunder shall not
constitute the waiver of any subsequent breach or default. In case any provision
of this Agreement shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired.
8. Amendment. Neither this Agreement nor any provisions hereof may be
changed, waived, discharged or terminated orally, but only by a signed statement
in writing by both parties.
9. Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter of this Agreement.
10. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall be an original, and all of which together
shall be deemed to constitute one instrument.
11. Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
12. Attorneys Fees. In the event that any dispute arising out of or in
connection with this Agreement should result in litigation, the prevailing party
in such litigation shall be entitled to recover from the losing party all fees,
costs and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals and of enforcement of any judgment
issued in such litigation.
13. California 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 THEREFOR
PRIOR TO SUCH QUALIFICATION, IS UNLAWFUL UNLESS
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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.
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<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date set forth at the beginning of this Agreement.
PROBUSINESS, INC. BRISTOW
By:
- ------------------------- ---------------------------------
T. J. Bristow
Title
- ------------------------- ---------------------------------
Elizabeth S. Bristow
Date:
- -------------------------
SHUSHAN SDK INCORPORATED
By:
- ------------------------- ---------------------------------
Magdalena Shushan
Title:
- ------------------------- ---------------------------------
Laurence Shushan
Date:
---------------------------------
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<PAGE> 1
EXHIBIT 4.6(b)
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, IN A
TRANSACTION THAT, IN THE VIEW OF COUNSEL TO THE COMPANY, IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT PURSUANT TO RULE 144 THEREUNDER OR
PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION
IS NOT REQUIRED UNDER SUCH ACT.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT 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 THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN
EXEMPTION FROM SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO
THESE SECURITIES ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED OR SUCH EXEMPTION BEING AVAILABLE.
November 14, 1996
WARRANT TO PURCHASE SERIES E PREFERRED STOCK
This Warrant is issued, for good and valuable consideration of $1.00,
receipt of which is hereby acknowledged, to T.J. Bristow and Elizabeth S.
Bristow, husband and wife, as community property (the "Warrantholder"), by
ProBusiness, Inc., a California corporation (the "Company") located at 5934
Gibraltar, Pleasanton, California 94566. Unless otherwise stated, all
capitalized terms herein have the meaning provided in the Warrant Purchase
Agreement between the Warrantholder, SDK Incorporated, Magdalena Shushan,
Laurence Shushan and the Company dated November 14, 1996 (the "Warrant Purchase
Agreement").
1. Purchase of Shares. Subject to the terms and conditions hereinafter
set forth, the Warrantholder is entitled, upon surrender of this Warrant at the
principal office of the Company (or at such other place as the Company shall
notify the holder hereof in writing), to purchase from the Company, if and to
the extent permitted by law, 1,800 fully paid and nonassessable shares of Series
E Preferred Stock of the Company (the "Shares") at an exercise price of $7.94
per share, subject to adjustment as provided in Section 7 hereof (the "Warrant
Price"), payable in cash or by check unless exercised pursuant to Section 4
hereof.
2. Exercise Period. The purchase rights represented by this Warrant
shall become exercisable on the date that Britannia Hacienda V Limited
Partnership ("Landlord") notifies the
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<PAGE> 2
Company that the work to be constructed by Landlord pursuant to Section 2.4 and
Exhibit C of the Build-to-Suit Lease dated September 27, 1996 between Landlord
and the Company (the "Lease Agreement") on the shell and core of the Building
(as that term is defined in the Lease Agreement) and the first phase of the
interior improvements of the Building (as more particularly described in the
Lease Agreement) is substantially complete (as that term is defined in the Lease
Agreement) and such work is, in fact, substantially complete. The period during
which the purchase rights represented by this Warrant are exercisable (the
"Exercise Period") shall end on the earlier of (i) five (5) years after the date
of the consummation of a public offering of the Company that triggers the
automatic conversion of Series E Preferred Stock of the Company into Common
Stock under the Company's Articles of Incorporation (an "Initial Public
Offering") or (ii) eight (8) years from the date of this Warrant as set forth on
the first page hereof.
3. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 2 above, the holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(i) the surrender of this Warrant, together with the Form of
Subscription attached hereto as Exhibit 1, duly filled in and executed by the
Warrantholder, to the Secretary of the Company at its principal offices; and
(ii) the payment to the Company of an amount equal to the
aggregate purchase price for the Shares being purchased, unless exercised
pursuant to Section 4 hereof.
4. Conversion Right. During the Exercise Period (and subject to the
conditions set forth in Section 2) and in lieu of exercising this Warrant as
specified in Section 3, Warrantholder may from time to time convert this
Warrant, in whole or in part (but not for a fraction of a share), into a number
of Shares determined by dividing (a) the aggregate fair market value of the
Shares or other securities otherwise issuable upon exercise of this Warrant
minus the aggregate Warrant Price of such Shares by (b) the fair market value of
one Share.
5. Fair Market Value. The fair market value per share of the Shares
shall be equal to: (i) if the Common Stock issuable upon conversion of the
Shares is listed on a national stock exchange or over the counter market, then
the price per share listed on such national stock exchange, or the average of
the final "bid" and "asked" prices reported on such over the counter market, at
the close of business on the date of exercise as reported in the Wall Street
Journal multiplied by the quotient of (x) $7.94 divided by (y) the Series E
Conversion Price (as defined in the Company's Articles of Incorporation); or
(ii) if the Common Stock issuable upon the conversion of the Shares is not
listed on a national stock exchange or over the counter market, the Board of
Directors of the Company shall determine the fair market value per share of the
Shares in its reasonable good faith judgment.
6. Certificates for Shares; Partial Exercise. Upon the exercise of the
purchase rights evidenced by this Warrant, one or more certificates for the
Shares so purchased shall be issued to the Warrantholder as soon as practicable
thereafter. In the case of a partial exercise, unless the purchase
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<PAGE> 3
rights evidenced hereby have expired, the Company shall issue to the
Warrantholder a new Warrant, dated as of the same date as this Warrant, for the
number of Shares, if any, which remain exercisable hereunder.
7. Adjustment of Number of Shares and Warrant Price. The number and
kind of securities purchasable upon the exercise of the purchase rights
evidenced by this Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the occurrence of certain events, as follows:
(i) Subdivision or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide or
combine the class of the Company's securities purchasable upon exercise of this
Warrant, whether by way of stock split, stock dividend, recapitalization or
otherwise, the Warrant Price shall, in the case of a subdivision, be
proportionately decreased or, in the case of a combination, be proportionately
increased.
(ii) Adjustment of Number of Shares. Upon each adjustment in
the Warrant Price, the number of Shares of the class of the Company's securities
purchasable upon exercise of this Warrant shall, in the case of an increase in
the Warrant Price, be proportionately decreased or, in the case of a decrease in
the Warrant Price, be proportionately increased, in either case to the nearest
whole share.
(iii) Reorganization, Reclassification, Consolidation, Merger
or Sale. In case of any reclassification or change of outstanding securities of
the class purchasable upon exercise of this Warrant (other than as set forth in
Section 7(i)) as a result of any reorganization of the capital stock of the
Company, or any consolidation or merger of the Company with another corporation,
or the sale of substantially all of the Company's assets to another corporation,
the Company or its successor, as applicable, shall execute a new Warrant
providing that the Warrantholder shall have the right to exercise such new
Warrant for, in lieu of each share of the class of the Company's securities
theretofore purchasable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification or change by a holder of one share of the class of the
Company's securities theretofore purchasable upon exercise of this Warrant. Such
new Warrant shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 7. The
provisions of this Section 7(iii) shall apply similarly to successive
reclassifications and changes.
(iv) Dividends in Stock or Property. If at any time or from
time to time prior to commencement of the Exercise Period the holders of the
Company's Common Stock or of any other class of the Company's securities
purchasable upon exercise of this Warrant shall, as a class, receive or become
entitled to receive, without payment therefor, any shares of stock or other
securities of the Company, any rights or options to acquire or subscribe for any
such shares of stock or other securities, or any other property (including cash)
distributable other than as a cash dividend (collectively, a "Distribution"),
and if no adjustment is made pursuant to Section 7(i), (ii) or (iii) above with
respect to such Distribution, then in each such case, the Warrantholder shall,
upon exercise of this Warrant, be entitled to receive, in addition to the shares
otherwise purchasable upon exercise of this Warrant and without payment of any
additional consideration therefor, the amount of stock, other securities and
other
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<PAGE> 4
property (other than cash distributed as a cash dividend) which the
Warrantholder would hold or be entitled to receive on the date of such exercise
had the Warrantholder been the holder of record, as of the date of such
Distribution, of the shares purchased by the Warrantholder upon such exercise.
(v) Certain Other Events. If any change in the shares of the
class of the Company's securities purchasable upon exercise of this Warrant or
any other event occurs as to which the other provisions of this Section 7 are
not strictly applicable or if strictly applicable would not fairly protect the
reasonable expectations of Warrantholder with respect to its purchase rights
under this Warrant, then the Board of Directors of the Company shall make an
adjustment in the number and class of shares purchasable under this Warrant, the
Warrant Price or the other terms and provisions of this Warrant, so as to
protect such reasonable expectations of Warrantholder by giving Warrantholder,
upon exercise of this Warrant for the same aggregate Warrant Price payable for
full exercise of this Warrant prior to such event, the total number, class and
kind of shares (or the closest then available equivalent thereto) as
Warrantholder would have owned had this Warrant been exercised prior to such
event and had Warrantholder continued to hold such shares until after the event
requiring such adjustment.
8. Notice of Adjustments. Whenever the Warrant Price or other terms of
this Warrant shall be adjusted pursuant to Section 7 hereof, the Company shall
deliver to the Warrantholder a certificate signed by the Company's chief
financial officer describing, in reasonable detail, the event requiring the
adjustment and the newly adjusted Warrant Price and, as applicable, the kind and
amount of shares of stock, other securities, money or property purchasable
hereunder after giving effect to such adjustment.
9. Fractional Shares. No fractional shares shall be issued in
connection with any exercise hereunder, but in lieu of any such fractional
shares the Company shall make a cash payment therefor in an amount equal to the
difference between the fair market value of such fractional Share as of the date
of exercise and the Warrant Price then in effect with respect to such fractional
Share.
10. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Series E Preferred
Stock and Common Stock issuable upon conversion of such Series E Preferred
Stock, free from all preemptive rights with respect thereto, as will be
sufficient to permit the exercise of this Warrant for the full number of Shares
specified herein. The Company further covenants that such Shares, when issued
pursuant to the exercise of this Warrant, and the Common Stock issuable upon
conversion of the Shares, when issued pursuant to such conversion, will be duly
and validly issued, fully paid and non-assessable and free from all taxes, liens
and charges with respect to the issuance thereof.
11. Rights Prior to Exercise. Prior to exercise of this Warrant, this
Warrant shall not entitle the Warrantholder to any rights of a shareholder with
respect to the Shares, including (without limitation) the right to vote such
Shares, receive preemptive rights or be notified of shareholder meetings, nor
shall this Warrant entitle such Warrantholder to any notice or other
communication concerning the business or affairs of the Company except as set
forth in Section 22 hereof.
-4-
<PAGE> 5
12. Representations of Warrantholder. Warrantholder hereby represents
and warrants to the Company, with respect to its purchase of this Warrant and
the underlying securities issuable upon the exercise of this Warrant, that the
representations and warranties made by Warrantholder to the Company in Section 2
of the Warrant Purchase Agreement are true and correct in all material respects
as of the date of this Warrant.
13. Registration Rights. The registration rights of the Warrantholder
with respect to this Warrant and the underlying securities are set forth in the
Registration Rights Agreement dated December 1, 1989 between the Company and the
persons named therein as amended by the Twentieth Amendment to Registration
Rights Agreement, dated the date hereof, by and among the Company and the
Warrantholders set forth therein.
14. Non-Assignability and Non-Transferability of Warrant. This Warrant
is not assignable or otherwise transferable by the Warrantholder without the
prior written consent of the Company, except that Warrantholder shall be
entitled to transfer this Warrant, without the Company's consent but with prior
or concurrent written notice to the Company, to Landlord or to any partner of
Landlord or to any affiliate of Warrantholder or of Landlord or of any such
partner of Landlord (so long as the number of such partners or affiliates does
not exceed five (5) in the aggregate), subject to compliance with federal and
state securities laws and to each transferee's agreement to be bound by the
terms of the Warrant Purchase Agreement and this Warrant. The terms and
provisions of this Warrant shall inure to the benefit of, and be binding upon,
Warrantholder and the Company and their respective permitted successors and
assigns.
15. Governing Law. This Warrant shall be governed by the laws of the
State of California, excluding the conflicts of laws provisions thereof.
16. Rights and Obligations Survive Exercise of Warrant. The rights and
obligations of the Company, of the Warrantholder and of the holder of shares of
Series E Preferred Stock issued upon exercise of this Warrant, referred to in
Sections 12 and 13 shall survive the exercise of this Warrant.
17. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the Company and the Warrantholder.
18. Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, return receipt
requested, to each such holder at its address as shown on the books of the
Company or to the Company at the address indicated therefor in the first
paragraph of this Warrant or such other address as either may from time to time
provide to the other.
19. Binding Effect on Successors. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets in any one transaction or
series of related transactions. All of the obligations of the
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<PAGE> 6
Company relating to the Series E Preferred Stock issuable upon the exercise of
this Warrant shall survive the exercise and termination of this Warrant. All of
the covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof.
20. Lost Warrants. The Company represents and warrants to the
Warrantholder hereof that upon receipt of evidence reasonably satisfactory to
the Company (such as an affidavit of the registered holder) of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any such loss,
theft or destruction, upon receipt of an indemnity reasonably satisfactory to
the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant, the Company, at its expense, will make and deliver
a new Warrant, dated as of the date of the lost, stolen, destroyed or mutilated
Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant.
21. Lock-Up Agreement. Warrantholder hereby agrees not to sell, make
any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any of the underlying securities issuable upon exercise of this
Warrant for a period of up to 180 days after a firm commitment underwritten
initial public offering of the Company, other than a transfer or distribution to
Landlord, to any partner of Landlord, or to any affiliate of Warrantholder, of
Landlord or of any such partner of Landlord, and then only so long as such
transferee agrees in writing to be bound by the restrictions set forth in this
Section and so long as the number of any such partners or affiliates who are
transferees or distributees does not exceed five (5) in the aggregate (a
"Permitted Transfer"). Moreover, in connection with any registration of the
Company's securities, upon request of the Company or the underwriters managing
any underwritten offering of the Company's securities, Warrantholder hereby
agrees not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any underlying securities issued or
issuable upon exercise of this Warrant (other than those included in the
registration or other than a Permitted Transfer) without the prior written
consent of the Company or such underwriters, as the case may be, for such period
of time (not to exceed 180 days) from the effective date of such registration as
the Company or the underwriters may specify. Furthermore, Warrantholder hereby
agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the underlying securities
issuable upon exercise of the Warrant held by the Warrantholder except in
compliance with this Lock-Up Agreement.
22. Information Rights. Upon written request delivered to the Chief
Financial Officer of the Company, the Company shall provide to Warrantholder
copies of the following documents within a reasonable time after receipt of such
request and on or after such documents have been distributed or made available
to the Company's shareholders:
(i) unaudited quarterly financial statements for each quarter
(other than the Company's fourth quarter) of the Company's fiscal year since the
date of the Company's most recent audited annual financial statements;
(ii) the Company's most recent audited annual financial
statements;
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<PAGE> 7
(iii) after an Initial Public Offering of the Company,
registration statements, annual reports on Form 10-K, and quarterly reports on
Form 10-Q filed with the Securities and Exchange Commission; and
(iv) letters distributed to holders of the class of the
Company's securities purchasable under this Warrant along with the Company's
quarterly and annual financial statements, as well as any proxy statements or
other information distributed to such holders in connection with any annual or
special meeting of the shareholders within the last twelve (12) months preceding
such request by Warrantholder.
23. Other Notices. If at any time the Company proposes:
(i) To declare any cash dividend upon its Common Stock or upon
any other class of its securities purchasable upon exercise of this Warrant;
(ii) To declare any dividend upon its Common Stock or upon any
other class of its securities purchasable upon exercise of this Warrant payable
in stock or make any special dividend or other distribution to the holders of
its Common Stock or to the holders of any other class of its securities
purchasable upon exercise of this Warrant;
(iii) To offer for subscription pro rata to the holders of its
Common Stock or to the holders of any other class of its securities purchasable
upon exercise of this Warrant any additional shares of stock of any class or
other rights;
(iv) To engage in any capital reorganization or
reclassification of the capital stock of the Company; or consolidation or merger
of the Company with, or sale of all or substantially all of its assets (in any
one transaction or series of related transactions) to another corporation; or
(v) To engage in 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, by first class
mail, postage prepaid, addressed to the Warrantholder of this Warrant at the
address of such Holder as shown on the books of the Company, (a) at least twenty
(20) days' prior written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, at least twenty (20) days' prior written notice of the date when the
same shall take place; provided, however, that the Warrantholder shall make a
best efforts attempt to respond to such notice as early as possible after the
receipt thereof. Any notice given in accordance with the foregoing clause (a)
shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of the
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<PAGE> 8
applicable class of the Company's securities shall be entitled thereto. Any
notice given in accordance with the foregoing clause (b) shall also specify the
date on which the holders of the applicable class of the Company's securities
shall be entitled to exchange their shares for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, as the case may be.
24. Attorneys' Fees. In the event that any dispute arising out of or in
connection with this Warrant should result in litigation, the prevailing party
in such litigation shall be entitled to recover from the losing party all fees,
costs and expenses of enforcing any right of such prevailing party under or with
respect to this Warrant, including without limitation, reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals and of enforcement of any judgment
issued in such litigation.
IN WITNESS WHEREOF, the parties have caused this Warrant to be executed
by their respective officers or managers (if applicable), thereunto duly
authorized, this 14th day of November, 1996.
PROBUSINESS, INC.
By:
---------------------------------
Thomas H. Sinton, President
-------------------------------------
T. J. Bristow
-------------------------------------
Elizabeth S. Bristow,
husband and wife, as community property
-8-
<PAGE> 9
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: ProBusiness, Inc.
The undersigned, the Warrantholder, hereby irrevocably elects to
exercise the purchase right represented by its Warrant for, and to purchase
thereunder, _________ , (______)(2) shares of Series E Preferred Stock of
ProBusiness, Inc. (the "Company") and herewith makes payment of
______________________ Dollars ($__________ ) therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to,
___________________________ , whose address is __________________________.
The undersigned represents that it is acquiring such Series E Preferred
Stock for its own account for investment and not with a view to or for sale in
connection with any distribution thereof, and in order to induce the issuance of
such Series E Preferred Stock the undersigned makes to the Company the
representations and warranties set forth in Section 2 of the Warrant Purchase
Agreement between the Company and Warrantholder.
DATED:
-----------------
------------------------------------------
(Signature must conform in all respects to
name of Warrantholder as specified on the
face of the Warrant)
------------------------------------------
------------------------------------------
- --------
(2) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised), in either case without making any
adjustment for additional Series E Preferred Stock or any other stock
or other securities or property or cash which, pursuant to the
adjustment provisions of the Warrant, may be deliverable upon exercise.
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<PAGE> 1
EXHIBIT 4.6(c)
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, IN A
TRANSACTION THAT, IN THE VIEW OF COUNSEL TO THE COMPANY, IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT PURSUANT TO RULE 144 THEREUNDER OR
PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION
IS NOT REQUIRED UNDER SUCH ACT.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT 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 THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN
EXEMPTION FROM SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO
THESE SECURITIES ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED OR SUCH EXEMPTION BEING AVAILABLE.
November 14, 1996
WARRANT TO PURCHASE SERIES E PREFERRED STOCK
This Warrant is issued, for good and valuable consideration of $1.00,
receipt of which is hereby acknowledged, to SDK Incorporated (the
"Warrantholder"), by ProBusiness, Inc., a California corporation (the "Company")
located at 5934 Gibraltar, Pleasanton, California 94566. Unless otherwise
stated, all capitalized terms herein have the meaning provided in the Warrant
Purchase Agreement between the Warrantholder, T. J. Bristow, Elizabeth S.
Bristow, Magdalena Shushan, Laurence Shushan and the Company dated November 14,
1996 (the "Warrant Purchase Agreement").
14. Purchase of Shares. Subject to the terms and conditions hereinafter
set forth, the Warrantholder is entitled, upon surrender of this Warrant at the
principal office of the Company (or at such other place as the Company shall
notify the holder hereof in writing), to purchase from the Company, if and to
the extent permitted by law, 20,250 fully paid and nonassessable shares of
Series E Preferred Stock of the Company (the "Shares") at an exercise price of
$7.94 per share, subject to adjustment as provided in Section 7 hereof (the
"Warrant Price"), payable in cash or by check unless exercised pursuant to
Section 4 hereof.
15. Exercise Period. The purchase rights represented by this Warrant
shall become exercisable on the date that Britannia Hacienda V Limited
Partnership ("Landlord") notifies the Company that the work to be constructed by
Landlord pursuant to Section 2.4 and Exhibit C of the
-1-
<PAGE> 2
Build-to-Suit Lease dated September 27, 1996 between Landlord and the Company
(the "Lease Agreement") on the shell and core of the Building (as that term is
defined in the Lease Agreement) and the first phase of the interior improvements
of the Building (as more particularly described in the Lease Agreement) is
substantially complete (as that term is defined in the Lease Agreement) and such
work is, in fact, substantially complete. The period during which the purchase
rights represented by this Warrant are exercisable (the "Exercise Period") shall
end on the earlier of (i) five (5) years after the date of the consummation of a
public offering of the Company that triggers the automatic conversion of Series
E Preferred Stock of the Company into Common Stock under the Company's Articles
of Incorporation (an "Initial Public Offering") or (ii) eight (8) years from the
date of this Warrant as set forth on the first page hereof.
16. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 2 above, the holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(i) the surrender of this Warrant, together with the Form of
Subscription attached hereto as Exhibit 1, duly filled in and executed by the
Warrantholder, to the Secretary of the Company at its principal offices; and
(ii) the payment to the Company of an amount equal to the
aggregate purchase price for the Shares being purchased, unless exercised
pursuant to Section 4 hereof.
17. Conversion Right. During the Exercise Period (and subject to the
conditions set forth in Section 2) and in lieu of exercising this Warrant as
specified in Section 3, Warrantholder may from time to time convert this
Warrant, in whole or in part (but not for a fraction of a share), into a number
of Shares determined by dividing (a) the aggregate fair market value of the
Shares or other securities otherwise issuable upon exercise of this Warrant
minus the aggregate Warrant Price of such Shares by (b) the fair market value of
one Share.
18. Fair Market Value. The fair market value per share of the Shares
shall be equal to: (i) if the Common Stock issuable upon conversion of the
Shares is listed on a national stock exchange or over the counter market, then
the price per share listed on such national stock exchange, or the average of
the final "bid" and "asked" prices reported on such over the counter market, at
the close of business on the date of exercise as reported in the Wall Street
Journal multiplied by the quotient of (x) $7.94 divided by (y) the Series E
Conversion Price (as defined in the Company's Articles of Incorporation); or
(ii) if the Common Stock issuable upon the conversion of the Shares is not
listed on a national stock exchange or over the counter market, the Board of
Directors of the Company shall determine the fair market value per share of the
Shares in its reasonable good faith judgment.
19. Certificates for Shares; Partial Exercise. Upon the exercise of the
purchase rights evidenced by this Warrant, one or more certificates for the
Shares so purchased shall be issued to the Warrantholder as soon as practicable
thereafter. In the case of a partial exercise, unless the purchase rights
evidenced hereby have expired, the Company shall issue to the Warrantholder a
new Warrant,
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<PAGE> 3
dated as of the same date as this Warrant, for the number of Shares, if any,
which remain exercisable hereunder.
20. Adjustment of Number of Shares and Warrant Price. The number and
kind of securities purchasable upon the exercise of the purchase rights
evidenced by this Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the occurrence of certain events, as follows:
(i) Subdivision or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide or
combine the class of the Company's securities purchasable upon exercise of this
Warrant, whether by way of stock split, stock dividend, recapitalization or
otherwise, the Warrant Price shall, in the case of a subdivision, be
proportionately decreased or, in the case of a combination, be proportionately
increased.
(ii) Adjustment of Number of Shares. Upon each adjustment in
the Warrant Price, the number of Shares of the class of the Company's securities
purchasable upon exercise of this Warrant shall, in the case of an increase in
the Warrant Price, be proportionately decreased or, in the case of a decrease in
the Warrant Price, be proportionately increased, in either case to the nearest
whole share.
(iii) Reorganization, Reclassification, Consolidation, Merger
or Sale. In case of any reclassification or change of outstanding securities of
the class purchasable upon exercise of this Warrant (other than as set forth in
Section 7(i)) as a result of any reorganization of the capital stock of the
Company, or any consolidation or merger of the Company with another corporation,
or the sale of substantially all of the Company's assets to another corporation,
the Company or its successor, as applicable, shall execute a new Warrant
providing that the Warrantholder shall have the right to exercise such new
Warrant for, in lieu of each share of the class of the Company's securities
theretofore purchasable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification or change by a holder of one share of the class of the
Company's securities theretofore purchasable upon exercise of this Warrant. Such
new Warrant shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 7. The
provisions of this Section 7(iii) shall apply similarly to successive
reclassifications and changes.
(iv) Dividends in Stock or Property. If at any time or from
time to time prior to commencement of the Exercise Period the holders of the
Company's Common Stock or of any other class of the Company's securities
purchasable upon exercise of this Warrant shall, as a class, receive or become
entitled to receive, without payment therefor, any shares of stock or other
securities of the Company, any rights or options to acquire or subscribe for any
such shares of stock or other securities, or any other property (including cash)
distributable other than as a cash dividend (collectively, a "Distribution"),
and if no adjustment is made pursuant to Section 7(i), (ii) or (iii) above with
respect to such Distribution, then in each such case, the Warrantholder shall,
upon exercise of this Warrant, be entitled to receive, in addition to the shares
otherwise purchasable upon exercise of this Warrant and without payment of any
additional consideration therefor, the amount of stock, other securities and
other property (other than cash distributed as a cash dividend) which the
Warrantholder would hold or be
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entitled to receive on the date of such exercise had the Warrantholder been the
holder of record, as of the date of such Distribution, of the shares purchased
by the Warrantholder upon such exercise.
(v) Certain Other Events. If any change in the shares of the
class of the Company's securities purchasable upon exercise of this Warrant or
any other event occurs as to which the other provisions of this Section 7 are
not strictly applicable or if strictly applicable would not fairly protect the
reasonable expectations of Warrantholder with respect to its purchase rights
under this Warrant, then the Board of Directors of the Company shall make an
adjustment in the number and class of shares purchasable under this Warrant, the
Warrant Price or the other terms and provisions of this Warrant, so as to
protect such reasonable expectations of Warrantholder by giving Warrantholder,
upon exercise of this Warrant for the same aggregate Warrant Price payable for
full exercise of this Warrant prior to such event, the total number, class and
kind of shares (or the closest then available equivalent thereto) as
Warrantholder would have owned had this Warrant been exercised prior to such
event and had Warrantholder continued to hold such shares until after the event
requiring such adjustment.
21. Notice of Adjustments. Whenever the Warrant Price or other terms of
this Warrant shall be adjusted pursuant to Section 7 hereof, the Company shall
deliver to the Warrantholder a certificate signed by the Company's chief
financial officer describing, in reasonable detail, the event requiring the
adjustment and the newly adjusted Warrant Price and, as applicable, the kind and
amount of shares of stock, other securities, money or property purchasable
hereunder after giving effect to such adjustment.
22. Fractional Shares. No fractional shares shall be issued in
connection with any exercise hereunder, but in lieu of any such fractional
shares the Company shall make a cash payment therefor in an amount equal to the
difference between the fair market value of such fractional Share as of the date
of exercise and the Warrant Price then in effect with respect to such fractional
Share.
23. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Series E Preferred
Stock and Common Stock issuable upon conversion of such Series E Preferred
Stock, free from all preemptive rights with respect thereto, as will be
sufficient to permit the exercise of this Warrant for the full number of Shares
specified herein. The Company further covenants that such Shares, when issued
pursuant to the exercise of this Warrant, and the Common Stock issuable upon
conversion of the Shares, when issued pursuant to such conversion, will be duly
and validly issued, fully paid and non-assessable and free from all taxes, liens
and charges with respect to the issuance thereof.
24. Rights Prior to Exercise. Prior to exercise of this Warrant, this
Warrant shall not entitle the Warrantholder to any rights of a shareholder with
respect to the Shares, including (without limitation) the right to vote such
Shares, receive preemptive rights or be notified of shareholder meetings, nor
shall this Warrant entitle such Warrantholder to any notice or other
communication concerning the business or affairs of the Company except as set
forth in Section 22 hereof.
25. Representations of Warrantholder. Warrantholder hereby represents
and warrants to the Company, with respect to its purchase of this Warrant and
the underlying securities issuable upon the
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exercise of this Warrant, that the representations and warranties made by
Warrantholder to the Company in Section 2 of the Warrant Purchase Agreement are
true and correct in all material respects as of the date of this Warrant.
26. Registration Rights. The registration rights of the Warrantholder
with respect to this Warrant and the underlying securities are set forth in the
Registration Rights Agreement dated December 1, 1989 between the Company and the
persons named therein as amended by the Twentieth Amendment to Registration
Rights Agreement, dated the date hereof, by and among the Company and the
Warrantholders set forth therein.
27. Non-Assignability and Non-Transferability of Warrant. This Warrant
is not assignable or otherwise transferable by the Warrantholder without the
prior written consent of the Company, except that Warrantholder shall be
entitled to transfer this Warrant, without the Company's consent but with prior
or concurrent written notice to the Company, to Landlord or to any partner of
Landlord or to any affiliate of Warrantholder or of Landlord or of any such
partner of Landlord (so long as the number of such partners or affiliates does
not exceed five (5) in the aggregate), subject to compliance with federal and
state securities laws and to each transferee's agreement to be bound by the
terms of the Warrant Purchase Agreement and this Warrant. The terms and
provisions of this Warrant shall inure to the benefit of, and be binding upon,
Warrantholder and the Company and their respective permitted successors and
assigns.
28. Governing Law. This Warrant shall be governed by the laws of the
State of California, excluding the conflicts of laws provisions thereof.
29. Rights and Obligations Survive Exercise of Warrant. The rights and
obligations of the Company, of the Warrantholder and of the holder of shares of
Series E Preferred Stock issued upon exercise of this Warrant, referred to in
Sections 12 and 13 shall survive the exercise of this Warrant.
30. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the Company and the Warrantholder.
31. Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, return receipt
requested, to each such holder at its address as shown on the books of the
Company or to the Company at the address indicated therefor in the first
paragraph of this Warrant or such other address as either may from time to time
provide to the other.
32. Binding Effect on Successors. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets in any one transaction or
series of related transactions. All of the obligations of the Company relating
to the Series E Preferred Stock issuable upon the exercise of this Warrant shall
survive
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the exercise and termination of this Warrant. All of the covenants and
agreements of the Company shall inure to the benefit of the successors and
assigns of the holder hereof.
33. Lost Warrants. The Company represents and warrants to the
Warrantholder hereof that upon receipt of evidence reasonably satisfactory to
the Company (such as an affidavit of the registered holder) of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any such loss,
theft or destruction, upon receipt of an indemnity reasonably satisfactory to
the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant, the Company, at its expense, will make and deliver
a new Warrant, dated as of the date of the lost, stolen, destroyed or mutilated
Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant.
34. Lock-Up Agreement. Warrantholder hereby agrees not to sell, make
any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any of the underlying securities issuable upon exercise of this
Warrant for a period of up to 180 days after a firm commitment underwritten
initial public offering of the Company, other than a transfer or distribution to
Landlord, to any partner of Landlord, or to any affiliate of Warrantholder, of
Landlord or of any such partner of Landlord, and then only so long as such
transferee agrees in writing to be bound by the restrictions set forth in this
Section and so long as the number of any such partners or affiliates who are
transferees or distributees does not exceed five (5) in the aggregate (a
"Permitted Transfer"). Moreover, in connection with any registration of the
Company's securities, upon request of the Company or the underwriters managing
any underwritten offering of the Company's securities, Warrantholder hereby
agrees not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any underlying securities issued or
issuable upon exercise of this Warrant (other than those included in the
registration or other than a Permitted Transfer) without the prior written
consent of the Company or such underwriters, as the case may be, for such period
of time (not to exceed 180 days) from the effective date of such registration as
the Company or the underwriters may specify. Furthermore, Warrantholder hereby
agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the underlying securities
issuable upon exercise of the Warrant held by the Warrantholder except in
compliance with this Lock-Up Agreement.
35. Information Rights. Upon written request delivered to the Chief
Financial Officer of the Company, the Company shall provide to Warrantholder
copies of the following documents within a reasonable time after receipt of such
request and on or after such documents have been distributed or made available
to the Company's shareholders:
(i) unaudited quarterly financial statements for each quarter
(other than the Company's fourth quarter) of the Company's fiscal year since the
date of the Company's most recent audited annual financial statements;
(ii) the Company's most recent audited annual financial
statements;
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(iii) after an Initial Public Offering of the Company,
registration statements, annual reports on Form 10-K, and quarterly reports on
Form 10-Q filed with the Securities and Exchange Commission; and
(iv) letters distributed to holders of the class of the
Company's securities purchasable under this Warrant along with the Company's
quarterly and annual financial statements, as well as any proxy statements or
other information distributed to such holders in connection with any annual or
special meeting of the shareholders within the last twelve (12) months preceding
such request by Warrantholder.
36. Other Notices. If at any time the Company proposes:
(i) To declare any cash dividend upon its Common Stock or upon
any other class of its securities purchasable upon exercise of this Warrant;
(ii) To declare any dividend upon its Common Stock or upon any
other class of its securities purchasable upon exercise of this Warrant payable
in stock or make any special dividend or other distribution to the holders of
its Common Stock or to the holders of any other class of its securities
purchasable upon exercise of this Warrant;
(iii) To offer for subscription pro rata to the holders of its
Common Stock or to the holders of any other class of its securities purchasable
upon exercise of this Warrant any additional shares of stock of any class or
other rights;
(iv) To engage in any capital reorganization or
reclassification of the capital stock of the Company; or consolidation or merger
of the Company with, or sale of all or substantially all of its assets (in any
one transaction or series of related transactions) to another corporation; or
(v) To engage in 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, by first class
mail, postage prepaid, addressed to the Warrantholder of this Warrant at the
address of such Holder as shown on the books of the Company, (a) at least twenty
(20) days' prior written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, at least twenty (20) days' prior written notice of the date when the
same shall take place; provided, however, that the Warrantholder shall make a
best efforts attempt to respond to such notice as early as possible after the
receipt thereof. Any notice given in accordance with the foregoing clause (a)
shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of the
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applicable class of the Company's securities shall be entitled thereto. Any
notice given in accordance with the foregoing clause (b) shall also specify the
date on which the holders of the applicable class of the Company's securities
shall be entitled to exchange their shares for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, as the case may be.
37. Attorneys' Fees. In the event that any dispute arising out of or in
connection with this Warrant should result in litigation, the prevailing party
in such litigation shall be entitled to recover from the losing party all fees,
costs and expenses of enforcing any right of such prevailing party under or with
respect to this Warrant, including without limitation, reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals and of enforcement of any judgment
issued in such litigation.
IN WITNESS WHEREOF, the parties have caused this Warrant to be executed
by their respective officers or managers (if applicable), thereunto duly
authorized, this 14th day of November, 1996.
SDK INCORPORATED PROBUSINESS, INC.
By: By:
- ---------------------------- ---------------------------------
Thomas H. Sinton, President
Name:
-----------------------
Title:
-----------------------
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<PAGE> 9
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: ProBusiness, Inc.
The undersigned, the Warrantholder, hereby irrevocably elects to
exercise the purchase right represented by its Warrant for, and to purchase
thereunder, ___________, (________)(1) shares of Series E Preferred Stock of
ProBusiness, Inc. (the "Company") and herewith makes payment of
______________________ Dollars ($___________) therefor, and requests that the
certificates for such shares be issued in the name of, and delivered
to,___________, whose address is _______________.
The undersigned represents that it is acquiring such Series E Preferred
Stock for its own account for investment and not with a view to or for sale in
connection with any distribution thereof, and in order to induce the issuance of
such Series E Preferred Stock the undersigned makes to the Company the
representations and warranties set forth in Section 2 of the Warrant Purchase
Agreement between the Company and Warrantholder.
DATED:___________________
__________________________________________
(Signature must conform in all respects to
name of Warrantholder as specified on the
face of the Warrant)
__________________________________________
__________________________________________
________________
(1) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised), in either case without making any
adjustment for additional Series E Preferred Stock or any other stock
or other securities or property or cash which, pursuant to the
adjustment provisions of the Warrant, may be deliverable upon exercise.
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EXHIBIT 4.6(d)
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, IN A
TRANSACTION THAT, IN THE VIEW OF COUNSEL TO THE COMPANY, IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT PURSUANT TO RULE 144 THEREUNDER OR
PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION
IS NOT REQUIRED UNDER SUCH ACT.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT 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 THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN
EXEMPTION FROM SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO
THESE SECURITIES ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED OR SUCH EXEMPTION BEING AVAILABLE.
November 14, 1996
WARRANT TO PURCHASE SERIES E PREFERRED STOCK
This Warrant is issued, for good and valuable consideration of $1.00,
receipt of which is hereby acknowledged, to Laurence Shushan and Magdalena
Shushan, husband and wife, as community property (the "Warrantholder"), by
ProBusiness, Inc., a California corporation (the "Company") located at 5934
Gibraltar, Pleasanton, California 94566. Unless otherwise stated, all
capitalized terms herein have the meaning provided in the Warrant Purchase
Agreement between the Warrantholder, SDK Incorporated, T.J. Bristow, Elizabeth
S. Bristow and the Company dated November 14, 1996 (the "Warrant Purchase
Agreement").
1. Purchase of Shares. Subject to the terms and conditions hereinafter
set forth, the Warrantholder is entitled, upon surrender of this Warrant at the
principal office of the Company (or at such other place as the Company shall
notify the holder hereof in writing), to purchase from the Company, if and to
the extent permitted by law, 450 fully paid and nonassessable shares of Series E
Preferred Stock of the Company (the "Shares") at an exercise price of $7.94 per
share, subject to adjustment as provided in Section 7 hereof (the "Warrant
Price"), payable in cash or by check unless exercised pursuant to Section 4
hereof.
2. Exercise Period. The purchase rights represented by this Warrant
shall become exercisable on the date that Britannia Hacienda V Limited
Partnership ("Landlord") notifies the
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Company that the work to be constructed by Landlord pursuant to Section 2.4 and
Exhibit C of the Build-to-Suit Lease dated September 27, 1996 between Landlord
and the Company (the "Lease Agreement") on the shell and core of the Building
(as that term is defined in the Lease Agreement) and the first phase of the
interior improvements of the Building (as more particularly described in the
Lease Agreement) is substantially complete (as that term is defined in the Lease
Agreement) and such work is, in fact, substantially complete. The period during
which the purchase rights represented by this Warrant are exercisable (the
"Exercise Period") shall end on the earlier of (i) five (5) years after the date
of the consummation of a public offering of the Company that triggers the
automatic conversion of Series E Preferred Stock of the Company into Common
Stock under the Company's Articles of Incorporation (an "Initial Public
Offering") or (ii) eight (8) years from the date of this Warrant as set forth on
the first page hereof.
3. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 2 above, the holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(i) the surrender of this Warrant, together with the Form of
Subscription attached hereto as Exhibit 1, duly filled in and executed by the
Warrantholder, to the Secretary of the Company at its principal offices; and
(ii) the payment to the Company of an amount equal to the
aggregate purchase price for the Shares being purchased, unless exercised
pursuant to Section 4 hereof.
4. Conversion Right. During the Exercise Period (and subject to the
conditions set forth in Section 2) and in lieu of exercising this Warrant as
specified in Section 3, Warrantholder may from time to time convert this
Warrant, in whole or in part (but not for a fraction of a share), into a number
of Shares determined by dividing (a) the aggregate fair market value of the
Shares or other securities otherwise issuable upon exercise of this Warrant
minus the aggregate Warrant Price of such Shares by (b) the fair market value of
one Share.
5. Fair Market Value. The fair market value per share of the Shares
shall be equal to: (i) if the Common Stock issuable upon conversion of the
Shares is listed on a national stock exchange or over the counter market, then
the price per share listed on such national stock exchange, or the average of
the final "bid" and "asked" prices reported on such over the counter market, at
the close of business on the date of exercise as reported in the Wall Street
Journal multiplied by the quotient of (x) $7.94 divided by (y) the Series E
Conversion Price (as defined in the Company's Articles of Incorporation); or
(ii) if the Common Stock issuable upon the conversion of the Shares is not
listed on a national stock exchange or over the counter market, the Board of
Directors of the Company shall determine the fair market value per share of the
Shares in its reasonable good faith judgment.
6. Certificates for Shares; Partial Exercise. Upon the exercise of the
purchase rights evidenced by this Warrant, one or more certificates for the
Shares so purchased shall be issued to the Warrantholder as soon as practicable
thereafter. In the case of a partial exercise, unless the purchase
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<PAGE> 3
rights evidenced hereby have expired, the Company shall issue to the
Warrantholder a new Warrant, dated as of the same date as this Warrant, for the
number of Shares, if any, which remain exercisable hereunder.
7. Adjustment of Number of Shares and Warrant Price. The number and
kind of securities purchasable upon the exercise of the purchase rights
evidenced by this Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the occurrence of certain events, as follows:
(i) Subdivision or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide or
combine the class of the Company's securities purchasable upon exercise of this
Warrant, whether by way of stock split, stock dividend, recapitalization or
otherwise, the Warrant Price shall, in the case of a subdivision, be
proportionately decreased or, in the case of a combination, be proportionately
increased.
(ii) Adjustment of Number of Shares. Upon each adjustment in
the Warrant Price, the number of Shares of the class of the Company's securities
purchasable upon exercise of this Warrant shall, in the case of an increase in
the Warrant Price, be proportionately decreased or, in the case of a decrease in
the Warrant Price, be proportionately increased, in either case to the nearest
whole share.
(iii) Reorganization, Reclassification, Consolidation, Merger
or Sale. In case of any reclassification or change of outstanding securities of
the class purchasable upon exercise of this Warrant (other than as set forth in
Section 7(i)) as a result of any reorganization of the capital stock of the
Company, or any consolidation or merger of the Company with another corporation,
or the sale of substantially all of the Company's assets to another corporation,
the Company or its successor, as applicable, shall execute a new Warrant
providing that the Warrantholder shall have the right to exercise such new
Warrant for, in lieu of each share of the class of the Company's securities
theretofore purchasable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification or change by a holder of one share of the class of the
Company's securities theretofore purchasable upon exercise of this Warrant. Such
new Warrant shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 7. The
provisions of this Section 7(iii) shall apply similarly to successive
reclassifications and changes.
(iv) Dividends in Stock or Property. If at any time or from
time to time prior to commencement of the Exercise Period the holders of the
Company's Common Stock or of any other class of the Company's securities
purchasable upon exercise of this Warrant shall, as a class, receive or become
entitled to receive, without payment therefor, any shares of stock or other
securities of the Company, any rights or options to acquire or subscribe for any
such shares of stock or other securities, or any other property (including cash)
distributable other than as a cash dividend (collectively, a "Distribution"),
and if no adjustment is made pursuant to Section 7(i), (ii) or (iii) above with
respect to such Distribution, then in each such case, the Warrantholder shall,
upon exercise of this Warrant, be entitled to receive, in addition to the shares
otherwise purchasable upon exercise of this Warrant and without payment of any
additional consideration therefor, the amount of stock, other securities and
other
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<PAGE> 4
property (other than cash distributed as a cash dividend) which the
Warrantholder would hold or be entitled to receive on the date of such exercise
had the Warrantholder been the holder of record, as of the date of such
Distribution, of the shares purchased by the Warrantholder upon such exercise.
(v) Certain Other Events. If any change in the shares of the
class of the Company's securities purchasable upon exercise of this Warrant or
any other event occurs as to which the other provisions of this Section 7 are
not strictly applicable or if strictly applicable would not fairly protect the
reasonable expectations of Warrantholder with respect to its purchase rights
under this Warrant, then the Board of Directors of the Company shall make an
adjustment in the number and class of shares purchasable under this Warrant, the
Warrant Price or the other terms and provisions of this Warrant, so as to
protect such reasonable expectations of Warrantholder by giving Warrantholder,
upon exercise of this Warrant for the same aggregate Warrant Price payable for
full exercise of this Warrant prior to such event, the total number, class and
kind of shares (or the closest then available equivalent thereto) as
Warrantholder would have owned had this Warrant been exercised prior to such
event and had Warrantholder continued to hold such shares until after the event
requiring such adjustment.
8. Notice of Adjustments. Whenever the Warrant Price or other terms of
this Warrant shall be adjusted pursuant to Section 7 hereof, the Company shall
deliver to the Warrantholder a certificate signed by the Company's chief
financial officer describing, in reasonable detail, the event requiring the
adjustment and the newly adjusted Warrant Price and, as applicable, the kind and
amount of shares of stock, other securities, money or property purchasable
hereunder after giving effect to such adjustment.
9. Fractional Shares. No fractional shares shall be issued in
connection with any exercise hereunder, but in lieu of any such fractional
shares the Company shall make a cash payment therefor in an amount equal to the
difference between the fair market value of such fractional Share as of the date
of exercise and the Warrant Price then in effect with respect to such fractional
Share.
10. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Series E Preferred
Stock and Common Stock issuable upon conversion of such Series E Preferred
Stock, free from all preemptive rights with respect thereto, as will be
sufficient to permit the exercise of this Warrant for the full number of Shares
specified herein. The Company further covenants that such Shares, when issued
pursuant to the exercise of this Warrant, and the Common Stock issuable upon
conversion of the Shares, when issued pursuant to such conversion, will be duly
and validly issued, fully paid and non-assessable and free from all taxes, liens
and charges with respect to the issuance thereof.
11. Rights Prior to Exercise. Prior to exercise of this Warrant, this
Warrant shall not entitle the Warrantholder to any rights of a shareholder with
respect to the Shares, including (without limitation) the right to vote such
Shares, receive preemptive rights or be notified of shareholder meetings, nor
shall this Warrant entitle such Warrantholder to any notice or other
communication concerning the business or affairs of the Company except as set
forth in Section 22 hereof.
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<PAGE> 5
12. Representations of Warrantholder. Warrantholder hereby represents
and warrants to the Company, with respect to its purchase of this Warrant and
the underlying securities issuable upon the exercise of this Warrant, that the
representations and warranties made by Warrantholder to the Company in Section 2
of the Warrant Purchase Agreement are true and correct in all material respects
as of the date of this Warrant.
13. Registration Rights. The registration rights of the Warrantholder
with respect to this Warrant and the underlying securities are set forth in the
Registration Rights Agreement dated December 1, 1989 between the Company and the
persons named therein as amended by the Twentieth Amendment to Registration
Rights Agreement, dated the date hereof, by and among the Company and the
Warrantholders set forth therein.
14. Non-Assignability and Non-Transferability of Warrant. This Warrant
is not assignable or otherwise transferable by the Warrantholder without the
prior written consent of the Company, except that Warrantholder shall be
entitled to transfer this Warrant, without the Company's consent but with prior
or concurrent written notice to the Company, to Landlord or to any partner of
Landlord or to any affiliate of Warrantholder or of Landlord or of any such
partner of Landlord (so long as the number of such partners or affiliates does
not exceed five (5) in the aggregate), subject to compliance with federal and
state securities laws and to each transferee's agreement to be bound by the
terms of the Warrant Purchase Agreement and this Warrant. The terms and
provisions of this Warrant shall inure to the benefit of, and be binding upon,
Warrantholder and the Company and their respective permitted successors and
assigns.
15. Governing Law. This Warrant shall be governed by the laws of the
State of California, excluding the conflicts of laws provisions thereof.
16. Rights and Obligations Survive Exercise of Warrant. The rights and
obligations of the Company, of the Warrantholder and of the holder of shares of
Series E Preferred Stock issued upon exercise of this Warrant, referred to in
Sections 12 and 13 shall survive the exercise of this Warrant.
17. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the Company and the Warrantholder.
18. Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, return receipt
requested, to each such holder at its address as shown on the books of the
Company or to the Company at the address indicated therefor in the first
paragraph of this Warrant or such other address as either may from time to time
provide to the other.
19. Binding Effect on Successors. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets in any one transaction or
series of related transactions. All of the obligations of the
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<PAGE> 6
Company relating to the Series E Preferred Stock issuable upon the exercise of
this Warrant shall survive the exercise and termination of this Warrant. All of
the covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof.
20. Lost Warrants. The Company represents and warrants to the
Warrantholder hereof that upon receipt of evidence reasonably satisfactory to
the Company (such as an affidavit of the registered holder) of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any such loss,
theft or destruction, upon receipt of an indemnity reasonably satisfactory to
the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant, the Company, at its expense, will make and deliver
a new Warrant, dated as of the date of the lost, stolen, destroyed or mutilated
Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant.
21. Lock-Up Agreement. Warrantholder hereby agrees not to sell, make
any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any of the underlying securities issuable upon exercise of this
Warrant for a period of up to 180 days after a firm commitment underwritten
initial public offering of the Company, other than a transfer or distribution to
Landlord, to any partner of Landlord, or to any affiliate of Warrantholder, of
Landlord or of any such partner of Landlord, and then only so long as such
transferee agrees in writing to be bound by the restrictions set forth in this
Section and so long as the number of any such partners or affiliates who are
transferees or distributees does not exceed five (5) in the aggregate (a
"Permitted Transfer"). Moreover, in connection with any registration of the
Company's securities, upon request of the Company or the underwriters managing
any underwritten offering of the Company's securities, Warrantholder hereby
agrees not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any underlying securities issued or
issuable upon exercise of this Warrant (other than those included in the
registration or other than a Permitted Transfer) without the prior written
consent of the Company or such underwriters, as the case may be, for such period
of time (not to exceed 180 days) from the effective date of such registration as
the Company or the underwriters may specify. Furthermore, Warrantholder hereby
agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the underlying securities
issuable upon exercise of the Warrant held by the Warrantholder except in
compliance with this Lock-Up Agreement.
22. Information Rights. Upon written request delivered to the Chief
Financial Officer of the Company, the Company shall provide to Warrantholder
copies of the following documents within a reasonable time after receipt of such
request and on or after such documents have been distributed or made available
to the Company's shareholders:
(i) unaudited quarterly financial statements for each quarter
(other than the Company's fourth quarter) of the Company's fiscal year since the
date of the Company's most recent audited annual financial statements;
(ii) the Company's most recent audited annual financial
statements;
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<PAGE> 7
(iii) after an Initial Public Offering of the Company,
registration statements, annual reports on Form 10-K, and quarterly reports on
Form 10-Q filed with the Securities and Exchange Commission; and
(iv) letters distributed to holders of the class of the
Company's securities purchasable under this Warrant along with the Company's
quarterly and annual financial statements, as well as any proxy statements or
other information distributed to such holders in connection with any annual or
special meeting of the shareholders within the last twelve (12) months preceding
such request by Warrantholder.
23. Other Notices. If at any time the Company proposes:
(i) To declare any cash dividend upon its Common Stock or upon
any other class of its securities purchasable upon exercise of this Warrant;
(ii) To declare any dividend upon its Common Stock or upon any
other class of its securities purchasable upon exercise of this Warrant payable
in stock or make any special dividend or other distribution to the holders of
its Common Stock or to the holders of any other class of its securities
purchasable upon exercise of this Warrant;
(iii) To offer for subscription pro rata to the holders of its
Common Stock or to the holders of any other class of its securities purchasable
upon exercise of this Warrant any additional shares of stock of any class or
other rights;
(iv) To engage in any capital reorganization or
reclassification of the capital stock of the Company; or consolidation or merger
of the Company with, or sale of all or substantially all of its assets (in any
one transaction or series of related transactions) to another corporation; or
(v) To engage in 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, by first class
mail, postage prepaid, addressed to the Warrantholder of this Warrant at the
address of such Holder as shown on the books of the Company, (a) at least twenty
(20) days' prior written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, at least twenty (20) days' prior written notice of the date when the
same shall take place; provided, however, that the Warrantholder shall make a
best efforts attempt to respond to such notice as early as possible after the
receipt thereof. Any notice given in accordance with the foregoing clause (a)
shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of the
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<PAGE> 8
applicable class of the Company's securities shall be entitled thereto. Any
notice given in accordance with the foregoing clause (b) shall also specify the
date on which the holders of the applicable class of the Company's securities
shall be entitled to exchange their shares for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, as the case may be.
24. Attorneys' Fees. In the event that any dispute arising out of or in
connection with this Warrant should result in litigation, the prevailing party
in such litigation shall be entitled to recover from the losing party all fees,
costs and expenses of enforcing any right of such prevailing party under or with
respect to this Warrant, including without limitation, reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals and of enforcement of any judgment
issued in such litigation.
IN WITNESS WHEREOF, the parties have caused this Warrant to be executed
by their respective officers or managers (if applicable), thereunto duly
authorized, this 14th day of November, 1996.
PROBUSINESS, INC.
By:
----------------------------------
Thomas H. Sinton, President
--------------------------------------
Laurence Shushan
--------------------------------------
Magdalena Shushan,
husband and wife, as community property
-8-
<PAGE> 9
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: ProBusiness, Inc.
The undersigned, the Warrantholder, hereby irrevocably elects to
exercise the purchase right represented by its Warrant for, and to purchase
thereunder, _________ , (______)(3) shares of Series E Preferred Stock of
ProBusiness, Inc. (the "Company") and herewith makes payment of
______________________ Dollars ($__________ ) therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to,
___________________________ , whose address is __________________________.
The undersigned represents that it is acquiring such Series E Preferred
Stock for its own account for investment and not with a view to or for sale in
connection with any distribution thereof, and in order to induce the issuance of
such Series E Preferred Stock the undersigned makes to the Company the
representations and warranties set forth in Section 2 of the Warrant Purchase
Agreement between the Company and Warrantholder.
DATED:
-----------------
------------------------------------------
(Signature must conform in all respects to
name of Warrantholder as specified on the
face of the Warrant)
------------------------------------------
------------------------------------------
- --------
(3) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised), in either case without making any
adjustment for additional Series E Preferred Stock or any other stock
or other securities or property or cash which, pursuant to the
adjustment provisions of the Warrant, may be deliverable upon exercise.
-9-
<PAGE> 1
Exhibit 4.7(a)
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND THE SECURITIES ACT OF WASHINGTON
CHAPTER 21.20 RCW. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED
OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, IN A TRANSACTION THAT, IN THE VIEW OF COUNSEL
TO THE COMPANY, IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT
PURSUANT TO RULE 144 THEREUNDER OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT 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 THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN
EXEMPTION FROM SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO
THESE SECURITIES ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED OR SUCH EXEMPTION BEING AVAILABLE.
THIS WARRANT IS NOT TRANSFERABLE WITHOUT THE CONSENT OF THE ISSUER.
January 7, 1997
WARRANT TO PURCHASE COMMON STOCK
This Warrant is issued, for good and valuable consideration of $1.00,
receipt of which is hereby acknowledged, to Louis R. Baransky (the
"Warrantholder"), by ProBusiness, Inc., a California corporation (the
"Company"), with its principal address of 5934 Gibraltar Drive, Pleasanton,
California 94588. Unless otherwise stated, all capitalized terms herein have the
meaning provided in the Stock Acquisition Agreement between the Warrantholder
and the Company effective as of January 1, 1997 (the "Stock Acquisition
Agreement").
1. Purchase of Shares. Subject to the terms and conditions hereinafter
set forth, the Warrantholder is entitled, upon surrender of this Warrant at the
principal office of the Company (or at such other place as the Company shall
notify the holder hereof in writing), to purchase from the Company, if and to
the extent permitted by law, 25,000 fully paid and nonassessable shares of
Common Stock of the Company (the "Shares") at an exercise price of $9.00 per
share, subject to adjustment as provided in Section 5 hereof (the "Warrant
Price"), payable in cash or by check.
2. Exercise Period. The purchase rights represented by this Warrant, to
the extent not previously exercised, shall expire upon five (5) years from the
date hereof (the "Expiration Date").
<PAGE> 2
3. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 2 above, the holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(i) the surrender of this Warrant, together with the Form of
Subscription attached hereto as Exhibit 1, duly completed and executed by the
Warrantholder, to the Secretary of the Company at its principal offices; and
(ii) the payment to the Company of an amount equal to the
aggregate purchase price for the Shares being purchased.
4. Certificates for Shares; Partial Exercise. Upon the exercise of the
purchase rights evidenced by this Warrant, one or more certificates for the
Shares so purchased shall be issued as soon as practicable thereafter. In the
case of a partial exercise, unless the purchase rights evidenced hereby have
expired, the Company shall issue to the Warrantholder a new Warrant for the
number of Shares, if any, which remain exercisable hereunder.
5. Legends. Upon exercise of the Warrant, the certificates representing
shares of Common Stock of the Company shall be stamped or imprinted with a
legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND THE SECURITIES ACT OF WASHINGTON
CHAPTER 21.20 RCW. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, IN A
TRANSACTION THAT, IN THE OPINION OF COUNSEL TO THE COMPANY, IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT PURSUANT TO RULE 144
THEREUNDER OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT."
6. Adjustment of Number of Shares and Warrant Price. The number and
kind of securities purchasable upon the exercise of the purchase rights
evidenced by this Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the occurrence of certain events, as follows:
(i) Subdivision or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide or
combine its Common Stock, whether by way of stock split, stock dividend,
recapitalization or otherwise, the Warrant Price shall, in the case of a
subdivision, be proportionately decreased or, in the case of a combination, be
proportionately increased.
-2-
<PAGE> 3
(ii) Adjustment of Number of Shares. Upon each adjustment in
the Warrant Price, the number of Shares of Common Stock purchasable hereunder
shall, in the case of an increase in the Warrant Price, be proportionately
decreased or, in the case of a decrease in the Warrant Price, be proportionately
increased, in either case to the nearest whole share.
(iii) Reclassification, Consolidation or Merger. In case of
any reclassification or change of outstanding securities of the class
purchasable upon exercise of this Warrant (other than as set forth in Section
5(i)) the Company shall execute a new Warrant providing that the Warrantholder
shall have the right to exercise such new Warrant for, in lieu of each share of
Common Stock theretofore purchasable hereunder at such time, the kind and amount
of shares of stock, other securities, money and property receivable upon such
reclassification or change, by a holder of one share of Common Stock. Such new
Warrant shall provide for adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Section 5. The provisions
of this Section 5(iii) shall apply similarly to successive reclassifications and
changes.
7. Notice of Adjustments. Whenever the Warrant Price shall be adjusted
pursuant to Section 6 hereof, the Company shall deliver to the Warrantholder a
certificate signed by its chief financial officer describing, in reasonable
detail, the event requiring the adjustment and the Warrant Price and, as
applicable, the kind and amount of shares of stock, other securities, money or
property purchasable hereunder after giving effect to such adjustment.
8. Fractional Shares. No fractional shares shall be issued in
connection with any exercise hereunder, but in lieu of any such fractional
shares the Company shall make a cash payment therefor upon the basis of the
Warrant Price then in effect.
9. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Common Stock, free
from all preemptive rights with respect thereto, as will be sufficient to permit
the exercise of this Warrant for the full number of Shares specified herein. The
Company further covenants that such Shares, when issued pursuant to the exercise
of this Warrant, will be duly and validly issued, fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issuance thereof.
10. Rights Prior to Exercise. Prior to exercise of this Warrant, the
Warrant shall not entitle the Warrantholder to any rights of a shareholder with
respect to the Shares, including (without limitation) the right to vote such
Shares, receive preemptive rights or be notified of shareholder meetings, nor
shall the Warrant entitle such Warrantholder to any notice or other
communication concerning the business or affairs of the Company.
-3-
<PAGE> 4
11. Representations of Warrantholder. Warrantholder hereby represents
and warrants to the Company, with respect to its purchase of the Warrant and the
Shares as follows:
(i) Investment Representations and Covenants of the
Warrantholder.
(a) The Warrantholder represents that the Shares to
be received will be acquired for investment for its own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part
thereof, and that it has no present intention of selling, granting any
participation in or otherwise distributing the same. The Warrantholder further
represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Shares.
(b) The Warrantholder understands and acknowledges
that the offering of the Warrant pursuant to the Agreement will not, and any
issuance of the Shares may not, be registered under the Securities Act of 1933,
as amended (the "Securities Act"), on the ground that the sale provided for in
the Agreement and the issuance of securities hereunder is exempt pursuant to
Section 4(2) of the Securities Act, and that the Company's reliance on such
exemption is predicated on the Warrantholder's representations set forth herein.
(c) The Warrantholder covenants that it will not make
any sale, transfer or other disposition of the Shares in violation of the
Securities Act, the Securities Exchange Act of 1934 (the "Securities Exchange
Act"), or the rules of the Securities and Exchange Commission (the "Commission")
promulgated thereunder.
(d) The Warrantholder represents that it is
experienced in evaluating companies similar to the Company, is able to fend for
itself in transactions such as the one contemplated hereby, has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of its prospective investment in the Company,
has the ability to bear the economic risks of the investment and is an
"accredited investor" as defined by Regulation D promulgated under the
Securities Act.
(e) The Warrantholder acknowledges and understands
that the Shares acquired upon the exercise of this Warrant must be held
indefinitely unless it is subsequently registered under the Securities Act or an
exemption from such registration is available, and that the Company is under no
obligation to register the Common Stock.
(f) The Warrantholder acknowledges that it has
reviewed a copy of Rule 144 promulgated under the Securities Act, which permits
limited public resales of securities acquired in a nonpublic offering, subject
to the satisfaction of certain conditions. The Warrantholder understands that
before the Shares may be sold under Rule 144, the following conditions must be
fulfilled: (i) certain public information about the Company must be available,
(ii) the sale must occur at least two (2) years after the Warrantholder
purchased and paid for the Shares, (iii) the sale must be made in a broker's
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<PAGE> 5
transaction and (iv) the number of Shares sold must not exceed certain volume
limitations. The Warrantholder understands that the current information referred
to above is not now available and the Company has no present plans to make such
information available.
(g) The Warrantholder acknowledges that in the event
the applicable requirements of Rule 144 are not met, registration under the
Securities Act, compliance with the Commission's Regulation D or another
exemption from registration will be required for any disposition of its stock.
The Warrantholder understands that although Rule 144 is not exclusive, the
Commission has expressed its opinion that persons proposing to sell restricted
securities received in a private offering other than in a registered offering or
pursuant to Rule 144 will have a substantial burden of proof in establishing
that an exemption from registration is available for such offers or sales and
that such persons and the brokers who participate in the transactions do so at
their own risk.
12. Nonassignability and Nontransferability of Warrant. This Warrant is
not assignable or otherwise transferable by the Warrantholder without the
written consent of the Company. The terms and provisions of this Warrant shall
inure to the benefit of, and be binding upon, the Company and its successors and
assigns.
13. Governing Law. This Warrant shall be governed by the laws of the
State of California, excluding the conflicts of laws provisions thereof.
14. Rights and Obligations Survive Exercise of Warrant. The rights and
obligations of the Company, of the Warrantholder and of the holder of shares of
Common Stock issued upon exercise of this Warrant, referred to in Section 12
shall survive the exercise of this Warrant.
15. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the Company and the Warrantholder.
16. Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, to each such
holder at its address as shown on the books of the Company or to the Company at
the address indicated therefor in the first paragraph of this Warrant or such
other address as either may from time to time provide to the other.
17. Binding Effect on Successors. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets. All of the obligations of
the Company relating to the Common Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof.
-5-
<PAGE> 6
18. Lost Warrants. The Company represents and warrants to the
Warrantholder hereof that upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction, or mutilation of this Warrant and,
in the case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation
upon surrender and cancellation of such Warrant, the Company, at its expense,
will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers, thereunto duly authorized this 7th day of January, 1997.
WARRANTHOLDER PROBUSINESS, INC.
By:
- --------------------------- ---------------------------------
Louis R. Baransky Thomas H. Sinton, President
-7-
<PAGE> 8
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: _______________________
The undersigned, Warrantholder, hereby irrevocably elects to exercise
the purchase right represented by such Warrant for, and to purchase thereunder,
____________, (_____)(1) shares of Common Stock of ProBusiness, Inc. (the
"Company") and herewith makes payment of ______________________ Dollars
($___________) therefor, and requests that the certificates for such shares be
issued in the name of, and delivered to, _________________, whose address is
_______________________.
The undersigned represents that it is acquiring such Common Stock for
its own account for investment and not with a view to or for sale in connection
with any distribution thereof and in order to induce the issuance of such Common
Stock makes to the Company the representation and warranties set forth in
Section 10 of the Warrant.
Dated: ___________________
___________________________________________
(Signature must conform in all respects to
name of Warrantholder as specified on the
face of the Warrant)
___________________________________________
___________________________________________
__________________
(1) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised), in either case without making any
adjustment for additional Common Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
<PAGE> 1
Exhibit 4.7(b)
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND THE SECURITIES ACT OF WASHINGTON
CHAPTER 21.20 RCW. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED
OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, IN A TRANSACTION THAT, IN THE VIEW OF COUNSEL
TO THE COMPANY, IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT
PURSUANT TO RULE 144 THEREUNDER OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT 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 THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN
EXEMPTION FROM SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO
THESE SECURITIES ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED OR SUCH EXEMPTION BEING AVAILABLE.
THIS WARRANT IS NOT TRANSFERABLE WITHOUT THE CONSENT OF THE ISSUER.
January 7, 1997
WARRANT TO PURCHASE COMMON STOCK
This Warrant is issued, for good and valuable consideration of $1.00,
receipt of which is hereby acknowledged, to Ben W. Reppond (the
"Warrantholder"), by ProBusiness, Inc., a California corporation (the
"Company"), with its principal address of 5934 Gibraltar Drive, Pleasanton,
California 94588. Unless otherwise stated, all capitalized terms herein have the
meaning provided in the Stock Acquisition Agreement between the Warrantholder
and the Company effective as of January 1, 1997 (the "Stock Acquisition
Agreement").
1. Purchase of Shares. Subject to the terms and conditions hereinafter
set forth, the Warrantholder is entitled, upon surrender of this Warrant at the
principal office of the Company (or at such other place as the Company shall
notify the holder hereof in writing), to purchase from the Company, if and to
the extent permitted by law, 25,000 fully paid and nonassessable shares of
Common Stock of the Company (the "Shares") at an exercise price of $9.00 per
share, subject to adjustment as provided in Section 5 hereof (the "Warrant
Price"), payable in cash or by check.
2. Exercise Period. The purchase rights represented by this Warrant, to
the extent not previously exercised, shall expire upon five (5) years from the
date hereof (the "Expiration Date").
<PAGE> 2
3. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 2 above, the holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(i) the surrender of this Warrant, together with the Form of
Subscription attached hereto as Exhibit 1, duly completed and executed by the
Warrantholder, to the Secretary of the Company at its principal offices; and
(ii) the payment to the Company of an amount equal to the
aggregate purchase price for the Shares being purchased.
4. Certificates for Shares; Partial Exercise. Upon the exercise of the
purchase rights evidenced by this Warrant, one or more certificates for the
Shares so purchased shall be issued as soon as practicable thereafter. In the
case of a partial exercise, unless the purchase rights evidenced hereby have
expired, the Company shall issue to the Warrantholder a new Warrant for the
number of Shares, if any, which remain exercisable hereunder.
5. Legends. Upon exercise of the Warrant, the certificates representing
shares of Common Stock of the Company shall be stamped or imprinted with a
legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND THE SECURITIES ACT OF WASHINGTON
CHAPTER 21.20 RCW. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, IN A
TRANSACTION THAT, IN THE OPINION OF COUNSEL TO THE COMPANY, IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT PURSUANT TO RULE 144
THEREUNDER OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT."
6. Adjustment of Number of Shares and Warrant Price. The number and
kind of securities purchasable upon the exercise of the purchase rights
evidenced by this Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the occurrence of certain events, as follows:
(i) Subdivision or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide or
combine its Common Stock, whether by way of stock split, stock dividend,
recapitalization or otherwise, the Warrant Price shall, in the case of a
subdivision, be proportionately decreased or, in the case of a combination, be
proportionately increased.
-2-
<PAGE> 3
(ii) Adjustment of Number of Shares. Upon each adjustment in
the Warrant Price, the number of Shares of Common Stock purchasable hereunder
shall, in the case of an increase in the Warrant Price, be proportionately
decreased or, in the case of a decrease in the Warrant Price, be proportionately
increased, in either case to the nearest whole share.
(iii) Reclassification, Consolidation or Merger. In case of
any reclassification or change of outstanding securities of the class
purchasable upon exercise of this Warrant (other than as set forth in Section
5(i)) the Company shall execute a new Warrant providing that the Warrantholder
shall have the right to exercise such new Warrant for, in lieu of each share of
Common Stock theretofore purchasable hereunder at such time, the kind and amount
of shares of stock, other securities, money and property receivable upon such
reclassification or change, by a holder of one share of Common Stock. Such new
Warrant shall provide for adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Section 5. The provisions
of this Section 5(iii) shall apply similarly to successive reclassifications and
changes.
7. Notice of Adjustments. Whenever the Warrant Price shall be adjusted
pursuant to Section 6 hereof, the Company shall deliver to the Warrantholder a
certificate signed by its chief financial officer describing, in reasonable
detail, the event requiring the adjustment and the Warrant Price and, as
applicable, the kind and amount of shares of stock, other securities, money or
property purchasable hereunder after giving effect to such adjustment.
8. Fractional Shares. No fractional shares shall be issued in
connection with any exercise hereunder, but in lieu of any such fractional
shares the Company shall make a cash payment therefor upon the basis of the
Warrant Price then in effect.
9. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Common Stock, free
from all preemptive rights with respect thereto, as will be sufficient to permit
the exercise of this Warrant for the full number of Shares specified herein. The
Company further covenants that such Shares, when issued pursuant to the exercise
of this Warrant, will be duly and validly issued, fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issuance thereof.
10. Rights Prior to Exercise. Prior to exercise of this Warrant, the
Warrant shall not entitle the Warrantholder to any rights of a shareholder with
respect to the Shares, including (without limitation) the right to vote such
Shares, receive preemptive rights or be notified of shareholder meetings, nor
shall the Warrant entitle such Warrantholder to any notice or other
communication concerning the business or affairs of the Company.
-3-
<PAGE> 4
11. Representations of Warrantholder. Warrantholder hereby represents
and warrants to the Company, with respect to its purchase of the Warrant and the
Shares as follows:
(i) Investment Representations and Covenants of the
Warrantholder.
(a) The Warrantholder represents that the Shares to
be received will be acquired for investment for its own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part
thereof, and that it has no present intention of selling, granting any
participation in or otherwise distributing the same. The Warrantholder further
represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Shares.
(b) The Warrantholder understands and acknowledges
that the offering of the Warrant pursuant to the Agreement will not, and any
issuance of the Shares may not, be registered under the Securities Act of 1933,
as amended (the "Securities Act"), on the ground that the sale provided for in
the Agreement and the issuance of securities hereunder is exempt pursuant to
Section 4(2) of the Securities Act, and that the Company's reliance on such
exemption is predicated on the Warrantholder's representations set forth herein.
(c) The Warrantholder covenants that it will not make
any sale, transfer or other disposition of the Shares in violation of the
Securities Act, the Securities Exchange Act of 1934 (the "Securities Exchange
Act"), or the rules of the Securities and Exchange Commission (the "Commission")
promulgated thereunder.
(d) The Warrantholder represents that it is
experienced in evaluating companies similar to the Company, is able to fend for
itself in transactions such as the one contemplated hereby, has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of its prospective investment in the Company,
has the ability to bear the economic risks of the investment and is an
"accredited investor" as defined by Regulation D promulgated under the
Securities Act.
(e) The Warrantholder acknowledges and understands
that the Shares acquired upon the exercise of this Warrant must be held
indefinitely unless it is subsequently registered under the Securities Act or an
exemption from such registration is available, and that the Company is under no
obligation to register the Common Stock.
(f) The Warrantholder acknowledges that it has
reviewed a copy of Rule 144 promulgated under the Securities Act, which permits
limited public resales of securities acquired in a nonpublic offering, subject
to the satisfaction of certain conditions. The Warrantholder understands that
before the Shares may be sold under Rule 144, the following conditions must be
fulfilled: (i) certain public information about the Company must be available,
(ii) the sale must occur at least two (2) years after the Warrantholder
purchased and paid for the Shares, (iii) the sale must be made in a broker's
-4-
<PAGE> 5
transaction and (iv) the number of Shares sold must not exceed certain volume
limitations. The Warrantholder understands that the current information referred
to above is not now available and the Company has no present plans to make such
information available.
(g) The Warrantholder acknowledges that in the event
the applicable requirements of Rule 144 are not met, registration under the
Securities Act, compliance with the Commission's Regulation D or another
exemption from registration will be required for any disposition of its stock.
The Warrantholder understands that although Rule 144 is not exclusive, the
Commission has expressed its opinion that persons proposing to sell restricted
securities received in a private offering other than in a registered offering or
pursuant to Rule 144 will have a substantial burden of proof in establishing
that an exemption from registration is available for such offers or sales and
that such persons and the brokers who participate in the transactions do so at
their own risk.
12. Nonassignability and Nontransferability of Warrant. This Warrant is
not assignable or otherwise transferable by the Warrantholder without the
written consent of the Company. The terms and provisions of this Warrant shall
inure to the benefit of, and be binding upon, the Company and its successors and
assigns.
13. Governing Law. This Warrant shall be governed by the laws of the
State of California, excluding the conflicts of laws provisions thereof.
14. Rights and Obligations Survive Exercise of Warrant. The rights and
obligations of the Company, of the Warrantholder and of the holder of shares of
Common Stock issued upon exercise of this Warrant, referred to in Section 12
shall survive the exercise of this Warrant.
15. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the Company and the Warrantholder.
16. Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, to each such
holder at its address as shown on the books of the Company or to the Company at
the address indicated therefor in the first paragraph of this Warrant or such
other address as either may from time to time provide to the other.
17. Binding Effect on Successors. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets. All of the obligations of
the Company relating to the Common Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof.
-5-
<PAGE> 6
18. Lost Warrants. The Company represents and warrants to the
Warrantholder hereof that upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction, or mutilation of this Warrant and,
in the case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation
upon surrender and cancellation of such Warrant, the Company, at its expense,
will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers, thereunto duly authorized this 7th day of January, 1997.
WARRANTHOLDER PROBUSINESS, INC.
- ------------------------ --------------------------------
Ben W. Reppond By: Thomas H. Sinton, President
-7-
<PAGE> 8
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: _______________________
The undersigned, Warrantholder, hereby irrevocably elects to exercise
the purchase right represented by such Warrant for, and to purchase thereunder,
,_________________ (_______)(1) shares of Common Stock of ProBusiness, Inc. (the
"Company") and herewith makes payment of ___________________ Dollars
($___________ ) therefor, and requests that the certificates for such shares be
issued in the name of, and delivered to, _____________, whose address is
____________.
The undersigned represents that it is acquiring such Common Stock for
its own account for investment and not with a view to or for sale in connection
with any distribution thereof and in order to induce the issuance of such Common
Stock makes to the Company the representation and warranties set forth in
Section 10 of the Warrant.
Dated: ___________________
___________________________________________
(Signature must conform in all respects to
name of Warrantholder as specified on the
face of the Warrant)
___________________________________________
___________________________________________
______________________
(1) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised), in either case without making any
adjustment for additional Common Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
<PAGE> 1
Exhibit 4.8
THIS NOTE IS BEING ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. THIS NOTE MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR UNLESS THE HOLDER THEREOF RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY STATING THAT SUCH SALE, TRANSFER OR
ASSIGNMENT IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SAID ACT.
October 20, 1995
$
_________
PROBUSINESS, INC.
PROMISSORY NOTE
WHEREAS, ProBusiness, Inc. (the "Borrower") and the Lenders, as defined
in the Loan Agreement (defined hereinafter) have entered into a Loan Agreement
dated October 20, 1995 (the "Loan Agreement") pursuant to which Lenders will
make up to $2,500,000 available to Borrower;
WHEREAS, Borrower requires funds to continue the operation of its
business; and
WHEREAS, the Lenders desire to provide funds to Borrower on the terms
and under the conditions set forth below;
NOW, THEREFORE, in consideration of the promises, conditions and
representations herein contained, the parties agree as follows:
For value received, the undersigned, PROBUSINESS, INC., a California
corporation (the "Borrower") promises to pay ____________________________ (the
"Lender") the principal sum of __________________ ($_______), plus accrued
interest. The principal amount of this Note and interest accrued thereon shall
be due and payable on demand on the earlier of (i) three years from the date of
the Loan Agreement or (ii) at the option of Lender or Borrower within thirty
days after the closing of a public offering of the Company that triggers the
conversion of the Company's outstanding Preferred Stock into the Company's
Common Stock under the Company's Articles of Incorporation, as amended. The
principal amount shall accrue interest at the rate of 8% per annum or if less,
the maximum rate permitted by applicable law commencing on the date of the Loan
Agreement. Borrower shall make quarterly payments to Lender for the amount of
interest accrued on the principal sum outstanding under this Note beginning on
December 31, 1995. All payments on this Note will be credited first against
accrued interest and then against the remaining principal. This Note may be
prepaid at any time without penalty after one year from the date of the Loan
Agreement, pursuant to the terms of the Loan Agreement.
<PAGE> 2
1. Events of Default; Remedies.
1.1 Events of Default. The occurrence of any one or more of
the following events after the date of the Loan Agreement shall constitute an
"Event of Default":
(a) Borrower fails to make timely payment of any principal,
interest, fees or other charges when due hereunder;
(b) Any material warranty, representation or other statement
made to Lender by Borrower under the Loan Agreement proves to have been false or
misleading in any material respect when made or furnished;
(c) Borrower fails or neglects to perform, keep or observe any
other material term, provision, condition, covenant, warranty or representation
contained in the Loan Agreement, which is required to be performed, kept or
observed by Borrower;
(d) Borrower shall commence any proceeding or other action
relating to it in bankruptcy or seek reorganization, arrangement, readjustment
of its debts, dissolution, liquidation, winding-up, composition or any other
relief under the Bankruptcy Act, as amended, or under any other insolvency,
reorganization, liquidation, dissolution, arrangement, composition, readjustment
of debt or any other similar act or law, of any jurisdiction, domestic or
foreign, now or hereafter existing;
(e) Borrower shall admit the material allegations of any
petition or pleading in connection with any such proceeding;
(f) Borrower shall apply for, or consent to or acquiesce in,
the appointment of a receiver, conservator, trustee or similar officer for it or
for all or a substantial part of its property;
(g) Borrower shall make a general assignment for the benefit
of creditors; or
(h) Borrower shall admit in writing its inability to pay its
debts as they mature.
1.2 Acceleration of the Obligations. Upon the occurrence of an
Event of Default as above provided, all or any portion of the obligations due or
to become due from Borrower to Lender shall, at the option of Lender, and
without notice or demand by Lender, become at once due and payable. Borrower
will forthwith pay to Lender, in addition to any and all sums and charges due,
the entire outstanding principal balance and interest accrued thereon.
-2-
<PAGE> 3
2. Subordination. To the extent there is any conflict between the
provisions of this Section 2 and the other provisions of this Note, the
provisions of this Section 2 shall control.
(a) Lender hereby subordinates to Silicon Valley Bank ("Bank") any
security interest or lien that Lender may have or in the future obtain in any
property of Borrower. Notwithstanding any respective dates of attachment or
perfection of the security interest of Lender and the security interest of Bank,
the security interest of Bank in the property of Borrower shall at all times be
prior to the security interest of Lender.
(b) All indebtedness hereunder (the "Subordinated Debt") is
subordinated in right of payment to all obligations of Borrower to Bank now
existing or hereafter arising, together with all costs of collecting such
obligations (including attorneys' fees), including, without limitation, all
interest accruing after the commencement by or against Borrower of any
bankruptcy, reorganization or similar proceeding (the "Senior Debt").
(c) Lender will not demand or receive from Borrower (and Borrower will
not pay to Lender) all or any part of the Subordinated Debt, by way of payment,
prepayment, setoff, lawsuit or otherwise, nor will Lender exercise any remedy
with respect to any of Bank's collateral, nor will Lender commence, or cause to
commence, prosecute or participate in any administrative, legal or equitable
action against Borrower, for so long as any portion of the Senior Debt remains
outstanding. The foregoing notwithstanding, Lender shall be entitled to receive
each regularly scheduled payment of interest that constitutes Subordinated Debt,
provided that an event of default, as defined in the financing agreements
between Borrower and Bank, has not occurred and is not continuing and would not
exist immediately after such payment.
(d) Lender shall promptly deliver to Bank in the form received (except
for endorsement or assignment by Lender where required by Bank) for application
to the Senior Debt any payment, distribution, security or proceeds received by
Lender with respect to the Subordinated Debt other than in accordance with this
Section 2.
(e) In the event of Borrower's insolvency, reorganization or any case
or proceeding under any bankruptcy or insolvency law or laws relating to the
relief of debtors, the provisions of this Section 2 shall remain in full force
and effect, and Bank's claims against Borrower and the estate of Borrower shall
be paid in full before any payment is made to Lender.
(f) For so long as any of the Senior Debt remains unpaid, Lender
irrevocably appoints Bank as Lender's attorney-in-fact, and grants to Bank a
power of attorney with full power of substitution, in the name of Lender or in
the name of Bank, for the use and benefit of Bank, without notice to Lender, to
perform at Bank's option the following acts in any bankruptcy, insolvency or
similar proceeding involving Borrower:
(i) To file the appropriate claim or claims in respect of the
Subordinated Debt on behalf of Lender if Lender does not do so prior to
30 days before the expiration of the time to
-3-
<PAGE> 4
file claims in such proceeding and if Bank elects, in its sole
discretion, to file such claim or claims; and
(ii) To accept or reject any plan of reorganization or
arrangement on behalf of Lender and to otherwise vote Lender's claims
in respect of any Subordinated Debt in any manner that Bank deems
appropriate for the enforcement of its rights hereunder.
(g) This Section 2 shall remain effective for so long as Borrower owes
any amounts to Bank. If, at any time after payment in full of the Senior Debt
any payments of the Senior Debt must be disgorged by Bank for any reason
(including, without limitation, the bankruptcy of Borrower), this Section 2 and
the relative rights and priorities set forth herein shall be reinstated as to
all such disgorged payments as though such payments had not been made and Lender
shall immediately pay over to Bank all payments received with respect to the
Subordinated Debt to the extent that such payments would have been prohibited
hereunder. At any time and from time to time, without notice to Lender, Bank may
take such actions with respect to the Senior Debt as Bank, in its sole
discretion, may deem appropriate, including, without limitation, terminating
advances to Borrower, increasing the principal amount, extending the time of
payment, increasing applicable interest rates, renewing, compromising or
otherwise amending the terms of any documents affecting the Senior Debt and any
collateral securing the Senior Debt, and enforcing or failing to enforce any
rights against Borrower or any other person. No such action or inaction shall
impair or otherwise affect Bank's rights hereunder. Lender waives the benefits,
if any, of California Civil Code Sections 2809, 2810, 2819, 2845, 2847, 2848,
2849, 2850, 2899 and 3433.
(h) The provisions of this Section 2 shall bind any successors or
assignees of Lender and shall benefit any successors or assigns of Bank, and, if
Borrower refinances a portion of the Senior Debt with a new lender, such new
lender shall be deemed a successor of Bank for the purposes of this Section 2.
This Section 2 is solely for the benefit of Lender and Bank and not for the
benefit of Borrower or any other party.
(i) The provisions of this Section 2 may be amended only by written
instrument signed by Lender and Bank.
(j) In the event of any legal action to enforce the rights of a party
under this Section 2, the party prevailing in such action shall be entitled, in
addition to such other relief as may be granted, all reasonable costs and
expenses, including reasonable attorneys' fees, incurred in such action.
3. Conditions to Which Note is Subject. The acceptance of this Note by
Lender and the issuance of this Note by Borrower are subject to the fulfillment
of the following conditions:
3.1 Representations and Warranties Correct. The
representations and warranties made by Borrower and Lender in Section 4 and
Section 5, respectively, of the Loan Agreement shall be true and correct in all
material respects as of the Closing Date (as defined in the Loan Agreement).
-4-
<PAGE> 5
3.2 Covenants. All covenants, agreements and conditions
contained in the Loan Agreement to be performed by Borrower and Lender,
respectively, on or prior to the Closing Date shall have been performed or
complied with in all material respects.
4. Governing Law. This Note is issued in and shall be interpreted under
the laws of the State of California.
5. Assignment. This Note may not be assigned or transferred without the
written consent of Borrower. The terms and provisions of this Note shall inure
to the benefit of, and be binding upon, Borrower and its successors and assigns.
6. California 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 THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS AN EXEMPTION FROM SUCH
QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, OR SUCH EXEMPTION
BEING AVAILABLE.
Issued this 20th day of October, 1995.
PROBUSINESS, INC.
By:
-----------------------------------
Thomas H. Sinton, President
--------------------------------------
(Lender)
By:
-----------------------------------
Title:
-------------------------------
-5-
<PAGE> 6
THIS NOTE IS BEING ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. THIS NOTE MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR UNLESS THE HOLDER THEREOF RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY STATING THAT SUCH SALE, TRANSFER OR
ASSIGNMENT IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SAID ACT.
__________, 1995
$_________
PROBUSINESS, INC.
PROMISSORY NOTE
WHEREAS, ProBusiness, Inc. (the "Borrower") and the Lenders, as defined
in the Loan Agreement (defined hereinafter) have entered into a Loan Agreement
dated October 20, 1995 as amended by the First Amendment to the Loan Agreement
dated ___________, 1995 (collectively, the "Loan Agreement") pursuant to which
Lenders will make up to $4,000,000 available to Borrower;
WHEREAS, Borrower requires funds to continue the operation of its
business; and
WHEREAS, the Lenders desire to provide funds to Borrower on the terms
and under the conditions set forth below;
NOW, THEREFORE, in consideration of the promises, conditions and
representations herein contained, the parties agree as follows:
For value received, the undersigned, PROBUSINESS, INC., a California
corporation (the "Borrower") promises to pay _______________________________
(the "Lender") the principal sum of __________________ ($_______), plus accrued
interest. The principal amount of this Note and interest accrued thereon shall
be due and payable on demand on the earlier of (i) three years from the date of
the Loan Agreement or (ii) at the option of Lender or Borrower within thirty
days after the closing of a public offering of the Company that triggers the
conversion of the Company's outstanding Preferred Stock into the Company's
Common Stock under the Company's Articles of Incorporation, as amended. The
principal amount shall accrue interest at the rate of 8% per annum or if less,
the maximum rate permitted by applicable law commencing on the date of the Loan
Agreement. Borrower shall make quarterly payments to Lender for the amount of
interest accrued on the principal sum outstanding under this Note beginning on
December 31, 1995. All
<PAGE> 7
payments on this Note will be credited first against accrued interest and then
against the remaining principal. This Note may be prepaid at any time without
penalty after the earlier of (i) one year from the date of the Loan Agreement,
or (ii) a public offering of the Borrower that triggers the conversion of Series
E Preferred Stock of the Company into Common Stock under the Company's Articles
of Incorporation (an "Initial Public Offering") pursuant to the terms of the
Loan Agreement.
7. Events of Default; Remedies.
7.1 Events of Default. The occurrence of any one or more of
the following events after the date of the Loan Agreement shall constitute an
"Event of Default":
(a) Borrower fails to make timely payment of any
principal, interest, fees or other charges when due hereunder;
(b) Any material warranty, representation or other
statement made to Lender by Borrower under the Loan Agreement proves to have
been false or misleading in any material respect when made or furnished;
(c) Borrower fails or neglects to perform, keep or
observe any other material term, provision, condition, covenant, warranty or
representation contained in the Loan Agreement, which is required to be
performed, kept or observed by Borrower;
(d) Borrower shall commence any proceeding or other
action relating to it in bankruptcy or seek reorganization, arrangement,
readjustment of its debts, dissolution, liquidation, winding-up, composition or
any other relief under the Bankruptcy Act, as amended, or under any other
insolvency, reorganization, liquidation, dissolution, arrangement, composition,
readjustment of debt or any other similar act or law, of any jurisdiction,
domestic or foreign, now or hereafter existing;
(e) Borrower shall admit the material allegations of
any petition or pleading in connection with any such proceeding;
(f) Borrower shall apply for, or consent to or
acquiesce in, the appointment of a receiver, conservator, trustee or similar
officer for it or for all or a substantial part of its property;
(g) Borrower shall make a general assignment for the
benefit of creditors; or
(h) Borrower shall admit in writing its inability to
pay its debts as they mature.
7.2 Acceleration of the Obligations. Upon the occurrence of an
Event of Default as above provided, all or any portion of the obligations due or
to become due from Borrower to
-7-
<PAGE> 8
Lender shall, at the option of Lender, and without notice or demand by Lender,
become at once due and payable. Borrower will forthwith pay to Lender, in
addition to any and all sums and charges due, the entire outstanding principal
balance and interest accrued thereon.
8. Subordination. To the extent there is any conflict between the
provisions of this Section 2 and the other provisions of this Note, the
provisions of this Section 2 shall control.
(a) Lender hereby subordinates to Silicon Valley Bank ("Bank") any
security interest or lien that Lender may have or in the future obtain in any
property of Borrower. Notwithstanding any respective dates of attachment or
perfection of the security interest of Lender and the security interest of Bank,
the security interest of Bank in the property of Borrower shall at all times be
prior to the security interest of Lender.
(b) All indebtedness hereunder (the "Subordinated Debt") is
subordinated in right of payment to all obligations of Borrower to Bank now
existing or hereafter arising, together with all costs of collecting such
obligations (including attorneys' fees), including, without limitation, all
interest accruing after the commencement by or against Borrower of any
bankruptcy, reorganization or similar proceeding (the "Senior Debt").
(c) Lender will not demand or receive from Borrower (and Borrower will
not pay to Lender) all or any part of the Subordinated Debt, by way of payment,
prepayment, setoff, lawsuit or otherwise, nor will Lender exercise any remedy
with respect to any of Bank's collateral, nor will Lender commence, or cause to
commence, prosecute or participate in any administrative, legal or equitable
action against Borrower, for so long as any portion of the Senior Debt remains
outstanding. The foregoing notwithstanding, Lender shall be entitled to receive
each regularly scheduled payment of interest that constitutes Subordinated Debt,
provided that an event of default, as defined in the financing agreements
between Borrower and Bank, has not occurred and is not continuing and would not
exist immediately after such payment.
(d) Lender shall promptly deliver to Bank in the form received (except
for endorsement or assignment by Lender where required by Bank) for application
to the Senior Debt any payment, distribution, security or proceeds received by
Lender with respect to the Subordinated Debt other than in accordance with this
Section 2.
(e) In the event of Borrower's insolvency, reorganization or any case
or proceeding under any bankruptcy or insolvency law or laws relating to the
relief of debtors, the provisions of this Section 2 shall remain in full force
and effect, and Bank's claims against Borrower and the estate of Borrower shall
be paid in full before any payment is made to Lender.
(f) For so long as any of the Senior Debt remains unpaid, Lender
irrevocably appoints Bank as Lender's attorney-in-fact, and grants to Bank a
power of attorney with full power of substitution, in the name of Lender or in
the name of Bank, for the use and benefit of Bank, without notice to Lender, to
perform at Bank's option the following acts in any bankruptcy, insolvency or
similar proceeding involving Borrower:
-8-
<PAGE> 9
(i) To file the appropriate claim or claims in respect of the
Subordinated Debt on behalf of Lender if Lender does not do so prior to
30 days before the expiration of the time to file claims in such
proceeding and if Bank elects, in its sole discretion, to file such
claim or claims; and
(ii) To accept or reject any plan of reorganization or
arrangement on behalf of Lender and to otherwise vote Lender's claims
in respect of any Subordinated Debt in any manner that Bank deems
appropriate for the enforcement of its rights hereunder.
(g) This Section 2 shall remain effective for so long as Borrower owes
any amounts to Bank. If, at any time after payment in full of the Senior Debt
any payments of the Senior Debt must be disgorged by Bank for any reason
(including, without limitation, the bankruptcy of Borrower), this Section 2 and
the relative rights and priorities set forth herein shall be reinstated as to
all such disgorged payments as though such payments had not been made and Lender
shall immediately pay over to Bank all payments received with respect to the
Subordinated Debt to the extent that such payments would have been prohibited
hereunder. At any time and from time to time, without notice to Lender, Bank may
take such actions with respect to the Senior Debt as Bank, in its sole
discretion, may deem appropriate, including, without limitation, terminating
advances to Borrower, increasing the principal amount, extending the time of
payment, increasing applicable interest rates, renewing, compromising or
otherwise amending the terms of any documents affecting the Senior Debt and any
collateral securing the Senior Debt, and enforcing or failing to enforce any
rights against Borrower or any other person. No such action or inaction shall
impair or otherwise affect Bank's rights hereunder. Lender waives the benefits,
if any, of California Civil Code Sections 2809, 2810, 2819, 2845, 2847, 2848,
2849, 2850, 2899 and 3433.
(h) The provisions of this Section 2 shall bind any successors or
assignees of Lender and shall benefit any successors or assigns of Bank, and, if
Borrower refinances a portion of the Senior Debt with a new lender, such new
lender shall be deemed a successor of Bank for the purposes of this Section 2.
This Section 2 is solely for the benefit of Lender and Bank and not for the
benefit of Borrower or any other party.
(i) The provisions of this Section 2 may be amended only by written
instrument signed by Lender and Bank.
(j) In the event of any legal action to enforce the rights of a party
under this Section 2, the party prevailing in such action shall be entitled, in
addition to such other relief as may be granted, all reasonable costs and
expenses, including reasonable attorneys' fees, incurred in such action.
9. Conditions to Which Note is Subject. The acceptance of this Note by
Lender and the issuance of this Note by Borrower are subject to the fulfillment
of the following conditions:
9.1 Representations and Warranties Correct. The
representations and warranties made by Borrower and Lender in Section 4 and
Section 5, respectively, of the Loan Agreement shall
-9-
<PAGE> 10
be true and correct in all material respects as of the Closing Date (as defined
in the Loan Agreement).
9.2 Covenants. All covenants, agreements and conditions
contained in the Loan Agreement to be performed by Borrower and Lender,
respectively, on or prior to the Closing Date shall have been performed or
complied with in all material respects.
10. Governing Law. This Note is issued in and shall be interpreted
under the laws of the State of California.
11. Assignment. This Note may not be assigned or transferred without
the written consent of Borrower. The terms and provisions of this Note shall
inure to the benefit of, and be binding upon, Borrower and its successors and
assigns.
12. California 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 THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS AN EXEMPTION FROM SUCH
QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, OR SUCH EXEMPTION
BEING AVAILABLE.
Issued this ___ day of _______, 1995.
PROBUSINESS, INC.
By:
--------------------------------
Thomas H. Sinton, President
LENDER
-----------------------------------
(Lender)
By:
--------------------------------
Title:
-----------------------------
-10-
<PAGE> 11
PROBUSINESS, INC.
FIRST AMENDMENT TO NOTE
This First Amendment to the note issued on October 20, 1995 (the
"Note") by ProBusiness, Inc., a California corporation (the "Borrower") to
__________________ (the "Lender") is made as of December 12, 1995 between the
Borrower and the Lender.
WHEREAS, the Borrower and the Lenders, as defined in the Loan Agreement
(defined hereinafter) have entered into a Loan Agreement dated October 20, 1995,
as amended by the First Amendment to the Loan Agreement dated December 12, 1995
(collectively, the "Loan Agreement");
WHEREAS, the Borrower issued the Note to the Lender for good and
valuable consideration;
WHEREAS, the Lender possesses certain rights under the Note;
NOW, THEREFORE, pursuant to the terms of the Note, and in consideration
of the mutual promises, covenants and conditions hereinafter set forth, the
parties hereto mutually agree to amend the last sentence of the first paragraph
of the Note to read in its entirety as follows:
"This Note may be prepaid at any time without penalty after the earlier
of (i) one year from the date of the Loan Agreement, or (ii) a public offering
of the Borrower that triggers the conversion of Series E Preferred Stock of the
Company into Common Stock under the Company's Articles of Incorporation (an
"Initial Public Offering") pursuant to the terms of the Loan Agreement."
<PAGE> 12
IN WITNESS WHEREOF, the parties have duly executed this First Amendment
to Note on the day and year first above written.
LENDER PROBUSINESS, INC.
___________________________
By: _______________________ By: _____________________________________
Thomas H. Sinton,
Title: ____________________ President and Chief Executive Officer
<PAGE> 1
EXHIBIT 5.1
March 12, 1997
PROBUSINESS SERVICES, INC.
5934 Gibraltar Drive
Pleasanton, CA 94588
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you
with the Securities and Exchange Commission on March 12, 1997 (Registration
No. 333-____), as amended (the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, of up to 2,300,000
shares of your Common Stock, $0.001 par value per share (the "Shares"). The
Shares include an over-allotment option granted to the underwriters of the
offering to purchase up to 300,000 shares. We understand that the Shares
are to be sold to the underwriters of the offering for resale to the public
as described in the Registration Statement. As your legal counsel, we have
examined the proceedings taken, and are familiar with the proceedings
proposed to be taken, by you in connection with the sale and issuance of the
Shares to be sold by you.
It is our opinion that upon completion of the proceedings being
taken or contemplated by us, as your counsel, to be taken prior to the issuance
of the Shares, including the proceedings being taken in order to permit such
transaction to be carried out in accordance with applicable state securities
laws, the Shares, when issued and sold in the manner described in the
Registration Statement, will be legally issued, fully paid and non-assessable.
We are members of the Bar of the State of California only and express
no opinion as to any matter relating to the laws of any jurisdiction other than
the laws of the State of California and the federal laws of the United States.
Without limiting the foregoing, we express no opinion as to the securities laws
of the State of Delaware.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
EXHIBIT 10.1
[CB LOGO] OFFICE BUILDING LEASE
CB COMMERCIAL REAL ESTATE GROUP, INC.
BROKERAGE AND MANAGEMENT
LICENSED REAL ESTATE BROKER
TABLE OF CONTENTS
PAGE
Article 1 LEASE OF PREMISES............................ 1
Article 2 DEFINITIONS.................................. 1
Article 3 EXHIBITS AND ADDENDA......................... 2
Article 4 DELIVERY OF POSSESSION....................... 2
Article 5 RENT......................................... 2
Article 6 INTEREST AND LATE CHARGES.................... 4
Article 7 SECURITY DEPOSIT............................. 4
Article 8 TENANT'S USE OF THE PREMISES................. 4
Article 9 SERVICES AND UTILITIES....................... 5
Article 10 CONDITION OF THE PREMISES.................... 5
Article 11 CONSTRUCTION, REPAIRS AND MAINTENANCE........ 5
Article 12 ALTERATIONS AND ADDITIONS.................... 6
Article 13 LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.... 6
Article 14 RULES AND REGULATIONS........................ 7
Article 15 CERTAIN RIGHTS RESERVED BY LANDLORD.......... 7
Article 16 ASSIGNMENT AND SUBLETTING.................... 7
Article 17 HOLDING OVER................................. 8
Article 18 SURRENDER OF PREMISES........................ 8
Article 19 DESTRUCTION OR DAMAGE........................ 8
Article 20 EMINENT DOMAIN............................... 8
Article 21 INDEMNIFICATION.............................. 9
Article 22 TENANT'S INSURANCE........................... 9
Article 23 WAIVER OF SUBROGATION........................ 10
Article 24 SUBORDINATION AND ATTORNMENT................. 10
Article 25 TENANT ESTOPPEL CERTIFICATES................. 10
Article 26 TRANSFER OF LANDLORD'S INTEREST.............. 10
Article 27 DEFAULT...................................... 10
Article 28 BROKERAGE FEES............................... 11
Article 29 NOTICES...................................... 11
Article 30 GOVERNMENT ENERGY OR UTILITY CONTROLS........ 11
Article 31 RELOCATION OF PREMISES....................... 11
Article 32 QUIET ENJOYMENT.............................. 12
Article 33 OBSERVANCE OF LAW............................ 12
Article 34 FORCE MAJEURE................................ 12
Article 35 CURING TENANT'S DEFAULTS..................... 12
Article 36 SIGN CONTROL................................. 12
Article 37 MISCELLANEOUS................................ 12
<PAGE> 2
[CB COMMERCIAL LOGO]
This Lease between Hacienda Park Associates ,
-----------------------------------------------------------
a California General Partnership
----------------------------------------------------------------------------
("Landlord"), and Pro Business Payroll ,
------------------------------------------------------------
a California corporation , ("Tenant"), is
--------------------------------------------------------------
dated August 12 , 1992.
---------------------------------------------------------------- ---
1. LEASE OF PREMISES.
In consideration of the Rent (as defined at Section 5.4) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as Exhibit
"A", and further described at Section 2l. The Premises are located within the
Building and Project described in Section 2m. Tenant shall have the
non-exclusive right (unless otherwise provided herein) in common with Landlord,
other tenants, subtenants and invitees, to use of the Common Areas (as defined
at Section 2e).
2. DEFINITIONS
As used in this Lease, the following terms shall have the following meanings:
a. Base Rent (initial): $ refer to 2j
----------------------------------------------------
b. Base Year: The calendar year of 1992 ,
-------------------------------------------
c. Broker(s)
Landlord's: CB Commercial ,
----------------------------------------------------------
Tenant's: CB Commercial ,
-------------------------------------------------------------
In the event that CB Commercial Real Estate Group, Inc. represents both
Landlord and Tenant, Landlord and Tenant hereby confirm that they were timely
advised of the dual representation and that they consent to the same, and that
they do not expect said broker to disclose to either of them the confidential
information of the other party.
d. Commencement Date: October 1, 1992 ,
----------------------------------------------------------
e. Common Areas: the building lobbies, common corridors and hallways,
restrooms, garage and parking areas, stairways, elevators and other generally
understood public or common areas. Landlord shall have the right to regulate
or restrict the use of the Common Areas.
f. Expense Stop: (fill in if applicable): $ 6.68 per square foot, per year ,
-------------------------------------
g. Expiration Date: September 30, 1998 , unless otherwise
------------------------------------------
sooner terminated in accordance with the provisions of this Lease.
h. Index (Section 5.2): United States Department of Labor, Bureau of Labor
Statistics Consumer Price Index for All Urban Consumers,
--------------------
Average, Subgroup "All Items" (1967 = 100).
i. Landlord's Mailing Address: CB Commercial Real Estate Group, Inc.
------------------------------------------------
5667 B Gibraltar Drive, Pleasanton, CA 94588
Tenant's Mailing Address: 5934 Gibraltar Drive, Pleasanton, CA 94588
------------------------------------------------
-----------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Mos. 1 - 9 $14,047.20 1.20 5/12/92
j. Monthly Installments of Base Rent (initial): 5/13 Mos. 10-15 $15,803.10 1.35 5/12/93 - 11/15/93 per month.
------------------------------------------------------
11/23 Mos. 16-72 $16,973.70 1.45
</TABLE>
k. Parking: Tenant shall be permitted, upon payment of the then prevailing
monthly rate (as set by Landlord from time to time) to park 46 cars on a
--
non-exclusive basis in the area(s) designated by Landlord for parking.
Tenant shall abide by any and all parking regulations and rules established
from time to time by Landlord or Landlord's parking operator. Landlord
reserves the right to separately charge Tenant's guests and visitors for
parking.
l. Premises: that portion of the Building containing approximately 11,706
------
square feet of Rentable Area, shown by diagonal lines on Exhibit "A",
located on the second floor of the Building and known as Suite 201.
------ ---
m. Project: the building of which the Premises are a part (the "Building") and
any other buildings or improvements on the real property (the "Property")
located at 5934 Gibraltar Drive, 4696 Willow Road and 4698 Willow Road,
-----------------------------------------------------------------
Pleasanton, California and further described at Exhibit "8." The Project
----------------------
is known as Saratoga Center.
----------------
n. Rentable Area: as to both the Premises and the Project, the respective
measurements of floor area as may from time to time be subject to lease
by Tenant and all tenants of the Project, respectively, as determined by
Landlord and applied on a consistent basis throughout the Project.
(1)
<PAGE> 3
p. State: the State of California
-------------------------------------------------------
q. Tenant's First Adjustment Date (Section 5.2): the first day of the
calendar month following the Commencement Date plus months.
--------
r. Tenant's Proportionate Share: Upon completion of tenant improvements
described in Exhibit "C", Tenant's proportionate share of the building
containing the Premises shall be 28.10%. Such share is a fraction, the
numerator of which is the Rentable Area of the Premises, and the denominator
of which is the Gross Area of the Building, as determined by the Landlord from
time to time. The Building consists of 41,656 square feet. Tenant's
proportionate share of the Project shall be 14.06%. Such share is a fraction,
the numerator of which is the Rentable Area of the Premises, and the
denominator of which is the Rentable Area of the Project, as determined by the
Landlord from time to time. The project consists of two buildings containing a
total Rentable Area of 83,230 square feet.
s. Tenant's Use Clause (Article 8): Payroll Services
-----------------------------------------
t. Term: the period commencing on the Commencement Date and expiring at
midnight on the Expiration Date.
3. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease:
a. Exhibit "A" - Floor Plan showing the Premises.
b. Exhibit "B" - Site Plan of the Project.
c. Exhibit "C" - Space Plan dated August 12, 1992
d. Exhibit "D" - Rules and Regulations.
e.
f. Addenda
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. DELIVERY OF POSSESSION.
If for any reason Landlord does not deliver possession of the Premises to
Tenant on the Commencement Date, Landlord shall not be subject to any liability
for such failure, the Expiration Date shall not change and the validity of this
Lease shall not be impaired, but Rent shall be abated until delivery of
possession. "Delivery of possession" shall be deemed to occur on the date
Landlord completes Landlord's Work as defined in Exhibit "C." If Landlord
permits Tenant to enter into possession of the Premises before the Commencement
Date, such possession shall be subject to the provisions of this Lease,
including, without limitation, the payment of Rent.
5. RENT
5.1 Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises.
Monthly Installments of Base Rent shall be payable in advance on the first day
of each calendar month of the Term. If the Term begins (or ends) on other than
the first (or last) day of a calendar month, the Base Rent for the partial
month shall be prorated on a per diem basis. Tenant shall pay Landlord the
first Monthly Installment of Base Rent when Tenant executes the Lease.
5.3 Project Operating Costs.
a. In order that the Rent payable during the Term reflect any increase in
Project Operating Costs, Tenant agrees to pay to Landlord as Rent, Tenant's
Proportionate Share of all increases in costs, expenses and obligations
attributable to the Project and its operation, all as provided below.
b. If, during any calendar year during the Term, Project Operating Costs
exceed the Project Operating Costs for the Base Year, Tenant shall pay to
Landlord, in addition to the Base Rent and all other payments due under
this Lease, an amount equal to Tenant's Proportionate Share of such excess
Project Operating Costs in accordance with the provisions of this Section
5.3b.
(2)
<PAGE> 4
(a) All taxes, assessments, water and sewer charges and other similar
government charges levied on or attributable to the Building or Project or
their operation, including without limitation, (i) real property taxes or
assessments levied or assessed against the Building or Project, (ii)
assessments or charges levied or assessed against the Building or Project by
any redevelopment agency, (iii) any tax measured by gross rentals received
from the leasing of the Premises, Building or Project, excluding any net
income, franchise, capital stock, estate or inheritance taxes imposed by the
State or federal government or their agencies, branches or departments;
provided that if at any time during the Term any governmental entity levies,
assesses or imposes on Landlord any (1) general or special, ad valorem or
specific, excise, capital levy or other tax, assessment, levy or charge
directly on the Rent received under this Lease or on the rent received under
any other leases of space in the Building or Project, or (2) any license fee,
excise or franchise tax, assessment, levy or charge measured by or based, in
whole or in part, upon such rent, or (3) any transfer, transaction, or
similar tax, assessment, levy or charge based directly or indirectly upon the
transaction represented by this Lease or such other leases, or (4) any
occupancy, use, per capita or other tax, assessment, levy or charge based
directly or indirectly upon the use or occupancy of the Premises or other
premises within the Building or Project, then any such taxes, assessments,
levies and charges shall be deemed to be included in the term Project
Operating Costs. If at any time during the Term the assessed valuation of, or
taxes on, the Project are not based on a completed Project having at least
eighty-five percent (85%) of the Rentable Area occupied, then the "taxes"
component of Project Operating Costs shall be adjusted by Landlord to
reasonably approximate the taxes which would have been payable if the Project
were completed and at least eighty-five percent (85%) occupied.
(b) Operating costs incurred by Landlord in maintaining and operating the
Building and Project, including without limitation the following: costs of
(1) utilities; (2) supplies; (3) insurance (including public liability,
property damage, earthquake, and fire and extended coverage insurance for the
full replacement cost of the Building and Project as required by Landlord or
its lenders for the Project; (4) services of independent contractors; (5)
compensation (including employment taxes and fringe benefits) of all persons
who perform duties connected with the operation, maintenance, repair or
overhaul of the Building or Project, and equipment, improvements and
facilities located within the Project, including without limitation
engineers, janitors, painters, floor waxers, window washers, security and
parking personnel and gardeners (but excluding persons performing services
not uniformly available to or performed for substantially all Building or
Project tenants); (6) operation and maintenance of a room for delivery and
distribution of mail to tenants of the Building or Project as required by the
U.S. Postal Service (including, without limitation, an amount equal to the
fair market rental value of the mail room premises); (7) management of the
Building or Project, whether managed by Landlord or an independent contractor
(including, without limitation, an amount equal to the fair market value of
any on-site manager's office); (8) rental expenses for (or a reasonable
depreciation allowance on) personal property used in the maintenance,
operation or repair of the Building or Project; (9) costs, expenditures or
charges (whether capitalized or not) required by any governmental or
quasi-governmental authority; (10) amortization of capital expenses
(including financing costs) (i) required by a governmental entity for energy
conservation or life safety purposes, or (ii) made by Landlord to reduce
Project Operating Costs; and (11) any other costs or expenses incurred by
Landlord under this Lease and not otherwise reimbursed by tenants of the
Project. If at any time during the Term, less than eighty-five percent (85%)
of the Rentable Area of the Project is occupied, the "operating costs"
component of Project Operating Costs shall be adjusted by Landlord to
reasonably approximate the operating costs which would have been incurred if
the Project had been at least eighty-five percent (85%) occupied.
2) Tenant's Proportionate Share of Project Operating Costs shall be payable by
Tenant to Landlord as follows:
(a) Beginning with the calendar year following the Base Year and for each
calendar year thereafter ("Comparison Year"), Tenant shall pay Landlord an
amount equal to Tenant's Proportionate Share of the Project Operating Costs
incurred by Landlord in the Comparison Year which exceeds the total amount of
Project Operating Costs payable by Landlord for the Base Year. This excess is
referred to as the "Excess Expenses."
(b) To provide for current payments of Excess Expenses, Tenant shall, at
Landlord's request, pay as additional rent during each Comparison Year, an
amount equal to Tenant's Proportionate Share of the Excess Expenses payable
during such Comparison Year, as estimated by Landlord from time to time. Such
payments shall be made in monthly installments, commencing on the first day
of the month following the month in which Landlord notifies Tenant of the
amount it is to pay hereunder and continuing until the first day of the month
following the month in which Landlord gives Tenant a new notice of estimated
Excess Expenses. It is the intention hereunder to estimate from time to time
the amount of the Excess Expenses for each Comparison Year and Tenant's
Proportionate Share thereof, and then to make an adjustment in the following
year based on the actual Excess Expenses incurred for that Comparison Year.
(c) On or before April 1 of each Comparison Year after the first Comparison
Year (or as soon thereafter as is practical), Landlord shall deliver to
Tenant a statement setting forth Tenant's Proportionate Share of the Excess
Expenses for the preceding Comparison Year. If Tenant's Proportionate Share
of the actual Excess Expenses for the previous Comparison Year exceeds the
total of the estimated monthly payments made by Tenant for such year, Tenant
shall pay Landlord the amount of the deficiency within ten (10) days of the
receipt of the statement. If such total exceeds Tenant's Proportionate Share
of the actual Excess Expenses for such Comparison Year, then Landlord shall
credit against Tenant's next ensuing monthly installment(s) of additional
rent an amount equal to the difference until the credit is exhausted. If a
credit is due from Landlord on the Expiration Date, Landlord shall pay Tenant
the amount of the credit. The obligations of Tenant and Landlord to make
payments required under this Section 5.3 shall survive the Expiration Date.
(d) Tenant's Proportionate Share of Excess Expenses in any Comparison Year
having less than 365 days shall be appropriately prorated.
(e) If any dispute arises as to the amount of any additional rent due
hereunder, Tenant shall have the right after reasonable notice and at
reasonable times to inspect Landlord's accounting records at Landlord's
accounting office and, if after such inspection Tenant still disputes the
amount of additional rent owed, a certification as to the proper amount shall
be made by Landlord's certified public accountant, which certification shall
be final and conclusive. Tenant agrees to pay the cost of such certification
unless it is determined that Landlord's original statement overstated Project
Operating Costs by more than five percent (5%).
(3)
<PAGE> 5
(f) If this Lease sets forth an Expense Stop at Section 2f, then during
the lease, Tenant shall be liable for Tenant's Proportionate
Share of any actual Project Operating Costs which exceed the amount of
the Expense Stop. Tenant shall make current payments of such excess
costs during the Term in the same manner as is provided for payment of
Excess Expenses under the applicable provisions of Section 5.3b(2)(b)
and (c) above.
5.4 Definition of Rent. All costs and expenses which Tenant assumes or agrees
to pay to Landlord under this Lease shall be deemed additional rent (which,
together with the Base Rent is sometimes referred to as the "Rent"). The Rent
shall be paid to the Building manager (or other person) and at such place, as
Landlord may from time to time designate in writing, without any prior demand
therefor and without deduction or offset, in lawful money of the United States
of America.
5.5 Rent Control. If the amount of Rent or any other payment due under this
Lease violates the terms of any governmental restrictions on such Rent or
payment, then the Rent or payment due during the period of such restrictions
shall be the maximum amount allowable under those restrictions. Upon
termination of the restrictions, Landlord shall, to the extent it is legally
permitted, recover from Tenant the difference between the amounts received
during the period of the restrictions and the amounts Landlord would have
received had there been no restrictions.
5.6 Taxes Payable by Tenant. In addition to the Rent and any other charges to
be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for
any and all taxes payable by Landlord (other than net income taxes) which are
not otherwise reimbursable under this Lease, whether or not now customary or
within the contemplation of the parties, where such taxes are upon, measured by
or reasonably attributable to (a) the cost or value of Tenant's equipment,
furniture, fixtures and other personal property located in the Premises, or the
cost or value of any leasehold improvements made in or to the Premises by or
for Tenant, other than Building Standard Work made by Landlord, regardless of
whether title to such improvements is held by Tenant or Landlord; (b) the gross
or net Rent payable under this Lease, including, without limitation, any rental
or gross receipts tax levied by any taxing authority with respect to the
receipt of the Rent hereunder; (c) the possession, leasing, operation,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Premises or any portion thereof; or (d) this transaction or any document to
which Tenant is a party creating or transferring an interest or an estate in
the Premises. If it becomes unlawful for Tenant to reimburse Landlord for any
costs as required under this Lease, the Base Rent shall be revised to net
Landlord the same net Rent after imposition of any tax or other charge upon
Landlord as would have been payable to Landlord but for the reimbursement being
unlawful.
6. INTEREST AND LATE CHARGES.
If Tenant fails to pay when due any Rent or other amounts or charges which
Tenant is obligated to pay under the terms of this Lease, the unpaid amounts
shall bear interest at the maximum rate then allowed by law. Tenant
acknowledges that the late payment of any Monthly Installment of Base Rent will
cause Landlord to lose the use of that money and incur costs and expenses not
contemplated under this Lease, including without limitation, administrative and
collection costs and processing and accounting expenses, the exact amount of
which is extremely difficult to ascertain. Therefore, in addition to interest,
if any such installment is not received by Landlord within ten (10) days from
the date it is due. Tenant shall pay Landlord a late charge equal to ten
percent (10%) of such installment. Landlord and Tenant agree that this late
charge represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for the loss suffered from such nonpayment by Tenant.
Acceptance of any interest or late charge shall not constitute a waiver of
Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord
from exercising any other rights or remedies available to Landlord under this
Lease.
7. SECURITY DEPOSIT.
Tenant agrees to deposit with Landlord the Security Deposit set forth at
Section 2.0 upon execution of this Lease, as security for Tenant's faithful
performance of its obligations under this Lease. Landlord and Tenant agree
that the Security Deposit may be commingled with funds of Landlord and Landlord
shall have no obligation or liability for payment of interest on such deposit.
Tenant shall not mortgage, assign, transfer or encumber the Security Deposit
without the prior written consent of Landlord and any attempt by Tenant to do
so shall be void, without force or effect and shall not be binding upon
Landlord.
If Tenant fails to pay any Rent or other amount when due and payable under this
Lease, or fails to perform any of the terms hereof, Landlord may appropriate
and apply or use all or any portion of the Security Deposit for Rent payments
or any other amount then due and unpaid, for payment of any amount for which
Landlord has become obligated as a result of Tenant's default or breach, and
for any loss or damage sustained by Landlord as a result of Tenant's default or
breach, and Landlord may so apply or use this deposit without prejudice to any
other remedy Landlord may have by reason of Tenant's default or breach. If
Landlord so uses any of the Security Deposit, Tenant shall, within ten (10)
days after written demand therefor, restore the Security Deposit to the full
amount originally deposited; Tenant's failure to do so shall constitute an act
of default hereunder and Landlord shall have the right to exercise any remedy
provided for at Article 27 hereof. Within fifteen (15) days after the Term (or
any extension thereof) has expired or Tenant has vacated the Premises,
whichever shall last occur, and provided Tenant is not then in default on any
of its obligations hereunder, Landlord shall return the Security Deposit to
Tenant, or, if Tenant has assigned its interest under this Lease, to the last
assignee of Tenant. If Landlord sells its interest in the Premises, Landlord
may deliver this deposit to the purchaser of Landlord's interest and thereupon
be relieved of any further liability or obligation with respect to the Security
Deposit.
8. TENANT'S USE OF THE PREMISES.
Tenant shall use the Premises solely for the purposes set forth in Tenant's Use
Clause. Tenant shall not use or occupy the Premises in violation of law or any
covenant, condition or restriction affecting the Building or Project or the
certificate of occupancy issued for the Building or Project, and shall, upon
notice from Landlord, immediately discontinue any use of the Premises which is
declared by any governmental authority having jurisdiction to be a violation of
law or the certificate of occupancy. Tenant, at Tenant's own cost and expense,
shall comply with all laws, ordinances, regulations, rules and/or any
directions of any governmental agencies or authorities having jurisdiction
which shall, by reason of the nature of Tenant's use or occupancy of the
Premises, impose any duty upon Tenant or Landlord with respect to the Premises
or its use or occupation. A judgment of any court of competent jurisdiction or
the admission by Tenant in any action or proceeding against Tenant that Tenant
has violated any such laws, ordinances, regulations, rules and/or directions in
the use of the Premises shall be deemed to be a conclusive determination of
that fact as between Landlord and Tenant. Tenant shall not do or permit to be
done anything which will invalidate or increase the cost of any fire, extended
coverage or other insurance policy covering the Building or Project and/or
property located therein, and shall comply with all rules, orders, regulations,
requirements and recommendations of the Insurance Services Office or any other
organization performing a similar function. Tenant shall
(4)
<PAGE> 6
comply with the provisions or this Article. Tenant shall not do or permit
anything to be done in or about the Premises which will in any way obstruct or
interfere with the rights of other tenants or occupants of the Building or
Project, or injure or annoy them, or use or allow the Premises to be used for
any improper, immoral, unlawful or objectionable purpose, nor shall Tenant
cause, maintain or permit any nuisance in, or on about the Premises. Tenant
shall not commit or suffer to be committed any waste in or upon the Premises.
9. SERVICES AND UTILITIES.
Provided that Tenant is not in default hereunder, Landlord agrees to furnish to
the Premises during generally recognized business days, and during hours
determined by Landlord in its sole discretion, and subject to the Rules and
Regulations of the Building or Project, electricity for normal desk top office
equipment and normal copying equipment, and heating, ventilation and air
conditioning ("HVAC") as required in Landlord's judgment for the comfortable
use and occupancy of the Premises. If Tenant desires HVAC at any other time,
Landlord shall use reasonable efforts to furnish such service upon reasonable
notice from Tenant and Tenant shall pay Landlord's charges therefor on demand.
Landlord shall also maintain and keep lighted the common stairs, common entries
and restrooms in the Building. Landlord shall not be in default hereunder or
be liable for any damages directly or indirectly resulting from, nor shall the
Rent be abated by reason of (i) the installation, use or interruption of use of
any equipment in connection with the furnishing of any of the foregoing
services, (ii) failure to furnish or delay in furnishing any such services
where such failure or delay is caused by accident or any condition or event
beyond the reasonable control of Landlord, or by the making of necessary
repairs or improvements to the Premises, Building or Project, or (iii) the
limitation, curtailment or rationing of, or restrictions on, use of water,
electricity, gas or any other form of energy serving the Premises, Building or
Project. Landlord shall not be liable under any circumstances for a loss of or
injury to property or business, however occurring, through or in connection
with or incidental to failure to furnish any such services. If Tenant uses
heat generating machines or equipment in the Premises which affect the
temperature otherwise maintained by the HVAC system, Landlord reserves the
right to install supplementary air conditioning units in the Premises and the
cost thereof, including the cost of installation, operation and maintenance
thereof, shall be paid by Tenant to Landlord upon demand by Landlord.
Tenant shall not, without the written consent of Landlord, use any apparatus or
device in the Premises, including without limitation, electronic data
processing machines, punch card machines or machines using in excess of 120
volts, which consumes more electricity than is usually furnished or supplied
for the use of premises as general office space, as determined by Landlord.
Tenant shall not connect any apparatus with electric current except through
existing electrical outlets in the Premises. Tenant shall not consume water or
electric current in excess of that usually furnished or supplied for the use of
premises as general office space (as determined by Landlord), without first
procuring the written consent of Landlord, which Landlord may refuse, and in
the event of consent, Landlord may have installed a water meter or electrical
current meter in the Premises to measure the amount of water or electric
current consumed. The cost of any such meter and of its installation,
maintenance and repair shall be paid for by the Tenant and Tenant agrees to pay
to Landlord promptly upon demand for all such water and electric current
consumed as shown by said meters, at the rates charged for such services by the
local public utility plus any additional expense incurred in keeping account of
the water and electric current so consumed. If a separate meter is not
installed, the excess cost for such water and electric current shall be
established by an estimate made by a utility company or electrical engineer
hired by Landlord at Tenant's expense.
Nothing contained in this Article shall restrict Landlord's right to require at
any time separate metering of utilities furnished to the Premises. In the
event utilities are separately metered. Tenant shall pay promptly upon demand
for all utilities consumed at utility rates charged by the local public utility
plus any additional expense incurred by Landlord in keeping account of the
utilities so consumed. Tenant shall be responsible for the maintenance and
repair of any such meters at its sole cost.
Landlord shall furnish elevator service, lighting replacement for building
standard lights, restroom supplies, window washing and janitor services in a
manner that such services are customarily furnished to comparable office
buildings in the area.
10. CONDITION OF THE PREMISES.
Tenant's taking possession of the Premises shall be deemed conclusive evidence
that as of the date of taking possession the Premises are in good order and
satisfactory condition, except for such matters as to which Tenant gave
Landlord notice on or before the Commencement Date. No promise of Landlord to
alter, remodel, repair or improve the Premises, the Building or the Project and
no representation, express or implied, respecting any matter or thing relating
to the Premises, Building, Project or this Lease (including, without
limitation, the condition of the Premises, the Building or the Project) have
been made to Tenant by Landlord or its Broker or Sales Agent, other than as may
be contained herein or in a separate exhibit or addendum signed by Landlord and
Tenant.
11. CONSTRUCTION, REPAIRS AND MAINTENANCE.
a. Landlord's Obligations. Landlord shall perform Landlord's Work to the
Premises as described in Exhibit "C". Landlord shall maintain in good
order, condition and repair the Building and all other portions of the
Premises not the obligation of Tenant or of any other tenant in the
Building.
b. Tenant's Obligations.
(1) Tenant shall perform Tenant's Work to the Premises as described
in Exhibit "C".
(2) Tenant at Tenant's sole expense shall, except for services
furnished by Landlord pursuant to Article 9 hereof, maintain the
Premises in good order, condition and repair, including the interior
surfaces of the ceilings, walls and floors, all doors, all interior
windows, all plumbing, pipes and fixtures, electrical wiring,
switches and fixtures. Building Standard furnishings and special
items and equipment installed by or at the expense of Tenant.
(3) Tenant shall be responsible for all repairs and alterations in
and to the Premises, Building and Project and the facilities
and systems thereof, the need for which arises out of (i) Tenant's use
or occupancy of the Premises, (ii) the installation, removal, use or
operation of Tenant's Property (as defined in Article 13) in the
Premises, (iii) the moving of Tenant's Property into or out of the
Building, or (iv) the act, omission, misuse or negligence of Tenant,
its agents, contractors, employees or invitees.
(5)
<PAGE> 7
(4) If Tenant fails to maintain the Premises in good order,
condition and repair, Landlord shall give Tenant notice to do
such acts as are reasonably required to so maintain the
Premises. If Tenant fails to promptly commence such work and
diligently prosecute it to completion, then Landlord shall have
the right to do such acts and expend such funds at the expense
of Tenant as are reasonably required to perform such work. Any
amount so expended by Landlord shall be paid by Tenant promptly
after demand with interest at the prime commercial rate then
being charged by Bank of America NT & SA plus two percent (2%)
per annum, from the date of such work, but not to exceed the
maximum rate then allowed by law. Landlord shall have no
liability to Tenant for any damage, inconvenience, or
interference with the use of the Premises by Tenant as a result
of performing any such work.
c. Compliance with Law. Landlord and Tenant shall each do all acts
required to comply with all applicable laws, ordinances, and rules of any
public authority relating to their respective maintenance obligations as
set forth herein.
d. Waiver by Tenant. Tenant expressly waives the benefits of any statute
now or hereafter in effect which would otherwise afford the Tenant the
right to make repairs at Landlord's expense or to terminate this Lease
because of Landlord's failure to keep the Premises in good order, condition
and repair.
e. Load and Equipment Limits. Tenant shall not place a load upon any
floor of the Premises which exceeds the load per square foot which such
floor was designed to carry, as determined by Landlord or Landlord's
structural engineer. The cost of any such determination made by Landlord's
structural engineer shall be paid for by Tenant upon demand. Tenant shall
not install business machines or mechanical equipment which cause noise or
vibration to such a degree as to be objectionable to Landlord or other
Building tenants.
f. Except as otherwise expressly provided in this Lease, Landlord shall
have no liability to Tenant nor shall Tenant's obligations under this Lease
be reduced or abated in any manner whatsoever by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or
permitted by this Lease or by any other tenant's lease or required by law
to make in or to any portion of the Project, Building or the Premises.
Landlord shall nevertheless use reasonable efforts to minimize any
interference with Tenant's business in the Premises.
g. Tenant shall give Landlord prompt notice of any damage to or defective
condition in any part or appurtenance of the Building's mechanical,
electrical, plumbing, HVAC or other systems serving, located in, or passing
through the Premises.
h. Upon the expiration or earlier termination of this Lease, Tenant shall
return the Premises to Landlord clean and in the same condition as on the
date Tenant took possession, except for normal wear and tear. Any damage to
the Premises, including any structural damage, resulting from Tenant's use
or from the removal of Tenant's fixtures, furnishings and equipment
pursuant to Section 13b shall be repaired by Tenant at Tenant's expense.
12. ALTERATIONS AND ADDITIONS.
a. Tenant shall not make any additions, alterations or improvements to the
Premises without obtaining the prior written consent of Landlord.
Landlord's consent may be conditioned on Tenant's removing any such
additions, alterations or improvements upon the expiration of the Term and
restoring the Premises to the same condition as on the date Tenant took
possession. All work with respect to any addition, alteration or
improvement shall be done in a good and workmanlike manner by properly
qualified and licensed personnel approved by Landlord, and such work shall
be diligently prosecuted to completion. Landlord may, at Landlord's option,
require that any such work be performed by Landlord's contractor, in which
case the cost of such work shall be paid for before commencement of the
work. Tenant shall pay to Landlord upon completion of any such work by
Landlord's contractor, an administrative fee of fifteen percent (15%) of
the cost of the work.
b. Tenant shall pay the costs of any work done on the Premises pursuant to
Section 12a, and shall keep the Premises, Building and Project free and
clear of liens of any kind. Tenant shall indemnify, defend against and keep
Landlord free and harmless from all liability, loss, damage, costs,
attorneys' fees and any other expense incurred on account of claims by any
person performing work or furnishing materials or supplies for Tenant or
any person claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or
improvements which are or become the property of Landlord under this Lease,
free and clear of all attachment or judgment liens. Before the actual
commencement of any work for which a claim or lien may be filed, Tenant
shall give Landlord notice of the intended commencement date a sufficient
time before that date to enable Landlord to post notices of
non-responsibility or any other notices which Landlord deems necessary for
the proper protection of Landlord's interest in the Premises, Building or
the Project, and Landlord shall have the right to enter the Premises and
post such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant provide to
Landlord, at Tenant's expense, a lien and completion bond in an amount
equal to at least one and one-half (1 1/2) times the total estimated cost
of any additions, alterations or improvements to be made in or to the
Premises, to protect Landlord against any liability for mechanic's and
materialmen's liens and to insure timely completion of the work. Nothing
contained in this Section 12c shall relieve Tenant of its obligation under
Section 12b to keep the Premises, Building and Project free of all liens.
d. Unless their removal is required by Landlord as provided in Section
12a, all additions, alterations and improvements made to the Premises shall
become the property of Landlord and be surrendered with the Premises upon
the expiration of the Term; provided, however, Tenant's equipment,
machinery and trade fixtures which can be removed without damage to the
Premises shall remain the property of Tenant and may be removed, subject to
the provisions of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
a. All fixtures, equipment, improvements and appurtenances attached to or
built into the Premises at the commencement of or during the Term, whether
or not by or at the expense of Tenant ("Leasehold Improvements"), shall be
and remain a part of the Premises, shall be the property of Landlord and
shall not be removed by Tenant, except as expressly provided in Section
13b.
(6)
<PAGE> 8
b. All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment located in the
Premises and acquired by or for the account of Tenant, without expense to
Landlord, which can be removed without structural damage to the Building,
and all furniture, furnishings and other articles of movable personal
property owned by Tenant and located in the Premises (collectively
"Tenant's Property") shall be and shall remain the property of Tenant and
may be removed by Tenant at any time during the Term; provided that if any
of Tenant's Property is removed, Tenant shall promptly repair any damage to
the Premises or to the Building resulting from such removal.
14. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto as Exhibit
"D" and with such reasonable modifications thereof and additions thereto as
Landlord may from time to time make. Landlord shall not be responsible for any
violation of said rules and regulations by other tenants or occupants of the
Building or Project.
15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without liability to Tenant
for (a) damage or injury to property, person or business, (b) causing an actual
or constructive eviction from the Premises, or (c) disturbing Tenant's use or
possession of the Premises:
a. To name the Building and Project and to change the name or street
address of the Building or Project;
b. To install and maintain all signs on the exterior and interior of the
Building and Project;
c. To have pass keys to the Premises and all doors within the Premises,
excluding Tenant's vaults and safes;
d. At any time during the Term, and on reasonable prior notice to Tenant,
to inspect the Premises, and to show the Premises to any prospective
purchaser or mortgagee of the Project, or to any assignee of any mortgage
on the Project, or to others having an interest in the Project or Landlord,
and during the last six months of the Term, to show the Premises to
prospective tenants thereof; and
e. To enter the Premises for the purpose of making inspections, repairs,
alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or
balancing controls and other parts of the HVAC system), and to take all
steps as may be necessary or desirable for the safety, protection,
maintenance or preservation of the Premises or the Building or Landlord's
interest therein, or as may be necessary or desirable for the operation or
improvement of the Building or in order to comply with laws, orders or
requirements of governmental or other authority. Landlord agrees to use
its best efforts (except in an emergency) to minimize interference with
Tenant's business in the Premises in the course of any such entry.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises
shall be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of Landlord, assign
or hypothecate this Lease or any interest herein or sublet the Premises or
any part thereof, or permit the use of the Premises by any party other than
Tenant. Any of the foregoing acts without such consent shall be void and
shall, at the option of Landlord, terminate this Lease. This Lease shall
not, nor shall any interest of Tenant herein, be assignable by operation of
law without the written consent of Landlord.
b. If at any time or from time to time during the Term Tenant desires to
assign this Lease or sublet all or any part of the Premises, Tenant shall
give notice to Landlord setting forth the terms and provisions of the
proposed assignment or sublease, and the identity of the proposed assignee
or subtenant. Tenant shall promptly supply Landlord with such information
concerning the business background and financial condition of such proposed
assignee or subtenant as Landlord may reasonably request. Landlord shall
have the option, exercisable by notice given to Tenant within twenty (20)
days after Tenant's notice is given, either to sublet such space from
Tenant at the rental and on the other terms set forth in this Lease for the
term set forth in Tenant's notice, or, in the case of an assignment, to
terminate this Lease. If Landlord does not exercise such option, Tenant
may assign the Lease or sublet such space to such proposed assignee or
subtenant on the following further conditions:
(1) Landlord shall have the right to approve such proposed assignee or
subtenant, which approval shall not be unreasonably withheld;
(2) The assignment or sublease shall be on the same terms set forth in
the notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or
sublessee shall take possession of the Premises until an executed
counterpart of such assignment or sublease has been delivered to
Landlord;
(4) No assignee or sublessee shall have a further right to assign or
sublet except on the terms herein contained; and
(5) Any sums or other economic consideration received by Tenant as a
result of such assignment or subletting, however denominated under the
assignment or sublease, which exceed, in the aggregate, (i) the total
sums which Tenant is obligated to pay Landlord under this Lease
(prorated to reflect obligations allocable to any portion of the
Premises subleased), plus (ii) any real estate brokerage commissions
or fees payable in connection with such assignment or subletting,
shall be paid to Landlord as additional rent under this Lease without
affecting or reducing any other obligations of Tenant hereunder.
c. Notwithstanding the provisions of paragraphs a and b above, Tenant may
assign this Lease or sublet the Premises or any portion thereof, without
Landlord's consent and without extending any recapture or termination
option to Landlord, to any corporation which controls, is controlled by or
is under common control with Tenant, or to any corporation resulting from a
merger or consolidation with Tenant, or to any person or entity which
acquires all the assets of Tenant's business as a going concern, provided
that (i) the assignee or sublessee assumes, in full, the obligations of
Tenant under this Lease, (ii) Tenant remains fully liable under this Lease,
and (iii) the use of the Premises under Article 8 remains unchanged.
(7)
<PAGE> 9
d. No subletting or assignment shall release Tenant of Tenant's
obligations under this Lease or alter the primary liability of Tenant to
pay the Rent and to perform all other obligations to be performed by
Tenant hereunder. The acceptanace of Rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any provision
thereof. Consent to one assignment or subletting's shall not be deemed
consent to any subsequent assignment or subletting. In the event of
default by an assignee or subtenant of Tenant or any successor of Tenant
in the performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies
against such assignee, subtenant or successor. Landlord may consent to
subsequent assignments of the Lease or sublettings or amendments or
modifications to the Lease with assignees of Tenant, without notifying
Tenant, or any successor of Tenant, and without obtaining its or their
consent thereto and any such actions shall not relieve Tenant of liability
under this Lease.
e. If Tenant assigns the Lease or sublets the Premises or requests the
consent of Landlord to any assignment or subletting or if Tenant requests
the consent of Landlord for any act that Tenant proposes to do, then
Tenant shall, upon demand, pay Landlord an administrative fee of One
Hundred Fifty and No/100ths Dollars ($150.00) plus any attorneys' fees
reasonably incurred by Landlord in connection with such act or request.
17. HOLDING OVER.
If after expiration of the Term, Tenant remains in possession of the Premises
with Landlord's permission (express or implied), Tenant shall become a tenant
from month to month only, upon all the provisions of this Lease (except as to
term and Base Rent), but the "Monthly Installments of Base Rent" payable by
Tenant shall be increased to one hundred fifty percent (150%) of the Monthly
Installments of Base Rent payable by Tenant at the expiration of the Term.
Such monthly rent shall be payable in advance on or before the first day of
each month. If either party desires to terminate such month to month tenancy,
it shall give the other party not less than thirty (30) days advance written
notice of the date of termination.
18. SURRENDER OF PREMISES.
a. Tenant shall peaceably surrender the Premises to Landlord on the
Expiration Date, in broom-clean condition and in as good condition as when
Tenant took possession, except for (i) reasonable wear and tear, (ii) loss
by fire or other casualty, and (iii) loss by condemnation. Tenant shall, on
Landlord's request, remove Tenant's Property on or before the Expiration
Date and promptly repair all damage to the Premises or Building caused by
such removal.
b. If Tenant abandons or surrenders the Premises, or is dispossessed by
process of law or otherwise, any of Tenant's Property left on the Premises
shall be deemed to be abandoned, and, at Landlord's option, title shall
pass to Landlord under this Lease as by a bill of sale. If Landlord elects
to remove all or any part of such Tenant's Property, the cost of removal,
including repairing any damage to the Premises or Building caused by such
removal, shall be paid by Tenant. On the Expiration Date Tenant shall
surrender all keys to the Premises.
19. DESTRUCTION OR DAMAGE.
a. If the Premises or the portion of the Building necessary for Tenant's
occupancy is damaged by fire, earthquake, act of God, the elements of
other casualty, Landlord shall, subject to the provisions of this Article,
promptly repair the damage, if such repairs can, in Landlord's opinion,
be completed within (90) days. If Landlord determines that repairs can be
completed within ninety (90) days, this Lease shall remain in full force
and effect, except that if such damage is not the result of the negligence
or willful misconduct of Tenant or Tenant's agents, employees,
contractors, licensees or invitees, the Base Rent shall be abated to the
extent Tenant's use of the Premises is impaired, commencing with the date
of damage and continuing until completion of the repairs required of
Landlord under Section 19d.
b. If in Landlord's opinion, such repairs to the Premises or portion of
the Building necessary for Tenant's occupancy cannot be completed within
ninety (90) days, Landlord may elect, upon notice to Tenant given within
thirty (30) days after the date of such fire or other casualty, to repair
such damage, in which event this Lease shall continue in full force and
effect, but the Base Rent shall be partially abated as provided in Section
19a. If Landlord does not so elect to make such repairs, this Lease shall
terminate as of the date of such fire or other casualty.
c. If any other portion of the Building or Project is totally destroyed
or damaged to the extent that in Landlord's opinion repair thereof cannot
be completed within ninety (90) days, Landlord may elect upon notice to
Tenant given within thirty (30) days after the date of such fire or other
casualty, to repair such damage, in which event this Lease shall continue
in full force and effect, but the Base Rent shall be partially abated as
provided in Section 19a. If Landlord does not elect to make such
repairs, this Lease shall terminate as of the date of such fire or other
casualty.
d. If the Premises are to be repaired under this Article, Landlord shall
repair at its cost any injury or damage to the Building and Building
Standard Work in the Premises. Tenant shall be responsible at its sole
cost and expense for the repair, restoration and replacement of any other
Leasehold Improvements and Tenant's Property. Landlord shall not be
liable for any loss of business, inconvenience or annoyance arising from
any repair or restoration of any portion of the Premises, Building or
Project as a result of any damage from fire or other casualty.
e. This Lease shall be considered an express agreement governing any case
of damage to or destruction of the Premises, Building or Project by fire or
other casualty, and any present or future law which purports to govern the
rights of Landlord and Tenant in such circumstances in the absence of
express agreement, shall have no application.
20. EMINENT DOMAIN.
a. If the whole of the Building or Premises is lawfully taken by
condemnation or in any other manner for any public or quasi-public purpose,
this Lease shall terminate as of the date of such taking, and Rent shall be
prorated to such date. If less than the whole of the Building or Premises
is so taken, this Lease shall be unaffected by such taking, provided that
(i) Tenant shall have the right to terminate the Lease by notice to
Landlord given within ninety (90) days after the date of such taking if
twenty percent (20%) or more of the Premises is taken and the remaining
area of the Premises is not reasonably sufficient for Tenant to continue
operation of its business, and (ii) Landlord shall have the right to
terminate this Lease by notice to Tenant given within ninety (90) days
after the date of such taking. If either Landlord or Tenant so elects to
terminate this Lease, the Lease shall terminate on the thirtieth (30th) day
after either such notice. The Rent shall be prorated to the date of
termination. If this Lease continues in force upon such partial taking,
the Base Rent and Tenant's Proportionate Share shall be equitably adjusted
according to the remaining Rentable Area of the Premises and Project.
(8)
<PAGE> 10
b. In the event of any taking, partial or whole, all of the proceeds of
any award, judgment or settlement payable by the condemning authority shall
be the exclusive property of Landlord, and Tenant hereby assigns to
Landlord all of its right, title and interest in any award, judgment or
settlement from the condemning authority. Tenant, however, shall have the
right, to the extent that Landlord's award is not reduced or prejudiced, to
claim from the condemning authority (but not from Landlord) such
compensation as may be recoverable by Tenant in its own right for
relocation expenses and damage to Tenant's personal property.
c. In the event of a partial taking of the Premises which does not result
in a termination of this Lease, Landlord shall restore the remaining
portion of the Premises as nearly as practicable to its condition prior to
the condemnation or taking, but only to the extent of Building Standard
Work. Tenant shall be responsible at its sole cost and expense for the
repair, restoration and replacement of any other Leasehold Improvements and
Tenant's Property.
21. INDEMNIFICATION.
a. Tenant shall indemnify and hold Landlord harmless against and from
liability and claims of any kind for loss or damage to property of Tenant
or any other person, or for any injury to or death of any person, arising
out of: (1) Tenant's use and occupancy of the Premises, or any work,
activity or other things allowed or suffered by Tenant to be done in, on or
about the Premises; (2) any breach or default by Tenant of any of Tenant's
obligations under this Lease; or (3) any negligent or otherwise tortious
act or omission of Tenant, its agents, employees, invitees or contractors.
Tenant shall at Tenant's expense, and by counsel satisfactory to Landlord,
defend Landlord in any action or proceeding arising from any such claim and
shall indemnify Landlord against all costs, attorneys' fees, expert witness
fees and any other expenses incurred in such action or proceeding. As a
material part of the consideration for Landlord's execution of this Lease,
Tenant hereby assumes all risk of damage or injury to any person or
property in, on or about the Premises from any cause.
b. Landlord shall not be liable for injury or damage which may be
sustained by the person or property of Tenant, its employees, invitees or
customers, or any other person in or about the Premises, caused by or
resulting from fire, steam, electricity, gas, water or rain which may leak
or flow from or into any part of the Premises, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, whether such
damage or injury results from conditions arising upon the Premises or upon
other portions of the Building or Project or from other sources. Landlord
shall not be liable for any damages arising from any act or omission of any
other tenant of the Building or Project.
22. TENANT'S INSURANCE.
a. All insurance required to be carried by Tenant hereunder shall be
issued by responsible insurance companies acceptable to Landlord and
Landlord's lender and qualified to do business in the State. Each policy
shall name Landlord, and at Landlord's request any mortgagee of Landlord,
as an additional insured, as their respective interests may appear. Each
policy shall contain (i) a cross-liability endorsement, (ii) a provision
that such policy and the coverage evidenced thereby shall be primary and
non-contributing with respect to any policies carried by Landlord and that
any coverage carried by Landlord shall be excess insurance, and (iii) a
waiver by the insurer of any right of subrogation against Landlord, its
agents, employees and representatives, which arises or might arise by
reason of any payment under such policy or by reason of any act or omission
of Landlord, its agents, employees or representatives. A copy of each paid
up policy (authenticated by the insurer) or certificate of the insurer
evidencing the existence and amount of each insurance policy required
hereunder shall be delivered to Landlord before the date Tenant is first
given the right of possession of the Premises, and thereafter within thirty
(30) days after any demand by Landlord therefor, Landlord may, at any time
and from time to time, inspect and/or copy any insurance policies required
to be maintained by Tenant hereunder. No such policy shall be cancellable
except after (20) days written notice to Landlord and Landlord's lender.
Tenant shall furnish Landlord with renewals or "binders" of any such policy
at least ten (10) days prior to the expiration thereof. Tenant agrees that
if Tenant does not take out and maintain such insurance, Landlord may (but
shall not be required to) procure said insurance on Tenant's behalf and
charge the Tenant the premiums together with a twenty-five percent (25%)
handling charge, payable upon demand. Tenant shall have the right to
provide such insurance coverage pursuant to blanket policies obtained by
the Tenant, provided such blanket policies expressly afford coverage to the
Premises, Landlord, Landlord's mortgagee and Tenant as required by this
Lease.
b. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure,
pay for and maintain in effect policies of casualty insurance covering (i)
all Leasehold Improvements (including any alterations, additions or
improvements as may be made by Tenant pursuant to the provisions of Article
12 hereof), and (ii) trade fixtures, merchandise and other personal
property from time to time in, on or about the Premises, in an amount not
less than one hundred percent (100%) of their actual replacement cost from
time to time, providing protection against any peril included within the
classification "Fire and Extended Coverage" together with insurance against
sprinkler damage, vandalism and malicious mischief. The proceeds of such
insurance shall be used for the repair or replacement of the property so
insured. Upon termination of this Lease following a casualty as set forth
herein, the proceeds under (i) shall be paid to Landlord, and the proceeds
under (ii) above shall be paid to Tenant.
c. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure,
pay for and maintain in effect workers' compensation insurance as required
by law and comprehensive public liability and property damage insurance
with respect to the construction of improvements on the Premises, the use,
operation or condition of the Premises and the operations of Tenant in, on
or about the Premises, providing personal injury and broad from property
damage coverage for not less than One Million Dollars ($1,000,000.00)
combined single limit for bodily injury, death and property damage
liability.
d. Not less than every three (3) years during the Term, Landlord and
Tenant shall mutually agree to increases in all of Tenant's insurance
policy limits for all insurance to be carried by Tenant as set forth in
this Article. In the event Landlord and Tenant cannot mutually agree upon
the amounts of said increases, then Tenant agrees that all insurance policy
limits as set forth in this Article shall be adjusted for increases in the
cost of living in the same manner as is set forth in Section 5.2 hereof for
the adjustment of the Base Rent.
(9)
<PAGE> 11
23. WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive all rights of recovery against the other
and against the officers, employees, agents and representatives of the other,
on account of loss by or damage to the waiving party of its property or the
property of others under its control, to the extent that such loss or damage is
insured against under any fire and extended coverage insurance policy which
either may have in force at the time of the loss or damage. Tenant shall, upon
obtaining the policies of insurance required under this Lease, give notice to
its insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
24. SUBORDINATION AND ATTORNMENT.
Upon written request of Landlord, or any first mortgagee or first deed of trust
beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in
writing, subordinate its rights under this Lease to the lien of any first
mortgage or first deed of trust, or to the interest of any lease in which
Landlord is lessee, and to all advances made or hereafter to be made
thereunder. However, before signing any subordination agreement, Tenant shall
have the right to obtain from any lender or lessor or Landlord requesting such
subordination, an agreement in writing providing that, as long as Tenant is not
in default hereunder, this Lease shall remain in effect for the full Term. The
holder of any security interest may, upon written notice to Tenant, elect to
have this Lease prior to its security interest regardless of the time of the
granting or recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee, Tenant shall attorn to
the purchaser, transferee or lessor as the case may be, and recognize that
party as Landlord under this Lease, provided such party acquires and accepts
the Premises subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from Landlord, Tenant shall execute
and deliver to Landlord or Landlord's designee, a written statement certifying
(a) that this Lease is unmodified and in full force and effect, or is in full
force and effect as modified and stating the modifications; (b) the amount of
Base Rent and the date to which Base Rent and additional rent have been paid in
advance; (c) the amount of any security deposited with Landlord; and (d) that
Landlord is not in default hereunder or, if Landlord is claimed to be in
default, stating the nature of any claimed default. Any such statement may be
relied upon by a purchaser, assignee or lender. Tenant's failure to execute and
deliver such statement within the time required shall at Landlord's election be
a default under this Lease and shall also be conclusive upon Tenant that: (1)
this Lease is in full force and effect and has not been modified except as
represented by Landlord; (2) there are not uncured defaults in Landlord's
performance and that Tenant has no right to offset, counter-claim or deduction
against Rent; and (3) not more than one month's Rent has been paid in advance.
26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building, Project or Lease occurring after
the consummation of such sale or transfer, providing the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. If any security deposit or prepaid Rent has been paid by Tenant,
Landlord may transfer the security deposit or prepaid Rent to Landlord's
successor and upon such transfer, Landlord shall be relieved of any and all
further liability with respect thereto.
27. DEFAULT
27.1. Tenant's Default. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
a. If Tenant abandons or vacates the Premises; or
b. If Tenant fails to pay any Rent or any other charges required to be paid
by Tenant under this Lease and such failure continues for five (5) days after
such payment is due and payable; or
c. If Tenant fails to promptly and fully perform any other covenant,
condition or agreement contained in this Lease and such failure continues for
thirty (30) days after written notice thereof from Landlord to Tenant; or
d. If a writ of attachment or execution is levied on this Lease or on any of
Tenant's Property; or
e. If Tenant makes a general assignment for the benefit of creditors, or
provides for an arrangement, composition, extension or adjustment with its
creditors; or
f. If Tenant files a voluntary petition for relief or if a petition against
Tenant in a proceeding under the federal bankruptcy laws or other insolvency
laws is filed and not withdrawn or dismissed within forty-five (45) days
thereafter, or if under the provisions of any law providing for
reorganization or winding up of corporations, any court of competent
jurisdiction assumes jurisdiction, custody or control of Tenant or any
substantial part of its property and such jurisdiction, custody or control
remains in force unrelinquished, unstayed or unterminated for a period of
forty-five (45) days; or
g. If in any proceeding or action in which Tenant is a party, a trustee,
receiver, agent or custodian is appointed to take charge of the Premises or
Tenant's Property (or has the authority to do so) for the purpose of
enforcing a lien against the Premises or Tenant's Property; or
h. If Tenant is a partnership or consists of more than one (1) person or
entity, if any partner of the partnership or other person or entity is
involved in any of the acts or events described in subparagraphs d through g
above.
27.2. Remedies. In the event of Tenant's default hereunder, then in addition
to any other rights or remedies Landlord may have under any law, Landlord shall
have the right, at Landlord's option, without further notice or demand of any
kind to do the following:
a. Terminate this Lease and Tenant's right to possession of the Premises
and reenter the Premises and take possession thereof, and Tenant shall have
no further claim to the Premises or under this Lease; or
b. Continue this Lease in effect, reenter and occupy the Premises for the
account of Tenant, and collect any unpaid Rent or other charges which have or
thereafter become due and payable; or
c. Reenter the Premises under the provisions of subparagraph b, and
thereafter elect to terminate this Lease and Tenant's right to possession of
the Premises.
(10)
<PAGE> 12
If Landlord reenters the Premises under the provisions of subparagraphs b or c
above, Landlord shall not be deemed to have terminated this Lease or the
obligation of Tenant to pay any Rent or other charges thereafter accruing,
unless Landlord notifies Tenant in writing of Landlord's election to terminate
this Lease. In the event of any reentry or retaking of possession by Landlord,
Landlord shall have the right, but not the obligation, to remove all or any
part of Tenant's Property in the Premises and to place such property in storage
at a public warehouse at the expense and risk of Tenant. If Landlord elects to
relet the Premises for the account of Tenant, the rent received by Landlord
from such reletting shall be applied as follows: first, to the payment of any
indebtedness other than Rent due hereunder from Tenant to Landlord; second, to
the payment of any costs of such reletting; third, to the payment of the cost
of any alterations or repairs to the Premises; fourth to the payment of Rent
due and unpaid hereunder; and the balance, if any, shall be held by Landlord
and applied in payment of future Rent as it becomes due, if that portion of
rent received from the reletting which is applied against the Rent due
hereunder is less than the amount of the Rent due, Tenant shall pay the
deficiency to Landlord promptly upon demand by Landlord. Such deficiency shall
be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as
determined, any costs and expenses incurred by Landlord in connection with such
reletting or in making alterations and repairs to the Premises, which are not
covered by the rent received from the reletting.
Should Landlord elect to terminate this Lease under the provisions of
subparagraph a or c above, Landlord may recover as damages from Tenant the
following:
1. Past Rent. The worth at the time of the award of any unpaid Rent which had
been earned at the time of termination; plus
2. Rent Prior to Award. The worth at the time of the award of the amount by
which the unpaid Rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that Tenant
proves could have been reasonably avoided; plus
3. Rent After Award. The worth at the time of the award of the amount by
which the unpaid Rent for the balance of the Term after the time of award
exceeds the amount of the rental loss that Tenant proves could be
reasonably avoided; plus
4. Proximately Caused Damages. Any other amount necessary to compensate
Landlord for all detriment proximately caused by Tenant's failure to
perform its obligations under this Lease or which in the ordinary course
of things would be likely to result therefrom, including, but not limited
to, any costs or expenses (including attorneys' fees), incurred by
Landlord in (a) retaking possession of the Premises, (b) maintaining the
Premises after Tenant's default, (c) preparing the Premises for reletting
to a new tenant, including any repairs or alterations, and (d) reletting
the Premises, including broker's commissions.
"The worth at the time of the award" as used in subparagraphs 1 and 2 above, is
to be computed by allowing interest at the rate of ten percent (10%) per annum.
"The worth at the time of the award" as used in subparagraph 3 above, is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank situated nearest to the Premises at the time of the award plus one percent
(1%).
The waiver by Landlord of any breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such term, covenant or condition or of
any subsequent breach of the same or any other term, covenant or condition.
Acceptance of Rent by Landlord subsequent to any breach hereof shall not be
deemed a waiver of any preceding breach other than the failure to pay the
particular Rent so accepted, regardless of Landlord's knowledge of any breach
at the time of such acceptance of Rent. Landlord shall not be deemed to have
waived any term, covenant or condition unless Landlord gives Tenant written
notice of such waiver.
27.3 Landlord's Default. If Landlord fails to perform any covenant, condition
or agreement contained in this Lease within thirty (30) days after receipt of
written notice from Tenant specifying such default, or if such default cannot
reasonably be cured within thirty (30) days, if Landlord fails to commence to
cure within that thirty (30) day period, then Landlord shall be liable to
Tenant for any damages sustained by Tenant as a result of Landlord's breach;
provided, however, it is expressly understood and agreed that if Tenant obtains
a money judgment against Landlord resulting from any default or other claim
arising under this Lease, that judgment shall be satisfied only out of the
rents, issues, profits, and other income actually received on account of
Landlord's right, title and interest in the Premises, Building or Project, and
no other real, personal or mixed property of Landlord (or of any of the
partners which comprise Landlord, if any) wherever situated, shall be subject
to levy to satisfy such judgment. If, after notice to Landlord of default,
Landlord (or any first mortgagee or first deed of trust beneficiary of
Landlord) fails to cure the default as provided herein, then Tenant shall have
the right to cure that default at Landlord's expense. Tenant shall not have the
right to terminate this Lease or to withhold, reduce or offset any amount
against any payments of Rent or any other charges due and payable under this
Lease except as otherwise specifically provided herein.
28. BROKERAGE FEES.
Tenant warrants and represents that it has not dealt with any real estate
broker or agent in connection with this Lease or its negotiation except those
noted in Section 2.c. Tenant shall indemnify and hold Landlord harmless from
any cost, expense or liability (including costs of suit and reasonable
attorneys' fees) for any compensation, commission or fees claimed by any other
real estate broker or agent in connection with this Lease or its negotiation by
reason of any act of Tenant.
29. NOTICES.
All notices, approvals and demands permitted or required to be given under this
Lease shall be in writing and deemed duly served or given if personally
delivered or sent by certified or registered U.S. mail, postage prepaid, and
addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to
the Building manager, and (b) if to Tenant, to Tenant's Mailing Address;
provided, however, notices to Tenant shall be deemed duly served or given if
delivered or mailed to Tenant at the Premises. Landlord and Tenant may from
time to time by notice to the other designate another place for receipt of
future notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of federal, state or local government controls,
rules, regulations, or restrictions on the use or consumption of energy or
other utilities during the Term, both Landlord and Tenant shall be bound
thereby. In the event of a difference in interpretation by Landlord and Tenant
of any such controls, the interpretation of Landlord shall prevail, and
Landlord shall have the right to enforce compliance therewith, including the
right of entry into the Premises to effect compliance.
31. RELOCATION OF PREMISES.
Landlord shall have the right to relocate the Premises to another part of the
Building in accordance with the following:
(11)
<PAGE> 13
a. The new premises shall be substantially the same in size,
dimensions, configuration, decor and nature as the Premises described in
this Lease, and if the relocation occurs after the Commencement Date,
shall be placed in that condition by Landlord at its cost.
b. Landlord shall give Tenant at least thirty (30) days written notice
of Landlord's intention to relocate the Premises.
c. As nearly as practicable, the physical relocation of the Premises
shall take place on a weekend and shall be completed before the
following Monday. If the physical relocation has not been completed in
that time, Base Rent shall abate in full from the time the physical
relocation commences to the time it is completed. Upon completion of
such relocation, the new premises shall become the "Premises" under this
Lease.
d. All reasonable costs incurred by Tenant as a result of the
relocation shall be paid by Landlord.
e. If the new premises are smaller than the Premises as it existed
before the relocation, Base Rent shall be reduced proportionately.
f. The parties hereto shall immediately execute an amendment to this
Lease setting forth the relocation of the Premises and the reduction of
Base Rent, if any.
32. QUIET ENJOYMENT.
Tenant, upon paying the Rent and performing all of its obligations under this
Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of
this Lease and to any mortgage, lease, or other agreement to which this Lease
may be subordinate.
33. OBSERVANCE OF LAW.
Tenant shall not use the Premises or permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated. Tenant shall, at its sole cost and expense, promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be in force, and with the
requirements of any board of fire insurance underwriters or other similar
bodies now or hereafter constituted, relating to, or affecting the condition,
use or occupancy of the Premises, excluding structural changes not related to
or affected by Tenant's improvements or acts. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action against Tenant,
whether Landlord is a party thereto or not, that Tenant has violated any law,
ordinance or governmental rule, regulation or requirement, shall be conclusive
of that fact as between Landlord and Tenant.
34. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefor, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond the reasonable control of the party obligated to perform hereunder,
shall excuse performance of the work by that party for a period equal to the
duration of that prevention, delay or stoppage. Nothing in this Article 34
shall excuse or delay Tenant's obligation to pay Rent or other charges under
this Lease.
35. CURING TENANT'S DEFAULTS.
If Tenant defaults in the performance of any of its obligations under this
Lease, Landlord may (but shall not be obligated to) without waiving such
default, perform the same for the account at the expense of Tenant. Tenant
shall pay Landlord all costs of such performance promptly upon receipt of a
bill therefor.
36. SIGN CONTROL.
Tenant shall not affix, paint, erect or inscribe any sign, projection, awning,
signal or advertisement of any kind to any part of the Premises, Building or
Project, including without limitation, the inside or outside of windows or
doors, without the written consent of Landlord. Landlord shall have the right
to remove any signs or other matter, installed without Landlord's permission,
without being liable to Tenant by reason of such removal, and to charge the
cost of removal to Tenant as additional rent hereunder, payable within ten (10)
days of written demand by Landlord.
37. MISCELLANEOUS.
a. Accord and Satisfaction; Allocation of Payments. No payment by
Tenant or receipt by Landlord of a lesser amount than the Rent provided
for in this Lease shall be deemed to be other than on account of the
earliest due Rent, nor shall any endorsement or statement on any check
or letter accompanying any check or payment as Rent be deemed an accord
and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of the Rent or
pursue any other remedy provided for in this Lease. In connection with
the foregoing, Landlord shall have the absolute right in its sole
discretion to apply any payment received from Tenant to any account or
other payment of Tenant then not current and due or delinquent.
b. Addenda. If any provision contained in an addendum to this Lease is
inconsistent with any other provision herein, the provision contained in
the addendum shall control, unless otherwise provided in the addendum.
c. Attorneys' Fees. If any action or proceeding is brought by either
party against the other pertaining to or arising out of this Lease, the
finally prevailing party shall be entitled to recover all costs and
expenses, including reasonable attorneys' fees incurred on account of
such action or proceeding.
d. Captions, Articles and Section Numbers. The captions appearing
within the body of this Lease have been inserted as a matter of
convenience and for reference only and in no way define, limit or
enlarge the scope or meaning of this Lease. All references to Article
and Section numbers refer to Articles and Sections in this Lease.
e. Changes Requested by Lender. Neither Landlord or Tenant shall
unreasonably withhold its consent to changes or amendments to this Lease
requested by the lender on Landlord's interest, so long as these changes
do not alter the basic business terms of this Lease or otherwise
materially diminish any rights or materially increase any obligations of
the party from whom consent to such charge or amendment is requested.
(12)
<PAGE> 14
f. Choice of Law. This Lease shall be construed and enforced in accordance
with the laws of the State.
g. Consent. Notwithstanding anything contained in this Lease to the contrary,
Tenant shall have no claim, and hereby waives the right to any claim against
Landlord for money damages by reason of any refusal, withholding or delaying by
Landlord of any consent, approval or statement of satisfaction, and in such
event, Tenant's only remedies therefor shall be an action for specific
performance, injunction or declaratory judgment to enforce any right to such
consent, etc.
h. Corporate Authority. If Tenant is a corporation, each individual signing
this Lease on behalf of Tenant represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation, and
that this Lease is binding on Tenant in accordance with its terms. Tenant
shall, at Landlord's request, deliver a certified copy of a resolution of its
board of directors authorizing such execution.
i. Counterparts. This Lease may be executed in multiple counterparts, all of
which shall constitute one and the same Lease.
j. Execution of Lease; No Option. The submission of this Lease to Tenant shall
be for examination purposes only, and does not and shall not constitute a
reservation of or option for Tenant to lease, or otherwise create any interest
of Tenant in the Premises or any other premises within the Building or
Project. Execution of this Lease by Tenant and its return to Landlord shall
not be binding on Landlord notwithstanding any time interval, until Landlord
has in fact signed and delivered this Lease to Tenant.
k. Furnishing of Financial Statements; Tenant's Representations. In order to
induce Landlord to enter into this Lease Tenant agrees that it shall promptly
furnish Landlord, from time to time, upon Landlord's written request, with
financial statements reflecting Tenant's current financial condition. Tenant
represents and warrants that all financial statements, records and information
furnished by Tenant to Landlord in connection with this Lease are true, correct
and complete in all respects.
l. Further Assurances. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
m. Mortgagee Protection. Tenant agrees to send by certified or registered mail
to any first mortgagee or first deed of trust beneficiary of Landlord whose
address has been furnished to Tenant, a copy of any notice of default served by
Tenant on Landlord. If Landlord fails to cure such default within the time
provided for in this Lease, such mortgagee or beneficiary shall have an
additional thirty (30) days to cure such default; provided that if such default
cannot reasonably be cured within that thirty (30) day period, then such
mortgagee or beneficiary shall have such additional time to cure the default as
is reasonably necessary under the circumstances.
n. Prior Agreements; Amendments. This Lease contains all of the agreements of
the parties with respect to any matter covered or mentioned in this Lease, and
no prior agreement or understanding pertaining to any such matter shall be
effective for any purpose. No provisions of this Lease may be amended or added
to except by an agreement in writing signed by the parties or their respective
successors in interest.
o. Recording. Tenant shall not record this Lease without the prior written
consent of Landlord. Tenant, upon the request of Landlord, shall execute and
acknowledge a "short form" memorandum of this Lease for recording purposes.
p. Severability. A final determination by a court of competent jurisdiction
that any provision of this Lease is invalid shall not affect the validity of
any other provision, and any provision so determined to be invalid shall, to
the extent possible, be construed to accomplish its intended effect.
q. Successors and Assigns. This Lease shall apply to and bind the heirs,
personal representatives, and permitted successors and assigns of the parties.
r. Time of the Essence. Time is of the essence of this Lease.
s. Waiver. No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant shall impair such right or remedy or be
construed as a waiver of such default.
The receipt and acceptance by Landlord of delinquent Rent shall not constitute
a waiver of any other default; it shall constitute only a waiver of timely
payment for the particular Rent payment involved.
No act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only a written notice
from Landlord to Tenant shall constitute acceptance of the surrender of the
Premises and accomplish a termination of the Lease.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of the
Lease.
The parties hereto have executed this Lease as of the dates set forth below.
Date: 9/21/92 Date: 8/14/92
-------------------------------- ----------------------------------
Landlord: Hacienda Park Associates, Tenant: Pro Business Payroll,
---------------------------- --------------------------------
a California General a California Corporation
Partnership
By: /s/ Peter P. Canny, Jr. By: /s/ John M. Hulina
---------------------------------- ------------------------------------
Title: Vice President Title: President CEO
------------------------------- ---------------------------------
By: By:
---------------------------------- ------------------------------------
Title: Title:
------------------------------- ---------------------------------
CONSULT YOUR ADVISORS - This document has been prepared for approval by your
attorney. No representation or recommendation is made by CB Commercial as to
the legal sufficiency or tax consequences of this document or the transaction
to which it relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
(13)
<PAGE> 15
THIS ADDENDUM IS MADE A PART OF
THE OFFICE BUILDING LEASE
DATED AUGUST 12, 1992
BY AND BETWEEN HACIENDA PARK ASSOCIATES,
A CALIFORNIA GENERAL PARTNERSHIP ("LESSOR") AND
PRO BUSINESS PAYROLL, A CALIFORNIA CORPORATION ("LESSEE"):
38. REMOVAL OF TENANT'S FURNITURE AND FIXTURES:
Tenant agrees, at its sole cost and expense, to remove all furniture and
fixtures to accommodate tenant improvement construction. In the event
Tenant fails to do so, Landlord shall move Tenant's furniture and charge
Tenant for the cost associated with doing so.
39. NOTIFICATION OF AVAILABLE SPACE:
In the event space comes available within the building during tenant's
lease term, Landlord shall notify Tenant in writing of the availability.
Landlord shall have no obligation to hold available space off the market
and shall only be obligated to notify Tenant of the availability of the
space.
40. OPTION TO RENEW:
Provided that Tenant is not in default hereunder either at the time of
exercise or at the time the extended term commences, Tenant shall have
the option to extend the Lease for one (1) extended five (5) year term
on the same terms, covenants and conditions provided herein, except that
upon such renewal the monthly base rent due hereunder shall be
determined pursuant to Paragraph B. Tenant shall exercise its option by
giving Landlord written notice ("Option Notice") at least one hundred
eighty (180) days prior to the expiration of the initial term of this
Lease.
B. Option Period Monthly Rent. The Monthly Rent for the Option Period,
which shall include the initial Monthly Rent and all adjustments, shall
be determined as follows:
(i) The parties shall have fifteen (15) days after Landlord receives the
Option Notice within which to agree on the Monthly Rent for the Option
Period based upon the then fair market rental value of the Premises as
defined in Paragraph B (iii). If the parties agree on the Monthly Rent
for the Option Period within fifteen (15) days, they shall immediately
execute an amendment to this Lease stating the Monthly Rent for the
Option Period.
(ii) If the parties are unable to agree on the Monthly Rent for the
Option Period within fifteen (15) days, then, the Monthly Rent for the
Option Period shall be the then current fair market rental value of the
Premises as determined in accordance with Paragraph B (iv).
(iii) The "then fair market rental value of the Premises" shall be
defined to mean the fair market rental value of the Premises as of the
commencement of the Option Period, taking into consideration the uses
permitted under this Lease, the quality, size, design and location of
the Premises, and the rent for comparable buildings located in
Pleasanton. In no event shall the fair market monthly value of the
Premises for the Option Period be less than the Monthly Rent last
payable under the Lease.
(iv) Within seven (7) days after the expiration of the fifteen (15) day
period set forth in Paragraph 51.B (ii), each party, at its cost and by
giving notice to the other party, shall appoint a real estate appraiser
with at least five (5) years' full time commercial appraisal experience
in the area in which the Premises are located to appraise and set the
then fair market rental value of the Premises for the Option Period. If
a party does not appoint an appraiser within ten (10) days after the
other party has given notice of the name of its appraiser, the single
appraiser appointed shall be the sole appraiser and shall set the then
fair market rental value of the Premises. If the two (2) appraisers are
appointed by the parties as stated in this paragraph, they shall meet
promptly and attempt to set the then fair market rental value of the
Premises. If they are unable to agree within thirty (30) days after the
second appraiser has been appointed, they shall attempt to elect a third
appraiser meeting the qualifications stated in this paragraph within ten
(10) days after the last day the two (2) appraisers are given to set the
then fair market rental value of the Premises. If they are unable to
agree on the third appraiser, either of the parties to this Lease, by
giving ten (10)
<PAGE> 16
days' notice to the other party, can apply to the then President of the
Alameda County Real Estate Board or to the then President Judge of the
Alameda County Superior Court, for the selection of a third appraiser who
meets the qualifications stated in this paragraph. Each of the parties shall
bear one-half (1/2) of the cost of appointing the third appraiser and of
paying the third appraiser's fee. The third appraiser, however selected,
shall be a person who has not previously acted in any capacity for either
party.
Within thirty (30) days after the selection of the third appraiser, a
majority of the appraisers shall set the then fair market value of the
Premises. If a majority of the appraisers are unable to set the then fair
market rental value of the Premises within the stipulated period of time, the
three (3) appraisals shall be added together and their total divided by three
(3); the resulting quotient shall be the then fair market rental value of the
Premises.
If, however, the low appraisal and/or the high appraisal are/is more
than ten percent (10%) lower and/or higher than the middle appraisal, the low
appraisal and/or the high appraisal shall be disregarded. If only one (1)
appraisal is disregarded, the remaining two (2) appraisals shall be added
together and their total divided by two (2); the resulting quotient shall be
the then fair market rental value of the Premises. If both the low appraisal
and the high appraisal are disregarded as stated in this paragraph, the
middle appraisal shall be the then fair market rental value of the Premises.
After the then fair market rental value of the Premises has been set,
the appraisers shall immediately notify the parties and the Monthly Rent for
the Option Period shall be such amount.
Except as expressly provided herein, the Lease shall remain in full force and
effect.
LANDLORD: TENANT:
Hacienda Park Associates Pro Business Payroll
A California General Partnership A California Corporation
By: Peter P. Canny, Jr. By: John M. Hulina
------------------- --------------------
Its: Vice President Its: President CEO
------------------- --------------------
<PAGE> 17
EXHIBIT "A"
GROUND FLOOR PLAN
2ND FLOOR PLAN
SARATOGA ONE
(Two Story)
<PAGE> 18
SARATOGA CENTER
SITE 30A
5934 GIBRALTAR DRIVE
PLEASANTON, CALIFORNIA
EXHIBIT "B"
[SITE MAP]
<PAGE> 19
EXHIBIT C
[FLOOR PLAN]
FLOOR PLAN
- -------------------------------------------------------------------------------
DATE: 8-12-92
PRO-BUSINESS PAYROLL
5934 GIBRALTAR DR.
PLEASANTON, CA
<PAGE> 20
27. Tenant's request for assistance will be attended to only upon
appropriate application to Landlord by an authorized individual. Employees of
Landlord shall not perform any work on the Premises, other than that associated
with the provision of services to Tenant required of Landlord under the Lease
for the Premises, or implement a request of Tenant, unless that employee
receives written instructions from Landlord.
28. Tenant shall not park its vehicles in any parking areas designated by
Landlord as areas for parking by visitors to the Building or other reserved
parking spaces. Tenant shall not leave vehicles in the Building parking areas
overnight, nor park any vehicles in the Building parking areas other than
automobiles, motorcycles, motor driven or non-motor driven bicycles or
four-wheeled trucks. Tenant, its agents, employees and invitees shall not park
any one (1) vehicle in more than one (1) parking space.
29. Landlord may waive any one or more of these Rules and Regulations for
the benefit of Tenant or any other Tenant, but no such waiver by Landlord shall
be construed as a waiver of such Rules and Regulations in favor of Tenant or
any other Tenant, nor prevent Landlord from thereafter enforcing any such Rules
and Regulations against any or all of the tenants of the Building.
30. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of Premises in the Building.
31. Landlord reserves the right to make such other reasonable Rules and
Regulations as, in its judgment, may from time to time be needed for the
safety, security, care and cleanliness of the Building and the Property and the
preservation of good order therein. Tenant agrees to abide by all such Rules
and Regulations hereinabove stated and any additional rules and regulations
which are published by Landlord.
32. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and guests.
33. The scheduling and manner of all Tenant move-ins and move-outs shall be
subject to the discretion and approval of Landlord, and move-ins and move-outs
shall take place only after 6:00 p.m. on weekdays, on weekends or at other
times as Landlord may designate. Landlord shall have right to approve or
disapprove the movers or moving company employed by Tenant, and Tenant shall
cause the movers to use only the entry doors and elevators designated by
Landlord. If Tenant's movers damage the elevator or any other part of the
Property, Tenant shall pay to Landlord the amount required to repair the damage.
34. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
35. Canvassing, soliciting, and distribution of handbills or other written
material and peddling in the Building are prohibited and each Tenant shall
cooperate to prevent these activities.
36. As long as Tenant is not in default under any of the terms, covenants,
conditions, provisions or agreements of this Lease, Landlord shall:
(a) On Monday through Friday, except holidays, from 7:00 a.m. to
6:30 p.m. (and other times for a reasonable additional charge to be fixed by
Landlord), ventilate the Premises and
Page 4
(Rev. 5/31/88)
(E-Exh)
<PAGE> 21
furnish air conditioning or heating on such days and hours when in the judgment
of Landlord it may be required for the comfortable occupancy of the Premises.
After hours usage shall be monitored by the override meter which shall be
installed in the Premises and the actual cost of such usage shall be paid by
Tenant.
(b) Furnish to the Premises, Monday through Friday, from 7:30 a.m.
to 6:30 p.m., electric current as required by the Building Standard office
lighting and fractional horsepower office business machines in the amount of
approximately two and one-half (2.5) watts per square foot. Tenant agrees,
should its electrical installation or electrical consumption be in excess of
the aforesaid quantity or extend beyond normal business hours, to reimburse
Landlord monthly for the measured consumption at the terms, classifications and
rate charges to similar consumers by the public utility serving the
neighborhood in which the Building is located.
Page 5
(Rev. 5/31/88)
(E-Exh)
<PAGE> 22
SECOND AMENDMENT TO LEASE
This Amendment dated this 4th day of February, 1992, between Hacienda Park
Associates, a California General Partnership ("Landlord"), and Pro Business
Payroll, a California Corporation, ("Tenant"), for the premises located in the
City of Pleasanton, County of Alameda, State of California, commonly known as
5934 Gibraltar Drive, Suite 201.
1. RECITALS. Landlord and Tenant being parties to that certain Lease
dated April 17, 1990, hereby express their mutual desire and intent to
amend by this writing those terms, covenants and conditions contained in
Paragraph 1.7. MONTHLY RENT as hereinafter provided.
2. AMENDMENTS. 1.7. MONTHLY RENT shall hereinafter additionally provide
as follows:
<TABLE>
<CAPTION>
Operating Expense
PERIOD Base Rent Base (yr-1990) Total
------ --------- ----------------- -----
<S> <C> <C> <C>
12/15/91-04/26/92 $2,667.71 $3,431.68 $6,099.39
04/27/92-10/14/92 $3,961.52 $3,431.68 $7,393.20
</TABLE>
3. INCORPORATION. Except as modified herein, all other terms and
conditions of the Lease between the parties above described shall continue
in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed the Amendment as of the
day and year first written above.
Landlord: Tenant:
HACIENDA PARK ASSOCIATES, a PRO BUSINESS PAYROLL, a
California General Partnership California Corporation
By: Peter P. Canny, Jr. By: John M. Hulina
---------------------------- -------------------------------
Its: Vice President Its: President
--------------------------- ------------------------------
<PAGE> 23
FIRST ADDENDUM TO LEASE
That certain Lease dated April 17, 1990 by and between Hacienda Park
Associates, a California General Partnership ("Landlord"), and Pro Business
Payroll, a California Corporation ("Tenant") whose address is 5934 Gibraltar
Drive, Suite 201, is hereby amended to reflect the following:
Paragraph 1.3. Premises: Commencing December 15, 1991 and ending October 14,
1992, Tenant leases an additional 1,852 sq.ft. known as Suite
105 (additional Premises), more particularly described in
"Exhibit G" attached hereto. The total leased square footage is
6,161.
Paragraph 1.7. Monthly Rent:
<TABLE>
<CAPTION>
Period Total Monthly Rent
------ ------------------
<S> <C>
Dec. 15, 1991 - April 26, 1992 $6,099.39
April 27, 1992 - Oct. 14, 1992 $7,393.20
</TABLE>
Paragraph 1.10. Tenant's Building Percentage: The Tenant's building percentage
shall be modified to 14.73 percent.
Paragraph 1.11. Tenant's Project Percentage: Tenant's project percentage shall
be modified to 7.43 percent.
Paragraph 1.13. Broker(s) CB Commercial Real Estate Group, Inc.
Paragraph 43. Tenants Right To Terminate Additional Premises: Should space
contiguous to Suite 201 become available prior to October 14,
1992, Tenant shall have the right to terminate the lease on
Suite 105 and relocate to the available contiguous space for the
balance of the base lease term described in Paragraph 1.5 of the
lease. The monthly rental rate for the contiguous space shall be
based on the monthly rental schedule per square foot as
described in Paragraph 1.7.1. of the lease.
The Landlord shall provide a tenant improvement allowance of not
to exceed $10.00 per useable square foot for said available
contiguous space.
All other terms and conditions of the original lease shall remain unchanged and
in full force and effect.
Landlord: Tenant:
HACIENDA PARK ASSOCIATES PRO BUSINESS PAYROLL
a California General Partnership a California Corporation
By: Peter P. Canny, Jr. By: John M. Hulina
----------------------------- -----------------------------
Its: Vice President Its: President CEO
----------------------------- -----------------------------
<PAGE> 24
EXHIBIT G
[FLOOR PLAN]
<PAGE> 25
LEASE TERMINATION AGREEMENT
Upon occupancy of the Premises described in that certain Lease dated August 12,
1992 by and between Pro Business Payroll, a California corporation ("Tenant")
and Hacienda Park Associates, a California general partnership ("Landlord"),
the lease dated April 17, 1990 and amended by the first, second and third
amendments between the parties described herein shall be null and void and of
no further effect. Tenant's Security Deposit in the amount of Six Thousand Two
Hundred Forty Eight and no/100 dollars ($6,248.00) shall be transferred to
Tenant's new lease dated August 12, 1992.
LANDLORD TENANT
HACIENDA PARK ASSOCIATES, Pro Business Payroll
a California General Partnership a California Corporation
By: /s/ Peter P. Canny, Jr. By: /s/ John M. Hulina
----------------------------- ------------------------
Its: Vice President Its: President CEO
---------------------------- -----------------------
<PAGE> 26
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("Amendment") is entered into this 23rd day of
March, 1994 and amends that certain Lease by and between HACIENDA PARK
ASSOCIATES, a California General Partnership, ("Landlord") and PRO BUSINESS
PAYROLL, a California Corporation, ("Tenant") dated August 12, 1992 attached
hereto as Exhibit A.
Now therefore, the parties agree as follows:
Expiration Date: March 31, 1999
Monthly Installments of Base Rent: Mos. 01 - 09: $14,047.20
Mos. 10 - 15: $15,803.10
Mos. 16 - 78: $16,973.70
All other terms and conditions of the Lease between the parties shall
remain in full force and effect.
LANDLORD TENANTS
HACIENDA PARK ASSOCIATES PRO BUSINESS PAYROLL
By: /s/ Peter P. Canny, Jr. By: /s/ Mitchell Everton
----------------------------- ---------------------------
Its: Vice President Its: EVP - OPERATIONS
---------------------------- --------------------------
<PAGE> 27
LEASE TERMINATION AGREEMENT
Upon occupancy of the Premises described in that certain Lease dated August 12,
1992 by and between Pro Business Payroll, a California corporation ("Tenant")
and Hacienda Park Associates, a California general partnership ("Landlord"),
the lease dated April 17, 1990 and amended by the first, second and third
amendments between the parties described herein shall be null and void and of
no further effect. Tenant's Security Deposit in the amount of Six Thousand Two
Hundred Forty Eight and no/100 dollars ($6,248.00) shall be transferred to
Tenant's new lease dated August 12, 1992.
LANDLORD TENANT
HACIENDA PARK ASSOCIATES, Pro Business Payroll
a California General Partnership a California Corporation
By: /s/ Peter P. Canny, Jr. By: /s/ John M. Hulina
----------------------------- ------------------------
Its: Vice President Its: President CEO
---------------------------- -----------------------
<PAGE> 28
Suite 206
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease ("Amendment") is entered into this 9th day of
December, 1994 and amends that certain Lease by and between Hacienda Park
Associates, a California General Partnership, ("Landlord") and Pro Business
Payroll, a California Corporation, ("Tenant"), dated August 12, 1992 as amended
by the First Amendment to Lease dated March 23, 1994 attached hereto as Exhibit
A.
Now therefore, the parties agree as follows:
1. PREMISES: Commencing July 1, 1995, the rentable square footage shall
be increased by 5,259 square feet to a total of 16,965 square feet by
adding the space known as Suite 206, as defined on Exhibit E attached
hereto, to tenant's existing Premises.
2. MONTHLY RENT: Effective July 1, 1995 the monthly rental rate shall
increase by $7,152.24 per month.
3. OPERATING EXPENSES: The base year operating expenses for Suite 206
shall be 1995.
4. TENANT'S PROPORTIONATE SHARE: Upon completion of tenant improvements,
Tenant's proportionate share of the building containing the Premises
shall be 40.73% Such share is a fraction, the numerator of which is
the Rentable Area of the Premises, and the denominator of which is the
Gross Area of the Building (Building A), as determined by the Landlord
from time to time. The Building consists of 41,656 square feet.
Tenant's proportionate share of the Project shall be 20.37%. The
Project's land value, related assessments and Outside Area Expenses
are allocated 50.01% to Building A and 49.99% to Building B. Tenant's
share is a product of Tenant's Building share multiplied by Building
A's share of the Project. The Project consists of two buildings
containing a total Rentable Area of 83,230 square feet.
5. TENANT IMPROVEMENT ALLOWANCE: The Landlord shall contribute up to
$21,036 to complete modifications to the space, which includes all
architectural costs and permit fees.
6. CONTINGENCY: This Second Amendment to Lease is contingent upon
Future Innovations executing a termination agreement with the Landlord
and vacating Suite 206. Landlord to give notice to Tenant on or
before March 3, 1995 of Future Innovations intent to terminate its
lease and to vacate Suite 206 by June 1, 1995. Failure of Future
Innovations to provide intent to terminate by 3/3/95 nullifies this
amendment.
All other terms and conditions of the Lease between the parties shall remain in
full force and effect.
LANDLORD TENANT
Hacienda Park Associates, Pro Business Payroll
By: /s/ Peter P. Canny, Jr. By: /s/ Mitchell Everton
----------------------------- ------------------------
Its: Vice President Its: EVP - OPERATIONS
---------------------------- -----------------------
Date: 12/20/94 Dated: 12/12/94
--------------------------- ---------------------
<PAGE> 29
THIRD AMENDMENT TO LEASE
This Third Amendment to Lease ("Amendment") is entered into this 16th day of
March, 1995 and amends that certain Lease by and between Hacienda Park
Associates, a California General Partnership, ("Landlord") and Pro Business
Payroll, a California Corporation, ("Tenant"), dated August 12, 1992 as amended
by the Second Amendment to Lease dated December 9, 1994, as amended by the
First Amendment to Lease dated March 23, 1994 attached hereto as Exhibit A.
Now therefore, the parties agree as follows:
6. CONTINGENCY: This Third Amendment to Lease is contingent upon
Future Innovations executing a termination agreement
with the Landlord and vacating Suite 206. Landlord
to give notice to Tenant on or before March 24, 1995 by 5:00
P.M. PST. of Future Innovations intent to terminate its lease
and to vacate Suite 206 by June 1, 1995. Failure of Future
Innovations to provide intent to terminate by 3/21/95 nullifies
this Amendment.
All other terms and conditions of the Lease between the parties shall remain in
full force and effect.
LANDLORD TENANT
Hacienda Park Associates Pro Business Payroll
By: /s/ Peter P. Canny, Jr. By: Mitchell Everton
----------------------- ------------------------
Its: VP Its: EVP-Operations
----------------------- ------------------------
Dated: 3/20/95 Dated: 3/17/95
---------------------- -----------------------
<PAGE> 1
[CB COMMERCIAL LETTERHEAD]
EXHIBIT 10.2
TABLE OF CONTENTS
PAGE
Article 1 LEASE OF PREMISES.......................................... 1
Article 2 DEFINITIONS................................................ 1
Article 3 EXHIBITS AND ADDENDA....................................... 2
Article 4 DELIVERY OF POSSESSION..................................... 2
Article 5 RENT....................................................... 2
Article 6 INTEREST AND LATE CHARGES.................................. 4
Article 7 SECURITY DEPOSIT........................................... 4
Article 8 TENANTS USE OF THE PREMISES................................ 4
Article 9 SERVICES AND UTILITIES..................................... 5
Article 10 CONDITION OF THE PREMISES.................................. 5
Article 11 CONSTRUCTION, REPAIRS AND MAINTENANCE...................... 5
Article 12 ALTERATIONS AND ADDITIONS.................................. 6
Article 13 LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.................. 6
Article 14 RULES AND REGULATIONS...................................... 7
Article 15 CERTAIN RIGHTS RESERVED BY LANDLORD........................ 7
Article 16 ASSIGNMENT AND SUBLETTING.................................. 7
Article 17 HOLDING OVER............................................... 8
Article 18 SURRENDER OF PREMISES...................................... 8
Article 19 DESTRUCTION OR DAMAGE...................................... 8
Article 20 EMINENT DOMAIN............................................. 8
Article 21 INDEMNIFICATION............................................ 9
Article 22 TENANT'S INSURANCE......................................... 9
Article 23 WAIVER OF SUBROGATION...................................... 10
Article 24 SUBORDINATION AND ATTORNMENT............................... 10
Article 25 TENANT ESTOPPEL CERTIFICATES............................... 10
Article 26 TRANSFER OF LANDLORD'S INTEREST............................ 10
Article 27 DEFAULT.................................................... 10
Article 28 BROKERAGE FEES............................................. 11
Article 29 NOTICES.................................................... 11
Article 30 GOVERNMENT ENERGY OR UTILITY CONTROLS...................... 11
Article 31 RELOCATION OF PREMISES..................................... 11
Article 32 QUIET ENJOYMENT............................................ 12
Article 33 OBSERVANCE OF LAW.......................................... 12
Article 34 FORCE MAJEURE.............................................. 12
Article 35 CURING TENANT'S DEFAULTS................................... 12
Article 36 SIGN CONTROL............................................... 12
Article 37 MISCELLANEOUS.............................................. 12
<PAGE> 2
[CB COMMERCIAL LETTERHEAD]
This Lease between Hacienda Park Associates ,
------------------------------------------------------------
a California general partnership
-----------------------------------------------------------------------------
("Landlord"), and Pro Business Payroll ,
-------------------------------------------------------------
a California corporation , ("Tenant"), is
-------------------------------------------------------------
dated August 26 , 1993
------------------------------------------------------------------
1. LEASE OF PREMISES.
In consideration of the Rent (as defined at Section 5.4) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as Exhibit
"A," and further described at Section 2l. The Premises are located within the
Building and Project described in Section 2m. Tenant shall have the
non-exclusive right (unless otherwise provided herein) in common with Landlord,
other tenants, subtenants and invitees, to use of the Common Areas (as defined
at Section 2e).
2. DEFINITIONS
As used in this Lease, the following terms shall have the following meanings:
a. Base Rent (initial): $ refer to 2j
(This section deleted. Initialed by __.) .
-----------------------------------------------------
b. Base Year: The calendar year of 1994 .
------------------------------------------
c. Broker(s)
Landlord's: CB Commercial Real Estate Group, Inc. .
-----------------------------------------------------------
Tenant's: CB Commercial Real Estate Group, Inc. .
-----------------------------------------------------------
In the event that CB Commercial Real Estate Group, Inc. represents both
Landlord and Tenant, Landlord and Tenant hereby confirm that they were timely
advised of the dual representation and that they consent to the same, and that
they do not expect said broker to disclose to either of them the confidential
information of the other party.
d. Commencement Date: October 1, 1993 .
-------------------------------------------------------
e. Common Areas: the building lobbies, common corridors and hallways,
restrooms, garage and parking areas, stairways, elevators and other
generally understood public or common areas. Landlord shall have the right
to regulate or restrict the use of the Common Areas.
g. Expiration Date: September 30, 1998 , unless otherwise
----------------------------------------
sooner terminated in accordance with the provisions of this Lease.
i. Landlord's Mailing Address: c/o CB Commercial Real Estate Group, Inc.
-----------------------------------------------
5667 B Gibraltar Drive, Pleasanton, CA 94588 .
---------------------------------------------------------------------------
Tenant's Mailing Address: 5934 Gibraltar Drive
------------------------------------------------
.
---------------------------------------------------------------------------
mos. 01-03: $4,799.25
j. Monthly Installments of Base Rent (initial): $ mos. 04-60: $5,154.75
-------------------------------
per month.
k. Parking: Tenant shall be permitted, upon payment of the then prevailing
monthly rate (as set by Landlord from time to time) to park fourteen (14)
-------------
cars on a non-exclusive basis in the area(s) designated by Landlord for
parking. Tenant shall abide by any and all parking regulations and rules
established from time to time by Landlord or Landlord's parking operator.
Landlord reserves the right to separately charge Tenant's guests and
visitors for parking.
l. Premises: that portion of the Building containing approximately 3,555
-------
square feet of Rentable Area, shown by diagonal lines on Exhibit "A,"
located on the first (1st) floor of the Building and known as Suite 102.
----------- ----
m. Project: the building of which the Premises are a part (the "Building")
and any other buildings or improvements on the real property (the
"Property") located at 5934 Gibraltar Drive, 4696 Willow Road and 4698
-----------------------------------------------
Willow Road, Pleasanton, California and further described at Exhibit "B."
-----------------------------------
The Project is known as Saratoga Center.
---------------
n. Rentable Area: as to both the Premises and the Project, the respective
measurements of floor area as may from time to time be subject to lease by
Tenant and all tenants of the Project, respectively, as determined by
Landlord and applied on a consistent basis throughout the Project.
<PAGE> 3
o. Security Deposit (Section 7): $ Five Thousand Two Hundred and No/100
--------------------------------------
Dollars ($5,200.00).
-------------------
p. State: the State of California .
------------------------------------------------------
q. Tenant's First Adjustment Date (Section 5.2): the first day of the calendar
month following the Commencement Date plus January 1, 1995 months.
---------------
r.
s. Tenant's Use Clause (Article 8): Payroll services
-----------------------------------------
.
---------------------------------------------------------------------------
t. Term: the period commencing on the Commencement Date and expiring at
midnight on the Expiration Date.
3. EXHIBIT AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease:
a. Exhibit "A" - Floor Plan showing the Premises.
b. Exhibit "B" - Site Plan of the Project.
c. Exhibit "C" - Space Plan dated August 19, 1993
d. Exhibit "D" - Rules and Regulations.
f. Addenda: Addendum Number One
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. DELIVERY OF POSSESSION.
If for any reason Landlord does not deliver possession of the Premises to
Tenant on the Commencement Date, Landlord shall not be subject to any
liability for such failure, the Expiration Date shall not change and the
validity of this Lease shall not be impaired, but Rent shall be abated until
delivery of possession. "Delivery of possession" shall be deemed to occur on
the date Landlord completes Landlord's Work as defined in Exhibit "C." If
Landlord permits Tenant to enter into possession of the Premises before the
Commencement Date, such possession shall be subject to the provisions of this
Lease, including, without limitation, the payment of Rent.
5. RENT.
5.1. Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises.
Monthly Installments of Base Rent shall be payable in advance on the first day
of each calender month of the Term. If the Term begins (or ends) on other than
the first (or last) day of a calendar month, the Base Rent for the partial month
shall be prorated on a per diem basis. Tenant shall pay Landlord the first
Monthly Installment of Base Rent when Tenant executes the Lease.
5.3 Project Operating Costs.
a. In order that the Rent payable during the Term reflect any increase in
Project Operating Costs, Tenant agrees to pay to Landlord as Rent,
Tenant's Proportionate Share of all increases in costs, expenses and
obligations attributable to the Project and its operation, all as provided
below.
b. If, during any calendar year during the Term, Project Operating Costs
exceed the Project Operating Costs for the Base Year, Tenant shall pay to
Landlord, in addition to the Base Rent and all other payments due under
this Lease, an amount equal to Tenant's Proportionate Share of such excess
Project Operating Costs in accordance with the provisions of this Section
5.3b.
<PAGE> 4
(1) The term "Project Operating Costs" shall include all those items described
in the following subparagraphs (a) and (b).
(a) All taxes, assessments, water and sewer charges and other similar
governmental charges levied on or attributable to the Building or Project
or their operation, including without limitation, (i) real property taxes
or assessments levied or assessed against the Building or Project, (ii)
assessments or charges levied or assessed against the Building or Project
by any redevelopment agency,(iii) any tax measured by gross rentals
received from the leasing of the Premises, Building or Project, excluding
any net income, franchise, capital stock, estate or inheritance taxes
imposed by the State or federal government or their agencies, branches or
departments; provided that if at any time during the Term any governmental
entity levies, assesses or imposes on Landlord any (1) general or special,
ad valorem or specific, excise, capital levy or other tax, assessment,
levy or charge directly on the Rent received under this Lease or on the
rent received under any other leases of space in the Building or Project,
or (2) any license fee, excise or franchise tax, assessment, levy or
charge measured by or based, in whole or in part, upon such rent, or (3)
any transfer, transaction, or similar tax, assessment, levy or charge
based directly or indirectly upon the transaction represented by this
Lease or such other leases, or (4) any occupancy, use, per capita or other
tax, assessment, levy or charge based directly or indirectly upon the use
or occupancy of the Premises or other premises within the Building or
Project, then any such taxes, assessments, levies and charges shall be
deemed to be included in the term Project Operating Costs. If at any time
during the Term the assessed valuation of, or taxes on, the Project are
not based on a completed Project having at least eighty-five percent
(85%) of the Rentable Area occupied, then the "taxes" component of Project
Operating Costs shall be adjusted by Landlord to reasonably approximate
the taxes which would have been payable if the Project were completed and
at least eighty-five percent (85%) occupied.
(b) Operating costs incurred by Landlord in maintaining and operating
the Building and Project, including without limitation the following:
costs of (1) utilities; (2) supplies; (3) insurance (including public
liability, property damage, earthquake, and fire and extended coverage
insurance for the full replacement cost of the Building and Project as
required by Landlord or its lenders for the Project; (4) services of
independent contractors; (5) compensation (including employment taxes and
fringe benefits) of all persons who perform duties connected with the
operation, maintenance, repair or overhaul of the Building or Project, and
equipment, improvements and facilities located within the Project,
including without limitation engineers, janitors, painters, floor waxers,
window washers, security and parking personnel and gardeners (but
excluding persons performing services not uniformly available to or
performed for substantially all Building or Project tenants); (6) operation
and maintenance of a room for delivery and distribution of mail to tenants
of the Building or Project as required by the U.S. Postal Service
(including, without limitation, an amount equal to the fair market rental
value of the mail room premises); (7) management of the Building or
Project, whether managed by Landlord or an independent contractor
(including, without limitation, an amount equal to the fair market value
of any on-site manager's office); (8) rental expenses for (or a
reasonable depreciation allowance on) personal property used in the
maintenance, operation or repair of the Building or Project; (9) costs,
expenditures or charges (whether capitalized or not) required by any
governmental or quasi-governmental authority; (10) amortization of capital
expenses (including financing costs) (i) required by a governmental entity
for energy conservation or life safety purposes, or (ii) made by Landlord
to reduce Project Operating Costs; and (11) any other costs or expenses
incurred by Landlord under this Lease and not otherwise reimbursed by
tenants of the Project. If at any time during the Term, less than
eighty-five percent (85%) of the Rentable Area of the Project is occupied,
the "operating costs" component of Project Operating Costs shall be
adjusted by Landlord to reasonably approximate the operating costs which
would have been incurred if the Project had been at least eighty-five
percent (85%) occupied.
(2) Tenant's Proportionate Share of Project Operating Costs shall be payable
by Tenant to Landlord as follows:
(a) Beginning with the calendar year following the Base Year and for each
calendar year thereafter ("Comparison Year"), Tenant shall pay Landlord
an amount equal to Tenant's Proportionate Share of the Project Operating
Costs incurred by Landlord in the Comparison Year which exceeds the total
amount of Project Operating Costs payable by Landlord for the Base Year.
This excess is referred to as the "Excess Expenses."
(b) To provide for current payments of Excess Expenses, Tenant shall, at
Landlord's request, pay as additional rent during each Comparison Year, an
amount equal to Tenant's Proportionate Share of the Excess Expenses
payable during such Comparison Year, as estimated by Landlord from time to
time. Such payments shall be made in monthly installments, commencing on
the first day of the month following the month in which Landlord notifies
Tenant of the amount it is to pay hereunder and continuing until the first
day of the month following the month in which Landlord gives Tenant a new
notice of estimated Excess Expenses, it is the intention hereunder to
estimate from time to time the amount of the Excess Expenses for each
Comparison Year and Tenant's Proportionate Share thereof, and then to make
an adjustment in the following year based on the actual Excess Expenses
incurred for that Comparison Year.
(c) On or before April 1 of each Comparison Year after the first
Comparison Year (or as soon thereafter as is practical), Landlord shall
deliver to Tenant a statement setting forth Tenant's Proportionate Share
of the Excess Expenses for the preceding Comparison Year. If Tenant's
Proportionate Share of the actual Excess Expenses for the previous
Comparison Year exceeds the total of the estimated monthly payments made
by Tenant for such year, Tenant shall pay Landlord the amount of the
deficiency within ten (10) days of the receipt of the statement. If such
total exceeds Tenant's Proportionate Share of the actual Excess Expenses
for such Comparison Year, then Landlord shall credit against Tenant's next
ensuing monthly installment(s) of additional rent an amount equal to the
difference until the credit is exhausted. If a credit is due from
Landlord on the Expiration Date, Landlord shall pay Tenant the amount of
the credit. The obligations of Tenant and Landlord to make payments
required under this Section 5.3 shall survive the Expiration Date.
(d) Tenant's Proportionate Share of Excess Expenses in any Comparison Year
having less than 365 days shall be appropriately prorated.
(e) If any dispute arises as to the amount of any additional rent due
hereunder, Tenant shall have the right after reasonable notice and at
reasonable times to inspect Landlord's accounting records at Landlord's
accounting office and, if after such inspection Tenant still disputes the
amount of additional rent owned, a certification as to the proper amount
shall be made by Landlord's certified public accountant, which
certification shall be final and conclusive. Tenant agrees to pay the
cost of such certification unless it is determined that Landlord's
original statement overstated Project Operating Costs by more than five
percent (5%).
<PAGE> 5
(f) If this Lease sets forth an Expense Stop at Section 2f, then during
the Term Tenant shall be liable for Tenant's Proportionate Share of any
actual Project Operating Costs which exceed the amount of the Expense
Stop. Tenant shall make current payments of such excess costs during the
Term in the same manner as is provided for payment of Excess Expenses
under the applicable provisions of Section 5.3b(2)(b) and (c) above.
5.4 Definition of Rent. All costs and expenses which Tenant assumes or agrees
to pay to Landlord under this Lease shall be deemed additional rent (which,
together with the Base Rent is sometimes referred to as the "Rent"). The Rent
shall be paid to the Building manager (or other person) and at such place, as
Landlord may from time to time designate in writing, without any prior demand
therefor and without deduction or offset, in lawful money of the United States
of America.
5.5 Rent Control. If the amount of Rent or any other payment due under this
Lease violates the terms of any governmental restrictions on such Rent or
payment, then the Rent or payment due during the period of such restrictions
shall be the maximum amount allowable under those restrictions. Upon
termination of the restrictions, Landlord shall, to the extent it is legally
permitted, recover from Tenant the difference between the amounts received
during the period of the restrictions and the amounts Landlord would have
received had there been no restrictions.
5.6 Taxes Payable by Tenant. In addition to the Rent and any other charges to
be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for
any and all taxes payable by Landlord (other than net income taxes) which are
not otherwise reimbursable under this Lease, whether or not now customary or
within the contemplation of the parties, where such taxes are upon, measured by
or reasonably attributable to (a) the cost or value of Tenant's equipment,
furniture, fixtures and other personal property located in the Premises, or the
cost or value of any leasehold improvements made in or to the Premises by or
for Tenant, other than Building Standard Work made by Landlord, regardless of
whether title to such improvements is held by Tenant or Landlord; (b) the gross
or net Rent payable under this Lease, including, without limitation, any rental
or gross receipts tax levied by any taxing authority with respect to the
receipt of the Rent hereunder; (c) the possession, leasing, operation,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Premises or any portion thereof; or (d) this transaction or any document to
which Tenant is a party creating or transferring an interest or an estate in
the Premises. If it becomes unlawful for Tenant to reimburse Landlord for any
costs as required under this Lease, the Base Rent shall be revised to net
Landlord the same net Rent after imposition of any tax or other charge upon
Landlord as would have been payable to Landlord but for the reimbursement being
unlawful.
6. INTEREST AND LATE CHARGES.
If Tenant fails to pay when due any Rent or other amounts or charges which
Tenant is obligated to pay under the terms of this Lease, the unpaid amounts
shall bear interest at the maximum rate then allowed by law. Tenant acknowledges
that the late payment of any Monthly Installment of Base Rent will cause
Landlord to lose the use of that money and incur costs and expenses not
contemplated under this Lease, including without limitation, administrative and
collection costs and processing and accounting expenses, the exact amount of
which is extremely difficult to ascertain. Therefore, in addition to interest,
if any such installment is not received by Landlord within ten (10) days from
the date it is due, Tenant shall pay Landlord a late charge equal to ten percent
(10%) of such installment. Landlord and Tenant agree that this late charge
represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for the loss suffered from such nonpayment by Tenant.
Acceptance of any interest or late charge shall not constitute a waiver of
Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord
from exercising any other rights or remedies available to Landlord under this
Lease.
7. SECURITY DEPOSIT.
Tenant agrees to deposit with Landlord the Security Deposit set forth at Section
2.0 upon execution of this Lease, as security for Tenant's faithful performance
of its obligations under this Lease. Landlord and Tenant agree that the Security
Deposit may be commingled with funds of Landlord and Landlord shall have no
obligation or liability for payment of interest on such deposit. Tenant shall
not mortgage, assign, transfer or encumber the Security Deposit without the
prior written consent of Landlord and any attempt by Tenant to do so shall be
void, without force or effect and shall not be binding upon Landlord.
If Tenant fails to pay any Rent or other amount when due and payable under this
Lease, or fails to perform any of the terms hereof, Landlord may appropriate and
apply or use all or any portion of the Security Deposit for Rent payments or any
other amount then due and unpaid, for payment of any amount for which Landlord
has become obligated as a result of Tenant's default or breach, and for any loss
or damage sustained by Landlord as a result of Tenant's default or breach, and
Landlord may so apply or use this deposit without prejudice to any other remedy
Landlord may have by reason of Tenant's default or breach. If Landlord so uses
any of the Security Deposit, Tenant shall, within ten (10) days after written
demand therefor, restore the Security Deposit to the full amount originally
deposited; Tenant's failure to do so shall constitute an act of default
hereunder and Landlord shall have the right to exercise any remedy provided for
at Article 27 hereof. Within fifteen (15) days after the Term (or any extension
thereof) has expired or Tenant has vacated the Premises, whichever shall last
occur, and provided Tenant is not then in default on any of its obligations
hereunder, Landlord shall return the Security Deposit to Tenant, or, if Tenant
has assigned its interest under this Lease, to the last assignee of Tenant. If
Landlord sells its interest in the Premises, Landlord may deliver this deposit
to the purchaser of Landlord's interest and thereupon be relieved of any further
liability or obligation with respect to the Security Deposit.
8. TENANT'S USE OF THE PREMISES.
Tenant shall use the Premises solely for the purposes set forth in Tenant's Use
Clause. Tenant shall not use or occupy the Premises in violation of law or any
covenant, condition or restriction affecting the Building or Project or the
certificate of occupancy issued for the Building or Project, and shall, upon
notice from Landlord, immediately discontinue any use of the Premises which is
declared by any governmental authority having jurisdiction to be a violation of
law or the certificate of occupancy. Tenant, at Tenant's own cost and expense,
shall comply with all laws, ordinances, regulations, rules and/or any
directions of any governmental agencies or authorities having jurisdiction
which shall, by reason of the nature of Tenant's use or occupancy of the
Premises, impose any duty upon Tenant or Landlord with respect to the Premises
or its use or occupation. A judgment of any court of competent jurisdiction or
the admission by Tenant in any action or proceeding against Tenant that Tenant
has violated any such laws, ordinances, regulations, rules and/or directions in
the use of the Premises shall be deemed to be a conclusive determination of that
fact as between Landlord and Tenant. Tenant shall not do or permit to be done
anything which will invalidate or increase the cost of any fire, extended
coverage or other insurance policy covering the Building or Project and/or
property located therein, and shall comply with all rules, orders, regulations,
requirements and recommendations of the Insurance Services Office or any other
organization performing a similar function. Tenant shall
<PAGE> 6
promptly upon demand reimburse Landlord for any additional premium charged for
such policy by reason of Tenant's failure to comply with the provisions of this
Article. Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Building or Project, or injure or annoy them, or use
or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance
in, on or about the Premises. Tenant shall not commit or suffer to be committed
any waste in or upon the Premises.
9. SERVICES AND UTILITIES.
Provided that Tenant is not in default hereunder, Landlord agrees to furnish to
the Premises during generally recognized business days, and during hours
determined by Landlord in its sole discretion, and subject to the Rules and
Regulations of the Building or Project, electricity for normal desk top office
equipment and normal copying equipment, and heating, ventilation and air
conditioning ("HVAC") as required in Landlord's judgment for the comfortable use
and occupancy of the Premises. If Tenant desires HVAC at any other time,
Landlord shall use reasonable efforts to furnish such service upon reasonable
notice from Tenant and Tenant shall pay Landlord's charges therefor on demand.
Landlord shall also maintain and keep lighted the common stairs, common entries
and restrooms in the Building. Landlord shall not be in default hereunder or be
liable for any damages directly or indirectly resulting from, nor shall the Rent
be abated by reason of (i) the installation, use or interruption of use of any
equipment in connection with the furnishing of any of the foregoing services,
(ii) failure to furnish or delay in furnishing any such services where such
failure or delay is caused by accident or any condition or event beyond the
reasonable control of Landlord, or by the making of necessary repairs or
improvements to the Premises, Building or Project, or (iii) the limitation,
curtailment or rationing of, or restrictions on, use of water, electricity, gas
or any other form of energy serving the Premises, Building or Project. Landlord
shall not be liable under any circumstances for a loss of or injury to property
or business, however occurring, through or in connection with or incidental to
failure to furnish any such services. If Tenant uses heat generating machines or
equipment in the Premises which affect the temperature otherwise maintained by
the HVAC system. Landlord reserves the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the cost of
installation, operation and maintenance thereof, shall be paid by Tenant to
Landlord upon demand by Landlord.
Tenant shall not, without the written consent of Landlord, use any apparatus or
device in the Premises, including without limitation, electronic data processing
machines, punch card machines or machines using in excess of 120 volts, which
consumes more electricity than is usually furnished or supplied for the use of
premises as general office space, as determined by Landlord. Tenant shall not
connect any apparatus with electric current except through existing electrical
outlets in the Premises. Tenant shall not consume water or electric current in
excess of that usually furnished or supplied for the use of premises as general
office space (as determined by Landlord), without first procuring the written
consent of Landlord, which Landlord may refuse, and in the event of consent,
Landlord may have installed a water meter or electrical current meter in the
Premises to measure the amount of water or electric current consumed. The cost
of any such meter and of its installation, maintenance and repair shall be paid
for by the Tenant and Tenant agrees to pay to Landlord promptly upon demand for
all such water and electric current consumed as shown by said meters, at the
rates charged for such services by the local public utility plus any additional
expense incurred in keeping account of the water and electric current so
consumed. If a separate meter is not installed, the excess cost for such water
and electric current shall be established by an estimate made by a utility
company or electrical engineer hired by Landlord at Tenant's expense.
Nothing contained in this Article shall restrict Landlord's right to require at
any time separate metering of utilities furnished to the Premises. In the event
utilities are separately metered, Tenant shall pay promptly upon demand for all
utilities consumed at utility rates charged by the local public utility plus any
additional expense incurred by Landlord in keeping account of the utilities so
consumed. Tenant shall be responsible for the maintenance and repair of any such
meters at its sole cost.
Landlord shall furnish elevator service, lighting replacement for building
standard lights, restroom supplies, window washing and janitor services in a
manner that such services are customarily furnished to comparable office
buildings in the area.
10. CONDITION OF THE PREMISES.
Tenant's taking possession of the Premises shall be deemed conclusive evidence
that as of the date of taking possession the Premises are in good order and
satisfactory condition, except for such matters as to which Tenant gave Landlord
notice on or before the Commencement Date. No promise of Landlord to alter,
remodel, repair or improve the Premises, the Building or the Project and no
representation, express or implied, respecting any matter or thing relating to
the Premises, Building, Project or this Lease (including, without limitation,
the condition of the Premises, the Building or the Project) have been made to
Tenant by Landlord or its Broker or Sales Agent, other than as may be contained
herein or in a separate exhibit or addendum signed by Landlord and Tenant.
11. CONSTRUCTION, REPAIRS AND MAINTENANCE.
a. Landlord's Obligations. Landlord shall perform Landlord's Work to
the Premises as described in Exhibit "C." Landlord shall maintain in
good order, condition and repair the Building and all other portions of
the Premises not the obligation of Tenant or of any other tenant in the
Building.
b. Tenant's Obligations.
(1) Tenant shall perform Tenant's Work to the Premises as
described in Exhibit "C."
(2) Tenant at Tenant's sole expense shall, except for services
furnished by Landlord pursuant to Article 9 hereof, maintain the
Premises in good order, condition and repair, including the
interior surfaces of the ceilings, walls and floors, all doors,
all interior windows, all plumbing, pipes and fixtures,
electrical wiring, switches and fixtures, Building Standard
furnishings and special items and equipment installed by or at
the expense of Tenant.
(3) Tenant shall be responsible for all repairs and alterations
in and to the Premises, Building and Project and the facilities
and systems thereof, the need for which arises out of (i)
Tenant's use or occupancy of the Premises, (ii) the
installation, removal, use or operation of Tenant's Property (as
defined in Article 13) in the Premises, (iii) the moving of
Tenant's Property into or out of the Building, or (iv) the act,
omission, misuse or negligence of Tenant, its agents,
contractors, employees or invitees.
<PAGE> 7
(4) If Tenant fails to maintain the Premises in good order,
condition and repair, Landlord shall give Tenant notice to do
such acts as are reasonably required to so maintain the
Premises. If Tenant fails to promptly commence such work and
diligently prosecute it to completion, then Landlord shall have
the right to do such acts and expend such funds at the expense
of Tenant as are reasonably required to perform such work. Any
amount so expended by Landlord shall be paid by Tenant promptly
after demand with interest at the prime commercial rate then
being charged by Bank of America NT & SA plus two percent (2%)
per annum, from the date of such work, but not to exceed the
maximum rate then allowed by law. Landlord shall have no
liability to Tenant for any damage, inconvenience, or
interference with the use of the Premises by Tenant as a result
of performing any such work.
c. Compliance with Law. Landlord and Tenant shall each do all acts
required to comply with all applicable laws, ordinances, and rules of
any public authority relating to their respective maintenance
obligations as set forth herein.
d. Waiver by Tenant. Tenant expressly waives the benefits of any
statute now or hereafter in effect which would otherwise afford the
Tenant the right to make repairs at Landlord's expense or to terminate
this Lease because of Landlord's failure to keep the Premises in good
order, condition and repair.
e. Load and Equipment Limits. Tenant shall not place a load upon any
floor of the Premises which exceeds the load per square foot which such
floor was designed to carry, as determined by Landlord or Landlord's
structural engineer. The cost of any such determination made by
Landlord's structural engineer shall be paid for by Tenant upon demand.
Tenant shall not install business machines or mechanical equipment which
cause noise or vibration to such a degree as to be objectionable to
Landlord or other Building tenants.
f. Except as otherwise expressly provided in this Lease, Landlord shall
have no liability to Tenant nor shall Tenant's obligations under this
Lease be reduced or abated in any manner whatsoever by reason of any
inconvenience, annoyance, interruption or injury to business arising
from Landlord's making any repairs or changes which Landlord is required
or permitted by this Lease or by any other tenant's lease or required by
law to make in or to any portion of the Project, Building or the
Premises. Landlord shall nevertheless use reasonable efforts to minimize
any interference with Tenant's business in the Premises.
g. Tenant shall give Landlord prompt notice of any damage to or
defective condition in any part or appurtenance of the Building's
mechanical, electrical, plumbing, HVAC or other systems serving, located
in, or passing through the Premises.
h. Upon the expiration or earlier termination of this Lease, Tenant
shall return the Premises to Landlord clean and in the same condition as
on the date Tenant took possession, except for normal wear and tear. Any
damage to the Premises, including any structural damage, resulting from
Tenant's use or from the removal of Tenant's fixtures, furnishings and
equipment pursuant to Section 13b shall be repaired by Tenant at
Tenant's expense.
12. ALTERATIONS AND ADDITIONS.
a. Tenant shall not make any additions, alterations or improvements to
the Premises without obtaining the prior written consent of Landlord.
Landlord's consent may be conditioned on Tenant's removing any such
additions, alterations or improvements upon the expiration of the Term
and restoring the Premises to the same condition as on the date Tenant
took possession. All work with respect to any addition, alteration or
improvement shall be done in a good and workmanlike manner by properly
qualified and licensed personnel approved by Landlord, and such work
shall be diligently prosecuted to completion. Landlord may, at
Landlord's option, require that any such work be performed by Landlord's
contractor, in which case the cost of such work shall be paid for before
commencement of the work. Tenant shall pay to Landlord upon completion
of any such work by Landlord's contractor, an administrative fee of
fifteen percent (15%) of the cost of the work.
b. Tenant shall pay the costs of any work done on the Premises pursuant
to Section 12a, and shall keep the Premises, Building and Project free
and clear of liens of any kind. Tenant shall indemnify, defend against
and keep Landlord free and harmless from all liability, loss, damage,
costs, attorneys' fees and any other expense incurred on account of
claims by any person performing work or furnishing materials or supplies
for Tenant or any person claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or
improvements which are or become the property of Landlord under this
Lease, free and clear of all attachment or judgment liens. Before the
actual commencement of any work for which a claim or lien may be filed,
Tenant shall give Landlord notice of the intended commencement date a
sufficient time before that date to enable Landlord to post notices of
non-responsibility or any other notices which Landlord deems necessary
for the proper protection of Landlord's interest in the Premises,
Building or the Project, and Landlord shall have the right to enter the
Premises and post such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant provide
to Landlord, at Tenant's expense, a lien and completion bond in an
amount equal to at least one and one-half (1 1/2) times the total
estimated cost of any additions, alterations or improvements to be made
in or to the Premises, to protect Landlord against any liability for
mechanic's and materialmen's liens and to insure timely completion of
the work. Nothing contained in this Section 12c shall relieve Tenant of
its obligation under Section 12b to keep the Premises, Building and
Project free of all liens.
d. Unless their removal is required by Landlord as provided in Section
12a, all additions, alterations and improvements made to the Premises
shall become the property of Landlord and be surrendered with the
Premises upon the expiration of the Term; provided, however, Tenant's
equipment, machinery and trade fixtures which can be removed without
damage to the Premises shall remain the property of Tenant and may be
removed, subject to the provisions of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANTS PROPERTY.
a. All fixtures, equipment, improvements and appurtenances attached to
or built into the Premises at the commencement of or during the Term,
whether or not by or at the expense of Tenant ("Leasehold
Improvements"), shall be and remain a part of the Premises, shall be the
property of Landlord and shall not be removed by Tenant, except as
expressly provided in Section 13b.
<PAGE> 8
b. All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment located in the
Premises and acquired by or for the account of Tenant, without expense to
Landlord which can be removed without structural damage to the Building,
and all furniture, furnishings and other articles of movable personal
property owned by Tenant and located in the Premises (collectively
"Tenant's Property") shall be and shall remain the property of Tenant and
may be removed by Tenant at any time during the Term; provided that if any
of Tenant's Property is removed, Tenant shall promptly repair any damage
to the Premises or to the Building resulting from such removal.
14. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto as Exhibit
"D" and with such reasonable modifications thereof and additions thereto as
Landlord may from time to time make. Landlord shall not be responsible for any
violation of said rules and regulations by other tenants or occupants of the
Building or Project.
15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without liability to Tenant
for (a) damage or injury to property, person or business, (b) causing an actual
or constructive eviction from the Premises, or (c) disturbing Tenant's use or
possession of the Premises:
a. To name the Building and Project and to change the name or street
address of the Building or Project;
b. To install and maintain all signs on the exterior and interior of the
Building and Project;
c. To have pass keys to the Premises and all doors within the Premises,
excluding Tenant's vaults and safes;
d. At any time during the Term, and on reasonable prior notice to Tenant,
to inspect the Premises, and to show the Premises to any prospective
purchaser or mortgagee of the Project, or to any assignee of any mortgage
on the Project, or to others having an interest in the Project or Landlord,
and during the last six months of the Term, to show the Premises to
prospective tenants thereof; and
e. To enter the Premises for the purpose of making inspections, repairs,
alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or
balancing controls and other parts of the HVAC system), and to take all
steps as may be necessary or desirable for the safety, protection,
maintenance or preservation of the Premises or the Building or Landlord's
interest therein, or as may be necessary or desirable for the operation or
improvement of the Building or in order to comply with laws, orders or
requirements of governmental or other authority. Landlord agrees to use its
best efforts (except in an emergency) to minimize interference with
Tenant's business in the Premises in the course of any such entry.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises
shall be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of Landlord, assign
or hypothecate this Lease or any interest herein or sublet the Premises or
any part thereof, or permit the use of the Premises by any party other than
Tenant. Any of the foregoing acts without such consent shall be void and
shall, at the option of Landlord, terminate this Lease. This Lease shall
not, nor shall any interest of Tenant herein, be assignable by operation of
law without the written consent of Landlord.
b. If at any time or from time to time during the Term Tenant desires to
assign this Lease or sublet all or any part of the Premises, Tenant shall
give notice to Landlord setting forth the terms and provisions of the
proposed assignment or sublease, and the identity of the proposed assignee
or subtenant. Tenant shall promptly supply Landlord with such information
concerning the business background and financial condition of such proposed
assignee or subtenant as Landlord may reasonably request. Landlord shall
have the option, exercisable by notice given to Tenant within twenty (20)
days after Tenant's notice is given, either to sublet such space from
Tenant at the rental and on the other terms set forth in this Lease for the
term set forth in Tenant's notice, or, in the case of any assignment, to
terminate this Lease, if Landlord does not exercise such option. Tenant may
assign the Lease or sublet such space to such proposed assignee or
subtenant on the following further conditions:
(1) Landlord shall have the right to approve such proposed
assignee or subtenant, which approval shall not be unreasonably
withheld;
(2) The assignment or sublease shall be on the same terms set
forth in the notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or
sublessee shall take possession of the Premises until an
executed counterpart of such assignment or sublease has been
delivered to Landlord;
(4) No assignee or sublessee shall have a further right to
assign or sublet except on the terms herein contained; and
(5) Any sums or other economic consideration received by Tenant
as a result of such assignment or subletting, however
denominated under the assignment or sublease, which exceed, in
the aggregate, (i) the total sums which Tenant is obligated to
pay Landlord under this Lease (prorated to reflect obligations
allocable to any portion of the Premises subleased), plus (ii)
any real estate brokerage commissions or fees payable in
connection with such assignment or subletting, shall be paid to
Landlord as additional rent under this Lease without affecting
or reducing any other obligations of Tenant hereunder.
c. Notwithstanding the provisions of paragraphs a and b above, Tenant may
assign this Lease or sublet the Premises or any portion thereof, without
Landlord's consent and without extending any recapture or termination
option to Landlord, to any corporation which controls, is controlled by or
is under common control with Tenant, or to any corporation resulting from a
merger or consolidation with Tenant, or to any person or entity which
acquires all the assets of Tenant's business as a going concern, provided
that (i) the assignee or sublessee assumes, in full, the obligations of
Tenant under this Lease, (ii) Tenant remains fully liable under this Lease,
and (iii) the use of the Premises under Article 8 remains unchanged.
<PAGE> 9
d. No subletting or assignment shall release Tenant of Tenant's
obligations under this Lease or alter the primary liability of Tenant
to pay the Rent and to perform all other obligations to be performed by
Tenant hereunder. The acceptance of Rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any provision
hereof. Consent to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting. In the event
of default by an assignee or subtenant of Tenant or any successor of
Tenant in the performance of any of the terms hereof, Landlord may
proceed directly against Tenant without the necessity of exhausting
remedies against such assignee, subtenant or successor. Landlord may
consent to subsequent assignments of the Lease or sublettings or
amendments or modifications to the Lease with assignees of Tenant,
without notifying Tenant, or any successor of Tenant, and without
obtaining its or their consent thereto and any such actions shall not
relieve Tenant of liability under this Lease.
e. If Tenant assigns the Lease or sublets the Premises or requests the
consent of Landlord to any assignment or subletting or if Tenant
requests the consent of Landlord for any act that Tenant proposes to do,
then Tenant shall, upon demand, pay Landlord an administrative fee of
One Hundred Fifty and No/100ths Dollars ($150.00) plus any attorneys'
fees reasonably incurred by Landlord in connection with such act or
request.
17. HOLDING OVER.
If after expiration of the Term, Tenant remains in possession of the Premises
with Landlord's permission (express or implied), Tenant shall become a tenant
from month to month only, upon all the provisions of this Lease (except as to
term and Base Rent), but the "Monthly Installments of Base Rent" payable by
Tenant shall be increased to one hundred fifty percent (150%) of the Monthly
Installments of Base Rent payable by Tenant at the expiration of the Term. Such
monthly rent shall be payable in advance on or before the first day of each
month. If either party desires to terminate such month to month tenancy, it
shall give the other party not less than thirty (30) days advance written
notice of the date of termination.
18. SURRENDER OF PREMISES.
a. Tenant shall peaceably surrender the Premises to Landlord on the
Expiration Date, in broom-clean condition and in as good condition as
when Tenant took possession, except for (i) reasonable wear and tear,
(ii) loss by fire or other casualty, and (iii) loss by condemnation.
Tenant shall, on Landlord's request, remove Tenant's Property on or
before the Expiration Date and promptly repair all damage to the
Premises or Building caused by such removal.
b. If Tenant abandons or surrenders the Premises, or is dispossessed
by process of law or otherwise, any of Tenant's Property left on the
Premises shall be deemed to be abandoned, and, at Landlord's option,
title shall pass to Landlord under this Lease as by a bill of sale. If
Landlord elects to remove all or any part of such Tenant's Property, the
cost of removal, including repairing any damage to the Premises or
Building caused by such removal, shall be paid by Tenant. On the
Expiration Date Tenant shall surrender all keys to the Premises.
19. DESTRUCTION OR DAMAGE.
a. If the Premises or the portion of the Building necessary for
Tenant's occupancy is damaged by fire, earthquake, act of God, the
elements of other casualty, Landlord shall, subject to the provisions of
this Article, promptly repair the damage, if such repairs can, in
Landlord's opinion, be completed within (90) ninety days. If Landlord
determines that repairs can be completed within ninety (90) days, this
Lease shall remain in full force and effect, except that if such damage
is not the result of the negligence or willful misconduct of Tenant or
Tenant's agents, employees, contractors, licensees or invitees, the Base
Rent shall be abated to the extent Tenant's use of the Premises is
impaired, commencing with the date of damage and continuing until
completion of the repairs required of Landlord under Section 19d.
b. If in Landlord's opinion, such repairs to the Premises or portion
of the Building necessary for Tenant's occupancy cannot be completed
within ninety (90) days, Landlord may elect, upon notice to Tenant given
within thirty (30) days after the date of such fire or other casualty,
to repair such damage, in which event this Lease shall continue in full
force and effect, but the Base Rent shall be partially abated as
provided in Section 19a. If Landlord does not so elect to make such
repairs, this Lease shall terminate as of the date of such fire or other
casualty.
c. If any other portion of the Building or Project is totally
destroyed or damaged to the extent that in Landlord's opinion repair
thereof cannot be completed within ninety (90) days, Landlord may elect
upon notice to Tenant given within thirty (30) days after the date of
such fire or other casualty, to repair such damage, in which event this
Lease shall continue in full force and effect, but the Base Rent shall
be partially abated as provided in Section 19a. If Landlord does not
elect to make such repairs, this Lease shall terminate as of the date of
such fire or other casualty.
d. If the Premises are to be repaired under this Article, Landlord
shall repair at its cost any injury or damage to the Building and
Building Standard Work in the Premises. Tenant shall be responsible at
its sole cost and expense for the repair, restoration and replacement of
any other Leasehold Improvements and Tenant's Property. Landlord shall
not be liable for any loss of business, inconvenience or annoyance
arising from any repair or restoration of any portion of the Premises,
Building or Project as a result of any damage from fire or other
casualty.
e. This Lease shall be considered an express agreement governing any
case of damage to or destruction of the Premises, Building or Project by
fire or other casualty, and any present or future law which purports to
govern the rights of Landlord and Tenant in such circumstances in the
absence of express agreement, shall have no application.
20. EMINENT DOMAIN.
a. If the whole of the Building or Premises is lawfully taken by
condemnation or in any other manner for any public or quasi-public
purpose, this Lease shall terminate as of the date of such taking, and
Rent shall be prorated to such date. If less than the whole of the
Building or Premises is so taken, this Lease shall be unaffected by such
taking, provided that (i) Tenant shall have the right to terminate this
Lease by notice to Landlord given within ninety (90) days after the date
of such taking if twenty percent (20%) or more of the Premises is taken
and the remaining area of the Premises is not reasonably sufficient for
Tenant to continue operation of its business, and (ii) Landlord shall
have the right to terminate this Lease by notice to Tenant given within
ninety (90) days after the date of such taking. If either Landlord or
Tenant so elects to terminate this Lease, the Lease shall terminate on
the thirtieth (30th) day after either such notice. The Rent shall be
prorated to the date of termination. If this Lease continues in force
upon such partial taking, the Base Rent and Tenant's Proportionate Share
shall be equitably adjusted according to the remaining Rentable Area of
the Premises and Project.
<PAGE> 10
b. In the event of any taking, partial or whole, all of the proceeds of
any award, judgment or settlement payable by the condemning authority
shall be the exclusive property of Landlord, and Tenant hereby assigns
to Landlord all of its right, title and interest in any award, judgment
or settlement from the condemning authority. Tenant, however, shall have
the right, to the extent that Landlord's award is not reduced or
prejudiced, to claim from the condemning authority (but not from
Landlord) such compensation as may be recoverable by Tenant in its own
right for relocation expenses and damage to Tenant's personal property.
c. In the event of a partial taking of the Premises which does not
result in a termination of this Lease, Landlord shall restore the
remaining portion of the Premises as nearly as practicable to its
condition prior to the condemnation or taking, but only to the extent of
Building Standard Work. Tenant shall be responsible at its sole cost and
expense for the repair, restoration and replacement of any other
Leasehold Improvements and Tenant's Property.
21. INDEMNIFICATION.
a. Tenant shall indemnify and hold Landlord harmless against and from
liability and claims of any kind for loss or damage to property of
Tenant or any other person, or for any injury to or death of any person,
arising out of: (1) Tenant's use and occupancy of the Premises, or any
work, activity or other things allowed or suffered by Tenant to be done
in, on or about the Premises; (2) any breach or default by Tenant of any
of Tenant's obligations under this Lease; or (3) any negligent or
otherwise tortious act or omission of Tenant, its agents, employees,
invitees or contractors. Tenant shall at Tenant's expense, and by
counsel satisfactory to Landlord, defend Landlord in any action or
proceeding arising from any such claim and shall indemnify Landlord
against all costs, attorneys' fees, expert witness fees and any other
expenses incurred in such action or proceeding. As a material part of
the consideration for Landlord's execution of this Lease, Tenant hereby
assumes all risk of damage or injury to any person or property in, on or
about the Premises from any cause.
b. Landlord shall not be liable for injury or damage which may be
sustained by the person or property of Tenant, its employees, invitees
or customers, or any other person in or about the Premises, caused by or
resulting from fire, steam, electricity, gas, water or rain which may
leak or flow from or into any part of the Premises, or from the
breakage, leakage, obstruction or other defects of pipes, sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures,
whether such damage or injury results from conditions arising upon the
Premises or upon other portions of the Building or Project or from other
sources. Landlord shall not be liable for any damages arising from any
act or omission of any other tenant of the Building or Project.
22. TENANT'S INSURANCE.
a. All insurance required to be carried by Tenant hereunder shall be
issued by responsible insurance companies acceptable to Landlord and
Landlord's lender and qualified to do business in the State. Each policy
shall name Landlord, and at Landlord's request any mortgage of
Landlord, as an additional insured, as their respective interests may
appear. Each policy shall contain (i) a cross-liability endorsement,
(ii) a provision that such policy and the coverage evidenced thereby
shall be primary and non-contributing with respect to any policies
carried by Landlord and that any coverage carried by Landlord shall be
excess insurance, and (iii) a waiver by the insurer of any right of
subrogation against Landlord, its agents, employees and representatives,
which arises or might arise by reason of any payment under such policy
or by reason of any act or omission of Landlord, its agents, employees
or representatives. A copy of each paid up policy (authenticated by the
insurer) or certificate of the insurer evidencing the existence and
amount of each insurance policy required hereunder shall be delivered to
Landlord before the date Tenant is first given the right of possession
of the Premises, and thereafter within thirty (30) days after any demand
by Landlord therefor. Landlord may, at any time and from time to time,
inspect and/or copy any insurance policies required to be maintained by
Tenant hereunder. No such policy shall be cancellable except after
twenty (20) days written notice to Landlord and Landlord's lender.
Tenant shall furnish Landlord with renewals or "binders" of any such
policy at least ten (10) days prior to the expiration thereof. Tenant
agrees that if Tenant does not take out and maintain such insurance,
Landlord may (but shall not be required to) procure said insurance on
Tenant's behalf and charge the Tenant the premiums together with a
twenty-five percent (25%) handling charge, payable upon demand. Tenant
shall have the right to provide such insurance coverage pursuant to
blanket policies obtained by the Tenant, provided such blanket policies
expressly afford coverage to the Premises, Landlord, Landlord's
mortgagee and Tenant as required by this Lease.
b. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall
procure, pay for and maintain in effect policies of casualty insurance
covering (i) all Leasehold Improvements (including any alterations,
additions or improvements as may be made by Tenant pursuant to the
provisions of Article 12 hereof), and (ii) trade fixtures, merchandise
and other personal property from time to time in, on or about the
Premises, in an amount not less than one hundred percent (100%) of their
actual replacement cost from time to time, providing protection against
any peril included within the classification "Fire and Extended
Coverage" together with insurance against sprinkler damage, vandalism
and malicious mischief. The proceeds of such insurance shall be used for
the repair or replacement of the property so insured. Upon termination
of this Lease following a casualty as set forth herein, the proceeds
under (i) shall be paid to Landlord, and the proceeds under (ii) above
shall be paid to Tenant.
c. Beginning on the date Tenant is given access to the Premises for
any purpose and continuing until expiration of the Term, Tenant shall
procure, pay for and maintain in effect workers' compensation insurance
as required by law and comprehensive public liability and property
damage insurance with respect to the construction of improvements on the
Premises, the use, operation or condition of the Premises and the
operations of Tenant in, on or about the Premises, providing personal
injury and broad form property damage coverage for not less than One
Million Dollars ($1,000,000.00) combined single limit for bodily injury,
death and property damage liability.
d. Not less than every three (3) years during the Term, Landlord and
Tenant shall mutually agree to increases in all of Tenant's insurance
policy limits for all insurance to be carried by Tenant as set forth in
this Article. In the event Landlord and Tenant cannot mutually agree
upon the amounts of said increases, then Tenant agrees that all
insurance policy limits as set forth in this Article shall be adjusted
for increases in the cost of living in the same manner as is set forth
in Section 5.2 hereof for the adjustment of the Base Rent.
<PAGE> 11
23. WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive all rights of recovery against the other
and against the officers, employees, agents and representatives of the other,
on account of loss by or damage to the waiving party of its property or the
property of others under its control, to the extent that such loss or damage is
insured against under any fire and extended coverage insurance policy which
either may have in force at the time of the loss or damage. Tenant shall, upon
obtaining the policies of insurance required under this Lease, give notice to
its insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
24. SUBORDINATION AND ATTORNMENT.
Upon written request of Landlord, or any first mortgagee or first deed of trust
beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in
writing, subordinate its rights under this Lease to the lien of any first
mortgage or first deed of trust, or to the interest of any lease in which
Landlord is lessee, and to all advances made or hereafter to be made
thereunder. However, before signing any subordination agreement, Tenant shall
have the right to obtain from any lender or lessor or Landlord requesting such
subordination, an agreement in writing providing that, as long as Tenant is not
in default hereunder, this Lease shall remain in effect for the full Term. The
holder of any security interest may, upon written notice to Tenant, elect to
have this Lease prior to its security interest regardless of the time of the
granting or recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee, Tenant shall attorn to
the purchaser, transferee or lessor as the case may be, and recognize that
party as Landlord under this Lease, provided such party acquires and accepts
the Premises subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from Landlord, Tenant shall execute
and deliver to Landlord or Landlord's designee, a written statement certifying
(a) that this Lease is unmodified and in full force and effect, or is in full
force and effect as modified and stating the modifications; (b) the amount of
Base Rent and the date to which Base Rent and additional rent have been paid in
advance; (c) the amount of any security deposited with Landlord; and (d) that
Landlord is not in default hereunder or, if Landlord is claimed to be in
default, stating the nature of any claimed default. Any such statement may be
relied upon by a purchaser, assignee or lender. Tenant's failure to execute and
deliver such statement within the time required shall at Landlord's election be
a default under this Lease and shall also be conclusive upon Tenant that: (1)
this Lease is in full force and effect and has not been modified except as
represented by Landlord; (2) there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counter-claim or deduction
against Rent; and (3) not more than one month's Rent has been paid in advance.
26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building, Project or Lease occurring after
the consummation of such sale or transfer, providing the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. If any security deposit or prepaid Rent has been paid by Tenant,
Landlord may transfer the security deposit or prepaid Rent to Landlord's
successor and upon such transfer, Landlord shall be relieved of any and all
further liability with respect thereto.
27. DEFAULT.
27.1 Tenant's Default. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
a. If Tenant abandons or vacates the Premises; or
b. If Tenant fails to pay any Rent or any other charges required to be paid
by Tenant under this Lease and such failure continues for five (5) days
after such payment is due and payable; or
c. If Tenant fails to promptly and fully perform any other covenant,
condition or agreement contained in this Lease and such failure continues
for thirty (30) days after written notice thereof from Landlord to Tenant;
or
d. If a writ of attachment or execution is levied on this Lease or on any of
Tenant's Property; or
e. If Tenant makes a general assignment for the benefit of creditors, or
provides for an arrangement, composition, extension or adjustment with its
creditors; or
f. If Tenant files a voluntary petition for relief or if a petition against
Tenant in a proceeding under the federal bankruptcy laws or other insolvency
laws is filed and not withdrawn or dismissed within forty-five (45) days
thereafter, of if under the provisions of any law providing for
reorganization or winding up of corporations, any court of competent
jurisdiction assumes jurisdiction, custody or control of Tenant or any
substantial part of its property and such jurisdiction, custody or control
remains in force unrelinquished, unstayed or unterminated for a period of
forty-five (45) days; or
g. If in any proceeding or action in which Tenant is a party, a trustee,
receiver, agent or custodian is appointed to take charge of the Premises or
Tenant's Property (or has the authority to do so) for the purpose of
enforcing a lien against the Premises or Tenant's Property; or
h. If Tenant is a partnership or consists of more than one (1) person or
entity, if any partner of the partnership or other person or entity is
involved in any of the acts or events described in subparagraphs d through
g above.
27.2 Remedies. In the event of Tenant's default hereunder, then in addition to
any other rights or remedies Landlord may have under any law, Landlord shall
have the right, at Landlord's option, without further notice or demand of any
kind to do the following:
a. Terminate this Lease and Tenant's right to possession of the Premises and
reenter the Premises and take possession thereof, and Tenant shall have no
further claim to the Premises or under this Lease; or
b. Continue this Lease in effect, reenter and occupy the Premises for the
account of Tenant, and collect any unpaid Rent or other charges which have
or thereafter become due and payable; or
c. Reenter the Premises under the provisions of subparagraph b, and
thereafter elect to terminate this Lease and Tenant's right to possession of
the Premises.
<PAGE> 12
If Landlord reenters the Premises under the provisions of subparagraphs
b or c above, Landlord shall not be deemed to have terminated this
Lease or the obligation of Tenant to pay any Rent or other charges
thereafter accruing, unless Landlord notifies Tenant in writing of
Landlord's election to terminate this Lease. In the event of any
reentry or retaking of possession by Landlord, Landlord shall have the right,
but not the obligation, to remove all or any part of Tenant's Property in
the Premises and to place such property in storage at a public
warehouse at the expense and risk of Tenant. If Landlord elects to
relet the Premises for the account of Tenant, the rent received by
Landlord from such reletting shall be applied as follows: first, to the payment
of any indebtedness other than Rent due hereunder from Tenant to Landlord;
second, to the payment of any costs of such reletting; third, to the payment of
the cost of any alterations or repairs to the Premises; fourth to the payment
of Rent due and unpaid hereunder; and the balances, if any, shall be held by
Landlord and applied in payment of future Rent as it becomes due. If that
portion of rent received from the reletting which is applied against the Rent
due hereunder is less than the amount of the Rent due, Tenant shall pay the
deficiency to Landlord promptly upon demand by Landlord. Such deficiency shall
be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as
determined, any costs and expenses incurred by Landlord in connection with such
reletting or in making alterations and repairs to the Premises, which are not
covered by the rent received from the reletting.
Should Landlord elect to terminate this Lease under the provisions of
subparagraph a or c above, Landlord may recover as damages from Tenant the
following:
1. Past Rent. The worth at the time of the award of any unpaid Rent
which had been earned at the time of termination; plus
2. Rent Prior to Award. The worth at the time of the award of the
amount by which the unpaid Rent which would have been earned after
termination until the time of award exceeds the amount of such
rental loss that Tenant proves could have been reasonably avoided;
plus
3. Rent After Award. The worth at the time of the award of the amount
by which the unpaid Rent for the balance of the Term after the time
of award exceeds the amount of the rental loss that Tenant proves
could be reasonably avoided; plus
4. Proximately Caused Damages. Any other amount necessary to
compensate Landlord for all detriment proximately caused by
Tenant's failure to perform its obligations under this Lease or
which in the ordinary course of things would be likely to result
therefrom, including, but not limited to, any costs or expenses
(including attorneys' fees), incurred by Landlord in (a) retaking
possession of the Premises, (b) maintaining the Premises after
Tenant's default, (c) preparing the Premises for reletting to a new
tenant, including any repairs or alterations, and (d) reletting the
Premises, including broker's commissions.
"The worth at the time of the award" as used in subparagraphs 1 and 2 above, is
to be computed by allowing interest at the rate of ten percent (10%) per annum.
"The worth at the time of the award" as used in subparagraph 3 above, is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank situated nearest to the Premises at the time of the award plus one percent
(1%).
The waiver by Landlord of any breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such term, covenant or condition or of
any subsequent breach of the same or any other term, covenant or condition.
Acceptance of Rent by Landlord subsequent to any breach hereof shall not be
deemed a waiver of any preceding breach other than the failure to pay the
particular Rent so accepted, regardless of Landlord's knowledge of any breach
at the time of such acceptance of Rent. Landlord shall not be deemed to have
waived any term, covenant or condition unless Landlord gives Tenant written
notice of such waiver.
27.3 Landlord's Default. If Landlord fails to perform any covenant, condition
or agreement contained in this Lease within thirty (30) days after receipt of
written notice from Tenant specifying such default, or if such default cannot
reasonably be cured within thirty (30) days, if Landlord fails to commence
to cure within the thirty (30) day period, then Landlord shall be liable to
Tenant for any damages sustained by Tenant as a result of Landlord's breach;
provided, however, it is expressly understood and agreed that if Tenant obtains
a money judgment against Landlord resulting from any default or other claim
arising under this Lease, that judgment shall be satisfied only out of the
rents, issues, profits, and other income actually received on account of
Landlord's right, title and interest in the Premises, Building or Project,
and no other real, personal or mixed property of Landlord (or of any of the
partners which comprise Landlord, if any) wherever situated, shall be subject
to levy to satisfy such judgment, if, after notice to Landlord of default.
Landlord (or any first mortgagee or first deed of trust beneficiary of
Landlord) fails to cure the default as provided herein, then Tenant shall have
the right to cure that default at Landlord's expense. Tenant shall not have the
right to terminate this Lease or to withhold, reduce or offset any amount
against any payments of Rent or any other charges due and payable under this
Lease except as otherwise specifically provided herein.
28. BROKERAGE FEES.
Tenant warrants and represents that it has not dealt with any real estate
broker or agent in connection with this Lease or its negotiation except those
noted in Section 2.c. Tenant shall indemnify and hold Landlord harmless from
any cost, expense or liability (including costs of suit and reasonable
attorneys' fees) for any compensation, commission or fees claimed by any other
real estate broker or agent in connection with this Lease or its negotiation by
reason of any act of Tenant.
29. NOTICES.
All notices, approvals and demands permitted or required to be given under this
Lease shall be in writing and deemed duly served or given if personally
delivered or sent by certified or registered U.S. mail, postage prepaid, and
addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to
the Building manager, and (b) if to Tenant, to Tenant's Mailing Address;
provided, however, notices to Tenant shall be deemed duly served or given if
delivered or mailed to Tenant at the Premises. Landlord and Tenant may from
time to time by notice to the other designate another place for receipt of
future notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of federal, state or local government controls,
rules, regulations, or restrictions on the use or consumption of energy or
other utilities during the Term, both Landlord and Tenant shall be bound
thereby. In the event of a difference in interpretation by Landlord and Tenant
of any such controls, the interpretation of Landlord shall prevail, and
Landlord shall have the right to enforce compliance therewith, including the
right of entry into the Premises to effect compliance.
31. RELOCATION OF PREMISES.
Landlord shall have the right to relocate the Premises to another part of the
Building in accordance with the following:
<PAGE> 13
a. The new premises shall be substantially the same in size, dimensions,
configuration, decor and nature as the Premises described in this Lease,
and if the relocation occurs after the Commencement Date, shall be placed
in that condition by Landlord at its cost.
b. Landlord shall give Tenant at least thirty (30) days written notice of
Landlord's intention to relocate the Premises.
c. As nearly as practicable, the physical relocation of the Premises shall
take place on a weekend and shall be completed before the following Monday.
If the physical relocation has not been completed in that time, Base Rent
shall abate in full from the time the physical relocation commences to the
time it is completed. Upon completion of such relocation, the new premises
shall become the "Premises" under this Lease.
d. All reasonable costs incurred by Tenant as a result of the relocation
shall be paid by Landlord.
e. If the new premises are smaller than the Premises as it existed before
the relocation, Base Rent shall be reduced proportionately.
f. The parties hereto shall immediately execute an amendment to this Lease
setting forth the relocation of the Premises and the reduction of Base
Rent, if any.
32. QUIET ENJOYMENT.
Tenant, upon paying the Rent and performing all of its obligations under this
Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of
this Lease and to any mortgage, lease, or other agreement to which this Lease
may be subordinate.
33. OBSERVANCE OF LAW.
Tenant shall not use the Premises or permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated. Tenant shall, at its sole cost and expense, promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be in force, and with the
requirements of any board of fire insurance underwriters or other similar
bodies now or hereafter constituted, relating to, or affecting the condition,
use or occupancy of the Premises, excluding structural changes not related to
or affected by Tenant's improvements or acts. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action against Tenant,
whether Landlord is a party thereto or not, that Tenant has violated any law,
ordinance or governmental rule, regulation or requirement, shall be conclusive
of that fact as between Landlord and Tenant.
34. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefor, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond the reasonable control of the party obligated to perform hereunder,
shall excuse performance of the work by that party for a period equal to the
duration of that prevention, delay or stoppage. Nothing in this Article 34
shall excuse or delay Tenant's obligation to pay Rent or other charges under
this Lease.
35. CURING TENANT'S DEFAULTS.
If Tenant defaults in the performance of any of its obligations under this
Lease, Landlord may (but shall not be obligated to) without waiving such
default, perform the same for the account at the expense of Tenant. Tenant
shall pay Landlord all costs of such performance promptly upon receipt of a
bill therefor.
36. SIGN CONTROL.
Tenant shall not affix, paint, erect or inscribe any sign, projection, awning,
signal or advertisement of any kind to any part of the Premises, Building or
Project, including without limitation, the inside or outside of windows or
doors, without the written consent of Landlord. Landlord shall have the right
to remove any signs or other matter, installed without Landlord's permission,
without being liable to Tenant by reason of such removal, and to charge the
cost of removal to Tenant as additional rent hereunder, payable within ten (10)
days of written demand by Landlord.
37. MISCELLANEOUS.
a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant or
receipt by Landlord of a lesser amount than the Rent provided for in this Lease
shall be deemed to be other than on account of the earliest due Rent, nor shall
any endorsement or statement on any check or letter accompanying any check or
payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of the Rent or pursue any other remedy provided for in this Lease. In
connection with the foregoing, Landlord shall have the absolute right in its
sole discretion to apply any payment received from Tenant to any account or
other payment of Tenant then not current and due or delinquent.
b. Addends. If any provision contained in an addendum to this Lease is
inconsistent with any other provision herein, the provision contained in the
addendum shall control, unless otherwise provided in the addendum.
c. Attorneys' Fees. If any action or proceeding is brought by either party
against the other pertaining to or arising out of this Lease, the finally
prevailing party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred on account of such action or proceeding.
d. Captions, Articles and Section Numbers. The captions appearing within the
body of this Lease have been inserted as a matter of convenience and for
reference only and in no way define, limit or enlarge the scope or meaning of
this Lease. All references to Article and Section numbers refer to Articles
and Sections in this Lease.
e. Changes Requested by Lender. Neither Landlord or Tenant shall unreasonably
withhold its consent to changes or amendments to this Lease requested by the
lender on Landlord's interest, so long as these changes do not alter the basic
business terms of this Lease or otherwise materially diminish any rights or
materially increase any obligations of the party from whom consent to such
charge or amendment is requested.
f. Choice of Law. This Lease shall be construed and enforced in accordance
with the laws of the State.
g. Consent. Notwithstanding anything contained in this Lease to the contrary,
Tenant shall have no claim, and hereby waives the right to any claim against
Landlord for money damages by reason of any refusal, withholding or delaying by
Landlord of any consent, approval or statement of satisfaction, and in such
event, Tenant's only remedies therefor shall be an action for specific
performance, injunction or declaratory judgment to enforce any right to such
consent, etc.
<PAGE> 14
h. Corporate Authority. If Tenant is a corporation, each individual signing
this Lease on behalf of Tenant represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation, and
that this Lease is binding on Tenant in accordance with its terms. Tenant
shall, at Landlord's request, deliver a certified copy of a resolution of its
board of directors authorizing such execution.
i. Counterparts. This Lease may be executed in multiple counterparts, all of
which shall constitute one and the same Lease.
j. Execution of Lease; No Option. The submission of this Lease to Tenant shall
be for examination purposes only, and does not and shall not constitute a
reservation of or option for Tenant to lease, or otherwise create any interest
of Tenant in the Premises or any other premises within the Building or
Project. Execution of this Lease by Tenant and its return to Landlord shall
not be binding on Landlord notwithstanding any time interval, until Landlord
has in fact signed and delivered this Lease to Tenant.
k. Furnishing of Financial Statements; Tenant's Representations. In order to
induce Landlord to enter into this Lease Tenant agrees that it shall promptly
furnish Landlord, from time to time, upon Landlord's written request, with
financial statements reflecting Tenant's current financial condition. Tenant
represents and warrants that all financial statements, records and information
furnished by Tenant to Landlord in connection with this Lease are true, correct
and complete in all respects.
l. Further Assurances. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
m. Mortgagee Protection. Tenant agrees to send by certified or registered mail
to any first mortgagee or first deed of trust beneficiary of Landlord whose
address has been furnished to Tenant, a copy of any notice of default served by
Tenant on Landlord. If Landlord fails to cure such default within the time
provided for in this Lease, such mortgagee or beneficiary shall have an
additional thirty (30) days to cure such default; provided that if such default
cannot reasonably be cured within that thirty (30) day period, then such
mortgagee or beneficiary shall have such additional time to cure the default as
is reasonably necessary under the circumstances.
n. Prior Agreements; Amendments. This Lease contains all of the agreements of
the parties with respect to any matter covered or mentioned in this Lease, and
no prior agreement or understanding pertaining to any such matter shall be
effective for any purpose. No provisions of this Lease may be amended or added
to except by an agreement in writing signed by the parties or their respective
successors in interest.
o. Recording. Tenant shall not record this Lease without the prior written
consent of Landlord. Tenant, upon the request of Landlord, shall execute and
acknowledge a "short form" memorandum of this Lease for recording purposes.
p. Severability. A final determination by a court of competent jurisdiction
that any provision of this Lease is invalid shall not affect the validity of
any other provision, and any provision so determined to be invalid shall, to
the extent possible, be construed to accomplish its intended effect.
q. Successors and Assigns. This Lease shall apply to and bind the heirs,
personal representatives, and permitted successors and assigns of the parties.
r. Time of the Essence. Time is of the essence of this Lease.
s. Waiver. No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant shall impair such right or remedy or be
construed as a waiver of such default.
t. Compliance. The parties hereto agree to comply with all applicable federal,
state and local laws, regulations, codes, ordinances and administrative orders
having jurisdiction over the parties, property or the subject matter of this
Agreement, including, but not limited to, the 1964 Civil Rights Act and all
amendments thereto, the Foreign Investment in Real Property Tax Act, the
Comprehensive Environmental Response Compensation and Liability Act, and The
Americans With Disabilities Act.
The receipt and acceptance by Landlord of delinquent Rent shall not constitute
a waiver of any other default; it shall constitute only a waiver of timely
payment for the particular Rent payment involved.
No act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only a written notice
from Landlord to Tenant shall constitute acceptance of the surrender of the
Premises and accomplish a termination of the Lease.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of the
Lease.
The parties hereto have executed this Lease as of the dates set forth below.
Date: September 7, 1993 Date: August 31, 1993
------------------------------ ---------------------------------
Landlord: Hacienda Park Associates Tenant: Pro Business Payroll
-------------------------- -------------------------------
a California general a California corporation
partnership
By: /s/ Peter P. Canny, Jr. By: /s/ Mitchell Everton
-------------------------------- -----------------------------------
Title: Vice President Title: Exec VP - Operations
----------------------------- --------------------------------
By: By:
-------------------------------- -----------------------------------
Title: Title:
----------------------------- --------------------------------
CONSULT YOUR ADVISORS - This document has been prepared for approval by your
attorney. No representation or recommendation is made by CB Commercial as to
the legal sufficiency or tax consequences of this document or the transaction
to which it relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
<PAGE> 15
ADDENDUM NUMBER ONE
THIS ADDENDUM IS MADE A PART OF
THE OFFICE BUILDING LEASE
DATED AUGUST 26, 1993
BY AND BETWEEN HACIENDA PARK ASSOCIATES,
A CALIFORNIA GENERAL PARTNERSHIP ("LESSOR") AND
PRO BUSINESS PAYROLL, A CALIFORNIA CORPORATION ("LESSEE"):
38. TENANT'S PROPORTIONATE SHARE:
Tenant's proportionate share of the building containing the Premises
shall be 8.53%. Such share is a fraction, the numerator of which is
the Rentable Area of the Premises, and the denominator of which is the
Gross Area of the Building, as determined by the Landlord from time to
time. The Building consists of 41,656 square feet. Tenant's
proportionate share of the Project shall be 4.27%. Such share is a
fraction, the numerator of which is the Rentable Area of the Premises,
and the denominator of which is the Rentable Area of the Project, as
determined by the Landlord from time to time. The Project consists of
two buildings containing a total Rentable Area of 83,230 square feet.
39. TENANT IMPROVEMENT ALLOWANCE:
Landlord shall provide up to $24,885 for the completion of the tenant
improvements. In the event the tenant improvements cost less than
$24,885, Landlord shall allow Tenant to use up to $7,100 for the
purchase and installation of data cabling. Should there be any
additional remaining tenant improvement allowance, Tenant shall have a
credit for future alterations to any of the space under lease by Tenant
at 5934 Gibraltar Drive.
40. OPTION TO RENEW:
Provided that Tenant is not in default hereunder either at the time of
exercise or at the time the extended term commences, Tenant shall
have the option to extend the Lease for one (1) extended five (5) year
term on the same terms, covenants and conditions provided herein,
except that upon such renewal the monthly base rent due hereunder shall
be determined pursuant to Paragraph B. Tenant shall exercise its
option by giving Landlord written notice ("Option Notice") at least one
hundred eighty (180) days prior to the expiration of the initial term
of this Lease.
B. Option Period Monthly Rent. The Monthly Rent for the Option
Period, which shall include the inital Monthly Rent and all adjustments,
shall be determined as follows:
(i) The parties shall have fifteen (15) days after Landlord receives
the Option Notice within which to agree on then Monthly Rent for the
Option Period based upon the then fair market rental value of the
Premises as defined in Paragraph B (iii). If the parties agree on the
Monthly Rent for the Option Period within fifteen (15) days, they shall
immediately execute an amendment to this Lease stating the Monthly Rent
for the Option Period.
(ii) If the parties are unable to agree on the Monthly Rent for the
Option Period within fifteen (15) days, then, the Monthly Rent for the
Option Period shall be the then current fair market rental value of
the Premises as determined in accordance with Paragraph B (iv).
(iii) The "then fair market rental value of the Premises" shall be
defined to mean the fair market rental value of the Premises as of
the commencement of the Option Period, taking into consideration the
uses permitted under this Lease, the quality, size, design and location
of the Premises, and the rent for comparable buildings located in
Pleasanton. In no event shall the fair market monthly value of the
Premises for the Option Period be less than the Monthly Rent last
payable under the Lease.
(iv) Within seven (7) days after the expiration of the fifteen (15)
day period set forth in Paragraph 51.B (ii), each party, at its cost
and by giving notice to the other party, shall appoint a real estate
appraiser with at least five (5) years' full time commercial appraisal
experience in the area in which the Premises are located to appraise
and set the then fair market rental value of the Premises for the
Option Period. If a party does not appoint an appraiser within ten
(10) days after the other party has given notice of the name of its
appraiser, the single appraiser appointed shall be the sole appraiser
and shall set the then fair market rental value of the Premises. If
the two
<PAGE> 16
(2) appraisers are appointed by the parties as stated in this paragraph,
they shall meet promptly and attempt to set the then fair market rental
value of the Premises. If they are unable to agree within thirty (30) days
after the second appraiser has been appointed, they shall attempt to elect
a third appraiser meeting the qualifications stated in this paragraph
within ten (10) days after the last day the two (2) appraisers are given to
set the then fair market rental value of the Premises. If they are unable
to agree on the third appraiser, either of the parties to this Lease, by
giving ten (10) days' notice to the other party, can apply to the then
President of the Alameda County Real Estate Board or to the then President
Judge of the Alameda County Superior Court, for the selection of a third
appraiser who meets the qualifications stated in this paragraph. Each of
the parties shall bear one-half (1/2) of the cost of appointing the third
appraiser and of paying the third appraiser's fee. The third appraiser,
however selected, shall be a person who has not previously acted in any
capacity for either party.
Within thirty (30) days after the selection of the third appraiser, a
majority of the appraisers shall set the then fair market value of the
Premises. If a majority of the appraisers are unable to set the then fair
market rental value of the Premises within the stipulated period of time,
the three (3) appraisals shall be added together and their total divided by
three (3); the resulting quotient shall be the then fair market rental
value of the Premises.
If, however, the low appraisal and/or the high appraisal are/is more than
ten percent (10%) lower and/or higher than the middle appraisal, the low
appraisal and/or the high appraisal shall be disregarded. If only one (1)
appraisal is disregarded, the remaining two (2) appraisals shall be added
together and their total divided by two (2); the resulting quotient shall
be the then fair market rental value of the Premises. If both the low
appraisal and the high appraisal are disregarded as stated in this
paragraph, the middle appraisal shall be the then fair market rental value
of the Premises.
After the then fair market rental value of the Premises has been set, the
appraisers shall immediately notify the parties and the Monthly Rent for
the Option Period shall be such amount.
Except as expressly provided herein, the Lease shall remain in full force and
effect.
LANDLORD: TENANT:
Hacienda Park Associates Pro Business Payroll
A California General Partnership A California Corporation
By: Peter P. Canny, Jr. By: Mitchell Everton
------------------------------ ----------------------------------
Its: Vice President Its: EXEC VP - OPERATIONS
----------------------------- ---------------------------------
<PAGE> 17
EXHIBIT A
[FLOOR PLAN]
<PAGE> 18
EXHIBIT B
SARATOGA CENTER
SITE 30A
5934 GIBRALTAR DRIVE
PLEASANTON, CALIFORNIA
[SARATOGA ONE FLOOR PLAN]
[SARATOGA TWO FLOOR PLAN]
<PAGE> 19
EXHIBIT C
[FLOOR PLAN]
<PAGE> 20
EXHIBIT D
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the Building
without the prior written consent of the Landlord. Landlord shall have the
right to remove, at Tenant's expense and without notice, any sign installed or
displayed in violation of this rule. All approved signs or lettering on doors
and walls shall be printed, painted, affixed or inscribed at the expense of
Tenant by a person chosen by Landlord.
2. Except as consented to in writing by Landlord, or in accordance with
Building Standard Improvements, no curtains, blinds, shades, screens or hanging
plants or other similar objects attached to or used in connection with any
window or door of the Premises, Tenant shall immediately discontinue such use.
No awning shall be permitted on any part of the Premises. Tenant shall not
place anything against or near glass partitions or doors or windows which may
appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, escalators, or stairways of the Building. No Tenant and
no employee or invitee of any tenant shall go upon the roof of the Building or
make any roof penetrations without the prior written consent of Landlord.
4. The main lobby directory of the Building will be provided exclusively
for the display of the name and location of the Building's tenants only, and
Landlord reserves the right to exclude any other names therefrom. Landlord
shall provide Tenant with a building standard wall or door mounted sign at or
adjacent to Tenant's main entrance to its Premises which shall identify Tenant
and its suite number.
5. All cleaning and janitorial services for the Building shall be provided
by Landlord in accordance with Landlord's specifications for said services, and
except with the written consent of Landlord, no person or persons other than
those approved by Landlord shall be employed by Tenant or permitted to enter
the Building for the purpose of cleaning. Tenant shall not cause any
unnecessary labor by carelessness or indifference to the good order and
cleanliness of the Premises or the Building. Landlord shall not in any way be
responsible to any Tenant for any loss of property on the Premises, however
occurring, or for any damage to any of Tenant's property by the janitor or any
other employee or any other person.
6. Landlord will furnish Tenant, free of charge, with two keys to each
door in the Premises that contains a lock set. Landlord may make a reasonable
charge for any additional keys and for having the locks changed. Tenant shall
not make or have made additional keys, and Tenant shall not alter any lock or
install any additional locks or bolts on any door of its Premises without the
prior written consent of Landlord. Tenant, upon the termination of its
tenancy, shall deliver to Landlord the keys to all doors which have been
furnished to Tenant, and in the event of loss of any keys so furnished, shall
pay Landlord therefor.
7. If Tenant requires telegraphic, telephonic burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions in
their installation.
8. The elevators shall be available for use by all tenants in the
Building, subject to such reasonable scheduling as Landlord in its discretion
shall deem appropriate. No equipment, materials, furniture, packages,
supplies, merchandise or other property will be received in the Building or
carried in the elevators except between such hours and in such elevators as may
be designated by Landlord.
1
<PAGE> 21
9. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Business machines and mechanical equipment belonging
to Tenant, which cause noise or vibration that may be transmitted to the
structure of the Building or to any space therein to such a degree as to be
objectionable to Landlord or to any tenants in the Building, shall be placed
and maintained by Tenant, at Tenant's expense, on vibration eliminators or
other devices sufficient to eliminate the impacts of noise or vibration on the
Building.
10. Tenant shall not use or keep in the Premises any kerosene, gasoline or
flammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment. Tenant shall
not use or permit to be used in the Premises any foul or noxious gas or
substance, or permit or allow the Premises to be occupied or used in a manner
offensive or objectionable to Landlord or other occupants of the Building by
reason of noise, odors or vibrations. No animals, with the exception of seeing
eye dogs when in the company of their masters, may be brought into or kept in
the Building.
11. Tenant shall not use any method of heating or air-conditioning other
than that supplied by Landlord.
12. Tenant shall cooperate with Landlord to assure the most effective
operation of the Building's heating and air-conditioning and shall comply with
any governmental energy-saving rules, laws or regulations of which Tenant has
actual notice. Tenant shall refrain from attempting to adjust the Building's
heating, ventilating or air-conditioning controls other than the room
thermostats installed for Tenant's use. Tenant shall keep all corridor access
doors to its Premises closed and shall close window coverings at the end of
each business day.
13. Tenant shall be responsible for all persons for whom it requests access
to the Building's security system, and shall be liable to Landlord for all acts
of such persons. Landlord shall not be liable for damages resulting from the
admission to or exclusion from the Building of any person.
14. Tenant shall close and lock the doors of its Premises an entirely shut
off all water faucets or other water apparatus, and turn off all lights and
other equipment which are not required to be continuously run at the close of
its business day. Tenant shall be responsible for any damages or injuries
sustained by other tenants or occupants of the Building or Landlord for
noncompliance with this rule.
15. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the Tenant, or its employees or
invitees.
16. Tenant shall not install any radio or television antenna, loudspeaker
or other devices on the roof or exterior walls of the Building. Tenant shall
not interfere with radio or television broadcasting or reception from or in the
Building or elsewhere.
17. Except as required to facilitate normal office occupancy, Tenant shall
not mark, drive nails, screw or drill into the partitions, woodwork or plaster
or in any way deface the Premises or any part thereof without the prior written
consent of Landlord. Tenant shall not cut or bore holes for wires in any part
of the Premises. Tenant shall not affix any floor covering to the floor of the
Premises in any manner except as approved by Landlord. Tenant shall repair any
damage resulting from noncompliance with this rule at its sole cost and
expense.
18. Tenant shall not install, maintain or operate upon the Premises any
vending machine without the prior written consent of Landlord. In the event
Landlord so
2
<PAGE> 22
approves such installation Tenant shall be responsible for all costs associated
with such installation and shall remove the vending machines at the end of such
Term.
19. Landlord reserves the right to exclude or expel from the Building any
person who, in Landlord's judgment, is intoxicated or under the influence of
liquor or drugs or other substance or who is in violation of any of the Rules
or Regulations of the Building.
20. Tenant shall store all its trash and garbage within its Premises or in
such central facilities as may be provided by Landlord for Tenant's
non-exclusive use in the Outside Area. Tenant shall not place in any trash
box or receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash and garbage disposal. All garbage and refuse
disposal shall be made in accordance with directions issued from time to time
by Landlord.
21. The Premises shall not be used for the storage of merchandise held for
sale to the general public, or for lodging or for manufacturing of any kind,
nor shall the Premises be used for any improper, immoral, illegal or
objectional purpose.
22. Use of Underwriters' Laboratory (UL) approved equipment for brewing
coffee, tea, hot chocolate and similar beverages, (and refrigeration of such
products) shall be permitted provided that Tenant may utilize a UL approved
microwave oven to prepare prepackaged foods for its employees. No other than
as expressly provided herein no other food preparation shall be permitted.
Tenant's use of such equipment shall be in accordance with all applicable
federal, state, country and city laws, codes, ordinances, rules and regulations
and shall not cause a nuisance to other Tenants in the building due to odors.
23. Tenant shall not use in any space or in the public halls of the
Building any hand truck except those equipped with rubber tires and side guards
or such other material-handling equipment as Landlord may approve. Tenant
shall not bring any other vehicles of any kind into the Building.
24. Tenant shall not use the name of the Building in connection with or in
promoting or advertising the business of Tenant without the written consent of
Landlord except as to Tenant's address for its Premises.
25. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency
having jurisdiction over the Property. Tenant shall be responsible for any
increased insurance premiums attributable to Tenant's use of the Premises,
Building, or Property.
26. Tenant assumes any and all responsibility for protecting its Premises
from theft, robbery and pilferage, which includes keeping doors locked during
non-business hours and said means of entry to the Premises closed during normal
business entrance hours.
27. Tenant's request for assistance will be attended to only upon
appropriate application to Landlord by an authorized individual. Employees of
Landlord shall not perform any work on the Premises, other than that
associated with the provision of services to Tenant required of Landlord under
the Lease for the Premises, or implement a request of Tenant, unless that
employee receives written instructions from Landlord.
28. Tenant shall not park its vehicles in any parking area designated by
Landlord as areas for parking by visitors to the Building or other reserved
parking spaces. Tenant shall not leave vehicles in the Building parking areas
overnight, nor park any vehicles in the Building parking areas other than
automobiles, motorcycles, motor driven or non-motor driven bicycles or
four-wheeled trucks. Tenant, its agents, employees and invitees shall not park
any
3
<PAGE> 23
one (1) vehicle in more than one (1) parking space.
29. Landlord may waive any one or more of these Rules and Regulations for
the benefit of Tenant or any other Tenant, but no such waiver by Landlord shall
be construed as a waiver of such Rules and Regulations in favor of Tenant or
any other Tenant, nor prevent Landlord from thereafter enforcing any such Rules
and Regulations against any or all of the tenants of the Building.
30. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of Premises in the Building.
31. Landlord reserves the right to make such other reasonable Rules and
Regulations as, in its judgment, may from time to time be needed for the
safety, security, care and cleanliness of the Building and the Property and
preservation of good order therein. Tenant agrees to abide by all such Rules
and Regulations hereinabove stated and any additional rules and regulations
which are published by Landlord.
32. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and guests.
33. The scheduling and manner of all Tenant move-ins and move-outs shall be
subject to the discretion and approval of Landlord, and move-ins and move-outs
shall take place only after 6:00 p.m. on weekdays, on weekends or at other
times as Landlord may designate. Landlord shall have right to approve or
disapprove the movers or moving company employed by Tenant, and Tenant shall
cause the movers to use only the entry doors and elevators designated by
Landlord. If Tenant's movers damage the elevator or any other part of the
Property, Tenant shall pay to Landlord the amount required to repair the
damage.
34. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
35. Canvassing, soliciting, and distribution of handbills or other written
material and peddling in the Building are prohibited and each Tenant shall
cooperate to prevent these activities.
36. As long as Tenant is not in default under any of the terms, covenants,
conditions, provisions or agreements of this Lease, Landlord shall:
(a) On Monday through Friday, except holidays, from 7:00 a.m. to 7:00
p.m. (and other times for a reasonable additional charge to be fixed by
Landlord), ventilate the Premises and furnish air conditioning or heating on
such days and hours when in the judgment of Landlord it may be required for the
comfortable occupancy of the Premises. After hours usage shall be monitored by
the override meter which shall be installed in the Premises and the actual cost
of such usage shall be paid by Tenant.
(b) Furnish to the Premises, Monday through Friday, from 7:00 a.m. to
7:00 p.m. electrical current as required by the Building Standard office
lighting and fractional horsepower office business machines in the amount of
approximately two and one-half (2.5) watts per square foot. Tenant agrees,
should its electrical installation or electrical consumption be in excess of
the aforesaid quantity or extend beyond normal business hours, to reimburse
Landlord monthly for the measured consumption at the terms, classifications and
rate charges to similar consumers by the public utility serving the
neighborhood in which the Building is located.
4
<PAGE> 24
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("Amendment") is entered into this 23rd day of
March, 1994 and amends that certain Lease by and between Hacienda Park
Associates, a California General Partnership, ("Landlord") and Pro Business
Payroll, a California Corporation, ("Tenant") dated August 26, 1993 attached
hereto as Exhibit A.
Now therefore, the parties agree as follows:
Expiration Date: March 31, 1999
Monthly Installments of Base Rent: Mos. 01 - 03: $4,799.25
Mos. 04 - 66: $5,154.75
All other terms and conditions of the Lease between the parties shall
remain in full force and effect.
LANDLORD TENANTS
HACIENDA PARK ASSOCIATES PRO BUSINESS PAYROLL
By: Peter P. Canny, Jr. By: Mitchell Everton
-------------------------- --------------------------
Its: Vice President Its: EVP - Operations
-------------------------- --------------------------
<PAGE> 1
EXHIBIT 10.3
[CB COMMERCIAL REAL ESTATE GROUP, INC. LETTERHEAD]
This Lease between Hacienda Park Associates
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a California General Partnership
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("Landlord"), and Pro Business Payroll
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a California Corporation , ("Tenant"), is
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dated March 23 , 1994.
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1. LEASE OF PREMISES.
In consideration of the Rent (as defined at Section 5.4) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as Exhibit
"A," and further described at Section 2l. The Premises are located within the
Building and Project described in Section 2m. Tenant shall have the
non-exclusive right (unless otherwise provided herein) in common with Landlord,
other tenants, subtenants and invitees, to use of the Common Areas (as defined
at Section 2e).
2. DEFINITIONS
As used in this Lease, the following terms shall have the following meanings:
a. Base Rent (initial): $ Refer to 2.j. per year.
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b. Base Year: The calendar year of 1995
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c. Broker(s)
Landlord's: CB Commercial Real Estate Group, Inc.
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Tenant's: CB Commercial Real Estate Group, Inc.
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In the event that CB Commercial Real Estate Group, Inc. represents both
Landlord and Tenant, Landlord and Tenant hereby confirm that they were timely
advised of the dual representation and that they consent to the same, and that
they do not expect said broker to disclose to either of them the confidential
information of the other party.
d. Commencement Date: January 1, 1995
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e. Common Areas: the building lobbies, common corridors and hallways,
restrooms, garage and parking areas, stairways, elevators and other
generally understood public or common areas. Landlord shall have the right
to regulate or restrict the use of the Common Areas.
f. (Section deleted and initialized by ME)
g. Expiration Date: , unless otherwise
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sooner terminated in accordance with the provisions of this Lease.
h. Index (Section 5.2): United States Department of Labor, Bureau of Labor
Statistics Consumer Price Index for All Urban Consumers,
Average, Subgroup "All Items" (1967 = 100). --------------------
i. Landlord's Mailing Address: c/o CB Commercial Real Estate Group, Inc.
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5667-B Gibraltar Drive,
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Pleasanton, CA 94588
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Tenant's Mailing Address: 5934 Gibraltar Drive, Pleasanton, CA 94588
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j. Monthly Installments
of Base Rent (initial): $ Months 01 - 08: $ 9,070.92
Months 09 - 27: $15,322.50
Months 28 - 54: $17,774.10 per month.
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k. Parking: Tenant shall be permitted, upon payment of the then prevailing
monthly rate (as set by Landlord from time to time) to park forty-eight (48)
cars on a non-exclusive basis in the area(s) designated by Landlord for
parking. Tenant shall abide by any and all parking regulations and rules
established from time to time by Landlord or Landlord's parking operator.
Landlord reserves the right to separately charge Tenant's guests and
visitors for parking.
l. Premises: that portion of the Building containing approximately 12,258
square feet of Rentable Area, shown by diagonal lines on Exhibit "A,"
located on the first floor of the Building and known as Suite 101.
m. Project: the building of which the Premises are a part (the "Building") and
any other buildings or improvements on the real property (the "Property")
located at 5934 Gibraltar Drive, 4696 Willow Road and 4698 Willow Road,
Pleasanton, CA and further described at Exhibit "B." The Project is known as
Saratoga Center.
n. Rentable Area: as to both the Premises and the Project, the respective
measurements of floor area as may from time to time be subject to lease by
Tenant and all tenants of the Project, respectively, as determined by
Landlord and applied on a consistent basis throughout the Project.
(1)
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o. Security Deposit (Section 7): Eighteen Thousand and No/100 Dollars
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($18,000.00)
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p. State: the State of California
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q. (Section deleted and initialed by ME and PC).
r. (Section deleted and initialed by ME and PC).
s. Tenant's Use Clause (Article 8): Payroll services
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t. Term: the period commencing on the Commencement Date and expiring at
midnight on the Expiration Date.
3. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease:
a. Exhibit "A" -- Floor Plan showing the Premises.
b. Exhibit "B" -- Site Plan of the Project.
c. Exhibit "C" -- (deleted). Revised Space Plans Dated March 22, 1994.
d. Exhibit "D" -- Rules and Regulations.
e. (deleted).
f. Addenda:
EXHIBIT "C-1" - Other Improvements Made to Other Premises Under Lease
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by Tenant Subject To Paragraph #39 of Addendum To Lease
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4. DELIVERY OF POSSESSION.
If for any reason Landlord does not deliver possession of the Premises to Tenant
on the Commencement Date, Landlord shall not be subject to any liability for
such failure, the Expiration Date shall not change and the validity of this
Lease shall not be impaired, but Rent shall be abated until delivery of
possession. "Delivery of possession" shall be deemed to occur on the date
Landlord completes Landlord's Work as defined in Exhibit "C." If Landlord
permits Tenant to enter into possession of the Premises before the Commencement
Date, such possession shall be subject to the provisions of this Lease,
including, without limitation, the payment of Rent.
5. RENT.
5.1. Payment of Base Rent. Tenant agrees to pay the Base Rent for the
Premises. Monthly Installments of Base Rent shall be payable in advance on the
first day of each calendar month of the Term. If the Term begins (or ends) on
other than the first (or last) day of a calendar month, the Base Rent for the
partial month shall be prorated on a per diem basis. Tenant shall pay Landlord
the first Monthly Installment of Base Rent when Tenant executes the Lease.
5.2 (Section deleted and initialed by ME and PC).
5.3 Project Operating Costs.
a. In order that the Rent payable during the Term reflect any increase in
Project Operating Costs, Tenant agrees to pay to Landlord as Rent,
Tenant's Proportionate Share of all increases in costs, expenses and
obligations attributable to the Project and its operation, all as
provided below.
b. If, during any calendar year during the Term, Project Operating Costs
exceed the Project Operating Costs for the Base Year, Tenant shall pay
to Landlord, in addition to the Base Rent and all other payments due
under this Lease, an amount equal to Tenant's Proportionate Share of
such excess Project Operating Costs in accordance with the provisions
of this Section 5.3b.
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(1) The term "Project Operating Costs" shall include all those items described
in the following subparagraphs (a) and (b).
(a) All taxes, assessments, water and sewer charges and other similar
governmental charges levied on or attributable to the Building or Project
or their operation, including without limitation, (i) real property taxes
or assessments levied or assessed against the Building or Project, (ii)
assessments or charges levied or assessed against the Building or Project
by any redevelopment agency, (iii) any tax measured by gross rentals
received from the leasing of the Premises, Building or Project, excluding
any net income, franchise, capital stock, estate or inheritance taxes
imposed by the State or federal government or their agencies, branches or
departments; provided that if at any time during the Term any governmental
entity levies, assesses or imposes on Landlord any (1) general or special,
ad valorem or specific, excise, capital levy or other tax, assessment, levy
or charge directly on the Rent received under this Lease or on the rent
received under any other leases of space in the Building or Project, or
(2) any license fee, excise or franchise tax, assessment, levy or charge
measured by or based, in whole or in part, upon such rent, or (3) any
transfer, transaction, or similar tax, assessment, levy or charge based
directly or indirectly upon the transaction represented by this Lease or
such other leases, or (4) any occupancy, use, per capita or other tax,
assessment, levy or charge based directly or indirectly upon the use or
occupancy of the Premises or other premises within the Building or Project,
then any such taxes, assessments, levies and charges shall be deemed to be
included in the term Project Operating Costs. If at any time during the
Term the assessed valuation of, or taxes on, the Project are not based on a
completed Project having at least eighty-five percent (85%) of the Rentable
Area occupied, then the "taxes" component of Project Operating Costs shall
be adjusted by Landlord to reasonably approximate the taxes which would
have been payable if the Project were completed and at least eighty-five
percent (85%) occupied.
(b) Operating costs incurred by Landlord in maintaining and operating the
Building and Project, including without limitation the following: costs of
(1) utilities; (2) supplies; (3) insurance (including public liability,
property damage, earthquake, and fire and extended coverage insurance for
the full replacement cost of the Building and Project as required by
Landlord or its lenders for the Project; (4) services of independent
contractors; (5) compensation (including employment taxes and fringe
benefits) of all persons who perform duties connected with the operation,
maintenance, repair or overhaul of the Building or Project, and equipment,
improvements and facilities located within the Project, including without
limitation engineers, janitors, painters, floor waxers, window washers,
security and parking personnel and gardeners (but excluding persons
performing services not uniformly available to or performed for
substantially all Building or Project tenants); (6) operation and
maintenance of a room for delivery and distribution of mail to tenants of
the Building or Project as required by the U.S. Postal Service (including,
without limitation, an amount equal to the fair market rental value of the
mail room premises); (7) management of the Building or Project, whether
managed by Landlord or an independent contractor (including, without
limitation, an amount equal to the fair market value of any on-site
manager's office); (8) rental expenses for (or a reasonable depreciation
allowance on) personal property used in the maintenance, operation or
repair of the Building or Project; (9) costs, expenditures or charges
(whether capitalized or not) required by any governmental or
quasi-governmental authority; (10) amortization of capital expenses
(including financing costs) (i) required by a governmental entity for
energy conservation or life safety purposes, or (ii) made by Landlord to
reduce Project Operating Costs; and (11) any other costs or expenses
incurred by Landlord under this Lease and not otherwise reimbursed by
tenants of the Project. If at any time during the Term, less than
eighty-five percent (85%) of the Rentable Area of the Project is occupied,
the "operating costs" component of Project Operating Costs shall be
adjusted by Landlord to reasonably approximate the operating costs which
would have been incurred if the Project had been at least eighty-five
percent (85%) occupied.
(2) Tenant's Proportionate Share of Project Operating Costs shall be payable
by Tenant to Landlord as follows:
(a) Beginning with the calendar year following the Base Year and for each
calendar year thereafter ("Comparison Year"), Tenant shall pay Landlord an
amount equal to Tenant's Proportionate Share of the Project Operating Costs
incurred by Landlord in the Comparison Year which exceeds the total amount
of Project Operating Costs payable by Landlord for the Base Year. This
excess is referred to as the "Excess Expenses."
(b) To provide for current payments of Excess Expenses, Tenant shall, at
Landlord's request, pay as additional rent during each Comparison Year, an
amount equal to Tenant's Proportionate Share of the excess Expenses payable
during such Comparison Year, as estimated by Landlord from time to time.
Such payments shall be made in monthly installments commencing on the first
day of the month following the month in which Landlord notifies Tenant of
the amount it is to pay hereunder and continuing until the first day of the
month following the month in which Landlord gives Tenant a new notice of
estimated Excess Expenses. It is the intention hereunder to estimate from
time to time the amount of the Excess Expenses for each Comparison Year and
Tenant's Proportionate Share thereof, and then to make an adjustment in the
following year based on the actual Excess Expenses incurred for that
Comparison Year.
(c) On or before April 1 of each Comparison Year after the first
Comparison Year (or as soon thereafter as is practical), Landlord shall
deliver to Tenant a statement setting forth Tenant's Proportionate Share of
the Excess Expenses for the preceding Comparison Year. If Tenant's
Proportionate Share of the actual Excess Expenses for the previous
Comparison Year exceeds the total of the estimated monthly payments made by
Tenant for such year, Tenant shall pay Landlord the amount of the
deficiency within ten (10) days of the receipt of the statement. If such
total exceeds Tenant's Proportionate Share of the actual Excess Expenses
for such Comparison Year, then Landlord shall credit against Tenant's next
ensuing monthly installment(s) of additional rent an amount equal to the
difference until the credit is exhausted. If a credit is due from Landlord
on the Expiration Date, Landlord shall pay Tenant the amount of the credit.
The obligations of Tenant and Landlord to make payments required under this
Section 5.3 shall survive the Expiration Date.
(d) Tenant's Proportionate Share of Excess Expenses in any Comparison
Year having less than 365 days shall be appropriately prorated.
(e) If any dispute arises as to the amount of any additional rent due
hereunder, Tenant shall have the right after reasonable notice and at
reasonable times to inspect Landlord's accounting records at Landlord's
accounting office and, if after such inspection Tenant still disputes the
amount of additional rent owed, a certification as to the proper amount
shall be made by Landlord's certified public accountant, which
certification shall be final and conclusive. Tenant agrees to pay the cost
of such certification unless it is determined that Landlord's original
statement overstated Project Operating Costs by more than five percent
(5%).
(3)
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(f) If this Lease sets forth an Expense Stop at Section 2f, then during the
Term Tenant shall be liable for Tenant's Proportionate Share of any actual
Project Operating Costs which exceed the amount of the Expense Stop. Tenant
shall make current payments of such excess costs during the Term in the
same manner as is provided for payment of Excess Expenses under the
applicable provisions of Section 5.3b(2)(b) and (c) above.
5.4 Definition of Rent. All costs and expenses which Tenant assumes or agrees
to pay to Landlord under this Lease shall be deemed additional rent (which,
together with the Base Rent is sometimes referred to as the "Rent"). The Rent
shall be paid to the Building manager (or other person) and at such place, as
Landlord may from time to time designate in writing, without any prior demand
therefor and without deduction or offset, in lawful money of the United States
of America.
5.5 Rent Control. If the amount of Rent or any other payment due under this
Lease violates the terms of any governmental restrictions on such Rent or
payment, then the Rent or payment due during the period of such restrictions
shall be the maximum amount allowable under those restrictions. Upon
termination of the restrictions, Landlord shall, to the extent it is legally
permitted, recover from Tenant the difference between the amounts received
during the period of the restrictions and the amounts Landlord would have
received had there been no restrictions.
5.6 Taxes Payable by Tenant. In addition to the Rent and any other charges to
be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for
any and all taxes payable by Landlord (other than net income taxes) which are
not otherwise reimbursable under this Lease, whether or not now customary or
within the contemplation of the parties, where such taxes are upon, measured by
or reasonably attributable to (a) the cost or value of Tenant's equipment,
furniture, fixtures and other personal property located in the Premises, or the
cost or value of any leasehold improvements made in or to the Premises by or
for Tenant, other than Building Standard Work made by Landlord, regardless of
whether title to such improvements is held by Tenant or Landlord; (b) the gross
or net Rent payable under this Lease, including, without limitation, any rental
or gross receipts tax levied by any taxing authority with respect to the
receipt of the Rent hereunder; (c) the possession, leasing, operation,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Premises or any portion thereof; or (d) this transaction or any document to
which Tenant is a party creating or transferring an interest or an estate in
the Premises. If it becomes unlawful for Tenant to reimburse Landlord for any
costs as required under this Lease, the Base Rent shall be revised to net
Landlord the same net Rent after imposition of any tax or other charge upon
Landlord as would have been payable to Landlord but for the reimbursement being
unlawful.
6. INTEREST AND LATE CHARGES.
If Tenant fails to pay when due any Rent or other amounts or charges which
Tenant is obligated to pay under the terms of this Lease, the unpaid amounts
shall bear interest at the maximum rate then allowed by law. Tenant
acknowledges that the late payment of any Monthly Installment of Base Rent will
cause Landlord to lose the use of that money and incur costs and expenses not
contemplated under this Lease, including without limitation, administrative and
collection costs and processing and accounting expenses, the exact amount of
which is extremely difficult to ascertain. Therefore, in addition to interest,
if any such installment is not received by Landlord within ten (10) days from
the date it is due, Tenant shall pay Landlord a late charge equal to ten
percent (10%) of such installment. Landlord and Tenant agree that this late
charge represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for the loss suffered from such nonpayment by Tenant.
Acceptance of any interest or late charge shall not constitute a waiver of
Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord
from exercising any other rights or remedies available to Landlord under this
Lease.
7. SECURITY DEPOSIT.
Tenant agrees to deposit with Landlord the Security Deposit set forth at
Section 2.0 upon execution of this Lease, as security for Tenant's faithful
performance of its obligations under this Lease. Landlord and Tenant agree that
the Security Deposit may be commingled with funds of Landlord and Landlord
shall have no obligation or liability for payment of interest on such deposit.
Tenant shall not mortgage, assign, transfer or encumber the Security Deposit
without the prior written consent of Landlord and any attempt by Tenant to do
so shall be void, without force or effect and shall not be binding upon
Landlord.
If Tenant fails to pay any Rent or other amount when due and payable under this
Lease, or fails to perform any of the terms hereof, Landlord may appropriate
and apply or use all or any portion of the Security Deposit for Rent payments
or any other amount then due and unpaid, for payment of any amount for which
Landlord has become obligated as a result of Tenant's default or breach, and
for any loss or damage sustained by Landlord as a result of Tenant's default or
breach, and Landlord may so apply or use this deposit without prejudice to any
other remedy Landlord may have by reason of Tenant's default or breach. If
Landlord so uses any of the Security Deposit, Tenant shall, within ten (10)
days after written demand therefor, restore the Security Deposit to the full
amount originally deposited; Tenant's failure to do so shall constitute an act
of default hereunder and Landlord shall have the right to exercise any remedy
provided for at Article 27 hereof. Within fifteen (15) days after the Term (or
any extension thereof) has expired or Tenant has vacated the Premises,
whichever shall last occur, and provided Tenant is not then in default on any
of its obligations hereunder, Landlord shall return the Security Deposit to
Tenant, or, if Tenant has assigned its interest under this Lease, to the last
assignee of Tenant. If Landlord sells its interest in the Premises, Landlord
may deliver this deposit to the purchaser of Landlord's interest and thereupon
be relieved of any further liability or obligation with respect to the Security
Deposit.
8. TENANT'S USE OF THE PREMISES.
Tenant shall use the Premises solely for the purposes set forth in Tenant's Use
Clause. Tenant shall not use or occupy the Premises in violation of law or any
covenant, condition or restriction affecting the Building or Project or the
certificate of occupancy issued for the Building or Project, and shall, upon
notice from Landlord, immediately discontinue any use of the Premises which is
declared by any governmental authority having jurisdiction to be a violation of
law or the certificate of occupancy. Tenant, at Tenant's own cost and expense,
shall comply with all laws, ordinances, regulations, rules and/or any
directions of any governmental agencies or authorities having jurisdiction which
shall, by reason of the nature of Tenant's use or occupancy of the Premises,
impose any duty upon Tenant or Landlord with respect to the Premises or its use
or occupation. A judgment of any court of competent jurisdiction or the
admission by Tenant in any action or proceeding against Tenant that Tenant has
violated any such laws, ordinances, regulations, rules and/or directions in the
use of the Premises shall be deemed to be a conclusive determination of the
fact as between Landlord and Tenant. Tenant shall not do or permit to be done
anything which will invalidate or increase the cost of any fire, extended
coverage or other insurance policy covering the Building or Project and/or
property located therein, and shall comply with all rules, orders, regulations,
requirements and recommendations of the Insurance Services Office or any other
organization performing a similar function. Tenant shall
(4)
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promptly upon demand reimburse Landlord for any additional premium charged for
such policy by reason of Tenant's failure to comply with the provisions of this
Article. Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Building or Project, or injure or annoy them, or
use or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance
in, on or about the Premises. Tenant shall not commit or suffer to be committed
any waste in or upon the Premises.
9. SERVICES AND UTILITIES.
Provided that Tenant is not in default hereunder, Landlord agrees to furnish to
the Premises during generally recognized business days, and during hours
determined by Landlord in its sole discretion, and subject to the Rules and
Regulations of the Building or Project, electricity for normal desk top office
equipment and normal copying equipment, and heating, ventilation and air
conditioning ("HVAC") as required in Landlord's judgment for the comfortable
use and occupancy of the Premises. If Tenant desires HVAC at any other time,
Landlord shall use reasonable efforts to furnish such service upon reasonable
notice from Tenant and Tenant shall pay Landlord's charges therefor on demand.
Landlord shall also maintain and keep lighted the common stairs, common entries
and restrooms in the Building. Landlord shall not be in default hereunder or be
liable for any damages directly or indirectly resulting from, nor shall the
Rent be abated by reason of (i) the installation, use or interruption of use of
any equipment in connection with the furnishing of any of the foregoing
services, (ii) failure to furnish or delay in furnishing any such services
where such failure or delay is caused by accident or any condition or event
beyond the reasonable control of Landlord, or by the making of necessary
repairs or improvements to the Premises, Building or Project, or (iii) the
limitation, curtailment or rationing of, or restrictions on, use of water,
electricity, gas or any other form of energy serving the Premises, Building or
Project. Landlord shall not be liable under any circumstances for a loss of or
injury to property or business, however occurring, through or in connection
with or incidental to failure to furnish any such services. If Tenant uses heat
generating machines or equipment in the Premises which affect the temperature
otherwise maintained by the HVAC system, Landlord reserves the right to install
supplementary air conditioning units in the Premises and the cost thereof,
including the cost of installation, operation and maintenance thereof, shall be
paid by Tenant to Landlord upon demand by Landlord.
Tenant shall not, without the written consent of Landlord, use any apparatus or
device in the Premises, including without limitation, electronic data
processing machines, punch card machines or machines using in excess of 120
volts, which consumes more electricity than is usually furnished or supplied for
the use of premises as general office space, as determined by Landlord. Tenant
shall not connect any apparatus with electric current except through existing
electrical outlets in the Premises. Tenant shall not consume water or electric
current in excess of that usually furnished or supplied for the use of premises
as general office space (as determined by Landlord), without first procuring
the written consent of Landlord, which Landlord may refuse, and in the event of
consent, Landlord may have installed a water meter or electrical current meter
in the Premises to measure the amount of water or electric current consumed.
The cost of any such meter and of its installation, maintenance and repair
shall be paid for by the Tenant and Tenant agrees to pay to Landlord promptly
upon demand for all such water and electric current consumed as shown by said
meters, at the rates charged for such services by the local public utility plus
any additional expense incurred in keeping account of the water and electric
current so consumed. If a separate meter is not installed, the excess cost for
such water and electric current shall be established by an estimate made by a
utility company or electrical engineer hired by Landlord at Tenant's expense.
Nothing contained in this Article shall restrict Landlord's right to require at
any time separate metering of utilities furnished to the Premises. In the event
utilities are separately metered, Tenant shall pay promptly upon demand for all
utilities consumed at utility rates charged by the local public utility plus
any additional expense incurred by Landlord in keeping account of the utilities
so consumed. Tenant shall be responsible for the maintenance and repair of any
such meters at its sole cost.
Landlord shall furnish elevator service, lighting replacement for building
standard lights, restroom supplies, window washing and janitor services in a
manner that such services are customarily furnished to comparable office
buildings in the area.
10. CONDITION OF THE PREMISES.
Tenant's taking possession of the Premises shall be deemed conclusive evidence
that as of the date of taking possession the Premises are in good order and
satisfactory condition, except for such matters as to which Tenant gave
Landlord notice on or before the Commencement Date. No promise of Landlord to
alter, remodel, repair or improve the Premises, the Building or the Project and
no representation, express or implied, respecting any matter or thing relating
to the Premises, Building, Project or this Lease (including, without
limitation, the condition of the Premises, the Building or the Project) have
been made to Tenant by Landlord or its Broker or Sales Agent, other than as may
be contained herein or in a separate exhibit or addendum signed by Landlord and
Tenant.
11. CONSTRUCTION, REPAIRS AND MAINTENANCE.
a. Landlord's Obligations. Landlord shall perform Landlord's Work to the
Premises as described in Exhibit "C." Landlord shall maintain in good order,
condition and repair the Building and all other portions of the Premises not
the obligation of Tenant or of any other tenant in the Building.
b. Tenant's Obligations.
(1) Tenant shall perform Tenant's Work to the Premises as described in
Exhibit "C."
(2) Tenant at Tenant's sole expense shall, except for services furnished
by Landlord pursuant to Article 9 hereof, maintain the Premises in good
order, condition and repair, including the interior surfaces of the
ceilings, walls and floors, all doors, all interior windows, all
plumbing, pipes and fixtures, electrical wiring, switches and fixtures,
Building Standard furnishings and special items and equipment installed
by or at the expense of Tenant.
(3) Tenant shall be responsible for all repairs and alterations in and
to the Premises, Building and Project and the facilities and systems
thereof, the need for which arises out of (i) Tenant's use or occupancy
of the Premises, (ii) the installation, removal, use or operation of
Tenant's Property (as defined in Article 13) in the Premises, (iii) the
moving of Tenant's Property into or out of the Building, or (iv) the
act, omission, misuse or negligence of Tenant, its agents, contractors,
employees or invitees.
(5)
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(4) If Tenant fails to maintain the Premises in good order, condition
and repair, Landlord shall give Tenant notice to do such acts as are
reasonably required to so maintain the Premises. If Tenant fails to
promptly commence such work and diligently prosecute it to completion,
then Landlord shall have the right to do such acts and expend such funds
at the expense of Tenant as are reasonably required to perform such
work. Any amount so expended by Landlord shall be paid by Tenant
promptly after demand with interest at the prime commercial rate then
being charged by Bank of America NT & SA plus two percent (2%) per
annum, from the date of such work, but not to exceed the maximum rate
then allowed by law. Landlord shall have no liability to Tenant for any
damage, inconvenience, or interference with the use of the Premises by
Tenant as a result of performing any such work.
c. Compliance with Law. Landlord and Tenant shall each do all acts
required to comply with all applicable laws, ordinances, and rules of any
public authority relating to their respective maintenance obligations as set
forth herein.
d. Waiver by Tenant. Tenant expressly waives the benefits of any statute
now or hereafter in effect which would otherwise afford the Tenant the right
to make repairs at Landlord's expense or to terminate this Lease because of
Landlord's failure to keep the Premises in good order, condition and repair.
e. Load and Equipment Limits. Tenant shall not place a load upon any floor
of the Premises which exceeds the load per square foot which such floor was
designed to carry, as determined by Landlord or Landlord's structural
engineer. The cost of any such determination made by Landlord's structural
engineer shall be paid for by Tenant upon demand. Tenant shall not install
business machines or mechanical equipment which cause noise or vibration to
such a degree as to be objectionable to Landlord or other Building tenants.
f. Except as otherwise expressly provided in this Lease, Landlord shall
have no liability to Tenant nor shall Tenant's obligations under this Lease
be reduced or abated in any manner whatsoever by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or
permitted by this Lease or by any other tenant's lease or required by law to
make in or to any portion of the Project, Building or the Premises. Landlord
shall nevertheless use reasonable efforts to minimize any interference with
Tenant's business in the Premises.
g. Tenant shall give Landlord prompt notice of any damage to or defective
condition in any part or appurtenance of the Building's mechanical,
electrical, plumbing, HVAC or other systems serving, located in, or passing
through the Premises.
h. Upon the expiration or earlier termination of this Lease, Tenant shall
return the Premises to Landlord clean and in the same condition as on the
date Tenant took possession, except for normal wear and tear. Any damage to
the Premises, including any structural damage, resulting from Tenant's use
or from the removal of Tenant's fixtures, furnishings and equipment pursuant
to Section 13b shall be repaired by Tenant at Tenant's expense.
12. ALTERATIONS AND ADDITIONS.
a. Tenant shall not make any additions, alterations or improvements to the
Premises without obtaining the prior written consent of Landlord. Landlord's
consent may be conditioned on Tenant's removing any such additions,
alterations or improvements upon the expiration of the Term and restoring
the Premises to the same condition as on the date Tenant took possession.
All work with respect to any addition, alteration or improvement shall be
done in a good and workmanlike manner by properly qualified and licensed
personnel approved by Landlord, and such work shall be diligently prosecuted
to completion. Landlord may, at Landlord's option, require that any such
work be performed by Landlord's contractor, in which case the cost of such
work shall be paid for before commencement of the work. Tenant shall pay to
Landlord upon completion of any such work by Landlord's contractor, an
administrative fee of fifteen percent (15%) of the cost of the work.
b. Tenant shall pay the costs of any work done on the Premises pursuant to
Section 12a, and shall keep the Premises, Building and Project free and
clear of liens of any kind. Tenant shall indemnify, defend against and keep
Landlord free and harmless from all liability, loss, damage, costs,
attorneys' fees and any other expense incurred on account of claims by any
person performing work or furnishing materials or supplies for Tenant or any
person claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or
improvements which are or become the property of Landlord under this Lease,
free and clear of all attachment or judgment liens. Before the actual
commencement of any work for which a claim or lien may be filed, Tenant
shall give Landlord notice of the intended commencement date a sufficient
time before that date to enable Landlord to post notices of
non-responsibility or any other notices which Landlord deems necessary for
the proper protection of Landlord's interest in the Premises, Building or
the Project, and Landlord shall have the right to enter the Premises and
post such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant provide to
Landlord, at Tenant's expense, a lien and completion bond in an amount equal
to at least one and one-half (1 1/2) times the total estimated cost of any
additions, alterations or improvements to be made in or to the Premises, to
protect Landlord against any liability for mechanic's and materialmen's
liens and to insure timely completion of the work. Nothing contained in this
Section 12c shall relieve Tenant of its obligation under Section 12b to keep
the Premises, Building and Project free of all liens.
d. Unless their removal is required by Landlord as provided in Section
12a, all additions, alterations and improvements made to the Premises shall
become the property of Landlord and be surrendered with the Premises upon
the expiration of the Term; provided, however, Tenant's equipment, machinery
and trade fixtures which can be removed without damage to the Premises shall
remain the property of Tenant and may be removed, subject to the provisions
of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
a. All fixtures, equipment, improvements and appurtenances attached to or
built into the Premises at the commencement of or during the Term,
whether or not by or at the expense of Tenant ("Leasehold Improvements"),
shall be and remain a part of the Premises, shall be the property of
Landlord and shall not be removed by Tenant, except as expressly provided in
Section 13b.
(6)
<PAGE> 7
b. All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment located in the
Premises and acquired by or for the account of Tenant, without expense
to Landlord, which can be removed without structural damage to the
Building, and all furniture, furnishings and other articles of movable
personal property owned by Tenant and located in the Premises
(collectively "Tenant's Property") shall be and shall remain the
property of Tenant and may be removed by Tenant at any time during the
Term; provided that if any of Tenant's Property is removed, Tenant shall
promptly repair any damage to the Premises or to the Building resulting
from such removal.
14. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto as Exhibit
"D" and with such reasonable modifications thereof and additions thereto as
Landlord may from time to time make. Landlord shall not be responsible for any
violation of said rules and regulations by other tenants or occupants of the
Building or Project.
15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without liability to Tenant
for (a) damage or injury to property, person or business, (b) causing an actual
or constructive eviction from the Premises, or (c) disturbing Tenant's use or
possession of the Premises:
a. To name the Building and Project and to change the name or street address
of the Building or Project;
b. To install and maintain all signs on the exterior and interior of the
Building and Project;
c. To have pass keys to the Premises and all doors within the Premises,
excluding Tenant's vaults and safes;
d. At any time during the Term, and on reasonable prior notice to Tenant, to
inspect the Premises, and to show the Premises to any prospective purchaser
or mortgagee of the Project, or to any assignee of any mortgage on the
Project, or to others having an interest in the Project or Landlord, and
during the last six months of the Term, to show the Premises to prospective
tenants thereof; and
e. To enter the Premises for the purpose of making inspections, repairs,
alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or
balancing controls and other parts of the HVAC system), and to take all
steps as may be necessary or desirable for the safety, protection,
maintenance or preservation of the Premises or the Building or Landlord's
interest therein, or as may be necessary or desirable for the operation or
improvement of the Building or in order to comply with laws, orders or
requirements of governmental or other authority. Landlord agrees to use its
best efforts (except in an emergency) to minimize interference with Tenant's
business in the Premises in the course of any such entry.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises
shall be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of Landlord, assign
or hypothecate this Lease or any interest herein or sublet the Premises or
any part thereof, or permit the use of the Premises by any party other than
Tenant. Any of the foregoing acts without such consent shall be void and
shall, at the option of Landlord, terminate this Lease. This Lease shall
not, nor shall any interest of Tenant herein, be assignable by operation of
law without the written consent of Landlord.
b. If at any time or from time to time during the Term Tenant desires to
assign this Lease or sublet all or any part of the Premises, Tenant shall
give notice to Landlord setting forth the terms and provisions of the
proposed assignment or sublease, and the identity of the proposed assignee
or subtenant. Tenant shall promptly supply Landlord with such information
concerning the business background and financial condition of such proposed
assignee or subtenant as Landlord may reasonably request. Landlord shall
have the option, exercisable by notice given to Tenant within twenty (20)
days after Tenant's notice is given, either to sublet such space from Tenant
at the rental and on the other terms set forth in this Lease for the term
set forth in Tenant's notice, or, in the case of an assignment, to terminate
this Lease. If Landlord does not exercise such option, Tenant may assign the
Lease or sublet such space to such proposed assignee or subtenant on the
following further conditions:
(1) Landlord shall have the right to approve such proposed assignee or
subtenant, which approval shall not be unreasonably withheld;
(2) The assignment or sublease shall be on the same terms set forth in
the notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or
sublessee shall take possession of the Premises until an executed
counterpart of such assignment or sublease has been delivered to
Landlord;
(4) No assignee or sublessee shall have a further right to assign or
sublet except on the terms herein contained; and
(5) Any sums or other economic consideration received by Tenant as a
result of such assignment or subletting, however denominated under the
assignment or sublease, which exceed, in the aggregate (i) the total
sums which Tenant is obligated to pay Landlord under this Lease
(prorated to reflect obligations allocable to any portion of the
Premises subleased), plus (ii) any real estate brokerage commissions or
fees payable in connection with such assignment or subletting, shall be
paid to Landlord as additional rent under this Lease without affecting
or reducing any other obligations of Tenant hereunder.
c. Notwithstanding the provisions of paragraphs a and b above, Tenant may
assign this Lease or sublet the Premises or any portion thereof, without
Landlord's consent and without extending any recapture or termination option
to Landlord, to any corporation which controls, is controlled by or is under
common control with Tenant, or to any corporation resulting from a merger or
consolidation with Tenant, or to any person or entity which acquires all the
assets of Tenant's business as a going concern, provided that (i) the
assignee or sublessee assumes, in full, the obligations of Tenant under
this Lease, (ii) Tenant remains fully liable under this Lease, and (iii)
the use of the Premises under Article 8 remains unchanged.
(7)
<PAGE> 8
d. No subletting or assignment shall release Tenant of Tenant's obligations
under this Lease or alter the primary liability of Tenant to pay the Rent
and to perform all other obligations to be performed by Tenant hereunder.
The acceptance of Rent by Landlord from any other person shall not be deemed
to be a waiver by Landlord of any provision hereof. Consent to one
assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting. In the event of default by an assignee or
subtenant of Tenant or any successor of Tenant in the performance of any of
the terms hereof, Landlord may proceed directly against Tenant without the
necessity of exhausting remedies against such assignee, subtenant or
successor. Landlord may consent to subsequent assignments of the Lease or
sublettings or amendments or modifications to the Lease with assignees of
Tenant, without notifying Tenant, or any successor of Tenant, and without
obtaining its or their consent thereto and any such actions shall not
relieve Tenant of liability under this Lease.
e. If Tenant assigns the Lease or sublets the Premises or requests the
consent of Landlord to any assignment or subletting or if Tenant requests
the consent of Landlord for any act that Tenant proposes to do, then Tenant
shall, upon demand, pay Landlord an administrative fee of One Hundred fifty
and No/100ths Dollars ($150.00) plus any attorneys' fees reasonably incurred
by Landlord in connection with such act or request.
17. HOLDING OVER.
If after expiration of the Term, Tenant remains in possession of the Premises
with Landlord's permission (express or implied), Tenant shall become a tenant
from month to month only, upon all the provisions of this Lease (except as to
term and Base Rent), but the "Monthly Installments of Base Rent" payable by
Tenant shall be increased to one hundred fifty percent (150%) of the Monthly
Installments of Base Rent payable by Tenant at the expiration of the Term. Such
monthly rent shall be payable in advance on or before the first day of each
month. If either party desires to terminate such month to month tenancy, it
shall give the other party not less than thirty (30) days advance written notice
of the date of termination.
18. SURRENDER OF PREMISES.
a. Tenant shall peaceably surrender the Premises to Landlord on the
Expiration Date, in broom-clean condition and in as good condition as when
Tenant took possession, except for (i) reasonable wear and tear, (ii) loss
by fire or other casualty, and (iii) loss by condemnation. Tenant shall, on
Landlord's request, remove Tenant's Property on or before the Expiration
Date and promptly repair all damage to the Premises or Building caused by
such removal.
b. If Tenant abandons or surrenders the Premises, or is dispossessed by
process of law or otherwise, any of Tenant's Property left on the Premises
shall be deemed to be abandoned, and, at Landlord's option, title shall pass
to Landlord under this Lease as by a bill of sale. If Landlord elects to
remove all or any part of such Tenant's Property, the cost of removal,
including repairing any damage to the Premises or Building caused by such
removal, shall be paid by Tenant. On the Expiration Date Tenant shall
surrender all keys to the Premises.
19. DESTRUCTION OR DAMAGE.
a. If the Premises or the portion of the Building necessary for Tenant's
occupancy is damaged by fire, earthquake, act of God, the elements of other
casualty, Landlord shall, subject to the provisions of this Article,
promptly repair the damage, if such repairs can, in Landlord's opinion, be
completed within (90) ninety days. If Landlord determines that repairs can
be completed in ninety (90) days, this Lease shall remain in full force and
effect, except that if such damage is not the result of the negligence or
willful misconduct of Tenant or Tenant's agents, employees, contractors,
licensees or invitees, the Base Rent shall be abated to the extent
Tenant's use of the Premises is impaired, commencing with the date of damage
and continuing until completion of the repairs required of Landlord under
Section 19d.
b. If in Landlord's opinion, such repairs to the Premises or portion of the
Building necessary for Tenant's occupancy cannot be completed within ninety
(90) days, Landlord may elect, upon notice to Tenant given within thirty
(30) days after the date of such fire or other casualty, to repair such
damage, in which event this Lease shall continue in full force and effect,
but the Base Rent shall be partially abated as provided in Section 19a. If
Landlord does not so elect to make such repairs, this Lease shall terminate
as of the date of such fire or other casualty.
c. If any other portion of the Building or Project is totally destroyed or
damaged to the extent that in Landlord's opinion repair thereof cannot be
completed within ninety (90) days, Landlord may elect upon notice to Tenant
given within thirty (30) days after the date of such fire or other casualty,
to repair such damage, in which event this Lease shall continue in full
force and effect, but the Base Rent shall be partially abated as provided in
Section 19a. If Landlord does not elect to make such repairs, this Lease
shall terminate as of the date of such fire or other casualty.
d. If the Premises are to be repaired under this Article, Landlord shall
repair at its cost any injury or damage to the Building and Building
Standard Work in the Premises. Tenant shall be responsible at its sole cost
and expense for the repair, restoration and replacement of any other
Leasehold Improvements and Tenant's Property. Landlord shall not be liable
for any loss of business, inconvenience or annoyance arising from any repair
or restoration of any portion of the Premises, Building or Project as a
result of any damage from fire or other casualty.
e. This Lease shall be considered an express agreement governing any case of
damage to or destruction of the Premises, Building or Project by fire or
other casualty, and any present or future law which purports to govern the
rights of Landlord and Tenant in such circumstances in the absence of
express agreement, shall have no application.
20. EMINENT DOMAIN.
a. If the whole of the Building or Premises is lawfully taken by
condemnation or in any other manner for any public or quasi-public purpose,
this Lease shall terminate as of the date of such taking, and Rent shall be
prorated to such date. If less than the whole of the Building or Premises is
so taken, this Lease shall be unaffected by such taking, provided that (i)
Tenant shall have the right to terminate this Lease by notice to Landlord
given within ninety (90) days after the date of such taking if twenty
percent (20%) or more of the Premises is taken and the remaining area of the
Premises is not reasonably sufficient for Tenant to continue operation of
its business, and (ii) Landlord shall have the right to terminate this Lease
by notice to Tenant given within ninety (90) days after the date of such
taking. If either Landlord or Tenant so elects to terminate this Lease, the
Lease shall terminate on the thirtieth (30th) day after either such notice.
The Rent shall be prorated to the date of termination. If this Lease
continues in force upon such partial taking, the Base Rent and Tenant's
Proportionate Share shall be equitably adjusted according to the remaining
Rentable Area of the Premises and Project.
(8)
<PAGE> 9
b. In the event of any taking, partial or whole, all of the proceeds of any
award, judgment or settlement payable by the condemning authority shall be
the exclusive property of Landlord, and Tenant hereby assigns to Landlord
all of its right, title and interest in any award, judgment or settlement
from the condemning authority. Tenant, however, shall have the right, to the
extent that Landlord's award is not reduced or prejudiced, to claim from the
condemning authority (but not from Landlord) such compensation as may be
recoverable by Tenant in its own right for relocation expenses and damage to
Tenant's personal property.
c. In the event of a partial taking of the Premises which does not result
in a termination of this Lease. Landlord shall restore the remaining portion
of the Premises as nearly as practicable to its condition prior to the
condemnation or taking, but only to the extent of Building Standard Work.
Tenant shall be responsible at its sole cost and expense for the repair,
restoration and replacement of any other Leasehold Improvements and Tenant's
Property.
21. INDEMNIFICATION.
a. Tenant shall indemnify and hold Landlord harmless against and from
liability and claims of any kind for loss or damage to property of Tenant or
any other person, or for any injury to or death of any person, arising out
of: (1) Tenant's use and occupancy of the Premises, or any work, activity or
other things allowed or suffered by Tenant to be done in, on or about the
Premises; (2) any breach or default by Tenant of any of Tenant's obligations
under this Lease; or (3) any negligent or otherwise tortious act or omission
of Tenant, its agents, employees, invitees or contractors. Tenant shall at
Tenant's expense, and by counsel satisfactory to Landlord, defend Landlord
in any action or proceeding arising from any such claim and shall indemnify
Landlord against all costs, attorneys' fees, expert witness fees and any
other expenses incurred in such action or proceeding. As a material part of
the consideration for Landlord's execution of this Lease, Tenant hereby
assumes all risk of damage or injury to any person or property in, on or
about the Premises from any cause.
b. Landlord shall not be liable for injury or damage which may be sustained
by the person or property of Tenant, its employees, invitees or customers,
or any other person in or about the Premises, caused by or resulting from
fire, steam, electricity, gas, water or rain which may leak or flow from or
into any part of the Premises, or from breakage, leakage, obstruction or
other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, whether such damage or injury results
from conditions arising upon the Premises or upon other portions of the
Building or Project or from other sources. Landlord shall not be liable for
any damages arising from any act or omission of any other tenant of the
Building or Project.
22. TENANT'S INSURANCE.
a. All insurance required to be carried by Tenant hereunder shall be issued
by responsible insurance companies acceptable to Landlord and Landlord's
lender and qualified to do business in the State. Each policy shall name the
Landlord, and at Landlord's request any mortgagee of Landlord, as an
additional insured, as their respective interests may appear. Each policy
shall contain (i) a cross-liability endorsement, (ii) a provision that such
policy and the coverage evidenced thereby shall be primary and
non-contributing with respect to any policies carried by Landlord and that
any coverage carried by Landlord shall be excess insurance, and (iii) a
waiver by the insurer of any right of subrogation against Landlord, its
agents, employees and representatives, which arises or might arise by reason
of any payment under such policy or by reason of any act or omission of
Landlord, its agents, employees or representatives. A copy of each paid up
policy (authenticated by the insurer) or certificate of the insurer
evidencing the existence and amount of each insurance policy required
hereunder shall be delivered to Landlord before the date Tenant is first
given the right of possession of the Premises, and thereafter within thirty
(30) days after any demand by Landlord therefor. Landlord may, at any time
and from time to time, inspect and/or copy any insurance policies required
to be maintained by Tenant hereunder. No such policy shall be cancellable
except after twenty (20) days written notice to Landlord and Landlord's
lender. Tenant shall furnish Landlord with renewals or "binders" of any such
policy at least ten (10) days prior to the expiration thereof. Tenant agrees
that if Tenant does not take out and maintain such insurance, Landlord may
(but shall not be required to) procure said insurance on the Tenant's behalf
and charge the Tenant the premiums together with a twenty-five percent (25%)
handling charge, payable upon demand. Tenant shall have the right to provide
such insurance coverage pursuant to blanket policies obtained by the Tenant,
provided such blanket policies expressly afford coverage to the Premises,
Landlord, Landlord's mortgagee and Tenant as required by this Lease.
b. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure,
pay for and maintain in effect policies of casualty insurance covering (i)
all Leasehold Improvements (including any alterations, additions or
improvements as may be made by Tenant pursuant to the provisions of Article
12 hereof), and (ii) trade fixtures, merchandise and other personal property
from time to time in, on or about the Premises, in an amount not less than
one hundred percent (100%) of their actual replacement cost from time to
time, providing protection against any peril included within the
classification "Fire and Extended Coverage" together with insurance against
sprinkler damage, vandalism and malicious mischief. The proceeds of such
insurance shall be used for the repair or replacement of the property so
insured. Upon termination of this Lease following a casualty as set forth
herein, the proceeds under (i) shall be paid to Landlord, and the proceeds
under (ii) above shall be paid to Tenant.
c. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure,
pay for and maintain in effect workers' compensation insurance as required
by law and comprehensive public liability and property damage insurance with
respect to the construction of improvements on the Premises, the use,
operation or condition of the Premises and the operations of Tenant in, on
or about the Premises, providing personal injury and broad form property
damage coverage for not less than One Million Dollars ($1,000,000.00)
combined single limit for bodily injury, death and property damage
liability.
d. Not less than every three (3) years during the Term, Landlord and Tenant
shall mutually agree to increases in all of Tenant's insurance policy limits
for all insurance to be carried by Tenant as set forth in this Article. In
the event Landlord and Tenant cannot mutually agree upon the amounts of said
increases, then Tenant agrees that all insurance policy limits as set forth
in this Article shall be adjusted for increases in the cost of living in the
same manner as set forth in Section 5.2 hereof for the adjustment of the
Base Rent.
(9)
<PAGE> 10
23. WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive all rights of recovery against the other
and against the officers, employees, agents and representatives of the other, on
account of loss by or damage to the waiving party of its property or the
property of others under its control, to the extent that such loss or damage is
insured against under any fire and extended coverage insurance policy which
either may have in force at the time of the loss or damage. Tenant shall, upon
obtaining the policies of insurance required under this Lease, give notice to
its insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
24. SUBORDINATION AND ATTORNMENT.
Upon written request of Landlord, or any first mortgagee or first deed of trust
beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in
writing, subordinate its rights under this Lease to the lien of any first
mortgage or first deed of trust, or to the interest of any lease in which
Landlord is lessee, and to all advances made or hereafter to be made
thereunder. However, before signing any subordination agreement, Tenant shall
have the right to obtain from any lender or lessor or Landlord requesting such
subordination, an agreement in writing providing that, as long as Tenant is not
in default hereunder, this Lease shall remain in effect for the full Term. The
holder of any security interest may, upon written notice to Tenant, elect to
have this Lease prior to its security interest regardless of the time of the
granting or recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee, Tenant shall attorn to
the purchaser, transferee or lessor as the case may be, and recognize that
party as Landlord under this Lease, provided such party acquires and accepts
the Premises subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from Landlord, Tenant shall execute
and deliver to Landlord or Landlord's designee, a written statement certifying
(a) that this Lease is unmodified and in full force and effect, or is in full
force and effect as modified and stating the modifications; (b) the amount of
Base Rent and the date to which Base Rent and additional rent have been paid in
advance; (c) the amount of any security deposited with Landlord; and (d) that
Landlord is not in default hereunder or, if Landlord is claimed to be in
default, stating the nature of any claimed default. Any such statement may be
relied upon by a purchaser, assignee or lender. Tenant's failure to execute and
deliver such statement within the time required shall at Landlord's election be
a default under this Lease and shall also be conclusive upon Tenant that: (1)
this Lease is in full force and effect and has not been modified except as
represented by Landlord; (2) there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counter-claim or deduction
against Rent; and (3) not more than one month's Rent has been paid in advance.
26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building, Project or Lease occurring after
the consummation of such sale or transfer, providing the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. If any security deposit or prepaid Rent has been paid by Tenant,
Landlord may transfer the security deposit or prepaid Rent to Landlord's
successor and upon such transfer, Landlord shall be relieved of any and all
further liability with respect thereto.
27. DEFAULT.
27.1. Tenant's Default. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
a. If Tenant abandons or vacates the Premises; or
b. If Tenant fails to pay any Rent or any other charges required to be
paid by Tenant under this Lease and such failure continues for five (5)
days after such payment is due and payable; or
c. If Tenant fails to promptly and fully perform any other covenant,
condition or agreement contained in this Lease and such failure
continues for thirty (30) days after written notice thereof from
Landlord to Tenant; or
d. If a writ of attachment or execution is levied on this Lease or on
any of Tenant's Property; or
e. If Tenant makes a general assignment for the benefit of creditors,
or provides for an arrangement, composition, extension or adjustment
with its creditors; or
f. If Tenant files a voluntary petition for relief or if a petition
against Tenant in a proceeding under the federal bankruptcy laws or
other insolvency laws is filed and not withdrawn or dismissed within
forty-five (45) days thereafter, or if under the provisions of any law
providing for reorganization or winding up of corporations, any court of
competent jurisdiction assumes jurisdiction, custody or control of
Tenant or any substantial part of its property and such jurisdiction,
custody or control remains in force unrelinquished, unstayed or
unterminated for a period of forty-five (45) days; or
g. If in any proceeding or action in which Tenant is a party, a
trustee, receiver, agent or custodian is appointed to take charge of the
Premises or Tenant's Property (or has the authority to do so) for the
purpose of enforcing a lien against the Premises or Tenant's Property;
or
h. If Tenant is a partnership or consists of more than one (1) person
or entity, if any partner of the partnership or other person or entity
is involved in any of the acts or events described in subparagraphs d
through g above.
27.2. Remedies. In the event of Tenant's default hereunder, then in addition
to any other rights or remedies Landlord may have under any law, Landlord shall
have the right, at Landlord's option, without further notice or demand of any
kind to do the following:
a. Terminate this Lease and Tenant's right to possession of the
Premises and reenter the Premises and take possession thereof, and
Tenant shall have no further claim to the Premises or under this Lease;
or
b. Continue this Lease in effect, reenter and occupy the Premises for
the account of Tenant, and collect any unpaid Rent or other charges
which have or thereafter become due and payable; or
c. Reenter the Premises under the provisions of subparagraph b, and
thereafter elect to terminate this Lease and Tenant's right to
possession of the Premises.
(10)
<PAGE> 11
If Landlord reenters the Premises under the provisions of subparagraphs b or c
above, Landlord shall not be deemed to have terminated this Lease or the
obligation of Tenant to pay any Rent or other charges thereafter accruing,
unless Landlord notifies Tenant in writing of Landlord's election to terminate
this Lease. In the event of any reentry or retaking of possession by Landlord,
Landlord shall have the right, but not the obligation, to remove all or any
part of Tenant's Property in the Premises and to place such property in storage
at a public warehouse at the expense and risk of Tenant. If Landlord elects to
relet the Premises for the account of Tenant, the rent received by Landlord
from such reletting shall be applied as follows: first, to the payment of any
indebtedness other than Rent due hereunder from Tenant to Landlord; second, to
the payment of any costs of such reletting; third, to the payment of the cost
of any alterations or repairs to the Premises; fourth to the payment of Rent
due and unpaid hereunder; and the balance, if any, shall be held by Landlord
and applied in payment of future Rent as it becomes due. If that portion of
rent received from the reletting which is applied against the Rent due
hereunder is less than the amount of the Rent due, Tenant shall pay the
deficiency to Landlord promptly upon demand by Landlord. Such deficiency shall
be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as
determined, any costs and expenses incurred by Landlord in connection with such
reletting or in making alterations and repairs to the Premises, which are not
covered by the rent received from the reletting.
Should Landlord elect to terminate this Lease under the provisions of
subparagraph a or c above, Landlord may recover as damages from Tenant the
following:
1. Past Rent. The worth at the time of the award of any unpaid
Rent which had been earned at the time of termination; plus
2. Rent Prior to Award. The worth at the time of the award of the
amount by which the unpaid Rent which would have been earned
after termination until the time of award exceeds the amount of
such rental loss that Tenant proves could have been reasonably
avoided; plus
3. Rent After Award. The worth at the time of the award of the
amount by which the unpaid Rent for the balance of the Term
after the time of award exceeds the amount of the rental loss
that Tenant proves could be reasonably avoided; plus
4. Proximately Caused Damages. Any other amount necessary to
compensate Landlord for all detriment proximately caused by
Tenant's failure to perform its obligations under this Lease or
which in the ordinary course of things would be likely to result
therefrom, including, but not limited to, any costs or expenses
(including attorneys' fees), incurred by Landlord in (a)
retaking possession of the Premises, (b) maintaining the
Premises after Tenant's default, (c) preparing the Premises for
reletting to a new tenant, including any repairs or alterations,
and (d) reletting the Premises, including broker's commissions.
"The worth at the time of the award" as used in subparagraphs 1 and 2 above, is
to be computed by allowing interest at the rate of ten percent (10%) per annum.
"The worth at the time of the award" as used in subparagraph 3 above, is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank situated nearest to the Premises at the time of the award plus one percent
(1%).
The waiver by Landlord of any breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such term, covenant or condition or of
any subsequent breach of the same or any other term, covenant or condition.
Acceptance of Rent by Landlord subsequent to any breach hereof shall not be
deemed a waiver of any preceding breach other than the failure to pay the
particular Rent so accepted, regardless of Landlord's knowledge of any breach
at the time of such acceptance of Rent. Landlord shall not be deemed to have
waived any term, covenant or condition unless Landlord gives Tenant written
notice of such waiver.
27.3 Landlord's Default. If Landlord fails to perform any covenant, condition
or agreement contained in this Lease within thirty (30) days after receipt
of written notice from Tenant specifying such default, or if such default
cannot reasonably be cured within thirty (30) days, if Landlord fails to
commence to cure within that thirty (30) day period, then Landlord shall be
liable to Tenant for any damages sustained by Tenant as a result of Landlord's
breach; provided, however, it is expressly understood and agreed that if Tenant
obtains a money judgment against Landlord resulting from any default or other
claim arising under this Lease, that judgment shall be satisfied only out of
the rents, issues, profits, and other income actually received on account of
Landlord's right, title and interest in the Premises, Building or Project, and
no other real, personal or mixed property of Landlord (or of any of the
partners which comprise Landlord, if any) wherever situated, shall be subject to
levy to satisfy such judgment. If, after notice to Landlord of default,
Landlord (or any first mortgagee or first deed of trust beneficiary of
Landlord) fails to cure the default as provided herein, then Tenant shall have
the right to cure that default at Landlord's expense. Tenant shall not have the
right to terminate this Lease or to withhold, reduce or offset any amount
against any payments of Rent or any other charges due and payable under this
Lease except as otherwise specifically provided herein.
28. BROKERAGE FEES.
Tenant warrants and represents that it has not dealt with any real estate
broker or agent in connection with this Lease or its negotiation except those
noted in Section 2.c. Tenant shall indemnify and hold Landlord harmless from
any cost, expense or liability (including costs of suit and reasonable
attorneys' fees) for any compensation, commission or fees claimed by any other
real estate broker or agent in connection with this Lease or its negotiation by
reason of any act of Tenant.
29. NOTICES.
All notices, approvals and demands permitted or required to be given under this
Lease shall be in writing and deemed duly served or given if personally
delivered or sent by certified or registered U.S. mail, postage prepaid, and
addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to
the Building manager, and (b) if to Tenant, to Tenant's Mailing Address;
provided, however, notices to Tenant shall be deemed duly served or given if
delivered or mailed to Tenant at the Premises. Landlord and Tenant may from
time to time by notice to the other designate another place for receipt of
future notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of federal, state or local government controls,
rules, regulations, or restrictions on the use or consumption of energy or
other utilities during the Term, both Landlord and Tenant shall be bound
thereby. In the event of a difference in interpretation by Landlord and Tenant
of any such controls, the interpretation of Landlord shall prevail, and
Landlord shall have the right to enforce compliance therewith, including the
right of entry into the Premises to effect compliance.
31. RELOCATION OF PREMISES.
Landlord shall have the right to relocate the Premises to another part of the
Building in accordance with the following:
(11)
<PAGE> 12
a. The new premises shall be substantially the same in size, dimensions,
configuration, decor and nature as the Premises described in this Lease,
and if the relocation occurs after the Commencement Date, shall be placed
in that condition by Landlord at its cost.
b. Landlord shall give Tenant at least thirty (30) days written notice of
Landlord's intention to relocate the Premises.
c. As nearly as practicable, the physical relocation of the Premises shall
take place on a weekend and shall be completed before the following Monday.
If the physical relocation has not been completed in that time, Base Rent
shall abate in full from the time the physical relocation commences to the
time it is completed. Upon completion of such relocation, the new premises
shall become the "Premises" under this Lease.
d. All reasonable costs incurred by Tenant as a result of the relocation
shall be paid by Landlord.
e. If the new premises are smaller than the Premises as it existed before
the relocation, Base Rent shall be reduced proportionately.
f. The parties hereto shall immediately execute an amendment to this Lease
setting forth the relocation of the Premises and the reduction of Base
Rent, if any.
32. QUIET ENJOYMENT.
Tenant, upon paying the Rent and performing all of its obligations under this
Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of
this Lease and to any mortgage, lease, or other agreement to which this Lease
may be subordinate.
33. OBSERVANCE OF LAW.
Tenant shall not use the Premises or permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated. Tenant shall, at its sole cost and expense, promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be in force, and with the
requirements of any board of fire insurance underwriters or other similar
bodies now or hereafter constituted, relating to, or affecting the condition,
use or occupancy of the Premises, excluding structural changes not related to
or affected by Tenant's improvements or acts. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action against Tenant,
whether Landlord is a party thereto or not, that Tenant has violated any law,
ordinance or governmental rule, regulation or requirement, shall be conclusive
of that fact as between Landlord and Tenant.
34. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefor, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond the reasonable control of the party obligated to perform hereunder, shall
excuse performance of the work by that party for a period equal to the duration
of that prevention, delay or stoppage. Nothing in this Article 34 shall excuse
or delay Tenant's obligation to pay Rent or other charges under this Lease.
35. CURING TENANT'S DEFAULTS.
If Tenant defaults in the performance of any of its obligations under this
Lease, Landlord may (but shall not be obligated to) without waiving such
default, perform the same for the account at the expense of Tenant. Tenant
shall pay Landlord all costs of such performance promptly upon receipt of a
bill therefor.
36. SIGN CONTROL.
Tenant shall not affix, paint, erect or inscribe any sign, projection, awning,
signal or advertisement of any kind to any part of the Premises, Building or
Project, including without limitation, the inside or outside of windows or
doors, without the written consent of Landlord. Landlord shall have the right to
remove any signs or other matter, installed without Landlord's permission,
without being liable to Tenant by reason of such removal, and to charge the cost
of removal to Tenant as additional rent hereunder, payable within ten (10) days
of written demand by Landlord.
37. MISCELLANEOUS.
a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant or
receipt by Landlord of a lesser amount than the Rent provided for in this Lease
shall be deemed to be other than on account of the earliest due Rent, nor shall
any endorsement or statement on any check or letter accompanying any check or
payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of the Rent or pursue any other remedy provided for in this Lease. In
connection with the foregoing, Landlord shall have the absolute right in its
sole discretion to apply any payment received from Tenant to any account or
other payment of Tenant then not current and due or delinquent.
b. Addenda. If any provision contained in an addendum to this Lease is
inconsistent with any other provision herein, the provision contained in the
addendum shall control, unless otherwise provided in the addendum.
c. Attorneys' Fees. If any action or proceeding is brought by either party
against the other pertaining to or arising out of this Lease, the finally
prevailing party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred on account of such action or proceeding.
d. Captions, Articles and Section Numbers. The captions appearing within the
body of this Lease have been inserted as a matter of convenience and for
reference only and in no way define, limit or enlarge the scope or meaning of
this Lease. All references to Article and Section numbers refer to Articles and
Sections in this Lease.
e. Changes Requested by Lender. Neither Landlord or Tenant shall unreasonably
withhold its consent to changes or amendments to this Lease requested by the
lender on Landlord's interest, so long as these changes do not alter the basic
business terms of this Lease or otherwise materially diminish any rights or
materially increase any obligations of the party from whom consent to such
charge or amendment is requested.
f. Choice of Law. This Lease shall be construed and enforced in accordance
with the laws of the State.
g. Consent. Notwithstanding anything contained in this Lease to the contrary,
Tenant shall have no claim, and hereby waives the right to any claim against
Landlord for money damages by reason of any refusal, withholding or delaying by
Landlord of any consent, approval or statement of satisfaction, and in such
event, Tenant's only remedies therefor shall be an action for specific
performance, injunction or declaratory judgment to enforce any right to such
consent, etc.
(12)
<PAGE> 13
38. TENANTS PROPORTIONATE SHARE:
Upon completion of tenant improvements described in Exhibit "C", Tenant's
proportionate share of the building containing the Premises shall be
29.45%. Such share is a fraction, the numerator of which is the Rentable
Area of the Premises, and the denominator of which is the Gross Area of the
Building (Building A), as determined by the Landlord from time to time. The
Building consists of 41,656 square feet, Tenant's proportionate share of
the Project shall be 14.73%. The Project's land value, related assessments
and Outside Area Expenses are allocated 50.01% to Building A and 49.99% to
Building B. Tenant's share is a product of Tenant's Building share
multiplied by Building A's share of the Project. The Project consists of
two buildings containing a total Rentable Area of 83,230 square feet.
39. TENANT IMPROVEMENT ALLOWANCE:
Landlord shall make the alterations to the Premises described on the Tenant
Improvement Plans and Specifications drawn by Interform, dated April 4,
1994 (Tenant Improvements). Landlord shall provide Tenant an allowance up
to $170,000.00 for said tenant improvements, including space plans,
construction drawings and permits, to Tenant's Premises at 5934 Gibraltar
Drive, Pleasanton, under lease with Landlord. Landlord shall allow Tenant
to use up to $25,000.00 of the tenant improvement allowance for data
cabling. Should there be any remaining tenant improvement allowance after
completion of said tenant improvements, Tenant shall receive a credit for
such remaining allowance to use within twenty-four (24) months of
completion of said tenant improvements for future alterations to any space
under lease at 5934 Gibraltar Drive. In the event the tenant improvements,
including space plans, construction drawings and permits cost in excess of
$170,000.00, Tenant shall, within ten (10) business days of receipt of a
detailed cost breakdown from Landlord, reimburse Landlord for said costs in
excess of $170,000.00. Landlord's work shall be performed by Landlord's
contractor in accordance with the plans approved by Landlord and Tenant.
Changes in the mutually approved working drawings and specifications shall
be made only by mutual consent, which shall not be unreasonably withheld or
delayed.
40. REMOVAL OF TENANT'S FURNITURE AND FIXTURES:
Tenant agrees to cooperate in the removal of all furniture and fixtures and
to relocate employees and employee work areas, if necessary, to accommodate
tenant improvement construction. In connection with Landlord's work,
Landlord and Tenant agree that time is of the essence and that each will
cooperate in adhering to the construction schedule. Landlord shall charge
Tenant for any delays caused by Tenant's failure to do so.
41. OPTION TO RENEW:
Provided that Tenant is not in default hereunder either at the time of
exercise or at the time the extended term commences, Tenant shall have the
option to extend the Lease for one (1) extended five (5) year term on the
same terms, covenants and conditions provided herein, except that upon such
renewal the monthly base rent due hereunder shall be determined pursuant to
Paragraph B. Tenant shall exercise its option by giving Landlord written
notice ("Option Notice") at least one hundred eighty (180) days prior to
the expiration of the initial term of this Lease.
B. Option Period Monthly Rent. The Monthly Rent for the Option Period,
which shall include the initial Monthly Rent and all adjustments, shall be
determined as follows:
(i) The parties shall have fifteen (15) days after Landlord receives the
Option Notice within which to agree on the Monthly Rent for the Option
Period based upon the then fair market rental value of the Premises as
defined in Paragraph B(iii). If the parties agree on the Monthly Rent for
the Option Period within fifteen (15) days, they shall immediately execute
an amendment to this Lease stating the Monthly Rent for the Option Period.
<PAGE> 14
fair market rental value of the Premises as of the commencement of the
Option Period, taking into consideration the uses permitted under this
Lease, the quality, size, design and location of the Premises, and the rent
for comparable buildings located in Pleasanton. In no event shall the fair
market monthly value of the Premises for the Option Period be less than the
Monthly Rent last payable under the Lease.
(iv) Within seven (7) days after the expiration of the fifteen (15) day
period set forth in Paragraph 51.B (ii), each party, at its cost and by
giving notice to the other party, shall appoint a real estate appraiser
with at least five (5) years' full time commercial appraisal experience in
the area in which the Premises are located to appraise and set the then
fair market rental value of the Premises for the Option Period. If a party
does not appoint an appraiser within ten (10) days after the other party
has given notice of the name of its appraiser, the single appraiser
appointed shall be the sole appraiser and shall set the then fair market
rental value of the Premises. If the two (2) appraisers are appointed by
the parties as stated in this paragraph, they shall meet promptly and
attempt to set the then fair market rental value of the Premises. If they
are unable to agree within thirty (30) days after the second appraiser has
been appointed, they shall attempt to elect a third appraiser meeting the
qualifications stated in this paragraph within ten (10) days after the last
day the two (2) appraisers are given to set the then fair market rental
value of the Premises. If they are unable to agree on the third appraiser,
either of the parties to this Lease, by giving ten (10) days' notice to the
other party, can apply to the then President of the Alameda County Real
Estate Board or to the then President Judge of the Alameda County Superior
Court, for the selection of a third appraiser who meets the qualifications
stated in this paragraph. Each of the parties shall bear one-half (1/2) of
the cost of appointing the third appraiser and of paying the third
appraiser's fee. The third appraiser, however selected, shall be a person
who has not previously acted in any capacity for either party.
Within thirty (30) days after the selection of the third appraiser, a
majority of the appraisers shall set the then fair market value of the
Premises. If a majority of the appraisers are unable to set the then fair
market rental value of the Premises within the stipulated period of time,
the three (3) appraisals shall be added together and their total divided by
three (3); the resulting quotient shall be the then fair market rental
value of the Premises.
If, however, the low appraisal and/or the high appraisal are/is more than
ten percent (10%) lower and/or higher than the middle appraisal, the low
appraisal and/or the high appraisal shall be disregarded. If only one (1)
appraisal is disregarded, the remaining two (2) appraisals shall be added
together and their total divided by two (2); the resulting quotient shall
be the then fair market rental value of the Premises. If both the low
appraisal and the high appraisal are disregarded as stated in this
paragraph, the middle appraisal shall be the then fair market rental value
of the Premises.
After the then fair market rental value of the Premises has been set, the
appraisers shall immediately notify the parties and the Monthly Rent for
the Option Period shall be such amount.
Except as expressly provided herein, the Lease shall remain in full force and
effect.
LANDLORD: TENANT:
Hacienda Park Associates Pro Business Payroll
A California General Partnership A California Corporation
By: /s/ Peter P. Canny, Jr. By: /s/ Mitch Everton
------------------------------- ---------------------------------
Its: Vice President Its: EVP-OPERATIONS
<PAGE> 15
EXHIBIT "A"
GROUND FLOOR PLAN
[LAYOUT OF GROUND FLOOR]
<PAGE> 16
EXHIBIT "B"
SARATOGA CENTER
SITE 30A
5934 GIBRALTAR DRIVE
PLEASANTON, CALIFORNIA
[LAYOUT OF SITE]
<PAGE> 17
[FIRST FLOOR PRELIMINARY FLOOR PLAN]
<PAGE> 18
EXHIBIT C-1
[SECOND FLOOR PRELIMINARY FLOOR PLAN]
<PAGE> 19
[CB COMMERCIAL LETTERHEAD]
September 22, 1993
Mr. Mitch Everton
Pro Business
5934 Gibraltar Drive, Suite 201
Pleasanton, CA 94588
RE: 5934 Gibraltar Drive, Suite 102
Pleasanton, CA
Dear Mitch:
When reviewing the lease for your new space downstairs, suite 102, I discovered
a discrepancy. Paragraph 2.q. should have been deleted. Instead a date was
typed in which does not apply.
In order to clarify the lease, I am asking that you approve the deletion of
paragraph 2.q. If you agree, would you please indicate by signing and dating
below.
If you have any questions concerning the interpretation of the paragraph,
please call me.
Very truly yours,
/s/ Judith Yemma
Judith Yemma
Building Manager
(510) 734-0903
JY/pat
/s/ Mitch Everton
- --------------------------
Approved
9/27/93
- --------------------------
Date
<PAGE> 20
EXHIBIT D
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the Building
without the prior written consent of the Landlord. Landlord shall have the
right to remove, at Tenant's expense and without notice, any sign installed or
displayed in violation of this rule. All approved signs or lettering on doors
and walls shall be printed, painted, affixed or inscribed at the expense of
Tenant by a person chosen by Landlord.
2. Except as consented to in writing by Landlord, or in accordance with
Building Standard Improvements, no curtains, blinds, shades, screens or hanging
plants or other similar objects attached to or used in connection with any
window or door of the Premises, Tenant shall immediately discontinue such use.
No awning shall be permitted on any part of the Premises. Tenant shall not
place anything against or near glass partitions or doors or windows which may
appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances,
elevators, escalators, or stairways of the Building. No Tenant and no employee
or invitee of any tenant shall go upon the roof of the Building or make any
roof penetrations without the prior written consent of Landlord.
4. The main lobby directory of the Building will be provided exclusively for
the display of the name and location of the Building's tenants only, and
Landlord reserves the right to exclude any other names therefrom. Landlord
shall provide Tenant with a building standard wall or door mounted sign at or
adjacent to Tenant's main entrance to its Premises which shall identify Tenant
and its suite number.
5. All cleaning and janitorial services for the Building shall be provided by
Landlord in accordance with Landlord's specifications for said services, and
except with the written consent of Landlord, no person or persons other than
those approved by Landlord shall be employed by Tenant or permitted to enter
the Building for the purpose of cleaning. Tenant shall not cause any
unnecessary labor by carelessness or indifference to the good order and
cleanliness of the Premises or the Building. Landlord shall not in any way be
responsible to any Tenant for any loss of property on the Premises, however
occurring, or for any damage to any of Tenant's property by the janitor or any
other employee or any other person.
6. Landlord will furnish Tenant, free of charge, with two keys to each door in
the Premises that contains a lock set. Landlord may make a reasonable charge for
any additional keys and for having the locks changed. Tenant shall not make or
have made additional keys, and Tenant shall not alter any lock or install any
additional locks or bolts on any door of its Premises without the prior written
consent of Landlord. Tenant, upon the termination of its tenancy, shall deliver
to Landlord the keys to all doors which have been furnished to Tenant, and in
the event of loss of any keys so furnished, shall pay Landlord therefor.
7. If Tenant requires telegraphic, telephonic burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions in
their installation.
8. The elevators shall be available for use by all tenants in the Building,
subject to such reasonable scheduling as Landlord in its discretion shall deem
appropriate. No equipment, materials, furniture, packages, supplies,
merchandise or other property will be received in the Building or carried in
the elevators except between such hours and in such elevators as may be
designated by Landlord.
1
<PAGE> 21
9. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allows by law. Business machines and mechanical equipment belonging to
Tenant, which cause noise or vibration that may be transmitted to the structure
of the Building or to any space therein to such a degree as to be objectionable
to Landlord or to any tenants in the Building, shall be placed and maintained
by Tenant, at Tenant's expense, on vibration eliminators or other devices
sufficient to eliminate the impacts of noise or vibration on the Building.
10. Tenant shall not use or keep in the Premises any kerosene, gasoline or
flammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment. Tenant shall not
use or permit to be used in the Premises any foul or noxious gas or substance,
or permit or allow the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of
noise, odors or vibrations. No animals, with the exception of seeing eye dogs
when in the company of their masters, may be brought into or kept in the
Building.
11. Tenant shall not use any method of heating or air-conditioning other
than that supplied by Landlord.
12. Tenant shall cooperate with Landlord to assure the most effective
operation of the Building's heating and air-conditioning and shall comply with
any governmental energy-saving rules, laws or regulations of which Tenant has
actual notice. Tenant shall refrain from attempting to adjust the Building's
heating, ventilating or air-conditioning controls other than the room
thermostats installed for Tenant's use. Tenant shall keep all corridor access
doors to its Premises closed and shall close window coverings at the end of
each business day.
13. Tenant shall be responsible for all persons for whom it requests access
to the Building's security system, and shall be liable to Landlord for all acts
of such persons. Landlord shall not be liable for damages resulting from the
admission to or exclusion from the Building of any person.
14. Tenant shall close and lock the doors of its Premises and entirely shut
off all water faucets or other water apparatus, and turn off all lights and
other equipment which are not required to be continuously run at the close of
its business day. Tenant shall be responsible for any damages or injuries
sustained by other tenants or occupants of the Building or Landlord for
noncompliance with this rule.
15. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the Tenant, or its employees or
invitees.
16. Tenant shall not install any radio or television antenna, loudspeaker
or other devices on the roof or exterior walls of the Building. Tenant shall
not interfere with radio or television broadcasting or reception from or in the
Building or elsewhere.
17. Except as required to facilitate normal office occupancy, Tenant shall
not mark, drive nails, screw or drill into the partitions, woodwork or plaster
or in any way deface the Premises or any part thereof without the prior written
consent of Landlord. Tenant shall not cut or bore holes for wires in any part
of the Premises. Tenant shall not affix any floor covering to the floor of the
Premises in any manner except as approved by Landlord. Tenant shall repair any
damage resulting from noncompliance with this rule at its sole cost and
expense.
18. Tenant shall not install, maintain or operate upon the Premises any
vending machine without the prior written consent of Landlord. In the event
Landlord so
2
<PAGE> 22
approves such installation Tenant shall be responsible for all costs associated
with such installation and shall remove the vending machines at the end of such
Term.
19. Landlord reserves the right to exclude or expel from the Building any
person who, in Landlord's judgment, is intoxicated or under the influence of
liquor or drugs or other substance or who is in violation of any of the Rules
or Regulations of the Building.
20. Tenant shall store all its trash and garbage within its Premises or in such
central facilities as may be provided by Landlord for Tenant's non-exclusive
use in the Outside Area. Tenant shall not place in any trash box or receptacle
any material which cannot be disposed of in the ordinary and customary manner
of trash and garbage disposal. All garbage and refuse disposal shall be made in
accordance with directions issued from time to time by Landlord.
21. The Premises shall not be used for the storage of merchandise held for sale
to the general public, or for lodging or for manufacturing of any kind, nor
shall the Premises be used for any improper, immoral, illegal or objectional
purpose.
22. Use of Underwriters' Laboratory (UL) approved equipment for brewing coffee,
tea, hot chocolate and similar beverages, (and refrigeration of such products)
shall be permitted provided that Tenant may utilize a UL approved microwave
oven to prepared prepackaged foods for its employees. No other than as
expressly provided herein no other food preparation shall be permitted.
Tenant's use of such equipment shall be in accordance with all applicable
federal, state, country and city laws, codes, ordinances, rules and regulations
and shall not cause a nuisance to other Tenants in the building due to odors.
23. Tenant shall not use in any space or in the public halls of the Building
any hand truck except those equipped with rubber tires and side guards or such
other material-handling equipment as Landlord may approve, Tenant shall not
bring any other vehicles of any kind into the building.
24. Tenant shall not use the name of the Building in connection with or in
promoting or advertising the business of Tenant without the written consent of
Landlord except as to Tenant's address for its Premises.
25. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency
having jurisdiction over the Property. Tenant shall be responsible for any
increased insurance premiums attributable to Tenant's use of the Premises,
Building, or Property.
26. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked during
non-business hours and said means of entry to the Premises closed during normal
business hours.
27. Tenant's request for assistance will be attended to only upon appropriate
application to Landlord by an authorized individual. Employees of Landlord
shall not perform any work on the Premises, other than that associated with the
provision of services to Tenant required of Landlord under the Lease for the
Premises, or implement a request of Tenant, unless that employee receives
written instructions from Landlord.
28. Tenant shall not park its vehicles in any parking areas designated by
Landlord as areas for parking by visitors to the Building or other reserved
parking spaces. Tenant shall not leave vehicles in the Building parking areas
overnight, nor park any vehicles in the Building parking areas other than
automobiles, motorcycles, motor driven or non-motor driven bicycles of
four-wheeled trucks. Tenant, its agents, employees and invitees shall not park
any
3
<PAGE> 23
one (1) vehicle in more than one (1) parking space.
29. Landlord may waive any one or more of these Rules and Regulations for
the benefit of Tenant or any other Tenant, but no such waiver by Landlord shall
be construed as a waiver of such Rules and Regulations in favor of Tenant or
any other Tenant, nor prevent Landlord from thereafter enforcing any such Rules
and Regulations against any or all of the tenants of the Building.
30. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of Premises in the Building.
31. Landlord reserves the right to make such other reasonable Rules and
Regulations as, in its judgment, may from time to time be needed for the
safety, security, care and cleanliness of the Building and the Property and
preservation of good order therein. Tenant agrees to abide by all such Rules
and Regulations hereinabove stated and any additional rules and regulations
which are published by Landlord.
32. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and guests.
33. The scheduling and manner of all Tenant move-ins and move-outs shall be
subject to the discretion approval of Landlord, and move-ins and move-outs
shall take place only after 6:00 p.m. on weekdays, on weekends or at other
times as Landlord may designate. Landlord shall have right to approve or
disapprove the movers or moving company employed by Tenant, and Tenant shall
cause the movers to use only the entry doors and elevators designated by
Landlord. If Tenant's movers damage the elevator or any other part of the
Property, Tenant shall pay to Landlord the amount required to repair the
damage.
34. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
35. Canvassing, soliciting, and distribution of handbills or other written
material and peddling in the Building are prohibited and each Tenant shall
cooperate to prevent these activities.
36. As long as Tenant is not in default under any of the terms, covenants,
conditions, provisions or agreements of this Lease, Landlord shall:
(a) On Monday through Friday, except holidays, from 7:00 a.m. to
7:00 p.m. (and other times for a reasonable additional charge to be fixed by
Landlord), ventilate the Premises and furnish air conditioning or heating on
such days and hours when in the judgment of Landlord it may be required for the
comfortable occupancy of the Premises. After hours usage shall be monitored by
the override meter which shall be installed in the Premises and the actual cost
of such usage shall be paid by Tenant.
(b) Furnish to the Premises, Monday through Friday, from 7:00 a.m.
to 7:00 p.m. electrical current as required by the Building Standard office
lighting and fractional horsepower office business machines in the amount of
approximately two and one-half (2.5) watts per square foot. Tenant agrees,
should its electrical installation or electrical consumption be in excess of
the aforesaid quantity or extend beyond normal business hours, to reimburse
Landlord monthly for the measured consumption at the terms, classifications and
rate charges to similar consumers by the public utility serving the neighbor-
hood in which the Building is located.
4
<PAGE> 24
PRO BUSINESS
TENANT IMPROVEMENTS
5934 GIBRALTAR SUITES #101, #201, #202
CONSTRUCTION START: AUGUST 15, 1994
CONSTRUCTION COSTS:
- -------------------
<TABLE>
<CAPTION>
NET TOTAL
ITEM DESCRIPTION LANDLORD TENANT CHANGE COST
- ---- ----------- -------- ------- ------------------ -------
(To Contract Only)
<S> <C> <C> <C> <C> <C>
=================================================================================================================================
BASE CONTRACT 156,550 156,550
- ---------------------------------------------------------------------------------------------------------------------------------
SPACE PLANNING/
WORKING DRAWINGS 10,945 167,495
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGE ORDER #1 - 4" CONDUIT SLEEVE 563 563 168,058
08-24-94
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGE ORDER #2 - INSULATE 1ST FLOOR WALLS @ P.O.'s, TRAINING
08-31-94 AND CONFERENCE ROOMS @ 1ST FLOOR.
- CHANGE CARPET TO SHAW "CANYON LAKES"
(NO CHARGE). 2,329 2,892 170,387
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGE ORDER #3 - CHANGE SLOT RETURN AIR TO 2' X 2' GRILLS W/SOUND
09-28-94 ATTENUATION BOOT @ PRIVATES, CONF & TRAINING RMS
FIRST FLOOR
- ADD SINK FIRST FLOOR
- SEISMIC UPGRADE @ FIRST FLOOR CEILING (REQUIRED) 1,161
- ADD 14 L.F. OF 9' HIGH CHAIN LINK W/3' X 7' DOOR
ADD 27 L.F. OF 25 GA METAL FRAMING W/WIRE ABOVE
CEILING @ STAGING AREA
- CREDIT FOR WALLS NOT REMOVED @ SECOND FLOOR
- CREDIT FOR DELETING OFFICES #209 & #210 6,727 10,780 178,275
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGE ORDER #4 - CREDIT FOR DELETING MOVING WALL & DOOR #22
10-10-94 - INSTALL 7 DEADBOLTS
- INSTALL MINI-BLINDS @ 2 OFFICES @ 2ND FLR &
5 OFFICES @ 1ST FLR
- INSTALL NEW GLASS DOORS W/PANIC HARDWARE 1ST FLR
- ADD 5 FT. HIGH SCREEN WALL W/CAP @ WAITING RM #121
- ADD DEDICATED DUPLEX OUTLET FOR COPIER @ RM #223 5,232 16,012 183,507
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONTINUED ON PAGE 2
<PAGE> 25
PAGE 2
PROBUSINESS
TENANT IMPROVEMENTS
5934 GIBRALTAR SUITES #101, #201, #202
CONSTRUCTION START: AUGUST 15, 1994
CONSTRUCTION COSTS:
- -------------------
<TABLE>
<CAPTION>
NET
LANDLORD TENANT CHANGE TOTAL
ITEM DESCRIPTION (To Contract Only) COST
=================================================================================================================================
<S> <C> <C> <C> <C> <C>
CHANGE ORDER #5 - REPLACE EXIT SIGNS PER CITY 1,500 17,512 185,007
10-19-94 (REQUIRED)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL 2,661 182,346 17,512 185,007
- ---------------------------------------------------------------------------------------------------------------------------------
TENANT IMPROVEMENT ALLOWANCE (180,000)
-----------------------------------------------------------------
DUE FROM TENANT 2,346
----------------------------------------------------------------
</TABLE>
<PAGE> 26
FIRST AMENDMENT TO LEASE DATED
MARCH 23, 1994
This Amendment, dated the 25th day of May, 1994, between Hacienda Park
Associates, a California general partnership, ("Landlord") and Pro Business
Payroll, a California Corporation, ("Tenant"), is for the premises located in
the City of Pleasanton, County of Alameda, State of California, commonly known
as 5934 Gibraltar Drive, Suite 101.
Landlord and Tenant being parties to that certain Lease dated March 23, 1994
hereby expresses their mutual desire and intent to amend the Lease as herein
after provided.
1. EXPIRATION DATE: March 31, 1999
2. MONTHLY INSTALLMENTS OF BASE RENT (INITIAL):
Months 01-05: $ 9,070.92
Months 06-24: 15,322.50
Months 25-51: 17,774.10
3. CONTINUING OBLIGATIONS: Except as expressly set forth to the contrary in
this First Amendment, the Lease remains unmodified and in full force and
effect. To the extent of any conflict between the terms of the First
Amendment and the terms of the Lease, the terms of the First Amendment
shall control.
In witness whereof, the parties have executed this First Amendment on the
date(s) set forth below, effective as of the day and year first above written
in one (1) or more copies.
AGREED AND ACCEPTED
LESSOR: Hacienda Park Associates, a Lessee: Pro Business Payroll, a
California General Partnership California Corporation
By: /s/ Peter P. Canny, Jr. By: /s/ Mitch Everton
----------------------------- --------------------------
Peter P. Canny, Jr.
Vice President
Its: V.P. Its: EVP - Operations
----------------------------- -------------------------
Dated: 7/25/94 Dated: 5-27-94
----------------------------- -------------------------
<PAGE> 27
SECOND AMENDMENT TO LEASE DATED
MARCH 23, 1994
This Amendment, dated the 5th day of October, 1994, between Hacienda Park
Associates, a California general partnership, ("Landlord") and Pro Business
Payroll, a California Corporation, ("Tenant"), is for the premises located in
the City of Pleasanton, County of Alameda, State of California, commonly known
as 5934 Gibraltar Drive, Suite 101.
Landlord and Tenant being parties to that certain Lease dated March 23, 1994 as
amended by the First Amendment to Lease hereby expresses their mutual desire
and intent to amend the Lease as herein after provided.
1. MONTHLY INSTALLMENTS OF BASE RENT (INITIAL):
Months 01-05: $ 9,316.08
Months 06-24: 15,567.66
Months 25-51: 18,019.26
2. TENANT IMPROVEMENT ALLOWANCE: The tenant improvement allowance
described in Article 39, is hereby increased by $10,000.00 to
$180,000.00.
3. CONTINUING OBLIGATIONS: Except as expressly set forth to the contrary
in this Second Amendment, the Lease remains unmodified and in full force
and effect. To the extent of any conflict between the terms of the
Second Amendment and the terms of the Lease, the terms of the Second
Amendment shall control.
In witness whereof, the parties have executed this Second Amendment on the
date(s) set forth below, effective as of the day and year first above written
in one (1) or more copies.
AGREED AND ACCEPTED
LESSOR: Hacienda Park Associates, a Lessee: Pro Business Payroll, a
California General Partnership California Corporation
By: /s/ Peter P. Canny, Jr. By: /s/ Mitch Everton
--------------------------------- ------------------------------------
Peter P. Canny, Jr.
Vice President
Its: Vice President Its: EVP - Operations
--------------------------------- ------------------------------------
Dated: 11/28/94 Dated: 10-7-94
------------------------------- ------------------------------------
<PAGE> 1
EXHIBIT 10.4
[CB COMMERCIAL LETTERHEAD]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Article 1 LEASE OF PREMISES . . . . . . . . . . . . . . . . . . . . 1
Article 2 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 1
Article 3 EXHIBITS AND ADDENDA . . . . . . . . . . . . . . . . . . 2
Article 4 DELIVERY OF POSSESSION . . . . . . . . . . . . . . . . . 2
Article 5 RENT . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Article 6 INTEREST AND LATE CHARGES . . . . . . . . . . . . . . . . 4
Article 7 SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . 4
Article 8 TENANTS USE OF THE PREMISES . . . . . . . . . . . . . . . 4
Article 9 SERVICES AND UTILITIES . . . . . . . . . . . . . . . . . 5
Article 10 CONDITION OF THE PREMISES . . . . . . . . . . . . . . . . 5
Article 11 CONSTRUCTION, REPAIRS AND MAINTENANCE . . . . . . . . . . 5
Article 12 ALTERATIONS AND ADDITIONS . . . . . . . . . . . . . . . . 6
Article 13 LEASEHOLD IMPROVEMENTS; TENANTS PROPERTY . . . . . . . . 6
Article 14 RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . 7
Article 15 CERTAIN RIGHTS RESERVED BY LANDLORD . . . . . . . . . . . 7
Article 16 ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . 7
Article 17 HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . 8
Article 18 SURRENDER OF PREMISES . . . . . . . . . . . . . . . . . . 8
Article 19 DESTRUCTION OR DAMAGE . . . . . . . . . . . . . . . . . . 8
Article 20 EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . 8
Article 21 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . 9
Article 22 TENANT'S INSURANCE . . . . . . . . . . . . . . . . . . . 9
Article 23 WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . 10
Article 24 SUBORDINATION AND ATTORNMENT. . . . . . . . . . . . . . . 10
Article 25 TENANT ESTOPPEL CERTIFICATES . . . . . . . . . . . . . . 10
Article 26 TRANSFER OF LANDLORD'S INTEREST . . . . . . . . . . . . 10
Article 27 DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . 10
Article 28 BROKERAGE FEES . . . . . . . . . . . . . . . . . . . . . 11
Article 29 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . 11
Article 30 GOVERNMENT ENERGY OR UTILITY CONTROLS . . . . . . . . . . 11
Article 31 RELOCATION OF PREMISES. . . . . . . . . . . . . . . . . . 11
Article 32 QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . 12
Article 33 OBSERVANCE OF LAW . . . . . . . . . . . . . . . . . . . . 12
Article 34 FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . 12
Article 35 CURING TENANT'S DEFAULTS . . . . . . . . . . . . . . . . 12
Article 36 SIGN CONTROL . . . . . . . . . . . . . . . . . . . . . . 12
Article 37 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE> 2
[CB COMMERCIAL LETTERHEAD]
This Lease between Hacienda Park Associates
--------------------------------------------------------
a California general partnership
--------------------------------------------------------------------------
("Landlord"), and Pro Business, Inc.
---------------------------------------------------------
a California corporation , ("Tenant"), is
-------------------------------------------------------------
dated November 13 , 1995
---------------------------------------------------------------- --
1. LEASE OF PREMISES.
In consideration of the Rent (as defined at Section 5.4) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as Exhibit
"A", and further described at Section 2l. The Premises are located within the
Building and Project described in Section 2m. Tenant shall have the
non-exclusive right (unless otherwise provided herein) in common with Landlord,
other tenants, subtenants and invitees, to use of the Common Areas (as defined
at Section 2e).
2. DEFINITIONS
As used in this Lease, the following terms shall have the following meanings:
a. Base Rent (initial): $ 166,047.12 per year.
-----------------------------------------
b. Base Year: The calendar year of 1996 .
-----------------------------------------
c. Broker(s)
Landlord's: CB Commercial Real Estate Group, Inc. .
----------------------------------------------------------
Tenant's: Colliers Parrish International .
----------------------------------------------------------
In the event that CB Commercial Real Estate Group, Inc. represents both
Landlord and Tenant, Landlord and Tenant hereby confirm that they were timely
advised of the dual representation and that they consent to the same, and that
they do not expect said broker to disclose to either of them the confidential
information of the other party.
d. Commencement Date February 1, 1996 .
--------------------------------------------------------
e. Common Areas: the building lobbies, common corridors and hallways,
restrooms, garage and parking areas, stairways, elevators and other
generally understood public or common areas. Landlord shall have the right
to regulate or restrict the use of the Common Areas.
g. Expiration Date: January 31, 2001 , unless otherwise
----------------------------------------
sooner terminated in accordance with the provisions of this Lease.
i. Landlord's Mailing Address: c/o CB Commercial Real Estate Group, Inc.
----------------------------------------------
5667-B Gibraltar Drive, Pleasanton, CA 94588
---------------------------------------------------------------------------
Tenant's Mailing Address: 5934 Gibraltar Drive, Pleasanton, CA 94588
----------------------------------------------
---------------------------------------------------------------------------.
j. Monthly Installments of Base Rent (initial): $ 13,837.26 per month.
-----------------
k. Parking: Tenant shall be permitted, upon payment of the then prevailing
monthly rate (as set by Landlord from time to time) to park forty-one
(41) cars on a non-exclusive basis in the area(s) designated by Landlord
for parking. Tenant shall abide by any and all parking regulations and
rules established from time to time by Landlord or Landlord's parking
operator. Landlord reserves the right to separately charge Tenant's guests
and visitors for parking.
l. Premises: that portion of the Building containing approximately 10,027
------
square feet of Rentable Area, shown by diagonal lines on Exhibit "A" located
on the first floor of the Building, and known as 4696 Willow Road.
m. Project: the building of which the Premises are a part (the "Building") and
any other buildings or improvements on the real property (the "Property")
located at 4696 and 4698 Willow Road and further described at Exhibit "B."
-------------------------
The Project is known as Saratoga Center, which includes the building located
----------------------------------------------------
at 5934 Gibraltar Drive.
-----------------------
n. Rentable Area: as to both the Premises and the Project, the respective
measurements of floor area as may from time to time be subject to lease by
Tenant and all tenants of the Project respectively, as determined by
Landlord and applied on a consistent basis throughout the Project.
<PAGE> 3
o. Security Deposit (Section 7): $14,000.00
p. State: the State of California
q. Tenant's First Adjustment Date (Section 5.2): the first day of the
calendar month following the Commencement Date plus ___________ months.
r. See Addendum #1.
s. Tenant's Use Clause (Article 8): Payroll services.
t. Term: the period commencing on the Commencement Date and expiring at
midnight on the Expiration Date.
3. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease:
a. Exhibit "A" -- Floor Plan showing the Premises.
b. Exhibit "B" -- Site Plan of the Project.
d. Exhibit "D" -- Rules and Regulations.
f. Addenda:
Addendum #1
5. RENT.
5.1 Payment of Base Rent. Tenant agrees to pay the Base Rent for the
Premises. Monthly Installments of Base Rent shall be payable in advance on
the first day of each calendar month of the Term. If the Term begins (or
ends) on other than the first (or last) day of a calendar month, the Base
Rent for the partial month shall be prorated on a per diem basis. Tenant
shall pay Landlord the first Monthly Installment of Base Rent when Tenant
executes the Lease.
5.3 Project Operating Costs.
a. In order that the Rent payable during the Term reflect any increase
in Project Operating Costs, Tenant agrees to pay to Landlord as Rent,
Tenant's Proportionate Share of all increases in costs, expenses and
obligations attributable to the Project and its operation, all as provided
below.
b. If, during any calendar year during the Term, Project Operating Costs
exceed the Project Operating Costs for the Base Year, Tenant shall pay
to Landlord, in addition to the Base Rent and all other payments due
under this Lease, an amount equal to Tenant's Proportionate Share of such
excess Project Operating Costs in accordance with the provisions of this
Section 5.3b.
(2)
<PAGE> 4
(1) The term "Project Operating Costs" shall include all those items
described in the following subparagraphs (a) and (b).
(a) All taxes, assessments, water and sewer charges and other similar
governmental charges levied on or attributable to the Building or Project
or their operation, including without limitation, (i) real property taxes
or assessments levied or assessed against the Building or Project, (ii)
assessments or charges levied or assessed against the Building or Project
by any redevelopment agency, (iii) any tax measured by gross rentals
received from the leasing of the Premises, Building or Project, excluding
any net income, franchise, capital stock, estate or inheritance taxes
imposed by the State or federal government or their agencies, branches or
departments; provided that if at any time during the Term any governmental
entity levies, assesses or imposes on Landlord any (1) general or special,
ad valorem or specific, excise, capital levy or other tax, assessment,
levy or charge directly on the Rent received under this Lease or on the
rent received under any other leases of space in the Building or Project,
or (2) any license fee, excise or franchise tax, assessment, levy or
charge measured by or based, in whole or in part, upon such rent, or (3)
any transfer, transaction, or similar tax, assessment, levy or charge based
directly or indirectly upon the transaction represented by this Lease or
such other leases, or (4) any occupancy, use, per capita or other tax,
assessment, levy or charge based directly or indirectly upon the use or
occupancy of the Premises or other premises within the Building or
Project, then any such taxes, assessments, levies and charges shall be
deemed to be included in the term Project Operating Costs. If at any time
during the Term the assessed valuation of, or taxes on, the Project are
not based on a completed Project having at least eighty-five percent (85%)
of the Rentable Area occupied, then the "taxes" component of Project
Operating Costs shall be adjusted by Landlord to reasonably approximate
the taxes which would have been payable if the Project were completed and
at least eighty-five percent (85%) occupied.
(b) Operating costs incurred by Landlord in maintaining and operating
the Building and Project, including without limitation the following:
costs of (1) common area utilities; (2) supplies; (3) insurance (including
public liability, property damage, earthquake, and fire and extended
coverage insurance for the full replacement cost of the Building and
Project as required by Landlord or its lenders for the Project; (4)
services of independent contractors; (5) compensation (including
employment taxes and fringe benefits) of all persons who perform duties
connected with the operation, maintenance, repair or overhaul of the
Building or Project, and equipment, improvements and facilities located
within the Project, including without limitation engineers, painters,
window washers, security and parking personnel and gardeners (but excluding
persons performing services not uniformly available to or performed for
substantially all Building or Project tenants); (6) operation and
maintenance of a room for delivery and distribution of mail to tenants of
the Building or Project as required by the U.S. Postal Service (including,
without limitation, an amount equal to the fair market rental value of the
mail room premises); (7) management of the Building or Project, whether
managed by Landlord or an independent contractor (including, without
limitation, an amount equal to the fair market value of any on-site
manager's office); (8) rental expenses for (or a reasonable depreciation
allowance on) personal property used in the maintenance, operation or
repair of the Building or Project; (9) costs, expenditures or charges
(whether capitalized or not) required by any governmental or
quasi-governmental authority; (10) amortization of capital expenses
(including financing costs) (i) required by a governmental entity for
energy conservation or life safety purposes, or (ii) made by Landlord to
reduce Project Operating Costs; and (11) any other costs or expenses
incurred by Landlord under this Lease and not otherwise reimbursed by
tenants of the Project. If at any time during the Term, less than
eighty-five percent (85%) of the Rentable Area of the Project is occupied,
the "operating costs" component of the Project Operating Costs shall be
adjusted by Landlord to reasonably approximate the operating costs which
would have been incurred if the Project had been at least eighty-five
percent (85%) occupied. *
(2) Tenant's Proportionate Share of Project Operating Costs shall be payable
by Tenant to Landlord as follows:
(a) Beginning with the calendar year following the Base Year and for
each calendar year thereafter ("Comparison Year"), Tenant shall pay
Landlord an amount equal to Tenant's Proportionate Share of the Project
Operating Costs incurred by Landlord in the Comparison Year which exceeds
the total amount of Project Operating Costs payable by Landlord for the
Base Year. This excess is referred to as the "Excess Expenses."
(b) To provide for current payments of Excess Expenses, Tenant shall,
at Landlord's request, pay as additional rent during each Comparison
Year, an amount equal to Tenant's Proportionate Share of the Excess
Expenses payable during such Comparison Year, as estimated by Landlord
from time to time. Such payments shall be made in monthly installments,
commencing on the first day of the month following the month in which
Landlord notifies Tenant of the amount it is to pay hereunder and
continuing until the first day of the month following the month in which
Landlord gives Tenant a new notice of estimated Excess Expenses. It is the
intention hereunder to estimate from time to time the amount of the Excess
Expenses for each Comparison Year and Tenant's Proportionate Share
thereof, and then to make an adjustment in the following year based on the
actual Excess Expenses incurred for that Comparison Year.
(c) On or before April 1 of each Comparison Year after the first
Comparison Year (or as soon thereafter as is practical), Landlord shall
deliver to Tenant a statement setting forth Tenant's Proportionate Share
of the Excess Expenses for the preceding Comparison Year. If Tenant's
Proportionate Share of the actual Excess Expenses for the previous
Comparison Year exceeds the total of the estimated monthly payments made
by Tenant for such year, Tenant shall pay Landlord the amount of the
deficiency within ten (10) days of the receipt of the statement. If such
total exceeds Tenant's Proportionate Share of the actual Excess Expenses
for such Comparison Year, then Landlord shall credit against Tenant's next
ensuing monthly installment(s) of additional rent an amount equal to the
difference until the credit is exhausted. If a credit is due from
Landlord on the Expiration Date, Landlord shall pay Tenant the amount of
the credit. The obligations of Tenant and Landlord to make payments
required under this Section 5.3 shall survive the Expiration Date.
(d) Tenant's Proportionate Share of Excess Expenses in any Comparison
Year having less than 365 days shall be appropriately prorated.
(e) If any dispute arises as to the amount of any additional rent due
hereunder, Tenant shall have the right after reasonable notice and at
reasonable times to inspect Landlord's accounting records at Landlord's
accounting office and, if after such inspection Tenant still disputes the
amount of additional rent owed, a certification as to the proper amount
shall be made by Landlord's certified public accountant, which
certification shall be final and conclusive. Tenant agrees to pay the
cost of such certification unless it is determined that Landlord's
original statement overstated Project Operating Costs by more than five
percent (5%).
* (12) repair, maintenance and replacement of the HVAC system, roof system,
and parking areas. Tenant shall contract for and pay for its own janitorial
service and supplies for the Premises. Landlord shall separately meter the
Premises for electricity and gas. Tenant shall pay for electricity and gas
service for the Premises directly to the utility supplier.
(3)
<PAGE> 5
(f) If this Lease sets forth an Expense Stop at Section 2f, then during
the Term Tenant shall be liable for Tenant's Proportionate Share of any
actual Project Operating Costs which exceed the amount of the Expense
Stop. Tenant shall make current payments of such excess costs during
the Term in the same manner as is provided for payment of Excess
Expenses under the applicable provisions of Section 5.3b(2)(b) and (c)
above.
5.4 DEFINITION OF RENT. All costs and expenses which Tenant assumes or agrees
to pay to Landlord under this Lease shall be deemed additional rent (which,
together with the Base Rent is sometimes referred to as the "Rent"). The Rent
shall be paid to the Building manager (or other person) and at such place, as
Landlord may from time to time designate in writing, without any prior demand
therefor and without deduction or offset, in lawful money to the United States
of America.
5.5 RENT CONTROL. If the amount of Rent or any other payment due under this
Lease violates the terms or any governmental restrictions on such Rent or
payment, then the Rent or payment due during the period of such restrictions
shall be the maximum amount allowable under those restrictions. Upon
termination of the restrictions, Landlord shall, to the extent it is legally
permitted, recover from Tenant the difference between the amounts received
during the period of the restrictions and the amounts Landlord would have
received had there been no restrictions.
5.6 TAXES PAYABLE BY TENANT. In addition to the Rent and any other charges to
be paid by Tenant hereunder. Tenant shall reimburse Landlord upon demand for
any and all taxes payable by Landlord (other than net income taxes) which are
not otherwise reimbursable under this Lease, whether or not now customary or
within the contemplation of the parties, where such taxes are upon, measured by
or reasonably attributable to (a) the cost or value of Tenants equipment,
furniture, fixtures and other personal property located in the Premises, or
the cost or value of any leasehold improvements made in or to the Premises by
or for Tenant, other than Building Standard Work made by Landlord, regardless
of whether title to such improvements is held by Tenant or Landlord; (b) the
gross or net Rent payable under this Lease, including, without limitation, any
rental or gross receipts tax levied by any taxing authority with respect to the
receipt of the Rent hereunder; (c) the possession, leasing, operation,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Premises or any portion thereof: or (d) this transaction or any document to
which Tenant is a party creating or transferring an interest or an estate in
the Premises. If it becomes unlawful for Tenant to reimburse Landlord for any
costs as required under this Lease, the Base Rent shall be revised to net
Landlord the same net Rent after imposition of any tax or other charge upon
Landlord as would have been payable to Landlord but for the reimbursement
being unlawful.
6. INTEREST AND LATE CHARGES.
If Tenant fails to pay when due any Rent or other amounts or charges which
Tenant is obligated to pay under the terms of this Lease, the unpaid amounts
shall bear interest at the maximum rate then allowed by law. Tenant
acknowledges that the late payment of any Monthly Installment of Base Rent will
cause Landlord to lose the use of that money and incur costs and expenses not
contemplated under this Lease, including without limitation, administrative and
collection costs and processing and accounting expenses, the exact amount of
which is extremely difficult to ascertain. Therefore, in addition to interest,
if any such installment is not received by Landlord within ten (10) days from
the date it is due, Tenant shall pay Landlord a late charge equal to ten
percent (10%) of such installment. Landlord and Tenant agree that this late
charge represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for the loss suffered from such nonpayment by Tenant.
Acceptance of any interest or late charge shall not constitute a waiver of
Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord
from exercising any other rights or remedies available to Landlord under this
Lease.
7. SECURITY DEPOSIT.
Tenant agrees to deposit with Landlord the Security Deposit set forth at
Section 2.0 upon execution of this Lease, as security for Tenant's faithful
performance of its obligations under this Lease. Landlord and Tenant agree
that the Security Deposit may be commingled with funds of Landlord and Landlord
shall have no obligation or liability for payment of interest on such deposit.
Tenant shall not mortgage, assign, transfer or encumber the Security Deposit
without the prior written consent of Landlord and any attempt by Tenant to do so
shall be void, without force or effect and shall not be binding upon Landlord.
If Tenant fails to pay any Rent or other amount when due and payable under this
Lease, or fails to perform any of the terms hereof, Landlord may appropriate
and apply or use all or any portion of the Security Deposit for Rent payments
or any other amount then due and unpaid, for payment of any amount for which
Landlord has become obligated as a result of Tenant's default or breach, and
for any loss or damage sustained by Landlord as a result of Tenant's default or
breach, and Landlord may so apply or use this deposit without prejudice to any
other remedy Landlord may have by reason of Tenant's default or breach. If
Landlord so uses any of the Security Deposit, Tenant shall, within ten (10)
days after written demand therefor, restore the Security Deposit to the full
amount originally deposited; Tenant's failure to do so shall constitute an act
of default hereunder and Landlord shall have the right to exercise any remedy
provided for at Article 27 hereof. Within fifteen (15) days after the Term (or
any extension thereof) has expired or Tenant has vacated the Premises,
whichever shall last occur, and provided Tenant is not then in default on any
of its obligations hereunder, Landlord shall return the Security Deposit to
Tenant, or, if Tenant has assigned its interest under this Lease, to the last
assignee of Tenant. If Landlord sells its interest in the Premises, Landlord
may deliver this deposit to the purchaser of Landlord's interest and thereupon
be relieved of any further liability or obligation with respect to the Security
Deposit.
8. TENANTS USE OF THE PREMISES.
Tenant shall use the Premise solely for the purposes set forth in Tenant's Use
Clause. Tenant shall not use or occupy the Premises in violation of law or any
covenant, condition or restriction affecting the Building or Project or the
certificate of occupancy issued for the Building or Project, and shall, upon
notice from Landlord, immediately discontinue any use of the Premises which is
declared by any governmental authority having jurisdiction to be a violation of
law or the certificate of occupancy. Tenant, at Tenant's own cost and expense,
shall comply with all laws, ordinances, regulations, rules and/or any
directions of any governmental agencies or authorities having jurisdiction
which shall, by reason of the nature of Tenant's use or occupancy
of the Premises, impose any duty upon Tenant or Landlord with respect to the
Premises or its use or occupation. A judgment of any court of competent
jurisdiction or the admission by Tenant in any action or proceeding against
Tenant that Tenant has violated any such laws, ordinances, regulations, rules
and/or directions in the use of the Premises shall be deemed to be a
conclusive determination of that fact as between Landlord and Tenant. Tenant
shall not do or permit to be done anything which will invalidate or increase
the cost of any fire, extended coverage or other insurance policy covering the
Building or Project and/or property located therein and shall comply with all
rules, orders, regulations, requirements and recommendations of the Insurance
Services Office or any other organization performing a similar function.
Tenant shall
(4)
<PAGE> 6
promptly upon demand reimburse Landlord for any additional premium charged for
such policy by reason of Tenant's failure to comply with the provisions of this
Article. Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Building or Project, or injure or annoy them, or use
or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purposes, nor shall Tenant cause, maintain or permit any nuisance
in, on or about the Premises. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises.
9. SERVICES AND UTILITIES.
Tenant shall pay for the electricity and gas for office equipment and normal
copying equipment, and heating, ventilation and air conditioning ("HVAC") as
required for the comfortable use and occupancy of the Premises. Landlord shall
maintain and keep lighted the common stairs, common entries and restrooms in the
Building. Landlord shall not be default hereunder or be liable for any damages
directly or indirectly resulting from, nor shall the Rent be abated by reason of
(i) the installation, use or interruption of use of any equipment in connection
with the furnishing of any of the foregoing services, (ii) failure to furnish or
delay in furnishing any such services where such failure or delay is caused by
accident or any condition or event beyond the reasonable control of Landlord, or
by the making of necessary repairs or improvements to the Premises, Building or
Project, or (iii) the limitation, curtailment or rationing of, or restrictions
on, use of water, electricity, gas or any other form of energy serving the
Premises, Building or Project. Landlord shall not be liable under any
circumstances for a loss of or injury to property or business, however
occurring, through or in connection with or incidental to failure to furnish any
such services, if Tenant uses heat generating machines or equipment in the
Premises which affect the temperature otherwise maintained the HVAC system.
Landlord reserves the right to install supplementary air conditioning units in
the Premises and the cost thereof, including the cost of installation, operation
and maintenance thereof, shall be paid by Tenant to Landlord upon demand by
Landlord.
Tenant shall not, without the written consent of Landlord use any apparatus or
device in the Premises including without limitation, electronic data processing
machines, punch card machines or machines using in excess of 120 volts. Tenant
shall not connect any apparatus with electric current except through existing
electrical outlets in the Premises. Tenant shall not consume water in excess of
that usually furnished or supplied for the use of premises as general office
space (as determined by Landlord), without first procuring the written consent
of Landlord, which Landlord may refuse, and in the event of consent. Landlord
may have installed a water meter in the Premises to measure the amount of water
consumed. The cost of any such meter and of its installation, maintenance and
repair shall be paid for the Tenant and Tenant agrees to pay to Landlord
promptly upon demand for all such water consumed as shown by said meters, at the
rates charged for such services by the local public utility plus any additional
expense incurred in keeping account of the water so consumed. If a separate
meter is not installed, the excess cost for such water shall be established by
an estimate made by a utility company at Tenant's expense.
Nothing contained in this Article shall restrict Landlord's right to require
at any time separate metering of utilities furnished to the Premises. In the
event utilities are separately metered, Tenant shall pay promptly upon demand
for all utilities consumed at utility rates charged by the local public utility
plus any additional expense incurred by Landlord in keeping account of the
utilities so consumed. Tenant shall be responsible for the maintenance and
repair of any such meters at its sole cost. Tenant shall furnish janitorial
services and supplies for the leased Premises.
10. CONDITION OF THE PREMISES.
Tenant's taking possession of the Premises shall be deemed conclusive evidence
that as of the date of taking possession the Premises are in good order and
satisfactory condition, except of such matters as to which Tenant gave Landlord
notice on or before the Commencement Date. No promise of Landlord to alter,
remodel, repair or improve the Premises, the Building or the Project and no
representation, express or implied, respecting any matter or thing relating to
the Premises, Building, Project or this Lease (including, without limitation,
the condition of the Premises, the Building or the Project) have been made to
Tenant by Landlord or its Broker or Sales Agent, other than as may be
contained herein or its Broker or Sales Agent, other than as may be contained
herein or in a separate exhibit or addendum signed by Landlord and Tenant.
11. CONSTRUCTION, REPAIRS AND MAINTENANCE.
a. Landlord's Obligations. Landlord shall maintain in good order,
condition and repair the Building and all other portions of the Premises
not the obligation of Tenant or of any other tenant in the Building,
including the heating, ventilating and air conditioning systems subject
to reimbursement as provided for in Article 5.3.
b. Tenant's Obligations.
(This section deleted. Initialed by _____.)
(2) Tenant at Tenant's sole expense shall, except for services furnished
by Landlord pursuant to Article 9 hereof, maintain the Premises in good
order, condition and repair, including the interior surfaces of the
ceilings, walls, and floors, all interior windows, all plumbing pipes
and fixtures, electrical wiring, switches and fixtures. Building
Standard furnishings and special items and equipment installed by or
at the expense of Tenant.
(3) Tenant shall be responsible for all repairs and alterations in and
to the Premises, Building and Project and the facilities and systems
thereof, the need for which arises out of (i) Tenant's use or occupancy
of the Premises, (ii) the installation, removal, use or operation of
Tenant's Property (as defined in Article 13) in the Premises, (iii) the
moving of Tenant's Property into or out of the Building, or (iv) the
act, omission, misuse or negligence of Tenant, its agents, contractors,
employees or invitees.
*Landlord shall furnish window washing services subject to reimbursement as
provided for in Article 5.3.
(5)
<PAGE> 7
(4) If Tenant fails to maintain the Premises in good order, condition
and repair, Landlord shall give Tenant notice to do such acts as are
reasonably required to so maintain the Premises. If Tenant fails to
promptly commence such work and diligently prosecute it to completion,
then Landlord shall have the right to do such acts and expend such
funds at the expense of Tenant as are reasonably required to perform
such work. Any amount so expended by Landlord shall be paid by Tenant
promptly after demand with interest at the prime commercial rate then
being charged by Bank of America NT & SA plus two percent (2%) per
annum, from the date of such work, but not to exceed the maximum rate
then allowed by law. Landlord shall have no liability to Tenant for
any damage, inconvenience, or interference with the use of the
Premises by Tenant as a result of performing any such work.
c. Compliance with Law. Landlord and Tenant shall each do all acts
required to comply with all applicable laws, ordinances, and rules of any
public authority relating to their respective maintenance obligations as
set forth herein.
d. Waiver by Tenant. Tenant expressly waives the benefits of any statute
now or hereafter in effect which would otherwise afford the Tenant the
right to make repairs at Landlord's expense or to terminate this Lease
because of Landlord's failure to keep the Premises in good order, condition
and repair.
e. Load and Equipment Limits. Tenant shall not place a load upon any
floor of the Premises which exceeds the load per square foot which such
floor was designed to carry, as determined by Landlord or Landlord's
structural engineer. The cost of any such determination made by Landlord's
structural engineer shall be paid for by Tenant upon demand. Tenant shall
not install business machines or mechanical equipment which cause noise or
vibration to such a degree as to be objectionable to Landlord or other
Building tenants.
f. Except as otherwise expressly provided in this Lease, Landlord shall
have no liability to Tenant nor shall Tenant's obligations under this Lease
be reduced or abated in any manner whatsoever by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or
permitted by this Lease or by any other tenant's lease or required by law
to make in or to any portion of the Project, Building or the Premises.
Landlord shall nevertheless use reasonable efforts to minimize any
interference with Tenant's business in the Premises.
g. Tenant shall give Landlord prompt notice of any damage to or defective
condition in any part or appurtenance of the Building's mechanical,
electrical, plumbing, HVAC or other systems serving, located in, or passing
through the Premises.
h. Upon the expiration or earlier termination of this Lease. Tenant shall
return the Premises to Landlord clean and in the same condition as on the
date Tenant took possession, except for normal wear and tear. Any damage
to the Premises, including any structural damage, resulting from Tenant's
use or from the removal of Tenant's fixtures, furnishings and equipment
pursuant to Section 13b shall be repaired by Tenant at Tenant's expense.
12. ALTERATIONS AND ADDITIONS.
a. Tenant shall not make any additions, alterations or improvements to the
Premises without obtaining the prior written consent of Landlord.
Landlord's consent may be conditioned on Tenant's removing any such
additions, alterations or improvements upon the expiration of the Term and
restoring the Premises to the same condition as on the date Tenant took
possession. All work with respect to any addition, alteration or
improvement shall be done in a good and workmanlike manner by properly
qualified and licensed personnel approved by Landlord, and such work shall
be diligently prosecuted to completion. Landlord may, at Landlord's
option, require that any such work be performed by Landlord's contractor,
in which case the cost of such work shall be paid for before commencement
of the work. Tenant shall pay to Landlord upon completion of any such
work by Landlord's contractor, an administrative fee of fifteen percent
(15%) of the cost of the work.
b. Tenant shall pay the costs of any work done on the Premises pursuant to
Section 12a, and shall keep the Premises, Building and Project free and
clear of liens of any kind. Tenant shall indemnify, defend against and
keep Landlord free and harmless from all liability, loss, damage, costs,
attorneys' fees and any other expense incurred on account of claims by any
person performing work or furnishing materials or supplies for Tenant or
any person claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or
improvements which are or become the property of Landlord under this
Lease, free and clear of all attachment or judgment liens. Before the
actual commencement of any work for which a claim or lien may be filed,
Tenant shall give Landlord notice of the intended commencement date a
sufficient time before that date to enable Landlord to post notices of
non-responsibility or any other notices which Landlord deems necessary for
the proper protection of Landlord's interest in the Premises, Building or
the Project, and Landlord shall have the right to enter the Premises and
post such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant provide to
Landlord, at Tenant's expense, a lien and completion bond in an amount
equal to at least one and one-half (1 1/2) times the total estimated cost
of any additions, alterations or improvements to be made in or to the
Premises, to protect Landlord against any liability for mechanic's and
materialmen's liens and to insure timely completion of the work. Nothing
contained in this Section 12c shall relieve Tenant of its obligation under
Section 12b to keep the Premises, Building and, Project free of all liens.
d. Unless their removal is required by Landlord as provided in Section 12a,
all additions, alterations and improvements made to the Premises shall
become the property of Landlord and be surrendered with the Premises upon
the expiration of the Term; provided, however, Tenant's equipment,
machinery and trade fixtures which can be removed without damage to the
Premises shall remain the property of Tenant and may be removed, subject to
the provisions of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
a. All fixtures, equipment, improvements and appurtenances attached to or
built into the Premises at the commencement of or during the Term, whether
or not by or at the expense of Tenant ("Leasehold Improvements"), shall be
and remain a part of the Premises, shall be the property of Landlord and
shall not be removed by Tenant, except as expressly provided in Section
13b.
(6)
<PAGE> 8
b. All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment located in the
Premises and acquired by or for the account of Tenant, without expense
to Landlord, which can be removed without structural damage to the
Building, and all furniture, furnishings and other articles of movable
personal property owned by Tenant and located in the Premises
(collectively "Tenant's Property") shall be and shall remain the
property of Tenant and may be removed by Tenant at any time during the
Term: provided that if any of Tenant's Property is removed, Tenant shall
promptly repair any damage to the Premises or to the Building resulting
from such removal.
14. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto as
Exhibit "D" and with such reasonable modifications thereof and additions
thereto as Landlord may from time to time make. Landlord shall not be
responsible for any violation of said rules and regulations by other tenants or
occupants of the Building or Project.
15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without liability to Tenant
for (a) damage or injury to property, person or business, (b) causing an actual
or constructive eviction from the Premises, or (c) disturbing Tenant's use or
possession of the Premises:
a. To name the Building and Project and to change the name or street
address of the Building or Project;
b. To install and maintain all signs on the exterior and interior of the
Building and Project;
c. To have pass keys to the Premises and all doors within the Premises,
excluding Tenant's vaults and safes;
d. At any time during the Term, and on reasonable prior notice to Tenant, to
inspect the Premises, and to show the Premises to any prospective purchaser
or mortgagee of the Project, or to any assignee of any mortgage on the
Project, or to others having an interest in the Project or Landlord, and
during the last six months of the Term, to show the Premises to prospective
tenants thereof; and
e. To enter the Premises for the purpose of making inspections, repairs,
alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or
balancing controls and other parts of the HVAC system), and to take all
steps as may be necessary or desirable for the safety, protection,
maintenance or preservation of the Premises or the Building or Landlord's
interest therein, or as may be necessary or desirable for the operation or
improvement of the Building or in order to comply with laws, orders or
requirements of governmental or other authority. Landlord agrees to use its
best efforts (except in an emergency) to minimize interference with
Tenant's business in the Premises in the course of any such entry.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises
shall be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of Landlord, assign
or hypothecate this Lease or any interest herein or sublet the Premises
or any part thereof, or permit the use of the Premises by any party other
than Tenant. Any of the foregoing acts without such consent shall be void
and shall, at the option of Landlord, terminate this Lease. This Lease
shall not, nor shall any interest of Tenant herein, be assignable by
operation of law without the written consent of Landlord.
b. If at any time or from time to time during the Term Tenant desires to
assign this Lease or sublet all or any part of the Premises. Tenant
shall give notice to Landlord setting forth the terms and provisions of the
proposed assignment or sublease, and the identity of the proposed assignee
or subtenant. Tenant shall promptly supply Landlord with such information
concerning the business background and financial condition of such proposed
assignee or subtenant as Landlord may reasonably request. Landlord shall
have the option, exercisable by notice given to Tenant within twenty (20)
days after Tenant's notice is given, either to sublet such space from
Tenant at the rental and on the other terms set forth in this Lease for the
term set forth in Tenant's notice, or, in the case of an assignment, to
terminate this Lease. If Landlord does not exercise such option, Tenant may
assign the Lease or sublet such space to such proposed assignee or
subtenant on the following further conditions:
(1) Landlord shall have the right to approve such proposed assignee or
subtenant, which approval shall not be unreasonably withheld;
(2) The assignment or sublease shall be on the same terms set forth in
the notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or
sublessee shall take possession of the Premises until an executed
counterpart of such assignment or sublease has been delivered to
Landlord;
(4) No assignee or sublessee shall have a further right to assign or
sublet except on the terms herein contained; and
(5) Any sums or other economic consideration received by Tenant as a
result of such assignment or subletting, however denominated under the
assignment or sublease, which exceed, in the aggregate, (i) the total
sums which Tenant is obligated to pay Landlord under this Lease
(prorated to reflect obligations allocable to any portion of the
Premises subleased), plus (ii) any real estate brokerage commissions or
fees payable in connection with such assignment or subletting, shall be
paid to Landlord as additional rent under this Lease without affecting
or reducing any other obligations of Tenant hereunder.
c. Notwithstanding the provisions of paragraphs a and b above, Tenant may
assign this Lease or sublet the Premises or any portion thereof, without
Landlord's consent and without extending any recapture or termination option
to Landlord, to any corporation which controls, is controlled by or is under
common control with Tenant, or to any corporation resulting from a merger or
consolidation with Tenant, or to any person or entity which acquires all the
assets of Tenant's business as a going concern, provided that (i) the
assignee or sublessee assumes, in full, the obligations of Tenant under this
Lease, (ii) Tenant remains fully liable under this Lease, and (iii) the use
of the Premises under Article 8 remains unchanged.
(7)
<PAGE> 9
d. No subletting or assignment shall release Tenant of Tenant's
obligations under this Lease or alter the primary liability of Tenant to
pay the Rent and to perform all other obligations to be performed by
Tenant hereunder. The acceptance of Rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any provision
hereof. Consent to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting. In the event of
default by an assignee or subtenant of Tenant or any successor of Tenant
in the performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies
against such assignee, subtenant or successor. Landlord may consent to
subsequent assignments of the Lease or sublettings or amendments or
modifications to the Lease with assignees of Tenant, without notifying
Tenant, or any successor of Tenant, and without obtaining its or their
consent thereto and any such actions shall not relieve Tenant of
liability under this Lease.
e. If Tenant assigns the Lease or sublets the Premises or requests the
consent of Landlord to any assignment or subletting or if Tenant
requests the consent of Landlord for any act that Tenant proposes to do,
then Tenant shall, upon demand, pay Landlord an administrative fee of
One Hundred Fifty and No/100ths Dollars ($150.00) plus any attorneys'
fees reasonably incurred by Landlord in connection with such act or
request.
17. HOLDING OVER.
If after expiration of the Term, Tenant remains in possession of the Premises
with Landlord's permission (express or implied). Tenant shall become a tenant
from month to month only, upon all the provisions of this Lease (except as to
term and Base Rent), but the "Monthly Installments of Base Rent" payable by
Tenant shall be increased to one hundred fifty percent (150%) of the Monthly
Installments of Base Rent payable by Tenant at the expiration of the Term. Such
monthly rent shall be payable in advance on or before the first day of each
month. If either party desires to terminate such month to month tenancy, it
shall give the other party not less than thirty (30) days advance written
notice of the date of termination.
18. SURRENDER OF PREMISES.
a. Tenant shall peaceably surrender the Premises to Landlord on the
Expiration Date, in broom-clean condition and in as good condition as
when Tenant took possession, except for (i) reasonable wear and tear,
(ii) loss by fire or other casualty, and (iii) loss by condemnation.
Tenant shall, on Landlord's request, remove Tenant's Property on or
before the Expiration Date and promptly repair all damage to the
Premises or Building caused by such removal.
b. If Tenant abandons or surrenders the Premises, or is dispossessed by
process of law or otherwise, any of Tenant's Property left on the
Premises shall be deemed to be abandoned, and, at Landlord's option,
title shall pass to Landlord under this Lease as by a bill of sale. If
Landlord elects to remove all or any part of such Tenant's Property, the
cost of removal, including repairing any damage to the Premises or
Building caused by such removal, shall be paid by Tenant. On the
Expiration Date Tenant shall surrender all keys to the Premises.
19. DESTRUCTION OR DAMAGE.
a. If the Premises or the portion of the Building necessary for
Tenant's occupancy is damaged by fire, earthquake, act of God, the
elements of other casualty, Landlord shall, subject to the provisions of
this Article, promptly repair the damage, if such repairs can, in
Landlord's opinion, be completed within (90) ninety days. If Landlord
determines that repairs can be completed within ninety (90) days, this
Lease shall remain in full force and effect, except that if such damage
is not the result of the negligence or willful misconduct of Tenant or
Tenant's agents, employees, contractors, licensees or invitees, the Base
Rent shall be abated to the extent Tenant's use of the Premises is
impaired, commencing with the date of damage and continuing until
completion of the repairs required of Landlord under Section 19d.
b. If in Landlord's opinion, such repairs to the Premises or portion
of the Building necessary for Tenant's occupancy cannot be completed
within ninety (90) days, Landlord may elect, upon notice to Tenant given
within thirty (30) days after the date of such fire or other casualty,
to repair such damage, in which event this Lease shall continue in full
force and effect, but the Base Rent shall be partially abated as
provided in Section 19a. If Landlord does not so elect to make such
repairs, this Lease shall terminate as of the date of such fire or other
casualty.
c. If any other portion of the Building or Project is totally destroyed
or damaged to the extent that in Landlord's opinion repair thereof
cannot be completed within ninety (90) days. Landlord may elect upon
notice to Tenant given within thirty (30) days after the date of such
fire or other casualty, to repair such damage, in which event this Lease
shall continue in full force and effect, but the Base Rent shall be
partially abated as provided in Section 19a. If Landlord does not elect
to make such repairs, this Lease shall terminate as of the date of such
fire or other casualty.
d. If the Premises are to be repaired under this Article, Landlord
shall repair at its cost any injury or damage to the Building and
Building Standard Work in the Premises. Tenant shall be responsible at
its sole cost and expense for the repair, restoration and replacement of
any other Leasehold Improvements and Tenant's Property. Landlord shall
not be liable for any loss of business, inconvenience or annoyance
arising from any repair or restoration of any portion of the Premises,
Building or Project as a result of any damage from fire or other
casualty.
e. This Lease shall be considered an express agreement governing any
case of damage to or destruction of the Premises, Building or Project
by fire or other casualty, and any present or future law which purports
to govern the rights of Landlord and Tenant in such circumstances in the
absence of express agreement, shall have no application.
20. EMINENT DOMAIN.
a. If the whole of the Building or Premises is lawfully taken by
condemnation or in any other manner for any public or quasi-public
purpose, this Lease shall terminate as of the date of such taking, and
Rent shall be prorated to such date. If less than the whole of the
Building or Premises is so taken, this Lease shall be unaffected
by such taking, provided that (i) Tenant shall have the right to
terminate this Lease by notice to Landlord given within ninety (90)
days after the date of such taking if twenty percent (20%) or more of
the Premises is taken and the remaining area of the Premises is not
reasonably sufficient for Tenant to continue operation of its business,
and (ii) Landlord shall have the right to terminate this Lease by
notice to Tenant given within ninety (90) days after the date of such
taking. If either Landlord or Tenant so elects to terminate this Lease,
the Lease shall terminate on the thirtieth (30th) day after either such
notice. The Rent shall be prorated to the date of termination. If this
Lease continues in force upon such partial taking, the Base Rent and
Tenant's Proportionate Share shall be equitably adjusted according to
the remaining Rentable Area of the Premises and Project.
(8)
<PAGE> 10
b. In the event of any taking, partial or whole, all of the proceeds of
any award, judgment or settlement payable by the condemning authority
shall be the exclusive property of Landlord, and Tenant hereby assigns to
Landlord all of its right, title and interest in any award, judgment or
settlement from the condemning authority. Tenant, however, shall have the
right, to the extent that Landlord's award is not reduced or prejudiced,
to claim from the condemning authority (but not from Landlord) such
compensation as may be recoverable by Tenant in its own right for
relocation expenses and damage to Tenant's personal property.
c. In the event of a partial taking of the Premises which does not result
in a termination of this Lease, Landlord shall restore the remaining
portion of the Premises as nearly as practicable to its condition prior to
the condemnation or taking, but only to the extent of Building Standard
Work. Tenant shall be responsible at its sole cost and expense for the
repair, restoration and replacement of any other Leasehold Improvements
and Tenant's Property.
21. INDEMNIFICATION.
a. Tenant shall indemnify and hold Landlord harmless against and from
liability and claims of any kind for loss or damage to property of Tenant
or any other person, or for any injury to or death of any person, arising
out of; (1) Tenant's use and occupancy of the Premises, or any work,
activity or other things allowed or suffered by Tenant to be done in, on
or about the Premises; (2) any breach or default by Tenant of any of
Tenant's obligations under this Lease; or (3) any negligent or otherwise
tortious act or omission of Tenant, its agents, employees, invitees or
contractors. Tenant shall at Tenant's expense, and by counsel satisfactory
to Landlord, defend Landlord in any action or proceeding arising from any
such claim and shall indemnify Landlord against all costs, attorneys'
fees, expert witness fees and any other expenses incurred in such action
or proceeding. As a material part of the consideration for Landlord's
execution of this Lease, Tenant hereby assumes all risk of damage or
injury to any person or property in, on or about the Premises from any
cause.
b. Landlord shall not be liable for injury or damage which may be
sustained by the person or property of Tenant, its employees, invitees or
customers, or any other person in or about the Premises, caused by or
resulting from fire, steam, electricity, gas, water or rain which may leak
or flow from or into any part of the Premises, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, whether such
damage or injury results from conditions arising upon the Premises or upon
other portions of the Building or Project or from other sources.
Landlord shall not be liable for any damages arising from any act or
omission of any other tenant of the Building or Project.
22. TENANT'S INSURANCE.
a. All insurance required to be carried by Tenant hereunder shall be
issued by responsible insurance companies acceptable to Landlord and
Landlord's lender and qualified to do business in the State. Each policy
shall name Landlord, and at Landlord's request any mortgagee of Landlord,
as an additional insured, as their respective interests may appear. Each
policy shall contain (i) a cross-liability endorsement, (ii) a provision
that such policy and the coverage evidenced thereby shall be primary and
non-contributing with respect to any policies carried by Landlord and
that any coverage carried by Landlord shall be excess insurance, and
(iii) a waiver by the insurer of any right of subrogation against
Landlord, its agents, employees and representatives, which arises or
might arise by reason of any payment under such policy or by reason of
any act or omission of Landlord, its agents, employees or
representatives. A copy of each paid up policy (authenticated by the
insurer) or certificate of the insurer evidencing the existence and
amount of each insurance policy required hereunder shall be delivered to
Landlord before the date Tenant is first given the right of possession of
the Premises, and thereafter within thirty (30) days after any demand by
Landlord therefor. Landlord may, at any time and from time to time,
inspect and/or copy any insurance policies required to be maintained by
Tenant hereunder. No such policy shall be cancellable except after
twenty (20) days written notice to Landlord and Landlord's lender.
Tenant shall furnish Landlord with renewals or "binders" of any such
policy at least ten (10) days prior to the expiration thereof. Tenant
agrees that if Tenant does not take out and maintain such insurance,
Landlord may (but shall not be required to) procure said insurance on
Tenant's behalf and charge the Tenant the premiums together with a
twenty-five percent (25%) handling charge, payable upon demand. Tenant
shall have the right to provide such insurance coverage pursuant to
blanket policies obtained by the Tenant, provided such blanket policies
expressly afford coverage to the Premises, Landlord, Landlord's mortgagee
and Tenant as required by this Lease.
b. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall
procure, pay for and maintain in effect policies of casualty insurance
covering (i) all Leasehold Improvements (including any alterations,
additions or improvements as may be made by Tenant pursuant to the
provisions of Article 12 hereof), and (ii) trade fixtures, merchandise and
other personal property from time to time in, on or about the Premises,
in an amount not less than one hundred percent (100%) of their actual
replacement cost from time to time, providing protection against any peril
included within the classification "Fire and Extended Coverage" together
with insurance against sprinkler damage, vandalism and malicious mischief.
The proceeds of such insurance shall be used for the repair or replacement
of the property so insured. Upon termination of this Lease following a
casualty as set forth herein, the proceeds under (i) shall be paid to
Landlord, and the proceeds under (ii) above shall be paid to Tenant.
c. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure,
pay for and maintain in effect workers' compensation insurance as required
by law and comprehensive public liability and property damage insurance
with respect to the construction of improvements on the Premises, the use,
operation or condition of the Premises and the operations of Tenant in,
on or about the Premises, providing personal injury and broad form
property damage coverage for not less than combined single limit for
bodily injury, death and property damage liability.
d. Not less than every three (3) years during the Term, Landlord and
Tenant shall mutually agree to increases in all of Tenant's insurance
policy limits for all insurance to be carried by Tenant as set forth in
this Article. In the event Landlord and Tenant cannot mutually agree upon
the amounts of said increases, then Tenant agrees that all insurance
policy limits as set forth in this Article shall be adjusted for increases
in the cost of living in the same manner as is set forth in Section 5.2
hereof for the adjustment of the Base Rent.
(9)
<PAGE> 11
23. WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive all rights of recovery against the other
and against the officers, employees, agents and representatives of the other,
on account of loss by or damage to the waiving party of its property or the
property of others under its control, to the extent that such loss or damage is
insured against under any fire and extended coverage insurance policy which
either may have in force at the time of the loss or damage. Tenant shall, upon
obtaining the policies of insurance required under this Lease, give notice to
its insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
24. SUBORDINATION AND ATTORNMENT.
Upon written request of Landlord, or any first mortgagee or first deed of trust
beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in
writing, subordinate its rights under this Lease to the lien of any first
mortgage or first deed of trust, or to the interest of any lease in which
Landlord is lessee, and to all advances made or hereafter to be made
thereunder. However, before signing any subordination agreement, Tenant shall
have the right to obtain from any lender or lessor or Landlord requesting such
subordination, an agreement in writing providing that, as long as Tenant is not
in default hereunder, this Lease shall remain in effect for the full Term. The
holder of any security interest may, upon written notice to Tenant, elect to
have this Lease prior to its security interest regardless of the time of the
granting or recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee. Tenant shall attorn to
the purchaser, transferee or lessor as the case may be, and recognize that
party as Landlord under this Lease, provided such party acquires and accepts
the Premises subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from Landlord, Tenant shall execute
and deliver to Landlord or Landlord's designee, a written statement certifying
(a) that this Lease is unmodified and in full force and effect, or is in full
force and effect as modified and stating the modifications; (b) the amount of
Base Rent and the date to which Base Rent and additional rent have been paid in
advance; (c) the amount of any security deposited with Landlord; and (d) that
Landlord is not in default hereunder or, if Landlord is claimed to be in
default stating the nature of any claimed default. Any such statement may be
relied upon by a purchaser, assignee or lender. Tenant's failure to execute and
deliver such statement within the time required shall at Landlord's election be
a default under this Lease and shall also be conclusive upon Tenant that; (1)
this Lease is in full force and effect and has not been modified except as
represented by Landlord: (2) there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counter-claim or deduction
against Rent; and (3) not more than one month's Rent has been paid in advance.
26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building, Project or Lease occurring after
the consummation of such sale or transfer, providing the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. If any security deposit or prepaid Rent has been paid by Tenant,
Landlord may transfer the security deposit or prepaid Rent to Landlord's
successor and upon such transfer, Landlord shall be relieved of any and all
further liability with respect thereto.
27. DEFAULT.
27.1 Tenant's Default. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
a. If Tenant abandons or vacates the Premises; or
b. If Tenant fails to pay any Rent or any other charges required to be
paid by Tenant under this Lease and such failure continues for five
(5) days after such payment is due and payable; or
c. If Tenant fails to promptly and fully perform any other covenant,
condition or agreement contained in this Lease and such failure
continues for thirty (30) days after written notice thereof from
Landlord to Tenant; or
d. If a writ of attachment or execution is levied on this Lease or on
any of Tenant's Property; or
e. If Tenant makes a general assignment for the benefit of creditors,
or provides for an arrangement, composition, extension or adjustment
with its creditors; or
f. If Tenant files a voluntary petition for relief or if a petition
against Tenant in a proceeding under the federal bankruptcy laws or
other insolvency laws is filed and not withdrawn or dismissed
within forty-five (45) days thereafter, or if under the provisions
of any law providing for reorganization or winding up of
corporations, any court of competent jurisdiction assumes
jurisdiction, custody or control of Tenant or any substantial part
of its property and such jurisdiction, custody or control of Tenant
or any substantial part of its property and such jurisdiction,
custody or control remains in force unrelinquished, unstayed or
unterminated for a period of forty-five (45) days; or
g. If in any proceeding or action in which Tenant is a party, a
trustee, receiver, agent or custodian is appointed to take charge of
the Premises or Tenant's Property (or has the authority to do so)
for the purpose of enforcing a lien against the Premises or Tenant's
Property; or
h. If Tenant is a partnership or consists of more than one (1) person
or entity, if any partner of the partnership or other person or
entity is involved in any of the acts or events described in
subparagraphs d through g above.
27.2 Remedies. In the event of Tenant's default hereunder, then in addition
to any other rights or remedies Landlord may have under any law, Landlord shall
have the right, at Landlord's option, without further notice or demand of any
kind to do the following:
a. Terminate this Lease and Tenant's right to possession of the
Premises and reenter the Premises and take possession thereof, and
Tenant shall have no further claim to the Premises or under this
Lease; or
b. Continue this Lease in effect, reenter and occupy the Premises for
the account of Tenant, and collect any unpaid Rent or other charges
which have or thereafter become due and payable; or
c. Reenter the Premises under the provisions of subparagraph b, and
thereafter elect to terminate this Lease and Tenant's right to
possession of the Premises.
(10)
<PAGE> 12
If Landlord reenters the Premises under the provisions of subparagraphs b or c
above, Landlord shall not be deemed to have terminated this Lease or the
obligation of Tenant to pay any Rent or other charges thereafter accruing,
unless Landlord notifies Tenant in writing of Landlord's election to terminate
this Lease. In the event of any reentry or retaking of possession by Landlord,
Landlord shall have the right, but not the obligation, to remove all or any
part of Tenant's Property in the Premises and to place such property in storage
at a public warehouse at the expense and risk of Tenant. If Landlord elects to
relet the Premises for the account of Tenant, the rent received by Landlord
from such reletting shall be applied as follows: first, to the payment of any
indebtedness other than Rent due hereunder from Tenant to Landlord; second, to
the payment of any costs of such reletting; third, to the payment of the cost
of any alterations or repairs to the Premises; fourth, to the payment of Rent
due and unpaid hereunder; and the balance, if any, shall be held by Landlord
and applied in payment of future Rent as it becomes due. If that portion of
rent received from the reletting which is applied against the Rent due
hereunder is less than the amount of the Rent due, Tenant shall pay the
deficiency to Landlord promptly upon demand by Landlord. Such deficiency shall
be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as
determined, any costs and expenses incurred by Landlord in connection with such
reletting or in making alterations and repairs to the Premises, which are not
covered by the rent received from the reletting.
Should Landlord elect to terminate this Lease under the provisions of
subparagraph a or c above, Landlord may recover as damages from Tenant the
following:
1. Past Rent. The worth at the time of the award of any unpaid Rent
which had been earned at the time of termination; plus
2. Rent Prior to Award. The worth at the time of the award of the
amount by which the unpaid Rent which would have been earned after
termination until the time of award exceeds the amount of such
rental loss that Tenant proves could have been reasonably avoided;
plus
3. Rent After Award. The worth at the time of the award of the amount
by which the unpaid Rent for the balance of the Term after the time
of award exceeds the amount of the rental loss that Tenant proves
could be reasonably avoided; plus
4. Proximately Caused Damages. Any other amount necessary to
compensate Landlord for all detriment proximately caused by Tenant's
failure to perform its obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom,
including, but not limited to, any costs or expenses (including
attorneys' fees), incurred by Landlord in (a) retaking possession
of the Premises, (b) maintaining the Premises after Tenant's
default, (c) preparing the Premises for reletting to a new tenant,
including any repairs or alterations, and (d) reletting the
Premises, including broker's commissions.
"The worth at the time of the award" as used in subparagraphs 1 and 2 above, is
to be computed by allowing interest at the rate of ten percent (10%) per
annum. "The worth at the time of the award" as used in subparagraph 3 above,
is to be computed by discounting the amount at the discount rate of the Federal
Reserve Bank situated nearest to the Premises at the time of the award plus one
percent (1%).
The waiver by Landlord of any breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such term, covenant or condition or of
any subsequent breach of the same or any other term, covenant or condition.
Acceptance of Rent by Landlord subsequent to any breach hereof shall not be
deemed a waiver of any preceding breach other than the failure to pay the
particular Rent so accepted, regardless of Landlord's knowledge of any breach
at the time of such acceptance of Rent. Landlord shall not be deemed to have
waived any term, covenant or condition unless Landlord gives Tenant written
notice of such waiver.
27.3 Landlord's Default. If Landlord fails to perform any covenant,
condition or agreement contained in this Lease within thirty (30) days after
receipt of written notice from Tenant specifying such default, or if such
default cannot reasonably be cured within thirty (30) days, if Landlord fails
to commence to cure within that thirty (30) day period, then Landlord shall be
liable to Tenant for any damages sustained by Tenant as a result of Landlord's
breach; provided, however, it is expressly understood and agreed that if Tenant
obtains a money judgment against Landlord resulting from any default or other
claim arising under this Lease, that judgment shall be satisfied only out of
the rents, issues, profits, and other income actually received on account of
Landlord's right, title and interest in the Premises, Building or Project, and
no other real, personal or mixed property of Landlord (or of any of the partners
which comprise Landlord, if any) wherever situated, shall be subject to levy to
satisfy such judgment. If, after notice to Landlord of default, Landlord (or
any first mortgagee or first deed of trust beneficiary of Landlord) fails to
cure the default as provided herein, then Tenant shall have the right to cure
that default at Landlord's expense. Tenant shall not have the right to
terminate this Lease or to withhold, reduce or offset any amount against any
payments of Rent or any other charges due and payable under this Lease except
as otherwise specifically provided herein.
28. BROKERAGE FEES.
Tenant warrants and represents that it has not dealt with any real estate
broker or agent in connection with this Lease or its negotiation except those
noted in Section 2.c. Tenant shall indemnify and hold Landlord harmless from
any cost, expense or liability (including costs of suit and reasonable
attorneys' fees) for any compensation, commission or fees claimed by any other
real estate broker or agent in connection with this Lease or its negotiation by
reason of any act of Tenant.
29. NOTICES.
All notices, approvals and demands permitted or required to be given under this
Lease shall be in writing and deemed duly served or given if personally
delivered or sent by certified or registered U.S. mail, postage prepaid, and
addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to
the Building manager, and (b) if to Tenant, to Tenant's Mailing Address;
provided, however, notices to Tenant shall be deemed duly served or given if
delivered or mailed to Tenant at the Premises. Landlord and Tenant may from
time to time by notice to the other designate another place for receipt of
future notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of federal, state or local government controls,
rules, regulations, or restrictions on the use or consumption of energy or other
utilities during the Term, both Landlord and Tenant shall be bound thereby. In
the event of a difference in interpretation by Landlord and Tenant of any such
controls, the interpretation of Landlord shall prevail, and Landlord shall have
the right to enforce compliance therewith, including the right of entry into the
Premises to effect compliance.
31. RELOCATION OF PREMISES.
Landlord shall have the right to relocate the Premises to another part of the
Building in accordance with the following:
(11)
<PAGE> 13
a. The new premises shall be substantially the same in size,
dimensions, configuration, decor and nature as the Premises
described in this Lease, and if the relocation occurs after the
Commencement Date, shall be placed in that condition by Landlord at
its cost.
b. Landlord shall give Tenant at least thirty (30) days written notice
of Landlord's intention to relocate the Premises.
c. As nearly as practicable, the physical relocation of the Premises
shall take place on a weekend and shall be completed before the
following Monday. If the physical relocation has not been completed
in that time, Base Rent shall abate in full from the time the
physical relocation commences to the time it is completed. Upon
completion of such relocation, the new premises shall become the
"Premises" under this Lease.
d. All reasonable costs incurred by Tenant as a result of the
relocation shall be paid by Landlord.
e. If the new premises are smaller than the Premises as it existed
before the relocation, Base Rent shall be reduced proportionately.
f. The parties hereto shall immediately execute an amendment to this
Lease setting forth the relocation of the Premises and the reduction
of Base Rent, if any.
32. QUIET ENJOYMENT.
Tenant, upon paying the Rent and performing all of its obligations under this
Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of
this Lease and to any mortgage, lease, or other agreement to which this Lease
may be subordinate.
33. OBSERVANCE OF LAW.
Tenant shall not use the Premises or permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated. Tenant shall, at its sole cost and expense, promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be in force, and with the
requirements of any board of fire insurance underwriters or other similar
bodies now or hereafter constituted, relating to, or affecting the condition,
use or occupancy of the Premises, excluding structural changes not related to
or affected by Tenant's improvements or acts. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action against Tenant,
whether Landlord is a party thereto or not, that Tenant has violated any law,
ordinance or governmental rule, regulation or requirement, shall be conclusive
of that fact as between Landlord and Tenant.
34. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefor, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond the reasonable control of the party obligated to perform hereunder, shall
excuse performance of the work by that party for a period equal to the duration
of that prevention, delay or stoppage. Nothing in this Article 34 shall
excuse or delay Tenant's obligation to pay Rent or other charges under this
Lease.
35. CURING TENANT'S DEFAULTS.
If Tenant defaults in the performance of any of its obligations under this
Lease, Landlord may (but shall not be obligated to) without waiving such
default, perform the same for the account at the expense of Tenant. Tenant
shall pay Landlord all costs of such performance promptly upon receipt of a
bill therefor.
36. SIGN CONTROL.
Tenant shall not affix, paint, erect or inscribe any sign, projection awning,
signal or advertisement of any kind to any part of the Premises, Building or
Project, including without limitation, the inside or outside of windows or
doors, without the written consent of Landlord. Landlord shall have the right
to remove any signs or other matter, installed without Landlord's permission,
without being liable to Tenant by reason of such removal, and to charge the
cost of removal to Tenant as additional rent hereunder, payable within ten (10)
days of written demand by Landlord.
37. MISCELLANEOUS.
a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant or
receipt by Landlord of a lesser amount than the Rent provided for in this Lease
shall be deemed to be other than on account of the earliest due Rent, nor shall
any endorsement or statement on any check or letter accompanying any check or
payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of the Rent or pursue any other remedy provided for in this Lease. In
connection with the foregoing, Landlord shall have the absolute right in its
sole discretion to apply any payment received from Tenant to any account or
other payment of Tenant then not current and due or delinquent.
b. Addenda. If any provision contained in an addendum to this Lease is
inconsistent with any other provision herein, the provision contained in the
addendum shall control, unless otherwise provided in the addendum.
c. Attorneys' Fees. If any action or proceeding is brought by either party
against the other pertaining to or arising out of this Lease, the finally
prevailing party shall be entitled to recover all costs and expenses,
including reasonable attorneys' fees, incurred on account of such action or
proceeding.
d. Captions, Articles and Section Numbers. The captions appearing within the
body of this Lease have been inserted as a matter of convenience and for
reference only and in no way define, limit or enlarge the scope or meaning of
this Lease. All references to Article and Section numbers refer to Articles
and Sections in this Lease.
e. Changes Requested by Lender. Neither Landlord or Tenant shall unreasonably
withhold its consent to changes or amendments to this Lease requested by the
lender on Landlord's interest, so long as these changes do not alter the basic
business terms of this Lease or otherwise materially diminish any rights or
materially increase any obligations of the party from whom consent to such
charge or amendment is requested.
f. Choice of Law. This Lease shall be construed and enforced in accordance
with the laws of the State.
g. Consent. Notwithstanding anything contained in this Lease to the
contrary, Tenant shall have no claim, and hereby waives the right to any claim
against Landlord for money damages by reason of any refusal, withholding or
delaying by Landlord of any consent, approval or statement of satisfaction, and
in such event, Tenant's only remedies therefor shall be an action for specific
performance, injunction or declaratory judgment to enforce any right to such
consent, etc.
(12)
<PAGE> 14
h. Corporate Authority. If Tenant is a corporation, each individual
signing this Lease on behalf of Tenant represents and warrants that he is
duly authorized to execute and deliver this Lease on behalf of the corporation,
and that this Lease is binding on Tenant in accordance with its terms. Tenant
shall, at Landlord's request, deliver a certified copy of a resolution of its
board of directors authorizing such execution.
i. Counterparts. This Lease may be executed in multiple counterparts, all
of which shall constitute one and the same Lease.
j. Execution of Lease; No Option. The submission of this Lease to Tenant
shall be for examination purposes only, and does not and shall not constitute a
reservation of or option for Tenant to lease, or otherwise create any interest
of Tenant in the Premises or any other premises within the Building or
Project. Execution of this Lease by Tenant and its return to Landlord shall not
be binding on Landlord notwithstanding any time interval, until Landlord has in
fact signed and delivered this Lease to Tenant.
k. Furnishing of Financial Statements; Tenant's Representations. In order
to induce Landlord to enter into this Lease Tenant agrees that it shall
promptly furnish Landlord, from time to time, upon Landlord's written request,
with financial statements reflecting Tenant's current financial condition.
Tenant represents and warrants that all financial statements, records and
information furnished by Tenant to Landlord in connection with this Lease are
true, correct and complete in all respects.
l. Further Assurances. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
m. Mortgagee Protection. Tenant agrees to send by certified or registered
mail to any first mortgagee or first deed of trust beneficiary of Landlord
whose address has been furnished to Tenant, a copy of any notice of default
served by Tenant on Landlord. If Landlord fails to cure such default within
the time provided for in this Lease, such mortgagee or beneficiary shall have
an additional thirty (30) days to cure such default; provided that if such
default cannot reasonably be cured within that thirty (30) day period, then
such mortgagee or beneficiary shall have such additional time to cure the
default as is reasonably necessary under the circumstances.
n. Prior Agreements; Amendments. This Lease contains all of the
agreements of the parties with respect to any matter covered or mentioned in
this Lease, and no prior agreement or understanding pertaining to any such
matter shall be effective for any purpose. No provisions of this Lease may be
amended or added to except by an agreement in writing signed by the parties or
their respective successors in interest.
o. Recording. Tenant shall not record this Lease without the prior written
consent of Landlord. Tenant, upon the request of Landlord, shall execute and
acknowledge a "short form" memorandum of this Lease for recording purposes.
p. Severability. A final determination by a court of competent
jurisdiction that any provision of this Lease is invalid shall not affect the
validity of any other provision, and any provision so determined to be invalid
shall, to the extent possible, be construed to accomplish its intended effect.
q. Successors and Assigns. This Lease shall apply to and bind the heirs,
personal representatives, and permitted successors and assigns of the parties.
r. Time of the Essence. Time is of the essence of this Lease.
s. Waiver. No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant shall impair such right or remedy or be
construed as a waiver of such default.
t. Compliance. The parties hereto agree to comply with all applicable
federal, state and local laws, regulations, codes, ordinances and
administrative orders having jurisdiction over the parties, property or the
subject matter of this Agreement, including, but not limited to, the 1964
Civil Rights Act and all amendments thereto, the Foreign Investment in Real
Property Tax Act, the Comprehensive Environmental Response Compensation and
Liability Act, and The Americans With Disabilities Act.
The receipt and acceptance by Landlord of delinquent Rent shall not constitute a
wavier of any other default; it shall constitute only a waiver of timely
payment for the particular Rent payment involved.
No act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only a written
notice from Landlord to Tenant shall constitute acceptance of the surrender of
the Premises and accomplish a termination of the Lease.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of the
Lease.
The parties hereto have executed this Lease as of the dates set forth below.
Date: Date: 11-16-95
----------------------------------- ----------------------------
Landlord: Hacienda Park Associates, a Tenant: Pro Business, Inc., a
------------------------------ ---------------------------------
California general partnership California corporation
------------------------------ ---------------------------------
By: Peter Canny, Jr. By: Mitch Everton
----------------------------------- ---------------------------
Title: Vice President Title: EVP - Operations
----------------------------------- ---------------------------
By: By:
----------------------------------- ---------------------------
Title: Title:
----------------------------------- ---------------------------
CONSULT YOUR ADVISORS - This document has been prepared for approval by your
attorney. No representation or recommendation is made by CB Commercial as to the
legal sufficiency or tax consequences of this document or the transaction to
which it relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
(13)
<PAGE> 15
ADDENDUM #1 TO LEASE
38. TENANT'S PROPORTIONATE SHARE:
Upon completion of tenant improvements, Tenant's proportionate share of
the building containing the Premises shall be 24.10%. Such share is a
fraction, the numerator of which is the Rentable Area of the Premises,
and the denominator of which is the Gross Area of the Building (Building
B), as determined by the Landlord from time to time. The Building
consists of 41,574 square feet. Tenant's proportionate share of the
Project shall be 12.05%. The Project consists of two buildings
situated on a total land area of 5.575 acres. The Project's land
value, related assessments, Outside Area Expenses and other expenses
allocated on the basis of land are allocated 50.01% to Building A and
49.99% to Building B. Tenant's proportionate share of the Project is a
product of Tenant's Building share multiplied by Building B's share of
the Project.
39. TENANT IMPROVEMENT ALLOWANCE:
(a) Landlord shall enter into a contract with a contractor of
Landlord's choice for the construction of the tenant improvements in
accordance with the Space Plan to be completed by Tenant. All tenant
improvement work shall be completed in accordance with all applicable
laws and in compliance with the Americans with Disabilities (ADA) as
interpreted by the City of Pleasanton in its review of the construction
documents for said tenant improvement work.
Landlord shall provide a tenant improvement allowance of Twelve and
No/100 Dollars ($12.00) per rentable square foot for said tenant
improvement work. The tenant improvement costs shall include all space
planning fees, architectural and engineering drawings and governmental
permit fees which will be deducted from the tenant improvement
allowance. Except for Tenant change-orders, Landlord shall not charge
Tenant a supervision fee or administrative fee in connection with the
tenant improvements. In the event that Tenant requests change-orders,
Landlord will charge Tenant as supervision fee for work connected to the
change-order(s).
In the event that the actual tenant improvement cost is greater than the
Twelve and No/100 Dollars ($12.00) per rentable square foot tenant
improvement allowance, Tenant shall pay to Landlord the difference
between the allowance and the actual cost. Tenant shall pay Landlord
said difference at the completion of tenant improvement work. Tenant
accepts the Premises in its current condition and Landlord has no
obligation to Tenant with respect to the Premises except as defined
herein. The Landlord shall diligently complete the tenant improvements,
however, in the event the space is not substantially completed by
the lease commencement date, the lease term shall still commence as
defined in paragraph 2.d. and rent shall be payable pursuant to
paragraph 2.j.
<PAGE> 16
FIRST AMENDMENT TO LEASE DATED
NOVEMBER 13, 1995
This Amendment, dated the 23rd day of February, 1996, between Hacienda Park
Associates, a California general partnership, ("Landlord") and Pro Business,
Inc., a California Corporation, ("Tenant"), is for the premises located in the
City of Pleasanton, County of Alameda, State of California, commonly known as
4696 Willow Road.
Landlord and Tenant being parties to that certain Lease dated November 13, 1995
hereby express their mutual desire and intent to amend the Lease as herein
after provided.
1. COMMENCEMENT: February 15, 1996
2. TERMINATION: January 31, 2001
3. BASE RENT:
PERIOD (RATE/SQ.FT./MO. RENT/MO.
February 15, 1996 to January 31, 2001 $1.38 $13,837.26
4. CONTINUING OBLIGATIONS: Except as expressly set forth to the contrary in
this First Amendment, the Lease remains unmodified and in full force and
effect. To the extent of any conflict between the terms of the First Amendment
and the terms of the Lease, the terms of the First Amendment shall control.
In witness whereof, the parties have executed this First Amendment on the
date(s) set forth below, effective as of the day and year first above written
in one (1) or more copies.
AGREED AND ACCEPTED
LESSOR: Hacienda Park Associates, LESSEE: ProBusiness, Inc., a
a Delaware limited partnership California corporation
By: Peter Canny, Jr. By: Mitch Everton
----------------------- ---------------------------
Its: Vice President Its: EVP-OPERATIONS
----------------------- ---------------------------
Dated: 4-29-96 Dated: 4-24-96
----------------------- ---------------------------
<PAGE> 17
EXHIBIT A
THE PREMISES
SARATOGA CENTER
4696 WILLOW ROAD
PLEASANTON, CALIFORNIA
<PAGE> 18
EXHIBIT B
GIBRALTAR DRIVE NORTH
PAINEWEBBER PROPERTIES HACIENDA PARK ASSOCIATES
SARATOGA CENTER (30A)
5934 GIBRALTAR DR. (2 STORY)
4696 - 4698 WILLOW RD. (1 STORY)
PLEASANTON, CA
<PAGE> 19
EXHIBIT D
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the Building
without the prior written consent of the Landlord. Landlord shall have the
right to remove, at Tenant's expense and without notice, any sign installed or
displayed in violation of this rule. All approved signs or lettering on doors
and walls shall be printed, painted, affixed or inscribed at the expense of
Tenant by a person chosen by Landlord.
2. Except as consented to in writing by Landlord, or in accordance with
Building Standard Improvements, no curtains, blinds, shades, screens or hanging
plants or other similar objects attached to or used in connection with any
window or door of the Premises, Tenant shall immediately discontinue such use,
No awning shall be permitted on any part of the Premises. Tenant shall not
place anything against or near glass partitions or doors or windows which may
appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, escalators, or stairways of the Building. No Tenant and
no employee or invitee of any tenant shall go upon the roof of the Building or
make any roof penetrations without the prior written consent of Landlord.
4. The main lobby directory of the Building will be provided exclusively
for the display of the name and location of the Building's tenants only, and
Landlord reserves the right to exclude any other names therefrom. Landlord
shall provide Tenant with a building standard wall or door mounted sign at or
adjacent to Tenant's main entrance to its Premises which shall identify Tenant
and its suite number.
5. All cleaning and janitorial services for the Building shall be provided
by Landlord in accordance with Landlord's specifications for said services, and
except with the written consent of Landlord, no person or persons other than
those approved by Landlord shall be employed by Tenant or permitted to enter
the Building for the purposes of cleaning. Tenant shall not cause any
unnecessary labor by carelessness or indifference to the good order and
cleanliness of the Premises or the Building. Landlord shall not in any way be
responsible to any Tenant for any loss of property on the Premises, however
occurring, or for any damage to any of Tenant's property by the janitor or any
other employee or any other person.
6. Landlord will furnish Tenant, free of charge, with two keys to each
door in the Premises that contains a lock set. Landlord may make a reasonable
charge for any additional keys and for having the locks changed. Tenant shall
not make or have made additional keys, and Tenant shall not alter any lock or
install any additional locks or bolts on any door of its Premises without the
prior written consent of Landlord. Tenant, upon the termination of its tenancy,
shall deliver to Landlord the keys to all doors which have been furnished to
Tenant, and in the event of loss of any keys so furnished, shall pay Landlord
therefor.
7. If Tenant requires telegraphic, telephonic burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions in
their installation.
8. The elevators shall be available for use by all tenants in the
Building, subject to such reasonable scheduling as Landlord in its discretion
shall deem appropriate. No equipment, materials, furniture, packages, supplies,
merchandise
1
<PAGE> 20
or other property will be received in the Building or carried in the elevators
except between such hours and in such elevators as may be designated by
Landlord.
9. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Business machines and mechanical equipment belonging
to Tenant, which cause noise or vibration that may be transmitted to the
structure of the Building or to any space therein to such a degree as to be
objectionable to Landlord or to any tenants in the Building, shall be placed and
maintained by Tenant, at Tenant's expense, on vibration eliminators or other
devices sufficient to eliminate the impacts of noise or vibration on the
Building.
10. Tenant shall not use or keep in the Premises any kerosene, gasoline or
flammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment. Tenant shall
not use or permit to be used in the Premises any foul or noxious gas or
substance, or permit or allow the Premises to be occupied or used in a manner
offensive or objectionable to Landlord or other occupants of the Building by
reason of noise, odors or vibrations. No animals, with the exception of
seeing eye dogs when in the company of their masters, may be brought into or
kept in the Building.
11. Tenant shall not use any method of heating or air-conditioning other
than that supplied by Landlord.
12. Tenant shall cooperate with Landlord to assure the most effective
operation of the Building's heating and air-conditioning and shall comply with
any governmental energy-saving rules, laws or regulations of which Tenant has
actual notice. Tenant shall refrain from attempting to adjust the Building's
heating, ventilating or air-conditioning controls other than the room
thermostats installed for Tenant's use. Tenant shall keep all corridor access
doors to its Premises closed and shall close window coverings at the end of
each business day.
13. Tenant shall be responsible for all persons for whom it requests access
to the Building's security system, and shall be liable to Landlord for all acts
of such persons. Landlord shall not be liable for damages resulting from the
admission to or exclusion from the Building of any person.
14. Tenant shall close and lock the doors of its Premises and entirely shut
off all water faucets or other water apparatus, and turn off all lights and
other equipment which are not required to be continuously run at the close of
its business day. Tenant shall be responsible for any damages or injuries
sustained by other tenants or occupants of the Building or Landlord for
noncompliance with this rule.
15. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expenses of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the Tenant, or its employees or
invites.
16. Tenant shall not install any radio or television antenna, loudspeaker
or other devices on the roof or exterior walls of the Building. Tenant shall
not interfere with radio or television broadcasting or reception from or in the
Building or elsewhere.
17. Except as required to facilitate normal office occupancy, Tenant shall
not mark, drive nails, screw or drill into the partitions, woodwork or plaster
or in any way deface the Premises or any part thereof without the prior written
consent of Landlord. Tenant shall not affix any floor covering to the floor of
the Premises in any manner except as approved by Landlord. Tenant shall
repair any damage resulting from noncompliance with this rule at its sole cost
and expense.
2
<PAGE> 21
18. Tenant shall not install, maintain or operate upon the Premises any
vending machine without the prior written consent of Landlord. In the event
Landlord so approves such installation Tenant shall be responsible for all
costs associated with such installation and shall remove the vending machines
at the end of such Term.
19. Landlord reserves the right to exclude or expel from the Building any
person who, in Landlord's judgment, is intoxicated or under the influence of
liquor or drugs or other substance or who is in violation of any of the Rules
or Regulations of the Building.
20. Tenant shall store all its trash and garbage within its Premises or in
such central facilities as may be provided by Landlord for Tenant's
non-exclusive use in the Outside Area. Tenant shall not place in any trash box
or receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash and garbage disposal. All garbage and refuse disposal
shall be made in accordance with directions issued from time to time by
Landlord.
21. The Premises shall not be used for the storage of merchandise held for
sale to the general public, or for lodging or for manufacturing of any kind,
nor shall the Premises be used for any improper, immoral, illegal or
objectional purpose.
22. Use of Underwriters' Laboratory (UL) approved equipment for brewing
coffee, tea, hot chocolate and similar beverages, (and refrigeration of such
products) shall be permitted provided that Tenant may utilize a UL approved
microwave oven to prepare prepackaged foods for its employees. No other than
as expressly provided herein no other food preparation shall be permitted.
Tenant's use of such equipment shall be in accordance with all applicable
federal, state, county and city laws, codes, ordinances, rules and regulations
and shall not cause a nuisance to other Tenants in the building due to odors.
23. Tenant shall not use in any space or in the public halls of the
Building any hand truck except those equipped with rubber tires and side guards
or such other material-handling equipment as Landlord may approve, Tenant shall
not bring any other vehicles of any kind into the Building.
24. Tenant shall not use the name of the Building in connection with or in
promoting or advertising the business of Tenant without the written consent of
Landlord except as to Tenant's address for its Premises.
25. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency
having jurisdiction over the Property. Tenant shall be responsible for any
increased insurance premiums attributable to Tenant's use of the Premises,
Building, or Property.
26. Tenant assumes any and all responsibility for protecting its Premises
from theft, robbery and pilferage, which includes keeping doors locked during
non-business hours and said means of entry to the Premises closed during normal
business entrance hours.
27. Tenant's request for assistance will be attended to only upon
appropriate application to Landlord by an authorized individual. Employees of
Landlord shall not perform any work on the Premises, other than that associated
with the provision of services to Tenant required of Landlord under the Lease
for the Premises, or implement a request of Tenant, unless that employee
receives written instructions from Landlord.
28. Tenant shall not park its vehicles in any parking areas designated by
Landlord as areas for parking by visitors to the Building or other reserved
parking spaces. Tenant shall not leave vehicles in the building parking areas
overnight, nor park any vehicles in the Building parking areas other than
3
<PAGE> 22
automobiles, motorcycles, motor driven or non-motor driven bicycles or
four-wheeled trucks. Tenant, its agents, employees and invitees shall not park
any one (1) vehicle in more than one (1) parking space.
29. Landlord may waive any one or more of these Rules and Regulations for
the benefit of Tenant or any other Tenant, but no such waiver by Landlord shall
be construed as a waiver of such Rules and Regulations in favor of Tenant or
any other Tenant, nor prevent Landlord from thereafter enforcing any such Rules
and Regulations against any or all of the tenants of the Building.
30. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of Premises in the Building.
31. Landlord reserves the right to make such other reasonable Rules and
Regulations as, in its judgment, may from time to time be needed for the
safety, security, care and cleanliness of the Building and the Property and
preservation of good order therein. Tenant agrees to abide by all such Rules
and Regulations hereinabove stated and any additional rules and regulations
which are published by Landlord.
32. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and guests.
33. The scheduling and manner of all Tenant move-ins and move-outs shall be
subject to the discretion and approval of Landlord, and move-ins and move-outs
shall take place only after 6:00 p.m. on weekdays, on weekends or at other
times as Landlord may designate. Landlord shall have right to approve or
disapprove the movers or moving company employed by Tenant, and Tenant shall
cause the movers to use only the entry doors and elevators designated by
Landlord. if Tenant's movers damage the elevator or any other part of the
Property, Tenant shall pay to Landlord the amount required to repair the
damage.
34. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
35. Canvassing, soliciting, and distribution of handbills or other written
material and peddling in the Building are prohibited and each Tenant shall
cooperate to prevent these activities.
36. As long as Tenant is not in default under any of the terms, covenants,
conditions, provisions or agreements of this Lease, Landlord shall:
(a) On Monday through Friday, except holidays, from 7:00 a.m. to
7:00 p.m. (and other times for a reasonable additional charge to be fixed by
Landlord), ventilate the Premises and furnish air conditioning or heating on
such days and hours when in the judgment of Landlord it may be required for
the comfortable occupancy of the Premises. After hours usage shall be monitored
by the override meter which shall be installed in the Premises and the actual
cost of such usage shall be paid by Tenant.
(b) Furnish to the Premises, Monday through Friday, from 7:00 a.m.
to 7:00 p.m. electrical current as required by the Building Standard office
lighting and fractional horsepower office business machines in the amount of
approximately two and one-half (2.5) watts per square foot. Tenant agrees,
should its electrical installation or electrical consumption be in excess of
the aforesaid quantity or extend beyond normal business hours, to reimburse
Landlord monthly for the measured consumption at the terms, classifications and
rate charges to similar consumers by the public utility serving the
neighborhood in which the Building is located.
4
<PAGE> 23
COMPREHENSIVE DISCLOSURE AND AGREEMENT
DATE: November 13, 1995
-------------------
LESSOR: Hacienda Park Associates
---------------------------------------------------------------------
LESSEE: Pro Business, Inc.
---------------------------------------------------------------------
PROPERTY: 4696 Willow Road, Pleasanton, CA
---------------------------------------------------------------------
Street Address, City, State
Also known as: Saratoga Center
-----------------------------------------------------
BROKERS: CB Commercial Real Estate Group, Inc. representing Lessor
-----------------
Colliers Parrish International representing Lessee
------------------------------- -----------------------
BROKER REPRESENTATION
- -- Check if applicable. Lessor and Lessee hereby acknowledge that Broker
represents both parties hereto; and both parties consent thereto.
NOTIFICATION RE: NATIONAL FLOOD INSURANCE PROGRAM
This property is or may be located in a Special Flood Hazard Area on United
States Department of Housing and Urban Development (HUD) "Special Flood Zone
Area Maps." Federal law requires that as a condition of obtaining federally
related financing on most properties located in "flood zones," banks, savings
and loan associations, and some insurance lenders require flood insurance to be
carried where the property, real or personal, is security for a loan. This
requirement is mandated by the National Flood Insurance Act of 1968 and the
Flood Disaster Protection Act of 1973. The purpose of the program is to
provide flood insurance to property owners at a reasonable cost. Cities or
counties participating in the National Flood Insurance Program may have adopted
building or zoning restrictions, or other measures, as part of their
participation in the program. You should contact the city or county in which
the property is located to determine any such restrictions. The extent of
coverage available in your area and the cost of this coverage may vary, and for
further information, you should consult your lender or insurance carrier.
FLOOD ZONE DESIGNATION: ZONE B SOURCE F.I.R.M. Panel #060012 0001 D,
--- --------------------------------------
September 19, 1984
- --------------------------------------------------------------------------------
HAZARDOUS WASTES OR SUBSTANCES AND UNDERGROUND STORAGE TANKS
Comprehensive federal and state laws and regulations have been enacted in the
past several years in an effort to control the use, storage, handling,
clean-up, removal and disposal of hazardous wastes or substances. Some of
these laws and regulations (such as, for example, the Comprehensive
Environmental Response Compensation and Liability Act [CERCLA]) provide for
broad liability on the part of owners, tenants, or other users of property for
clean-up costs and damages, regardless of fault. Other laws and regulations
set standards for the handling of asbestos, and establish requirements for the
use, modification, abandonment, and closure of underground storage tanks.
It is not practical or possible to list all such laws and regulations in this
Notice. Therefore, Lessors and Lessees are urged to consult legal counsel to
determine their respective rights and liabilities with respect to the issues
described in this Notice, as well as all other aspects of the proposed
transaction. If hazardous wastes or substances have been, or are going to be
used, stored, handled or disposed on the Property, or if the Property has been
or may have underground storage tanks, it is essential that legal and technical
advice be obtained to determine, among other things, the nature of permits and
approvals which have been obtained or may be required; the estimated costs and
expenses associated with the use, storage, handling, clean-up, disposal or
removal of hazardous wastes or substances; and the nature and extent of
contractual provisions necessary or desirable in this transaction. Broker
recommends expert assistance and site investigation to determine past uses of
the property, which may provide valuable information as to the likelihood of
hazardous wastes or substances, or underground storage tanks, being on the
Property.
Lessor agrees to disclose to Broker and to Lessee any and all information which
he/she/it has regarding present and future zoning and environmental matters
affecting the Property and regarding the condition of the Property, including,
but not limited to structural, mechanical and soils conditions, the presence
and location of asbestos, PCB transformers, other toxic, hazardous or
contaminated substances, and underground storage tanks, in, on, or about the
Property.
Broker has conducted no investigation regarding the subject matter hereof,
except as may be contained in a separate written document signed by Broker.
Broker makes no representations concerning the existence or nonexistence of
hazardous wastes or substances, or underground storage tanks, in, on, or about
the Property. Lessee should contact a professional, such as a civil engineer,
industrial hygienist or other persons with experience in these matters, to
advise on these matters.
The term "hazardous wastes or substances" is used herein in its very broadest
sense and includes, but is not limited to, petroleum based products, paints and
solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonium
compounds, asbestos, PCBs and other chemical products. Hazardous wastes or
substances and underground storage tanks
-1-
<PAGE> 24
may be present on all types of real property. This Notice is intended to apply
to any transaction involving any type of real property, whether improved or
unimproved.
BROKER DISCLOSURE
The parties hereby expressly acknowledge that Broker has made no independent
determination or investigation regarding the following: present or future use
or zoning of the property; environmental matters affecting the Property; the
condition of the Property, including, but not limited to structural, mechanical
and soils conditions, as well as issues surrounding hazardous wastes or
substances as set out above; violations of the Occupational Safety and Health
Act or any other federal, state, county or municipal laws, ordinances, or
statutes; measurements of land and/or buildings. Lessee agrees to make its own
investigation and determination regarding such items.
A REAL ESTATE BROKER IS QUALIFIED TO ADVISE ON REAL ESTATE. IF YOU DESIRE
LEGAL ADVICE, CONSULT YOUR ATTORNEY.
AMERICANS WITH DISABILITIES ACT (ADA)
Owners or tenants of real property may be subject to the Americans with
Disabilities Act (ADA), a federal law codified at 42 USC Section 12101 et seq.
Among other requirements of the ADA that could apply to your property, Title
III of the Act requires owners and tenants of "public accommodations" to remove
barriers to access by disabled persons and provide auxiliary aids and services
for hearing, vision or speech impaired persons. The regulations under Title
III of the ADA are codified at 28 CFR Part 36.
Broker recommends that you and your attorney review the ADA and the
regulations, and, if appropriate, your proposed lease agreement, to determine
if this law would apply to you and the nature of the requirements. These are
legal issues. You are responsible for conducting your own independent
investigation of these issues.
COMPLIANCE WITH LAWS
The parties hereto agree to comply with all applicable federal, state and local
laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this
Agreement, including, but not limited to, the 1964 Civil Rights Act and all
amendments thereto, the Foreign Investment in Real Property Tax Act, the
Comprehensive Environmental Response Compensation and Liability Act, and The
Americans With Disabilities Act.
ALQUIST-PRIOLO NOTIFICATION: ALQUIST-PRIOLO SPECIAL EARTHQUAKE STUDIES ZONE ACT
(CALIFORNIA ONLY)
The Property described above is or may be situated in a Special Studies Zone as
designated under the Alquist-Priolo Special Studies Zone Act, Sections
2621-2630, inclusive, of the California Public Resources Code; and, as such,
the construction or development on the Property of any structure for human
occupancy may be subject to the findings of a geologic report prepared by a
geologist registered in the State of California, unless such report is waived
by the city or county under the terms of that Act. No representations on the
subject are made by Lessor or by CB COMMERCIAL REAL ESTATE GROUP, INC. or its
agents or employees, and the Lessee should make his/her/its own inquiry or
investigation.
SPECIAL STUDIES ZONE YES XX NO SOURCE Special Studies Zone Map, Dublin
--- --- ------------------------------------
Quadrangle, Jan. 1, 1982
- --------------------------------------------------------------------------------
For further information you may wish to contact appropriate city or county
agencies:
- --------------------------------------------------------------------------------
RECEIPT OF A COPY OF THIS NOTICE AND AGREEMENT IS HEREBY ACKNOWLEDGED.
Dated November 13, 1995 ProBusiness, Inc.
----------------- -------------------------------------------------------
By: Mitch Everton
---------------------------------------------------
Dated , 199
----------- -- -------------------------------------------------------
By: PD
---------------------------------------------------
CONSULT YOUR ADVISORS: NO REPRESENTATION OR RECOMMENDATION IS MADE BY CB
COMMERCIAL REAL ESTATE GROUP, INC. OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
EFFECT, INTERPRETATION, OR ECONOMIC CONSEQUENCES OF THE NATIONAL FLOOD
INSURANCE PROGRAM AND RELATED LEGISLATION, NOR OF OTHER LEGISLATION REFERRED TO
HEREIN. THESE ARE QUESTIONS THAT YOU SHOULD ADDRESS WITH YOUR CONSULTANTS AND
ADVISORS.
-2-
<PAGE> 1
EXHIBIT 10.5
BUILD-TO-SUIT LEASE
Landlord: Britannia Hacienda V Limited Partnership
Tenant: ProBusiness, Inc.
Date: September 27, 1996
TABLE OF CONTENTS
1. PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Premises . . . . . . . . . . . . . . . . . 1
1.2 Landlord's Reserved Rights . . . . . . . . 1
1.3 First Refusal Right . . . . . . . . . . . . 2
2. TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Term . . . . . . . . . . . . . . . . . . . 3
2.2. Early Possession . . . . . . . . . . . . . 3
2.3. Delay In Possession . . . . . . . . . . . . 4
2.4. Construction . . . . . . . . . . . . . . . 4
2.5 Acknowledgement Of Lease Commencement . . . 5
2.6 Holding Over . . . . . . . . . . . . . . . 5
2.7 Option To Extend Term . . . . . . . . . . . 6
3. RENTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1. Minimum Rental . . . . . . . . . . . . . . 6
3.2. Late Charge . . . . . . . . . . . . . . . . 9
4 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1. Personal Property. . . . . . . . . . . . . 10
4.2. Real Property . . . . . . . . . . . . . . . 10
5. OPERATING EXPENSES. . . . . . . . . . . . . . . . . . . . . . . 10
5.1. Payment Of Operating Expenses . . . . . . . 10
5.2. Definition Of Operating Expenses . . . . . 11
5.3. Determination Of Operating Expenses . . . . 13
5.4. Final Accounting For Lease Year . . . . . . 13
5.5. Proration . . . . . . . . . . . . . . . . . 14
6. UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.1. Payment . . . . . . . . . . . . . . . . . . 14
6.2. Interruption . . . . . . . . . . . . . . . 14
7. ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.1. Right To Make Alterations . . . . . . . . . 14
7.2. Title To Alterations . . . . . . . . . . . 15
7.3. Tenant Fixtures . . . . . . . . . . . . . . 15
7.4. No Liens . . . . . . . . . . . . . . . . . 15
8. MAINTENANCE AND REPAIRS . . . . . . . . . . . . . . . . . . . 15
8.1. Landlord's Work . . . . . . . . . . . . . . 15
8.2. Tenant's Obligation For Maintenance . . . . 16
(a) Good Order, Condition And Repair . . . 16
(b) Landlord's Remedy . . . . . . . . . . . 16
(c) Condition Upon Surrender . . . . . . . 16
9. USE OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . 17
9.1. Permitted Use . . . . . . . . . . . . . . . 17
9.2. [Omitted.] . . . . . . . . . . . . . . . . 17
9.3. No Nuisance . . . . . . . . . . . . . . . . 17
9.4. Compliance With Laws . . . . . . . . . . . 17
<PAGE> 2
9.5. Liquidation Sales . . . . . . . . . . . . . 17
9.6. Environmental Matters . . . . . . . . . . . 17
10. INSURANCE AND INDEMNITY . . . . . . . . . . . . . . . . . . . . 18
10.1. Insurance . . . . . . . . . . . . . . . . . 18
10.2. Quality Of Policies And Certificates . . . 18
10.3. Workers' Compensation . . . . . . . . . . . 19
10.4. Waiver Of Subrogation . . . . . . . . . . . 19
10.5. Increase In Premiums . . . . . . . . . . . 19
10.6. Indemnification . . . . . . . . . . . . . . 19
10.7. Blanket Policy . . . . . . . . . . . . . . 20
11. SUBLEASEAND ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . 20
11.1. Assignment And Sublease Of Premises . . . . 20
11.2. Rights Of Landlord . . . . . . . . . . . . 20
12. RIGHT OF ENTRY AND QUIET ENJOYMENT . . . . . . . . . . . . . . 21
12.1. Right Of Entry . . . . . . . . . . . . . . 21
12.2. Quiet Enjoyment. . . . . . . . . . . . . . 21
13. CASUALTY AND TAKING . . . . . . . . . . . . . . . . . . . . . . 21
13.1. Termination Or Reconstruction . . . . . . . 21
13.2. Tenant's Rights . . . . . . . . . . . . . . 22
13.3. Lease To Remain In Effect . . . . . . . . . 22
13.4. Reservation Of Compensation . . . . . . . . 23
13.5. Restoration Of Fixtures . . . . . . . . . . 23
14. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
14.1. Events Of Default . . . . . . . . . . . . . 23
(a) Abandonment . . . . . . . . . . . . . . 23
(b) Nonpayment . . . . . . . . . . . . . . 23
(c) Other Obligations . . . . . . . . . . . 23
(d) General Assignment . . . . . . . . . . 23
(e) Bankruptcy . . . . . . . . . . . . . . 24
(f) Receivership . . . . . . . . . . . . . 24
(g) Attachment . . . . . . . . . . . . . . 24
(h) Insolvency . . . . . . . . . . . . . . 24
14.2. Remedies Upon Tenant's Default . . . . . . 24
14.3. Remedies Cumulative . . . . . . . . . . . . 25
15. SUBORDINATION, ATTORNMENT AND SALE . . . . . . . . . . . . . . 25
15.1. Subordination To Mortgage . . . . . . . . . 25
15.2. Sale Of Landlord's Interest . . . . . . . . 25
15.3. Estoppel Certificates . . . . . . . . . . . 26
15.4. Subordination to CC&R's . . . . . . . . . . 26
16. SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
16.1. Deposit . . . . . . . . . . . . . . . . . . 26
17. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 27
17.1. Notices . . . . . . . . . . . . . . . . . . 27
17.2. Successors And Assigns . . . . . . . . . . 28
17.3. No Waiver . . . . . . . . . . . . . . . . . 28
17.4. Severability . . . . . . . . . . . . . . . 28
17.5. Litigation Between Parties . . . . . . . . 28
17.6. Surrender . . . . . . . . . . . . . . . . . 28
17.7. Interpretation . . . . . . . . . . . . . . 28
17.8. Entire Agreement . . . . . . . . . . . . . 28
17.9. Governing Law . . . . . . . . . . . . . . . 28
17.10. No Partnership . . . . . . . . . . . . . . 28
17.11. Financial Information . . . . . . . . . . . 28
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<TABLE>
<S> <C> <C> <C>
17.12. [Omitted.] . . . . . . . . . . . . . . . . 29
17.13. Time . . . . . . . . . . . . . . . . . . . 29
17.14. Rules And Regulations . . . . . . . . . . . 29
17.15. Brokers . . . . . . . . . . . . . . . . . . 29
17.16. Memorandum Of Lease . . . . . . . . . . . . 29
17.17. Corporate Authority . . . . . . . . . . . . 29
17.18. Execution and Delivery . . . . . . . . . . 30
17.19. Stock Warrants . . . . . . . . . . . . . . 30
17.20. Survival . . . . . . . . . . . . . . . . . 30
17.21. Consents . . . . . . . . . . . . . . . . . 30
17.22. Landlord Defaults . . . . . . . . . . . . . 30
</TABLE>
EXHIBITS
EXHIBIT A Real Property Description
EXHIBIT B Site Plan
EXHIBIT C Construction
C-1: First Floor Plan
C-2: Second Floor Plan
C-3: Finish Specifications
EXHIBIT D Construction Timeline
EXHIBIT E Acknowledgement of Lease Commencement
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<PAGE> 4
BUILD-TO-SUIT LEASE
THIS BUILD-TO-SUIT LEASE ("Lease") is made and entered into as of the
27th day of September, 1996, by and between BRITANNIA HACIENDA V LIMITED
PARTNERSHIP, a Delaware limited partnership (hereinafter called "Landlord") and
PROBUSINESS, INC., a California corporation (hereinafter called "Tenant").
THE PARTIES AGREE AS FOLLOWS:
1. PREMISES
1.1 Premises.
(a) Landlord leases to Tenant and Tenant hires and leases from
Landlord, on the terms, covenants and conditions hereinafter set forth, the
premises (the "Premises") consisting of a building, of approximately 129,322
square feet (the "Building") to be constructed by Landlord pursuant to the
terms of this Lease on a portion of the real property described in Exhibit A
attached hereto (the "Property"). The approximate location of the Building on
the Property and the approximate layout of the other site improvements to be
constructed by Landlord on the Property are depicted in the site plan attached
hereto as Exhibit B (the "Site Plan"). The parking areas, driveways,
sidewalks, landscaped areas and other portions of the Property that lie outside
the exterior walls of the Building (excluding any additional buildings depicted
on the Site Plan or otherwise constructed on the Property by Landlord from time
to time), as depicted on the Site Plan and as hereafter modified by Landlord
from time to time in accordance with the provisions of this Lease, are
sometimes referred to herein as the "Common Areas"; provided, however, that the
Common Areas shall not be construed to include any part of the portion of the
Property designated as Phase V or Phase VII on the Site Plan until such time as
(x) the construction of the Common Area improvements contemplated for and
located on such Phase has been completed in all material respects and such
improvements are ready and available for use, and (y) the construction of the
building(s) contemplated for and located on such Phase is substantially complete
(except for "punch list" items which do not materially impair or interfere with
the use of such building(s)).
(b) As an appurtenance to Tenant's leasing of the
Premises pursuant to Section 1.1 (a), Landlord hereby grants to Tenant, for the
benefit of Tenant and its employees, suppliers, shippers, customers and
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas (as they exist from
time to time) and all easements, access rights and similar rights and
privileges relating to or appurtenant to the Property and created or existing
from time to time under any easement agreements, declarations of covenants,
conditions and restrictions, or other written agreements now or hereafter of
record with respect to the Property, subject however to any limitations
applicable to such rights and privileges under applicable law and/or under the
written agreements creating such rights and privileges.
1.2. Landlord's Reserved Rights. Landlord reserves, in addition to
the right of entry set forth in Section 12.1 hereof, the following rights,
exercisable from time to time in Landlord's discretion: (i) to install, use,
maintain, repair and replace pipes, ducts, conduits, wires and appurtenant
meters and other equipment above the ceiling surfaces, below the floor surfaces
or within the walls of the Building in locations which will not materially
interfere with Tenant's use thereof; (ii) to relocate any pipes, ducts,
conduits, wires and appurtenant meters and equipment located within or outside
the Building; (iii) to construct, alter or add to other buildings or
improvements on the Property; (iv) to build adjoining to the Property; (v) to
lease any part of the Property for the construction of improvements or
buildings; (vi) to make changes to the Common Areas, including (but not limited
to) changes in the location, size or shape of any portion of the Common Areas,
and to relocate parking spaces on the Property; (vii) to close temporarily any
of the Common Areas for maintenance or other reasonable purposes, provided that
reasonable parking and reasonable access to the Building remain available;
(viii) to use the Common Areas while engaged in making additional improvements,
repairs or alterations to the Property or any
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portion thereof; and (ix) to do and perform such other acts with respect to the
Common Areas and the Property as may be necessary or appropriate; provided,
however, that the exercise by Landlord of its rights under this Section 1.2
shall not, without Tenant's prior written consent, (x) materially reduce the
parking ratio for the Property below that shown on the Site Plan, nor (y)
reduce the number of parking spaces on the portion of the Property designated
as Phase VI on the Site Plan (other than on a temporary basis incidental to
construction or maintenance activities of Landlord on the Property, in which
event Landlord shall exercise reasonable efforts to minimize the number of
parking spaces affected by such temporary activities), nor (z) make any other
change in the Site Plan that would have a material adverse effect on Tenant's
use of the Premises. Moreover, Landlord shall not exercise rights reserved to
it pursuant to this Section 1.2 in such a manner as to materially impair
Tenant's ability to conduct its activities in the normal manner, or in such a
manner as to cause any material diminution of Tenant's rights or any material
increase in Tenant's obligations under this Lease; provided, however, that the
foregoing shall not limit or restrict Landlord's right to undertake reasonable
construction activity and Tenant's use of the Premises shall be subject to
reasonable temporary disruption incidental to such activity diligently
prosecuted.
1.3 First Refusal Right.
(a) Beginning on the date on which Tenant takes occupancy
of the entire Premises (including the second phase of approximately 40,000
square feet as described in Exhibit C) and continuing for the remaining term of
this Lease (including any duly exercised extended terms), Landlord shall not
lease any space in any building(s) existing or to be built from time to time on
the portion of the Property designated as Phase V on the Site Plan, except in
compliance with this Section 1.3; and beginning on the date of this Lease and
continuing for the remaining term of this Lease (including any duly exercised
extended terms), Landlord shall not lease any space in any building(s) existing
or to be built from time to time on the portion of the Property designated as
Phase VII on the Site Plan, except in compliance with this Section 1.3;
provided, however, that the foregoing restrictions shall not apply during any
period in which Tenant is in default under this Lease in any material respect.
(b) If Landlord intends, during any applicable period
described in Section 1.3(a), to lease any space in any of the buildings
existing or to be built on Phase V or Phase VII of the Property from time to
time, and if Tenant is not then in default under this Lease in any material
respect, Landlord shall give written notice of such intention to Tenant,
specifying the material terms on which Landlord proposes to lease such space
(the "Offered Space"), and shall offer to Tenant the opportunity to lease the
Offered Space on the terms specified in Landlord's notice. Landlord shall not
need to have a bona fide written offer from a prospective tenant in order to
give such a notice, and such notice may, in Landlord's discretion, identify a
range of sizes, durations, rental rates, tenant improvement allowances and
other material terms on which Landlord is willing to lease the Offered Space.
Tenant shall have ten (10) business days after receipt of such notice from
Landlord in which to accept such offer by written notice to Landlord; if
Landlord's notice designated alternative terms or a range of terms, Tenant's
acceptance shall specify which alternative, within the offered range, is being
accepted by Tenant. Upon such acceptance by Tenant, the Offered Space (or
applicable portion thereof) shall be leased to Tenant on the terms set forth in
Landlord's notice and elected by Tenant (subject to the provisions of Section
1.3)(c)) and on the additional terms and provisions set forth herein (except to
the extent inconsistent with the terms set forth in Landlord's said notice) and
the parties shall promptly execute an amendment to this Lease adding the
Offered Space to the Premises and making any appropriate amendments to
provisions of this Lease to reflect different rent and other obligations
applicable to the Offered Space under the terms of Landlord's said notice and
Tenant's acceptance. If Tenant does not accept Landlord's offer within the
allotted time, Landlord shall thereafter have the right to lease the Offered
Space or any portion thereof to a third party, at any time within one hundred
eighty (180) days after Tenant's failure to accept Landlord's offer, at a
minimum rental and on other terms and conditions not more favorable to the
lessee than the minimum rental and other terms offered to Tenant in Landlord's
said notice. If Tenant does not accept Landlord's offer, then to the extent
Landlord does not lease the Offered Space to a third party within such 180-day
period, Landlord shall again be required to comply with the provisions of this
Section 1.3 prior to any further leasing of the Offered Space or any portion
thereof.
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<PAGE> 6
(c) Notwithstanding any other provisions of this Section
1.3, if the terms (or range of terms) offered by Landlord to Tenant with respect
to the Offered Space do not include an expiration date which is coterminous with
the then current term of this Lease, then Tenant's acceptance (if any) of
Landlord's offer may take any of the following three forms: (i) Tenant may
accept the terms (or an alternative within the range of terms, if applicable)
offered by Landlord, without regard to the non-coterminous nature of the
respective lease terms for the Offered Space and for the initial Premises
hereunder; or (ii) Tenant may accept the terms (or an alternative within the
range of terms, if applicable) offered by Landlord with respect to the Offered
Space and concurrently extend the then current term of this Lease with respect
to the initial Premises to terminate concurrently with the lease term for the
Offered Space, in which event such extension by Tenant shall be deemed to be a
permissible early exercise of the extension option set forth in Section 2.7
hereof, without regard to the time limits set forth therein, and the rent for
the initial Premises for such extended term shall be determined in accordance
with Section 3.1(e) hereof for any portion of such extended term falling within
the First five (5) years after the original expiration date of this Lease, and
shall be determined in accordance with Section 3.1(f) hereof for any portion of
such extended term falling more than five (5) years after the original
expiration date of this Lease; or (iii) Tenant may elect to lease the Offered
Space for a term coterminous with the then remaining term of this Lease with
respect to the initial Premises, in which event (x) Landlord shall have no
obligation to improve the Offered Space or provide any tenant improvement
allowance for the Offered Space, regardless of any contrary terms set forth in
Landlord's original notice to Tenant, (y) the "minimum rent" for the Offered
Space shall be the fair market rental value thereof, in the then existing
condition of such space, which fair market rental value shall be determined
promptly in accordance with the procedure described in Section 3.1(e) hereof
(but at 100% of fair market rental value rather than 95%), and (z) Tenant's
lease of the Offered Space shall otherwise be on the terms set forth in
Landlord's notice and on the additional terms and provisions set forth herein
(except to the extent inconsistent with the terms set forth in Landlord's said
notice).
(d) To the extent Tenant elects, pursuant to clause (ii)
of Section 1.3(c) hereof, an early exercise of one or both extended terms under
Section 2.7 hereof in whole or in part, then (A) the determination of the rent
for the initial Premises for the applicable extended term (or portion thereof)
shall be made during the period commencing six (6) months before the
commencement of the applicable extended term, pursuant to the procedure in
Section 3.1(e) or 3.1(f) hereof, as applicable, and (B) to the extent Tenant has
exercised its option as to only a portion of either extended term, then the
unexercised portion of such extended term shall be deemed to remain subject to a
continuing extension option by Tenant, which remaining option shall be
exercisable in accordance with Section 2.7 hereof not more than eight (8) months
and not less than six (6) months prior to the expiration of the initial portion
of such extended term already elected by Tenant under clause (ii) of Section
1.3(c) hereof.
2. TERM
2.1. Term. The term of this Lease shall commence on the earlier to
occur of (i) the date which is five (5) days after the date Landlord notifies
Tenant that Landlord's work pursuant to Section 2.4 and Exhibit C on the
Building shell and core and on the first phase (approximately 90,000 square
feet) of interior improvements is substantially complete and such work is in
fact substantially complete (but in no event earlier than July 1, 1997), or
(ii) the date Tenant takes occupancy of the Premises (except as otherwise
provided in Section 2.2), the earlier of such dates being herein called the
"Commencement Date," and shall end on the day immediately preceding the date
eleven (11) years thereafter, unless sooner terminated or extended as
hereinafter provided. Assuming execution of this Lease by October 1, 1996 and
approval of full plans, specifications and working drawings by December 1,
1996, the parties presently estimate that the Commencement Date will be no
later than September 1, 1997. For purposes of this Section 2.1, Landlord's
work shall be deemed to be "substantially complete" when all of the following
have occurred: (A) all improvements to be constructed by Landlord as part of
the Building shell and core and the first phase (approximately 90,000 square
feet) of interior improvements, pursuant to Exhibit C, have been completed
except for "punch list" items which do not materially, interfere with Tenant's
ability to utilize the First phase (approximately 90,000 square feet) of the
Premises for their intended purpose; (B) the City of Pleasanton has issued a
certificate of occupancy for the first phase (approximately 90,000 square feet)
of the Premises; (C) all utilities reasonably
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<PAGE> 7
necessary for Tenant's use of the first phase approximately, 90,000 square
feet) of the Premises for their intended purpose are connected and available
for use at the Premises; and (D) all improvements to be constructed by Landlord
as part of the Common Areas contemplated for and located on Phase VI of the
Property as shown on the Site Plan have been completed, except for "punch list"
items which do not materially interfere with Tenant's ability to utilize the
Premises for their intended purpose, and are available for use by Tenant.
2.2. Early Possession. If Landlord permits Tenant to occupy, use or
take possession of the Premises prior to the Commencement Date determined under
Section 2.1, such occupancy, use or possession shall be subject to and upon all
of the terms and conditions of this Lease, including the obligation to pay rent
and other charges, unless Landlord and Tenant agree otherwise; provided,
however, that such early possession shall not advance or otherwise affect the
Commencement Date or termination date determined under Section 2.1; provided
further, that if Tenant takes such early possession solely for the purpose of
installing fixtures, equipment, furniture and furnishings and other similar work
preparatory to the commencement of business in the Premises (which early
possession Landlord shall be required to offer to Tenant at least three (3)
weeks prior to the estimated date for substantial completion of Landlord's work
as contemplated in Section 2.1 hereof), Tenant shall not be required to pay rent
or Operating Expenses by reason of such possession until the Commencement Date
otherwise occurs; and provided further, that Tenant shall not interfere with or
delay Landlord's contractors by such early possession and shall indemnify,
defend and hold harmless Landlord and its agents and employees from and against
any and all claims, demands, liabilities, actions, losses, costs and expenses,
including (but not limited to) reasonable attorneys' fees, arising out of or in
connection with Tenant's early entry upon the Premises hereunder.
2.3 Delay In Possession. Landlord agrees to use its best
reasonable efforts to pursue and complete the work described in Section 2.4 and
Exhibit C promptly, diligently, and within the respective time periods set forth
in the construction timeline attached hereto as Exhibit D and incorporated
herein by this reference, as such timeline may be modified from time to time by
mutual agreement of Landlord and Tenant, and subject to the effects of any
delays caused by or attributable to Tenant or any other circumstances beyond
Landlord's reasonable control (excluding any Financial inability); provided,
however, that except to the extent caused by a material default by Landlord of
its obligations set forth in this Lease (including, but not limited to, its
obligations set forth in this Section 2.3 and in Section 2.4 and Exhibit C),
Landlord shall not be liable for any damages caused by any delay in the
completion of such work, nor shall any such delay affect the validity of this
Lease or the obligations of Tenant hereunder.
2.4. Construction.
(a) The obligation of Landlord to construct and improve
the Premises for occupancy by Tenant hereunder, and to construct related site
improvements in the Common Areas for use by Tenant, is set forth in Exhibit C
attached hereto and incorporated herein by this reference. Except as set forth
in this Section 2.4 and in Exhibit C, Landlord shall have no responsibilities
or obligations with respect to preparation of the Premises or the Property for
Tenant's occupancy.
(b) Landlord shall deliver the Building core and shell
and first phase (approximately 90,000 square feet) of interior improvements in
the Building to Tenant clean and free of debris on the Commencement Date
(subject to Tenant's right of early possession stated in the second proviso in
Section 2.2), and Landlord warrants to Tenant, effective as of the Commencement
Date, that (i) the Building core and shell and first phase (approximately
90,000 square feet) of interior improvements therein and the Common Areas
contemplated for or located on Phase VI of the Property as designated on the
Site Plan are substantially completed and are free from material defects in
design and construction, (ii) the electrical, mechanical, plumbing, lighting,
air conditioning and heating systems, and the loading doors, if any, on the
Building are in good operating condition (to the extent necessary to serve the
first phase of approximately 90,000 square feet of interior improvements) and
are free of material defects in design, equipment and/or installation, and
(iii) the Building core and shell and first phase (approximately 90,000 square
feet) of interior improvements therein have been constructed in compliance in
all material respects with the plans and specifications developed and approved
pursuant to Exhibit C. If it is determined that this warranty has been violated
in any respect, then it shall be the obligation
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<PAGE> 8
of Landlord, after receipt of written notice from Tenant setting forth with
specificity, the nature of the violation, to promptly, at Landlord's sole cost,
correct the condition(s) constituting such Violation. Tenant's failure to give
such written notice to Landlord within ninety (90) days after the Commencement
Date shall give rise to a conclusive presumption that Landlord has complied
with all Landlord's obligations under this Section 2.4 and Exhibit C, except
with respect to latent defects.
(c) Landlord warrants to Tenant that the Building core
and shell and first phase (approximately 90,000 square feet) of interior
improvements constructed by Landlord therein, as they exist on the Commencement
Date, but without regard to any use for which Tenant will occupy the Premises
other than general office use, shall not violate any covenants or restrictions
of record or any applicable building code, regulation or ordinance in effect on
the Commencement Date. If it is determined that this warranty has been
violated, then it shall be the obligation of Landlord, after written notice
from Tenant, to promptly, at Landlord's sole cost and expense, correct the
condition(s) constituting such violation. Tenant acknowledges that neither
Landlord nor any agent of Landlord has made any representation or warranty as
to the present or future suitability of the Premises for the conduct of
Tenant's business or proposed business thereon, except as expressly set forth
in this Lease.
(d) Landlord's obligations, representations and
warranties with respect to the second phase (approximately 40,000 square feet)
of interior improvements in the Premises shall be identical to the obligations,
representations and warranties set forth in this Section 2.4 and in Exhibit C
with respect to the first phase of interior improvements, but shall be deemed
to be made as of the date on which Landlord's construction of such second phase
of interior improvements is substantially complete (as defined in Section 2.1).
(e) TENANT ACKNOWLEDGES THAT THE FOREGOING WARRANTIES ARE
IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE
PHYSICAL CONDITION OF THE BUILDING AND IMPROVEMENTS TO BE CONSTRUCTED BY
LANDLORD AND THAT LANDLORD MAKES NO OTHER WARRANTIES EXCEPT AS EXPRESSLY SET
FORTH IN THIS LEASE.
2.5. Acknowledgement Of Lease Commencement. Upon commencement of
the term of this Lease, Landlord and Tenant shall execute a written
acknowledgement of the Commencement Date, date of termination, square footage
of the Premises and of the first phase of interior improvements delivered to
Tenant, excess cost of improvements (if applicable) and related matters,
substantially in the form attached hereto as Exhibit E (with appropriate
insertions), which acknowledgement shall be deemed to be incorporated herein by
this reference. Notwithstanding the foregoing requirement, the failure of
Tenant to execute such a written acknowledgement shall not affect Landlord's
determination of the Commencement Date, date of termination, square footage of
the Premises and of the first phase of interior improvements delivered to
Tenant, excess cost of improvements (if applicable) and related matters in
accordance with the provisions of this Lease.
2.6. Holding Over. If Tenant holds possession of the Premises
after the term of this Lease with Landlord's written consent, then except as
otherwise specified in such consent, Tenant shall become a tenant from month to
month at one hundred twenty-five percent (125%) of the rental and otherwise
upon the terms herein specified for the period immediately prior to such
holding over and shall continue in such status until the tenancy is terminated
by either party upon not less than thirty (30) days prior written notice. If
Tenant holds possession of the Premises after the term of this Lease without
Landlord's written consent, then Landlord in its sole discretion may elect (by
written notice to Tenant) to have Tenant become a tenant either from month to
month or at will, at one hundred twenty-five percent (125%) of the rental
(prorated on a daily basis for an at-will tenancy, if applicable) and otherwise
upon the terms herein specified for the period immediately prior to such
holding over, or may elect to pursue any and all legal remedies available to
Landlord under applicable law with respect to such unconsented holding over by
Tenant. Tenant shall indemnify and hold Landlord harmless from any loss,
damage, claim, liability, cost or expense (including reasonable attorneys'
fees) resulting from any delay by Tenant in surrendering the Premises (except
with Landlord's prior written consent), including but not limited to any
claims made by a succeeding tenant by, reason of such delay. Acceptance
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<PAGE> 9
of rent by Landlord following expiration or termination of this Lease shall not
constitute a renewal of this Lease.
2.7 Option To Extend Term. Tenant shall have the option to extend
the term of this Lease at the minimum rental set forth in Section 3.1 (e)
and (f) and otherwise upon all the terms and provisions set forth herein with
respect to the initial term of this Lease, for up to two (2) additional periods
of five (5) years each, commencing upon expiration of the initial term hereof.
Exercise of such option with respect to the first such extended term shall be
by written notice to Landlord at least six (6) months and not more than eight
(8) months prior to the expiration of the initial term hereof; exercise of such
option with respect to the second such extended term, if the first extension
options has been duly exercised, shall be by like written notice to Landlord at
least six (6) months and not more than eight (8) months prior to the
expiration of the first extended term hereof. If there exists a material event
of default on the part of Tenant on the date of any such notice, then the
notice shall not be effective. If Tenant properly exercises one or more
extension options under this Section, then all references in this Lease (other
than in this Section 2.7) to the "term" of this Lease shall be construed to
include the extension term(s) thus elected by Tenant. Except as expressly set
forth in this Section 2.7 (as modified by clause (ii) of Section 1.3(c), if
applicable), Tenant shall have no right to extend the term of this Lease beyond
its prescribed term. To the extent provided in Sections 1.3(c)(ii) and 1.3(d),
Tenant may elect an early and/or partial exercise of one or both extended terms
in connection with an acceptance of Offered Space; in the event of any such
partial exercise, the remaining unexercised portion of the extended term(s)
shall be subject to a continuing option under this Section 2.7, as provided in
Section 1.3(d), and upon a proper exercise by Tenant of such remaining extended
term(s), the rent for such remainder of the extended term(s) shall be
determined, as of the commencement of such remainder of the extended term(s),
in the manner provided in Section 3.1(e) or 3.1(f), as applicable.
3. RENTAL
3.1. Minimum Rental.
(a) Tenant shall pay to Landlord as minimum rental for
the Premises, in advance, without deduction, offset, notice or demand, on or
before the Commencement Date and on or before the first day of each subsequent
calendar month of the term of this Lease, the following amounts per month: for
months 1-12, the sum of $99,000.00 per month; for months 13-24, the sum of
$142,254.00 per month; and for months 25-132, the adjusted rent determined
under Section 3.1(b) hereof. Notwithstanding the foregoing provisions of this
Section 3.1, however, at any time after month 24 of the term of this Lease,
Tenant in its sole discretion may elect, by written notice to Landlord, to
convert its minimum rental obligation for the period from the date of such
notice through the remainder of the initial term of this Lease to the following
amounts per month (as applicable):
<TABLE>
<CAPTION>
Months After Minimum Rental
Commencement Date (per month)
------------------ ----------------
<S> <C>
25-36 $ 150,789.00
37-48 156,821.00
49-60 163,094.00
61-72 169,617.00
73-84 176,402.00
85-96 183,458.00
97-108 190,796.00
109-120 198,428.00
121-132 206,365.00
</TABLE>
If the obligation to pay minimum rental hereunder commences on other than the
first day of a calendar month or if the term of this Lease terminates on other
than the last day of a calendar month, the minimum rental for such first or
last month of the term of this Lease, as the case may be, shall be prorated
based on the number of days the term of this Lease is in effect during such
month. If an increase in minimum rental becomes effective on a day other than
the first day, of
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<PAGE> 10
a calendar month, the minimum rental for that month shall be the sum of the two
applicable rates, each prorated for the portion of the month during which such
rate is in effect.
(b) If and only if Tenant does not exercise its
election under Section 3.1(a) to convert its minimum rental obligation to the
rent schedule set forth in Section 3.1(a), then and only then shall the
minimum rental hereunder be subject to adjustment as set forth in this Section
3.1(b). To the extent Tenant does not exercise such election as of the end
of month 24 of the term of this Lease, then for so long as such election
remains unexercised minimum rental hereunder shall be subject to adjustment on
the second anniversary of the Commencement Date effective for months 25-36 of
the term of this Lease, and on each subsequent anniversary of the Commencement
Date until the expiration of the initial term of this Lease, effective for the
succeeding twelve (12) months of the term of this Lease (each such anniversary
being herein called an "Adjustment Date"), in accordance with the provisions of
this paragraph (b). The base for computing such adjustment shall be (i) for
the first such adjustment, the Consumer Price Index for All Urban Consumers,
San Francisco/Oakland/San Jose Metropolitan Area, All Items (1982-84 = 100),
produced by the United States Department of Labor, Bureau of Labor Statistics
("Index") which is published for the month two (2) months prior to the month in
which the Commencement Date occurs and (ii) for each subsequent adjustment, the
Extension Index (as hereinafter defined) used for the immediately preceding
adjustment (each such Index identified in clause (i) or (ii) of this sentence,
as applicable, being hereinafter called the "Beginning Index"). If the Index
which is published for the month two (2) months prior to the month in which the
Adjustment Date occurs (the "Extension Index") has increased over the Beginning
Index, the minimum rental payable thereafter shall be increased to the
following amount(s):
(i) For the first such Adjustment Date, to an amount
equal to the minimum rental in effect immediately prior to such
Adjustment Date multiplied by the lesser of (x) 1.06 or (y) a
fraction, the numerator of which is equal to the sum of the Beginning
Index for such first Adjustment Date plus the product of 2.5 times the
difference between the Extension Index for such first Adjustment Date
and the Beginning Index for such First Adjustment Date, and the
denominator of which is the Beginning Index for such first Adjustment
Date; and
(ii) For each subsequent Adjustment Date, to an amount
equal to the minimum rental in effect immediately prior to such
Adjustment Date multiplied by the lesser of (x) 1.05 or (y) a
fraction, the numerator of which is equal to the sum of the Beginning
Index for such Adjustment Date plus the product of 2.5 times the
difference between the Extension Index for such Adjustment Date and
the Beginning Index for such Adjustment Date, and the denominator of
which is the Beginning Index for such Adjustment Date.
If the Extension Index is not available until after the Adjustment Date, Tenant
shall continue to pay the then prevailing minimum rental until the Extension
Index is published, whereupon the adjustment provided in this paragraph shall
be made retroactive to the Adjustment Date and any accumulated excess of the
adjusted minimum rental over the amounts actually paid by Tenant since the
Adjustment Date shall be paid promptly by Tenant to Landlord upon notice by
Landlord to Tenant of the adjusted minimum rental. If the Index is changed so
that the base year differs from the base year used as of the Commencement Date,
the Index shall be converted in accordance with the conversion factor published
by the United States Department of Labor, Bureau of Labor Statistics. If the
Index is discontinued or substantially revised during the term of this Lease,
any comparable governmental index or computation with which it is replaced (or,
if none is available, any privately published index which is comparable in
coverage and purpose) shall be designated by Landlord in order to obtain
substantially the same result as would have been obtained if the Index had not
been discontinued or revised. Upon any adjustment of the monthly minimum
rental in accordance with the provisions of this paragraph, Landlord and Tenant
shall immediately execute a written acknowledgement of the new minimum rental
as adjusted, which acknowledgement shall be deemed to be incorporated herein
by this reference; provided, however, that any failure of one or both parties
to execute and deliver such a written acknowledgement shall not limit or affect
in any way the other obligations of the parties with respect to the applicable
rental adjustment or any subsequent rental adjustments required under this
paragraph (b).
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<PAGE> 11
(c) The minimum rental amounts specified in this Section
3.1 are based upon an estimated area of 129,322 square feet for the Premises
(except during months 1-12 when the estimated area of the Premises is assumed
to be 90,000 square feet, reflecting the estimated area of the first phase of
the build-out of interior improvements in the Premises). If the actual area of
the Premises, when completed, is greater or less than such estimated area, then
the minimum rentals specified in Sections 3.1(a) and/or (b), as applicable,
shall be adjusted for each rental period in strict proportion to the ratio
between the actual area of the Premises during the applicable period (which
area shall be determined on the basis of measurement from the exterior faces of
the exterior walls of the Building, excluding overhangs, and, for purposes of
determining the amount of space occupied by Tenant during the first twelve
months of the term of this Lease, shall be measured to the centerline of any
interior demising walls) and the assumed area of 90,000 or 129,322 square feet,
as applicable. If Tenant occupies more than 90,000 square feet of the Premises
during any portion of the first twelve months of the term of this Lease (due to
acceleration of Tenant's occupancy of the second phase of interior improvements
or for any other reason), or if the actual area of the first phase of interior
improvements is more or less than 90,000 square feet, then the minimum rental
specified above for such portion of the first twelve months of the term of this
Lease shall be adjusted in strict proportion to the ratio between the
additional space occupied by Tenant in excess of 90,000 square feet or the
actual area of the first phase of interior improvements, as applicable, as
determined on the basis of measurement set forth in the immediately preceding
sentence hereof, and the assumed area of 90,000 square feet. If Landlord's
substantial completion of the second phase of interior improvements occurs
later than twelve months after the Commencement Date, then to the extent such
delayed completion results from any cause other than delays attributable to
acts or omissions of Tenant or its agents, employees or contractors, the
minimum rentals specified in Sections 3.1(a) and or (b), as applicable, shall
be reduced, for the period from the beginning of the thirteenth month of the
term of this Lease until the substantial completion and delivery by Landlord of
the second phase of interior improvements, in strict proportion to the ratio
between (i) the greater of the actual area of the space occupied by Tenant in
the Premises or the actual area of the first phase of interior improvements, as
determined in each case on the basis of measurement set forth in the second
preceding sentence hereof, and (ii) the assumed area of 129,322 square feet.
Measurements of building area under this paragraph shall be made initially by
Landlord's architect, subject to review and approval by Tenant's architect.
(d) The minimum rental amounts specified in Section 3.1(a)
do not reflect any excess improvement costs that may be chargeable to Tenant in
accordance with Exhibit C. If, upon completion of construction of the Premises,
it is determined that there are any such excess improvement costs chargeable to
Tenant in accordance with Exhibit C, then Tenant shall pay to Landlord as
additional minimum rental for the Premises during the initial term of this
Lease an amount each month equal to the amount necessary to amortize such
excess improvement costs on a level payment basis over the initial term of this
Lease with an imputed return at the rate of ten percent (10%) per annum. Upon
determination of the amount of any additional minimum rental in accordance with
the provisions of this paragraph, Landlord and Tenant shall incorporate such
amount in the Acknowledgement of Lease Commencement in the form of Exhibit E or
shall execute a separate written acknowledgement of such additional minimum
rental, which acknowledgement shall be deemed to be incorporated herein by this
reference; provided, however, that any failure of one or both parties to
execute and deliver such a written acknowledgement shall not limit or affect in
any way the other obligations of the parties with respect to the additional
minimum rental (if any) due under this paragraph (d). Notwithstanding any
other provisions of this Section 3.1, any additional minimum rental payable
under this paragraph (d) shall not be subject to adjustment under Section 3.1
(a), (b) or (c), regardless of any adjustments that may otherwise be
appropriate for other minimum rental components under such paragraphs (a), (b)
or (c).
(e) If Tenant properly exercises its right to extend the
term of this Lease pursuant to Section 2.7 hereof, the minimum rental during
the first extended term shall be equal to ninety-five percent (95%) of the fair
market rental value of the Premises (in "as is" condition as theretofore
improved under Section 2.4 and Exhibit C, but without regard to any tenant
improvement allowance for the extended term and without regard to the value of
any
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<PAGE> 12
improvements which were installed by Tenant at its own cost and which Tenant has
the right to remove from the Premises pursuant to Article 7 hereof upon
expiration of the Lease), including any cost-of-living adjustments or other
rental increase provisions then customary in the relevant market for comparable
commercial leases, determined as of the commencement of such extended term in
accordance with this paragraph. Upon Landlord's receipt of a proper notice of
Tenant's exercise of its option to extend the term of this Lease, the parties
shall have sixty (60) days in which to agree on the fair market rental
(including any applicable rental increase provisions) for the Premises (as
theretofore improved under Section 2.4 and Exhibit C) at the commencement of the
first extended term for the uses permitted hereunder. If the parties agree on
such fair market rental and rental increase provisions (if any), they shall
execute an amendment to this Lease stating the amount of the applicable minimum
monthly rental and any applicable rental increase provisions. If the parties
are unable to agree on such rental (including any applicable rental increase
provisions) within such sixty (60) day period, then within fifteen (15) days
after the expiration of such period each party, by written notice to the other
party, shall appoint a real estate appraiser with at least five (5) years
experience appraising similar commercial properties in the City of Pleasanton or
County of Alameda. If either party fails to appoint an appraiser within the
allotted time, the single appraiser appointed by the other party shall be the
sole appraiser. If an appraiser is appointed by each party, the two appraisers
so appointed shall appoint a third qualified appraiser within fifteen (15) days
after the appointment of the later of the two appraisers to be appointed; if the
two appraisers are unable to agree upon a third appraiser, either party may,
upon not less than five (5) days notice to the other party, apply to the
Presiding Judge of the Superior Court for the county in which the Property is
located for the appointment of a third qualified appraiser. Each party shall
bear the fees and charges of the appraiser appointed by such party, shall bear
its own legal fees in connection with appointment of the third appraiser and
shall bear one-half of any other costs of appointment of the third appraiser and
of such third appraiser's fee. Each appraiser designated under this paragraph,
however selected, shall be a person who has not acted for either party (or for
any person or entity which controls, is controlled by or is under common control
with either party) in any capacity within five (5) years prior to the date of
such designation hereunder. Within thirty (30) days after the appointment of
the third appraiser, a majority of the three appraisers shall set the fair
market rental and any applicable rental increase provisions for the first
extended term and shall so notify the parties. If a majority are unable to
agree within the allotted time, each of the three appraisers at the end of such
30-day period shall submit his or her written determination of the fair market
rental and any applicable rental increase provisions and (i) the three appraised
fair market rentals shall be added together and divided by three and the
resulting quotient shall be the fair market rental for the first extended term
(except that any fair market appraisal that differs by more than 10% from the
"middle" appraisal shall be disregarded and the averaging process shall be
adjusted accordingly to reflect only the remaining appraisal(s)), and (ii) the
applicable rental increase provision (if any) shall be equal to the mathematical
average (or the nearest reasonable approximation thereto) of the two rental
increase provisions that are most closely comparable, which determinations shall
be binding on the parties and shall be enforceable in any further proceedings
relating to this Lease.
(f) If Tenant properly exercises its right to a second
extended term of this Lease pursuant to Section 2.7 hereof, the minimum rental
during such second extended term shall be determined in the same manner
provided in paragraph (e) of this Section for the first extended term, except
that (i) the determination shall be made as of the commencement of the second
extended term and (ii) the applicable percentage of fair market rental under
clause (ii) of the first sentence of paragraph (e) of this Section shall be one
hundred percent (100%) rather than ninety-five percent (95%).
3.2. Late Charge. If Tenant fails to pay when due rental or other
amounts due Landlord hereunder, such unpaid amounts shall bear interest for the
benefit of Landlord at a rate equal to the lesser of fifteen percent (15%) per
annum or the maximum rate permitted by law, from the date due to the date of
payment. In addition to such interest, Tenant shall pay to Landlord a late
charge in an amount equal to five percent (5%) of any installment of minimum
rental and any other amounts due Landlord if not paid in full on or before the
third (3rd) day after written notice from Landlord to Tenant that such rental
or other amount is past due; provided, however, that if any payment of rent or
other amounts by Tenant is more than five (5) days late and Landlord gave
written notice of delinquency to Tenant prior to such payment, than for the
next twelve (12) calendar months after such written notice was given, Tenant
shall be
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<PAGE> 13
liable for late charges on any further payment of rental or other amount that
is not paid on or before the fifth (5th) day after such rental or other amount
is due, without any requirement of prior notice from Landlord to Tenant of such
default or delinquency. Tenant acknowledges that late payment by Tenant to
Landlord of rental or other amounts due hereunder will cause Landlord to incur
costs not contemplated by this Lease, including, without limitation, processing
and accounting charges and late charges which may be imposed on Landlord by the
terms of any loan relating to the Property. Tenant further acknowledges that
it is extremely difficult and impractical to fix the exact amount of such costs
and that the late charge set forth in this Section 3.2 represents a fair and
reasonable estimate thereof. Acceptance of any late charge by Landlord shall
not constitute a waiver of Tenant's default with respect to overdue rental or
other amounts, nor shall such acceptance prevent Landlord from exercising any
other rights and remedies available to it. Acceptance of rent or other
payments by Landlord shall not constitute a waiver of late charges or interest
accrued with respect to such rent or other payments or any prior installments
thereof, nor of any other defaults by Tenant, whether monetary or non-monetary
in nature, remaining uncured at the time of such acceptance of rent or other
payments.
4. TAXES
4.1. Personal Property. Tenant shall be responsible for and shall
pay prior to delinquency all taxes and assessments levied against or by reason
of (a) any and all alterations, additions and items installed or placed on the
Premises and taxed as personal property rather than as real property, and (b)
all personal property, trade fixtures and other property installed or placed by
Tenant on or about the Property. Upon request by Landlord, Tenant shall
furnish Landlord with satisfactory evidence of Tenant's payment thereof. If at
any time during the term of this Lease any of said alterations, additions or
personal property, whether or not belonging to Tenant, shall be taxed or
assessed as part of the Property, then such tax or assessment shall be paid by
Tenant to Landlord immediately upon presentation by Landlord of copies of the
tax bills in which such taxes and assessments are included and shall, for the
purposes of this Lease, be deemed to be personal property taxes or assessments
under this Section 4.1.
4.2. Real Property. To the extent any real property taxes and
assessments on the Premises, on any improvements therein or on the portion of
the Property identified as Phase VI in the Site Plan are assessed directly to
Tenant, Tenant shall be responsible for and shall pay prior to delinquency all
such taxes and assessments. Upon request by Landlord, Tenant shall furnish
Landlord with satisfactory evidence of Tenant's payment thereof. To the extent
the Property, the Premises and/or any improvements therein are taxed or
assessed to Landlord following the Commencement Date, such real property taxes
and assessments shall constitute Operating Expenses (as that term is defined in
Section 5.2 of this Lease) and shall be paid in accordance with the provisions
of Article 5 of this Lease.
5. OPERATING EXPENSES
5.1. Payment Of Operating Expenses.
(a) Tenant shall pay to Landlord, at the time and in the
manner hereinafter set forth, as additional rental, an amount equal to
sixty-nine and fifty-nine hundredths percent (69.59%) ("Tenant's Building
Operating Cost Share") or thirty-eight and fifty-seven hundredths percent
(38.57%) ("Tenant's Land Operating Cost Share"), as applicable, of the
Operating Expenses defined in Section 5.2. Tenant's Land Operating Cost Share
shall be applicable in determining Tenant's share of (x) the taxes, assessments
and other expenses described in clause (iii) of Section 5.2 (excluding personal
property taxes and the portion of real property taxes, assessments and similar
items allocable to buildings or improvements, as opposed to land), and (y)
assessments and dues described in clause (vi) of Section 5.2 and payable to the
Hacienda Business Park Owners' Association or otherwise payable under the
governing covenants, conditions and restrictions for the Hacienda Business
Park, including (but not limited to) the master Declaration as defined in
Section 15.4 hereof. Tenant's Building Operating Cost Share shall be
applicable in determining Tenant's share of all other Operating Expenses,
including (but not limited to), under Section 5.2(iii), personal property taxes
and the portion of real property taxes, assessments and similar items
allocable to buildings or Improvements as opposed to land.
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<PAGE> 14
(b) The parties acknowledge that Landlord intends to
construct additional buildings on the Property, some of which may be constructed
substantially concurrently with the Building and some of which may be
constructed at a later time. Tenant's Building Operating Cost Share as
specified in paragraph (a) of this Section is based upon an estimated area of
90,000 square feet for the Premises (that being the portion anticipated to be
built out as the first phase of interior improvements and occupied by Tenant
during the first twelve months of the term) and upon an aggregate area of
129,322 square feet for the buildings owned by Landlord on the Property. If the
actual area of the first phase of interior improvements or of the entire
Building (when completed), as determined on the basis of measurement set forth
in Section 3.1 (c) hereof, differs from the assumed numbers set forth above, or
when Tenant occupies more than 90,000 square feet of the Premises as
contemplated in Section 3.1(c) and Exhibit C, then Tenant's Building Operating
Cost Share shall be adjusted to reflect the actual areas so determined. If and
when Landlord constructs additional buildings on the Property from time to time,
then the denominator of the fraction by which Tenant's Building Operating Cost
Share is determined shall be adjusted to include the gross square footage of
each such additional building from and after the date on which construction of
such additional building is substantially complete (as that term is defined in
Section 2.1 hereof), and the good faith determination of the gross square
footage of such additional building by Landlord's architects (in accordance with
whatever basis of measurement is applied by Landlord in good faith in
determining Operating Expense shares for tenants of such additional building
pursuant to the terms of their leases) shall be final and binding upon the
parties for purposes of this Section 5.1(b).
(c) Tenant's Land Operating Cost Share as specified in
paragraph (a) of this Section is based upon an estimated area of 7.46 acres for
the portion of the Property designated as Phase VI on the Site Plan and a
surveyed area of 19.339 acres for the entire Property. If the boundaries of
the Phase VI land area (which is intended to be the land area reasonably
allocable to the Building and its users, albeit on a nonexclusive basis) are
changed at any time by mutual agreement of Landlord and Tenant, or if the
actual area of Phase VI is determined to be greater or smaller than 7.46 acres,
then Tenant's Land Operating Cost Share shall be adjusted accordingly.
(d) If Landlord actually receives (and is not required to
pay over to The Prudential Insurance Company of America), during the term of
this Lease, any refund of real property taxes or assessments with respect to
the Property and such refund is attributable or allocable in whole or in part
to taxes or assessments paid during any period of time during which Tenant was
paying a share of real property taxes and assessments on the Property or any
portion thereof pursuant to this Lease, then the portion of such refund
received by Landlord that is fairly allocable to the amounts actually paid by
Tenant for such real property taxes and assessments during any portion of the
refund period shall be applied as a credit against Tenant's remaining Operating
Expense obligations under this Lease and, to the extent such credit exceeds the
total amount of Tenant's remaining Operating Expense obligations under this
Lease, shall be refunded in cash by Landlord to Tenant concurrently with the
final reconciliation of Tenant's Operating Expense obligations under this
Lease.
5.2. Definition Of Operating Expenses. Subject to the exclusions
and provisions hereinafter contained, the term "Operating Expenses" shall mean
the total costs and expenses incurred by or allocable to Landlord for
management, operation and maintenance of the Property and the buildings and
other improvements thereon, including, without limitation, the following costs
and expenses:
(i) insurance, property management, landscaping and
operations, repairs and maintenance of buildings and Common Areas,
except that property management expenses shall be excluded to the
extent they exceed two percent (2%) of minimum rent,
(ii) all utilities and services;
(iii) real and personal property taxes and assessments or
substitutes therefor, including (but not limited to) any possessory
interest, use, business, license or other taxes or fees, any taxes
imposed directly on rents or services, any assessments or charges for
police or fire protection, housing, transit, open space, street or
sidewalk construction or maintenance or other similar services from
time to time by any governmental or
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<PAGE> 15
quasi-governmental entity, and any other new taxes on landlords in
addition to taxes now in effect, but excluding (aa) fees, exactions
and taxes imposed as a condition to the issuance of any entitlements
or building permits related to the Property and (bb) gift taxes,
inheritance taxes, transfer taxes and net income taxes of Landlord;
(iv) supplies, equipment, utilities and tools used in
management, operation and maintenance of the Property;
(v) capital improvements to the Property or the buildings
and other improvements thereon, amortized over the reasonable useful
life of the applicable improvement, (aa) which reduce or will cause
future reduction of other items of Operating Expenses for which Tenant
is otherwise required to contribute (provided that the amortizable
costs for this category of improvement shall be limited to the amount
of the reasonably estimated savings to be produced thereby), or (bb)
which are required by law, ordinance, regulation or order of any
governmental authority, or (cc) of which Tenant has use or which
benefit Tenant (provided that amortizable improvements under this
category shall be limited to those which are approved in writing by
Tenant or which are merely a reasonably necessary repair or replacement
of an existing improvement with one of like kind and quality, in which
event no such approval by Tenant shall be required; and provided
further that Tenant's obligation with respect to any amortization of
capital expenditures under this Section 5.2(v) shall terminate on the
earlier of (x) the expiration of the term of this Lease or (y) the
next date as of which minimum rental under this Lease is adjusted or
reset to a new rental based on fair market rental value (excluding,
however, any CPI-based or stepped adjustments pursuant to Section 3.1
(a) or (b) or pursuant to a prior fair market rental determination));
and
(vi) any other costs (including, but not limited to, any
parking or utilities fees or surcharges) allocable to or paid by
Landlord, as owner of the Property or the buildings and other
improvements thereon, pursuant to any applicable laws, ordinances,
regulations or orders of any governmental or quasi-governmental
authority or pursuant to the terms of any declarations of covenants,
conditions and restrictions now or hereafter affecting the Property.
The distinction between items of ordinary operating maintenance and repair and
items of a capital nature shall be made in accordance with generally accepted
accounting principles applied on a consistent basis. Notwithstanding any other
provisions of this Section 5.2, Operating Expenses shall not include any of the
following:
(A) any costs attributable to the work for which Landlord
is required to pay under Section 2.4 or Exhibit C;
(B) that portion of any Operating Expenses (other than
Operating Expenses to which Tenant's Land Operating Expense Share is
applicable) that is fairly allocable to any undeveloped portion of the
Property (including, but not limited to, Phase V and Phase VII as
designated on the Site Plan), until such time as the building(s) and
improvements on such portion of the Property have been substantially
completed and such portion of the Property is properly includable in
determining Tenant's Building Operating Cost Share under Section
5.1(b) hereof;
(C) the cost to repair damage caused by (i) fire,
earthquake or other peril, or (ii) the negligence of Landlord, its
agents, employees or contractors, or any other tenants of the Property
or their respective agents, employees, contractors or invitees;
(D) costs associated with procurement of new tenants,
preparation of their spaces and enforcement of their leases, including
(but not limited to) brokerage commissions, tenant improvement costs,
and attorneys' fees;
(E) the cost of maintenance and repair of structural
elements of the buildings located on the Property from time to time,
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<PAGE> 16
(F) the cost to repair any defects in design,
construction or equipment for any building located on the Property
from time to time, to the extent resulting from or attributable to
work undertaken by Landlord or by its contractors on Landlord's behalf
(including, but not limited to, costs to correct any building code
violations caused by or attributable to Landlord's work);
(G) the cost to investigate and/or remediate any
contamination by hazardous or toxic substances or wastes, except to
the extent caused by Tenant or its agents, employees or contractors;
or
(H) the cost to correct any violation of any declaration
of covenants, conditions and restrictions applicable to the Property,
except to the extent such violation is caused by Tenant or its agents,
employees or contractors.
5.3. Determination Of Operating Expenses. On or before the
Commencement Date and during the last month of each calendar year of the term
of this Lease ("Lease Year"), or as soon thereafter as practical, Landlord
shall provide Tenant notice of Landlord's estimate of the Operating Expenses
for the ensuing Lease Year or applicable portion thereof. On or before the
first day of each month during the ensuing Lease Year or applicable portion
thereof, beginning on the Commencement Date, Tenant shall pay to Landlord
Tenant's Land Operating Cost Share or Tenant's Building Operating Cost Share,
as applicable, of the portion of such estimated Operating Expenses allocable
(on a prorata basis) to such month; provided, however, that if such notice is
not given in the last month of a Lease Year, Tenant shall continue to pay on
the basis of the prior year's estimate, if any, until the month after such
notice is given. If at any time or times it appears to Landlord that the
actual Operating Expenses will vary from Landlord's estimate by more than five
percent (5%), Landlord may, by notice to Tenant, revise its estimate for such
year and subsequent payments by Tenant for such year shall be based upon such
revised estimate.
5.4. Final Accounting For Lease Year. Within ninety (90) days
after the close of each Lease Year, or as soon after such 90-day period as
practicable, Landlord shall deliver to Tenant a statement of Tenant's Land
Operating Cost Share and Tenant's Building Operating Cost Share, as applicable,
of the Operating Expenses for such Lease Year prepared by Landlord from
Landlord's books and records, which statement shall be final and binding on
Landlord and Tenant, except as otherwise provided herein. Notwithstanding any
other provisions of this Section 5.4, Tenant shall have the right to audit or
review, directly or through its designated representative, Landlord's books and
records relating to Operating Expenses for any period, subject to the following
conditions: Such right shall be exercisable only by written request to Landlord
within 180 days after Tenant's receipt from Landlord of a statement of actual
Operating Expenses, shall be limited to the period covered by such statement,
and shall be exercisable only during normal business hours, on not less than
ten (10) days prior written notice to Landlord, and at Tenant's sole cost and
expense, except as hereinafter provided. To the extent that Tenant, following
any such review or audit, disputes any item in the applicable statement or in
the calculation of Tenant's obligations thereunder, Tenant shall give Landlord
written notice of the disputed items, in reasonable detail and with reasonable
supporting information, and Landlord and Tenant shall negotiate diligently and
in good faith to try to resolve the dispute. If Landlord and Tenant are unable
to resolve the dispute within thirty (30) days after Landlord's receipt of
Tenant's written notice specifying the disputed items, then either party may
elect, by written notice to the other, to have the dispute resolved through a
review and determination by an independent Certified Public Accountant who has
not previously rendered professional services to either party. Such review and
determination by the independent CPA shall be based on generally accepted
accounting principles and tax accounting principles, consistently applied. The
independent CPA shall be selected by mutual agreement of Landlord and Tenant;
if they are unable to agree on such selection within twenty (20) days after a
party's notice of desire to submit the dispute to a CPA review, then the
independent CPA shall be appointed by the Presiding Judge of the Alameda
County Superior Court upon application by either party (with notice to the
other party). If it is determined, on the basis of Landlord's statement or by
mutual agreement of Landlord and Tenant or by independent CPA review, as
applicable, that Tenant owes an amount that is more or less than the estimated
payments previously made by Tenant for the applicable period, then Tenant or
Landlord, as the case may be, shall pay the deficiency or overpayment to the
other party within thirty (30) days after final determination Of such
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underpayment or overpayment. The expenses of the independent CPA, if any,
shall be borne by Tenant unless the CPA's determination reflects an
overstatement or overpayment of five percent (5%) or more in Tenant's
obligation for Operating Expenses for the applicable period, in which event the
expenses of the independent CPA shall be borne by Landlord. Each party agrees
to maintain the confidentiality of the findings of any audit or review in
accordance with the provisions of this Section 5.4. Failure or inability of
Landlord to deliver the annual statement within such ninety (90) day period
shall not impair or constitute a waiver of Tenant's obligation to pay Operating
Expenses, or cause Landlord to incur any liability for damages.
5.5. Proration. If the Commencement Date falls on a day other than
the first day of a Lease Year or if this Lease terminates on a day other than
the last day of a Lease Year, the amount of Tenant's Land Operating Cost Share
and Tenant's Building Operating Cost Share, as applicable, payable by Tenant
with respect to such first or last partial Lease Year shall be prorated on the
basis which the number of days during such Lease Year in which this Lease is in
effect bears to 365. The termination of this Lease shall not affect the
obligations of Landlord and Tenant pursuant to Section 5.4 to be performed
after such termination.
6. UTILITIES
6.1. Payment. Commencing with the Commencement Date and thereafter
throughout the term of this Lease, Tenant shall pay, before delinquency, all
charges for water, gas, heat, light, electricity, power, sewer, telephone,
alarm system, janitorial and other services or utilities supplied to or
consumed in or upon the Premises, including any taxes on such services and
utilities.
6.2 Interruption. There shall be no abatement of rent or other
charges required to be paid hereunder and Landlord shall not be liable in
damages or otherwise for interruption or failure of any service or utility
furnished to or used in the Premises because of accident, making of repairs,
alterations or improvements, severe weather, difficulty or inability in
obtaining services or supplies, labor difficulties or any other cause.
Notwithstanding the foregoing provisions of this Section 6.2, however, in the
event of any interruption or failure of any service or utility to the Premises
which is caused in whole or in part by the negligence or willful misconduct of
Landlord or its agents or employees, which continues for more than 48 hours and
which materially impairs Tenant's ability to use the Premises for their
intended purpose hereunder, then Tenant's rental obligations under this Lease
shall be abated in proportion to the extent of the proportional fault of
Landlord and its agents and employees and in proportion to the degree of
impairment of Tenant's use of the Premises, and such abatement shall be
retroactive to the commencement of the interruption or failure and shall
continue until Tenant's use of the Premises is no longer materially impaired
thereby.
7. ALTERATIONS
7.1. Right To Make Alterations. Tenant shall make no alterations,
additions or improvements to the Premises, other than interior non-structural
alterations costing less than Fifty Thousand Dollars ($50,000.00) in each
instance, without the prior written consent of Landlord. All such alterations,
additions and improvements shall be completed with due diligence in a
first-class workmanlike manner, in compliance with plans and specifications
approved in writing by Landlord and in compliance with all applicable laws,
ordinances, rules and regulations. All such alterations, additions and
improvements shall be performed solely by a licensed and bonded general
contractor approved by Landlord, and Landlord shall be named as an additional
insured on such contractor's bond. Landlord may also, at its election, require
Tenant to furnish to Landlord, at Tenant's sole cost and expense, a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of any such work, to ensure completion of the work and to protect Landlord
against any liens or claims relating thereto. If Tenant wishes to know in
advance whether it will be required to remove any specific alteration, addition
or improvement upon termination of this Lease, as contemplated in Section 7.2
hereof, then Tenant shall make an express written request for such a
determination by Landlord at the time Tenant requests Landlord's approval of
the applicable alteration, addition or improvement; if Tenant makes such a
written request and Landlord does not, in response thereto, advise Tenant that
Landlord intends
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to require (or at least to reserve the right to require) removal of the
applicable alteration, addition or improvement upon expiration of this Lease,
then Landlord shall not be entitled to request such removal, notwithstanding
any contrary provisions in Section 7.2 hereof.
7.2. Title To Alterations. All alterations, additions and
improvements installed in, on or about the Premises shall be part of the
Building and the property of Landlord, unless Landlord elects to require Tenant
to remove the same upon the termination of this Lease; provided, however, that
(a) the foregoing shall not apply to Tenant's movable furniture and trade
fixtures not affixed to the Property, and (b) Tenant shall not under any
circumstances be required to remove any of the improvements constructed by
Landlord pursuant to Section 2.4 and Exhibit C.
7.3. Tenant Fixtures. Notwithstanding the provisions of Sections
7.1 and 7.2, Tenant may install, remove and reinstall trade fixtures without
Landlord's prior written consent, except that any fixtures which are affixed to
the Premises or which affect the exterior or structural portions of the
Building shall require Landlord's written approval. The foregoing shall apply
to Tenant's signs, logos and insignia, all of which Tenant shall have the right
to place and remove and replace subject only to (a) Landlord's prior written
consent as to location, size and composition and (b) compliance with all
applicable legal requirements and all applicable covenants, conditions and
restrictions. Tenant shall immediately repair any damage caused by
installation and removal of fixtures under this Section 7.3.
7.4. No Liens. Tenant shall at all times keep the Premises free
from all liens and claims of any contractors, subcontractors, materialmen,
suppliers or any other parties employed either directly or indirectly by Tenant
in construction work on or about the Premises. Tenant may contest any claim of
lien, but only if, prior to such contest, Tenant either (i) posts security in
the amount of the claim, plus estimated costs and interest, or (ii) records a
bond of a responsible corporate surety in such amount as may be required to
release the lien from the Premises. Tenant shall indemnify, defend and hold
Landlord harmless against any and all liability, loss, damage, cost and other
expenses, including, without limitation, reasonable attorneys' fees, arising out
of claims of any lien for work performed or materials or supplies furnished at
the request of Tenant or persons claiming under Tenant.
8. MAINTENANCE AND REPAIRS
8.1. Landlord's Work.
(a) Landlord shall repair and maintain or cause to be
repaired and maintained the Common Areas of the Property and the roof, exterior
walls and other structural portions of the Building. The cost of all work
performed by Landlord under this Section 8.1(a) shall be an Operating Expense
hereunder, except to the extent such work (i) is required due to the negligence
or willful misconduct of Landlord or its agents or employees, of any other
tenant of the Property other than Tenant or of the agents, employees or
invitees of any such other tenant, (ii) is a service to a specific tenant or
tenants, other than Tenant, for which Landlord has received or has the right to
receive full reimbursement, (iii) is a capital expense not includible as an
Operating Expense under Section 5.2 hereof, (iv) is otherwise expressly
excluded from the definition of Operating Expenses under Section 5.2 hereof, or
(v) is required due to the negligence or willful misconduct of Tenant or its
agents, employees or invitees (in which event Tenant shall bear the full cost
of such work pursuant to the indemnification provided in Section 10.6 hereof,
subject to the release set forth in Section 10.4 hereof). Tenant knowingly and
voluntarily waives the right to make repairs at Landlord's expense, or to
offset the cost thereof against rent, under any law, statute, regulation or
ordinance now or hereafter in effect.
(b) Notwithstanding any contrary provisions of Section
8.1(a) hereof or of any other provision of this Lease, to the extent a
substantially complete replacement (as opposed to ordinary or routine
maintenance or repair) is required from time to time with respect to the roof or
major building systems (HVAC, plumbing, electrical and mechanical systems) of
the Building, or with respect to the parking or driveway areas or other portions
of the Common Areas of the Property, Landlord shall perform such replacement
when and as reasonably required. To the extent such replacement is required as
a result of defective design, construction, installation or
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<PAGE> 19
materials, or as a result of the negligence or willful misconduct of Landlord
or its agents or employees, or as a result of the negligence or willful
misconduct of any other tenant of the Property other than Tenant or of any such
other tenant's agents, employees or invitees, such replacement shall be at
Landlord's sole cost and expense, subject to any rights of reimbursement
Landlord may have against contractors, suppliers, other tenants or other third
parties. To the extent such replacement is required as a result of the
negligence or willful misconduct of Tenant or its agents, employees or
invitees, Tenant shall bear the full cost of such work pursuant to the
indemnification provided in Section 10.6 hereof, subject to the release set
forth in Section 10.4 hereof. To the extent such replacement is required as a
result of casualty or condemnation, the provisions of Article 13 hereof shall
be controlling. To the extent such replacement is required due to ordinary
wear and tear or obsolescence, the cost of such replacement shall be amortized
by Landlord over the useful life of the replacement improvement or system and
either (i) in the case of replacement of the roof or a major building system of
the Building, Tenant shall reimburse to Landlord, as additional rent and not as
an Operating Expense, on a monthly basis or at other regular intervals as
reasonably requested by Landlord, the entire amortized cost of such replacement
allocable to the period of time from the date of replacement until the earlier
of (x) the expiration of the term of this Lease or (y) the next date as of
which minimum rental under this Lease is adjusted or reset to a new rental
based on fair market rental value (excluding, however, any CPI-based or stepped
adjustments pursuant to Section 3.1(a) or (b) or pursuant to a prior fair
market rental determination), or (ii) in the case of replacement of parking or
driveway areas or other portions of the Common Areas, the amortized cost of
such replacement shall be recoverable by Landlord as an Operating Expense
pursuant to Section 5.2(v)(cc) hereof.
8.2. Tenant's Obligation For Maintenance.
(a) Good Order, Condition And Repair. Subject to the
provisions of Section 2.4 hereof, by accepting possession of the Premises
(excluding any portion thereof in which interior improvements have not been
completed as a result of the phased construction of such interior improvements)
on the Commencement Date, Tenant shall be deemed to acknowledge that the
Premises (or the applicable initial portion thereof) are then in good and
sanitary order, condition and repair. Except as provided in Section 8.1
hereof, Tenant at its sole cost and expense shall keep and maintain in good and
sanitary order, condition and repair the Premises and every part thereof,
wherever located, including but not limited to the signs, interior, ceiling,
electrical system, plumbing system, telephone and communications systems, HVAC
equipment and related mechanical systems serving the Premises (for which
equipment and systems Tenant shall enter into a service contract with a person
or entity designated or approved by Landlord), all doors, door checks, windows,
plate glass, door fronts, utility facilities, fixtures, lighting, wall
surfaces, floor surfaces and ceiling surfaces and all other interior repairs,
foreseen and unforeseen, as required.
(b) Landlord's Remedy. If Tenant, after notice from
Landlord, fails to make or perform promptly any repairs or maintenance which
are the obligation of Tenant hereunder, Landlord shall have the right, but
shall not be required, to enter the Premises and make the repairs or perform
the maintenance necessary to restore the Premises to good and sanitary order,
condition and repair. Immediately on demand from Landlord, the cost of such
repairs shall be due and payable by Tenant to Landlord.
(c) Condition Upon Surrender. At the expiration or
sooner termination of this Lease, Tenant shall surrender the Premises,
including any additions, alterations and improvements thereto, broom clean, in
good and sanitary order, condition and repair, ordinary wear and tear excepted,
first, however, removing all goods and effects of Tenant and all fixtures and
items required to be removed or specified to be removed at Landlord's election
pursuant to this Lease, and repairing any damage caused by such removal.
Tenant expressly waives any and all interest in any personal property and trade
fixtures not removed from the Premises by Tenant at the expiration or
termination of this Lease, agrees that any such personal property and trade
fixtures may, at Landlord's election, be deemed to have been abandoned by
Tenant, and authorizes Landlord (at its election and without prejudice to any
other remedies under this Lease or under applicable law to remove and either
retain, store or dispose of such property at Tenant's cost and expense, and
Tenant waives all claims against Landlord for any damages resulting from any
such removal, storage, retention or disposal.
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9. USE OF PREMISES
9.1. Permitted Use. Tenant may use the Premises solely for office
and administrative purposes, production of payroll checks, light assembly of
products, storage, non-retail marketing and sales demonstrations and training
classes, and for no other purpose without the prior written consent of
Landlord.
9.2. [Omitted.]
9.3. No Nuisance. Tenant shall not use the Premises for or carry
on or permit upon the Premises or any part thereof any offensive, noisy or
dangerous trade, business, manufacture, occupation, odor or fumes, or any
nuisance or anything against public policy, nor interfere with the rights or
business of any other tenants or of Landlord in or about the Property, nor
commit or allow to be committed any waste in, on or about the Premises, nor
make any other unreasonable use of the Premises. Tenant shall not do or permit
anything to be done in or about the Premises, nor bring nor keep anything
therein, which will in any way cause the Premises to be uninsurable with
respect to the insurance required by this Lease or with respect to standard
fire and extended coverage insurance with vandalism, malicious mischief and
riot endorsements.
9.4. Compliance With Laws. Tenant shall not use the Premises or
permit the Premises to be used in whole or in part for any purpose or use that
is in violation of any applicable laws, ordinances, regulations or rules of any
governmental agency or public authority. Tenant shall keep the Premises
equipped with all safety appliances required by law, ordinance or insurance on
the Premises, or any order or regulation of any public authority because of
Tenant's particular use of the Premises. Tenant shall procure all licenses and
permits required for Tenant's use of the Premises. Tenant shall use the
Premises in strict accordance with all applicable ordinances, rules, laws and
regulations and shall comply with all requirements of all governmental
authorities now in force or which may hereafter be in force pertaining to the
use of the Premises by Tenant, including, without limitation, regulations
applicable to noise, water, soil and air pollution, and making such
nonstructural alterations and additions thereto as may be required from time to
time by such laws, ordinances, rules, regulations and requirements of
governmental authorities or insurers of the Premises (collectively,
"Requirements") because of Tenant's construction of improvements in or other
particular use of the Premises. Any structural alterations or additions
required from time to time by applicable Requirements because of Tenant's
construction of improvements in or other particular use of the Premises shall,
at Landlord's election, either (i) be made by Tenant, at Tenant's sole cost and
expense, in accordance with the procedures and standards set forth in Section
7.1 for alterations by Tenant, or (ii) be made by Landlord at Tenant's sole
cost and expense, in which event Tenant shall pay to Landlord as additional
rent, within ten (10) days after demand by Landlord, an amount equal to all
costs incurred by Landlord in connection with such alterations or additions.
The judgment of any court, or the admission by Tenant in any proceeding against
Tenant, that Tenant has violated any law, statute, ordinance or governmental
rule, regulation or requirement shall be conclusive of such violation as
between Landlord and Tenant.
9.5. Liquidation Sales. Tenant shall not conduct or permit to be
conducted any auction, bankruptcy sale, liquidation sale, or going out of
business sale, in, upon or about the Premises or the Property, whether said
auction or sale be voluntary, involuntary or pursuant to any assignment for the
benefit of creditors, or pursuant to any bankruptcy or other insolvency
proceeding.
9.6. Environmental Matters. Without limiting the generality of
Tenant's obligations set forth in Section 9.4 of this Lease:
(a) Tenant shall not cause or permit any hazardous or
toxic substance or hazardous waste (as defined in any federal, state or local
law, ordinance or regulation applicable to such substances or wastes) to be
brought upon, kept, stored or used on or about the Property without the prior
written consent of Landlord; provided, however, that nothing in this paragraph
(a) shall prohibit Tenant from using ordinary office and cleaning products and
other materials reasonably necessary for the conduct of Tenant's business for
the permitted uses described in Section 9.1 hereof, regardless of whether such
materials constitute hazardous or toxic substances or hazardous wastes, so long
as Tenant provides Landlord with prior or concurrent written notice
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of such use and complies with the requirements of paragraphs (b) and (c) hereof
with respect to such use:
(b) Tenant shall comply with all applicable laws, rules,
regulations, orders, permits, licenses and operating plans of any governmental
authority with respect to the receipt, use, handling, generation,
transportation, storage, treatment, release and/or disposal of hazardous or
toxic substances or wastes in the course of or in connection with the conduct
of Tenant's business on the Property, and shall provide Landlord with copies of
(x) any and all permits, licenses, registrations and other similar documents
that authorize Tenant to conduct any such activities in connection with
Tenant's use of the Property and (y) any and all notices and written
communications actually given by Tenant to or received by Tenant from, or
required by law to be given by Tenant to, regulatory authorities in connection
with such activities in the course of Tenant's use of the Property;
(c) Tenant shall indemnify, defend and hold Landlord
harmless from and against any and all claims, losses, damages, liabilities,
costs, legal fees and expenses of any sort arising out of or relating to (i)
any failure by Tenant to comply with any provisions of subparagraph (a) or (b)
above, or (ii) any receipt, use, handling, generation, transportation,
storage, treatment, release and/or disposal of any hazardous or toxic
substances or wastes on or about the Property in connection with Tenant's use
or occupancy of the Property or as a result of any intentional or negligent
acts or omissions of Tenant or of any agent or employee of Tenant;
(d) Landlord shall indemnify, defend and hold Tenant
harmless from and against any and all claims, losses, damages, liabilities,
costs, legal fees and expenses of any sort arising out of or relating to (i)
the presence on the Property of any hazardous or toxic substances or wastes
present on the Property as of the Commencement Date (other than as a result of
any intentional or negligent acts or omissions of Tenant or of any agent or
employee of Tenant), and/or (ii) any unauthorized release into the environment
of hazardous or toxic substances or wastes to the extent such release results
from the negligence of or willful misconduct or omission by Landlord or its
agents or employees; and
(e) The provisions of this Section 9.6 shall survive the
termination of this Lease.
10. INSURANCE AND INDEMNITY
10.1. Insurance.
(a) Tenant shall procure and maintain in full force and
effect at all times during the term of this Lease, at Tenant's cost and
expense, commercial general liability insurance to protect against any
liability to the public, or to any invitee of Tenant arising out of or
related to the use of or resulting from any accident occurring in, upon or
about the Premises, with limits of liability of not less than (i) One Million
Dollars ($1,000,000.00) for injury to or death of one person, (ii) Three
Million Dollars ($3,000,000.00) for personal injury or death, per occurrence,
and (iii) Five Hundred Thousand Dollars ($500,000.00) for property damage, or a
combined single limit of bodily injury and property damage insurance of not
less than Five Million Dollars ($5,000,000.00). Such insurance shall name
Landlord and its general partners as additional insureds thereunder. The
amount of such insurance shall not be construed to limit any liability or
obligation of Tenant under this Lease.
(b) Landlord shall procure and maintain in full force and
effect at all times during the term of this Lease, at Landlord's cost and
expense (but reimbursable as an Operating Expense under Section 5.2 hereof),
fire and "all risk" extended coverage property damage insurance for the
Building and for the improvements in the Common Areas of the Property on a full
replacement cost basis, with rental loss insurance. Such insurance may include
earthquake coverage to the extent Landlord in its discretion elects to carry
such coverage, and shall have such commercially, reasonable deductibles and
other terms as Landlord in its discretion determines to be appropriate.
Landlord shall have no obligation to carry property damage insurance for any
alterations, additions or improvements installed by Tenant on or about the
Premises. Tenant shall
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have no obligation to reimburse or compensate Landlord for the "deductible"
portion of any insured losses, except to the extent either (i) such losses
result from the negligence or willful misconduct of Tenant or its agents,
employees or invitees (as contemplated in Section 8.1(a)(v) and/or Section
10.6 hereof, but subject to the release set forth in Section 10.4 hereof), or
(ii) Tenant elects to pay repair or restoration costs under Section 13.1 hereof,
in order to avoid a termination of this Lease under certain circumstances as
specified in such Section 13.1.
(c) Tenant shall procure and maintain in full force and
effect at all times during the term of this Lease, at Tenant's cost and
expense, fire and "all risk" extended coverage property damage insurance for
all alterations, additions and improvements installed by Tenant from time to
time on or about the Premises (excluding, however, Tenant's trade fixtures,
equipment and personal property, as to which Tenant has no insurance obligation
hereunder), on a full replacement cost basis. Such insurance may have such
commercially reasonable deductibles and other terms as Tenant in its discretion
determines to be appropriate.
10.2. Quality Of Policies And Certificates. All policies of
insurance required hereunder shall be issued by responsible insurers and shall
be written as primary policies not contributing with and not in excess of any
coverage that Landlord may carry. Tenant shall deliver to Landlord copies of
policies or certificates of insurance showing that said policies are in effect.
The coverage provided by such policies shall include the clause or endorsement
referred to in Section 10.4. If Tenant fails to acquire, maintain or renew any
insurance required to be maintained by it under this Article 10 or to pay the
premium therefor, then Landlord, at its option and in addition to its other
remedies, but without obligation so to do, may procure such insurance, and any
sums expended by it to procure any such insurance shall be repaid upon demand,
with interest as provided in Section 3.2 hereof. Tenant shall obtain written
undertakings from each insurer under policies required to be maintained by it
to notify all insureds thereunder at least thirty (30) days prior to
cancellation, amendment or revision of coverage.
10.3. Workers' Compensation. Tenant shall maintain in full force
and effect during the term of this Lease workers' compensation insurance
covering all of Tenant's employees working on the Premises.
10.4. Waiver Of Subrogation. Notwithstanding anything to the
contrary contained in this Lease, to the extent permitted by law and without
affecting the coverage provided by insurance required to be maintained
hereunder, Landlord and Tenant each waive any right to recover against the
other (i) damage to property, (ii) damage to the Property or any part thereof,
or (iii) claims arising by reason of any of the foregoing, but only to the
extent that any of the foregoing damages and claims under subparts (i)-(iii)
hereof are covered, and only to the extent of such coverage, by insurance
actually carried or required to be carried hereunder by either Landlord or
Tenant. This provision is intended to waive fully, and for the benefit of each
party, any rights and claims which might give rise to a right of subrogation in
any insurance carrier. Each party shall procure a clause or endorsement on any
policy required under this Article 10 denying to the insurer rights of
subrogation against the other party to the extent rights have been waived by
the insured prior to the occurrence of injury or loss. Coverage provided by
insurance maintained by Tenant under this Article 10 shall not be limited,
reduced or diminished by virtue of the subrogation waiver herein contained.
10.5. Increase In Premiums. Tenant shall do all acts and pay all
expenses necessary to insure that the Premises are not used for purposes
prohibited by any applicable fire insurance, and that Tenant's use of the
Premises complies with all requirements necessary to obtain any such insurance.
If Tenant uses or permits the Premises to be used in a manner which increases
the existing rate of any insurance on the Premises carried by Landlord, Tenant
shall pay the amount of the increase in premium caused thereby, and Landlord's
costs of obtaining other replacement insurance policies, including any increase
in premium, within ten (10) days after demand therefor by Landlord.
10.6. Indemnification.
(a) Tenant shall indemnify, defend and hold Landlord, its
partners, shareholders, officers, directors, affiliates, agents, employees and
contractors, harmless from any and all liability for injury to or death of any
person, or loss of or damage to the property of any
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person, and all actions, claims, demands, costs (including, without limitation,
reasonable attorneys' fees), damages or expenses of any kind arising therefrom
which may be brought or made against Landlord or which Landlord may pay or
incur by reason of the use, occupancy and enjoyment of the Property by Tenant
or any invitees, sublessees, licensees, assignees, employees, agents or
contractors of Tenant or holding under Tenant from any cause whatsoever other
than negligence or willful misconduct or omission by Landlord, its agents,
employees or contractors. Landlord, its partners, shareholders, officers,
directors, affiliates, agents, employees and contractors shall not be liable
for, and Tenant hereby waives all claims against such persons for, damages to
goods, wares and merchandise in or upon the Property, or for injuries to
Tenant, its agents or third persons in or upon the Property, from any cause
whatsoever other than negligence or willful misconduct or omission by Landlord,
its agents, employees or contractors. Tenant shall give prompt notice to
Landlord of any casualty or accident in, on or about the Property.
(b) Landlord shall indemnify, defend and hold Tenant,
its partners, shareholders, officers, directors, affiliates, agents, employees
and contractors, harmless from any and all liability for injury to or death of
any person, or loss of or damage to the property of any person, and all
actions, claims, demands, costs (including, without limitation, reasonable
attorneys' fees), damages or expenses of any kind arising therefrom which may
be brought or made against Tenant or which Tenant may pay or incur, to the
extent such liabilities or other matters arise by reason of any negligence or
willful misconduct or omission by Landlord, its agents, employees or
contractors.
10.7. Blanket Policy. Any policy required to be maintained
hereunder may be maintained under a so-called "blanket policy" insuring other
parties and other locations so long as the amount of insurance required to be
provided hereunder is not thereby diminished.
11. SUBLEASE AND ASSIGNMENT
11.1. Assignment And Sublease Of Premises. Tenant shall not have
the right or power to assign its interest in this Lease, or make any sublease
of the Premises or any portion thereof, nor shall any interest of Tenant under
this Lease be assignable involuntarily or by operation of law, without on each
occasion obtaining the prior written consent of Landlord, which consent shall
not be unreasonably withheld. Any purported sublease or assignment of Tenant's
interest in this Lease requiring but not having received Landlord's consent
thereto shall be void. Any dissolution, consolidation, merger or other
reorganization of Tenant, or any series of one or more of such related events,
involving in the aggregate a change of fifty percent (50%) or more in the
beneficial ownership of Tenant, or any sale of all or substantially all of the
assets of Tenant, shall be deemed to be an assignment hereunder and shall be
void without the prior written consent of Landlord as required above.
Notwithstanding the foregoing, Landlord's consent shall not in any event be
required for (i) an initial public offering of the common stock of Tenant, or
for any stock transfer or conversion in connection with any such initial public
offering; (ii) any merger, consolidation or other reorganization, or any sale
of substantially all of the assets of Tenant, provided that (x) the net worth
of the surviving entity or transferee is equal to or greater than that of
Tenant immediately prior to the applicable transaction, (y) Tenant gives
Landlord prior or concurrent written notice of the applicable transaction, and
(z) the surviving entity or transferee expressly assumes in writing, for the
benefit of Landlord, Tenant's remaining obligations under this Lease; and/or
(iii) any sale or transfer of the stock of Tenant, other than pursuant to a
dissolution, consolidation, merger, reorganization or sale of substantially all
assets as specifically described above.
11.2. Rights Of Landlord. Consent by Landlord to one or more
assignments of this Lease, or to one or more sublettings of the Premises or any
portion thereof, or collection of rent by Landlord from any assignee or
sublessee, shall not operate to exhaust Landlord's rights under this Article
11, nor constitute consent to any subsequent assignment or subletting. No
assignment of Tenant's interest in this Lease and no sublease shall relieve
Tenant of its obligations hereunder, notwithstanding any waiver or extension of
time granted by Landlord to any assignee or sublessee, or the failure of
Landlord to assert its rights against any assignee or sublessee. and regardless
of whether Landlord's consent thereto is given or required to be given
hereunder. In the event of a default by any assignee, sublessee or other
successor of Tenant in the performance of any of the terms or obligations of
Tenant under this Lease, Landlord may proceed directly
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against Tenant without the necessity of exhausting remedies against any such
assignee, sublessee or other successor. In addition, Tenant immediately and
irrevocably assigns to Landlord, as security for Tenant's obligations under
this Lease, all rent from any subletting of all or a part of the Premises
as permitted under this Lease, and Landlord, as Tenant's assignee and as
attorney-in-fact for Tenant, or any receiver for Tenant appointed on Landlord's
application, may collect such rent and apply it toward Tenant's obligations
under this Lease; except that, until the occurrence of an act of default by
Tenant, Tenant shall have the right to collect such rent.
12. RIGHT OF ENTRY AND QUIET ENJOYMENT
12.1. Right Of Entry. Landlord and its authorized representatives
shall have the right to enter the Premises at any time during the term of this
Lease during normal business hours and upon not less than twenty-four (24)
hours prior notice, except in the case of emergency (in which event no notice
shall be required and entry may be made at any time), for the purpose of
inspecting and determining the condition of the Premises or for any other
proper purpose including, without limitation, to make repairs, replacements or
improvements which Landlord may deem necessary, to show the Premises to
prospective purchasers, to show the Premises to prospective tenants (but only
during the final year of the term of this Lease), and to post notices of
nonresponsibility. To facilitate exercise of Landlord's right of entry, Tenant
shall ensure that Landlord or its agent at all times has at least one (1) key
to unlock all doors in or about the Building, and Tenant shall not change any
locks in or about the Building without prior notice to Landlord and delivery of
a key for the new locks to Landlord or its agent. Landlord shall not be liable
for inconvenience, annoyance, disturbance, loss of business, quiet enjoyment or
other damage or loss to Tenant by reason of making any repairs or performing
any work upon the Building or the Property or by reason of erecting or
maintaining any scaffolding or protective barricades in connection with any
such work, and the obligations of Tenant under this Lease shall not thereby be
affected in any manner whatsoever; provided, however, Landlord shall use
reasonable efforts to minimize the inconvenience to Tenant's normal business
operations caused thereby.
12.2. Quiet Enjoyment. Landlord covenants that Tenant, upon paying
the rent and performing its obligations hereunder and subject to all the terms
and conditions of this Lease, shall peacefully and quietly have, hold and enjoy
the Premises throughout the term of this Lease, or until this Lease is
terminated as provided by this Lease.
13. CASUALTY AND TAKING
13.1. Termination Or Reconstruction. If during the term of this
Lease the Building, or any substantial part thereof, is damaged materially by
fire or other casualty or by action of public or other authority in consequence
thereof, or if during the term of this Lease the Building or the parking area
serving the Building, or any material part of either of them, (i) is taken by
eminent domain or by reason of any public improvement or condemnation
proceeding, or in any manner by exercise of the right of eminent domain
(including any transfer in avoidance of an exercise of the power of eminent
domain), or (ii) receives irreparable damage by reason of anything lawfully
done under color of public or other authority, then in any such event this
Lease shall terminate as to the entire Premises at either Landlord's or
Tenant's election, by written notice given to the other party within sixty (60)
days after the damage or taking has occurred, subject to the following
limitations (and, to the extent applicable, the limitations set forth in
Section 13.2):
(a) in the case of damage or destruction by fire or other
peril prior to the final year of the term of this Lease, Landlord's termination
right shall be exercisable only if either (x) the reasonably estimated cost to
repair or restore the Building exceeds eighty percent (80%) of the replacement
cost of the Building and the remaining term of this Lease (including any
extended term, if Tenant elects an early exercise of any extension option under
Section 2.7 hereof in order to avoid a termination under this Section 13.1) is
less than three (3) years, or (y) the reasonably estimated cost to repair or
restore the Building exceeds the insurance proceeds available for such repair
or restoration by an amount greater than five percent (5%) of the replacement
cost of the Building (unless Tenant agrees in writing, within fifteen (15) days
after
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written request by Landlord, to pay all repair and restoration costs in excess
of the sum of the available insurance proceeds plus five percent (5%) of the
replacement cost of the Building, in which event Landlord shall have no
termination right under clause (y) of this paragraph (a));
(b) in the case of damage or destruction by fire or other
peril prior to the final year of the term of this Lease, Tenant's termination
right shall be exercisable only if the time reasonably estimated to be required
for the repair or restoration of the Building to the extent necessary to
permit Tenant to resume substantially all of its normal business activities
therein (which time estimate shall be given by Landlord to Tenant in writing
within forty-five (45) days after the date of the damage or destruction)
exceeds two hundred and seventy (270) days from the date of the damage or
destruction;
(c) in the case of damage or destruction by fire or other
peril during the final year of the term of this Lease (including any extended
term, if Tenant has already duly elected such term or elects an early exercise
of any extension option under Section 2.7 hereof in order to avoid a
termination under this Section 13.1), Landlord's termination right shall be
exercisable to avoid only if either (x) the reasonably estimated cost to repair
or restore the Building exceeds twenty percent (20%) of the replacement cost of
the Building, or (y) the reasonably estimated cost to repair or restore the
Building exceeds the insurance proceeds available for such repair or
restoration by an amount greater than five percent (5%) of the replacement cost
of the Building (unless Tenant agrees in writing, within fifteen (15) days
after written request by Landlord, to pay all repair and restoration costs in
excess of the sum of the available insurance proceeds plus five percent (5%) of
the replacement cost of the Building, in which event Landlord shall have no
termination right under clause (y) of this paragraph (c)); and
(d) in the case of damage or destruction by fire or other
peril during the final year of the term of this Lease (including any extended
term, if Tenant has already duly elected such term or elects an early exercise
of any extension option under Section 2.7 hereof in order to avoid a
termination under this Section 13.1), Tenant's termination right shall be
exercisable only if the damage affects more than twenty percent (20%) of the
floor area of the Building and the time reasonably estimated to be required for
the repair or restoration of the Building to the extent necessary to permit
Tenant to resume substantially all of its normal business activities therein
(which time estimate shall be given by Landlord to Tenant in writing within
thirty (30) days after the date of the damage or destruction) exceeds sixty
(60) days from the date of commencement of repairs.
If neither party elects to terminate this Lease pursuant to the foregoing
termination rights (if any) and/or Section 13.2 (if applicable), then Landlord
shall promptly and diligently repair any such damage and restore the Premises
(to the extent of Landlord's work therein under Section 2.4 and Exhibit C) and
the Building as nearly as reasonably possible to the condition existing before
the damage or taking.
13.2. Tenant's Rights. If any portion of the Premises is so taken
by condemnation, Tenant may elect to terminate this Lease if the portion of the
Premises taken is of such extent and nature as substantially to handicap,
impede or permanently impair Tenant's use of the balance of the Premises.
Tenant must exercise its right to terminate by giving notice to Landlord within
thirty (30) days after the nature and extent of the taking have been finally
determined. If Tenant elects to terminate this Lease, Tenant shall also notify
Landlord of the date of termination, which date shall not be earlier than
thirty (30) days nor later than ninety (90) days after Tenant has notified
Landlord of its election to terminate, except that this Lease shall terminate
on the date of taking if the date of taking falls on any date before the date
of termination designated by Tenant.
13.3. Lease To Remain In Effect. If neither Landlord nor Tenant
terminates this Lease as hereinabove provided, this Lease shall continue in
full force and effect, except that minimum monthly rental and Tenant's
Operating Cost Share shall abate to the extent Tenant's use of the Premises is
impaired for any period that any portion of the Premises is unusable or
inaccessible because of a casualty or taking hereinabove described. Each party
waives the provisions of 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 condemnation of the Premises or Property.
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13.4. Reservation Of Compensation. Landlord reserves, and Tenant
waives and assigns to Landlord, all rights to any award or compensation for
damage to the Premises. Building, Property and the leasehold estate created
hereby, accruing by reason of any taking in any public improvement,
condemnation or eminent domain proceeding or in any other manner by exercise of
the right of eminent domain or of anything lawfully done by public authority,
except that Tenant shall be entitled to any and all compensation or damages
paid for or on account of Tenant's moving expenses, trade fixtures, equipment
and any leasehold improvements in the Premises, the cost of which was borne
directly by Tenant, but only to the extent of the then remaining unamortized
value of such improvements computed on a straight-line basis over the initial
term of this Lease. Tenant covenants to deliver such further assignments of
the foregoing as Landlord may from time to time request.
13.5. Restoration Of Fixtures. If Landlord repairs or causes repair
of the Premises after such damage or taking, Tenant at its sole expense shall
repair and replace promptly all additions, alterations and improvements and all
other items installed or paid for by Tenant under this Lease (excluding,
however, any of Tenant's trade fixtures, equipment and personal property, the
repair or replacement of which shall be in Tenant's sole discretion, and
excluding any improvements originally constructed by Landlord under Section 2.4
and Exhibit C) that were damaged or taken, so as to restore the same to a
condition substantially equal to that which existed immediately prior to the
damage or taking. Provided that Tenant has maintained in effect the insurance
required under Section 10.1(c) hereof, Tenant's repair and restoration
obligation under the preceding sentence in the event of any casualty shall be
limited to the insurance proceeds available to Tenant with respect to such
casualty, plus the amount of any applicable deductible under Tenant's
applicable insurance policy. Tenant shall have the right to make modifications
to the Premises, fixtures and improvements, subject to the prior written
approval of Landlord and subject to all other applicable provisions of this
Lease. In its review of Tenant's plans and specifications, Landlord may take
into consideration the effect of the proposed modifications on the exterior
appearance, the structural integrity and the mechanical and other operating
systems of the Building.
14. DEFAULT
14.1. Events Of Default. The occurrence of any of the following
shall constitute an event of default on the part of Tenant:
(a) Abandonment. Abandonment of the Premises.
"Abandonment" is hereby defined to include, but is not limited to, the complete
absence by Tenant from the Premises for fifteen (15) consecutive days or
more while there exists an event of default on the part of Tenant under
any other provision of this Section 14.1 which has not been cured on or before
the expiration of such fifteen (15) day period. Tenant waives any right Tenant
may have to notice under Section 1951.3 of the California Civil Code, the terms
of this subsection (a) being deemed such notice to Tenant as required by said
Section 1951.3;
(b) Nonpayment. Failure to pay, when due, any amount
payable to Landlord hereunder, such failure continuing for a period of five (5)
days after written notice of such failure; provided, however, that any such
notice shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161 et seq., as amended from time
to time;
(c) Other Obligations. Failure to perform any
obligation, agreement or covenant under this Lease other than those matters
specified in subsection (b) hereof, such failure continuing for fifteen (15)
days after written notice of such failure, or, if such default is curable in
nature but it is not possible to cure such default within fifteen (15) days,
failure to commence cure within said fifteen (15) day period and thereafter to
proceed diligently to complete cure; provided, however, that any such notice
shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161 et seq., as amended from time
to time:
(d) General Assignment. A general assignment by Tenant
for the benefit of creditors:
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(e) Bankruptcy. The filing of any voluntary petition in
bankruptcy by Tenant, or the filing of an involuntary petition by Tenant's
creditors, which involuntary petition remains undischarged for a period of
thirty (30) days. In the event that under applicable law the trustee in
bankruptcy or Tenant has the right to affirm this Lease and continue to perform
the obligations of Tenant hereunder, such trustee or Tenant shall, in such time
period as may be permitted by the bankruptcy court having jurisdiction, cure
all defaults of Tenant hereunder outstanding as of the date of the affirmance
of this Lease and provide to Landlord such adequate assurances as may be
necessary to ensure Landlord of the continued performance of Tenant's
obligations under this Lease. Specifically, but without limiting the
generality of the foregoing, such adequate assurances must include assurances
that the Premises continue to be operated only for the use permitted hereunder.
The provisions hereof are to assure that the basic understandings between
Landlord and Tenant with respect to Tenant's use of the Premises and the
benefits to Landlord therefrom are preserved, consistent with the purpose and
intent of applicable bankruptcy laws:
(f) Receivership. The employment of a receiver appointed
by court order to take possession of substantially all of Tenant's assets or
the Premises, if such receivership remains undissolved for a period of thirty
(30) days;
(g) Attachment. The attachment, execution or other
judicial seizure of all or substantially all of Tenant's assets or the
Premises, if such attachment or other seizure remains undismissed or
undischarged for a period of thirty (30) days after the levy thereof; or
(h) Insolvency. The admission by Tenant in writing of
its inability to pay its debts as they become due, the filing by Tenant of a
petition seeking any reorganization or arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, the filing by Tenant of an answer admitting or failing
timely to contest a material allegation of a petition filed against Tenant in
any such proceeding or, if within thirty (30) days after the commencement of
any proceeding against Tenant seeking any reorganization or arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such proceeding shall not have
been dismissed.
14.2. Remedies Upon Tenant's Default.
(a) Upon the occurrence of any event of default described
in Section 14.1 hereof, Landlord, in addition to and without prejudice to any
other rights or remedies it may have, shall have the immediate right to
re-enter the Premises or any part thereof and repossess the same, expelling and
removing therefrom all persons and property (which property may be stored in a
public warehouse or elsewhere at the cost and risk of and for the account of
Tenant), using such force as may be necessary to do so (as to which Tenant
hereby waives any claim for loss or damage that may thereby occur). In
addition to or in lieu of such re-entry, and without prejudice to any other
rights or remedies it may have, Landlord shall have the right either (i) to
terminate this Lease and recover from Tenant all damages incurred by Landlord
as a result of Tenant's default, as hereinafter provided, or (ii) to continue
this Lease in effect and recover rent and other charges and amounts as they
become due.
(b) Even if Tenant has breached this Lease or abandoned
the Premises, this Lease shall continue in effect for so long as Landlord does
not terminate Tenant's right to possession under subsection (a) hereof and
Landlord may enforce all of its rights and remedies under this Lease, including
the right to recover rent as it becomes due, and Landlord, without terminating
this Lease, may exercise all of the rights and remedies of a lessor under
California Civil Code Section 1951.4 (lessor may continue lease in effect after
lessee's breach and abandonment and recover rent as it becomes due, if lessee
has right to sublet or assign, subject only to reasonable limitations), or any
successor Code section. Acts of maintenance, preservation or efforts to relet
the Premises or the appointment of a receiver upon application of Landlord to
protect Landlord's interests under this Lease shall not constitute a
termination of Tenant's right to possession.
(c) If Landlord terminates this Lease pursuant to this
Section 14.2, Landlord shall have all of the rights and remedies of a landlord
provided by Section 1951.2 of the Civil Code of the State of California, or any
Successor Code section, which remedies include
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Landlord's right to recover from Tenant (i) the worth at the time of award of
the unpaid rent and additional rent which had been earned at the time of
termination, (ii) the worth at the time of award of the amount by which the
unpaid rent and additional rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss that Tenant
proves could have been reasonably avoided, (iii) the worth at the time of award
of the amount by which the unpaid rent and additional rent for the balance of
the term after the time of award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided, and (iv) any other amount necessary
to compensate Landlord for all the detriment proximately caused by Tenant's
failure to perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom, including, but not
limited to, the cost of recovering possession of the Premises, expenses of
reletting, reasonable attorneys' fees, and other reasonable costs. The "worth
at the time of award" of the amounts referred to in clauses (i) and (ii) above
shall be computed by allowing interest at ten percent (10%) per annum from the
date such amounts accrued to Landlord. The "worth at the time of award" of the
amounts referred to in clause (iii) above shall be computed by discounting such
amount at one percentage point above the discount rate of the Federal Reserve
Bank of San Francisco at the time of award.
14.3. Remedies Cumulative. All rights, privileges and elections or
remedies of Landlord contained in this Article 14 are cumulative and not
alternative to the extent permitted by law and except as otherwise provided
herein.
15. SUBORDINATION, ATTORNMENT AND SALE
15.1. Subordination To Mortgage. This Lease, and any sublease
entered into by Tenant under the provisions of this Lease, shall be subject and
subordinate to any ground lease, mortgage, deed of trust, sale/leaseback
transaction or any other hypothecation for security now or hereafter placed upon
the Building, the Property, or both, and the rights of any assignee of Landlord
or of any ground lessor, mortgagee, trustee, beneficiary or leaseback lessor
under any of the foregoing, and to any and all advances made on the security
thereof and to all renewals, modifications, consolidations, replacements and
extensions thereof, provided, however, that such subordination in the case of
any future ground lease, mortgage, deed of trust, sale/leaseback transaction or
any other hypothecation for security placed upon the Building, the Property, or
both shall be conditioned on Tenant's receipt from the ground lessor, mortgagee,
trustee, beneficiary or leaseback lessor of a nondisturbance agreement in a form
reasonably acceptable to Tenant (and subject only to reasonable limitations),
confirming that so long as Tenant is not in default hereunder, Tenant's rights
hereunder shall not be disturbed by such person or entity following any
foreclosure or other acquisition of the Property. Moreover, Tenant's obligations
under this Lease shall be conditioned on Tenant's receipt, within thirty (30)
days after mutual execution of this Lease, from SDK Incorporated and from any
other ground lessor, mortgagee, trustee, beneficiary or leaseback lessor
currently owning or holding a security interest in the Property, of a
nondisturbance agreement in a form reasonably acceptable to Tenant (and subject
only to reasonable limitations), confirming that so long as Tenant is not in
default hereunder, Tenant's rights hereunder shall not be disturbed by such
person or entity following any foreclosure or other acquisition of the Property.
If any mortgagee, trustee, beneficiary, ground lessor, sale/leaseback lessor or
assignee elects to have this Lease be an encumbrance upon the Property prior to
the lien of its mortgage, deed of trust, ground lease or leaseback lease or
other security arrangement and gives notice thereof to Tenant, this Lease shall
be deemed prior thereto, whether this Lease is dated prior or subsequent to the
date thereof or the date of recording thereof. Tenant, and any sublessee, shall
execute such documents as may reasonably be requested by any mortgagee, trustee,
beneficiary, ground lessor, sale/leaseback lessor or assignee to evidence the
subordination herein set forth or to make this Lease prior to the lien of any
mortgage, deed of trust, ground lease, leaseback lease or other security
arrangement, as the case may be. Upon any default by Landlord in the
performance of its obligations under any mortgage, deed of trust, ground lease,
leaseback lease or assignment, Tenant (and any sublessee) shall, notwithstanding
any subordination hereunder, attorn to the mortgagee, trustee, beneficiary,
ground lessor, leaseback lessor or assignee thereunder upon demand and become
the tenant of the successor in interest to Landlord, at the option of such
successor in interest, and shall execute and deliver any instrument or
instruments confirming the attornment herein provided for.
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15.2. Sale Of Landlord's Interest. Upon sale, transfer or
assignment of Landlord's entire interest in the Building and Property, Landlord
shall be relieved of its obligations hereunder with respect to liabilities
accruing from and after the date of such sale, transfer or assignment;
provided, however, that such relief from liabilities (i) shall be effective
only if and to the extent that the transferee expressly assumes in writing, for
the benefit of Tenant, Landlord's obligations under this Lease. (ii) shall not
apply to Landlord's environmental indemnification under Section 9.6(d) hereof
unless the transferee has, immediately after the transfer, a net worth equal to
or greater than that of Landlord immediately prior to the transfer, and (iii)
shall not in any event apply to Landlord's obligations with respect to the
initial construction of the Building and Common Areas under Section 2.4 and
Exhibit C. Moreover, in recognition of Tenant's substantial reliance upon
Landlord's creditworthiness and development experience with respect to the
initial construction of the Building and Common Areas, Landlord shall not sell,
transfer, convey or otherwise dispose of its ownership interest in the portion
of the Property designated as Phase VI on the Site Plan, or any portion
thereof, prior to the Commencement Date under Section 2.1 hereof, except (x)
with Tenant's prior written consent or (y) to an entity of which Britannia
Hopyard, LLC, or an entity controlling, controlled by or under common control
with Britannia Hopyard, LLC, is a general partner or has management
responsibilities and equity participation comparable to those of a general
partner.
15.3. Estoppel Certificates. Tenant shall at any time and from
time to time, within ten (10) days after written request by Landlord, execute,
acknowledge and deliver to Landlord a certificate in writing stating: (i) that
this Lease is unmodified and in full force and effect, or if there have been
any modifications, that this Lease is in full force and effect as modified and
stating the date and the nature of each modification; (ii) the date to which
rental and all other sums payable hereunder have been paid; (iii) that Landlord
is not in default in the performance of any of its obligations under this
Lease, that Tenant has given no notice of default to Landlord and that no event
has occurred which, but for the expiration of the applicable time period, would
constitute an event of default hereunder, or if Tenant alleges that any such
default, notice or event has occurred, specifying the same in reasonable
detail; and (iv) such other matters as may reasonably be requested by Landlord
or any institutional lender, mortgagee, trustee, beneficiary, ground lessor,
sale/leaseback lessor or prospective purchaser of the Property. Any such
certificate under this Section 15.3 may be relied upon by any lender,
mortgagee, trustee, beneficiary, assignee or successor in interest to Landlord,
by any prospective purchaser, by any purchaser on foreclosure or sale, by any
grantee under a deed in lieu of foreclosure of any mortgage or deed of trust on
the Property or Premises, or by any other third party. Failure to execute and
return within the required time any estoppel certificate requested
hereunder shall be deemed to be an admission of the truth of the matters set
forth in the form of certificate submitted to Tenant for execution.
15.4. Subordination to CC&R's. This Lease, and any permitted
sublease entered into by Tenant under the provisions of this Lease, shall be
subject and subordinate (a) to any declarations of covenants, conditions and
restrictions affecting the Property from time to time, which may include
easements, access rights and similar nonexclusive use rights and privileges in
favor of appropriate third parties, provided that the terms of such future
declarations are approved by Tenant in writing; (b) to the Declaration of
Covenants, Conditions and Restrictions for Hacienda Business Park (No. 2)
recorded on January 24, 1985 as Instrument No. 85-14396, Alameda County
Records, as amended from time to time (the "Master Declaration"), the
provisions of which Master Declaration are an integral part of this Lease; and
(c) to the provisions of the Corporation Grant Deed and Rider recorded on
June 28, 1996 as Instrument No. 96-158374, which provisions are binding upon
Tenant as if set forth herein in full. Tenant agrees to execute, upon request
by Landlord, any documents reasonably required from time to time to evidence
such subordination.
16. SECURITY
16.1. Deposit. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the sum of One Hundred Forty-Three Thousand
Dollars ($143,000.00), which sum (the "Security Deposit") shall be held by
Landlord as security for the faithful performance of all of the terms,
covenants, and conditions of this Lease to be kept and performed by Tenant
during the term hereof. If Tenant defaults with respect to any provision of
this Lease,
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including, without limitation, the provisions relating to the payment of rental
and other sums due hereunder. Landlord shall have the right, but shall not be
required, to use, apply or retain all or any part of the Security Deposit for
the payment of rental or any other amount which Landlord may spend or become
obligated to spend by reason of Tenant's default or to compensate Landlord for
any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any Portion of the Security Deposit is so used or applied,
Tenant shall, within ten (10) days after written demand therefor, deposit cash
with Landlord in an amount sufficient to restore the Security Deposit to its
original amount and Tenant's failure to do so shall be a material breach of
this Lease. Landlord shall not be required to keep any deposit under this
Section separate from Landlord's general funds, and Tenant shall not be
entitled to interest thereon. If Tenant fully and faithfully performs every
provision of this Lease to be performed by it, the Security Deposit, or any
balance thereof, shall be returned to Tenant or, at Landlord's option, to the
last assignee of Tenant's interest hereunder, at the expiration of the term of
this Lease and after Tenant has vacated the Premises. In the event of
termination of Landlord's interest in this Lease, Landlord shall transfer all
deposits then held by Landlord under this Section to Landlord's successor in
interest, whereupon Tenant agrees to release Landlord from all liability for
the return of such deposit or the accounting thereof.
17. MISCELLANEOUS
17.1. Notices. All notices, consents, waivers and other
communications which this Lease requires or permits either party to give to the
other shall be in writing and shall be deemed given when delivered personally
(including delivery by private courier or express delivery service) or four (4)
days after deposit in the United States mail, registered or certified mail,
postage prepaid, addressed to the parties at their respective addresses as
follows:
To Tenant: (until Commencement Date)
ProBusiness, Inc.
5934 Gibraltar Drive
Pleasanton, CA 94588
Attn: Mitch Everton, Executive Vice President
(after Commencement Date)
ProBusiness, Inc.
[street address of Premises, when known]
Pleasanton, CA 94588
Attn: Mitch Everton, Executive Vice President
with copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: Bradford C. O'Brien
To Landlord: Britannia Hacienda V Limited Partnership
1939 Harrison Street, Suite 412
Park Plaza Building
Oakland, CA 94612
Attn: T. J. Bristow
with copy to: Folger & Levin
Embarcadero Center West
275 Battery Street, 23rd Floor
San Francisco, CA 94111
Attn: Donald E. Kelley, Jr.
or to such other address as may be contained in a notice at least fifteen (15)
days prior to the address change from either party to the other given pursuant
to this Section. Rental payments and other sums required by this Lease to be
paid by Tenant shall be delivered to Landlord at
-27-
<PAGE> 31
Landlord's address provided in this Section, or to such other address as
Landlord may from time to time specify in writing to Tenant, and shall be
deemed to be paid only upon actual receipt.
17.2. Successors And Assigns. The obligations of this Lease shall
run with the land, and this Lease shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that, subject to the provisions of Section 15.2 hereof, the original
Landlord named herein and each successive Landlord under this Lease shall be
liable only for obligations accruing during the period of its ownership of the
Property, said liability terminating upon termination of such ownership and
passing to the successor lessor.
17.3. No Waiver. The failure of Landlord to seek redress for
violation, or to insist upon the strict performance, of any covenant or
condition of this Lease shall not be deemed a waiver of such violation, or
prevent a subsequent act which would originally have constituted a violation
from having all the force and effect of an original violation.
17.4. Severability. If any provision of this Lease or the
application thereof is held to be invalid or unenforceable, the remainder of
this Lease or the application of such provision to persons or circumstances
other than those as to which it is invalid or unenforceable shall not be
affected thereby, and each of the provisions of this Lease shall be valid and
enforceable, unless enforcement of this Lease as so invalidated would be
unreasonable or grossly inequitable under all the circumstances or would
materially frustrate the purposes of this Lease.
17.5. Litigation Between Parties. In the event of any litigation or
other dispute resolution proceedings between the parties hereto arising out of
or in connection with this Lease, the prevailing party shall be reimbursed for
all reasonable costs, including, but not limited to, reasonable accountants'
fees and attorneys' fees, incurred in connection with such proceedings
(including, but not limited to, any appellate proceedings relating thereto) or
in connection with the enforcement of any judgment or award rendered in such
proceedings. "Prevailing party" within the meaning of this Section shall
include, without limitation, a party who dismisses an action for recovery
hereunder in exchange for payment of the sums allegedly due, performance of
covenants allegedly breached or consideration substantially equal to the relief
sought in the action.
17.6. Surrender. A voluntary or other surrender of this Lease by
Tenant, or a mutual termination thereof between Landlord and Tenant, shall not
result in a merger but shall, at the option of Landlord, operate either as an
assignment to Landlord of any and all existing subleases and subtenancies, or a
termination of all or any existing subleases and subtenancies. This
provision shall be contained in any and all assignments or subleases made
pursuant to this Lease.
17.7. Interpretation. The provisions of this Lease shall be
construed as a whole, according to their common meaning, and not strictly for
or against Landlord or Tenant. The captions preceding the text of each Section
and subsection hereof are included only for convenience of reference and shall
be disregarded in the construction or interpretation of this Lease.
17.8. Entire Agreement. This written Lease, together with the
exhibits hereto, contains all the representations and the entire understanding
between the parties hereto with respect to the subject matter hereof. Any
prior correspondence, memoranda or agreements are replaced in total by this
Lease and the exhibits hereto. This Lease may be modified only by an agreement
in writing signed by each of the parties.
17.9. Governing Law. This Lease and all exhibits hereto shall be
construed and interpreted in accordance with and be governed by all the
provisions of the laws of the State of California.
17.10. No Partnership. The relationship between Landlord and Tenant
is solely that of a lessor and lessee. Nothing contained in this Lease shall
be construed as creating any type or manner of partnership, joint venture or
joint enterprise with or between Landlord and Tenant.
17.11. Financial Information. From time to time Tenant shall
promptly provide directly to prospective lenders and purchasers of the Property
designated by Landlord such financial
-28-
<PAGE> 32
information pertaining to the financial status of Tenant as Landlord may
reasonably request, provided, Tenant shall be permitted to provide such
financial information in a manner which Tenant deems reasonably necessary to
protect the confidentiality of such information, including (if Tenant so
requests) conditioning disclosure of such information upon execution of a
reasonable confidentiality agreement by Landlord and by any other proposed or
permitted recipient of such information; and provided further, that if Tenant
is then a publicly traded company filing periodic reports under the Securities
Exchange Act of 1934, as amended, and the regulations thereunder, Tenant shall
be required only to furnish copies of Tenant's most recent Form 10K, 10Q and 8K
(if any) reports and shall not be required to disclose any nonpublic financial
information pursuant to this Section 17.11. In addition, from time to time,
Tenant shall provide Landlord with such financial information pertaining to the
financial status of Tenant as Landlord may reasonably request, subject to the
final proviso of the immediately preceding sentence. Landlord agrees that all
financial information supplied to Landlord by Tenant shall be treated as
confidential material, and shall not be disseminated to any party or entity
(including any entity affiliated with Landlord) without Tenant's prior written
consent. For purposes of this Section, without limiting the generality of the
obligations provided herein it shall be deemed reasonable for Landlord to
request (and sufficient for Tenant to provide) copies of (i) Tenant's most
recent audited annual financial statements, or, if audited statements have not
been prepared, unaudited financial statements for Tenant's most recent fiscal
year, and (ii) Tenant's unaudited financial statements for Tenant's most recent
fiscal quarter, all of which unaudited statements shall be accompanied by a
certificate of Tenant's chief financial officer as to the accuracy of such
unaudited statements.
Landlord and Tenant recognize the need of Tenant to maintain
the confidentiality of information regarding its financial status and the need
of Landlord to be informed of, and to provide to prospective lenders and
purchasers of the Premises financial information pertaining to, Tenant's
financial status. Landlord and Tenant agree to cooperate with each other in
achieving these needs within the context of the obligations set forth in this
Section.
17.12. [Omitted.]
17.13. Time. Time is of the essence of this Lease, and of every term
and condition hereof.
17.14. Rules And Regulations. Tenant shall observe, comply with and
obey, and shall cause its employees, agents and, to the best of Tenant's
ability, invitees to observe, comply with and obey such rules and regulations
as Landlord may promulgate from time to time for the safety, care, cleanliness,
order and use of the Premises, the Building and the Property, provided that any
such rules and regulations promulgated after the date of this Lease shall not
materially and adversely affect Tenant's rights under this Lease.
17.15. Brokers. Landlord agrees to pay a brokerage commission to
Tenant's broker, Colliers Parrish International, Inc. in connection with the
consummation of this Lease in accordance with a separate agreement between
Landlord and such broker. Tenant represents and warrants that no other broker
participated in the consummation of this Lease and agrees to indemnify, defend
and hold Landlord harmless against any liability, cost or expense, including,
without limitation, reasonable attorneys' fees, arising out of any claims for
brokerage commissions or other similar compensation in connection with any
conversations, prior negotiations or other dealings by Tenant with any other
broker.
17.16. Memorandum Of Lease. At any time during the term of this
Lease, either party, at its sole expense, shall be entitled to record a
memorandum of this Lease and, if either party so elects, both parties agree to
cooperate in the preparation, execution, acknowledgement and recordation of
such document in reasonable form.
17.17. Corporate Authority. The person signing this Lease on behalf
of Tenant warrants that he or she is fully authorized to do so and, by so
doing, to bind Tenant. As evidence of such authority, Tenant shall deliver to
Landlord, upon or prior to execution of this Lease, a certified copy of a
resolution of Tenant's board of directors authorizing the execution of this
Lease and naming the officer that is authorized to execute this Lease on behalf
of Tenant.
-29-
<PAGE> 33
17.18. Execution and Delivery. Submission of this Lease for
examination or signature by Tenant does not constitute an agreement or
reservation of or option for lease of the Premises. This instrument shall not
be effective or binding upon either party, as a lease or otherwise, until
executed and delivered by both Landlord and Tenant. This Lease may be executed
in one or more counterparts and by separate parties on separate counterparts,
but each such counterpart shall constitute an original and all such
counterparts together shall constitute one and the same instrument.
17.19. Stock Warrants. In consideration of their mutual execution of
this Lease, Landlord and Tenant shall proceed diligently and in good faith to
negotiate and enter into a Warrant Purchase Agreement in mutually satisfactory
form within thirty (30) days after the date hereof, covering the issuance of
warrants for the purchase of an aggregate of twenty-two thousand five hundred
(22,500) shares of Series E Preferred Stock of Tenant at an exercise price of
$7.94 per share (which Series E Preferred Stock is then, under its present
terms, convertible into 45,000 shares of Common Stock of Tenant at no
additional cost).
17.20. Survival. Without limiting survival provisions which would
otherwise be implied or construed under applicable law or which are otherwise
explicitly set forth herein, the provisions of Sections 2.6, 5.4, 7.2, 7.3,
7.4, 9.6, 10.6, 13.4 and 17.5 hereof shall survive the termination of this
Lease with respect to matters occurring prior to the expiration of this Lease.
17.21. Consents. Whenever the approval or consent of a party is
required to be obtained under any provision of this Lease as a condition or
prerequisite to the taking of any action or effectiveness of any action by the
other party, then such approval or consent shall not be unreasonably withheld,
delayed or conditioned, regardless of whether or not such reasonableness
requirement is expressly stated in the applicable provision of this Lease.
17.22 Landlord Defaults. If Landlord fails to perform any
obligation, agreement or covenant under this Lease which relates specifically to
the Premises and does not materially affect other tenants of the Property (such
as, by way of example and not limitation, Landlord's obligation to maintain the
roof, exterior walls and other structural portions of the Building), and if such
failure continues for fifteen (15) days after written notice of such failure is
given by Tenant to Landlord or, if such default is curable in nature but it is
not possible to cure such default within fifteen (15) days, Landlord fails to
commence cure within such fifteen (15) day period or thereafter fails to proceed
diligently to complete cure, then Tenant shall have the right to perform such
obligation or cure such default of Landlord, and Landlord shall reimburse Tenant
for the reasonable cost thereof, together with interest at the rate specified in
the first sentence of Section 3.2 hereof from the date of payment by Tenant to
the date of reimbursement by Landlord, within fifteen (15) days after written
notice from Tenant of the completion and cost of such cure, accompanied by
copies of invoices or other supporting documentation. Under no circumstances,
however, shall Tenant have any right to offset the cost of any such cure against
rent or other charges falling due from time to time under this Lease.
[rest of page intentionally left blank)
-30-
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the day and year first set forth above.
"Landlord" "Tenant"
BRITANNIA HACIENDA V LIMITED PROBUSINESS, INC.,
PARTNERSHIP, a Delaware limited a California corporation
partnership
By: BRITANNIA HOPYARD, LLC, By: /s/ Thomas H. Sinton
a California limited liability ---------------------------
company, General Partner Its: President
--------------------------
By: /s/ T. J. Bristow
--------------------------
T. J. Bristow
Manager & President
-31-
<PAGE> 35
EXHIBITS
EXHIBIT A Real Property Description
EXHIBIT B Site Plan
EXHIBIT C Construction
C-1: First Floor Plan
C-2: Second Floor Plan
C-3: Finish Specifications
EXHIBIT D Construction Timeline
EXHIBIT E Acknowledgement of Lease Commencement
<PAGE> 36
EXHIBIT A
REAL PROPERTY DESCRIPTION
PARCEL ONE:
Lot 14A of Amended Parcel Map No. 4571, filed November 23, 1987, in Book 172 of
Maps, Pages 81 and 82, Alameda County Records.
PARCEL TWO:
Non-exclusive easements, appurtenant to Parcel One above, for the purpose of
vehicular (including trucks of all sizes) and pedestrian ingress and egress
over, along and across all that portion of Lot 14B as shown on said Parcel Map
No. 4517 lying within the lines of that certain "Community Driveway Easement"
depicted in said Parcel Map No. 4517, as the grant of such easement was
confirmed unto The Prudential Insurance Company of America, a New Jersey
corporation, pursuant to that certain "Grant of Easement and Maintenance
Agreement" dated July 30, 1985, recorded July 30, 1985, as Series No.
85-150156, Official Records of Alameda County.
EXHIBIT A
<PAGE> 37
[SITE PLAN MAP]
EXHIBIT B TO
BUILD-TO-SUIT LEASE
<PAGE> 38
[AP+1 Design, Inc. Logo]
PROBUSINESS
Tenant Improvement Notes
September 26, 1996
Page One
FLOORS
1. Provide direct glue carpet throughout unless otherwise noted.
Provide material cost of S18 per square yard for general office carpet.
2. Provide upgraded carpet in first floor lobby insets, lobby conference
rooms, stair, second floor atrium area, boardroom and presentation rooms.
Provide material cost of $34 per square yard for upgraded carpet. Provide
carpet pad at the stair.
3. Provide sheet linoleum in the servery and dining area of the
cafeteria. Provide quarry tile in the kitchen/prep area. Provide material
cost of $5 for the linoleum.
4. Provide 2" x 2" ceramic tile on the floors of all general office and
gym toilet rooms and shower rooms.
5. Provide stone flooring in the first floor lobby, lobby toilet rooms
and the elevator cab. Provide material cost of $10 per square foot.
6. Provide VCT at coffee bars, file rooms, storage rooms and the
Production area except at offices within Production.
7. Provide 6" stone base at all areas of stone flooring.
8. Provide 4" wood base at all upgraded carpet.
9. Provide 4" top set base at all general office carpet.
10. Provide 6" cove base at linoleum.
WALLS
11. Provide two coats of flat latex paint over smooth finish walls
throughout unless otherwise noted.
12. Provide eggshell enamel paint finish in Coffee Bars and other to be
determined areas.
Architecture Planning Interior Design
3945 Freedom Circle, Suite 108 Santa Clara, CA 95054 408.496.1892
FAX 408.496.1896
EXHIBIT C-3
<PAGE> 39
ProBusiness
September 26, 1996
Page Two
13. Provide 4' wainscot of 4" x 4" ceramic tile in toilet rooms on wet
walls. Provide eggshell enamel paint above ceramic tile.
14. Provide furring and gyp board on all exterior concrete walls.
15. At owner's option, provide full height one hour walls at the lobby for
future use as multitenant building. (Current exiting configuration does not
require tile rating of the lobby, however, construction of tile walls to one
hour now should save time and effort later should the building become
multi-tenant).
16. All walls that are insulated at offices and conference rooms are to
attach to the structure above for optimum acoustical protection.
17. All columns are to be furred.
CEILINGS
18. Delete
19. Provide 9'- 0" dropped ceilings with building standard ceiling boards
in all open office areas, enclosed offices, conference rooms, and coffee areas.
except as defined in item 20.
20. Provide 2' x 2' Fineline 9/16" grid at upgraded ceilings in board
room, presentation rooms and upgraded areas. Provide upgraded ceiling tile
allowance of $3 per square foot for these areas.
21. Provide gyp board ceilings with smooth finish in the lobby and second
floor atrium space and toilet rooms.
22. Provide allowance for soffits and/or ceiling elevation changes in the
lobby, second floor atrium space, board room and presentation rooms.
23. Provide an allowance for four skylights in the second floor lobby.
Size to be determined.
DOORS, WINDOWS AND FRAMES
24. Provide 3' x 9' solid core maple veneer doors with clear aluminum
frames.
25. Provide clear anodized aluminum frames for all sidelights and glass
throughout the building
26. Provide Schlage "D" series Rhodes lever handles, brushed chrome
finish.
27. Provide wire glass at all rated walls as shown on the plans.
<PAGE> 40
ProBusiness
September 26, 1996
Page Three
FIRE SPRINKLERS
28. Provide semi-recessed heads with white painted escutcheons in all
finished ceilings. Provide heads painted to match structure in open ceiling
areas.
INSULATION
29. Delete
30. Provide R-19, foil faced batt insulation to be installed throughout
the roof structure.
31. Provide R-11 foil faced batt insulation to be installed at all
exterior walls of conditioned spaces.
32. Provide 1/2" rigid sound board and fiberglass sound batts in all
office walls, conference rooms and toilet room walls. Provide 4' of fiberglass
batts over the ceiling on each side, of each insulated wall.
33. Provide R-11 foil faced batt insulation between conditioned spaces and
unconditioned warehouse areas.
ELECTRICAL
34. Provide three duplex electrical receptacles in all private offices and
conference rooms. Provide general convenience outlets throughout the space.
Provide allowance for additional dedicated or special electrical requirements
(as yet unspecified) in areas such as copy rooms, presentation rooms,
boardroom, etc.
35. Provide one pull wire for telephone and data in all private offices
and conference rooms.
36. Provide one junction box for every three open office furniture
workstations, 15 amps.
37. Light fixtures in all open office areas, enclosed offices, conference
rooms, coffee areas, etc. to be suspended 2' x 4' fluorescent fixtures with
parabolic lenses. Light fixtures in upgraded ceilings in board room,
presentation rooms and upgraded areas to be suspended 2' x 2' fluorescent
fixtures with parabolic lenses. Provide allowance for sconces at first floor
lobby, second floor atrium, boardroom and servery/dining area.
38. Provide downlights in key areas such as the first and second floor
lobby, boardroom and presentation rooms.
39. Provide emergency and exit lighting and smoke detectors in the unused
areas that serve as exits for the adjacent office areas.
40. Provide allowance for pendant light fixtures over the reception desk,
in the dining area and in the gallery space outside of the workout room.
<PAGE> 41
ProBusiness
September 26, 1996
Page Four
HEATING & AIR CONDITIONING
41. Provide roof top variable air volume system.
42. Provide additional air conditioning in the IS computer room and the
Production room.
MISCELLANEOUS
43. Provide plastic laminate top and splash in the toilet rooms and locker
room.
44. Provide plastic laminate upper and lower cabinets with sinks at all
Coffee Bars.
45. Provide plastic laminate toilet room partitions, floor mounted,
overhead braced.
46. Provide stainless steel toilet room accessories.
47. Provide fiberglass shower stalls in the shower room.
48. Provide 1" horizontal blinds on all exterior and interior windows.
49. Delete
50. Provide allowance of $15,000 for the reception desk and $30,000 for
all audio visual cabinetry in the Boardroom and both Sales Presentation Rooms.
51. ProBusiness has contacted the caterer Bon Appetite to provide services
in the Kitchen/Servery. While the areas have not been planned yet, Bon Appetite
was instrumental in establishing the sizes of the areas. ProBusiness will
provide landlord with a proposed layout for the Kitchen/Servery. Landlord to
provide all plumbing, electrical, HVAC in accordance to the above layout.
<PAGE> 42
[MAP]
<PAGE> 43
[MAP]
EXHIBIT C-2
<PAGE> 44
[MAP]
[SPACE PLAN NO. 1]
<PAGE> 45
[MAP]
EXHIBIT C-1
<PAGE> 46
PRO BUSINESS, BRITANNIA BUSINESS CENTER, HACIENDA 5, PLEASANTON
PREPARED ON 25 SEPTEMBER 96
SITE & SHELL
<TABLE>
<CAPTION>
SEP OCT 96 NOV 96 DEC 96 JAN 97
23 30 1 7 14 21 28 4 11 18 25 2 9 16 23 30 6 13 20
<S> <C> <C> <C> <C>
GRADE SITE **** **** **** *****
SITE UTILITIES **** *****
FOUNDATIONS **** **** **** *****
UNDERSLAB UTILITIES **** **** *****
GROUND FLOOR SLAB **** **** **** *****
PANELS **** **** **** **** **** *****
ERECT PANELS **
STEEL DETAILING **** **** **** **** **** **** **** *****
FAB STEEL **** **** **** **** **** **** **** *****
<CAPTION>
FEB 97 MAR 97 APR 97 MAY 97
27 3 10 17 24 3 10 17 24 31 7 14 21 28 5 12 19 26
<S> <C> <C> <C> <C> <C>
ERECT STEEL ** **** **** **** **** **** **** **** *****
STEEL JOISTS/DECKING **** **** **** **** **** **** **** *****
EXTERIOR FRAMING **** **** **** **** **** *****
ROOFING MEMBRANE **** **** *****
EXT PAINTING **** **** ****
ALUMINUM & GLAZING **** **** **** **** **** *****
<CAPTION>
<S> <C> <C> <C>
JUNE 97 JULY 97 AUG 97 SEP 97
2 9 16 23 30 7 14 21 28 4 11 18 25 1 8 15
GRADE SITE AND PAD
SITE UTILITIES
FOUNDATIONS
UNDERSLAB UTILITIES
GROUND FLOOR SLAB
PANELS
ERECT PANELS
STEEL DETAILING
FAB STEEL
ERECT STEEL
STEEL JOISTS/DECKING
EXTERIOR FRAMING
ROOFING MEMBRANE
EXT PAINTING
ALUMINUM & GLAZING
</TABLE>
<TABLE>
<CAPTION>
SEP OCT 96 NOV 96 DEC 96 JAN 97 FEB 97
23 30 1 7 14 21 28 4 11 18 25 2 9 18 23 30 6 13 20 27 3 10 17 24
<S> <C> <C> <C> <C> <C>
DESIGN SCHEDULE
FINAL LOBBY DESIGN 25 SEPT 96
T.I. SPACE PLAN
ALL PLUMBING LOCATED 30 SEPT 96
ANY OTHER UNDERGROUND 30 SEPT 96
SUBMIT SHELL FOR PERMIT 14 OCT 96
ARCH DWGS COMPLETE RESUBMIT 04 NOV 96
FINAL T.I. SPACE PLAN 18 OCT 96
SUBMIT FOR T.I. PERMIT 15 JAN 97
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
TENANT IMPROVEMENTS
VOICE/DATA TRENCHING **** **** **** *****
ROUGH M.E.P. **** **** **** **** *****
FRAME HIGH WALLS **** **** **** *****
DRYWALL @ HIGH WALLS **** *****
T-BAR GRID **** **** *****
FRAME BELOW GRID **** **** *****
M.E.P. **** *****
INSULATE WALLS *****
DRYWALL, TAPE & TOP **** *****
INTERIOR PAINTING *****
FINISH RESTROOMS **** **** *****
FLOOR COVERINGS *****
CABINETRY *****
FINISH MEP *****
PUNCH LIST *
MOVE IN *
SITE WORK
SITE CONCRETE **** **** **** *****
LANDSCAPING **** **** **** **** *****
PAVING **** **** *****
MAR 97 APR 97 MAY 97 JUNE 97 JULY 97 AUG 97 SEP 97
3 10 17 24 31 7 14 21 28 5 12 19 26 2 9 16 23 30 7 14 21 28 4 11 18 25 1 8 15
</TABLE>
EXHIBIT D
to
Build-to-Suit Lease
<PAGE> 47
EXHIBIT E
ACKNOWLEDGEMENT OF LEASE COMMENCEMENT
This Acknowledgement is executed as of ______________, 1997, by
BRITANNIA HACIENDA V LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord"), and PROBUSINESS, INC., a California corporation ("Tenant"),
pursuant to Section 2.5 of the Lease dated September 27, 1996 between Landlord
and Tenant (the "Lease") covering premises located at______________________,
Pleasanton, CA 94588 (the "Premises").
Landlord and Tenant hereby acknowledge and agree as follows:
1. The Commencement Date under the Lease is______________, 1997.
2. The termination date under the Lease shall be __________, 2008,
subject to any applicable provisions of the Lease for extension or early
termination thereof.
3. The agreed square footage of the Building, as built, is ______
square feet; the agreed square footage of the portion of the Premises initially
occupied by Tenant as of the Commencement Date is ___________ square feet.
4. Tenant accepts the Premises and acknowledges the satisfactory
completion of all improvements therein (if any) required to be made by
Landlord, subject only to any applicable "punch list" or similar procedures
specifically provided under the Lease.
5. The excess cost of improvements (if any) for which Tenant is
responsible under Exhibit C to the Lease is $______________ , resulting in an
additional rent amount of $_____________ per month pursuant to Section 3.1(d)
of the Lease.
EXECUTED as of the date first set forth above.
"Landlord" "Tenant"
BRITANNIA HACIENDA V LIMITED PROBUSINESS, INC.,
PARTNERSHIP, a Delaware limited a California corporation
partnership
By: BRITANNIA HOPYARD, LLC, a By:______________________
California limited liability Its:_____________________
company, General Partner
By:______________________
T. J. Bristow
Manager & President
<PAGE> 1
Exhibit 10.6
OFFICE LEASE
THIS LEASE, made and entered into in the City of Bellevue, State of Washington,
as of the 22nd day of March 1996, by and between THE TRUSTEES UNDER THE WILL AND
OF THE ESTATE OF JAMES CAMPBELL, DECEASED acting in their fiduciary and not in
their individual capacities (hereinafter referred to as "LESSOR"), and BENEFITS
- - PLUS ADMINISTRATORS, INC., a Washington corporation (hereinafter referred to
as "LESSEE"):
WITNESSETH:
In consideration of the mutual covenants herein contained, Lessor
hereby leases to Lessee and Lessee hereby leases from Lessor, for the term
hereinafter specified, the following described premises:
PREMISES
The certain space of approximately 6,587 square feet of net rentable
area, hereinafter referred to as the "DEMISED PREMISES" and as marked as Exhibit
"A" attached hereto, which Demised Premises are located on the fifth (5th) floor
of the building (the "BUILDING") commonly known as the "400 Building", located
at 400 108th Avenue N.E., in Bellevue, King County, Washington, on the real
property described in the legal description attached hereto and marked Exhibit
"B".
TERM
1. The term of this Lease (the "LEASE TERM") shall be eighty-four (84)
calendar months commencing on the "Target Commencement Date" (defined below) or
such later date as the Demised Premises shall be tendered to Lessee as set forth
in Exhibit C attached (the "WORKLETTER"), or upon such earlier date as Lessee
takes possession and commences use of the Demised Premises for the permitted use
in Paragraph 4 below. Notwithstanding the preceding sentence, if the
Commencement Date is a day other than the first day of the calendar month, the
Lease Term shall not commence until the first day of the first calendar month
following the Commencement Date, however all of the other terms and conditions
of this Lease (including those regarding payment of rent) shall be applicable on
the Commencement Date. Lessor will confirm the Commencement Date (and the date
the term of this Lease will expire) in writing to Lessee promptly after the
commencement of the term of this Lease. The target commencement date is June 1,
1996 (the "TARGET COMMENCEMENT DATE").
PARTIAL CONSIDERATION
2. As partial consideration for the execution of this Lease, the Lessee
shall pay to Lessor, the sum of Seven Thousand Two Hundred Seventy Three and
15/100 Dollars ($7,273.15). Such sum shall be applied to the rent due for the
first month of the Lease term. In no event shall Lessor be required to keep
these sums separate from its general accounts, nor shall Lessor be required to
pay or accrue interest for use of the partial consideration.
RENT
3. Lessee covenants and agrees to pay to Lessor, or its contract
manager, THE SENECA REAL ESTATE GROUP, INC., at its office, or such other place
or party as may be designated in writing by Lessor, as rent for the Demised
Premises, the following sums:
(A) Base Rent: During the first forty-eight (48) full calendar months during the
Lease Term (and any partial months at the commencement of the Lease Term),
Eighty Seven Thousand Two Hundred Seventy Seven and 80/100 Dollars ($87,277.80)
per annum, payable in equal monthly installments in the amount of Seven Thousand
Two Hundred Seventy Three and 15/100 Dollars ($7,273.15), and thereafter One
Hundred Thousand Four Hundred Fifty One and 76/100 Dollars ($100,451.76) per
annum, payable in equal monthly installments in the amount of Eight Thousand
Three Hundred Seventy and 98/100 Dollars ($8,370.98). Base Rent shall be due and
payable in advance on the first day of each calendar month during the term
hereof. Rent for partial months shall be prorated in proportion to the number of
days of the month included in the Lease Term.
(B) Additional Rent:
(1) During each calendar year after calendar year 1996 (the "BASE
YEAR"), Lessee agrees to pay as "Additional Rent" for the Demised Premises,
"Lessee's Share" (defined below) of all increases in Property Taxes and
Operating Expenses incurred by Lessor in the operation of the Building, over the
amount of the Property Taxes and Operating Expenses incurred by Lessor in the
operation of the Building during the Base Year. For purposes of this Lease,
"LESSEE'S SHARE" shall mean the ratio between the rentable area of the Demised
Premises and the rentable area of the Building. Lessee's Share, calculated based
on the initial square foot area of the Demised Premises, is nine and 92/100
percent (9.92%). The estimated amount of the Property Taxes and Operating
Expenses for the Base Year is $7.65 per rentable square foot of the Building.
(2) Prior to or promptly after the commencement of each calendar year
following the Base Year, Lessor shall give Lessee a written estimate of the
anticipated increases in Property Taxes and Operating Expenses over the Base
Year and Lessee's Share of such increases. Lessee shall pay such estimated
amount to Lessor in equal monthly installments, in advance, without deduction or
offset, on or before the first day of each calendar month, with the monthly
installment of Base Rent payable under Paragraph 3(A) above. After the end of
each calendar year, Lessor shall furnish to
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ORIGINAL
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Lessee a statement showing in reasonable detail the actual increases over the
Base Year in the Property Taxes and Operating Expenses incurred by Lessor during
the applicable calendar year and Lessee's Share thereof. If the statement shows
Lessee's Share of the actual increases exceeds the amount of Lessee's estimated
payments, within thirty (30) days after receiving the statement, Lessee shall
pay the amount of the deficiency to Lessor. If the statement shows Lessee has
overpaid, the amount of the excess shall be credited against installments of
Base Rent and Additional Rent next coming due under this Lease; provided,
however upon the expiration or earlier termination of the Lease Term, if Lessee
is not then in default under this Lease, Lessor shall refund the excess to
Lessee.
(3) If at any time during any calendar year of the Lease Term (other
than the Base Year) the Property Taxes applicable to the Building change and/or
any information used by Lessor to calculate the estimated Operating Expenses
changes, Lessee's estimated share of such Property Taxes and/or Operating
Expenses, as applicable, may be adjusted accordingly effective as of the month
in which such changes become effective, by written notice from Lessor to Lessee
of the amount or estimated amount of the change, the month in which effective,
and Lessee's Share thereof. Lessee shall pay such increase to Lessor as a part
of Lessee's monthly payments of estimated Property Taxes or Operating Expenses
as provided in subparagraph (2) above, commencing with the month following the
month in which Lessee is notified of the adjustment.
(4) For purposes of this Lease, the term "Operating Expenses" means all
costs of and expenses paid or incurred by Lessor for maintaining, operating,
repairing, replacing and administering the Building, including all common areas
and facilities, and shall include the following costs by way of illustration but
not limitation: water and sewer charges; insurance premiums; license, permit,
and inspection fees; heat; light; power; steam; janitorial and security
services; labor; salaries; air conditioning; landscaping; maintenance and repair
of driveways and surface areas; supplies; materials; equipment; tools; the cost
of any capital improvements or modifications made to the Building by Lessor that
are intended to reduce Operating Expenses, are required under any governmental
law or regulation not applicable to the Building or not in effect at the time
the Building was constructed, or are made for the general benefit and
convenience of all tenants of the Building, which costs shall be amortized over
such reasonable period as Lessor shall determine with a return on capital at the
current market rate per annum on the unamortized balance or at such higher rate
as may have been paid by Lessor on funds borrowed for the purpose of
constructing such capital improvements; all property management costs, including
office rent for any property management office and professional property
management fees; legal and accounting expenses; and all other expenses or
charges which, in accordance with generally accepted management practices would
be considered an expense of maintaining, operating, repairing, replacing or
administering the Building. Notwithstanding the foregoing, Operating Expenses
shall not include ground lease rental payments or debt service on mortgages or
deeds of trust encumbering the Building; leasing commissions and attorneys' and
other fees and costs incurred in leasing space in the Building or in connection
with disputes with tenants of the Building; depreciation; the cost of tenant
improvements; or the cost of any special services rendered to individual tenants
of the Building (including Lessee) for which a special charge is made or which
are not generally made available to all tenants of the Building.
(5) For purposes of this Lease, the term "Property Taxes" means all
real estate taxes or personal property taxes and other taxes, surcharges and
assessments, unforeseen as well as foreseen, which are levied with respect to
the Building and any improvements, fixtures and equipment and other property of
Lessor, real or personal, located in the Building and used in connection with
the operation of the Building, and the land upon which it is situated, and any
tax, surcharge or assessment which shall be levied in addition to or in lieu of
real estate or personal property taxes, other than taxes covered in Paragraph 4.
The term "Property taxes" shall also include any rental, excise, sales,
transaction, privilege, or other tax or levy, however denominated, imposed upon
or measured by the rental reserved hereunder or on Lessor's business of leasing
the Demised Premises, excepting only net income, inheritance, gift and franchise
taxes.
(C) Late Charges: Rental shall be paid without deduction or offset. In the event
Lessee should fail to pay any installment of rent or any other sum due Lessor
hereunder within ten (10) days after such amount is due, Lessee agrees to pay to
Lessor as Additional Rent a late charge equal to five percent (5%) of each such
installment.
4. Lessee will use and occupy the Demised Premises for office use and
for no other purpose. Lessee will not use or permit in the Demised Premises
anything that will increase the rate of fire insurance therein or prevent
Lessor's taking advantage of any ruling of the Washington Insurance Examining
Bureau or its successors which would allow Lessor to obtain reduced rates for
long-term insurance policies, or maintain anything that may be dangerous to life
or limb, or in any manner deface, injure or commit waste in, on or about said
building or any portion thereof, or overload the floors, or permit any
objectionable noise or odor to escape or to be emitted from the Demised
Premises, or permit anything to be done upon the Demised Premises in any way
tending to create a nuisance or to disturb any other tenants of the building, or
to injure the reputation of the building or to use or permit the use of Demised
Premises for lodging or sleeping purposes, or for any immoral
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<PAGE> 3
or illegal purposes. Lessee will comply, at Lessee's own cost and expense, with
all orders, notices, regulations or requirements of any municipality, state or
other governmental authority respecting the use of the Demised Premises. Lessee
shall be liable for and shall pay prior to delinquency, all taxes, levies and
assessments against any personal property or trade fixtures placed by Lessee in
or about the Demised Premises.
ASSIGNMENT & SUBLETTING
5. (A) Lessee shall not voluntarily or involuntarily assign, sublet,
mortgage or otherwise encumber or convey all or any portion of its interest in
this Lease or in the Demised Premises without obtaining the prior written
consent of Lessor, and any such attempted assignment, subletting, mortgage or
other encumbrance or conveyance without such consent shall be null and void and
of no effect. Lessor will not unreasonably withhold its consent to any proposed
assignment or subletting by Lessee, and in determining whether to consent to a
proposed assignment or subletting, Lessor may consider any commercially
reasonable basis for approving or disapproving the proposed subletting or
assignment, including without limitation any of the following: (i) the
experience or business reputation of the proposed assignee or sublessee, (ii)
whether the clientele, personnel or foot traffic which will be generated by
the business of the proposed assignee or sublessee is consistent in Lessor's
opinion with the businesses of other tenants of the Building, (iii)
notwithstanding that Lessee or others may remain liable under this Lease,
whether the proposed assignee or sublessee has a net worth and financial
strength and credit record satisfactory to Lessor, and (iv) whether the use of
the Demised Premises by the proposed assignee or sublessee will violate or
create any potential violation of any laws or a breach or violation of any
other lease or agreement by which Lessor is bound.
(B) No permitted assignment, subletting, mortgage or other encumbrance
of Lessee's interest in this Lease shall relieve Lessee of its obligations to
pay the rent and to perform all of the other obligations to be performed by
Lessee hereunder. The acceptance of rent by Lessor from any other person shall
not be deemed to be a waiver by Lessor of any provision of this Lease or be a
consent to any subletting, assignment, mortgage or other encumbrance or
conveyance. Consent to one sublease, assignment, mortgage or other encumbrance
or conveyance shall not be deemed to constitute consent to any subsequent
attempted subletting, assignment, mortgage or other encumbrance or conveyance.
(C) If Lessee desires at any time to assign this Lease or to sublet the
Demised Premises or any portion thereof, it shall first notify Lessor of its
desire to do so and shall submit in writing to Lessor no less than thirty (30)
days prior to the date such assignment or subletting is to be effective (i) the
name of the proposed subtenant or assignee; (ii) the nature of the proposed
subtenant's or assignee's business to be carried on in the Demised Premises;
(iii) the terms and provisions of the proposed sublease or assignment and a copy
of the proposed sublease or assignment form; and (iv) such financial and other
information as Lessor may request concerning the proposed subtenant or assignee.
(D) Upon receipt of the notice required in Paragraph 5(C) above,
Lessor, at its option, shall have the right to terminate this Lease as to the
portion of the Demised Premises which Lessee proposes to sublease or assign,
unless Lessee withdraws its request for the proposed assignment or subletting
within ten (10) days after receiving written notice of Lessor's election to
terminate this Lease. Lessor shall have twenty (20) days from the date it
receives Lessee's notice under Paragraph 5(C) to exercise such option. If Lessor
exercises its option to terminate this Lease as to the portion of the Demised
Premises to be sublet or assigned, Lessor shall be free to lease such portion of
the Demised Premises to any person or entity (including the sublessee or
assignee proposed by Lessee) on such terms and conditions as Lessor deems
acceptable. If Lessor does not exercise such option within such time, Lessee may
thereafter assign this Lease or sublet the portion of the Demised Premises
subject thereof, provided Lessor pursuant to Paragraph 5(A) above consents
thereto, but at the rental rate and other terms and conditions set forth in
Lessee's notice to Lessor and not later than ninety (90) days after delivery of
the aforesaid Lessee's notice to Lessor unless a further notice is given. No
action or inaction by Lessor in connection with its right under this Paragraph
5(D) shall constitute or be deemed to constitute an approval of a proposed
assignment or sublease for purposes of Paragraph 5(A). If Lessor elects not to
recapture the portion of the Demised Premises to be sublet or assigned pursuant
to this Paragraph 5(D) and Lessor consents to the subletting or assignment,
Lessee shall pay to Lessor one-half (1/2) of any and all consideration received
by Lessee for the sublease or assignment, including without limitation any rent
payments to Lessee in excess of the monthly minimum rent payable by Lessee
pursuant to this Lease; however, such additional consideration shall be reduced
by any reasonable costs and expenses (including brokerage fees and tenant
improvement costs) incurred by Lessee in connection with the subject sublease or
assignment.
(E) The voluntary or other surrender of this Lease by Lessee or a
mutual cancellation hereof shall not work a merger, and shall at the option of
Lessor, terminate all or any existing subleases or subtenancies or shall operate
as an assignment to Lessor of such subleases or subtenancies. The transfer,
assignment or hypothecation of any stock or other ownership interest in Lessee,
in the aggregate in excess of twenty-five percent (25%), shall be deemed an
assignment within the meaning and provisions of this Paragraph 5; provided,
transfers of stock or other ownership
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<PAGE> 4
interests in Lessee in excess of twenty-five percent (25%), shall not be deemed
an assignment within the meaning and provisions of this Paragraph 5 so long as
Ben W. Reppond, Louis R. Baransky, and Alison M. Elder collectively own at least
fifty percent (50%) of the beneficial ownership interests in Lessee. Lessee
agrees to reimburse Lessor for Lessor's reasonable costs and attorney's fees
incurred in conjunction with the processing and documentation of any such
requested assignment, subletting, transfer, change of ownership or hypothecation
of this Lease or Lessee's interest in and to the Demised Premises.
ALTERATION
6. Lessee will make no alterations in, or additions to, the Demised
Premises without obtaining the prior written consent of Lessor. Lessor may
impose such conditions on its consent as Lessor deems appropriate. All
additions, improvements and fixtures (except the movable furniture and trade
fixtures of Lessee) made or added either by Lessee or Lessor shall be and remain
the property of Lessor; provided however, that Lessor may require, at Lessee's
expense, that Lessee remove, upon termination of this Lease, any additions made
or fixtures added by Lessee.
REPAIRS, SURRENDER OF PREMISES
7. Lessee shall at all times take good care of the Demised Premises.
Lessee agrees to promptly repair at Lessee's expense:
(A) all injury to the Demised Premises, or to the Building of which they
are a part, caused by moving the property of Lessee in or out of the
Building or the Demised Premises;
(B) all breakage or damage to the Demised Premises or the building caused
by Lessee or the agents, servants or employees of Lessee;
(C) all injury or damage to the Demised Premises from fire or other
casualty caused by negligence of Lessee, his agents, servants or
employees except as provided in paragraph 10.
Lessee shall return the Demised Premises to Lessor at the expiration or
earlier termination of this Lease in good condition, subject to
ordinary wear and tear.
INDEMNIFICATION
8. (A) Lessor shall indemnify, hold Lessee harmless from and defend
Lessee against any and all claims, losses, costs, damages, expenses and
liabilities, including without limitation reasonable attorneys' fees, for any
injury or damages to any person or property whatsoever, when such injury or
damage has been caused in whole or in part by any negligent or willful act or
omission of Lessor, or any officer, agent or employee of Lessor, or resulting
from Lessor's failure to comply with any terms or conditions of this Lease. This
indemnity shall not require payment as a condition precedent to recovery. This
indemnity with respect to acts or omissions during the term of this Lease shall
survive termination or expiration of this Lease. As between Lessor and Lessee,
the foregoing indemnity is specifically and expressly intended to constitute a
waiver of Lessor's immunity under Washington's Industrial Insurance Act, RCW
Title 51, to the extent necessary to provide Lessee with a full and complete
indemnity from claims made by Lessor, and its employees, to the extent of their
negligence.
(B) Lessee shall indemnify, hold Lessor harmless from and defend Lessor
against any and all claims, losses, costs, damages, expenses and liabilities,
including without limitation reasonable attorneys' fees, for any injury or
damages to any person or property whatsoever, when such injury or damage has
been caused in whole or in part by any negligent or willful act or omission of
Lessee, or any officer, agent or employee of Lessee, or resulting from Lessee's
failure to comply with any of the terms or conditions of this Lease. This
indemnity shall not require payment as a condition precedent to recovery. This
indemnity with respect to acts or omissions during the term of this Lease shall
survive termination or expiration of this Lease. As between Lessor and Lessee,
the foregoing indemnity is specifically and expressly intended to constitute a
waiver of Lessee's immunity under Washington's Industrial Insurance Act, RCW
Title 51, to the extent necessary to provide Lessor with a full and complete
indemnity from claims made by Lessee and its employees, to the extent of their
negligence.
(C) Lessee shall and does hereby assume all risk of loss or damage to
furnishings, furniture, fixtures, supplies, merchandise and other property,
stored, placed or affixed in the Demised Premises and does hereby agree, except
to the extent of the negligence or willful misconduct of Lessor or its
employees, agents or contractors, Lessor shall not be responsible for loss or
damage to any such property.
INSURANCE
9. Lessee hereby agrees to maintain in full force and effect at all
times during the term of this Lease, at its own expense, for the protection of
Lessee and Lessor, as their interests may appear, policies of insurance issued
by a responsible carrier or carriers acceptable to Lessor which afford the
following coverages:
(A) Comprehensive General Liability Insurance including Blanket Contractual
Liability Broad Form Property Damage, Personal Injury, Completed
Operations, Products Liability and Fire
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<PAGE> 5
Damage, such insurance to afford protection in the minimum combined
limit of not less that $1,000,000.00.
(B) Fire insurance with extended coverage endorsement upon Lessee's
equipment, furniture, fixtures, merchandise and any other personal
property located in the Demised Premises in the amount of the full
insurable value thereof.
(C) Workers' Compensation as required by statute and Employee's liability
of not less than $1,000,000.00.
The Lessee shall deliver to Lessor prior to occupancy and thereafter at least
thirty (30) days prior to expiration of such policy, Certificates of Insurance
evidencing the above coverage which shall expressly provide that at least thirty
(30) days prior written notice shall be given Lessor in the event of material
alteration or cancellation of the coverage. Lessor makes no representation that
the limits of liability specified to be carried by Lessee under the terms hereof
are adequate to protect Lessee; if Lessee deems this insurance to be inadequate,
Lessee shall, at its own expense, provide such additional insurance as
necessary.
WAIVER OF SUBROGATION
10. The parties shall obtain from their respective insurance carriers
waivers of subrogation against the other party, agents, employees and as to
Lessee, invitees. Neither party shall be liable to the other for any loss or
damage caused by fire or any of the risks enumerated in a standard fire
insurance policy with an extended coverage endorsement if such insurance was
obtainable at the time of such loss or damage.
LIABILITY FOR INJURY OR DAMAGE
11. Lessor shall not be liable to Lessee for any damage to personal
property resulting from the carelessness, negligence or improper conduct on the
part of a co-tenant or anyone other than Lessor, or for any damage to person or
property resulting from any condition of the Demised Premises or other cause,
including, but not limited to, damage by water, not resulting from the
negligence of Lessor. Lessee shall give Lessor prompt notice of any defects in
the Demised Premises to be remedied by Lessor.
DAMAGE TO PREMISES
12. In the event the Demised Premises shall be wholly destroyed, this
Lease may be terminated by either party as of the date of destruction. If the
Demised Premises are partially damaged then Lessor may, at Lessor's option,
exercised in writing within sixty (60) days of written notice of damage from
Lessee, elect to terminate this Lease or to repair the damages. If Lessor elects
to repair the damages, Lessor shall at its own expense, without unnecessary
delay, repair the damages. If Lessor elects to repair, Lessee shall pay the cost
of repairing any tenant improvements in the Demised Premises other than the
Building itself and Building standard improvements. Lessee shall be entitled to
an abatement of rent in fair proportion to the amount and nature of the damage
sustained, until the Demised Premises are made fit for occupancy and use.
Provided however, that Lessee shall not be entitled to an abatement of rent if
such damage was caused by the negligence or willful misconduct of Lessee or
Lessee's employees or invitees.
EMINENT DOMAIN
13. If all or any part of the Demised Premises shall be taken as a
result of the exercise of the power of eminent domain, this Lease shall
terminate as to the part so taken as of the date of taking. In the event of a
partial taking, either Lessor or Lessee shall have the right to terminate this
Lease as to the balance of the Demised Premises by written notice to the other
within thirty (30) days after such date, provided however, that a condition to
the exercise by Lessee of such right to terminate shall be that the portion of
the Demised Premises taken shall be of such extent and nature as substantially
to handicap, impede or impair Lessee's use of the balance of the Demised
Premises. In the event of a total taking or a partial taking resulting in
termination of this Lease, Lessor shall be entitled to any and all compensation,
damages or awards which may be paid in connection therewith. Lessee shall be
entitled to any damages attributable to moving expenses or damages to Lessee's
non-removable fixtures, provided that such award does not diminish the award to
Lessor and further provided that no portion of the award is for any excess value
or leasehold value of this Lease. In the event of a partial taking of the
Demised Premises which does not result in termination of this Lease, the monthly
rental thereafter shall be equitably reduced.
ADMITTANCE BY PASS-KEY
14. Lessor shall not be liable for the consequences of admitting by
pass-key or refusing to admit to the Demised Premises Lessee or any of Lessee's
agents, employees or other persons claiming the right of admittance.
EXHIBITION AND INSPECTION OF PREMISES
15. Lessor and Lessor's agents shall have the right at reasonable hours
to (a) exhibit the Demised Premises to prospective purchasers and during the
final six months of the term hereof to prospective lessees; (b) to examine the
Demised Premises to determine whether Lessee complying with its obligations
hereunder and in reference to any emergency or general maintenance; (c) supply
janitorial service and any other service supplied by Lessor to Lessee hereunder;
and (d) to make repairs or alterations to any portion of the Building. Lessee
hereby waives any claim for damages or any injury or inconvenience to or
interference with Lessee's business, occupancy or quiet enjoyment
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<PAGE> 6
of the Demised Premises. Lessor agrees Lessee may install an internal security
system and locks on offices or other areas located in the Demised Premises so
long as Lessor is provided with such pass-keys or codes as may be necessary for
Lessor to have full access to the Demised Premises. Lessee at its option, may
designate certain portions of the Demised Premises from time to time as being
"off limits" and may secure such portions of the Demised Premises, and neither
Lessor nor its employees, agents or contractors shall have any access to such
areas of the Premises except in an emergency. If Lessee elects to designate
areas of the Demised Premises as off limits, Lessor shall have no obligation to
provide janitorial services to such areas.
VACATION OR ABANDONMENT
16. Upon vacation or abandonment of the Demised Premises by the Lessee
without the prior written consent of Lessor, Lessor may forthwith enter upon the
Demised Premises or any portion thereof and relet and otherwise exercise control
over the Demised Premises and Lessee's fixtures and equipment situated therein.
For the purpose of such reletting, Lessor is authorized at the cost of Lessee to
make any repairs, changes, alterations or additions in or to said Demised
Premises which may be necessary in the opinion of Lessor for the purpose of such
reletting. Such entry and control shall not release Lessee from the obligations
herein and Lessee shall remain liable and continue to be bound and shall
continue to pay rent, unless Lessor, at Lessor's election, shall terminate this
Lease, and in that event Lessor shall be entitled to damages as provided in
paragraph 24. Any personal property left on the Demised Premises shall be
deemed to be abandoned at the option of Lessor and Lessee waives any claims to
or arising from said property.
SIGNS
17. No sign, picture, advertisement or notice shall be displayed,
inscribed, painted or affixed to any of the glass or woodwork of the Demised
Premises, or on the exterior walls of the Building, except such as shall be
approved in writing by Lessor.
ELECTRICAL AND MECHANICAL DEVICES AND INSTALLATIONS
18. Lessee shall not without Lessor's prior written consent, operate or
install any electrical equipment or operate or install any machinery or
mechanical device said Demised Premises other than that normal to office use. No
electric wiring or other electrical apparatus shall be installed, maintained or
operated on the Demised Premises, except with the prior written approval of and
in a matter satisfactory to Lessor, and in no event shall Lessee overload the
electrical circuits from which Lessee obtains current.
WINDOWS
19. Lessee shall not allow anything to be placed on the outside window
ledges of the Demised Premises. No awnings shall be attached to the outside of
any windows of the Demised Premises. Only such window draperies furnished by
Lessor, which shall be uniform to Building standards, shall be exposed to
exterior views.
FLOOR COVERINGS
20. Lessee, or any other person, shall not lay linoleum or any other
similar floor covering or attach or affix any covering to the walls or ceiling
of the Demised Premises or any part thereof without the prior consent of Lessor.
Any such addition shall be deemed an alteration within the meaning of paragraph
6, and shall be subject to the conditions set forth therein.
SERVICES
21. (A) Lessor agrees to furnish or cause to be furnished to the
Demised Premises, the utilities and services described below, subject to the
conditions and in accordance with the standards set forth below:
(1) Lessor shall provide automatic elevator facilities from 7
a.m. to 6 p.m., Monday through Friday, except for holidays observed by Building
management ("NORMAL BUILDING HOURS"). At least one elevator will be available
for use at all times other than Normal Building Hours (so Lessee shall have
access to the Demised Premises seven (7) days per week, twenty-four (24) hours
per day, including holidays), subject to such Building security systems and
procedures as may be in effect from time to time. Passes permitting access to
the Building at hours other than Normal Business Hours will be made available to
Lessee for all existing and new employees of Lessee at no additional charge;
provided, Lessor may impose a reasonable charge (currently $10.00) to replace
lost, stolen or damaged passes.
(2) During Normal Building Hours, and on Saturdays (other than
holiday weekends) from 8:00 a.m. to 1:00 p.m., Lessor shall ventilate the
Demised Premises and furnish heat and air conditioning when in the judgment of
the Lessor it is required for the comfortable occupancy of the Demised Premises,
subject to any governmental requirements or standards relating to, among other
things, energy conservation. Upon request, Lessor shall make available at
Lessee's expense after hours heat or air conditioning. The minimum use of after
hours heat or air conditioning and the cost thereof shall be determined by
Lessor and confirmed in writing to Lessee the same may change from time to time.
In addition to any and all other rights and remedies which Lessor may have for a
violation or breach of this Lease, Lessor may discontinue said after hours
heating and air conditioning service without any abatement of rent to Lessee
whatsoever.
(3) Lessor shall furnish to the Demised Premises at all times,
subject to interruptions beyond Lessor's control, electric current as required
by the building standard office
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<PAGE> 7
light and receptacles. At all times Lessee's use of electric current shall never
exceed the capacity of the feeders to the Building or the risers or wiring
installations, or be in violation of any governmental energy use ordinance.
(4) Lessor shall furnish water for drinking, cleaning and
lavatory purposes only.
(5) Lessor shall provide janitorial services to the Demised
Premises, comparable to that provided in other comparable office buildings in
the immediate vicinity of the Building, provided the same are used exclusively
as offices, and are kept reasonably in order by Lessee. If the Demised Premises
are not used exclusively as offices, and Lessor directs, they shall be kept
clean and in order by Lessee, at Lessee's expense and to the satisfaction of
Lessor, and by persons approved by Lessor and no one other than persons approved
by Lessor shall be permitted to enter the Demised Premises for such purposes.
Lessee shall pay to Lessor the cost of removal of any of Lessee's refuse and
rubbish in excess of that usually attendant upon the use of the Demised Premises
as offices.
(6) Lessor shall replace, as necessary, the fluorescent tubes
in the standard lighting fixtures installed by Lessor.
(B) In accordance with Paragraph 3 of this Lease, as Additional Rent,
Lessee shall pay its share of all charges for heat, water, light, gas,
electricity, sewer, garbage, fire protection and any other utilities and/or
services used or consumed on or supplied to the Building and not separately
metered and charged to the Demised Premises or any other premises in the
Building. Lessee shall be solely responsible for and shall promptly pay when due
all charges for telephone or any other utilities or services separately metered
or charged to the Demised Premises. Lessor may impose a reasonable charge for
any utilities and services, including without limitation, air conditioning,
electric current and water, required to be provided by Lessor by reason of any
substantial recurrent use of the Demised Premises at any time other than Normal
Building Hours, or any use beyond what Lessor agrees to furnish as described
above, or special electrical, cooling and ventilating needs created in certain
areas by hybrid telephone equipment, computers and other similar equipment or
uses. At Lessor's option, separate meters for such utilities and services may be
installed for the Demised Premises, and Lessee upon demand therefor, shall
immediately pay Lessor for the installation, maintenance or repair of such
meters.
(C) Lessee agrees to cooperate fully at all times with Lessor and to
abide by all regulations and requirements which Lessor may prescribe for the use
of the above utilities and services. Any failure to pay any excess costs as
described above shall constitute a breach of the obligation to pay rent under
this Lease and shall entitle the Lessor to the rights herein granted for such
breach.
(D) Lessor shall not be liable for, and Lessee shall not be entitled
to, any abatement or reduction of rent by reason of Lessor's failure to furnish
any of the foregoing when such failure is caused by accident, breakage, repairs,
strikes, lock-outs or other labor disturbance or labor dispute of any character,
governmental regulation, moratorium or other governmental action, inability by
exercise of reasonable diligence to obtain electricity, water or fuel, or by any
other cause beyond Lessor's reasonable control, nor shall any such failure,
stoppage or interruption of any such service be construed either as an eviction
of Lessee, or relieve Lessee from the obligation to perform any covenant or
agreement. In the event of any failure, stoppage or interruption thereof,
however, Lessor shall use reasonable diligence to resume service promptly.
(E) Notwithstanding anything hereinabove to the contrary, Lessor
reserves the right from time to time to make reasonable and nondiscriminatory
modifications to the above standards for utilities and services.
(F) All telephone and telecommunications services desired by Lessee
shall be ordered and utilized by Lessee at its sole cost and expense. Lessee
shall separately contract with a telephone or telecommunications provider (a
"Provider") to provide telephone and telecommunications services to the Demised
Premises. If Lessee desires to utilize the services of a Provider whose
equipment is not presently servicing the Building, such Provider must obtain the
written consent of Lessor before it will be permitted to install its lines or
other equipment within the Building. Lessor's consent to the installation of
lines or equipment within the Building by any Provider shall be evidenced by a
written agreement between Lessor and the Provider, which contains terms and
conditions acceptable to Lessor in its sole discretion. Lessor's refusal for any
reason whatsoever to consent to any prospective Provider shall not be deemed a
default or breach by Lessor of its obligations under this Lease. Lessor makes no
warranty or representation to Lessee to the suitability, capability or financial
strength of any Provider whose equipment is presently serving the Building, and
Lessor's consent to a Provider whose equipment is not presently serving the
Building shall not be deemed to constitute such a representation or warranty. To
the extent the service by a Provider is interrupted, curtailed or
discontinued for any reason whatsoever, Lessor shall have no obligation or
liability in
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connection therewith unless the interruption is caused by the negligence or
intentional misconduct of Lessor, and it shall be the sole obligation of Lessee
at its expense to obtain substitute service. The provisions of this paragraph
are solely for the benefit of Lessee and Lessor, are not for the benefit of any
third party, specifically including without limitation, no telephone or
telecommunications provider shall be deemed a third party beneficiary hereof.
ATTORNEYS' FEES
22. In the event of any legal action or proceeding brought by either
party against the other arising out of this Lease the prevailing party shall be
entitled to recover reasonable attorneys' fees and costs incurred in such action
and such amount shall be included in any judgment rendered in such proceeding.
DEFAULT
23. The occurrence of any one or more of the following events shall
constitute a breach of this Lease and default by Lessee:
(A) if Lessee fails to make prompt payment of rent or any
amounts due Lessor in connection with Lessee's occupancy of the Demised
Premises; or
(B) if Lessee fails to keep or perform any of the covenants or
conditions of this Lease or rules or regulations in connection therewith, other
than the making of any payment when due; or
(C) if a receiver shall be appointed for Lessee's property or
any part thereof, or if a petition is filed by Lessee for an arrangement with
his creditors under the United States Bankruptcy Act, or if Lessee shall be
declared bankrupt or insolvent according to law, or if any assignment of
Lessee's property shall be made for the benefit of creditors.
With respect to a default occurring under (A) above, Lessee shall have five (5)
days following receipt of written notice from Lessor within which to cure any
such default. With respect to a default arising under subparagraph (B) above,
Lessee shall have twenty (20) days following receipt of written notice from
Lessor within which to cure any such defaults; provided, if the nature of the
default is such that the cure cannot reasonably be cured within such twenty (20)
day period, the cure period shall be extended for so long as may be reasonably
necessary to cure the default (but for no more than an additional sixty (60)
days) if (i) Lessee commences the cure within the initial twenty (20) day period
and thereafter diligently prosecutes the cure to completion in good faith; and
(ii) Lessee furnishes Lessor with such assurances and indemnities as Lessor may
reasonably require to insure completion thereof and fully and completely protect
Lessor from any loss or liability resulting from any such default or any delay
by Lessee in curing the default. The notice periods provided for above shall
include, but not be in addition to, any notice periods otherwise required by RCW
59.12, as now or hereafter amended, or any legislation in substitution thereof.
REMEDIES
24. In the event of a default or breach not cured within the applicable
cure period, if any, Lessor may at any time, without waiving or limiting any
other right or remedy reenter and take possession of the Demised Premises,
terminate this Lease and/or pursue any remedy allowed by law. In the event of
any entry or taking possession of the Demised Premises by Lessor, Lessor shall
have the right but not the obligation to remove therefrom all or any part of the
personal property of Lessee located therein and may place the same in storage in
a public warehouse at the cost and risk of Lessee. If Lessor elects to reenter
the Demised Premises and terminate this Lease, Lessor may recover from Lessee as
damages the following: (i) the worth at the time of award of any unpaid rental
which had been earned at the time of such termination; plus (ii) the worth at
the time of award of the amount by which the unpaid rental 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 (iii) the
worth at the time of award of the amount by which the unpaid rental for the
balance of the term after the time of award exceeds the amount of such rental
loss that Lessee proves could be reasonably avoided; plus (iv) any other amount
necessary to compensate Lessor for all the detriment approximately caused by
Lessee's failure to perform its obligations under this Lease, including but not
limited to any costs or expenses incurred by Lessor in (a) retaking possession
of the Demised Premises, including attorneys' fees and costs, (b) maintaining or
preserving the Demised Premises after Lessee's default, (c) preparing the
Demised Premises for reletting to a new tenant, including repairs or alterations
to the Demised Premises for such reletting, (d) leasing commissions and (e) any
other costs necessary or appropriate to relet the Demised Premises; plus (v) at
Lessor's election, such other amounts in addition to or in lieu of the foregoing
as may be permitted from time to time by the laws of the State of Washington. As
used in item (i) and (ii) above, "worth at the time of award" is computed by
allowing interest at the interest rates specified in Paragraph 41 below. As used
in item (iii) above, the "worth at the time of award" is computed by using the
discount rate of six percent (6%). If Lessor retakes possession, Lessor shall
have the right to let any other available space in the Building before reletting
or attempting to relet the Demised Premises and such action shall not relieve
Lessee of any of its obligations hereunder. All remedies provided herein are
cumulative and are in addition to those provided by law.
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CUMULATION OF REMEDIES - NO WAIVER
25. No right to remedy herein expressly conferred upon or reserved to
Lessor is intended to be exclusive of any other right or remedy, and each and
every right and remedy shall be cumulative and in addition to any other right or
remedy given hereunder or now or hereafter existing at law or in equity or by
statute. The failure of Lessor or Lessee to insist in any one or more instances
upon the strict performance by the other party of any of the covenants of this
Lease or to exercise any option herein contained shall not be construed as a
waiver or a relinquishment for the future of any such covenant or option. The
receipt by Lessor of rent with the knowledge of a breach of any covenant or
agreement hereof shall not be deemed a waiver of such breach, and no waiver by
either party of any provision of this Lease shall be deemed to have been made
unless expressed in writing and signed by the other party or its duly authorized
agent.
LIGHT AND AIR
26. This Lease does not grant any right of access to light, air, or
view, over the property, and Lessor shall not be liable for any diminution of
such light, air, or view by any adjacent structure.
REPAIR
27. In the event Lessor, during the term of this Lease, deems it
necessary to repair, alter, remove, reconstruct or improve any part of the
Demised Premises or the Building, then such repairs, alterations, removals,
reconstructions or improvements may be made by and at the expense of Lessor
without any interference or claim for damages by Lessee, but there shall be such
an abatement or adjustment of rent as shall be just and in proportion to the
interference with Lessee's occupation of the Demised Premises, unless such
repairs or alterations. are made at Lessee's request, or necessitated by reason
of Lessee's negligence or the negligence of Lessee's employees, agents or
invitees.
HOLDING OVER
28. Unless otherwise agreed in writing by Lessor and Lessee, any
holding over by Lessee after the expiration of the Lease Term consented to in
advance in writing by Lessor, shall be construed as a tenancy for month-to-month
on the terms and conditions set forth herein at such rental rate as may be
agreed upon by Lessor and Lessee. Any such holdover tenancy consented to by
Lessor may be terminated by either party upon thirty (30) days written notice to
the other party, unless otherwise agreed in writing. Lessor agrees it will not
unreasonably withhold its consent to a proposed holdover by Lessee, however
Lessee agrees it shall not be unreasonable for Lessor to withhold its consent to
a holdover if Lessor has leased all or any portion of the Demised Premises to
another person or entity or if Lessor believes it is necessary to have
possession of the Demised Premises in order to relet it. Any holding over by
Lessee after the expiration of the Lease Term without Lessor's consent shall be
deemed a tenancy at will, terminable at any time by Lessor, at a rental rate
equal to one and one-half (1 1/2) times the Base Rent and Additional Rent
payable by Lessee during the last month rent is payable by Lessee pursuant to
this Lease. Acceptance by Lessor of rent after such expiration or earlier
termination shall not constitute a consent to a holdover hereunder or result in
a renewal or extension of the Lease term. The foregoing provisions of this
Paragraph are in addition to and do not affect Lessor's right of re-entry or any
other rights of Lessor hereunder or as otherwise provided by law.
LIENS
29. Lessee shall keep the Demised Premises and the Building free from
any liens arising out of any work performed, materials furnished or obligations
incurred by Lessee. Lessor shall have the right to post or keep posted on the
Demised Premises any notices that may be provided by law or which Lessor may
deem to be proper for the protection of the Lessor, the Demised Premises and the
Building from such liens. Nothing in this Lease shall be deemed or construed in
any way as constituting the consent or request of Lessor, express or implied, by
inference or otherwise, to any contractor, subcontractor, laborer or materialman
for the performance of any labor or the furnishing of any materials for any
specific improvement, alteration or repair to the Demised Premises or any part
thereof, nor as giving Lessee any right, power or authority to contact for or
permit the rendering of any services or the furnishing of any materials that
would give rise to the filing of any lien against the fee of the Demised
Premises. If any such lien shall at any time be filed against the Demised
Premises, Lessee shall cause the same to be discharged of record within twenty
(20) days after the date of filing the same. Any amount paid by Lessor for any
of the expenses or fees incurred or arising from such lien, including all
reasonable legal or other expenses of Lessor, shall be repaid by Lessee to
Lessor on demand with interest at the interest rate specified in Paragraph 41
below.
FURNITURE AND BULKY ITEMS
30. Safes, furniture or bulky items shall be moved in or out of the
Demised Premises only at such hours and in such manner as shall least
inconvenience other tenants, as Lessor shall decide. No safe or other articles
of over 1000 pounds shall be moved into the Demised Premises without the consent
of the Lessor. Lessor shall have the right to fix the position of any article of
such weight in the Demised Premises.
REGULATIONS
31. Lessor may make and enforce regulations appropriate for maintenance
and management of the Building including but not limited to regulations for
order, cleanliness and security, but said regulations shall not be inconsistent
with the terms, covenants and conditions of this Lease. Lessor shall not be
responsible to Lessee for the nonperformance by any other tenant or occupant of
any said rules or regulations.
PREPARATION FOR OCCUPANCY
32. Lessor shall cause the Demised Premises to be improved with the
tenant improvements in accordance with the Workletter. All improvements made in
connection with the preparation of the
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Demised Premises for occupancy shall be and remain the property of Lessor.
Lessee shall pay all costs of furnishing, installing or connecting fixtures and
any equipment required by Lessee.
POSSESSION
33. If Lessor for any reason cannot deliver possession of the Demised
Premises to Lessee on or before the Target Commencement Date, then except as
provided below, Lessor shall not be subject to any liability therefor; nor shall
such failure affect the validity of this Lease or the obligations of Lessee
hereunder; provided Lessee shall not be obligated to pay rent until possession
of the Demised Premises is tendered to Lessee. Notwithstanding the foregoing, if
Lessor has not delivered possession of the Demised Premises within one hundred
twenty (120) days from the Target Commencement Date, then at Lessee's option, to
be exercised within thirty (30) days after the expiration of said 120-day
period, this Lease shall terminate and upon Lessor's return of any monies
previously deposited by Lessee the parties shall have no further rights or
liabilities towards each other. Notwithstanding the foregoing sentence, if
Lessor is unable to deliver possession of the Demised Premises to Lessee within
the 120-day period due to delays caused by Lessee or material shortages, labor
strikes, or other reasons beyond Lessor's control, the 120-day period shall be
extended by the number of days of delay experienced by Lessor. If Lessor is
unable to deliver possession of the Demised Premises to Lessee prior to the
Target Commencement Date, and such failure is the result of causes within the
reasonable control of Lessor, if and to the extent Lessee (or Group Data
Administrators, Inc.) is required to pay holdover rent at its current premises,
at 915 118th S.E. in Bellevue, Washington, in excess of the rent currently
payable by Lessee pursuant to its lease thereof, Lessor shall reimburse Lessee
(or Group Data Administrators, Inc.) for the amount of such excess rent on a
monthly basis upon the presentation to Lessor of an invoice specifying the
amount thereof; provided, Lessee shall use reasonable efforts to negotiate with
its Lessor a holdover rent not in excess of that which Lessee is presently
paying pursuant to its lease.
DEMOLITION
34. In the event at any time Lessor decides to demolish the Building,
or substantially change the character of the Building, then Lessor may cancel
this Lease upon six (6) month's prior written notice to Lessee. Upon date of
actual termination, all payments due for unamortized tenant improvements
following said termination date shall be forgiven in their entirety by Lessor
and Lessee shall have no obligation pursuant to Paragraph 6 of this Lease to
remove tenant improvements. If Lessor so elects to terminate this Lease, on or
before the effective date of the termination, Lessor shall pay to Lessee an
amount equal to the unamortized balance of the Lessee Improvement costs, if any,
paid by Lessee pursuant to Exhibit C attached. Such costs shall be amortized
over the initial term of this Lease on a straight-line basis without interest.
SUBORDINATION
35. Lessee agrees that upon request of Lessor it will subordinate its
rights hereunder to the lien of any Mortgage, Ground Lease or Deed of Trust now
or hereafter enforced against the Land or the Building of which the Demised
Premises are part and to all events made or hereafter to be made upon the
security thereof. Lessee agrees to execute such documents that may be necessary
to effectuate the provisions of this article.
ESTOPPEL CERTIFICATE
36. At any time upon ten (10) days prior written request by Lessor,
Lessee shall promptly execute, acknowledge and deliver to Lessor, a certificate
certifying (a) that this Lease is unmodified and in full force and effect or, if
there had been modifications, that this Lease is in full force and effect as
modified, and state the date and nature of each modification; (b) the date, if
any, to which rental and other sums payable hereunder have been paid; (c) that
no notice has been received by Lessee of any default which has not been cured,
except as to default specified in said certificate; and (d) such other matters
as may be reasonably requested by Lessor. Any such certificate may be relied
upon by any prospective purchaser, mortgagee or beneficiary of a Deed of Trust
placed on or against the building or on or against Lessor's interest or estate
or any part thereof.
RESERVED
37. Reserved.
ARTICLE HEADINGS
38. The article headings throughout this instrument are for convenience
in reference only, and the words contained therein shall in no way be held to
explain, modify, amplify or aid in the interpretation, construction or meaning
of the provisions of this Lease.
NOTICE
39. Any notice which may be given by either party to the other, whether
required under the terms of this Lease or by law, shall be conclusively deemed
to be sufficiently given when deposited in the United States mail, postage
prepaid, registered or certified, addressed if to the Lessor at: The Estate of
James Campbell, c/o The Seneca Real Estate Group, Inc., 10900 N.E. 4th Street,
Suite 800, Bellevue, WA 98004, and if to Lessee: at the Premises, or at such
other address which the parties may from time to time designate.
PARTIES AFFECTED
40. The rights, liabilities and remedies provided for herein shall
extend to the heirs, legal representatives, successors and as far as the terms
of this Lease permit, assigns of the parties hereto. The words "Lessor" and
"Lessee" and their accompanying verbs or pronouns, whenever used in this Lease
shall apply equally to all persons, firms or corporations which may be or become
parties hereto.
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TIME
41. TIME IS OF THE ESSENCE OF THIS AGREEMENT. Any amount due from
Lessee to Lessor under this Lease which is not paid within five (5) days of the
date due, shall bear interest from the date such payment due until paid
(computed on the basis of a 365-day year) at the lesser of (a) the maximum and
lawful rate per annum, or (b) the prime business lending rate publicly quoted
from time to time by Seattle-First National Bank, Seattle main branch, plus
three percentage points (3%) per annum. If Seattle-First National Bank ceases to
quote a prime rate or similar rate, Lessor shall select the prime rate or
similar rate quoted by another national bank having an office in Seattle,
Washington.
ENTIRE
AGREEMENT
42. This Lease and the exhibits hereto constitute the entire agreement
between the parties hereto and no modification of this Lease shall be binding
unless evidenced by an agreement in writing signed by the Lessor and Lessee.
AFFILIATED COMPANIES
43. Notwithstanding Paragraph 5 above, any corporation, partnership,
limited liability company or other entity in which Ben W. Reppond has an
ownership interest may occupy portions of the Demised Premises pursuant to
subleases, provided Lessor receives written notice of the sublease within thirty
(30) days after the date the sublease is to become effective, and further
provided the business of the proposed sublessee is related to the primary
business of Lessee (i.e., the sale, brokerage and servicing of medical, dental,
life and disability insurance for groups and individuals). Any such sublease
must contain terms and conditions reasonably acceptable to Lessor, including
provisions requiring the sublessee to maintain insurance and indemnification
obligations comparable to those required pursuant to Paragraphs 8 and 9 of this
Lease.
PARKING
44. Throughout the term of this Lease, Lessee shall be entitled to one
(1) parking permit for unreserved monthly parking in the Skyline Tower parking
garage, per each one thousand (1,000) rentable square feet of space from time to
time constituting the Demised Premises. Such parking permits shall be made
available to Lessee at the then current charge for unreserved monthly parking in
the Skyline Tower garage, as such rates may change from time to time, however
during the initial twelve (12) months of the Lease Term, parking will be made
available to Lessee at one-half (1/2) of the other prevailing rate charged for
unreserved monthly parking in the Skyline Tower garage. Lessee acknowledges the
current charge for unreserved monthly parking in the Skyline Tower garage is
$80.00 per month, including applicable Washington State sales taxes. Lessee's
parking privileges in the Skyline Tower parking garage shall be subject to
whatever parking methods are then being used in the Skyline Tower parking garage
(e.g, self parking, valet parking, stack parking, etc.) and subject to any rules
and regulations applicable to parking in the Skyline Tower garage. Lessor will
provide Lessee with validation stickers so that its clients and visitors may
park in the Skyline Tower at no charge for up to thirty (30) minutes so long as
Lessor generally makes such validation stickers available to substantially all
of the tenants of the Building.
PERSONAL
GUARANTEE
45. Ben W. Reppond and Louis R. Baransky will personally guarantee a
portion of Lessee's obligations under this lease pursuant to a Guaranty of Lease
in the form attached to this Lease as Exhibit D.
PARTIAL
TERMINATION
46. So long as Lessee is not in default under this Lease, Lessee shall
have the right to terminate this Lease for up to one-half (1/2) of the rentable
area of the Demised Premises effective as of the end of the thirty sixth (36th)
full calendar month of the Lease Term, or as of the end of the sixtieth (60th)
full calendar month of the Lease Term, if Washington state or federal health
care legislation has been enacted which causes a demonstrable reduction in
Lessee's annual revenues by more than twenty five percent (25%) from the most
recent calendar year prior to the enactment of such legislation. To so terminate
this Lease pursuant to this Paragraph 46, Lessee must give Lessor written notice
between June 1 and August 31 of the year prior to the date the cancellation is
to be effective. The configuration of the Demised Premises following such a
termination shall be subject to the mutual agreement of Lessor and Lessee. In
addition, Lessee must pay to Lessor at least thirty (30) days prior to the date
the termination is to be effective, an "Early Termination Fee" calculated
pursuant to the following sentence. The Early Termination Fee shall be equal to
the sum of (i) the unamortized balance of a pro rata portion (calculated based
on the ratio between the rentable area of the portion of the Demised Premises as
to which this Lease is terminated and the original rentable area of the Demised
Premises) of all costs and expenses incurred by Lessor in connection with this
Lease, specifically including all costs associated with the design, permitting
and construction of the tenant improvements to the Demised Premises, the cost of
relocating any existing tenants on the fifth (5th) floor of the Building to
accommodate this Lease, and all brokerage commissions incurred by Lessor in
connection with this Lease ("Lessor's Costs"), amortized using an interest rate
of nine percent (9%) per annum, and (ii) the cost of constructing a demising
wall between the portion of the Demised Premises as to which the termination
applies and the remainder of the Demised Premises. If Lessee so elects to
terminate this Lease, Lessor and Lessee shall be relieved of their respective
obligations and duties under this Lease for the applicable portion of the
Demised Premises, effective as of the termination date, except for indemnities
and other obligations which are intended to survive the expiration or earlier
termination of this Lease, or any obligations either may have to the other which
arise prior to the effective date of termination.
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EXPANSION OPTION
47. Lessee shall have a right of first offer to lease any remaining
space on the fifth (5th) floor of the Building which becomes available for lease
(the "RFO Space"). Lessee's right to lease RFO Space shall be subject and
subordinate to any expansion or other such rights as other tenants of the
Building may have in and to the RFO Space as of the date of this Lease. Prior to
leasing any RFO Space to any third party (other than a tenant with existing
rights in and to the RFO Space), Lessor will first advise Lessee in writing of
the RFO Space available and the date the RFO Space will be available for the
commencement of tenant improvement work. Lessee shall have three (3) business
days after receiving such notice from Lessor to notify Lessor in writing that
Lessee desires to expand the Demised Premises to include all of the offered RFO
Space. If Lessee does not timely notify Lessor of Lessee's desire to lease the
subject RFO Space, Lessor shall be free to lease such space to any person or
entity on whatever terms or conditions Lessor desires. If Lessee timely notifies
Lessor of Lessee's desire to lease the subject RFO Space, this Lease shall be
amended to provide for the expansion of the Demised Premises to include the
subject RFO Space. Upon the expansion of the Demised Premises pursuant to this
Paragraph 47, the Demised Premises will be expanded to include the RFO Space and
Lessee will take occupancy and commence paying rent thereon on the earlier of
the following dates (the "Expansion Date"): (i) the date Lessee commences the
beneficial use and occupancy of the applicable RFO Space for purposes other than
the construction of tenant improvements, or (ii) three (3) business days after
the improvements to the applicable RFO Space are substantially complete. All of
the terms and conditions of this Lease shall be applicable to RFO Space added to
the Demised Premises pursuant to this Paragraph 47, including rental rate and
term. For improvements to RFO Space, Lessor will make a tenant improvement
allowance available to Lessee in an amount equal to $.20 (i.e., $16.88 + 84) per
full calendar month remaining in the Lease Term following the applicable
Expansion Date. Improvements to RFO Space added to the Demised Premises will be
made in accordance with the procedures set forth in the Workletter, to the
extent applicable.
EXTENSION OPTION
48. So long as Lessee is not then in default under this Lease, on the
terms and conditions stated in this Paragraph 48, Lessee shall have the option
to extend the term of this Lease one (1) additional eighty-four (84) month
period (the "Additional Term"). To exercise its option to extend this Lease for
the Additional Term, Lessee must deliver to Lessor a written notice (an "Option
Notice") exercising its renewal option at least twelve (12) months (but not more
than eighteen (18) months) prior to the date the then Lease Term will expire,
together with a then current financial statement of Lessee. If such financial
statement(s) show a material adverse change in Lessee's financial condition
since the date of this Lease, at Lessor's option, Lessee's exercise of its
extension option shall be null and void. The extension option granted to Lessee
pursuant to this Paragraph 48 is personal to Lessee and may not be exercised by
or for the benefit of any assignee or sublessee of Lessee (other than a
sublessee permitted pursuant to Paragraph 43 above). All of the terms and
conditions of this Lease shall apply during the Additional Term except (i) the
base annual rent shall be the "fair market rent" (defined below) for the Demised
Premises as agreed to by Lessor and Lessee or determined by arbitration as set
forth below; (ii) unless otherwise agreed by Lessor in writing, there shall be
no further renewal options after the commencement of the Additional Term; and
(iii) Lessor shall have no tenant improvement obligations with respect to the
Demised Premises. When the rental rate for the Additional Term is determined,
whether by agreement of the parties or pursuant to arbitration as provided
below, Lessor and Lessee shall enter into a lease extension agreement setting
forth the new base rent for the Demised Premises and such other terms as may be
applicable. If at the time Lessee delivers the Option Notice to Lessor, or at
any time between such date and the commencement date of the Additional Term,
Lessee defaults under this Lease and fails to cure its default within the
applicable cure period, if any, Lessor may declare the Option Notice null and
void by written notice to Lessee. The term "fair market rent" means the rate per
rentable square foot that a willing, non-equity tenant would pay in an
arms-length transaction for comparable space in the Building and in comparable
buildings in the central business district of Bellevue, Washington, for leases
having a seven (7) year term, taking into account the then condition of the
improvements in the Demised Premises. Lessor and Lessee agree the base annual
rent for the Additional Term shall be determined as follows:
(A) Lessor shall advise Lessee in writing ("Lessor's Notice") of
Lessor's determination of fair market rent not later than thirty (30) days after
receiving the Option Notice. Within thirty (30) days after receiving Lessor's
Notice, Lessee shall notify Lessor in writing ("Lessee's Notice") whether or not
Lessee accepts Lessor's determination of the fair market rent. If Lessee
disagrees with Lessor's determination of fair market rent, Lessee's Notice shall
set forth Lessee's determination of fair market rent. If Lessee fails to give
Lessee's Notice to Lessor within such thirty (30) day period, then the Option
Notice shall be deemed null and void, unless otherwise agreed in writing by
Lessor and Lessee. If Lessee does not accept Lessor's determination of fair
market rent, and Lessee has given Lessee's Notice, the parties (or their
designated representatives) shall promptly meet and attempt to agree on the fair
market rent. If the parties have not agreed on the fair market rent within
ninety (90) days after Lessor receives the Option Notice, and Lessee's renewal
option is still in effect in accordance with the terms of this paragraph, then
unless otherwise agreed in writing by the parties, the parties shall submit the
matter to arbitration in accordance with the terms of the following paragraphs.
The last day of such ninety (90) day period (as the same may be extended by
-12-
<PAGE> 13
the written agreement of the parties) is referred to in this Lease as the
"Arbitration Commencement Date".
(B) The arbitration will be conducted by three MAI real estate
appraisers who have been active over the five (5) year period ending on the
Arbitration Commencement Date in the appraisal of downtown properties in
Bellevue, Washington. One appraiser will be selected by Lessee, one appraiser
will be selected by the Lessor, and the third appraiser will be selected by the
two appraisers so chosen. If the two appraisers chosen by the parties cannot
agree on a third appraiser within ten (10) days after the date the second
appraiser has been appointed, the third appraiser will be appointed by the
Seattle office of the American Arbitration Association upon the application of
either party. Each party shall select its appraiser within ten (10) days after
the Arbitration Commencement Date. If either party fails to select its appraiser
within such ten (10) day period, and the other party timely selects its
appraiser, then the appraiser selected by the other party shall be the sole
arbitrator for determining fair market rent.
(C) Within thirty (30) days after the selection of the third
appraiser (or if only one appraiser is to render the decision as provided in
subparagraph (ii) above, within thirty (30) days after the last day of the
above-referenced ten (10) day period), the appraiser(s) shall determine fair
market. If more than one appraiser has been appointed, the decision of a
majority of the appraisers shall control. If a majority of the appraisers do not
agree within the stipulated time period, then each appraiser shall in writing
render his or her separate determination as to fair market rent within five (5)
days after the expiration of the thirty (30) day period. In such case, the three
determinations shall be averaged to determine the fair market rent; however, if
the lowest fair market rent or the highest fair market rent is ten percent (10%)
lower or higher, as applicable, than the middle fair market rent, then the low
fair market rent and/or the high fair market rent, as applicable, shall be
disregarded and the remaining fair market rent(s) will be averaged in order to
establish the fair market rent.
(D) Both parties may submit any information to the arbitrators
for their consideration, with copies to the other party. The arbitrators shall
have the right to consult experts and competent authorities for factual
information or evidence pertaining to the determination of fair market rent. The
arbitrators shall render their decision and award in writing with counterpart
copies to each party. The arbitrators shall have no power to modify the
provisions of this Lease. The determination of the arbitrators will be final and
binding upon Lessor and Lessee. The cost of the arbitration will be paid by
Lessor if the fair market rent determined by arbitration is ninety percent (90%)
or less than the fair market rent specified in Lessor's Notice; by Lessee if the
fair market rent determined by arbitration is one hundred ten percent (110%) or
more than the fair market rent specified in Lessee's Notice; and otherwise shall
be shared equally by Lessor and Lessee.
IN WITNESS WHEREOF, the parties hereto have executed this lease as of the date
first herein written.
<TABLE>
<CAPTION>
LESSEE: LESSOR:
<S> <C>
BENEFITS - PLUS THE TRUSTEES UNDER THE WILL AND OF THE
ADMINISTRATORS, INC, ESTATE OF JAMES CAMPBELL, DECEASED, acting
in their fiduciary and not in their individual capacities
By: /s/ Louis R. Baransky By: /s/ Roy S. Robins
--------------------- -------------------------------
Louis R. Baransky, Chairman Roy S. Robins, Director of Mainland
Properties
By: /s/ Ben W. Reppond By: /s/ Douglas C. Morris
--------------------- -------------------------------
Ben W. Reppond, Secretary Douglas C. Morris, Senior Asset Manager
Its
--------------------------------
</TABLE>
-13-
<PAGE> 14
EXHIBIT A
SUITE #500
PREMISES
[LEASING PLAN
400 BUILDING
5TH FLOOR]
<PAGE> 15
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 22nd day of March 1996, before me, a Notary Public in and for
the State of Washington, duly commissioned and sworn, personally appeared Louis
R. Baransky and Ben W. Reppond, to me known to be the Chairman and Secretary,
respectively of BENEFITS - PLUS ADMINISTRATORS, INC., the corporation named in
and which executed the foregoing instrument; and they acknowledged to me that
they signed the same as the free and voluntary act and deed of said corporation
for the uses and purposes therein mentioned.
I certify that I know or have satisfactory evidence that the persons
appearing before me and making this acknowledgment are the persons whose true
signatures appear on this document.
WITNESS my hand and official seal the day and year in this certificate
above written.
/s/ Carol Baldwin
_______________________
Signature
Carol Baldwin
_______________________
Print Name
NOTARY PUBLIC in and for the State of Washington,
residing at Bellevue. My commission expires 10-2-97.
STATE OF CALIFORNIA )
) ss.
COUNTY OF )
On this day of , 1996, before me, a Notary Public in and for
the State of California, duly commissioned and sworn, personally appeared Roy S.
Robins and Douglas C. Morris, known to me to be the Director of Mainland
Properties and Senior Asset Manager, respectively, of THE TRUSTEES UNDER THE
WILL AND OF THE ESTATE OF JAMES CAMPBELL, DECEASED, the parties named in and
which executed the foregoing instrument; and they executed the foregoing
document, and acknowledged to me that they signed the same as their free and
voluntary act and deed of said trustees for the uses and purposes therein
mentioned.
I certify that I know or have satisfactory evidence of the persons
appearing before me and making this acknowledgment are the persons whose true
signatures appear on this document.
WITNESS my hand and official seal the day and year in this certificate
above written.
_________________________________
Signature
_________________________________
Print Name
NOTARY PUBLIC in and for the State of
California, residing at_____________.
My commission expires_______________.
14
<PAGE> 16
EXHIBIT B
400 BUILDING
400 - 108th Avenue Northeast
Bellevue, Washington
LEGAL DESCRIPTION
PARCEL NO. 1:
That portion of the south 1/2 of the southwest 1/4 of the northwest 1/4 of the
northeast 1/4 of Section 32, Township 25 North, Range 5 East, W.M., in King
County, Washington which lies south of the north 99 feet of said south 1/2;
EXCEPT the south 16-1/2 feet thereof, and
EXCEPT the west 30 feet thereof conveyed to King County for road by deed
recorded under Auditors File No. 913744, also EXCEPTING that portion thereof
lying within the south 100.00 feet of the north 199.00 feet of the west 230.00
feet of the south 1/2 of the southwest 1/4 of the northwest 1/4 of the northeast
1/4 of said section; and
PARCEL NO. 2:
The west 230 feet of the south 100 feet of the north 199 feet of the south 1/2
of the southwest of the northwest 1/4 of the northeast 1/4 of Section 32,
Township 25 North, Range 5 East, W.M. in King County, EXCEPT the west 30 feet
thereof conveyed to King County for road by deed recorded under Auditor's File
No. 913744.
<PAGE> 17
EXHIBIT C
TENANT IMPROVEMENT WORKLETTER
This Workletter is attached to and a part of that certain
Lease (the "Lease") between THE TRUSTEES UNDER THE WILL AND OF THE ESTATE OF
JAMES CAMPBELL, DECEASED ("Lessor"), and BENEFITS - PLUS ADMINISTRATORS, INC.
("Lessee"). The purpose of this Workletter is to set forth how the Tenant
Improvements (defined below) to the Demised Premises are to be constructed and
designed, who will be responsible for constructing the Tenant Improvements, who
will pay for the Tenant Improvements and the time schedule for completion of the
Tenant Improvements. Lessor and Lessee hereby agree as follows:
1. Defined Terms. Unless otherwise defined in this Workletter,
capitalized terms used in this Workletter shall have the same meanings given
such terms in the Lease. The following capitalized terms shall have the meanings
set forth below:
"Allowance" means the amount of $111,178.
"Architect" means Marvin Stein & Associates, Inc.
"Business Day" means any day other than a Saturday, Sunday or other day
on which United States national banks in Seattle, Washington are authorized or
required by law to be closed for business.
"Contractor" means TCI General Contractors Inc. or such other
contractor as may be agreed upon by the parties.
"Cost of the Work" means all costs of completing the Work, including
the Contractor's fees, design fees, Lessor's coordination fees, demolition
costs, the cost of installing computer cabling and communications equipment,
permit fees and any applicable taxes.
"Plans and Specifications" means the space plan, detailed plans and
specifications (including without limitation all mechanical, electrical and
plumbing drawings) and working drawings pursuant to which the Tenant
Improvements will be completed. The Plans and Specifications shall be compatible
with the design, construction and equipment of the Building, and shall show all
partition locations, plumbing locations, air conditioning system and duct work,
special air conditioning requirements, reflected ceiling plans, office equipment
locations, and special security systems, if any.
"Ready for Occupancy" or "Substantial Completion" means complete to the
extent Lessee may reasonably use and occupy the Demised Premises for the purpose
for which the same were intended, as evidenced by the issuance of a Standard AIA
Certificate of Substantial Completion executed by the Architect and issuance of
a certificate of occupancy (or other governmental approval permitting the
occupancy of the Demised Premises by Lessee) by the City of Bellevue, subject to
minor details of construction, decoration and mechanical adjustments that remain
to be completed by Lessor, which do not materially interfere with Lessee's use
of the Demised Premises.
"Tenant Improvements" means those certain improvements to the Demised
Premises to be described in the Plans and Specifications, as the same may be
modified pursuant to Paragraph 7 of this Workletter, including all items of
Work, including labor and materials, that are utilized directly or indirectly in
altering, repairing, improving, adding to, modifying or otherwise changing the
Demised Premises to accommodate Lessee's occupancy.
"Lessee's Representative" means the individual designated by Lessee as
its tenant improvement representative pursuant to Paragraph 10 of this
Workletter.
"Work" means construction of the Tenant Improvements in accordance with
the Plans and Specifications, as the same may be modified pursuant to Paragraph
7 of this Workletter.
2. Preparation of Plans and Specifications.
a.Lessee shall cause the Plans and Specifications to be prepared by
Architect and submitted to Lessor or on before the Plan Submittal Date set forth
in Paragraph 6 below. Lessee shall provide Lessor with at least two (2) complete
sets of the Plans and Specifications. Lessor shall have ten (10) Business Days
after receiving the Plans and Specifications to approve the Plans and
Specifications or provide Lessee with its comments. Lessee shall then have five
(5) Business Days after receiving Lessor's comments to revise and resubmit the
Plans and Specifications to Lessor. Lessor shall have five (5) Business Days
after receiving the revised Plans and Specifications to either approve or
disapprove the revised Plans and Specifications. The process outlined in the
preceding two sentences shall be repeated until Lessor and Lessee have mutually
agreed on the Plans and Specifications. The final approved Plans and
Specifications must be in compliance with applicable building codes and with
insurance regulations for fire resistant Class A buildings. Lessee agrees and
1
<PAGE> 18
understands that Lessor's review and approval of the Plans and Specifications
pursuant to this Workletter is solely to protect the interest of Lessor, and
Lessor shall not be the guarantor of nor responsible for the correctness of the
Plans and Specifications, or responsible for the compliance of the Plans and
Specifications with applicable laws.
b. Lessee shall cause the Plans and Specifications to be prepared in a
form satisfactory for submittal to the appropriate governmental authorities for
permits and licenses required for construction of the Tenant Improvements.
3. Construction of Tenant Improvements.
a. Lessor shall cause the Tenant Improvements to be constructed in
accordance with the Plans and Specifications approved by both parties in
accordance with Paragraph 2 above by the Contractor.
b. If the Cost of the Work exceeds the amount of the Allowance, Lessor
will so notify Lessee and Lessee shall pay the amount of the difference on the
later of (i) the Commencement Date of the Lease, or (ii) ten (10) days after
written notice from Lessor of the amount due from Lessee.
4. Acceptance of Demised Premises. Lessor will notify Lessee when the
Tenant Improvements are Ready for Occupancy. Within three (3) Business Days
after receiving such notice, and prior to move-in of any furniture, fixtures or
equipment, and again not more than twenty (20) days after Lessee occupies the
Demised Premises, Lessee shall inspect the Demised Premises for any deficiencies
in the Work. A "punchlist" of all the deficiencies in the Work shall be prepared
and agreed upon by both Lessor and Lessee. Lessor will correct defective items
stated in the punchlist which are the responsibility of Lessor or the
Contractor. If Lessee does not so provide Lessor with a punchlist prior to
occupying the Demised Premises or within twenty (20) days thereafter, Lessee
shall be deemed to have accepted the Demised Premises and the Tenant
Improvements in their then present condition, except for latent defects not
reasonably discoverable upon an inspection of the Demised Premises. The
existence of minor punchlist items shall not postpone the Commencement Date of
the Lease or result in a delay or abatement of Lessee's obligation to pay rent
or give rise to a damage claim against Lessor. Lessor agrees to complete all
punchlist items which are Lessor's or the Contractor's responsibility within
forty five (45) days after receiving the final punchlist (or longer if
reasonably necessary).
5.Completion and Rental Commencement Date
a. Notwithstanding the Target Commencement Date of the Lease, Lessee's
obligation for the payment of rent under the Lease shall not commence until the
Demised Premises are Ready for Occupancy; provided, if Lessor is delayed in
substantially completing the Work as a result of delays caused by Lessee, then
Lessee's obligation to pay rent under the Lease shall commence on the date the
Tenant Improvements would have been Ready for Occupancy except for the delays
caused by Lessee as reasonably determined by Lessor and the Contractor.
b. For purposes of this Workletter, the phrase "delays caused by Lessee"
means any delay that Lessor may encounter in performance of the Work as a result
of (i) delays resulting from changes in or additions to the approved Plans and
Specifications or the Tenant Improvements which are requested by Lessee; (ii)
delays by Lessee in the submission of information (including the Plans and
Specifications) required of Lessee pursuant to this Workletter, or the giving of
authorizations or approvals within any time limits set forth in this Workletter;
(iii) delays due to the postponement of any of the Work at the request of
Lessee; or (iv) delays otherwise attributable to the acts or omissions of Lessee
or its employees, agents or contractors.
6. Schedule. Lessee and Lessor hereby agree to make reasonable efforts to
meet all of the deadlines included in the schedule detailed below:
Date
Plan Submittal Date March 12, 1996
Acceptance of Space/Preparation
of Initial Punchlist May 29, 1996
Target Occupancy Date June 1, 1996
7. Changes In Work. Lessee shall have the right to request, in writing,
changes to the Plans and Specifications and to the Work, subject to Lessor's
prior approval. Lessor shall notify Lessee in writing of any additional costs
and any construction delays attributable to such change and whether or not
Lessor approves or disapproves of the requested change. Lessor may condition its
approval of any change on receipt of written confirmation from Lessee within
three (3) Business Days after receiving Lessor's notice, that Lessee will pay
the additional cost of making the change and any costs Lessor will incur as a
result of any delays. If Lessee fails to deliver Lessor written notice that it
still desires the requested change within such three (3) Business Day period,
Lessee shall be deemed to have withdrawn its request for the change. Each change
order shall include a recap of the total costs of the Work and shall reference
all changes made up to the date of such change order. Lessee
2
<PAGE> 19
.
shall be responsible for paying any additional costs in the Work resulting from
any changes in the Work requested by Lessee.
8.Quality of Construction. All Work shall be done by Contractor on
behalf of Lessor in a good and workmanlike manner. Architect shall obtain all
necessary permits, licenses and approvals including building permits, from such
governmental authorities for such construction. Lessee's Representative shall
have access to the construction in progress and shall be notified of all
construction progress meetings with Lessor, Contractor and/or the Architect.
9.Early Entry. With Lessor's prior written approval, Lessee and
Lessee's contractors shall have the privilege of entering into the Demised
Premises prior to their being Ready for Occupancy for purposes of cable,
telephone and furniture installation; provided that such entry or work does not
interfere with the construction of the Tenant Improvements by Contractor. No
payment of minimum rent or additional rent shall be required of Lessee for the
aforesaid entry or entries by Lessee or its contractors prior to the Substantial
Completion of the Tenant Improvements. Lessee hereby indemnifies, and shall hold
harmless Lessor, its officers, directors, agents, employees and contractors from
and against all claims, damages, losses, expenses for bodily injury or property
damage, including attorneys' fees, arising out of or resulting from Lessee's
early entry into the Demised Premises prior to their being Ready for Occupancy
pursuant to this Paragraph 9, including any expenses incurred by Lessor for
delays in the completion of the Work caused by such early entry, and for any
damages to the Work caused by Lessee or Lessee's contractors prior to the
Demised Premises being Ready for Occupancy.
10.Tenant Improvement Representative. Prior to the commencement of the
Work, Lessee shall designate in writing one individual who shall be Lessee's
Representative during the Work. Lessor and Contractor shall be entitled to rely
on the decisions of Lessee's Representative regarding the Work (and the
decisions of Lessee's Representative shall be binding upon Lessee) until Lessor
and Contractor have received written notice from Lessee that such person's
authority has been revoked.
11.Additional Provisions, This Workletter and the exhibits attached
hereto set forth the entire agreement of Lessor and Lessee with respect to the
completion of the Work. Neither this Workletter nor any of the provisions
contained in this Workletter may be changed or waived, except by a written
instrument signed by both parties. Any costs or expenses which Lessee is
required to pay under this Workletter (such as additional construction costs due
to changes in the Work) shall be due and payable in full upon Substantial
Completion of the Work, and the presentation to Lessee of a written statement
setting forth the amounts due from Lessee.
3
<PAGE> 20
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
STATE OF CALIFORNIA :
County of San Francisco :
On this 2nd day of April, 1996, before me, Lynn Salanga, Notary Public,
personally appeared Douglas C. Morris and Roy S. Robins, personally known to me
to be the persons whose names are subscribed to the within instrument and
acknowledged to me that they executed the same in their authorized capacities,
and that by their signatures on the instrument the persons, or the entity upon
behalf of which the persons acted, executed the instrument.
LYNN SALANGA WITNESS my hand and official seal.
COMM. No. 1051145
Notary Republic-California /s/Lynn Salanga
SAN FRANCISCO COUNTY -----------------------------
My Comm. Expires FEB 6, 1999
LYNN SALANGA
Notary Public in and for the State of
[Seal] California, residing in San Francisco
DESCRIPTION OF THE ATTACHED DOCUMENT
Title and Type: Office Lease by and between the Trustees under the Will and of
the Estate of James Campbell, deceased, and Benefits - Plus Administrators, Inc.
for space at the 400 Building located in Bellevue, Washington.
Dated: March 22, 1996
Signer(s) Other Than Named Above: Louis R. Baransky, Chairman, and Ben W.
Reppond, Secretary, of Benefits - Plus Administrators, Inc.
<PAGE> 21
GUARANTY OF LEASE
This Guaranty is made as of March 22,1996, by BEN W. REPPOND and LOUIS
R. BARANSKY (if one person or entity "Guarantor", and if more than one person or
entity "Guarantors"), for the benefit of THE TRUSTEES UNDER THE WILL AND OF THE
ESTATE OF JAMES CAMPBELL, DECEASED, acting in their fiduciary and not in their
individual capacities ("Lessor").
RECITALS:
A. Lessor has agreed to enter into a Lease dated as of March 22,
1996 (the "Lease") with Benefits Plus Administrators, Inc., a
Washington corporation ("Lessee"), for certain space (the
"Demised Premises") located in a building (the "Building")
currently known as the 400 Building, situated at 400 108th
Avenue N.E., Bellevue, King County, Washington.
B. Guarantor(s) has a financial interest in Lessee, and will
receive a material benefit from the Lease. Guarantor(s)
acknowledges Lessor would not enter into the Lease without
this Guaranty.
AGREEMENT:
In consideration of and to induce Lessor to enter into the Lease,
Guarantor(s) agrees as follows:
1. Subject to Paragraph 11 below, Guarantor(s) hereby guarantees
to Lessor the full and prompt payment of all sums, including,
but not limited to the rent, taxes, insurance, utility charges
and any and all other sums and charges payable by Lessee under
the Lease as the same may be amended from time to time, and
the full performance and observance of all the covenants,
terms conditions and agreements therein provided to be
performed and observed by Lessee. Guarantor(s) hereby
covenants and agrees to and with Lessor if Lessee or its
sublessees, successors or assigns at any time defaults in the
payment of any such sum or in the performance of any of the
terms, covenants, provisions or conditions contained in the
Lease and such default is not cured within the applicable cure
period, Guarantor(s) will immediately pay such sum or will
forthwith perform and fulfill such terms, covenants and
conditions and agreements, and will immediately pay to Lessor,
its successors and assigns all damages that may arise as a
consequence of any default by Lessee under the Lease,
including without limitation, all reasonable attorneys' fees
incurred by Lessor.
2. This is an absolute and unconditional guaranty of payment and
performance. The obligations of Guarantor(s) hereunder are
independent of the obligations of Lessee, and a separate
action or actions may be brought and prosecuted against each
Guarantor, regardless of whether an action is brought against
Lessee or any other Guarantor and regardless of whether Lessee
or any other Guarantor is joined in such action or actions,
and each Guarantor waives the benefit of any statute of
limitations affecting his, her or its liability hereunder or
the enforcement thereof. The liability of Guarantor(s)
hereunder is primary and shall not be affected or diminished
by any transfer (by sublease, assignment or otherwise) of
Lessee's interest in the Lease.
3. Guarantor(s) authorizes Lessor, without notice or demand and
without affecting any Guarantor's liability hereunder, from
time to time to (a) renew, extend, accelerate or otherwise
change the time for payments under or otherwise change the
terms of, the Lease or any part thereof; (b) take and hold
security for the payment of this Guaranty or the indebtedness
guaranteed and exchange, enforce, waive and release any such
security; (c) apply any security for the Lease or direct the
order or manner of sale thereof as Lessor in its sole
discretion may determine; (d) release or substitute any one or
more Guarantor(s); (e) modify or alter the liability of Lessee
under the Lease; or (f) settle or compromise any claim of
Lessor against Lessee. Lessor may assign the Lease and this
Guaranty in whole or in part, without notice and without in
any manner affecting Guarantor's obligations hereunder.
4. Guarantor(s) waives any right to require Lessor to (a) proceed
against Lessee; (b) proceed against or exhaust any security
held from Lessee; or (c) pursue any other remedy in Lessor's
power whatsoever. Guarantor(s) waives any defense arising by
reason of any disability or other defense of Lessee or by
reason of the cessation from any cause whatsoever of the
liability of Lessee. Until all obligations of Lessee to Lessor
under the Lease shall have been fully paid and performed,
Guarantor(s) shall have no right of subrogation, and waive any
right to enforce any remedy which Lessor now has or may
hereafter have against Lessee, and waive any benefit of, and
any right to participate in any security now or hereafter held
by Lessor. Guarantor(s) waives all presentments, demands for
performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, notices of acceptance of this
Guaranty and of the existence, creation or incurring of new or
additional indebtedness and all other notices of every kind
and nature to which Guarantor(s) might otherwise be entitled
as a matter of law.
5. Any indebtedness of Lessee now or hereafter held by each or
both of the Guarantor(s) is hereby subordinated to the
indebtedness of Lessee to Lessor and such indebtedness of
Lessee to Guarantors, if Lessor so requests after a default by
Lessee under the Lease, shall be collected, enforced and
received by Guarantor(s)
-1-
<PAGE> 22
as a trustee for Lessor and be paid over to Lessor on account of the
indebtedness of Lessee to it, but without reduction or affecting in any manner
the liability of Guarantor(s) under the other provisions of this Guaranty. Until
such time as the Lease has been paid and performed in full, Guarantor(s) agrees
not to exercise any rights any of them may now or hereafter acquire against
Lessee (whether by subrogation, reimbursement, or otherwise) arising out of
payments to Lessor hereunder. Guarantor(s) hereby waives and relinquishes in
favor of Lessor and Lessee any claim or right to payment either or both of the
Guarantor(s) may now have or hereafter have or acquire against Lessee, by
subrogation or otherwise.
6. Guarantor(s) agrees it is not necessary for Lessor to inquire into
the powers of Lessee or any officers, directors, partners or agents acting or
purporting to act on its behalf and any indebtedness made or created in reliance
upon the professed exercise of such powers shall be guaranteed hereunder.
Guarantor(s) warrants that no consent of any persons or entities or any
governmental authority is necessary for Guarantor(s) to execute, deliver and
perform this Guaranty.
7. Guarantor(s) shall pay all costs of enforcement of this Guaranty,
including Lessor's reasonable attorneys' fees and all costs and expenses of suit
and in preparation therefor and on appeal therefrom. Any sums due hereunder
which are not paid when due shall bear interest at the maximum rate permitted by
law.
8. This Guaranty shall continue in full force and effect and shall be
unaffected by any bankruptcy, reorganization or insolvency of Lessee or any
successor or assign of Lessee or any disaffirmance or rejection of the Lease
by a trustee of Lessee or any trustee of any successor or assign of Lessee. This
Guaranty may not be changed, modified, discharged or terminated orally or in any
other manner other than by an agreement in writing signed by Guarantor(s) and
Lessor. For purposes of this Guaranty, the term "Lessee" shall include any
successor, sublessee or assignee of Lessee; the term "Lessor" shall include any
successor or assignee of Lessor; and the term "Lease" shall include any
amendment, extension or renewal of the Lease, whether made with or without the
consent of Guarantor(s). This Guaranty shall be the joint and several obligation
of each of the undersigned if there be more than one, and shall bind the
individual and community property of each of them.
9. This Guaranty shall be governed by and construed and enforced under
the laws of the State of Washington, United States of America. Guarantor(s)
irrevocably submits to the jurisdiction of any state or federal court sitting in
King County, Washington, in any action or proceeding brought to enforce or
otherwise arising out of or relating to this Guaranty. Guarantor(s) waives any
objection to venue in such court and waive any claim that such form is an
inconvenient form.
10. Within twenty (20) days after Lessor's written request, each
Guarantor shall provide Lessor with a copy of his, her or its current financial
statement, prepared in accordance with generally accepted accounting principles,
consistently applied, or such other accounting practices as may be reasonably
acceptable to Lessor, and certified as true and correct by the applicable
Guarantor.
11. The maximum liability of Guarantor(s) hereunder shall be the
unamortized balance (calculated as provided below) of the sum of (i) the tenant
improvement costs incurred by Lessor in connection with the Lease, including all
costs associated with the design and permitting of the tenant improvements to
the Demised Premises, and (ii) all brokerage commissions incurred by Lessor in
connection with the Lease (collectively "Lessor's Costs"). For purposes of
calculating the unamortized balance of Lessor's Costs, so long as Lessee is not
in default under the Lease, each month during the term of the Lease, Lessor's
Costs shall be reduced by the monthly payment amount necessary to fully amortize
Lessor's Costs over the initial term of the Lease, in substantially equal
payments, at an interest rate of nine percent (9%) per annum.
IN WITNESS WHEREOF, each Guarantor has executed this Guaranty as of the
day and year first written above.
GUARANTOR(S):
/s/ Ben W. Reppond
-------------------------
Ben W. Reppond
Address: 13217 - 9th Ave NW
-------------------
Seattle, WA 98177
-----------------
Social Security No.: ###-##-####
-----------
/s/ Louis R. Baransky
-------------------------
Louis R. Baransky
Address: 11607-72ND PL. NC
-----------------
Kirkland, WA 98034
------------------
Social Security No.: 538404949
---------
-2-
<PAGE> 23
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 22nd day of March, 1996, before me, a Notary Public in and for
the State of Washington, duly commissioned and sworn, personally appeared BEN W.
REPPOND, known to me to be the individual named in and who executed the
foregoing document, and acknowledged to me that he signed the same as his free
and voluntary act and deed for the uses and purposes therein mentioned.
I certify that I know or have satisfactory evidence of the person
appearing before me and making this acknowledgment is the person whose true
signature appears on this document.
WITNESS my hand and official seal the day and year in this certificate
above written.
/s/ Carol Baldwin
------------------------------
Signature
Carol Baldwin
------------------------------
Print Name
NOTARY PUBLIC in and for the State of
Washington, residing at Bellevue.
My commission expires 10-2-97.
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 22nd day of March, 1996, before me, a Notary Public in and for
the State of Washington, duly commissioned and sworn, personally appeared LOUIS
R. BARANSKY, known to me to be the individual named in and who executed the
foregoing document, and acknowledged to me that he signed the same as his free
and voluntary act and deed for the uses and purposes therein mentioned.
I certify that I know or have satisfactory evidence of the person
appearing before me and making this acknowledgment is the person whose true
signature appears on this document.
WITNESS my hand and official seal the day and year in this certificate
above written.
/s/ Carol Baldwin
------------------------------
Signature
Carol Baldwin
------------------------------
Print Name
NOTARY PUBLIC in and for the State of
Washington, residing at Bellevue.
My commission expires 10-2-97.
<PAGE> 1
EXHIBIT 10.7
PROBUSINESS SERVICES, INC.
1996 STOCK OPTION PLAN
(formerly the Executive Stock Option Plan)
1. Purposes of the Plan. The purposes of this Stock Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means ProBusiness Services, Inc., a Delaware
corporation.
(h) "Consultant" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services to such entity, and
any Director of the Company whether compensated for such services or not.
<PAGE> 2
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
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<PAGE> 3
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option grant. The
Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option
or Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option granted
under the Plan.
(w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1996 Stock Option Plan.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(z) "Section 16(b)" means Section 16(b) of the Exchange Act.
(aa) "Service Provider" means an Employee, Director or
Consultant.
(bb) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(cc) "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 750,000
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<PAGE> 4
Shares, plus any unused Shares under the Company's Amended 1989 Stock Option
Plan (the "1989 Plan") on the date such plan is terminated, and any Shares
issued or subject to issuance pursuant to options under the 1989 Plan that are
forfeited to the Company under the terms of such options. In addition, the
maximum aggregate number of Shares that may be optioned and sold under the Plan
shall be increased on each anniversary date of the adoption of the Plan by a
number of Shares equal to the lesser of (i) 250,000 Shares, (ii) two percent
(2%) of the outstanding Shares on such date or (iii) a lesser number determined
by the Board. The Shares may be authorized, but unissued, or reacquired Common
Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
however, that Shares that have actually been issued under the Plan, whether upon
exercise of an Option, shall not be returned to the Plan and shall not become
available for future distribution under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above,
the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options may
be granted hereunder;
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<PAGE> 5
(iii) to determine the number of shares of Common Stock
to be covered by each Option granted hereunder;
(iv) to approve forms of agreement for use under the
Plan;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(x) to modify or amend each Option (subject to Section
14(c) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option previously
granted by the Administrator;
(xiii) to make all other determinations deemed necessary
or advisable for administering the Plan.
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<PAGE> 6
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. Eligibility. Nonstatutory Stock Options may be granted to Service
Providers. Incentive Stock Options may be granted only to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option shall confer upon an Optionee
any right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than 125,000 Shares.
(ii) Over the remaining term of the Plan, a Service
Provider may be granted Options to purchase up to an additional 250,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 12.
(iv) If an Option is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection with a transaction
described in Section 12), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 18 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 14 of the Plan.
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<PAGE> 7
8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price of less than 100% of the Fair Market
Value per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
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<PAGE> 8
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company liability
to the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of
payment; or
(viii) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a
-8-
<PAGE> 9
dividend or other right for which the record date is prior to the date the
Shares are issued, except as provided in Section 12 of the Plan.
Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
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<PAGE> 10
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Non-Transferability of Options. Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent option
or right substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation. In the event that the successor corporation
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<PAGE> 11
refuses to assume or substitute for the Option, the Optionee shall fully vest in
and have the right to exercise the Option as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option becomes fully vested and exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Administrator shall
notify the Optionee in writing or electronically that the Option shall be fully
vested and exercisable for a period of fifteen (15) days from the date of such
notice, and the Option shall terminate upon the expiration of such period. For
the purposes of this paragraph, the Option shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right to
purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option, for each
Share of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to options granted under the
Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
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<PAGE> 12
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise of
an Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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<PAGE> 13
PROBUSINESS
1996 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _______________________________
Date of Grant _______________________________
Vesting Commencement Date _______________________________
Exercise Price per Share $______________________________
Total Number of Shares Granted _______________________________
Total Exercise Price $______________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _______________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
25% of the Shares subject to this Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, subject to the Optionee continuing to be a
Service Provider on such dates, so that this Option shall be exercisable as to
all of the shares forty-eight (48) months after the Vesting Commencement Date.
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<PAGE> 14
Alternatively, this option may be exercised in whole or in part at any
time as to Shares that have not yet vested under the above Vesting Schedule
provided, however, the Optionee shall execute as a condition to such exercise a
Restricted Stock Purchase Agreement in a form provided by the Company.
Termination Period:
This Option may be exercised for 30 days after Optionee ceases to be a
Service Provider. Upon the death or Disability of the Optionee, this Option may
be exercised for such longer period as provided in the Plan. In no event shall
this Option be exercised later than the Term/Expiration Date as provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 14(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of
an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to [Title] of the Company. The Exercise Notice
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
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<PAGE> 15
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, AND (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares; or
(e) with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit C, in the
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit B. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement.
4. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
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<PAGE> 16
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur
regular federal income tax liability upon exercise of a NSO. The Optionee will
be treated as having received compensation income (taxable at ordinary income
tax rates) equal to the excess, if any, of the Fair Market Value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price. If
the Optionee is an Employee or a former Employee, the Company will be required
to withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies as
an ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least
one year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least
one year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from
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<PAGE> 17
such early disposition of ISO Shares by payment in cash or out of the current
earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: PROBUSINESS, INC.
___________________________________ _____________________________________
Signature By
____________________________________ _____________________________________
Print Name Title
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<PAGE> 18
____________________________________
Residence Address
____________________________________
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<PAGE> 19
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
_______________________________________
Spouse of Optionee
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<PAGE> 20
EXHIBIT A
1996 STOCK OPTION PLAN
EXERCISE NOTICE
ProBusiness, Inc.
5934 Gibraltor
Pleasanton, CA 94566
Attention: [Title]
1. Exercise of Option. Effective as of today, ________________, 199__,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of ProBusiness, Inc. (the "Company") under
and pursuant to the 1996 Stock Option Plan (the "Plan") and the Stock Option
Agreement dated ____________, 19___ (the "Option Agreement"). The purchase price
for the Shares shall be $______, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in [Section 13] of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing
<PAGE> 21
signed by the Company and Purchaser. This agreement is governed by the internal
substantive laws, but not the choice of law rules, of California.
Submitted by: Accepted by:
PURCHASER: PROBUSINESS, INC.
__________________________________ _____________________________________
Signature By
__________________________________ _____________________________________
Print Name Its
Address: Address:
_________________________________ ProBusiness, Inc.
_________________________________ 5934 Gibraltor
Pleasanton, CA 94566
_____________________________________
Date Received
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<PAGE> 22
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement is made as of __________, 19___ between
ProBusiness, Inc., a California corporation ("Pledgee"), and
_________________________ ("Pledgor").
Recitals
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 1996 Stock Option Plan, and Pledgor's election under the terms of the
Option to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price
of $________ per share, for a total purchase price of $__________. The Note and
the obligations thereunder are as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
a. Payment of Indebtedness. Pledgor will pay the principal sum of
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
b. Encumbrances. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
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<PAGE> 23
c. Margin Regulations. In the event that Pledgee's Common Stock
is now or later becomes margin-listed by the Federal Reserve Board and Pledgee
is classified as a "lender" within the meaning of the regulations under Part 207
of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees
to cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder hereunder upon payments of the principal of
the Note. The number of the pledged Shares which
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<PAGE> 24
shall be released shall be that number of full Shares which bears the same
proportion to the initial number of Shares pledged hereunder as the payment of
principal bears to the initial full principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment
of all indebtedness secured hereby, at which time the remaining pledged stock
shall be promptly delivered to Pledgor, subject to the provisions for prior
release of a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
governed under the internal substantive laws, but not the choice of law rules,
of California.
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<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"PLEDGOR" _________________________________
Signature
_________________________________
Print Name
Address: _________________________________
_________________________________
"PLEDGEE" ProBusiness, Inc.,
a California corporation
________________________________
Signature
________________________________
Print Name
________________________________
Title
"PLEDGEHOLDER" ________________________________
Secretary of
ProBusiness, Inc.
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<PAGE> 26
EXHIBIT C
NOTE
$_______________ [City, State]
______________, 19___
FOR VALUE RECEIVED, _______________ promises to pay to ProBusiness,
Inc., a California corporation (the "Company"), or order, the principal sum of
_______________________ ($_____________), together with interest on the unpaid
principal hereof from the date hereof at the rate of _______________ percent
(____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, 19___.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
____________________________________
____________________________________
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<PAGE> 1
EXHIBIT 10.8
PROBUSINESS SERVICES, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1996 Employee Stock
Purchase Plan of ProBusiness Services, Inc., a Delaware corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean ProBusiness Services, Inc. and any
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which
has been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each
Offering Period.
<PAGE> 2
(i) "Exercise Date" shall mean the last day of each Purchase
Period.
(j) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board, or;
(4) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Periods" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 1 and November
1 of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and shall end on the last Trading Day on or before April 30,
1999. The duration and timing of Offering Periods may be changed pursuant to
Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first
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<PAGE> 3
Purchase Period of any Offering Period shall commence on the Enrollment Date and
end with the next Exercise Date.
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a
given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company and/or hold outstanding options
to purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
April 30, 1999. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
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<PAGE> 4
5. Participation.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll office
prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any,
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<PAGE> 5
which arise upon the exercise of the option or the disposition of the Common
Stock. At any time, the Company may, but shall not be obligated to, withhold
from the participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable to sale or
early disposition of Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 2,500
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19) on the Enrollment Date, and provided further that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12 hereof.
Exercise of the option shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof. The option shall expire
on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall
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<PAGE> 6
be made for such Offering Period. If a participant withdraws from an Offering
Period, payroll deductions shallnot resume at the beginning of the succeeding
Offering Period unless the participant delivers to the Company a new
subscription agreement.
(b) A participant's withdrawal from an Offering Period shall
not have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the Offering Period from which
the participant withdraws.
11. Termination of Employment.
Upon a participant's ceasing to be an Employee, for any
reason, he or she shall be deemed to have elected to withdraw from the Plan and
the payroll deductions credited to such participant's account during the
Offering Period but not yet used to exercise the option shall be returned to
such participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 15 hereof, and such participant's option shall be
automatically terminated. The preceding sentence notwithstanding, a participant
who receives payment in lieu of notice of termination of employment shall be
treated as continuing to be an Employee for the participant's customary number
of hours per week of employment during the period in which the participant is
subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be Five Hundred
Thousand (500,000) shares, subject to adjustment upon changes in capitalization
of the Company as provided in Section 19 hereof, plus an annual increase to be
added on each anniversary date of the adoption of the Plan equal to the lesser
of (i) 150,000 Shares, (ii) one and one-half percent (1.5%) of the outstanding
Shares on such date or (iii) a lesser number determined by the Board. If, on a
given Exercise Date, the number of shares with respect to which options are to
be exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
shall be registered in the name of the participant or in the name of the
participant and his or her spouse.
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<PAGE> 7
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
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<PAGE> 8
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the Reserves, the maximum number of shares
each participant may purchase each Purchase Period (pursuant to Section 7), as
well as the price per share and the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration". Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Periods shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, any Purchase Periods then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date") and
any Offering Periods then in progress shall end on the New Exercise Date. The
New Exercise Date shall be before the date of the Company's proposed sale or
merger. The Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 19
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any
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<PAGE> 9
successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.
(b) Without shareholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period
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<PAGE> 10
shall be automatically withdrawn from such Offering Period immediately after the
exercise of their option on such Exercise Date and automatically re-enrolled in
the immediately following Offering Period as of the first day thereof.
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<PAGE> 11
EXHIBIT A
PROBUSINESS SERVICES, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ________________________ hereby elects to participate in the
ProBusiness Services, Inc. 1996 Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan") and sub scribes to purchase shares of
the Company's Common Stock in accordance with this Sub scription
Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 1 to _____%) during
the Offering Period in accordance with the Employee Stock Purchase
Plan. (Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and Spouse
only):________________________ .
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at
the time such shares were purchased by me
<PAGE> 12
over the price which I paid for the shares. I hereby agree to notify
the Company in writing within 30 days after the date of any disposition
of my shares and I will make adequate provision for Federal, state or
other tax withholding obligations, if any, which arise upon the
disposition of the Common Stock. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to
meet any applicable withholding obligation including any withholding
necessary to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by
me. If I dispose of such shares at any time after the expiration of the
2-year and 1-year holding periods, I understand that I will be treated
for federal income tax purposes as having received income only at the
time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of
(1) the excess of the fair market value of the shares at the time of
such disposition over the purchase price which I paid for the shares,
or (2) 15% of the fair market value of the shares on the first day of
the Offering Period. The remainder of the gain, if any, recognized on
such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) ______________________________________________
(First) (Middle) (Last)
_______________________________ Address:
Relationship
___________________________________
___________________________________
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<PAGE> 13
Employee's Social
Security Number: ___________________________________
Employee's Address: ___________________________________
___________________________________
___________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ _________________________________________
Signature of Employee
_________________________________________
Spouse's Signature (If beneficiary other
than spouse)
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<PAGE> 14
EXHIBIT B
PROBUSINESS SERVICES, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the ProBusiness
Services, Inc. 1996 Employee Stock Purchase Plan that began on
_________________, 19____ hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned under stands that no
further payroll deductions will be made for the purchase of shares in the
current Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:__________________________
<PAGE> 1
Exhibit 10.9
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AND NON-COMPETITION AGREEMENT ("Agreement"), dated as
of the _____ day of May, 1996 is entered into by and between ProBusiness, Inc.,
a California corporation ("ProBusiness"), and Dwight L. Jackson ("Employee").
Recitals
A. Employee has been employed as the President of Dimension Solutions,
a California corporation (the "Company") and is a shareholder of the Company;
B. ProBusiness and the Company have entered into an Agreement and Plan
of Reorganization, dated as of May __, 1996 (the "Acquisition Agreement"), which
requires, among other things, that Employee enter into this Agreement in
connection with the acquisition of the assets of the Company by ProBusiness
(capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Acquisition Agreement); and
C. Employee is to be granted certain options to purchase shares of the
Common Stock of ProBusiness.
NOW, THEREFORE, IT IS HEREBY AGREED by and between the parties hereto
as follows:
1. Employment.
(a) Duties. Effective upon the closing of the acquisition of
the assets of the Company pursuant to the Acquisition Agreement (the "Closing
Date") and for the Employment Term (as defined in subsection 1(b) below),
Employee is hereby employed and accepts employment as Vice President, Human
Resources Systems of ProBusiness, to perform such services as are commensurate
with such a position and as may be required or directed by the Chief Executive
Officer of ProBusiness. During the Employment Term, Employee shall carry out his
duties and responsibilities hereunder in a diligent and competent manner and
shall devote his full business time, attention and energy thereto.
(b) Employment Term. Employee and ProBusiness acknowledge that
Employee's employment hereunder shall be at will. The term of Employee's
employment hereunder (the "Employment Term") shall commence on the Closing Date
and shall continue until the termination of Employee's employment with
ProBusiness as provided herein. ProBusiness may terminate Employee's employment
at any time, for any reason whatsoever with Cause (as defined in Section 4(c),
or without Cause, in either case without prior notice to Employee. In the event
of termination without Cause prior to the third anniversary date of this
Agreement,
<PAGE> 2
Employee shall be entitled to receive as severance payment (the "Severance")
from ProBusiness, an amount equal to the difference between (i) the aggregate
salary Employee would have earned pursuant to Section 2(a) hereof if the
Employment Term ended on the third anniversary from the date of this agreement
(the "Third Anniversary") assuming Employee's salary immediately prior to such
termination without Cause continued to be the salary received by Employee until
the Third Anniversary (but in no event shall the amount used for this
calculation be less than $125,000 per year), and (ii) the aggregate salary
Employee earned during the Employment Term. Such Severance shall be paid in
equal installments in accordance with ProBusiness's normal payroll practice over
the period ending no later than the Third Anniversary. Notwithstanding the
foregoing, ProBusiness at its option, may pay the Severance in a one-lump-sum
payment to Employee in an amount equal to the Severance owed adjusted to the
present value on the date of payment to Employee at an interest rate equal to
the then-current prime rate set by Coast Business Credit (or, if the loan
agreement between ProBusiness and Coast Business Credit dated April 30, 1996 has
terminated, the prime rate shall be determined on the basis of the prime rate
listed from time to time in the Wall Street Journal, which represents the base
rate on Corporate loans posted by a substantial majority of the Nation's thirty
(30) largest banks) plus one point, which shall be payable within thirty days of
such date of termination without Cause. Unless otherwise specified herein,
ProBusiness will make deductions, withholdings, and other payments from all sums
payable pursuant to this Agreement which Employee requests or are required by
law for taxes or other charges.
(c) Place of Employment. During the Employment Term, Employee
shall render his services at the site designated by ProBusiness within a
sixty-mile radius of San Francisco, California. Employee shall do such traveling
as shall be reasonably necessary in connection with his duties and
responsibilities hereunder.
(d) No Other Consulting. During the Employment Term, Employee
will not, without the written consent of an officer of ProBusiness, accept any
consulting assignment for (or accept any board of directors position or
partnership position in) any payroll, payroll tax or human resources software or
service provider.
2. Compensation.
(a) Salary. Upon the commencement of the Employment Term,
Employee shall receive a salary of not less than $115,000 per year and beginning
on July 1, 1996 and continuing through the remainder of the Employment Term,
Employee will receive a salary of not less than $125,000 per year, which shall
be paid in accordance with ProBusiness's normal payroll practice and shall be
subject to review and adjustment based upon ProBusiness's normal performance
review practices. Unless otherwise specified herein, ProBusiness will make such
deductions, withholdings and other payments from all sums payable pursuant to
this Agreement which Employee requests or which are required by law for taxes
and other charges.
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<PAGE> 3
(b) Benefit Plans. Employee will be entitled to participate in
or receive benefits under ProBusiness's employee benefit plans and policies as
in effect from time to time in which Employee is eligible to participate,
subject to the applicable terms and conditions of the particular benefit plan.
These benefit plans may include health care, life insurance, accidental death
and disability, short- and long-term disability, savings and/or bonus plans
provided by, through or on behalf of ProBusiness. ProBusiness may change, amend,
modify or terminate any benefit or bonus plan from time to time.
(c) Grant of Options. Subject to consummation of the actions
contemplated by the Acquisition Agreement, and pursuant to action to be taken by
the Board of Directors of ProBusiness at its next regularly scheduled Board
meeting at which stock options are granted (the "Board meeting"), Employee shall
be granted an incentive stock option (within the meaning of Section 422 of the
Internal Revenue Code of 1986) to purchase 10,000 shares of ProBusiness's Common
Stock at an exercise price equal to the fair market value of the Common Stock as
determined by ProBusiness's Board of Directors as of the date of the Board
Meeting.
3. Intellectual Property.
(a) Concurrently with the execution of this Agreement,
ProBusiness and Employee will execute the Employee Proprietary Information
Agreement in the form attached hereto as Attachment 1 which is a standard
agreement under ProBusiness's policies and procedures (the "Intellectual
Property Agreement").
(b) Employee agrees that (a) he will disclose immediately to
ProBusiness all inventions, discoveries, improvements, trade secrets, formulae,
techniques, processes, know-how and computer programs, whether or not patentable
and whether or not reduced to practice, that were conceived by Employee during
employment by the Company, either alone or jointly with others, which relate to
or result from the actual or anticipated business, work, research or
investigations of the Company or which resulted to any extent from the use of
the Company's premises or tangible or intangible property (herein collectively
referred to as "Inventions"), and (b) that all such Inventions are owned
exclusively by ProBusiness pursuant to the Acquisition Agreement. At
ProBusiness's sole cost and to the extent necessary to perfect ProBusiness's
interest therein, Employee hereby assigns to ProBusiness all Employee's right,
title and interest in and to all such Inventions, and Employee agrees that
ProBusiness shall be the sole owner of all domestic and foreign patent,
copyright or other rights pertaining thereto. Employee also agrees, during the
term of his employment and thereafter, to execute all documents which
ProBusiness reasonably determines to be necessary or convenient for use in
applying for, perfecting or enforcing patents, copyrights or other intellectual
property rights in the Inventions. Upon termination of Employee's employment
with ProBusiness, Employee shall, if requested by ProBusiness, reaffirm in
writing that Employee has complied with all of the above obligations.
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<PAGE> 4
4. Covenant Not to Compete.
(a) Scope and Reasonableness. Employee acknowledges that
this Agreement (including without limitation the covenants and agreements set
forth in this Section 4) is being entered into as an important part of the
consideration for the acquisition by ProBusiness of substantially all of the
assets of the Company as provided in the Acquisition Agreement. Employee also
acknowledges that ProBusiness has a reasonable present and future expectation
of business within the Restricted Territory (as defined below).
(b) Non-Compete. Employee agrees that until the expiration of
the earlier to occur of: (i) four (4) years from the Closing Date, or (ii) the
date of termination without Cause of Employee's employment with ProBusiness, he
will not directly or indirectly engage in (whether as an employee, consultant,
proprietor, partner, director or otherwise), or have any ownership interest in,
or participate in the financing, operation, management or control of, any
person, firm, corporation or business that engages in a "Restricted Business" in
a "Restricted Territory" (as such terms are hereinafter defined). It is agreed
that ownership of no more than 1% of the outstanding voting stock of a publicly
traded corporation shall not constitute a violation of this provision.
(c) Definitions. As used in this Agreement, the terms
(i) "Cause" shall mean:
(A) Employee's continued
failure to perform his duties and responsibilities, in any material respect, as
required or directed by the Chief Executive Officer of ProBusiness after notice
thereof from ProBusiness to Employee;
(B) Employee personally
engaging in knowing and intentional illegal conduct that is materially
detrimental to ProBusiness;;
(C) Employee being convicted
of a felony, or committing a material act of dishonesty or fraud or
misappropriating property;
(D) Employee willfully
breaching in any material respect the terms of this Agreement or the
Intellectual Property Agreement; or
(E) Employee's commencement of
employment with another employer while he is an employee of ProBusiness.
(ii) "Restricted Business" shall mean a
business that produces, creates, manufacturers, develops, or provides payroll,
payroll tax or human resources software or services.
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<PAGE> 5
(iii) "Restricted Territory" shall mean
each and every country, province, state, city or other political subdivision of
the world in which ProBusiness or the Company or any subsidiary or affiliate of
ProBusiness or the Company is currently engaged in business or otherwise sells
its products.
(d) Non-Solicit. Employee agrees that until the later to occur
of (i) the termination of Employee's agreement not to compete pursuant to
Section 4(b) above and (ii) one year following the Employment Term, Employee
shall not:
(i) solicit, encourage, or take any
other action which is intended to induce any other employee of ProBusiness to
terminate his employment with ProBusiness; or
(ii) knowingly and intentionally
interfere in any manner with the contractual or employment relationship between
ProBusiness and any employee, supplier or customer of ProBusiness.
(e) Severability. The parties intend that the covenants
contained in the preceding paragraphs shall be construed as a series of separate
covenants, one for each county, city, state and other political subdivision of
the Restricted Territory. Except for geographic coverage, each such separate
covenant shall be deemed identical in terms to the covenant contained in the
preceding paragraphs. If, in any judicial proceeding, a court shall refuse to
enforce any of the separate covenants (or any part thereof) deemed included in
said paragraphs, then such unenforceable covenant (or such part) shall be deemed
eliminated from this Agreement for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants (or portions
thereof) to be enforced by such court. It is the intent of the parties that the
covenants set forth herein be enforced to the maximum degree permitted by
applicable law.
(f) Reformation. In the event that the provisions of this
Section 4 should ever be deemed to exceed the scope, time or geographic
limitations of applicable law regarding covenants not to compete, then such
provisions shall be reformed to the maximum scope, time or geographic
limitations, as the case may be, permitted by applicable laws.
5. Representations of Employee. Employee represents that:
(a) he (i) is familiar with the covenants not to compete and
not to solicit set forth in this Agreement, (ii) is fully aware of his
obligations hereunder, including, without limitation, the length of time, scope
and geographic coverage of these covenants, (iii) finds the length of time,
scope and geographic coverage of these covenants to be reasonable, and (iv) is
receiving specific, bargained-for consideration for his covenants not to compete
and not to solicit;
(b) execution of this Agreement and the Intellectual Property
Agreement and performance of Employee's obligations hereunder and thereunder,
will not conflict with, or result
-5-
<PAGE> 6
in a violation or breach of, any other agreement to which Employee is a party or
any judgment, order or decree to which Employee is subject.
6. Assignment. This Agreement may not be assigned by Employee without
the written consent of ProBusiness. This Agreement may not be assigned by
ProBusiness without the written consent of Employee, except to an assignee who
acquires all or substantially all of the business of ProBusiness, whether by
merger, consolidation, sale of assets or otherwise. ProBusiness will require any
such assignee to assume and agree to perform this Agreement in the same manner
and to the same extent that ProBusiness would be required to perform it if no
such succession had taken place.
7. Entire Agreement. This Agreement sets forth the entire Agreement
and understanding between Employee and ProBusiness and between Employee and the
Company with respect to the subject matter hereof, and supersedes any other
negotiations, agreements, understandings, representations or past or future
practices, whether written or oral.
8. Notices. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing to both parties and shall be
deemed given on the date of delivery, if delivered, or five days after mailing,
if mailed first-class mail, postage prepaid, to the following addresses:
(a) If to ProBusiness:
ProBusiness, Inc.
5934 Gibraltar, Suite 201
Pleasanton, CA 94566
Attention: President
with a copy to:
Elizabeth M. Kurr
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
(b) If to Employee, at the address set forth on the
signature page hereof, or to such other address as
any party hereto may designate by notice given as
herein provided.
-6-
<PAGE> 7
with a copy to:
Bruce Ring
Morgan Miller & Blair
1676 North California Blvd., Suite 200
Walnut Creek, California 94596-4137
9. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California without
giving effect to principles regarding conflict of laws.
10. Amendments. This Agreement shall not be changed or modified in
whole or in part except by an instrument in writing signed by each party hereto,
nor shall any covenant or provision of this Agreement be waived except by an
instrument in writing signed by the party against whom enforcement of such
waiver is sought.
11. Effective Date. This Agreement shall become effective upon the
Closing Date.
12. Attorneys' Fees. In the event of any legal action or proceeding
to enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorneys' fees.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
14. Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or interpretation of this
Agreement.
15. Definitions. All capitalized terms used herein shall have the
meaning defined in the Acquisition Agreement, unless otherwise defined herein.
16. Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to either party upon any breach or default of the other
party hereto shall impair any such right, power or remedy of such non-defaulting
party, nor shall it be construed to be a waiver of any such breach or default,
or an acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver, single breach or default be deemed a waiver of
any other breach or default theretofore or thereafter occurring.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
PROBUSINESS, INC.
By:_______________________________________
Thomas H. Sinton,
President, Chief Executive Officer and
Chairman
EMPLOYEE
By:_______________________________________
Dwight L. Jackson
Address:
74 Partridge Court
Danville, CA 94526
-8-
<PAGE> 1
EXHIBIT 10.10
LINC CAPITAL MANAGEMENT, A DIVISION OF Linc Capital Management,
SCIENTIFIC LEASING INC. EQUIPMENT SCHEDULE a division of
Scientific Leasing Inc.
303 East Wacker Drive
Chicago, Illinois 60601
Equipment Location: 5934 Gibraltar Drive (312) 946-1000
Pleasanton, California 94588
-and-
18400 Von Karman Ave., Master Lease Agreement No. 6403
Suite 340 Schedule No. 001
Irvine, California 92715 Acceptance Date:________________
Equipment Description: The "Equipment" shall consist of office furniture, office
equipment, computers and peripherals. As more fully described on Schedule "A"
attached hereto and made a part hereof.
Total Equipment Cost: $670,082.83
TERM AND RENTAL: Minimum Lease Term: 42 months
Lease Commencement Date: August 1, 1996
Rental Payments to be made: X monthly (In Advance)
Expected Acceptance Date: July 31, 1996
*Rental Payments:
$19,181.12 per rental payment for the first forty-two rental payments
Followed by:
Initial Payment of $57,064.00 covering the last lease payment on the entire
lease line.
* Plus, if applicable, freight, taxes, insurance and maintenance expense paid by
Lessor which shall be paid by Lessee in accordance with the terms of the Lease
and this Schedule.
OPTION AT END OF MINIMUM LEASE TERM (see reverse side hereof for additional
terms and conditions applicable to options):
<PAGE> 2
* Plus, if applicable, freight, taxes, insurance, and maintenance expense paid
by Lessor which shall be paid by Lessee in accordance with the terms of the
Lease and this Schedule.
OPTION AT END OF MINIMUM LEASE TERM (see reverse side hereof for additional
terms and conditions applicable to options):
Purchase Option: At the expiration of the Initial Lease Term of Schedule No.
001, Lessee may elect to purchase all, but not less than all, of the Equipment
under all Schedules to the Lease at their respective expiration dates for a
purchase price equal to fifteen percent (15%) of the Amount Advanced (as defined
in section 22 of Addendum No. 1 to Master Lease No. 6403) thereunder as of the
end of the Minimum Lease Term applicable to each Equipment Schedule plus any
applicable sales or other transfer taxes payable as a result of such sale plus
any amounts that remain unpaid to Lessor under the Lease.
Renewal Option: At the expiration of Initial Lease Term of Schedule No. 001,
Lessee may elect to renew or extend the Lease with respect to all, but not less
than all, of the Equipment under all Schedules to the Lease at their respective
expiration dates for twelve (12) months at 1.5% of the Amount Advanced (as
defined in section 22 of Addendum No. 1 to Master Lease No. 6403) per month in
Advance.
LINC CAPITAL MANAGEMENT, A DIVISION OF SCIENTIFIC LEASING INC. (Lessor) hereby
agrees to lease to the Lessee named below, and Lessee hereby agrees to lease and
rent from Lessor the Equipment listed above, for the term and at the rental
payments specified herein, all subject to the terms and conditions set forth
herein and on the reverse side hereof and in the referenced Master Lease
Agreement except as the same may be varied by the terms of this Schedule.
SEE ADDITIONAL TERMS AND CONDITIONS TO EQUIPMENT SCHEDULE ON THE REVERSE SIDE
HEREOF.
Addendum ("X" if applicable) /X/ ACCEPTED AT CHICAGO, ILLINOIS
LINC CAPITAL MANAGEMENT, A DIVISION OF
PROBUSINESS, INC. SCIENTIFIC LEASING INC.
Lessee Lessor
By: /s/ Steven Klei By: /s/ Mark K. Zimmerman
------------------------------- -------------------------------------
Title: Vice President, CFO Title: Vice President
------------------------------- -------------------------------------
Date: 7/31/96 Date: 10/25/96
------------------------------- -------------------------------------
This lease (and Equipment Schedule and Master Lease the terms of which
it incorporates has been assigned, is subject to the security interests
of, and is held in trust for the benefit of Fleet Bank N.A., as Agent,
pursuant to the terms and conditions or a security agreement dated
September 28, 1994 and related documents (as the same may be amended)
<PAGE> 3
SCHEDULE A
TO MASTER LEASE NO. 6403
EQUIPMENT SCHEDULE 001
PROBUSINESS, INC.
Page 1 of 13
Equipment Location: 5934 Gibraltar Drive
Pleasanton, California 94588
Various equipment from Capella Worldwide Networking, Inc. consisting of:
<TABLE>
<CAPTION>
<S> <C>
2 ETHERSWITCH 1400 25 10 BASE T $11,550.00
Serial #CPW140200462, #CPW140200716
----------
SUBTOTAL $11,550.00
FREIGHT 57.00
SALES TAX 952.88
----------
VENDOR TOTAL $12,559.88
==========
</TABLE>
Various equipment from Circuit City Stores, Inc. consisting of:
<TABLE>
<CAPTION>
<S> <C>
1 HOT CTX16BAXWH REFRIGERATOR $ 429.98
1 PAN NN7515A MICROWAVE OVEN 149.93
1 SHA 25VTG60 25" & UP TV/VCR 449.97
---------
SUBTOTAL $1,029.88
FREIGHT 59.94
SALES TAX 84.96
---------
VENDOR TOTAL $1,174.78
=========
</TABLE>
Various equipment from Citrix Systems, Inc. consisting of:
<TABLE>
<CAPTION>
<S> <C>
1 WINFRAME 1.5 TO 1.6 UPGRADE $495.00
-------
SUBTOTAL $495.00
SALES TAX 9.00
-------
VENDOR TOTAL $504.00
=======
</TABLE>
Various equipment from Conley Computer Stacking Systems consisting of:
<TABLE>
<CAPTION>
<S> <C>
3 UPRIGHT 30"D X 84"H $735.00
1 SOLID SHELF - DOUBLE NUT 140.00
2 SINGLE NUT ADJUSTABLE SHELF 250.00
2 SINGLE NUT STD. SLIDE SHELF 310.00
1 EQUIPMENT RESTRAINT KIT 35.00
1 CROSS BRACE 27" WIDE BAY 30.00
1 X BRACE KIT 27" WIDE BAY 25.00
4 OAK VENEER 1 5/16" W X 96" L 88.00
</TABLE>
Lessee:
<PAGE> 4
SCHEDULE A
TO MASTER LEASE NO. 6403
EQUIPMENT SCHEDULE 001
PROBUSINESS, INC.
Page 2 of 13
Various equipment from Conley Computer Stacking Systems (continued):
<TABLE>
<CAPTION>
<S> <C>
1 DOOR WITH HARDWARE $ 193.00
2 ENCLOSURE WITH HARDWARE 396.00
1 TOP STARTER W/FAN & HARDWARE 241.00
---------
SUBTOTAL $2,443.00
LESS DISCOUNT (122.15)
FREIGHT 246.05
---------
VENDOR TOTAL $2,566.90
=========
</TABLE>
Various equipment from Creative Office Systems, Inc. consisting of:
<TABLE>
<CAPTION>
<S> <C>
1 12WX62H-FABRIC-COVER-HARD-P $ 110.72
1 62H-PANEL-CONNECTOR-DRAW-R 5.12
1 62H-T-CONNECTOR/WALL-START 11.52
1 62H-PANEL-END-CAP-HINGEABL 8.96
4 SNOWPINE-WHITE FROST (DIR)/MT/MT/ 49.16
1 12W-WIRE-MANAGEMENT-ASSY-NO 18.00
1 END-CAP-TRIM-COVER-SPCFY-C 0.00
62 48WX62H-ACOUSTICAL-PANEL 13,392.00
53 24WX62H-ACOUSTICAL-PANEL/CLIENT-FABRIC/HT/ 8,700.48
42 48W-EDP-FLIPPER-ASSY-FAB-L/STIN- 4,287.36
REFLECT-FLINT/HT/
21 48WX16H-TACKBOARD 1,008.00
55 62H-PANEL-CONNECTOR-DRAW-R 281.60
24 62H-HARD-SURF-2-WAY-90-CON 706.56
7 62H-HARD-SURFACD-3-WAY-CON 322.56
6 62H-4-WAY-CORNER-CONNECTOR 364.80
27 62H-PANEL-END-CAP-HINGEABL 241.92
42 48W-EDP-SHELF-ASSEMBLY 2,486.40
21 48W-TASK-LIGHT-WITH-LAMP 1,270.08
21 6-12 PEDESTAL 3,642.24
21 PENCIL-DRAWER-DARK-TONE/WIL-GREYPAMPAS/HT/ 241.92
21 48WX24D-CORNER-WORKSURFACE 3,232.32
21 WORKSURFACE GROMMET 0.00
21 24WX24D-WORKSURFACE-HANGIN 1,464.96
21 48WX24D-WORKSURFACE-HANGIN 2,016.00
13 REFLECTANCE-FLINT R1914 0.00
1 325 YD WHITE FROST FABRIC/MT/MT/ 3,995.00
23 48W-WIRE-MGMNT-ASSY-WITH-P 2,180.63
5 24W-WIRE-MGMNT-ASSY-WITH-P 279.60
39 48W-WIRE-MANAGEMNT-ASSY-NO 902.46
48 24W-WIRE-MANAGEMNT-ASSY-NO 925.44
24 2-WAY-90-TRIM-COVER-KIT-DK 200.64
</TABLE>
Lessee:
<PAGE> 5
SCHEDULE A
TO MASTER LEASE NO. 6403
EQUIPMENT SCHEDULE 001
PROBUSINESS, INC.
Page 3 of 13
Various equipment from Creative Office Systems, Inc. (continued):
<TABLE>
<CAPTION>
<S> <C>
7 3-WAY-TRIM-COVER-KIT-DARK- 63.77
6 4-WAY-TRIM-COVER-KIT-DARK- 65.58
27 END-CAP-TRIM-COVER-SPCFY-C 225.72
11 ELECTRIC-CONNECTOR-ADAPTR- 162.58
42 ONE-RECEPTACLE-CIR:A-DRK-T 159.18
42 ONE-RECEPTACLE-CIR:B-DRK-T 159.18
42 ONE-RECEPTACLE-CIR:C-DRK-T 170.10
4 BASE-FEED-LEFT-ANGLE-DARK-/HT/HT/ 239.12
1 INSTALLATION/FABRICATION 4,000.00
800 T-MOLD-1-1/8-INNERTONE 0.00
21 LETTER FILE 2H S/S 8,106.00
12 24WX34H-FABRIC-OVER-HARD-P 1,232.64
6 48WX34H-FABRIC-OVER-HARD-P 821.76
1 24WX34H-FABRIC-OVER-HARD-P 102.72
22 24WX62H-ACOUSTICAL-PANEL 3,611.52
59 48WX62H-ACOUSTICAL PANEL/STIN-FLINT/HT/ 12,744.00
17 48WX16H-TACKBOARD/CUST-FABRIC/HT/ 816.00
34 48W-EDP-FLIPPER-ASSY-FAB-L 3,470.72
12 34H-PANEL-CONNECTOR-DRAW-R 57.60
11 34H-VARIABLE-PANEL-HEIGHT- 123.20
37 62H-PANEL-CONNECTOR-DRAW-R 189.44
20 62H-HARD-SURF-2-WAY-90-CON 588.80
1 34H-HARD-SURF-2-WAY-90-CON 22.08
1 34H-PANEL-END-CAP-HINGEABL 7.36
5 62H-HARD-SURFACD-3-WAY-CON 230.40
6 62H-4-WAY-CORNER-CONNECTOR 364.80
20 62H-PANEL-END-CAP-HINGEABL 179.20
17 6-12 PEDESTAL 2,948.48
17 12-12 PEDESTAL 4,275.84
34 48W-EDP-SHELF-ASSEMBLY 2,012.80
17 48W-TASK-LIGHT-WITH-LAMP 1,028.16
17 PENCIL-DRAWER-DARK-TONE/WIL-GREYPAMP/HTI/ 195.84
17 48WX24D-CORNER-WORKSURFACE 2,616.64
17 WORKSURFACE GROMMET 0.00
17 24WX24D-WORKSURFACE-HANGIN 1,185.92
17 48WX24D-WORKSURFACE-HANGIN 1,632.00
12 REFLECTANCE-FLINT R1914 0.00
307 SNOWPINE-WHITE FROST (DIR) 3,773.03
1 INSTALLATION/FABRICATION/MT/MT 3,270.00
3 BASE-FEED-LEFT-ANGLE-DARK- 179.37
2 62H-POWER-POLE 270.04
2 PHNX DES-POWER POLE COVER 270.02
18 48W-WIRE-MGMNT-ASSY-WITH-P 1,707.12
23 24W-WIRE-MANAGEMNT-ASSY-NO 443.67
</TABLE>
Lessee:
<PAGE> 6
SCHEDULE A
TO MASTER LEASE NO. 6403
EQUIPMENT SCHEDULE 001
PROBUSINESS, INC.
Page 4 of 13
Various equipment from Creative Office Systems, Inc. (continued):
<TABLE>
<CAPTION>
<S> <C>
45 48W-WIRE-MANAGEMNT-ASSY-NO $ 1,121.40
22 2-WAY-90-TRIM-COVER-KIT-DK 183.92
7 3-WAY-TRIM-COVER-KIT-DARK- 63.00
6 4-WAY-TRIM-COVER-KIT-DARK- 65.58
25 END-CAP-TRIM-COVER-SPCFY-C 209.00
9 ELECTRIC-CONNECTOR-ADAPTR- 133.11
34 ONE-RECEPTACLE-CIR:A-DRK-T 128.86
34 ONE-RECEPTACLE-CIR:B-DRK-T 128.86
34 ONE-RECEPTABLE-CIR:C-DRK-T 137.70
12 24W-WIRE-MGMNT-ASSY-WITH-P 671.04
46 T-MOLD-1-1/8-INNERTONE 0.00
10 24WX34H-FABRIC-OVER-HARD-P 1,027.20
5 48WX34H-FABRIC-OVER-HARD-P 684.80
26 24WX62H-ACOUSTICAL-PANEL 4,268.16
67 48WX62H-ACOUSTICAL-PANEL/STIN-FLINT/HT/ 14,472.00
18 48WX16H-TACKBOARD/CUST-FABRIC/HT/ 864.00
36 48W-EDP-FLIPPER-ASSY-FAB-L 3,674.88
10 34H-PANEL-CONNECTOR-DRAW-R 48.00
10 34H-VARIABLE-PANEL-HEIGHT- 112.00
44 62H-PANEL-CONNECTOR-DRAW-R 225.28
22 62H-HARD-SURF-2-WAY-90-CON 647.68
10 62H-HARD-SURFACD-3-WAY-CCN 460.80
3 62H-4-WAY-CORNER-CONNECTOR 182.40
22 62H-PANEL-END-CAP-HINGEABL 197.12
18 12-12 PEDESTAL 4,757.76
18 6-12 PEDESTAL 3,121.92
36 48W-EDP-SHELF-ASSEMBLY 2,131.20
18 48W-TASK-LIGHT-WITH-LAMP 1,088.64
18 PENCIL-DRAWER-DARK-TONE/WIL-GREYPAMP/HT/ 207.36
18 48WX24D-CORNER-WORKSURFACE 2,770.56
18 WORKSURFACE GROMMET 0.00
18 24WX24D-WORKSURFACE-HANGIN 1,255.68
18 48WX24D-WORKSURFACE-HANGIN 1,728.00
22 REFLECTANCE-FLINT R1914 0.00
30 SNOWPINE-WHITE FROST (DIR) 4,055.70
1 INSTALLATION/FABRICATION/MT/MT/ 3,180.00
3 BASE-FEED-LEFT-ANGLE-DARK- 177.66
25 48W-WIRE-MGMNT-ASSY-WITH-P 2,347.75
26 24W-WIRE-MANAGEMNT-ASSY-NO 496.60
49 48W-WIRE-MANAGEMNT-ASSY-NO 1,199.52
22 2-WAY-90-TRIM-COVER-KIT-DK 182.16
8 3-WAY-TRIM-COVER-KIT-DARK- 71.28
5 4-WAY-TRIM-COVER-KIT-DARK- 54.10
22 END-CAP-TRIM-COVER-SPCFY-C 182.16
</TABLE>
Lessee:
<PAGE> 7
SCHEDULE A
TO MASTER LEASE NO. 6403
EQUIPMENT SCHEDULE 001
PROBUSINESS, INC.
Page 5 of 13
Various equipment from Creative Office Systems, Inc. (continued):
<TABLE>
<CAPTION>
<S> <C>
13 ELECTRIC-CONNECTOR-ADAPTR $ 190.32
36 ONE-RECEPTACLE-CIR:A-DRK-T 135.36
36 ONE-RECEPTACLE-CIR:B-DRK-T 135.36
36 ONE-RECEPTACLE-CIR:C-DRK-T 144.72
2 48" PASSTHRU 59.84
2 24" PASSTHRU 46.48
10 24W-WIRE-MGMNT-ASSY-WITH-P 559.20
684 T-MOLD-1-1/8-INNERTONE 0.00
--------------
SUBTOTAL $ 176,054.97
SALES TAX 14,524.53
--------------
VENDOR TOTAL $ 190,579.50
==============
</TABLE>
Various equipment from Isolink Systems (Datalink) consisting of:
<TABLE>
<CAPTION>
<S> <C>
3 UL/CSA/BALL-BEARING FA N PS, $ 114.00
Serial #951102593, #951102590, #951102589
20 MICROSOFT PS2 MOUSE 700.00
3 ENDEAVER 256BP, NO SOUND CARD 615.00
Serial #k79713568, #k79713668, #k79713701
2 DIAMOND STEALTH-64 lMB DRAM PCI 190.00
Serial #013504, #013505
1 INTEL ETHEREXP 10/100 PCI, Serial #AOC900838B 120.00
1 COOLING FAN FOR PENTIUM CPU 7.00
12 ISOLINK PENTIUM SYSTEM INC. 26,724.00
Serial #M1334-4047347, #M1334-4045686,
#M1334-4047624, #M1334-4045688,
#M1334-4045684, #M1334-4045750,
#M1334-4045626, #M1334-4045689,
#M1334-4047357, #M1334-4043138,
#M1334-4043143, #M1334-4043559
12 MINI TOWER CASE 230W UL PS 0.00
12 ENDEAVER 256BP, NO SOUND CARD 0.00
12 INTEL PENTIUM 133MHZ CPU 0.00
12 COOLING FAN FOR PENTIUM CPU 0.00
12 32MB RAM 0.00
12 SIM 4X32-70 16MB RAM 0.00
12 TEAC 1.44MB FDD PS2 COLOR 0.00
12 QUANTUM 850MB IDE HD 0.00
12 DIAMOND STEALTH-64 IMB DRAM PCI 0.00
12 TOSHIBA 6X INT. IDE CD-ROM 0.00
12 INTEL ETHEREXP 10/100 PCI 0.00
12 MAG 15" .28 N-I L-R 0.00
12 KEYTRONICS 104 KEYBOARD 0.00
</TABLE>
Lessee:
<PAGE> 8
SCHEDULE A
TO MASTER LEASE NO. 6403
EQUIPMENT SCHEDULE 001
PROBUSINESS, INC.
Page 6 of 13
Various equipment from Isolink Systems (Datalink) (continued):
<TABLE>
<CAPTION>
<S> <C> <C>
12 MICROSOFT SERIAL MOUSE 2.0A-GRAY $ 0.00
12 MS DOS 6.22 3.5" 0.00
12 MS WINDOWS 95 ON CD ROM 0.00
1 ISOLINK PENTIUM SYSTEM INC. 2,572.00
1 MEDIUM TOWER CASE 23OW UL PS 0.00
1 ENDEAVER 256BP, NO SOUND CARD 0.00
1 INTEL PENTIUM 133MHZ CPU 0.00
1 COOLING FAN FOR PENTIUM CPU 0.00
1 32MB RAM 0.00
2 SIM 4X32-70 16MB RAM 0.00
1 TEAC 1.44MB FDD PS2 COLOR 0.00
1 QUANTUM 850MB IDE HD 0.00
1 DIAMOND STEALTH-64 IMB DRAM PCI 0.00
1 TOSHIBA 6X INT. IDE CD-ROM 0.00
1 INTEL ETHEREXP 10/100 PCI 0.00
1 MAG 17" .26 N-I L-R 0.00
1 KEYTRONICS 104 KEYBOARD 0.00
1 MICROSOFT SERIAL MOUSE 2.OA-GRAY 0.00
1 MS DOS 6.22 3.5" 0.00
1 MS WINDOWS 95 ON CD ROM 0.00
1 ISOLINK PENTIUM SYSTEM INC. 3,200.00
1 PENTIUM PRO CASE W/INTEL AURORA MB 0.00
1 INTEL PENTIUM PRO 200MHZ CPU 0.00
2 SIM 4X32-70 16MB RAM 0.00
1 TEAC 1.44MB FDD PS2 COLOR 0.00
1 QUANTUM 850MB IDE HD 0.00
1 DIAMOND STEALTH-64 IMB DRAM. PCI 0.00
1 TOSHIBA 6X INT. IDE CD-ROM 0.00
1 INTEL ETHEREXP 10/100 PCI 0.00
1 MAG 15" .28 N-I L-R 0.00
1 KEYTRONICS 104 KEYBOARD 0.00
1 MS WINDOWS 95 ON CD ROM 0.00
1 MICROSOFT SERIAL MOUSE 2.OA-GRAY 0.00
1 MS DOS 6.22 3.5" 0.00
1 PENTIUM PRO FAN 0.00
2 WESTERN DIGITAL 2.5GB IDE HD 778.00
Serial #WT334 005 8907, #WT334 005 8446
1 TRUESCAN BAR CODE READER 195.00
7 TRUESCAN BAR CODE READER 1,365.00
30 ISOLINK PENTIUM SYSTEM INC. 74,550.00
Serial #J961717861, #J961717862, :#J961717863,
#J961717864, #J961707865, #J961717886,
#J961717887, #J961717888, #J961717889,
#J961717890, #J961717876, #J961717877,
</TABLE>
Lessee:
<PAGE> 9
SCHEDULE A
TO MASTER LEASE NO. 6403
EQUIPMENT SCHEDULE 001
PROBUSINESS, INC.
Page 7 of 13
Various equipment from Isolink Systems (Datalink) (continued):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
#J961717878, #J961717879, ;#J961717880,
#J961717881, #J961717882, #J961717883,
#J961717884, #J961717885, #J961717891,
#J961717892, #J961717893, #J961717894,
#J961717895, #J961717901, #J961717902,
#J961717903, #J961717904, #J961717905
30 MINI TOWER CASE 230W UL PS $ 0.00
30 ENDEAVER 256BP, NO SOUND CARD 0.00
30 INTEL PENTIUM 133MHZ CPU 0.00
30 COOLING FAN FOR PENTIUM CPU 0.00
30 32MB RAM 0.00
60 SIM 4X32-70 16MB RAM 0.00
30 TEAC 1.44MB FDD PS2 COLOR 0.00
30 QUANTUM 850MB IDE HD 0.00
30 DIAMOND STEALTH-64 1MB DRAM PCI 0.00
30 TOSHIBA 6X INT. IDE CD-ROM 0.00
30 INTEL ETHEREXP 10/100 PCI 0.00
30 MAG 17" .26 N-I L-R 0.00
30 KEYTRONICS 104 KEYBOARD 0.00
30 MS DOS 6.22 3.5" 0.00
30 MS WINDOWS 95 ON CD ROM 0.00
30 MICROSOFT SERIAL MOUSE 2.0A-GRAY 0.00
4 TOSHIBA TECRA 700CT NOTEBOOK 24,000.00
Serial #03645416, #04651299, #03645921,
#04652478
4 TOSHIBA 4X CD KIT FOR T400 & TECRA 1,380.00
Serial #046138782, #036120141, #056146854
#046138782
2 72 PIN SIMM 8*32-70 478.00
1 MITSUMI 6X CD ROM DRIVE, Serial "DJC184122 69.00
4 72 PIN SIMM 8*32-70 956.00
-----------
SUBTOTAL $138,013.00
FREIGHT 43.00
SALES TAX 11,386.09
-----------
VENDOR TOTAL $149,442.09
' ===========
</TABLE>
Various equipment from Laser-Life Technologies, Inc. consisting of:
<TABLE>
<CAPTION>
<S> <C>
4 HEWLETT PACKARD LASER JET 5SiMX POSTSCRIPT $16,656.00
LEVEL 11 PRINTER, Serial #USBF072387,
#USBF073132, #USDF022013, #USDF021441
2 HEWLETT PACKARD LASERJET 5M LASER PRINTER, 3,580.00
</TABLE>
Lessee:
<PAGE> 10
SCHEDULE A
TO MASTER LEASE NO. 6403
EQUIPMENT SCHEDULE 001
PROBUSINESS, INC.
Page 8 of 13
Various equipment from Laser-Life Technologies, Inc. (continued):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
600 DPI, 6MB RAM, Serial :#USHC017367,
#USHC087912
5 HEWLETT PACKARD LASERJET 5MP 3MB RAM, $ 5,455.00
6PPM, 600 DPI, Serial #USFB088803,
#USFB085407, #USHB018226, #USHB018264,
#USFB004371
8MEG MEMORY UPGRADE FOR ALL NEW PRINTERS 229.00
and PLOTTERS
1 POSTCRIPT SIMM FOR HP LASERJET 4 PLUS 399-00
----------
SUBTOTAL $26,319.00
SALES TAX 2,171.32
----------
VENDOR TOTAL $28,490.32
==========
</TABLE>
Various equipment from Liebert Corporation consisting of:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 UPS 18KVA FL BAT BVP LIEB $17,297.33
1 OPTION KIT RS232 0.00
1 KIT Y-ADAPTER 0.00
1 OPTION KIT EXTERNAL MODEM 0.00
1 KIT SNMP ETHERNET V2.5.3A 0.00
1 STARTUP*UPSTN* STD 15-18K 0.00
1 POWER BATT CAB 7,774.67
----------
SUBTOTAL $25,072.00
SALES TAX 2,068.43
----------
VENDOR TOTAL $27,140.43
==========
</TABLE>
Various equipment from Minnesota Western consisting of:
<TABLE>
<CAPTION>
<S> <C> <C>
1 SUPER BRIGHT VIDEO PROJECTOR, $ 8,495.00
Serial #2AA0620650
1 HARD CASE FOR EPSON VIDEO PROJECTOR 0.00
W/WHEELS/HANDLE
2 4000 LUMEN OVERHEAD PROJECTOR 1,318.00
Serial #1901735, #1906792
4 PHOTOLAMP 0.00
2 4000 LUMEN OVERHEAD PROJECTOR 1,318.00
Serial #1901722, #1902727
2 PADDED SHOULDER BAG 0.00
3 16-MILLION COLOR ACTIVE MATRIX SVGA 11,985.00
LCD W/BUILT-IN SPEAKER, Serial #5AU00601,
</TABLE>
Lessee:
<PAGE> 11
SCHEDULE A
TO MASTER LEASE NO. 6403
EQUIPMENT SCHEDULE 001
PROBUSINESS, INC.
Page 9 of 13
Various equipment from Minnesota Western (continued):
<TABLE>
<CAPTION>
<S><C> <C> <C>
#5AU00602, #5AU00603
1 16-MILLION COLOR ACTIVE MATRIX SVGA $ 3,995.00
LCD W/BUILT-IN SPEAKER, Serial #5AU00605 ----------
SUBTOTAL $27,111.00
FREIGHT 81.52
SALES TAX 2,236.67
----------
VENDOR TOTAL $29,429.19
==========
</TABLE>
Various equipment from Media Integration Inc. consisting of:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 INT-ALTSERVER-1 INTEL ALTSERVER 5/166 $ 9,284.00
16MB MEM
1 14" VGA MONITOR 1,049.00
1 ACER PS/2 KEYBOARD 0.00
1 MICROSOFT MOUSE W/ PS/S CON. 0.00
1 INTEL ETHEREXPRESS PRO 10/100 0.00
1 TOSHIBA 6X IDE CD-ROM 0.00
1 DAC960-PCI 3 CHANNEL BOARD 1,949.00
1 MYLEX 16MB 72 PIN SIMM MODULE 0.00
2 SCSI 3 CONNECTOR 6' CABLE 0.00
2 INTERNAL EXPANSION CABLE FOR M 64.00
2 DEC HA-700W WIDE SCSI DEVICE S 1,278.00
2 DEC RETMA MOUNTING BRAKETS 7" 192.00
4 DEC P-150 150W POWER SUPPLY 3. 1,276.00
11 DEC 4.3GB 7200RPM ST15150W 3.5 16,995.00
1 15/30 GB DLT TAPE DRIVE EXTERN 3,195.00
6 HP 32MB 32BIT, 70NS SIMM MEMOR 2,700.00
1 HD ADAPTOR WITH PLATE 0.00
1 EXTERNAL 50P HI DENSITY 50P CE 0.00
1 SEAGATE 630MD IDE HARD DRIVE 0.00
8 MYLEX 32MB SIMM MODULE 72PIN 0.00
1 ARCSERVE 6.0 FOR NETWARE UNLIM 1,395.00
6 32 MEMORY MOD. 70NS TIN LEAD 2,700.00
2 32MB MEMORY MOD. 70NS TIN LEAD 900.00
----------
SUBTOTAL $42,977.00
FREIGHT 10.00
SALES TAX 3,545.61
----------
VENDOR TOTAL $46,532.61
==========
</TABLE>
Lessee:
<PAGE> 12
SCHEDULE A
TO MASTER LEASE NO. 6403
EQUIPMENT SCHEDULE 001
PROBUSINESS, INC.
Page 10 of 13
Various equipment from Merisel Americas, Inc. consisting of:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 MICROSOFT MS WIN NT SVR V3.51 $ 604.00
NOVELL NETWARE 4.1 250 USER 7,891.58
2 AMERICAN P SMART-UPS 1400VA 6 OUTS 1,076.00
4 U.S. ROBOTIC COURIER V.EVERYTHING V.34 EXT 1,017.20
4 XIRCOM PCMCIA ETHERNET + MODEM 28.8 1,424.48
25 MICROSOFT MSOL OFFICE PRO WIN 95 LEV A 9,996.00
0 SYMANTEC PCANYWHERE V7.5 HOST/REMOTE 1,263.70
2 U.S. ROBOTIC COURIER V.EVERYTHING V.34 EXT 508.60
10 BELKIN PREMIUM IBM PAR PNTR CBL 10 FT- 40.00
5 SYMANTEC PCANYWHERE V7.5 HOST/REMOTE 631.85
-----------
SUBTOTAL $ 24,453.41
FREIGHT 179.11
-----------
VENDOR TOTAL $ 24,632.52
===========
</TABLE>
Various equipment from Soft Iron Systems consisting of:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
2 28115 LATTISSWITCHING ETH, Serial #3988909, $25,390.00
#3804957
2 514 100MBPS FIBER OPTIC T 1,472.00
1 MICROSOFT BACK OFFICE SER 1,608.00
250 MICROSOFT EXCHNG CLIENT L 13,000.00
250 MICROSOFT SYSTEMS MNGMT C 8,750.00
20 MICROSOFT WNDWS NT CLIENT 500.00
20 MICROSOFT SQL CLIENT LICE 2,440.00
----------
SUBTOTAL $53,160.00
FREIGHT 70.00
SALES TAX 4,385.71
----------
VENDOR TOTAL $57,615.71
==========
</TABLE>
Various equipment from Stewarts Office Furniture consisting of:
<TABLE>
<CAPTION>
<S> <C> <C>
4 LATERAL FILES P39 MED. TAUPE $2,236.00
1 KEYBOARD TRAY 160.00
20 KEYBOARD TRAYS 3,200.00
1 COMPUTER U DESK OAK 1,639.00
4 DOUBLE LATERAL FILES 2,780.00
1 6' BOOKCASE 179.00
1 OAK 36' OCTAGON TABLE 359.00
3 CASTER CHAIR ACCORD GRAPHITE 270.00
1 OAK LAMINATE 579.00
</TABLE>
Lessee:
<PAGE> 13
SCHEDULE A
TO MASTER LEASE NO. 6403
EQUIPMENT SCHEDULE 001
PROBUSINESS, INC.
Page 11 of 13
Various equipment from Stewarts Office Furniture (continued):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12 CHAIRS OAK ACCORD GRAPHITE $ 1,908.00
3 CHAIRS OAK ACCORD GRAPHITE 270.00
1 PRODUCTION ROOM 1,490.00
8 CHAIRS IN COM ACCORD GRAPHITE 2,632.00
2 DRI ERASE BOARDS (MLC48) 258.00
4 CHAIR MATS 77.00
3 DESKS 1,575.00
78 ACCORD GRAPHITE FABRIC 1,560.00
40 ACCORD GRAPHITE FABRIC 800.00
7 BURGUNDY STOOLS 906.50
58 FABRIC FOR CHAIRS 1,150.00
1 TABLE W/663-36 BASE 129.00
4 GREY CHAIRS 140.00
2 DRI ERASE BOARDS 258.00
25 OAK/ACCORD GRAPHITE CHAIRS 2,250.00
22 CHAIRS W/3159 ARM ACCORD FAB. 7,238.00
3 OAK DESKS 2,574.00
3 OAK DOUBLE LATERAL FILES 2,085.00
22 CHAIRMATS 423.50
21 CHAIRMATS 404.25
3 OAK DESK 2,574.00
3 OAK DOUBLE LATERAL FILES 2,085.00
21 CHAIRS W/3159 ARM ACCORD FAB. 6,909.00
24 OAK CHAIRS ACCORD GRAPHITE 2,160.00
6 STOOLS W/ADJ. ARMS OXFORD 779.70
24 CHAIRS COM ACCORD GRAPHITE 7,896.00
25 CHAIRS OAK ACCORD GRAPHITE 2,250.00
1 4 DRAWER LATERAL FILE, PUTTY 539.00
2 BOOKCASES 439.90
21 CHAIRMATS 404.25
3 BLACK/WALNUT 477.00
2 4' X 8' DRI-ERASE BOARDS 258.00
1 4' OCTAGON OAK TABLE 419.00
4 OAK/TIERRA BLUE 356.00
10 JR. EXEC. CONF. CHAIRS 1,590.00
MED. OAK/ACCORD GRAPHITE
----------
SUBTOTAL $68,667.10
FREIGHT 790.00
SALES TAX 5,727.33
----------
VENDOR TOTAL $75,184.43
==========
</TABLE>
Lessee:
<PAGE> 14
SCHEDULE A
TO MASTER LEASE NO. 6403
EQUIPMENT SCHEDULE 001
PROBUSINESS, INC.
Page 12 of 13
Various equipment from Taylor Made consisting of:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 6607500 FAX - CANON 7500, Serial #UBZ52436 $3,495.00
1 17750 WARRANTY 90 DY LIMITED 0.00
1 601450 CANON DELIVERY/INSTALL PKG 0.00
1 7900060 SUPPLIES ON SITE 0.00
1 6607500 FAX - CANON 7500, Serial #UBZ52566 3,495.00
1 17750 WARRANTY 90 DY LIMITED 0.00
1 601450 CANNON DELIVERY/INSTALL PKG 0.00
1 7900060 NO SUPPLIES SOLD 0.00
---------
SUBTOTAL $6,990.00
SALES TAX 576.68
---------
VENDOR TOTAL $7,566.68
=========
</TABLE>
Various equipment from VoicePro consisting of:
<TABLE>
<CAPTION>
<S> <C> <C>
3 GRD/LOOP START 9 $10,116.00
2 DIGITAL STATION CARD 0.00
8 VISION TELEPHONE 1,880.00
----------
SUBTOTAL $11,996.00
SALES TAX 989.67
----------
VENDOR TOTAL $12,985.67
==========
</TABLE>
Various equipment from WAN Technologies, Inc. consisting of:
<TABLE>
<CAPTION>
<S> <C> <C>
2 ADTRAN TSU TI DSU/CSU-V35 $2,116.50
2 CISCO MALE DTE V.35 CABLE 170.00
1 REMOTE INSTALL ADTRAN TSU 250.00
---------
SUBTOTAL $2,536.50
FREIGHT 45.62
---------
VENDOR TOTAL $2,582.12
=========
</TABLE>
Lessee:
<PAGE> 15
SCHEDULE A
TO MASTER LEASE NO. 6403
EQUIPMENT SCHEDULE 001
PROBUSINESS, INC.
Page 13 of 13
Equipment Location: 18400 VON KARMEN AVENUE, SUITE 340
IRVINE, CALIFORNIA 92175
Various equipment from Laser-Life Technologies, Inc. consisting of:
<TABLE>
<CAPTION>
<S> <C> <C>
1 HEWLETT PACKARD LASERJET 5MP 3MB RAM, $1,000.00
6 PPM, 600 DPI
1 10 FOOT PARALLEL CABLE 25 PIN TO 36 PIN CENTRONIC 0.00
---------
SUBTOTAL $1,000.00
FREIGHT 18.50
SALES TAX 77.50
---------
VENDOR TOTAL $1,096.00
=========
</TABLE>
TOTAL ORIGINAL EQUIPMENT COST: $670,082.83
==========================================
Lessee:
<PAGE> 16
ADDENDUM NO.1 TO
MASTER LEASE AGREEMENT NO.6403
DATED AS OF JULY 31, 1996
BETWEEN
LINC CAPITAL MANAGEMENT,
A DIVISION OF SCIENTIFIC LEASING INC., AS LESSOR
AND
PROBUSINESS, INC., AS LESSEE
This Addendum is attached to and forms part of that certain Master
Lease Agreement No. 6403 dated as of July 31, 1996, between LINC CAPITAL
MANAGEMENT, A DIVISION OF SCIENTIFIC LEASING, ("Lessor" or "LINC") and
PROBUSINESS, INC., ("Lessee"), (the "Lease") agreeing as follows:
A. Terms defined in the Lease shall have the same meanings herein unless
otherwise expressly set forth herein or otherwise required by context
hereof.
B. The following shall be added to the terms of the Lease and are hereby
incorporated therein by reference.
22. LEASING OF EQUIPMENT
a. Lease Line. Subject to the terms and conditions herein set forth and
in the applicable Equipment Schedule, and provided no event of default under the
Lease shall have occurred and be then continuing, Lessor agrees to purchase and
lease to Lessee, from time to time, the "Equipment" (as defined below). The
aggregate "Cost" (as defined below) of Equipment purchased by Lessor pursuant to
this Section 22.a shall in no event exceed $2,000,000.00 (the "Lease Line
Amount"). All "Takedowns" (as defined below) shall be completed on or before
June 30, 1997 (the "Last Takedown Date").
b. Equipment.
(1) Lessor will purchase certain new office furniture, office
equipment, computers and peripherals (the "Equipment") from Lessee or from
vendors designated by Lessee. Software cannot exceed fifteen percent (15%) of
the total fundings under the lease line. Financing of any upgrades shall be
limited to upgrades for assets financed by LINC or available for sale and
leaseback by LINC. The purchase price for the Equipment will be equal to the
lesser of either (i) 100% of the manufacturers' net invoice price (excluding
applicable sales or use taxes, freight, installation, and similar charges) or
(ii) the then fair market value for each item or commercial unit of the
Equipment ("Cost") or (iii) Net Book Value (determined in accordance with
generally accepted principles).
(2) The "Amount Advanced" for Equipment shall be equal to one
hundred percent (100%) of the Equipment Cost. The minimum Cost for an individual
item of or commercial unit of the Equipment shall not be less than $1,000.
(3) All Equipment shall be tangible personal property eligible
for MACRS depreciation under the Internal Revenue Code of 1986, as amended. The
depreciation benefits arising from the Equipment will be for the account of
Lessor.
<PAGE> 17
(4) Each item of or commercial unit of the Equipment, its vendor
and all purchase orders, invoices and related documents will be subject to
review and approval by Lessor prior to funding any Takedown.
c. Minimum Lease Term and Monthly Lease Rate. The Minimum Lease Term
for each Equipment Schedule shall be 42 months. The applicable Monthly Lease
Rate factor shall be 2.8532% of Cost per month, [reflecting an annual implicit
rate of 11.00%,] subject to Rate Adjustments described below.
d. Rate Adjustment. The Lease Rate and the Monthly Lease Rate Factor
will be indexed to the average yield for U.S. Treasury Notes maturing closest to
the date forty-two (42) months from the commencement date of each Equipment
Schedule (the "Index Instrument") currently 6.35% for the 7 3/4% Treasury Notes
maturing November 1999 as reported in the Wall Street Journal dated May 13, 1996
as reported in the Wall Street Journal dated May 13, 1996. The Monthly Lease
Rate Factor shall be adjusted to provide for any increase or decrease (limited)
in the average yield of the Index Instrument on the commencement date of each
Equipment Schedule so as to maintain an annual implicit rate equal to the Lease
Rate. The average yield of the Index Instrument shall have a floor of 6.35%.
Upon commencement of each Equipment Schedule, the Monthly Lease Rate Factor
shall be fixed for the Initial Lease Term of such Equipment Schedule.
e. Takedowns. "Takedowns" means the date of the final payment of the
Cost of the Equipment for the applicable Equipment Schedules by LINC. All
Takedowns shall commence on the first day of the calendar quarter following
Lessee's acceptance of all Equipment on each Equipment Schedule. The Initial
Takedown shall occur on or before August 1, 1996, provided Lessee has executed
and delivered the Master Lease Agreement and all related documentation required
by Lessor. Any Equipment purchased after the Initial Takedown shall be funded on
subsequent Takedowns through additional Equipment Schedules of at least
$100,000.00 each up to the amount of the Cost of such Equipment. Each Equipment
Schedule will include all purchases of Equipment made for Equipment on a
progress payment basis in the previous calendar quarter not previously included
in an Equipment Schedule. All Equipment Schedules shall takedown prior to June
30, 1997.
f. Last Month's Rent. An amount equal to $57,064.00, representing the
last month's rental on the entire Lease Line Amount, calculated by multiplying
the Monthly Lease Rate Factor by the Equipment Cost equal to the aggregate Lease
Line Amount, will be invoiced and due at the time of the commencement of
Equipment Schedule 001 and this rent will be applied to the last Monthly Lease
Payment due under each Equipment Schedule on a pro rata basis. If the entire
Lease Line Amount is not fully funded by June 30, 1997, then the unused amount
of the last payment paid under this paragraph shall be retained by Lessor.
g. Payment Terms. Monthly in advance.
h. End of Term Options. Provided that the Lease has not been terminated
and that no Event of Default or event which, with notice or lapse of time or
both, would become an Event of Default shall have occurred and be continuing,
Lessee shall elect one of the following options in clauses (i) or (ii) below:
(i) Lessee's Option to Renew: At the expiration of the Initial
Lease Term of Schedule No. 001, Lessee may elect to renew the
Lease with respect to all, and not less than all, of the
Equipment under all Schedules to the Lease at their respective
expiration dates for
-2-
<PAGE> 18
twelve (12) months at 1. 5 % of the Amount Advanced (as
defined in section 22) per month, payable in advance plus any
applicable taxes.
(ii) Lessee's Option to Purchase: At the expiration of the
Initial Lease Term of Schedule No.001, Lessee may elect to
purchase all, but not less than all, of the Equipment under
all Schedules to the Lease at their respective expiration
dates for a purchase price equal to fifteen percent (15%) of
the Amount Advanced (as defined in section 22) thereof as of
the end of the Minimum Lease Term applicable to each
Equipment Schedule plus any applicable sales or other
transfer taxes payable as a result of such sale plus any
amounts that remain unpaid to Lessor under the Lease.
If neither of the foregoing options in clauses (i) or (ii) of this section is
duly exercised by Lessee, this Lease shall be automatically extended at the
highest rental rate in effect immediately prior to the expiration date of the
Minimum Lease Term applicable to Schedule No. 001 with respect to all Equipment
covered by any applicable Schedule from the expiration date of the Minimum Lease
Term of each Schedule on a month-to-month basis. Lessee may terminate any such
extended term on ninety (90) days' prior written notice to Lessor and so long as
with such notice Lessee has elected one of the options described in clauses (i)
or (ii) above.
The purchase of the Equipment by Lessee pursuant to any options herein granted
shall be "AS IS, WHERE IS," without recourse to or any warranty by Lessor, other
than a warranty that the Equipment is free and clear of liens and encumbrances
resulting by or through acts of Lessor.
i. Commitment Fee. Lessor acknowledges receipt of a $10,000.00
Commitment Fee from Lessee.
j. Earnest Money Deposit. Lessor acknowledges receipt of a $10,000.00
Earnest Money Deposit. The Earnest Money Deposit will be applied to on-site
documentation preparation costs (if requested by Lessee), and then to the first
lease rental payment. If ProBusiness elects not to proceed with transactions
contemplated herein, then the deposit amount will be retained by LINC.
k. Conditions Precedent to Leasing. In addition to any other document
or item requested by Lessor, Lessee shall deliver the items set forth below in
form and substance acceptable to Lessor. With respect to the Initial Takedown
the following items:
(1) Execution and delivery by Lessee to Lessor the following
documents prior to the Initial Takedown:
(a) Master Lease Agreement;
(b) Addendum No. 1 to Master Lease Agreement;
(c) Equipment Schedule(s), as required by Lessor;
(d) Secretary's certificate as to board of directors'
resolutions and incumbency;
(e) UCC-I financing statements and protective fixture
filings signed by Lessee (to be filed prior to the
earlier of funding or, for Equipment delivered
after the date of the Lease, delivery of Equipment
to Lessee) along with any UCC Amendments relating
thereto for any prior, present or subsequent
Equipment Schedule;
(f) Progress Payment Authorization (if applicable);
(g) Bill(s) of sale for Equipment sold by Lessee to
Lessor (if applicable);
(h) Purchase Agreement Assignment of agreements between
Lessee and its Equipment vendors for new Equipment
(if applicable); and
-3-
<PAGE> 19
(i) The Warrant described in Section 24 below.
(2) Delivery to Lessor of executed copies of the following
Documents prior to the Initial Takedown:
(a) Legal opinion of Lessee's Counsel, in form and
substance acceptable to Lessor;
(b) Certificate of insurance;
(c) Release or subordination of all security interests
in favor of any other party granted by Lessee or
the owners of Equipment to be sold to Lessor which
cover either the Equipment to be sold or include
"after acquired" Equipment clauses in favor of such
other party ("Equipment Liens"), (if applicable);
and
(d) Release, disclaimer or subordination agreements (if
required by Lessor) by each owner of any premises
in which Equipment will be located of any
landlord's lien or other right which a real
property owner might claim in the Equipment to be
leased hereunder.
(3) With respect to Subsequent Takedowns, the following items
will be required to be delivered and executed, if applicable,
prior to each Subsequent Takedown:
(a) Equipment Schedule(s), as needed by Lessor;
(b) Secretary's certificate as to board of directors'
resolutions and incumbency (if requested by
Lessor);
(c) UCC-I financing statements and protective fixture
filings signed by Lessee (to be filed prior to the
earlier of funding or delivery of Equipment to
Lessee) along with any UCC Amendments relating
thereto for any prior, present, or subsequent
Equipment Schedule;
(d) Progress Payment Authorization, (if applicable);
(e) Bill(s) of sale for Equipment sold by Lessee to
Lessor (if applicable);
(f) Purchase Agreement Assignment of agreements between
Lessee and its Equipment vendors for new Equipment
(if applicable);
(g) Updated legal opinion (if requested by Lessor);
(h) Certificate of insurance (if requested by Lessor);
(i) Release of "Equipment Liens" (if applicable);
(j) Landlord subordination agreements or Equipment
Waiver agreements acceptable to Lessor; (if
applicable);
(k) Original invoices issued to Lessor (or copies of
invoices to Lessee and canceled checks of Lessee);
(l) Amendments to Articles of Incorporation and By-Laws
(if applicable);
1. Broker Fee. Lessor agrees to pay Interlease Group, Limited a Broker
Fee equal to 1.5 % of the amount funded on each Takedown under the Lease Line,
payable within 30 days of funding. Lessee represents and warrants that it has
not made nor shall make additional payments to Interlease Group, Limited, for
any services in connection with this Master Lease, and that it shall not receive
any payments from Interlease Group, Limited in connection with this Master
Lease.
23. PROGRESS PAYMENTS
If requested, progress payments will be made for any amount over S1,000 per
invoice to vendors in accordance with Lessor's standard procedures. Interim rent
on progress payments on Equipment shall
-4-
<PAGE> 20
be payable from the date progress payments are made to the Commencement Date of
the corresponding Equipment Schedule.
Lessee shall deliver to Lessor Lessee's authorization, not less than 30 days
prior to the due date thereof and in a form acceptable to Lessor, to make a
progress payment and, provided on such due date no Events of Default have
occurred and be continuing hereunder or under the Lease, Lessor shall make the
progress payment to the manufacturer(s) or supplier(s) as set forth in such
authorization. With respect to such progress payments so made by Lessor, Lessee
agrees as follows:
(i) to pay the Lessor or Lessor's Assignee a daily rental amount equal
to the product of the aggregate amount of progress payments actually
made by Lessor multiplied by the Lease Rate Factor as set forth in each
applicable Equipment Schedule divided by thirty (30) from the date such
progress payments are in fact made. Such payment shall be made by
Lessee to Lessor immediately upon Lessee's receipt of a written request
therefor (but not more than one such payment shall be made within any
given period of thirty (30) days) accompanied by evidence reasonably
satisfactory to Lessee indicating the amount and date of payment by
Lessor of the progress payments in respect of which such payment is so
requested;
(ii) in the event Lessee shall not deliver Lessee's Equipment
Acceptance Form with respect to the Equipment to Lessor on or before
three (3) months from the date of the first progress payment made
hereunder (unless such period is extended by mutual written agreement
of Lessor and Lessee), to pay to Lessor or Lessor's Assignee, upon
demand, an amount equal to the sum of all progress payments theretofore
made by Lessor pursuant to this provision, together with unpaid daily
rental amounts thereon;
(iii) Lessee acknowledges and understands that Lessor may elect to
borrow all or a portion of the progress payments required of Lessor
under this provision and that as security therefor, Lessor may assign
the applicable Equipment Schedule, including but not limited to
Lessor's rights hereunder, to the lender of such amounts so borrowed.
Lessee agrees, without notice to Lessee, Lessor may make such
assignment in connection with any such borrowing and for the protection
and benefit of Lessor and any such assignee, the rights of Lessor or
its assignee in and to such payments shall be absolute and
unconditional under all circumstances, notwithstanding: (i) any
set-off, abatement, reduction, counterclaim, recoupment, defense or
other right which Lessee may have against Lessor, the manufacturer(s)
or seller(s) of the Equipment, or any other person for any reason
whatsoever; or (ii) any defect in condition, operation, fitness or use,
damage or destruction of the Equipment, or failure of the
manufacturer(s) or supplier(s) to deliver the Equipment for any reason
whatsoever; or (iii) or any insolvency, bankruptcy, reorganization or
similar proceedings instituted by or against the Lessor or Lessee.
24. WARRANTS
In connection with the Master Lease Agreement No. 6403, Lessee shall issue and
deliver to Lessor a warrant to purchase 10,000 shares of Series E Preferred
Stock at the same exercise price as the most recent equity placement, which is
$7.94 per share.
The warrants shall be issued and delivered to Lessor upon execution of the
Master Lease Agreement. The warrant expiration date shall be five (5) years from
the date of the final acceptance of the Equipment under the lease. The terms of
the warrant shall include piggyback registration rights on a pro rata basis with
the shares of other shareholders subject to cutback on the Initial Public
Offering,
-5-
<PAGE> 21
acceptable anti-dilution rights, and shall provide for a "cashless" exercise
provision in the event of exercise by LINC.
25. REPORTS
a. Reports. (1) within 30 days of the end of a quarter. Lessee shall
furnish to Lessor the following quarterly financial and operating performance
data: Statement of Cash Flow, Operating data (which shall include updates on
items (1) and (2) in section 26 herein), Income Statement and Balance Sheet, (2)
Within 60 days of year end, Lessee shall furnish to Lessor the following audited
financial statements: Statement of Cash Flow, Operating data (which shall
include updates on items (1) and (2) in section 26 herein), Income Statement
and Balance Sheet; (3) Lessee shall furnish to Lessor copies of minutes of the
meetings of the Board of Directors of Lessee and actions approved by consent in
lieu of a meeting in connection with the transactions contemplated by the Lease;
and (4) If an Event of a Default occurs, Lessee shall have the right to review
all minutes of all Board of Directors Meetings.
26. OTHER SPECIAL TERMS AND CONDITIONS
a. Material Adverse Change. Lessee shall furnish to Lessor prompt
written notice of any Material Adverse Change. A "Material Adverse Change"
occurs if: (1) The cash balance or available borrowing capacity under a
revolving line of credit is less than $1 million; (2) The net customer base loss
exceeds ten percent (10%) for any given calendar quarter measured against the
previous quarter; (3) The revenues for a quarter are ninety percent (90%) or
less than revenues for the corresponding quarter one year prior; or (4) Upon the
incapacitation or death of Thomas H. Sinton.
IN WITNESS WHEREOF, this Addendum has been executed by a duly authorized officer
of Lessee as of the ______ day of ___________ 19_____.
PROBUSINESS, INC.
(Lessee)
By: /s/ Steven Klei
--------------------------------------
Name: /s/ Steven Klei
-------------------------------------
Title: /s/ Vice President
--------------------------------------
LINC CAPITAL MANAGEMENT, A DIVISION OF
SCIENTIFIC LEASING INC.
(Lessor)
By: /s/ Mark K. Zimmerman
--------------------------------------
Name: /s/ Mark K. Zimmerman
--------------------------------------
VICE PRESIDENT
Title:
--------------------------------------
Date: Illegible
--------------------------------------
-6-
<PAGE> 22
LINC CAPITAL MANAGEMENT, A DIVISION OF LINC CAPITAL MANAGEMENT, A DIVISION OF
SCIENTIFIC LEASING INC. SCIENTIFIC LEASING INC.
MASTER LEASE AGREEMENT 303 EAST WACKER Drive
Chicago, Illinois 60601
(312) 946-1000
LESSEE: ProBusiness Inc. MASTER LEASE AGREEMENT NO. 6403
ADDRESS: 5934 Gibraltar Drive DATE: July 31, 1996
Pleasanton, California 94588
LINC CAPITAL Management, A DIVISION OF SCIENTIFIC LEASING INC. ("Lessor") hereby
leases to Lessee and Lessee leases from Lessor, in accordance with the terms and
conditions hereinafter set forth, the equipment and property together with all
replacement parts, additions, accessories, alterations and repairs incorporated
therein or now or hereafter affixed thereto (herein collectively referred to as
the "Equipment") described in each Equipment Schedule which may be executed by
Lessor and Lessee from time to time (individually a "Schedule' and collectively,
the "Schedules"), each of which is made a part hereof. For all purposes of this
Master Lease Agreement ("Lease"), each Schedule relating to one or more items of
Equipment shall be deemed a separate lease incorporating all of the terms and
provisions of this Lease. In the event of a conflict between the terms of this
Lease the terms and conditions of a Schedule, the terms and conditions of the
Schedule shall govern and control that Schedule.
1. TERM AND RENTAL. The term of this Lease (the "Minimum Lease Term") for any
item of Equipment shall be set forth in the Schedule relating to such item of
Equipment and shall commence (the "Commencement Date") on the acceptance Date
("Acceptance Date"), which shall be the applicable of: (1) the later of (a) the
date of delivery of the Equipment to Lessee and (b) the date of acceptance of
such Equipment by Lessee; (2) in the case of Equipment which is the subject of a
sale and leaseback between Lessor and Lessee, the date upon which Lessor
purchases such Equipment from Lessee: or (3) in the case of Equipment requiring
installation, the date of installation of the Equipment. If the Acceptance Date
Is other than the first day of a calendar quarter. then the Commencement Date of
the Minimum Lease Term set forth in any Schedule shall be the first day of the
calendar quarter following the month which includes the Acceptance Date and
Lessee shall pay to Lessor, in addition to all other sums due hereunder, an
amount equal to one-thirtieth of the amount of the average monthly rental
payment due or to become due hereunder multiplied by the number of days from and
including the Acceptance Date to the Commencement Date of the Minimum Lease Term
set forth in the Schedule. Lessee agrees to pay the total rental
<PAGE> 23
quarter following the month which includes the Acceptance Date and Lessee shall
pay to Lessor, in addition to all other sums due hereunder, an amount equal to
one-thirtieth of the amount of the average monthly rental payment due or to
become due hereunder multiplied by the number of days from and including the
Acceptance Date to the Commencement Date of the Minimum Lease Term set forth in
the Schedule. Lessee agrees to pay the total rental for the entire term hereof,
which shall be the total amount of all rental payments set forth in the
Schedule, plus such additional amounts as may become due hereunder or pursuant
to any written modification hereof or additional written agreement hereto.
Except as otherwise specified in the Schedule. rental payments hereunder shall
be monthly and shall be payable in advance on the first day of each month during
the term of this Lease beginning with the Commencement Date of the Minimum Lease
Term and shall be sent to the address of the Lessor specified in this Lease or
the Schedule or as otherwise directed by the Lessor in writing. Rental payments
or any other payments due hereunder not made on or before the due date shall be
overdue and shall be subject to a service charge in an amount equal to two
percent (2%) per month of the overdue payments or the maximum rate permitted by
law whichever is less (the "Service Charge Rate"). If Lessor shall at any time
accept a rental payment after it shall become due, such acceptance shall not
constitute or be construed as a waiver of any or all of Lessor's rights
hereunder, including without limitation those rights of Lessor set forth in
Sections 12 and 13 hereof.
2. TITLE TO EQUIPMENT; LIENS. (a) All of the Equipment shall remain personal
property (whether or not the Equipment may at any time become attached or
affixed to real property). All replacement parts or repairs incorporated in or
affixed to the Equipment (herein collectively called "Appurtenances" and
included in the definition of "Equipment"), whether before or after the
Commencement Date, shall become subject to this Lease upon being so incorporated
or affixed. (b) During the term of each Schedule and upon Lessee's full
performance of all its obligations under or relating to such Schedule and the
Lease as they relate to such Schedule, Lessor shall retain title to such
Equipment, provided, that, Lessee and Lessor acknowledge that transactions
documented hereunder and under each Schedule shall constitute a "Lease intended
as security", or "security interest", as the case may be under the Uniform
Commercial Code. Lessee agrees to promptly execute and deliver or cause to be
executed and delivered to Lessor and Lessor is hereby authorized to record or
file, any statement and/or instrument requested by Lessor for the purpose of
showing Lessor's interest in the Equipment, including without limitation,
financing statements, security agreements, and (using its best efforts) waivers
with respect to rights in the Equipment from any owners or mortgagees of any
real estate where the Equipment may be located. Without limiting any provision
of this Lease and not withstanding any provision hereof to the contrary, (i) to
secure Lessee's obligations to Lessor hereunder, under any Schedule and under
any other document relating to this Lease (both now existing and hereafter
arising), Lessee hereby grants to Lessor a first priority security interest in
the Equipment described in each Schedule together with all products, proceeds,
replacements, substitutions thereof and Appurtenances thereto and (ii) such
security interest will be a valid. perfected and enforceable first priority
security interest in such Equipment. In the event that Lessee fails or refuses
to execute and/or file Uniform Commercial Code financing statements or other
instruments or recordings which Lessor or its assignee reasonably deems
necessary to perfect or maintain perfection of Lessor's or its assignee's
interests hereunder. Lessee hereby appoints Lessor as Lessee's limited
attorney-in-fact to execute and record all documents necessary to perfect or
maintain the perfection of Lessor's interests hereunder. Lessee shall pay Lessor
for any costs and fees relating to any filings hereunder including, but not
limited to, costs, fees, searches, document preparation, documentary stamps,
privilege taxes and reasonable attorneys' fees. (c) Lessee shall at its expense:
(i) indemnify, protect and defend Lessor's title to the Equipment from and
against all persons claiming against or through Lessee, (ii) at all times keep
the Equipment free from any and all liens, encumbrances, attachments, levies,
executions, burdens, charges or legal process of any and every type whatsoever
except the lien of Lessor hereunder: (iii) give Lessor immediate written notice
of any breach of this Lease described in clause (ii); and (iv) indemnify,
protect and save Lessor harmless
<PAGE> 24
from any loss, cost or expense (including reasonable attorneys' fees) caused by
the Lessee's breach of any of the provisions of this Lease, whether incurred by
Lessor in pursuing its rights against Lessee or defending against any claims or
defenses asserted by or through Lessee. (d) It is hereby agreed between Lessee
and Lessor that, for Federal, state and local income tax purposes (i) the Lease
is, and will be consistently treated as, a financing rather than a true lease,
(ii) Lessee will be the owner of the Equipment delivered under this Lease; (iii)
Lessee will not claim any rental deduction for amounts paid to Lessor under the
Lease; (iv) Lessor will not claim any cost recovery or depreciation deductions
with respect to the Equipment delivered under this Lease; (v) neither Lessor nor
Lessee will at any time take any action, directly or indirectly, or file any
returns or other documents inconsistent with the foregoing; and (vi) Lessor and
Lessee will file such returns, take such actions and execute such documents as
may be reasonable and necessary to facilitate accomplishment of the intent
expressed herein.
If any item of Equipment includes computer software, Lessee shall
execute and deliver and shall cause Seller (as hereinafter defined) to deliver
all such documents as are necessary to effectuate assignment of all applicable
software licenses to Lessor. Lessee shall at its expense: (i) indemnify, protect
and defend Lessor's title to the Equipment from and against all persons claiming
against or through Lessee; (ii) at all times keep the Equipment free from any
and all liens, encumbrances, attachments, levies, executions, burdens, charges
or legal process of any and every type whatsoever; (iii) give Lessor immediate
written notice of any breach of this Lease described in clause (ii); and (iv)
indemnify, protect and save Lessor harmless from any loss, cost or expense
(including reasonable attorneys' fees incurred by Lessor in pursuing its rights
against Lessee or defending any claims or defenses asserted by or through
Lessee) caused by the Lessee's breach of any of the provisions of this Lease.
3. ACCEPTANCE AND RETURN OF EQUIPMENT. Lessor shall, at any time prior to
unconditional acceptance of all Equipment by Lessee, have the right to cancel
this Lease with respect to any Equipment (and if any such Equipment or any
portion thereof has not previously been delivered, Lessor may refuse to pay for
such Equipment or any portion thereof or refuse to cause the same to be
delivered) if: (a) the Acceptance Date with respect to any such item of
Equipment to be leased pursuant to any Schedule has not occurred within sixty
(60) days of the estimated Acceptance Date set forth in such Schedule or (b)
there shall be a Material Adverse Change (as defined in section 26 of Addendum
No. 1 to Master Lease Agreement No. 6403), since the date of the most recent
financial statements of Lessee or of any guarantor Of Lessee's performance
hereunder submitted to Lessor. Upon any cancellation by Lessor pursuant to this
Section or the provisions of any Schedule, Lessee shall forthwith reimburse to
Lessor all sums paid by Lessor with respect to such Equipment plus all costs and
expenses of Lessor incurred in connection with such Equipment and any interest
or rentals due hereunder in connection with such Equipment and shall pay to
Lessor all other sums then due hereunder, whereupon if Lessee is not then in
default and has fully performed all of its obligations hereunder, Lessor will,
upon request of Lessee, transfer to Lessee without warranty or recourse any
rights that Lessor may then have with respect to such Equipment. Lessee agrees
to promptly execute and deliver to Lessor (in no event later than 15 days after
the Acceptance Date) a confirmation by Lessee of unconditional acceptance of the
Equipment in the form supplied by Lessor (the "Equipment Acceptance"). Lessee
agrees, before execution of the aforesaid Equipment Acceptance, to inform Lessor
in writing of any defects in the Equipment, or in the installation thereof,
which have come to the attention of Lessee or its agents and which might give
rise to a claim by Lessee against the Seller or any other person. If Lessee
fails to give notice to Lessor of any such defects or fails to deliver to Lessor
the Equipment Acceptance as provided herein, it shall be deemed an
acknowledgment by Lessee (for purposes of this Lease only) that no such defects
in the Equipment or its installation exist and it shall be conclusively
presumed, solely as between Lessor and its assignees and Lessee, that such
Equipment has been unconditionally accepted by Lessee for lease hereunder.
Except as otherwise provided in any Schedule, Lessee shall provide Lessor ninety
(90) days prior written notice of its intention to return the Equipment upon
expiration of the Minimum Lease Term. Upon expiration or the cancellation or
termination of the Lease with
<PAGE> 25
respect to any Equipment, Lessee shall, at its own expense, assemble, crate,
insure and deliver all of the Equipment and all of the service records and all
software and software documentation subject to this Lease and any Schedules
hereto to Lessor in the same good condition and repair as when received,
reasonable wear and tear resulting only from proper use thereof excepted, to
such reasonable destination within the continental United States as Lessor shall
designate. Lessee shall, use its best efforts immediately prior to such return
of each item of Equipment to provide to Lessor a letter from the manufacturer of
the Equipment or another service organization reasonably acceptable to Lessor
certifying that said item is in good working order, reasonable wear and tear
resulting only from proper use thereof excepted, that such item is eligible for
a maintenance agreement by such manufacturer and all software is included
thereon. If any computer software requires relicensing when removed from
Lessee's premises, Lessee shall bear all costs of such relicensing. If Lessee
fails for any reason to provide the notice set forth above or to re-deliver the
Equipment back to Lessor in accordance with the terms set forth above. Lessee
shall pay to Lessor, at Lessor's election, an amount equal to the highest
monthly payment set forth in the Schedule for a period of not less than three
(3) months and at the end of such period of time ("Holdover Period"), Lessee
shall return the Equipment to Lessor as provided herein. If Lessee fails or
refuses to return the Equipment as provided herein at the end of any Holdover
Period, Lessee shall pay to Lessor, at Lessor's option, an amount equal to the
highest monthly payment set forth in the Schedule for each month or portion
thereof, until Lessee so returns the Equipment to Lessor.
4. DISCLAIMER OF WARRANTIES. LESSEE HAS EXCLUSIVELY SELECTED AND CHOSEN THE
TYPE, DESIGN, CONFIGURATION, SPECIFICATION AND QUALITY OF THE EQUIPMENT HEREIN
LEASED AND THE VENDOR, DEALER, SELLER, MANUFACTURER OR SUPPLIER THEREOF (HEREIN
COLLECTIVELY CALLED "SELLER"), AS SET FORTH IN THE SCHEDULES. LESSOR MAKES NO
REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS, ADAPTABILITY, ANY IMPLIED WARRANTY OF QUIET
ENJOYMENT OR NON-INTERFERENCE OR SUITABILITY FOR ANY PARTICULAR PURPOSE, AND,
LESSEE LEASES, HIRES AND RENTS THE EQUIPMENT "WHERE IS, AS IS" Lessee
understands and agrees that neither Seller, nor any agent of Seller, is an
agent of Lessor or is in any manner authorized to waive or alter any term or
condition of this Lease. Lessor shall not be liable for any loss or damage
suffered by Lessee or by any other person or entity, direct or indirect or
consequential, including, but not limited to, business interruption and injury
to persons or property, resulting from non-delivery or late delivery,
installation, failure or faulty operation, condition, suitability or use of the
Equipment leased by Lessee hereunder, or for any failure of any representations,
warranties or covenants made by the Seller. Any claims of Lessee shall not be
made against Lessor but shall be made, if at all, solely and exclusively against
Seller, or any persons other than the Lessor. Lessor hereby authorizes Lessee to
enforce during the term of this Lease, in its name, but at Lessee's
2
MASTER LEASE - SECURITY 3/95
<PAGE> 26
AMENDED 8/17/95
sole effort and expense, all warranties, agreements or representations, if any,
which may have been made by Seller to Lessor or to Lessee, and Lessor hereby
assigns to Lessee solely for the limited purpose of making and prosecuting any
such claim, all rights which Lessor may have against Seller for breach of
warranty or other representation respecting the Equipment.
5. CARE, TRANSFER AND USE OF EQUIPMENT. Lessee, at its own expense, shall
maintain the Equipment in good operating condition, repair and appearance in
accordance with Seller's specifications and in compliance with all applicable
laws and regulations and shall protect the Equipment from deterioration except
for reasonable wear and tear resulting only from proper use thereof. When
generally offered, Lessee shall, at its expense, keep a maintenance contract in
full force and effect, throughout the term of this Lease and any Schedule
hereto. The disrepair or inoperability of the Equipment regardless of the cause
thereof shall not relieve Lessee of the obligation to pay rental hereunder.
Lessee shall not make any modification, alteration or addition to the Equipment
(other than normal operating accessories or controls). Lessee will not, and will
not permit anyone other than the authorized field engineering representatives of
Seller or other maintenance organization reasonably acceptable to Lessor to
effect any inspection, adjustment, preventative or remedial maintenance or
repair to the Equipment. LESSEE MAY NOT (A) RELOCATE OR OPERATE THE EQUIPMENT AT
LOCATIONS OTHER THAN THE PREMISES OF LESSEE SPECIFIED IN THE APPLICABLE SCHEDULE
(THE "PREMISES"), EXCEPT WITH LESSOR'S PRIOR WRITTEN CONSENT, WHICH SHALL NOT BE
UNREASONABLY WITHHELD IF SUCH OTHER LOCATION IS WITHIN THE CONTINENTAL UNITED
STATES, OR (B) SELL, CONVEY, TRANSFER, ENCUMBER, PART WITH POSSESSION OF, OR
ASSIGN ANY ITEM OF EQUIPMENT OR ANY OF ITS RIGHTS HEREUNDER, AND ANY SUCH
PURPORTED TRANSACTION SHALL BE NULL AND VOID AND OF NO FORCE OR EFFECT. In the
event of a relocation of the Equipment or any item thereof to which Lessor
consents, all costs (including any additional property taxes or other taxes and
any additional expense of insurance coverage) resulting from any such
relocation, shall be promptly paid by Lessee upon presentation to Lessee of
evidence supporting such cost. Lessor shall have the right during normal
business hours upon reasonable notice to Lessee, subject to applicable laws and
regulations, to enter Lessee's Premises in order to inspect, observe, affix
labels or other markings, or to exhibit the Equipment to prospective purchasers
or future lessees thereof, or to otherwise protect Lessor's interest therein;
provided, that any such inspections or visits are reasonably conducted.
6. NET LEASE. THIS LEASE AND ANY SCHEDULE HERETO IS A NET LEASE, AND ALL
PAYMENTS HEREUNDER ARE NET TO LESSOR. All taxes, assessments, licenses, and
other charges (including, without limitation personal property taxes and sales,
use and leasing taxes and penalties and interest on such taxes) imposed, levied
or assessed on the ownership, possession, rental or use of the Equipment during
the term of this Lease and any Schedule hereto (except for Lessor's federal or
state net income taxes) shall be paid by Lessee when due and before the same
shall become delinquent, whether such taxes are assessed or would ordinarily be
assessed against Lessor or Lessee. To the extent possible under applicable law,
for personal property or advalorem tax return purposes only, Lessee shall
include the Equipment on such returns as may be required, which returns shall be
timely filed by it. In any event, Lessee shall file all tax returns required for
itself or Lessor and Lessor hereby appoints Lessee as its attorney-in-fact for
such purpose. In case of failure by Lessee to so pay said taxes, assessments,
licenses or other charges, Lessor may pay all or any
<PAGE> 27
part of such items, in which event the amount so paid by Lessor including any
interest or penalties thereon and reasonable attorneys' fees incurred by Lessor
in pursuing its rights against Lessee or defending against any claims or
defenses asserted by or through Lessee shall be paid by Lessee to Lessor as
additional rental hereunder no later than the next rental payment date following
receipt of invoice therefor. Lessee shall promptly pay all costs, expenses and
obligations of every kind and nature incurred in connection with the use or
operation of the Equipment which may arise or become due during the term of this
Lease and any Schedule hereto, whether or not specifically mentioned herein. In
case of failure by Lessee to comply with any provision of this Lease and any
Schedule hereto, Lessor shall have the right, but not the obligation, to effect
such compliance on behalf of Lessee. In such event, all costs and expenses
incurred by Lessor in effecting such compliance shall be paid by Lessee to
Lessor as additional rental hereunder no later than the next rental payment date
following receipt of invoice therefor.
7. INDEMNITY. Lessee shall and does hereby agree to indemnify, defend and hold
Lessor and its assigns harmless from and against any and all liability, loss,
costs, injury, damage, penalties, suits, judgements, demands, claims, expenses
and disbursements (including without limitation, reasonable attorneys' fees
incurred by Lessor in pursuing its rights against Lessee or defending against
any claims or defenses asserted by or through Lessee) of any kind whatsoever
arising out of, on account of, or in connection with this Lease and the
Equipment leased hereunder, including, without limitation, its manufacture,
selection, purchase, delivery, rejection, installation, ownership, possession,
leasing, renting, operation, control, use, maintenance and the return thereof.
This indemnity shall survive the Minimum Lease Term or earlier cancellation or
termination of this Lease and any Schedule hereto.
8. INSURANCE. Commencing on the date that risk of loss or damage passes to
Lessor from the Seller and continuing until Lessee has re-delivered possession
of the Equipment to Lessor, Lessee shall, at its own expense, keep the Equipment
(including all additions thereto) insured against all risks of loss or damage
from every and any cause whatsoever in such amounts (but in no event less than
the greater of the replacement value thereof or the amount set forth in the
applicable Casualty Schedule, whichever is higher) with such deductibles and
exclusions as approved by Lessor and in such form as is satisfactory to Lessor.
All such insurance policies shall protect Lessor and Lessor's assignee(s) as
loss payees as their interests may appear. Lessee shall also, at its own
expense, carry public liability insurance, with Lessor and Lessor's assignee(s)
as an additional insured, in such amounts with such companies and in such form
as is satisfactory to Lessor, with respect to injury to person or property
resulting from or based in any way upon or in any way connected with or relating
to the installation, use or alleged use, or operation of any or all of the
Equipment, or its location or condition. Not less than ten days prior to the
Acceptance Date, Lessee shall deliver to Lessor satisfactory evidence of such
insurance and shall further deliver evidence of renewal of each such policy
not less than thirty (30) days prior to expiration thereof. Each such policy
shall contain an endorsement providing that the insurer will give Lessor not
less than thirty (30) days prior written notice of the effective date of any
alteration, change, cancellation, or modification of such policy or the
failure by Lessee to timely pay all required premiums, costs or charges with
respect thereto. Upon Lessor's request, Lessee shall cause its insurance
agent(s) to execute and deliver to Lessor Loss Payable Clause Endorsement and
Additional Insured Endorsement (bodily injury and property damage liability
insurance) forms provided to Lessee by Lessor. In case of the failure to procure
or maintain such insurance, Lessor shall have the right, but not the obligation,
to obtain such insurance and any premium paid by Lessor shall be due and payable
Master Lease - Security 3/95 3
<PAGE> 28
Amended 8/17/95
by Lessee to Lessor as additional rent hereunder no later than the next rental
payment date following receipt of invoice therefor. The maintenance of any
policy or policies of insurance pursuant to this Section shall not limit any
obligation or liability of Lessee pursuant to Sections 7 or 9 or any other
provision of this Lease and any Schedule hereto.
9. RISK OF LOSS. Until such time as the Equipment is returned and delivered to
and accepted by Lessor, pursuant to the terms of this Lease and any Schedule
hereto, Lessee hereby assumes and shall bear the entire risk of loss, damage,
theft and destruction of the Equipment, or any portion thereof, from any cause
whatsoever ("Equipment Loss"). Without limitation of the foregoing, no Equipment
Loss shall relieve Lessee in any way from its obligations hereunder. Lessee
shall promptly notify Lessor in writing of any Equipment Loss. In the event of
any such Equipment Loss, Lessee shall: (a) in the event Lessor determines such
Equipment to be repairable, promptly place, at Lessee's expense, the Equipment
in good repair, condition and working order in accordance with Seller's
specifications and to the satisfaction of Lessor; or (b) in the event of an
actual or constructive total loss of any item of Equipment, at Lessor's option:
(i) promptly replace, at Lessee's expense, the Equipment with like equipment of
the same or a later model with the same additions as the Equipment, and in good
repair, condition and working order in accordance with the Seller's
specifications and to the satisfaction of Lessor; or (ii) immediately pay to
Lessor the amount obtained by multiplying the Actual Equipment Cost as specified
in the applicable Schedule by the percentage contained in the applicable
Casualty Schedule for the date of such Equipment Loss plus, any unpaid rentals
or any amounts due hereunder or, if no Casualty Schedule has been made a part of
any applicable Schedule, an amount equal to the present value of the total
amount of unpaid rentals and all other amounts due and to become due under any
applicable Schedule during the term thereof as of the date of any payment,
discounted at a rate equal to discount rate of the Federal Reserve Bank of
Chicago as of the Commencement Date of the Lease with respect to each applicable
Schedule, plus an additional amount equal to the fair market value of the
Equipment immediately prior to the loss, theft, damage, or destruction, but in
no event shall the amount of such fair market value be less than twenty percent
(20%) of the actual cost of the Equipment. In the event Lessee is required to
repair or replace any such item of Equipment pursuant to Subsections (a) or
(b)(i) of the preceding sentence, the insurance proceeds received by Lessor, if
any, pursuant to Section 8, after the use of such funds to pay any unpaid
amounts then due hereunder, shall be paid to Lessee or, if applicable, to a
third party repairing or replacing the Equipment upon Lessee's furnishing proof
satisfactory to Lessor that such repair or replacement has been completed in a
satisfactory manner. In the event Lessor elects option (b)(ii), Lessee shall be
entitled to a credit against the payment required by said Subsection in an
amount equal to such insurance proceeds actually received by Lessor pursuant to
Section 8 on account of such Equipment, (and Lessee shall be entitled to any
such insurance proceeds in excess of the amount required to be paid to Lessor
pursuant to Subsection (b)(ii)) and, upon payment by Lessee to Lessor of all of
the sums required pursuant to Subsection (b)(ii), the applicable Schedule shall
terminate with respect to such item of Equipment and Lessee shall be entitled to
whatever interest Lessor may have in such item "as is, where is" and with all
faults" in its then condition and location without warranties of any type
whatsoever, express or implied.
10. COVENANTS OF LESSEE. LESSEE AGREES THAT ITS OBLIGATIONS UNDER THIS LEASE AND
ANY SCHEDULE HERETO, INCLUDING WITHOUT LIMITATION, THE OBLIGATION TO PAY RENTAL,
ARE IRREVOCABLE AND ABSOLUTE, SHALL NOT ABATE FOR ANY REASON WHATSOEVER
(INCLUDING ANY CLAIMS AGAINST LESSOR), AND SHALL CONTINUE IN FULL FORCE AND
EFFECT REGARDLESS OF ANY INABILITY OF LESSEE TO USE THE EQUIPMENT OR ANY PART
THEREOF FOR ANY REASON WHATSOEVER INCLUDING, WITHOUT LIMITATION, WAR, ACT OF
GOD, STORMS, GOVERNMENTAL REGULATIONS, STRIKE OR OTHER LABOR TROUBLES, LOSS,
DAMAGE, DESTRUCTION,
<PAGE> 29
DISREPAIR, OBSOLESCENCE, FAILURE OF OR DELAY IN DELIVERY OF THE EQUIPMENT, OR
FAILURE OF THE EQUIPMENT TO PROPERLY OPERATE FOR ANY CAUSE. In the event of any
alleged claim (including a claim which would otherwise be in the nature of a
set-off) against Lessor, Lessee shall fully perform and pay its obligations
hereunder (including all rents, without set-off or defense of any kind) and its
only exclusive recourse against Lessor shall be by a separate action. Lessee
agrees to furnish promptly to Lessor the quarterly financial statements of
Lessee (and of any guarantors of Lessee's performance under this Lease and any
Schedule hereto), prepared in accordance with generally accepted accounting
principles and certified by independent certified public accountants, and such
interim financial statements of Lessee as Lessor may require during the entire
term of this Lease and any Schedule hereto. Lessee, if requested, shall provide
at Lessee's expense an opinion of its counsel acceptable to Lessor affirming
the covenants, representations and warranties of Lessee under this Lease and
any Schedule hereto.
11. REPRESENTATIONS AND WARRANTIES. In order to induce Lessor to enter into this
Lease and any Schedule hereto and to lease the Equipment to Lessee hereunder,
Lessee represents and warrants that: (a) FINANCIAL STATEMENTS. (i)
applications, financial statements, and reports which have been submitted by
Lessee and any Obligors (as hereinafter defined) to Lessor, and all information
hereafter furnished by Lessee and Obligors to Lessor represent in all material
respects as of the date submitted; (ii) as of the date hereof, the date of any
Schedule and any Acceptance Date, there has been no Material Adverse Change (as
defined in section 26 of Addendum No. 1 to Master Lease Agreement No. 6403)
and, (iii) none of the foregoing omit or omitted to state any material fact.
(b) ORGANIZATION. Lessee is an organizational entity described on the signature
page hereof and is duly incorporated, validly existing and is duly qualified to
do business and is in good standing in each State in which the Equipment will be
located. (c) AUTHORITY. Lessee has full power, authority and right to execute,
deliver and perform this Lease and any Schedule hereto, and the execution,
delivery and performance hereof has been authorized by all necessary action of
Lessee. (d) ENFORCEABILITY. This Lease and any Schedule or other document
executed in connection therewith has been duly executed and delivered by Lessee
and any Obligor and constitutes a legal, valid and binding obligation of Lessee
and any Obligor enforceable in accordance with its terms. (e) CONSENTS. Except
as disclosed, the execution, delivery and performance of this Lease and any
Schedule hereto does not require any approval or consent of any stockholders,
partners or proprietors or of any trustee or holders of any indebtedness or
obligations of Lessee, and will not contravene any law, regulation, judgment or
decree applicable to Lessee, or the certificate of incorporation, partnership
agreement, by-laws or other governing documents of Lessee, or contravene the
provisions of, or constitute a material default under, or result in the creation
of any lien upon any property of Lessee under any mortgage, instrument or other
agreement to which Lessee is a party or by which Lessee or its assets may be
bound or affected. Except as disclosed, no authorization, approval, license,
filing or registration with any court or governmental agency or instrumentality
is necessary in connection with the execution, delivery, performance, validity
and enforceability of this Lease and any Schedule hereto. (f) TITLE AND SECURITY
INTEREST. On each Commencement Date, Lessor shall have a valid, perfected, first
priority security interest in the items of Equipment which is subject to this
Lease and any Schedule hereto on such date, free and clear of all liens, except
the lien of Seller which will be released upon receipt of payment and the lien
evidenced by this Lease. Lessee warrants that no party has a security interest
in
Master Lease - Security 3/95
4
<PAGE> 30
Amended 8/17/95
the Equipment which will not be released on or before payment by Lessor to
Seller of the Equipment and that the Equipment and shall at all times remain
personal property regardless of how it may be affixed to any real property. (g)
LITIGATION. There is no action, suit, investigation or proceeding by or before
any court, arbitrator, agency or governmental authority pending or threatened
against or affecting Lessee: (i) which involves the Equipment or the
transactions contemplated by this Lease and any Schedule hereto; or which, if
adversely determined, would reasonably be likely to have a material adverse
effect on the financial condition, business or operation of Lessee.
12. EVENTS OF DEFAULT. An event of default ("Event of Default") shall occur
hereunder if Lessee or any Obligor ("Obligor" shall include any guarantor or
surety of any obligations of Lessee to Lessor under this Lease and any Schedule
hereto): (i) fails to pay any installment of rent or other payment required
hereunder when due and such failure continues after a 5 day grace period; or
(ii) attempts to or does remove from the Premises (except a relocation with
Lessor's consent as provided in Section 5), sell, transfer, encumber, part with
possession of, or sublet any item of the Equipment; or (iii) shall suffer or
have suffered, a Material Adverse Change (as defined in section 26 of Addendum
No. 1 to Master Lease Agreement No. 6403) since the date of the last financial
statements submitted to Lessor, and as a result thereof Lessor deems itself to
be insecure, or any of the statements or other documents or information
submitted at any time heretofore or hereafter by Lessee or Obligor to Lessor has
misstated or shall misstate or has failed or shall fail to state a material
fact; or (iv) breaches or shall have breached any representation or warranty
made or given by Lessee or Obligor in this Lease or in any other document
furnished to Lessor in connection herewith, or any such representation or
warranty shall be untrue or, by reason of failure to state a material fact or
otherwise, shall be misleading; or (v) fails to perform or observe any other
covenant, condition or agreement to be performed or observed by it hereunder,
and such failure or breach shall continue unremedied for a period of ten days
after the earlier of (a) the date on which Lessee obtains, or should have
obtained knowledge of such failure or breach, or (b) the date on which notice
thereof shall be given by Lessor to Lessee; or (vi) shall become insolvent or
bankrupt or make an assignment for the benefit of creditors or consent to the
appointment of a trustee or receiver, or a trustee or receiver shall be
appointed for a substantial part of its property without its consent, or
bankruptcy or reorganization or insolvency proceeding shall be instituted by or
against Lessee or Obligor; or (vii) conveys, sells, transfers or assigns
substantially all of Lessee's or Obligor's assets or ceases doing business as a
going concern, or, if a corporation, ceases to be in good standing or files a
statement of intent to dissolve, or abandons any or all of the Equipment, or
(viii) shall be in breach of or default under any lease or other agreement at
any time executed with Lessor or any other lessor or with any lender to Lessee
or Obligor.
13. REMEDIES. Upon the occurrence of an Event of Default (the "Default Date")
set forth in Section 12 and at any time thereafter, Lessor may, in its sole and
absolute discretion, do any one or more of the following: (a) upon notice to
Lessee cancel all or any portion of this Lease and some or all Schedules
executed pursuant thereto; (b) enter Lessee's Premises and without removal of
the Equipment, render the Equipment unusable or, require Lessee to assemble the
Equipment and make it available to Lessor at a place designated by Lessor,
and/or dispose of the Equipment by sale or otherwise (all of which
determinations may be made by Lessor in its sole and absolute discretion)
without any duty to account for such action or inaction or for any proceeds or
profits with respect thereto; (c) declare immediately due and payable all sums
due and to become due hereunder for the full term of the Lease (including any
renewal or purchase obligations which Lessee has contracted to pay); (d) with or
without canceling this Lease, recover from Lessee damages, in an amount equal to
the sum of: (i) all unpaid rent and other amounts that became due and payable
on, or prior to, the Default Date,
<PAGE> 31
(ii) the present value of all future rentals and other amounts described in the
Lease and not included in (i) above discounted to the Default Date at a rate
equal to the discount rate of the Federal Reserve Bank of Chicago as of the
Comencement Date of the Lease with respect to each Schedule (which discount
rate, Lessee agrees is a commercially reasonable rate which takes into account
the facts and circumstances at the time such Schedule commenced), (iii) all
commercially reasonable costs and expenses incurred by Lessor in enforcing
Lessor's rights under this Lease, or defending against any claims or defenses
asserted by or through Lessee, including but not limited to, costs of
repossession, recovery, storage, repair, sale, release and reasonable attorneys'
fees, (iv) the estimated residual value of the Equipment as of the expiration of
the Lease, (v) any indemnity amount payable to Lessor; and (vi) interest on all
of the foregoing from the Default Date until the date payment is received by
Lessor at 3 1/2% in excess of the Prime Rate (or its equivalent) per annum in
effect on the date of such payment at the First National Bank of Chicago) or the
highest rate permitted by law, whichever is less; (e) exercise any other right
or remedy which may be available to it under the Uniform Commercial Code or any
other applicable law. Lessor reserves the right, in its sole and absolute
discretion, to release or sell any or all of the Equipment at a public auction
or in a private sale, at such time, on such terms and with such notice as Lessor
shall in its sole and absolute discretion deem reasonable. In such event,
without any duty on Lessor's part to effect any such re-lease or sale of the
Equipment, Lessor will credit the present value of any proceeds from such sale
or re-lease actually received and retainable by it (net of any and all costs or
expenses) discounted from the date of Lessor's receipt thereof to the Default
Date at 3 1/2% in excess of the Prime Rate (or its equivalent) per annum in
effect on the date of such payment at the First National Bank of Chicago, or the
highest rate permitted by law, whichever is less to the amounts due to Lessor
from Lessee under the provisions of (c), (d) and/or (e) above. A cancellation of
this Lease shall occur only upon notice by Lessor and only as to such items of
Equipment as Lessor specifically elects to cancel and this Lease shall continue
in full force and effect as to the remaining items of Equipment, if any. If this
Lease and/or any Schedule is deemed at any time to be one intended as security,
Lessee agrees that the Equipment shall secure, in addition to the indebtedness
set forth herein, any other indebtedness at any time owing by Lessee to Lessor.
No remedy referred to in this Section is intended to be exclusive, but shall be
cumulative and in addition to any other remedy referred to above or otherwise
available to Lessor at law or in equity. No express or implied waiver by Lessor
of any default shall constitute a waiver of any other default by Lessee or a
waiver of any of Lessor's rights.
14. ASSIGNMENT BY LESSOR. LESSOR MAY (WITH OR WITHOUT NOTICE TO LESSEE) SELL,
TRANSFER, ASSIGN OR GRANT A SECURITY INTEREST IN ALL OR ANY PART OF ITS INTEREST
IN THIS LEASE, ANY SCHEDULE, ANY ITEMS OF EQUIPMENT OR ANY AMOUNT PAYABLE
HEREUNDER. In such an event, Lessee shall, upon receipt of notice, acknowledge
any such sale, transfer, assignment or grant of a security interest and shall
pay its obligations hereunder or amounts equal thereto to the respective
transferee, assignee or secured party in the manner specified in any
instructions received from Lessor. Notwithstanding any such sale, transfer,
assignment or grant of a security interest by Lessor and so long as no event of
default shall have occurred hereunder, neither Lessor nor any transferee,
assignee or secured party shall interfere with Lessee's right of use or quiet
enjoyment of the Equipment. In the event of such sale, transfer, assignment or
grant of a
Master Lease - Security 3/95 5
<PAGE> 32
Amended 8/17/95
security interest in all or any part of this Lease and any Schedule hereto, or
in the Equipment or in sums payable hereunder, as aforesaid, Lessee agrees to
execute such documents as may be reasonably necessary to evidence, secure and
complete such sale, transfer, assignment or grant of a security interest and to
perfect the transferee's, assignee's or secured party's interest therein and
Lessee further agrees that the rights of any transferee, assignee or secured
party shall not be subject to any defense, set-off or counterclaim that Lessee
may have against Lessor or any other party, including the Seller, which
defenses, set-offs and counterclaims shall be asserted only against such party,
and that any such transferee, assignee or secured party shall have all of
Lessor's rights hereunder, but shall assume none of Lessor's obligations
hereunder. Lessee acknowledges that any assignment or transfer by Lessor shall
not materially change Lessee's duties or obligations under this Lease nor
materially increase the burdens and risks imposed on Lessee. Lessee agrees that
Lessor may assign or transfer this Lease or Lessor's interest in the Equipment
even if said assignment or transfer could be deemed to materially affect the
interests of Lessee. Nothing in the preceding sentence shall affect or impair
the provisions of Section 4, Section 10 or any other provision of this Lease.
15. AMENDMENTS. This Lease and any Schedule hereto contain the entire agreement
between the parties with respect to the Equipment, this Lease and any Schedule
hereto and there is no agreement or understanding, oral or written, which is not
set forth herein. This Lease and any Schedule hereto may not be altered,
modified, terminated or discharged except by a writing signed by the party
against whom such alteration, modification, termination or discharge is sought.
16. LAW. This Lease and any Schedule hereto shall be binding only when accepted
by Lessor at its corporate headquarters in Illinois and shall in all respects be
governed and construed, and the rights and the liabilities of the parties hereto
determined, except for local filing requirements, in accordance with the laws of
the State of Illinois. LESSEE WAIVES TRIAL BY JURY AND SUBMITS TO THE
JURISDICTION OF THE FEDERAL DISTRICT COURTS OF COMPETENT JURISDICTION OR ANY
STATE COURT WITHIN THE STATE OF ILLINOIS AND WAIVES ANY RIGHT TO ASSERT THAT ANY
ACTION INSTITUTED BY LESSOR IN ANY SUCH COURT IS IN THE IMPROPER VENUE OR SHOULD
BE TRANSFERRED TO A MORE CONVENIENT FORUM.
17. INVALIDITY. In the event that any provision of this Lease and any Schedule
hereto shall be unenforceable in whole or in part, such provision shall be
limited to the extent necessary to render the same valid, or shall be excised
from this Lease or any Schedule hereto, as circumstances may require, and this
Lease and the applicable Schedule shall be construed as if said provision had
been incorporated herein as so limited, or as if said provision had not been
included herein. as the case may be without invalidating any of the remaining
provisions hereof.
18. MISCELLANEOUS. All notices and demands relating hereto shall be in writing
and mailed by certified mail, return receipt requested, to Lessor or Lessee at
their respective addresses above or shown in the Schedule, or at any other
address designated by notice served in accordance herewith. Notice shall become
effective when deposited in the United States mail, with proper postage prepaid,
addressed to the party intended to be served at the address designated herein.
All obligations of Lessee shall survive the termination or expiration of this
Lease and any Schedule hereto. Should Lessor permit use by Lessee of any
Equipment beyond the Minimum Lease Term, or, if applicable, any exercised
extension or renewal term, the lease obligations of Lessee shall continue and
such permissive use shall not be construed as a renewal of the term thereof, or
as a waiver of any right or continuation of any obligation of Lessor hereunder,
and Lessor may take possession of any such Equipment at any time upon demand. If
more than one Lessee is named in this Lease, the liability of each shall be
joint and several. Lessee shall, upon request of Lessor from time to time,
perform all acts and execute and deliver to Lessor all documents which Lessor
deems reasonably necessary to implement this Lease and any Schedule hereto,
including, without limitation, certificates addressed to such persons as Lessor
may direct stating that this Lease and the Schedule hereto is in full force and
effect, that there are no amendments or modifications thereto, that Lessor is
not in default hereof or breach hereunder, setting forth the date to which
rentals due hereunder have been paid, and stating such other matters as Lessor
may request. This Lease and any Schedule hereto shall be binding upon the
parties and their successors, legal representatives and assigns. Lessee's
successors and assigns shall include, without limitation, a receiver,
debtor-in-possession, or trustee of or for Lessee. If any person, firm,
corporation or other entity shall guarantee this Lease and the performance by
Lessee of its obligations hereunder, all of the terms and provisions hereof
shall be duly applicable to such Obligor.
19. LESSEE'S WAIVERS. To the extent permitted by applicable law, Lessee hereby
waives any and all rights and remedies conferred upon a Lessee by Article 2A of
the Uniform Commercial Code as adopted in any jurisdiction, including but not
limited to Lessee's rights to; (i) cancel this Lease; (ii) repudiate this Lease;
(iii) reject the Equipment; (iv) revoke acceptance of the Equipment; (v) recover
damages from Lessor for any breaches of warranty or for any other reason; (vi)
claim a security interest in the Equipment in Lessee's possession or control for
any reason (vii) deduct all or any part of any claimed damages resulting from
Lessor's default, if any, under this Lease; (viii) accept partial delivery of
the Equipment (ix) "cover" by making any purchase or lease of or contract to
purchase or lease Equipment in substitution for those due from Lessor; (x)
recover any general, special, incidental, or consequential damages for any
reason whatsoever; and (xi) specific performance, replevin, detinue,
sequestration, claim, and delivery of the like for any Equipment identified to
this Lease. To the extent permitted by applicable law, Lessee also hereby waives
any rights now or hereafter conferred by statute or otherwise which may require
Lessor to sell, lease or otherwise use any Equipment in mitigation of Lessor's
damages as set forth in Paragraph 13 or which may otherwise limit or modify any
of Lessor's rights or remedies under Paragraph 13. Any action by Lessee against
Lessor for any default by Lessor under this Lease. Including breach of warranty
or indemnity, shall be commenced within one (1) year after any such cause of
action accrues.
<PAGE> 33
<PAGE> 34
AMENDED 8/17/95
20. COUNTERPARTS. This Lease may be executed in any number of counterparts, each
of which shall BE deemed an original. Each Schedule shall be executed in three
(3) serially numbered counterparts each of which shall be deemed an original but
only counterpart number 1 shall constitute "chattel paper" or "collateral"
within the meaning of the Uniform Commercial Code in any jurisdiction.
21. ADDENDUM. ("X" if applicable) [X] See Addendum (s) attached hereto and made
a part hereof.
THE PERSON EXECUTING THIS LEASE FOR AND ON BEHALF OF LESSEE WARRANTS AND
REPRESENTS, WHICH WARRANTY AND REPRESENTATION SHALL SURVIVE THE EXPIRATION OR
TERMINATION OF THIS LEASE, THAT THIS LEASE AND THE EXECUTION HEREOF HAS BEEN
DULY AND VALIDLY AUTHORIZED BY LESSEE, CONSTITUTES A VALID AND BINDING
OBLIGATION OF LESSEE AND THAT HE HAS AUTHORITY TO MAKE SUCH EXECUTION FOR AND ON
BEHALF OF LESSEE.
IN WITNESS WHEREOF, this Lease has been executed by Lessee this 31st day of July
1996.
ACCEPTED AT CHICAGO, ILLINOIS
PROBUSINESS, INC. LINC CAPITAL MANAGEMENT, A DIVISION OF
SCIENTIFIC LEASING INC.
Lessee Lessor
By: Steven Klei By: /s/ Mark K. Zimmerman
----------------------- ----------------------
Title: Steven Klei Title: Vice President
-------------------- -------------------
Date: July 31, 1996 Date: 10/23/96
-------------------- --------------------
<PAGE> 35
LINC CAPITAL MANAGEMENT, A DIVISION OF LINC Capital Management, a division of
SCIENTIFIC LEASING INC. Scientific Leasing Inc.
EQUIPMENT ACCEPTANCE CERTIFICATE 303 East Wacker Drive
Chicago, Illinois 60601
(312) 946-1000
Master Lease Agreement No. 6403-001
Equipment Description:
The "Equipment" will consist of new office furniture, office equipment,
computers and peripherals as more fully described on Schedule "A" attached
hereto and made a part hereof.
To Whom it May Concern:
The undersigned, being duly authorized, hereby (i) certifies that all of the
above-referenced equipment (the "Equipment") has been delivered and inspected,
is of an acceptable size, design, capacity and manufacture, is in good working
order, repair and condition, and has been installed to the satisfaction of
Lessee; and (ii) unconditionally accepts the Equipment as is where is for all
purposes of the Lease.
It is understood and agreed that LINC Capital Management, a division of
Scientific Leasing Inc. in no way or manner assumes any responsibility, either
now or hereafter, for the use, performance, functioning, maintenance or service
of the Equipment, or for its suitability or adaptability for any particular
purpose.
Upon your request your identification decals will be attached indicating your
ownership of the above equipment.
PROBUSINESS, INC.
Lessee
By: /s/ Steven Klei
------------------------------
Title: Vice President/CFO
---------------------------
Acceptance Date as defined in Section 1 of
the Lease as of:
July 31, 1996
-----------------------------
<PAGE> 1
Exhibit 10.11
PROBUSINESS SERVICES, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of this ___ day
of ____, 1996, by and between ProBusiness Services, Inc., a Delaware corporation
(the "Company"), and _________________________ ("Indemnitee").
WHEREAS the Company and Indemnitee recognize the increasing difficulty
in obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited; and
WHEREAS the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as officers and
directors of the Company and to indemnify its officers and directors so as to
provide them with the maximum protection permitted by law.
NOW, THEREFORE, in consideration for Indemnitee's services as an
officer or director of the Company, the Company and Indemnitee hereby agree as
follows:
1. Indemnification.
(a) Third Party Proceedings. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a party
to any threatened, pending or completed action, suit, proceeding or any
alternative dispute resolution mechanism, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company) by reason of the fact that Indemnitee is or was a director, officer,
employee or agent of the Company, or any subsidiary of the Company, or by reason
of the fact that Indemnitee is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement (if such settlement is
approved in advance by the Company, which approval shall not be unreasonably
withheld) actually and reasonably incurred by Indemnitee in connection with such
action, suit or proceeding if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that Indemnitee did not act in good faith and in a manner
which Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any
<PAGE> 2
criminal action or proceeding, had reasonable cause to believe that Indemnitee's
conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, or
by reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) and, to the fullest extent permitted by law, amounts
paid in settlement actually and reasonably incurred by Indemnitee in connection
with the defense or settlement of such action or suit if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, except that no indemnification
shall be made in respect of any claim, issue or matter as to which Indemnitee
shall have been adjudged to be liable to the Company unless and only to the
extent that the Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery of the State of Delaware or such other court shall
deem proper.
(c) Mandatory Payment of Expenses. To the extent that
Indemnitee has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Subsections (a) and (b) of this
Section 1, or in defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by Indemnitee in connection therewith.
2. Agreement to Serve. In consideration of the protection afforded by
this Agreement, if Indemnitee is a director of the Company he agrees to serve at
least for the six months after the effective date of this Agreement as a
director and not to resign voluntarily during such period without the written
consent of a majority of the Board of Directors. If Indemnitee is an officer of
the Company not serving under an employment contract, he agrees to serve in such
capacity at least for the balance of the current fiscal year of the Company and
not to resign voluntarily during such period without the written consent of a
majority of the Board of Directors. Following the applicable period set forth
above, Indemnitee agrees to continue to serve in such capacity at the will of
the Company (or under separate agreement, if such agreement exists) so long as
he is duly appointed or elected and qualified in accordance with the applicable
provisions of the Bylaws of the Company or any subsidiary of the Company or
until such time as he tenders his resignation in writing. Nothing contained in
this Agreement is intended to create in Indemnitee any right to continued
employment.
3. Expenses; Indemnification Procedure.
-2-
<PAGE> 3
(a) Advancement of Expenses. The Company shall advance all
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action, suit or proceeding
referenced in Section 1(a) or (b) hereof (but not amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby undertakes
to repay such amounts advanced only if, and to the extent that, it shall
ultimately be determined that Indemnitee is not entitled to be indemnified by
the Company as authorized hereby. The advances to be made hereunder shall be
paid by the Company to Indemnitee within thirty (30) days following delivery of
a written request therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the President of the
Company at the address shown on the signature page of this Agreement (or such
other address as the Company shall designate in writing to Indemnitee). Notice
shall be deemed received three business days after the date postmarked if sent
by domestic certified or registered mail, properly addressed, five business days
if sent by airmail to a country outside of North America; otherwise notice shall
be deemed received when such notice shall actually be received by the Company.
In addition, Indemnitee shall give the Company such information and cooperation
as it may reasonably require and as shall be within Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for
in Section 1 and this Section 3 shall be made no later than thirty (30) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or Bylaws providing for indemnification, is not
paid in full by the Company within thirty (30) days after a written request for
payment thereof has first been received by the Company, Indemnitee may, but need
not, at any time thereafter bring an action against the Company to recover the
unpaid amount of the claim and, subject to Section 14 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed. However, Indemnitee shall be entitled to receive interim
payments of expenses pursuant to Subsection 3(a) unless and until such defense
may be finally adjudicated by court order or judgment from which no further
right of appeal exists. It is the parties' intention that if the Company
contests Indemnitee's right to indemnification, the question of Indemnitee's
right to indemnification shall be for the court to decide, and neither the
failure of the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination that indemnification of Indemnitee is
proper in the circumstances because Indemnitee has met the applicable standard
of conduct required by applicable law, nor an actual determination by the
Company (including it Board of Directors, any committee or subgroup of the Board
of Directors, independent legal counsel, or its stockholders) that Indemnitee
has not met such
-3-
<PAGE> 4
applicable standard of conduct, shall create a presumption that Indemnitee has
or has not met the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a
notice of a claim pursuant to Section 3(b) hereof, the Company has director and
officer liability insurance in effect, the Company shall give prompt notice of
the commencement of such proceeding to the insurers in accordance with
the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such proceeding
in accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated under Section 3(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, upon the
delivery to Indemnitee of written notice of its election to do so. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided that (i) Indemnitee
shall have the right to employ his counsel in any such proceeding at
Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, or (C) the Company
shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of Indemnitee's counsel shall be at the
expense of the Company.
4. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. Notwithstanding any other provision of this
Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Certificate of Incorporation, the Company's Bylaws or by statute. In the event
of any change, after the date of this Agreement, in any applicable law, statute,
or rule which expands the right of a Delaware corporation to indemnify a member
of its board of directors or an officer, such changes shall be, ipso facto,
within the purview of Indemnitee's rights and Company's obligations, under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this
Agreement shall not be deemed exclusive of any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its Bylaws, any
agreement, any vote of stockholders or disinterested Directors, the General
Corporation Law of the State of Delaware, or otherwise, both as to action in
Indemnitee's
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<PAGE> 5
official capacity and as to action in another capacity while holding such
office. The indemnification provided under this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an indemnified
capacity even though he may have ceased to serve in such capacity at the time of
any action, suit or other covered proceeding.
5. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any civil
or criminal action, suit or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the Securities and
Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
7. Officer and Director Liability Insurance. The Company shall, from
time to time, make the good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
perfor mance of its indemnification obligations under this Agreement. Among
other considerations, the Company will weigh the costs of obtaining such
insurance coverage against the protection afforded by such coverage. In all
policies of director and officer liability insurance, Indemnitee shall be named
as an insured in such a manner as to provide Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors, if Indemnitee is a director; or of the Company's officers, if
Indemnitee is not a director of the Company but is an officer. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a
subsidiary or parent of the Company.
8. Severability. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full
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<PAGE> 6
extent permitted by any applicable portion of this Agreement that shall not have
been invalidated, and the balance of this Agreement not so invalidated shall be
enforceable in accordance with its terms.
9. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors has approved the initiation or bringing of such suit; or
(b) Lack of Good Faith. To indemnify Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(c) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company.
(d) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the
"Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that if Indemnitee is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
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<PAGE> 7
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan, Indemnitee shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as referred to in this
Agreement.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Successors and Assigns. This Agreement shall be binding upon
the Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
14. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be brought only in the state courts of the State of
Delaware.
16. Choice of Law. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware
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<PAGE> 8
residents entered into and to be performed entirely within Delaware without
regard to the conflict of law principles thereof.
17. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
18. Subrogation. In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Company effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PROBUSINESS SERVICES, INC.
By:________________________________
Its:_______________________________
Address: 5934 Gibralter
Pleasanton, CA 94566
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<PAGE> 10
AGREED TO AND ACCEPTED:
INDEMNITEE:
_______________________________________
(Print Name)
_______________________________________
(signature)
Address: _____________________________
_____________________________
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<PAGE> 1
EXHIBIT 10.12
LOAN AGREEMENT
This LOAN AGREEMENT, dated as of October 20, 1995 (the "Agreement"), is
made by and among ProBusiness, Inc., a California corporation ("Borrower") with
its principal office at 5934 Gibraltar Drive, Pleasanton, California 94588, and
the persons listed in Exhibit A attached hereto (collectively referred to herein
as "Lenders").
W I T N E S S E T H
WHEREAS, Borrower desires to borrow funds, and Lenders desire to lend
funds, for use as working capital on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
1. Debt Financing.
1.1 Promissory Notes. Each Lender severally agrees to
make available to Borrower on the closing date the principal amount set forth
opposite such Lender's name in Exhibit A attached hereto to be evidenced by a
promissory note (collectively, the "Notes") the form of which is attached hereto
as Exhibit B, for up to a total aggregate principal amount to be made available
to Borrower by all Lenders of up to $2,500,000.
1.2 Interest; Payment of Interest. Interest on the
outstanding principal amount of each Note issued hereby shall accrue at an
interest rate of eight percent (8%) per annum or if less, the maximum rate
permitted by applicable law. Borrower shall make quarterly payments to each
Lender for the amount of accrued interest on the principal amount owed to such
Lender under the Notes beginning on December 31, 1995.
1.3 Loan Term; Repayment Date. Subject to the terms and
conditions herein, the provisions of this Agreement shall be in effect until
three years from the date of this Agreement. Each Note executed under the
provisions of this Agreement shall be due and payable at the earliest to occur
(the "Repayment Date" with respect to such Note):
(a) three years from the date of this Agreement;
or
(b) at the option of Lender or the Borrower,
within thirty days after the closing of a public offering of the Company that
triggers the conversion of the Company's outstanding Preferred Stock into the
Company's Common Stock under the Company's Articles of Incorporation, as
amended.
<PAGE> 2
On the Repayment Date, the then-outstanding principal balance and all accrued
interest thereon shall be payable.
1.4 Payments. All payments to Lenders shall be payable at
Lenders' address, set forth in Exhibit A attached hereto, or at such other place
or places as Lenders may designate from time to time in writing to Borrower.
1.5 Prepayment. At anytime after one year from the date
of this Agreement, Borrower may, at its option, prepay, in whole or in part, the
then outstanding principal balance and accrued interest, if any, under this
Agreement and related Notes without penalty. Such payment shall be credited to
Borrower's account and interest will cease to accrue on such prepaid principal.
Unless otherwise agreed, any prepayment shall be applied first to accrued
interest due to the date of prepayment, and the remainder shall be applied to
the then outstanding principal balance of the respective Notes.
2. Warrants to Purchase Series E Preferred Stock. Subject to the
terms and conditions hereinafter set forth and in consideration of a purchase
price of $1.00, Borrower shall issue a warrant ("Warrant") to each Lender,
entitling each Lender, upon surrender of the Warrant at the principal office of
Borrower (or at such other place as Borrower shall notify Lender hereof in
writing), to purchase from Borrower the value of fully paid and nonassessable
shares of Series E Preferred Stock of the Company as is equal to twenty-five
percent (25%) of the principal amount of each Note held by such Lender under
this Agreement at an exercise price of $7.94 per share of Series E Preferred
Stock, all as set forth in the form of Warrant attached hereto as Exhibit C.
Each Warrant shall be subject to antidilution price protection, net exercise
provisions and registration rights and shall be substantially in the form set
forth in Exhibit C, attached hereto and made a part hereof.
3. Closing Date; Delivery.
3.1 Closing Date. The closing of the execution of this
Agreement and the issuance of the Notes and Warrants hereunder shall be held at
the offices of Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo
Alto, California 94304-1050 at 5:00 p.m., local time, on October 20, 1995 (the
"Closing") or at such other time and place upon which Borrower and the Lenders
shall agree (the date of the Closing is hereinafter referred to as the "Closing
Date").
3.2 Delivery. At the Closing, the Company will deliver to
each Lender an executed counterpart of this Agreement together with a Note and
Warrant, issued in such Lender's name, evidencing the principal amount borrowed
from such Lender by Borrower and the number of shares of Series E Preferred
Stock to be issued to Lender upon exercise of the Warrant as set forth beside
such Lender's name on Exhibit A, against delivery of an executed counterpart of
this Agreement, together with payment of the principal amount plus $1.00, the
purchase price of the Warrant, by check payable to Borrower or wire transfer per
Borrower's instructions.
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<PAGE> 3
3.3 Subsequent Closings. If less than $2,500,000 is made
available to the Company by Lenders on the Closing Date, then, subject to the
terms and conditions of this Agreement, the Company may issue additional
promissory Notes at subsequent closings evidencing up to the balance of the
$2,500,000 not made available to the Company by Lenders to such persons as the
Company may determine with the same terms and conditions as the Notes issued
pursuant to this Agreement. Any such issuance shall be on the same terms and
conditions as those contained in the Agreement and such persons shall become
parties to the Agreement and that certain Registration Rights Agreement dated as
of December 1, 1989 as amended (the "Registration Rights Agreement") and shall
have the rights and obligations of the Purchasers as defined thereunder, subject
to the Sixteenth Amendment to the Registration Rights Agreement (the "Sixteenth
Amendment") attached hereto as Exhibit D. A copy of the Registration Rights
Agreement is attached hereto as Exhibit E.
4. Representations and Warranties of Borrower.
Borrower hereby represents and warrants to Lenders as of the Closing
Date as follows:
(a) Organization and Standing; Articles of
Incorporation and Bylaws. Borrower is a corporation duly organized and existing
under, and by virtue of, the laws of the State of California and is in good
standing under such laws. Borrower has requisite corporate power and authority
to own and operate its properties and assets, and to carry on its business as
presently conducted and as proposed to be conducted. Borrower is not presently
qualified to do business as a foreign corporation in any jurisdiction, and the
failure to be so qualified would not have a material adverse effect on
Borrower's business as now conducted. Borrower has furnished to Lenders or their
special counsel upon request copies of its Articles of Incorporation, as
amended, and Bylaws, as amended. Said copies are true, correct and complete and
contain all amendments through the Closing Date.
(b) Corporate Power. Borrower will have at the
Closing Date all requisite legal and corporate power and authority to execute
and deliver this Agreement, to sell and issue the Notes and Warrants hereunder,
to issue the Series E Preferred Stock and Common Stock issuable upon conversion
of the Warrants and Series E Preferred Stock, respectively (collectively,
referred to as "Underlying Securities") and to carry out and perform its
obligations under the terms of this Agreement.
(c) Subsidiaries. Borrower has no subsidiaries
or affiliated companies and does not otherwise own or control, directly or
indirectly, any equity interest in any corporation, association or business
entity.
(d) Capitalization. The authorized capital stock
of Borrower consists of 20,000,000 shares of Common Stock, par value $.01 per
share, 19,262 of which are issued and outstanding as of the Closing Date, and
6,000,000 shares of Preferred Stock with par value, $.01 per share (the
"Preferred"), 1,500,000 of which have been designated Series A Preferred Stock
(the "Series A Preferred"), of which 920,000 are issued and outstanding as of
the Closing Date, 1,500,000
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<PAGE> 4
of which have been designated Series B Preferred Stock (the "Series B
Preferred"), of which 919,400 are issued and outstanding as of the Closing Date,
1,500,000 of which have been designated Series C Preferred Stock (the "Series C
Preferred"), of which 260,785 are issued and outstanding as of the Closing Date,
500,000 which have been designated Series D Preferred Stock (the "Series D
Preferred"), of which 300,000 are issued and outstanding as of the closing date,
and 500,000 of which have been designated Series E Preferred stock (the "Series
E Preferred"), 213,116 of which are issued and outstanding immediately before
the Closing Date. No other series of Preferred Stock has been designated. The
outstanding shares have been duly authorized and validly issued, and are fully
paid and nonassessable. The Borrower has reserved 78,715 shares of Series E
Preferred for issuance upon the exercise of the Warrants hereunder, 151,430
shares of Common Stock for issuance upon conversion of the Series E Preferred to
be issued upon the exercise of such Warrants hereunder, 9,446 shares of Series E
Preferred Stock for issuance upon the exercise of a warrant issued to Silicon
Valley Bank ("SVB"), 18,892 shares of Common Stock for issuance upon the
conversion of the Series E Preferred to be issued upon the exercise of SVB's
warrant, 426,232 shares of Common Stock for issuance upon the conversion of the
outstanding Series E Preferred, 600,000 shares of Common Stock for issuance upon
the conversion of the Series D Preferred, 521,570 shares of Common Stock for
issuance upon conversion of the Series C Preferred, 1,838,800 shares of Common
Stock for issuance upon conversion of the Series B Preferred, 1,840,000 shares
of Common Stock for issuance upon conversion of the Series A Preferred, and, as
of June 30, 1995, excluding options that have been exercised as of October 20,
1995, 1,013,062 shares of Common Stock for issuance upon exercise of options
granted and 391,892 shares of Common Stock for issuance upon exercise of options
not yet granted under Borrower's 1989 Stock Option Plan. The Series E Preferred
Stock to be issued upon the exercise of the Warrants hereunder shall have the
rights, preferences, privileges and restrictions set forth in Borrower's
Articles of Incorporation, as amended, (the "Articles"). Other than options
granted or to be granted pursuant to Borrower's 1989 Stock Option Plan and a
warrant issued to SVB, there are no options, warrants or other rights, including
convertible debentures or notes, granted or issued by or binding upon Borrower
to purchase any of Borrower's authorized and unissued Common Stock or Preferred
Stock, except the Board of Directors has approved an increase in the number of
shares to be issued under the Company's 1989 Stock Option Plan by 147,793
shares.
(e) Authorization. All corporate action on the
part of Borrower, its directors and shareholders necessary for the
authorization, execution, delivery and performance of this Agreement, the Notes
and the Warrants by Borrower and the performance of all of Borrower's
obligations hereunder has been taken or will be taken prior to the Closing. This
Agreement and the Notes, when executed and delivered by the Borrower, shall
constitute a valid and binding obligation of the Borrower, enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. The Warrant
and Underlying Securities, when issued in compliance with the provisions of this
Agreement, will be validly issued, fully paid and nonassessable, and will have
the rights, preferences and privileges described in the Articles. The Underlying
Securities have been duly and validly reserved and, when issued in compliance
with the provisions of this Agreement and the Articles, will be validly issued,
fully paid and nonassessable;
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<PAGE> 5
and, the Underlying Securities will be free of any liens or encumbrances,
assuming Lenders take the Underlying Securities with no notice thereof, and
other than any liens or encumbrances created by or imposed upon the holders
through no action of Borrower; provided, however, that the Underlying Securities
may be subject to restrictions on transfer under state and/or federal securities
laws as set forth herein. The Notes, Warrants and the Underlying Securities are
not subject to any preemptive rights or rights of first refusal.
(f) Financial Statements. Borrower has delivered
to each Lender Borrower's audited financial statements for the twelve-month
periods ending June 30, 1994 and June 30, 1995 (the "Financial Statements"),
which are complete and correct in all material respects and to the best of the
Borrower's knowledge were prepared in accordance with generally accepted
accounting principles applied on a consistent basis. The Financial Statements
accurately set out and describe the financial condition and operating results of
Borrower as of the respective dates and for the respective periods indicated.
(g) Employees. To the best of Borrower's
knowledge, no employee of Borrower is in violation of any term of any employment
contract, patent disclosure agreement or any other contract or agreement
relating to the relationship of such employee with Borrower or any other party
because of the nature of the business conducted or to be conducted by Borrower.
Each employee of Borrower with access to confidential or proprietary information
has executed an Employee Confidential Information Agreement in a form
substantially similar to the agreement attached hereto as Exhibit F.
(h) Governmental Consent, etc. No consent,
approval or authorization of or designation, declaration or filing with any
governmental authority on the part of Borrower is required in connection with
the valid execution and delivery of this Agreement, or the offer, sale or
issuance of the Notes, Warrants and the Underlying Securities, or the
consummation of any other transaction contemplated hereby, except the
qualification (or taking such action as may be necessary to secure an exemption
from qualification, if available) of the offer and sale of the Notes, Warrants
and the Underlying Securities under applicable Blue Sky laws, which filings and
qualifications, if required, will be accomplished in a timely manner.
(i) Brokers or Finders; Other Offers. Borrower
has not incurred, and will not incur, directly or indirectly, as a result of any
action taken by Borrower, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement.
(j) No Material Liabilities. Borrower has no
material liabilities or obligations, other than: (a) liabilities and obligations
disclosed in the Financial Statements (including, without limitation, the
Company's borrowings pursuant to the Loan Agreement between the Company and
Silicon Valley Bank dated January 13, 1995 for up to a maximum principal amount
of $1,500,000) (b) liabilities incurred in the ordinary course of business; (c)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under
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<PAGE> 6
generally accepted accounting principles to be reflected in the Financial
Statements; (d) leases for operating headquarters and branches of Borrower; and
(e) any other obligations which are not in any case material to the financial
condition or operating results of Borrower.
(k) Registration Rights. Except as provided in
the Registration Rights Agreement, as amended, and the Registration Rights
Agreement dated January 13, 1995 between the Company and SVB, Borrower is not
obligated to register under the Securities Act of 1933, as amended (the
"Securities Act") any of its presently outstanding securities or any of its
securities that may subsequently be issued.
(l) Use of Proceeds. Borrower's use of the
proceeds of the principal amounts made available to Borrower by Lenders pursuant
to this Agreement are, and will continue to be, legal and proper corporate uses,
and such uses are and will continue to be consistent with all applicable laws
and statutes, as in effect from time to time.
5. Representations and Warranties of Lenders
Each Lender hereby represents and warrants to Borrower with respect to
its purchase of the Notes, Warrants and Underlying Securities as follows:
5.1 Investment Representations and Covenants of Lenders.
(a) This Agreement is made by Borrower with
Lender in reliance upon such Lender's representations and covenants made in this
Section 4, which by its execution of this Agreement Lender hereby confirms.
Lender represents that the Notes, Warrants and Underlying Securities issuable
upon conversion of the Warrants to be received will be acquired for investment
for its own account, not as a nominee or agent, and not with a view to the sale
or distribution of any part thereof, and that it has no present intention of
selling, granting any participation in or otherwise distributing the same.
Lender further represents that it does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Notes, Warrants or Underlying Securities issuable upon conversion of the
Warrants.
(b) Lender understands and acknowledges that the
offering and issuance of the Notes, Warrants and Underlying Securities issuable
upon conversion of the Warrants pursuant to this Agreement will not be
registered under the Securities Act on the ground that the sale provided for in
this Agreement and the issuance of securities hereunder is exempt pursuant to
Section 4(2) of the Securities Act, and that Borrower's reliance on such
exemption is predicated on Lenders' representations set forth herein.
(c) Lender covenants that in no event will it
make any disposition of any of the Underlying Securities issuable upon
conversion of the Warrants, except in accordance with the Registration Rights
Agreement. Lender further covenants that it will not make any sale, transfer or
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other disposition of the Notes, Warrants or Underlying Securities issuable upon
conversion of the Warrants in violation of the Securities Act, the Securities
and Exchange Act of 1934 (the "Securities Exchange Act"), or the rules of the
Securities and Exchange Commission (the "Commission") promulgated thereunder.
(d) Lender represents that it is experienced in
evaluating companies similar to Borrower, is able to fend for itself in
transactions such as the one contemplated by this Agreement, has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of its prospective investment in Borrower, has
the ability to bear the economic risks of the investment and is an "accredited
investor" as defined by Regulation D promulgated under the Securities Act of
1933, as amended.
(e) Lender acknowledges and understands that the
Notes, Warrants or Underlying Securities issuable upon conversion of the
Warrants, must be held indefinitely unless it is subsequently registered under
the Securities Act or an exemption from such registration is available, and
that, except as otherwise provided in the Registration Rights Agreement,
Borrower is under no obligation to register either the Notes, Warrants or
Underlying Securities.
(f) Lender acknowledges that it has reviewed a
copy of Rule 144 promulgated under the Securities Act, which permits limited
public resales of securities acquired in a nonpublic offering, subject to the
satisfaction of certain conditions. Lender understands that before the Notes,
Warrants or Underlying Securities issuable upon conversion of the Warrants may
be sold under Rule 144, the following conditions must be fulfilled: (i) certain
public information about Borrower must be available, (ii) the sale must occur at
least two years after Lender purchased and paid for the Notes, Warrants, and
Underlying Securities issuable upon conversion of the Warrants (iii) the sale
must be made in a broker's transaction and (iv) the number of shares of
securities sold must not exceed certain volume limitations. Lender understands
that the current information referred to above is not now available and Borrower
has no present plans to make such information available.
(g) Lender acknowledges that in the event the
applicable requirements of Rule 144 are not met, registration under the
Securities Act, compliance with the Commission's Regulation A or another
exemption from registration will be required for any disposition of its
securities. Lender understands that although Rule 144 is not exclusive, the
Commission has expressed its opinion that persons proposing to sell restricted
securities received in a private offering other than in a registered offering or
pursuant to Rule 144 will have a substantial burden of proof in establishing
that an exemption from registration is available for such offers or sales and
that such persons and the brokers who participate in the transactions do so at
their own risk.
(h) Lender represents that one or more of the
following criteria are applicable to such Lender:
(1) Lender is a director or executive
officer of Borrower, or
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(2) Lender is a natural person who has
a net worth or joint net worth with the Lender's spouse exceeding $1,000,000 at
the time of purchase; or
(3) Lender is a natural person who had
an individual income in excess of $200,000 in each of the two most recent years
(or joint income with Lender's spouse in excess of $300,000 in each of the two
most recent years) and who reasonably expects an income in excess of such amount
in the current year; or
(4) Lender is either (i) a bank as
defined in Section 3(a)(2) of the Securities Act or any savings and loan
association or other institution as defined in Section 3(a)(5)(A) of the
Securities Act, whether acting in its individual capacity or fiduciary capacity
as trustee; (ii) an insurance company as defined in Section 2(13) of the
Securities Act; (iii) an investment company registered under the Investment
Company Act of 1940 or a business development company as defined in Section
2(a)(48) of such Act; (iv) a Small Business Investment Company licensed by the
U.S. Small Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958; (v) a plan established and maintained by a
state, its political subdivisions, or any agency or instrumentality of a state
or its political subdivisions for the benefit of its employees if such plan has
total assets in excess of $5,000,000; (vi) any broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934; or (vii) an
employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or if the
employee benefit plan has total assets in excess of $5,000,000 or is a
self-directed plan, with investment decisions made solely by persons that are
accredited investors; or
(5) Lender is a private business
development company as defined in Section 202(a)(22) of the Investment Advisers
Act of 1940; or
(6) Lender is a not-for-profit
organization or other entity exempt from income tax under Section 501(c)(3) of
the Internal Revenue Code, a corporation, Massachusetts or similar business
trust or partnership, not formed for the specific purpose of acquiring the
securities offered with total assets in excess of $5,000,000; or
(7) Lender is a trust, with total
assets in excess of $5,000,000, not formed for the specific purpose of acquiring
the securities offered, whose purchase is directed by a "sophisticated person"
as described in Rule 506(b)(2) of Regulation D; or
(8) Lender is an entity in which each
of the equity owners of such entity meets one of the qualifications set forth in
(1) through (7) above.
5.2 No Public Market. Lender understands that no public
market now exists for any of the securities issued by Borrower and that it is
unlikely that a public market will ever exist for Borrower's securities.
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5.3 Receipt of Information. Lender has received and
reviewed this Agreement and all exhibits hereto and the Investment
Representation Statement. Lender and its counsel have had access to and an
opportunity to review all documents and other materials requested of Borrower;
Lender and its counsel have been given an opportunity to ask any and all
questions of, and receive answers from, Borrower concerning the terms and
conditions of the offering and to obtain all information it or they believe
necessary or appropriate to evaluate the suitability of an investment in the
Notes, Warrants or Underlying Securities issuable upon conversion of the
Warrants; and, in evaluating the suitability of an investment in the Notes,
Warrants or Underlying Securities issuable upon conversion of the Warrants, it
and they have not relied upon any representations or other information (whether
oral or written) other than as set forth in the documents and answers referred
to above.
5.4 Authorization. This Agreement when executed and
delivered by Lender will constitute a valid and legally binding obligation of
Lender, enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
5.5 Brokers or Finders. Borrower has not, and will not,
incur, directly or indirectly, as a result of any action taken by any Lender,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement.
5.6 Tax Advisors. Lender has reviewed with its own tax
advisors the federal, state, local and foreign tax consequences of this
investment, where applicable, and the transactions contemplated by this
Agreement. Lender is relying solely on such advisors and not on any statements
or representations of Borrower or any of its agents and understands that it (and
not Borrower) shall be responsible for Lender's own tax liability that may arise
as a result of this investment or the transactions contemplated by this
Agreement.
5.7 Investor Counsel. Lender acknowledges that it has had
the opportunity to review this Agreement, the exhibits and the schedules
attached hereto and the transactions contemplated by this Agreement with its own
legal and investment counsel. Lender is relying solely on such counsel and not
on any statements or representations of Borrower or any of its agents for legal
or investment advice with respect to this investment or the transactions
contemplated by this Agreement.
6. Events of Default; Remedies.
6.1 Events of Default. The occurrence of any one or more
of the following events after the date of this Agreement shall constitute an
"Event of Default":
(a) Borrower fails to make timely payment of any
principal, interest, fees or other charges when due hereunder;
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(b) Any material warranty, representation or
other statement made to Lenders by Borrower hereunder proves to have been false
or misleading in any material respect when made or furnished;
(c) Borrower fails or neglects to perform, keep
or observe any other material term, provision, condition, covenant, warranty or
representation contained in this Agreement, which is required to be performed,
kept or observed by Borrower;
(d) Borrower shall commence any proceeding or
other action relating to it in bankruptcy or seek reorganization, arrangement,
readjustment of its debts, dissolution, liquidation, winding-up, composition or
any other relief under the Bankruptcy Act, as amended, or under any other
insolvency, reorganization, liquidation, dissolution, arrangement, composition,
readjustment of debt or any other similar act or law, of any jurisdiction,
domestic or foreign, now or hereafter existing;
(e) Borrower shall admit the material
allegations of any petition or pleading in connection with any such proceeding;
(f) Borrower shall apply for, or consent to or
acquiesce in, the appointment of a receiver, conservator, trustee or similar
officer for it or for all or a substantial part of its property;
(g) Borrower shall make a general assignment for
the benefit of creditors; or
(h) Borrower shall admit in writing its
inability to pay its debts as they mature.
6.2 Acceleration of the Obligations. Upon the occurrence
of an Event of Default as above provided, all or any portion of the obligations
due or to become due from Borrower to each Lender shall, at the option of each
Lender, and without notice or demand by such Lender, become at once due and
payable. Borrower will forthwith pay to each Lender, in addition to any and all
sums and charges due, the entire outstanding principal balance and interest
accrued thereon.
7. Conditions to Closing of Lenders. Lender's obligations to
purchase the Notes, Warrants and Underlying Securities issuable upon conversion
of the Warrants at the Closing are, at the option of Lenders, subject to the
fulfillment of the following conditions:
7.1 Representations and Warranties Correct. The
representations and warranties made by Borrower in Section 4 hereof shall be
true and correct in all material respects as of the Closing Date.
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7.2 Covenants. All covenants, agreements and conditions
contained in this Agreement to be performed by Borrower on or prior to the
Closing Date shall have been performed or complied with in all material
respects.
7.3 Compliance Certificate. Borrower shall have delivered
to Lenders a certificate of Borrower in the form of Exhibit G hereto, executed
by the President of Borrower, dated the Closing Date, and certifying, among
other things, to the fulfillment of the conditions specified in Sections 7.1 and
7.2 of this Agreement.
7.4 Opinion of Borrower's Counsel. Lenders shall have
received from Wilson, Sonsini, Goodrich & Rosati, P.C., counsel to Borrower, an
opinion addressed to Lenders, dated the Closing Date, in substantially the form
attached as Exhibit H.
7.5 Blue Sky. Borrower shall have obtained all necessary
Blue Sky law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Notes, Warrants
or Underlying Securities issuable upon conversion of the Warrants.
7.6 Legal Matters. All material matters of a legal nature
that pertain to this Agreement and the transactions contemplated hereby, shall
have been reasonably approved by special counsel to Lenders.
7.7 Board of Directors. The Board of Directors of
Borrower shall consist of the following persons: Thomas Sinton, Jane Sinton,
Michael Hughes, Tom Roddy and Victor Long.
7.8 Registration Rights Agreement. Borrower and each
Lender shall have entered into the Sixteenth Amendment to Registration Rights
Agreement in substantially the form attached hereto as Exhibit D.
7.9 Promissory Notes. Borrower shall have executed and
delivered a Note to each Lender evidencing the principal amount borrowed by
Borrower from Lender, in the form substantially as set forth in Exhibit B
hereto.
7.10 Warrants. Borrower shall have executed and delivered
to each Lender a Warrant subject to the terms and provisions set forth in
Section 2 hereof and in the form substantially as set forth in Exhibit C
attached hereto.
8. Conditions to Closing of Borrower. Borrower's obligation to
sell and issue the Notes, Warrants or Underlying Securities issuable upon
conversion of the Warrants pursuant to this Agreement is, at the option of
Borrower, subject to the fulfillment as of the Closing Date of the following
conditions:
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<PAGE> 12
8.1 Representations and Warranties. The representations
and warranties made by Lenders in Section 5 hereof shall be true and correct
when made, and shall be true and correct on the Closing Date.
8.2 Blue Sky. Borrower shall have obtained all necessary
Blue Sky law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Notes, Warrants
or Underlying Securities issuable upon conversion of the Warrants.
8.3 Legal Matters. All material matters of a legal nature
that pertain to this Agreement and the transactions contemplated hereby, shall
have been reasonably approved by counsel to Borrower. At the time of the
Closing, the purchase of the Notes, Warrants or Underlying Securities issuable
upon conversion of the Warrants shall be legally permitted by all laws and
regulations to which each Lender and Borrower are subject.
8.4 Board Approval. All approvals of Borrower's Board of
Directors necessary for performance of the transactions contemplated by this
Agreement shall have been obtained.
8.5 Registration Rights Agreements. Borrower and each
Lender shall have entered into the Sixteenth Amendment to Registration Rights
Agreement in substantially the form attached hereto as Exhibit D.
9. Affirmative Covenants of Borrower and Lenders. Borrower hereby
covenants and agrees as follows:
9.1 Financial Information. Borrower will furnish to each
Lender for so long as such Lender holds any Notes:
(a) As soon as practicable after the end of each
fiscal year, and in any event within 120 days thereafter, consolidated balance
sheets of Borrower and its subsidiaries, if any, as of the end of such fiscal
year, and consolidated statements of income and consolidated statements of
changes in financial position of Borrower and its subsidiaries, if any, for such
year, prepared in accordance with generally accepted accounting principles and
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and certified by independent public
accountants of reputable standing selected by Borrower.
(b) With reasonable promptness, such other
information and data with respect to Borrower and its subsidiaries, if any, as
any such holder may from time to time reasonably request; provided, however,
that Borrower shall not be obligated pursuant to this Section 9.1(b) to disclose
or provide any information that it reasonably considers to be a trade secret or
to contain confidential proprietary information.
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<PAGE> 13
(c) So long as such Lender holds any Notes with
a principal amount outstanding of $250,000 or more, as soon as practicable after
the end of the first, second and third quarterly accounting periods in each
fiscal year of Borrower and in any event within 60 days thereafter, unaudited
consolidated statements of income and consolidated statements of changes in
financial condition of Borrower and its subsidiaries, if any, for such period
and for the current fiscal year to date, prepared in accordance with generally
accepted accounting principles, with the exception of footnotes, all in
reasonable detail and signed, subject to changes resulting from year-end audit
adjustments, by the principal financial or accounting officer of Borrower.
9.2 Rights of Inspection. For so long as a Lender is
eligible to receive reports under Section 9.1(c), such Lender shall also have
the right, at Lender's expense, to visit and inspect any of the properties of
Borrower and to discuss its affairs, finances and accounts with its officers,
all at such reasonable times and as often as may be reasonably requested,
provided that Borrower shall not be required at any time to disclose any
manufacturing or trade secret or secret process or other data of a proprietary
nature the disclosure of which Borrower reasonably believes may adversely affect
its business, provided, further, that Borrower shall not be required at any time
to disclose any customer data to any Lender or any transferee of a Lender, as
provided in Section 9.3, engaged in a business similar to the business in which
Borrower is engaged at such time, and provided, further, that Borrower shall not
be required at any time to disclose any information or data that is classified
by any governmental agency.
9.3 Assignment of Rights to Financial Information. The
rights granted pursuant to Sections 9.1 and 9.2 may not be assigned or otherwise
conveyed by a Lender or by any subsequent transferee of any such rights without
the prior written consent of Borrower; provided, however, that a Lender may
assign such rights to any transferee, other than a competitor of Borrower, and
after giving notice to Borrower, who acquires any Notes with a principal amount
outstanding of $250,000 or more.
9.4 Termination of Covenants. The covenants set forth in
Sections 9.1, 9.2 and 9.3 shall terminate and be of no further force or effect
at such time as Borrower is required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act.
10. Subordination. To the extent there is any conflict between the
provisions of this Section 10 and the other provisions of this Agreement, the
provisions of this Section 10 shall control.
(a) Each Lender hereby subordinates to Silicon Valley Bank
("Bank") any security interest or lien that Lender may have or in the future
obtain in any property of Borrower. Notwithstanding any respective dates of
attachment or perfection of the security interest of Lender and the security
interest of Bank, the security interest of Bank in the property of Borrower
shall at all times be prior to the security interest of Lender.
(b) All indebtedness hereunder (the "Subordinated Debt") is
subordinated in right of payment to all obligations of Borrower to Bank now
existing or hereafter arising, together with all
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costs of collecting such obligations (including attorneys' fees), including,
without limitation, all interest accruing after the commencement by or against
Borrower of any bankruptcy, reorganization or similar proceeding (the "Senior
Debt").
(c) Lender will not demand or receive from Borrower (and Borrower
will not pay to Lender) all or any part of the Subordinated Debt, by way of
payment, prepayment, setoff, lawsuit or otherwise, nor will Lender exercise any
remedy with respect to any of Bank's collateral, nor will Lender commence, or
cause to commence, prosecute or participate in any administrative, legal or
equitable action against Borrower, for so long as any portion of the Senior Debt
remains outstanding. The foregoing notwithstanding, Lender shall be entitled to
receive each regularly scheduled payment of interest that constitutes
Subordinated Debt, provided that an event of default, as defined in the
financing agreements between Borrower and Bank, has not occurred and is not
continuing and would not exist immediately after such payment.
(d) Lender shall promptly deliver to Bank in the form received
(except for endorsement or assignment by Lender where required by Bank) for
application to the Senior Debt any payment, distribution, security or proceeds
received by Lender with respect to the Subordinated Debt other than in
accordance with this Section 10.
(e) In the event of Borrower's insolvency, reorganization or any
case or proceeding under any bankruptcy or insolvency law or laws relating to
the relief of debtors, the provisions of this Section 10 shall remain in full
force and effect, and Bank's claims against Borrower and the estate of Borrower
shall be paid in full before any payment is made to Lender.
(f) For so long as any of the Senior Debt remains unpaid, Lender
irrevocably appoints Bank as Lender's attorney-in-fact, and grants to Bank a
power of attorney with full power of substitution, in the name of Lender or in
the name of Bank, for the use and benefit of Bank, without notice to Lender, to
perform at Bank's option the following acts in any bankruptcy, insolvency or
similar proceeding involving Borrower:
(i) To file the appropriate claim or claims in respect of
the Subordinated Debt on behalf of Lender if Lender does not do so prior to 30
days before the expiration of the time to file claims in such proceeding and if
Bank elects, in its sole discretion, to file such claim or claims; and
(ii) To accept or reject any plan of reorganization or
arrangement on behalf of Lender and to otherwise vote Lender's claims in respect
of any Subordinated Debt in any manner that Bank deems appropriate for the
enforcement of its rights hereunder.
(g) This Section 10 shall remain effective for so long as Borrower
owes any amounts to Bank. If, at any time after payment in full of the Senior
Debt any payments of the Senior Debt must be disgorged by Bank for any reason
(including, without limitation, the bankruptcy of Borrower), this Section 10 and
the relative rights and priorities set forth herein shall be reinstated as to
all such
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<PAGE> 15
disgorged payments as though such payments had not been made and Lender shall
immediately pay over to Bank all payments received with respect to the
Subordinated Debt to the extent that such payments would have been prohibited
hereunder. At any time and from time to time, without notice to Lender, Bank may
take such actions with respect to the Senior Debt as Bank, in its sole
discretion, may deem appropriate, including, without limitation, terminating
advances to Borrower, increasing the principal amount, extending the time of
payment, increasing applicable interest rates, renewing, compromising or
otherwise amending the terms of any documents affecting the Senior Debt and any
collateral securing the Senior Debt, and enforcing or failing to enforce any
rights against Borrower or any other person. No such action or inaction shall
impair or otherwise affect Bank's rights hereunder. Lender waives the benefits,
if any, of California Civil Code Sections 2809, 2810, 2819, 2845, 2847, 2848,
2849, 2850, 2899 and 3433.
(h) The provisions of this Section 10 shall bind any successors or
assignees of Lender and shall benefit any successors or assigns of Bank, and, if
Borrower refinances a portion of the Senior Debt with a new lender, such new
lender shall be deemed a successor of Bank for the purposes of this Section 10.
This Section 10 is solely for the benefit of Lender and Bank and not for the
benefit of Borrower or any other party.
(i) The provisions of this Section 10 may be amended only by
written instrument signed by Lender and Bank.
(j) In the event of any legal action to enforce the rights of a
party under this Section 10, the party prevailing in such action shall be
entitled, in addition to such other relief as may be granted, all reasonable
costs and expenses, including reasonable attorneys' fees, incurred in such
action.
11. Miscellaneous.
11.1 Governing Law. This Agreement shall be governed in
all respects by the laws of the State of California. The parties expressly
stipulate that any litigation under this Agreement shall be brought in the state
courts of the County of Santa Clara, California and in the United States
District Court for the Northern District of California. The parties agree to
submit to the jurisdiction and venue of those courts.
11.2 Survival. The representations, warranties, covenants
and agreements made herein shall survive any investigation made by a Lender and
the closing of the transactions contemplated hereby.
11.3 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto, provided, however, that the Notes, Warrants or Underlying
Securities issuable upon conversion of the Warrants shall not be assignable
without the consent of Borrower.
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11.4 Entire Agreement; Amendment. This Agreement, the
exhibits attached hereto and the other documents delivered pursuant hereto at
the Closing constitute the full and entire understanding and agreement between
the parties with regard to the subjects hereof and thereof, and no party shall
be liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
Except as expressly provided herein, neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought; provided, however, that any
provisions hereof may be amended, waived, discharged or terminated, on behalf of
all holders, upon the written consent of Borrower and the holders of a majority
of the Notes.
11.5 Notices, etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
registered or certified mail, postage prepaid, or otherwise delivered by hand or
by messenger, addressed (a) if to a Lender, to such Lender's address set forth
in Exhibit A, or at such other address as the Lender shall have furnished to
Borrower in writing, or (b) if to any other holder of any Notes, Warrants or
Underlying Securities issuable upon conversion of the Warrants, at such address
as such holder shall have furnished Borrower in writing, or, until any such
holder so furnishes an address to Borrower, then to and at the address of the
last holder of such Notes, Warrants or Underlying Securities issuable upon
conversion of the Warrants who has so furnished an address to Borrower, or (c)
if to Borrower, one copy should be sent to its address set forth at the
beginning of this Agreement and addressed to the attention of the President of
Borrower, or at such other address as Borrower shall have furnished to the
Lenders.
Each such notice or other communication shall for all purposes
of this Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid.
11.6 Delays or Omissions. Except as expressly provided
herein, no delay or omission to exercise any right, power or remedy accruing to
any holder of any Notes, Warrants or Underlying Securities issuable upon
conversion of the Warrants, upon any breach or default of Borrower under this
Agreement, shall impair any such right, power or remedy of such holder nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of any
breach or default under this Agreement or any waiver on the part of any holder
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
11.7 California Corporate Securities Law. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
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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
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS AN EXEMPTION FROM SUCH
QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, OR SUCH EXEMPTION
BEING AVAILABLE.
11.8 Expenses. Borrower and Lenders shall bear their own
expenses and legal fees incurred with respect to this Agreement and the
transactions contemplated hereby.
11.9 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be enforceable against the party
actually executing such counterpart, and all of which together shall constitute
one instrument.
11.10 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
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IN WITNESS WHEREOF, the parties have duly executed this Loan Agreement
on the day and year first above written.
BORROWER: PROBUSINESS, INC.
a California corporation
By:_________________________________________
Thomas H. Sinton,
President and Chief Executive Officer
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PROBUSINESS INC.
LOAN AGREEMENT
LENDER'S SIGNATURE PAGE
-----------------------------------
(Printed Name of Lender)
-----------------------------------
(Signature)
-----------------------------------
(Title, if Applicable)
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PROBUSINESS, INC.
FIRST AMENDMENT TO
LOAN AGREEMENT
This FIRST AMENDMENT to that certain Loan Agreement dated as of October
20, 1995 (the "Agreement") is made as of December 12, 1995 (the "First
Amendment"), by an among ProBusiness, Inc, a California corporation ("Borrower")
with its principal office at 5934 Gibraltar Drive, Pleasanton, California 94588,
each of the persons listed in Exhibit A to the Agreement (collectively referred
to herein as the "Original Lenders") and each of the persons listed in Exhibit A
attached hereto (collectively referred to herein as "Additional Lenders"). The
Original Lenders and the Additional Lenders shall collectively be referred to
herein as "Lenders".
RECITALS
WHEREAS, the Original Lenders possess certain rights under the
Agreement;
WHEREAS, Section 11.4 of the Agreement provides that the Agreement may
be amended, waived, discharged or terminated, on behalf of all holders, upon the
written consent of the Borrower and holders of a majority of the Notes (as
defined in the Agreement) purchased under the Agreement;
WHEREAS, the Agreement provided for the authorization of up to an
aggregate principal amount of $2,500,000 of Notes with an interest rate of eight
percent (8%) per annum and Warrants (as defined in the Agreement) to purchase up
to 78,715 shares of the Borrower's Series E Preferred Stock in one or more
closings;
WHEREAS, the Borrower issued $1,100,000 of the Notes and Warrants to
purchase 34,630 shares of the Borrower's Series E Preferred Stock on October 20,
1995 to the Original Lenders and the Borrower and the Original Lenders wish to
amend the Agreement to provide for the issuance of an additional $2,900,000
principal amount of the Notes and Warrants to purchase up to an additional
91,309 shares of Series E Preferred Stock to the Additional Purchasers on the
same terms and conditions as set forth in the Agreement for an aggregate total
principal amount of the Notes issued of $4,000,000 and Warrants to purchase up
to an aggregate total of 125,939 of the Borrower's Series E Preferred Stock;
WHEREAS, the Borrower, the Original Lenders and the Additional Lenders
wish to amend the expiration date of the Warrants issued to the Original Lenders
and the Warrants to be issued to the Additional Lenders hereunder to be
substantially as set forth in Exhibits C-1 and C-2 attached hereto;
WHEREAS, the Borrower, the Original Lenders and the Additional Lenders
wish to amend the Notes issued to the Original Lenders and the Notes to be
issued to the Additional Lenders hereunder in Exhibits B-1 and B-2 to be
substantially as set forth to provide for early repayment of
<PAGE> 21
the Note at the option of the Borrower the earlier of one year from the date of
the Loan Agreement or an initial public offering of the Borrower;
WHEREAS, the Board of Directors (the "Board") and shareholders of the
Borrower have amended the Borrower's Bylaws to change the size of the Board and
the Board has appointed John M. Duff, Jr. to fill a vacancy on the Board
resulting from such Bylaw amendment;
WHEREAS, the Borrower has authorized this First Amendment providing for
the sale and issuance of an additional $2,900,000 principal amount of the Notes
and Warrants to purchase up to an additional 91,309 shares of the Series E
Preferred Stock at an additional closing or closings;
WHEREAS, Additional Lenders desire to purchase the Additional Notes (as
defined below) and Additional Warrants (as defined below) on the terms and
conditions set forth herein; and
WHEREAS, the Borrower desires to issue and sell the Additional Notes
and Additional Warrants to the Additional Lenders on the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
12. Debt Financing.
a. Promissory Notes. Each Additional Lender severally
agrees to make available to Borrower on the closing date the principal amount
set forth opposite such Additional Lender's name in Exhibit A attached hereto to
be evidenced by a promissory note (collectively, the "Additional Notes") the
form of which is attached hereto as Exhibit B-1, for up to a total principal
amount to be made available to Borrower by all Additional Lenders of up to
$2,900,000 and for up to a total aggregate principal amount to be made available
to Borrower by all Lenders of up to $4,000,000. The Additional Notes shall be
issued on the same terms and conditions as the Notes issued pursuant to the
Agreement, the form of which is substantially as set forth in Exhibit B-1
attached hereto.
b. Payments. All payments to Additional Lenders shall be
payable at Additional Lenders' address, set forth in Exhibit A attached hereto,
or at such other place or places as Additional Lenders may designate from time
to time in writing to Borrower.
13. Warrants to Purchase Series E Preferred Stock. Subject to the
terms and conditions hereinafter set forth (including without limitation Section
7.11 below) and in consideration of a purchase price of $1.00, Borrower shall
issue a warrant ("Additional Warrant") to each Additional Lender, entitling each
Additional Lender, upon surrender of the Additional Warrant at the principal
office of Borrower (or at such other place as Borrower shall notify Additional
Lender hereof in writing), to purchase from Borrower the value of fully paid and
nonassessable shares of Series E Preferred Stock of Borrower as is equal to
twenty-five percent (25%) of the principal amount of each Additional Note held
by such Additional Lender under this First Amendment at an exercise price of
$7.94 per share of Series E Preferred Stock, all as set forth in the form of
Additional Warrant
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<PAGE> 22
attached hereto as Exhibit C-1. Each Additional Warrant shall be subject to
antidilution price protection, net exercise provisions and registration rights
and shall be substantially in the form set forth in Exhibit C-1, attached hereto
and made a part hereof.
14. Closing Date; Delivery.
a. Closing Date. The closing of the execution of this
First Amendment and the issuance of the Additional Notes and Additional Warrants
hereunder shall be held at the offices of Wilson, Sonsini, Goodrich & Rosati,
650 Page Mill Road, Palo Alto, California 94304-1050 at 5:00 p.m., local time,
on December 12, 1995 (the "Second Closing") or at such other time and place upon
which Borrower and Additional Lenders shall agree (the date of the Second
Closing is hereinafter referred to as the "Second Closing Date").
b. Delivery. At the Second Closing, Borrower will
deliver to each Additional Lender an executed counterpart of this First
Amendment together with an Additional Note and Additional Warrant issued in such
Additional Lender's name, evidencing the principal amount borrowed from such
Additional Lender by Borrower and the number of shares of Series E Preferred
Stock to be issued to Additional Lender upon exercise of the Additional Warrant
as set forth beside such Additional Lender's name on Exhibit A attached hereto,
against delivery of an executed counterpart of this First Amendment, together
with payment of the principal amount plus $1.00, the purchase price of the
Additional Warrant, by check payable to Borrower or wire transfer per Borrower's
instructions.
c. Subsequent Closings. If less than $4,000,000 is made
available to Borrower by Lenders on the Closing Date (as defined in the
Agreement) and Second Closing Date, then, subject to the terms and conditions of
the Agreement Borrower may issue additional Notes at subsequent closings
evidencing up to the principal balance amount of the $4,000,000 not made
available to Borrower by Lenders and Warrant to such persons as Borrower may
determine with the same terms and conditions as the Notes and Warrant issued
pursuant to the Agreement. Any such issuance shall be on the same terms and
conditions as those contained in the Agreement and such persons shall become
parties to the Agreement and that certain Registration Rights Agreement dated as
of December 1, 1989 as amended (the "Registration Rights Agreement") and shall
have the rights and obligations of the Lenders as defined thereunder, subject to
the Seventeenth Amendment to the Registration Rights Agreement (the "Seventeenth
Amendment") attached hereto as Exhibit D. A copy of the Registration Rights
Agreement is attached hereto as Exhibit E.
d. Rights and Obligations of Borrower, the Original
Lenders and the Additional Lenders. Concurrently with the execution of this
First Amendment, the Additional Lenders shall execute counterpart signature
pages to the Seventeenth Amendment. The Additional Lenders shall be entitled to
the rights, and be subject to the obligations, applicable to the Original
Lenders contained in the Agreement and the Registration Rights Agreement as if
the Additional Lenders had purchased the Additional Notes and Additional
Warrants pursuant to the Agreement. Without limiting the generality of the
foregoing, the Additional Lenders shall be considered "Lenders" as defined in
the Agreement, the Additional Notes and Additional Warrants shall be considered
"Notes" and "Warrants", respectively as defined in the Agreement and the Series
E Preferred Stock to be
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<PAGE> 23
issued upon the exercise of the Additional Warrants and the Common Stock to be
issued upon the Conversion of such Series E Preferred Stock (the "Additional
Underlying Securities") shall be considered "Underlying Securities" as defined
in the Agreement. Further, the definitions of the "Agreement" and "Bylaws" in
the Agreement shall include the First Amendment and the Exhibits attached
thereto, and all amendments to the Bylaws as of the date hereof, respectively.
15. Disclosure; Capitalization.
a. Disclosure. Each Additional Lender hereby
acknowledges receipt of the Borrower's audited financial statements for the
twelve-month period ended June 30, 1995 (the "Financial Statements"). The
Company affirms to the Additional Lenders that:
i. The representations and warranties of the
Company set forth in Section 4 of the Agreement were true and accurate when
made; and
ii. Those representations and warranties are
incorporated herein by this reference and made a part hereof, and remain true
and accurate in all material respects as of the date hereof and as of the Second
Closing Date, except as otherwise set forth below.
b. Capitalization. The authorized capital stock of
Borrower consists of 20,000,000 shares of Common Stock, par value $.01 per share
244,679 of which are issued and outstanding as of the Closing Date and 6,000,000
share of Preferred Stock with par value, $.01 per share (the "Preferred"),
1,500,000 of which have been designated Series A Preferred Stock (the "Series A
Preferred"), of which 920,000 are issued and outstanding as of the Closing Date,
1,500,000 of which have been designated Series B Preferred Stock (the "Series B
Preferred"), of which 919,400 are issued and outstanding as of the Closing Date,
1,500,000 of which have been designated Series C Preferred Stock (the "Series C
Preferred"), of which 260,785 are issued and outstanding as of the Closing Date,
500,000 which have been designated Series D Preferred Stock (the "Series D
Preferred"), of which 300,000 are issued and outstanding as of the closing date,
and 500,000 of which have been designated Series E Preferred Stock (the "Series
E Preferred"), 213,116 of which are issued and outstanding immediately before
the Closing Date. No other series of Preferred Stock has been designated. The
outstanding shares have been duly authorized and validly issued, and are fully
paid and nonassessable. The Borrower has reserved 125,939 shares of Series E
Preferred for issuance upon the exercise of Warrants pursuant to the Agreement,
251,878 shares of Common Stock for issuance upon conversion of the Series E
Preferred to be issued upon the exercise of such Warrants, 9,446 shares of
Series E Preferred Stock for issuance upon the exercise of a warrant issued to
Silicon Valley Bank ("SVB"), 18,892 shares of Common Stock for issuance upon the
conversion of the Series E Preferred to be issued upon the exercise of SVB's
warrant, 426,232 shares of Common Stock for issuance upon the conversion of the
outstanding Series E Preferred, 600,000 shares of Common Stock for issuance upon
the conversion of the Series D Preferred, 521,570 shares of Common Stock for
issuance upon conversion of the Series C Preferred, 1,838,800 shares of Common
Stock for issuance upon conversion of the Series B Preferred, 1,840,000 shares
of Common Stock for issuance upon conversion of the Series A Preferred, and
862,146 shares of Common Stock for issuance upon exercise of options granted and
465,184 shares of Common Stock for issuance upon exercise of options not yet
granted under Borrower's 1989 Stock Option Plan, as
-5-
<PAGE> 24
amended. The Series E Preferred Stock to be issued upon the exercise of the
Warrants hereunder shall have the rights, privileges and restrictions set forth
in Borrowers Articles of Incorporation, as amended, (the "Articles"). Other than
options granted or to be granted pursuant to Borrower's 1989 Stock Option Plan,
as amended, Warrants to purchase 34,630 shares of the Borrower's Series E
Preferred Stock issued to the Original Lenders and a warrant issued to SVB,
there are no options, warrants or other rights, including convertible debentures
or notes, granted or issued by or binding upon Borrower to purchase any of
Borrower's authorized and unissued Common Stock or Preferred Stock.
c. Brokers or Finders; Other Offers. Borrower has not
incurred, and will not incur, directly or indirectly, as a result of any action
taken by Borrower, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement, except
with respect to certain Additional Lenders, the Borrower will issue a Warrant to
Duff, Ackerman, Goodrich & Associates, L.P. to purchase 1,599 shares of
Borrower's Series E Preferred Stock on the same terms and conditions as set
forth in the Agreement and as provided for in Section 7.11 below and such
Additional Lenders will pay an amount equal to two percent of the principal
amount set forth opposite their name to such firm.
d. No Material Liabilities. Borrower has no material
liabilities or obligations, other than: (a) liabilities and obligations
disclosed in the Financial Statements (including, without limitation, Borrower's
borrowings pursuant to the Loan Agreement between Borrower and Silicon Valley
Bank dated January 13, 1995 for up to a maximum principal amount of $1,500,000);
(b) liabilities incurred in the ordinary course of business; (c) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
the Financial Statements; (d) leases for operating headquarters and branches of
Borrower; (e) liabilities and obligations pursuant to the Agreement for up to a
maximum principal amount of $1,100,000 of Notes issued to the Original
Purchasers; and (f) any other obligations which are not in any case material to
the financial condition or operating results of Borrower.
16. Representations and Warranties of Additional Lenders. Each
Additional Lender acknowledges that such Additional Lender has reviewed the
representations and warranties set forth in Sections 5 and 8.1 of the Agreement
and agrees with Borrower that such representations and warranties, which are
incorporated herein by this reference and made a part hereof, are true and
correct as of the date hereof as they relate to the purchase of any of the
Additional Notes, Additional Warrants or Additional Underlying Securities by
such Additional Lender hereunder except as follows:.
a. Brokers or Finders; Other Offers. Additional Lender
has not incurred, and will not incur, directly or indirectly, as a result of any
action taken by Additional Lender, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement,
except with respect to certain Additional Lenders, the Borrower will issue a
Warrant to Duff, Ackerman, Goodrich & Associates, L.P. to purchase 1,599 shares
of Borrower's Series E Preferred Stock on the same terms and conditions as set
forth in the Agreement and as
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<PAGE> 25
provided for in Section 7.11 below and such Additional Lenders will pay an
amount equal to two percent of the principal amount set forth opposite their
name to such firm.
17. Events of Default; Remedies. The terms and provisions set
forth in Section 6 of the Agreement are incorporated herein by this reference
and made a part hereof.
18. Conditions to Closing of Lenders. Additional Lenders'
obligations to purchase the Additional Notes, Additional Warrants and Additional
Underlying Securities issuable upon conversion of the Additional Warrants at the
Second Closing and the Original Lenders' obligations to amend the Agreement are,
at the option of Additional Lenders and Original Lenders, subject to the
fulfillment of the following conditions:
a. Representations and Warranties Correct. The
representations and warranties made by Borrower in Section 4 hereof shall be
true and correct in all material respects as of the Closing Date.
b. Covenants. All covenants, agreements and conditions
contained in this First Amendment to be performed by Borrower on or prior to the
Second Closing Date shall have been performed or complied with in all material
respects.
c. Compliance Certificate. Borrower shall have delivered
to Additional Lenders a certificate of Borrower in the form of Exhibit G hereto,
executed by the President of Borrower, dated the Second Closing Date, and
certifying, among other things, to the fulfillment of the conditions specified
in Sections 7.1 and 7.2 of this First Amendment.
d. Opinion of Borrower's Counsel. Additional Lenders
shall have received from Wilson Sonsini Goodrich & Rosati, P.C., counsel to
Borrower, an opinion addressed to Lenders, dated the Second Closing Date, in
substantially the form attached as Exhibit H.
e. Blue Sky. Borrower shall have obtained all necessary
Blue Sky law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Additional Notes,
Additional Warrants or Additional Underlying Securities issuable upon conversion
of the Additional Warrants.
f. Legal Matters. All material matters of a legal nature
that pertain to this First Amendment and the transactions contemplated hereby,
shall have been reasonably approved by special counsel to Additional Lenders.
g. Board of Directors. The Board of Directors of
Borrower shall consist of the following persons: Thomas Sinton, Jane Sinton,
Michael Hughes, Thomas Roddy, Victor Long and John M. Duff, Jr.
h. Registration Rights Agreement. Borrower, and each
Additional Lender and Duff, Ackerman, Goodrich & Associates shall have entered
into the Seventeenth Amendment to Registration Rights Agreement in substantially
the form attached hereto as Exhibit D.
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<PAGE> 26
i. Promissory Notes. Borrower shall have executed and
delivered an Additional Note to each Additional Lender evidencing the principal
amount borrowed by Borrower from Additional Lender, in the form substantially as
set forth in Exhibit B-1 hereto. Borrower shall have executed and delivered to
each Original Lender an Amendment to Note in the Form substantially as set forth
in Exhibit B-2.
j. Warrants. Subject to Section 7.11 below, Borrower
shall have executed and delivered to each Additional Lender an Additional
Warrant subject to the terms and provisions set forth in Section 2 hereof and in
the form substantially as set forth in Exhibit C-1 attached hereto and Borrower
shall have executed and delivered to each Original Lender an Amendment to
Warrant in the form substantially as set forth in Exhibit C-2 attached hereto.
k. Warrants to Duff, Ackerman, Goodrich & Associates,
L.P.. Borrower shall execute and deliver a Warrant subject to the terms and
provisions set forth in Section 2 hereof and in the form substantially as set
forth in Exhibit C-1 attached hereto, to Duff, Ackerman, Goodrich & Associates,
L.P. to purchase 1,599 shares of Borrower's Series E Preferred Stock. Such
Warrant shall be delivered to Duff, Ackerman, Goodrich & Associates, L.P. at its
headquarters located at Two Embarcadero Center, Suite 2930, San Francisco,
California 94111, Attention: John M. Duff, Jr. As a result of the issuance of
such Warrant, the number of shares of Series E Preferred Stock issuable upon the
exercise of Additional Warrants issued to certain Additional Lenders shall be
reduced by ten percent as indicated on Exhibit A attached hereto.
l. Amendment to Bylaws. The Board of Directors and
shareholders of Borrower shall have amended the Bylaws of Borrower to provide
for a change in the size of the Board in the form substantially as set forth in
Exhibit I attached hereto.
19. Conditions to Closing of Borrower. Borrower's obligation to
sell and issue the Additional Notes, Additional Warrants or Additional
Underlying Securities issuable upon conversion of the Additional Warrants
pursuant to this First Amendment and to amend the Agreement is, at the option of
Borrower, subject to the fulfillment as of the Second Closing Date of the
following conditions:
a. Representations and Warranties. The representations
and warranties made by Additional Lenders in Section 5 hereof shall be true and
correct when made, and shall be true and correct on the Second Closing Date.
b. Blue Sky. Borrower shall have obtained all necessary
Blue Sky law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Additional Notes,
Additional Warrants or Additional Underlying Securities issuable upon conversion
of the Additional Warrants.
c. Legal Matters. All material matters of a legal nature
that pertain to this First Amendment and the transactions contemplated hereby,
shall have been reasonably approved by counsel to Borrower. At the time of the
Second Closing, the purchase of the Additional Notes, Additional Warrants or
Additional Underlying Securities issuable upon conversion of the Additional
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<PAGE> 27
Warrants shall be legally permitted by all laws and regulations to which each
Lender and Borrower are subject.
d. Board and Shareholder Approval. All approvals of
Borrower's Board of Directors and shareholders necessary for performance of the
transactions contemplated by this First Amendment shall have been obtained.
e. Registration Rights Agreements. Borrower, each
Additional Lender and Duff, Ackerman, Goodrich & Associates, L.P. shall have
entered into the Seventeenth Amendment to Registration Rights Agreement in
substantially the form attached hereto as Exhibit D.
20. Affirmative Covenants of Borrower and Lenders. The covenants
of Borrower and Lenders set forth in Section 9 of the Agreement are incorporated
herein by this reference and made a part hereof, to the effect that each
Additional Lender has all the rights and obligations of a Lender under such
provisions with respect to the Additional Notes, Additional Warrants or
Additional Underlying Securities acquired hereby, except for Section 9.1(c)
which is amended in full as follows:
"(c) So long as such Lender holds any Notes, as
soon as practicable after the end of the first, second and third quarterly
accounting periods in each fiscal year of Borrower and in any event within 60
days thereafter, unaudited consolidated statements of income and consolidated
statements of changes in financial condition of Borrower and its subsidiaries,
if any, for such period and for the current fiscal year to date, prepared in
accordance with generally accepted accounting principles, with the exception of
footnotes, all in reasonable detail and signed, subject to changes resulting
from year-end audit adjustments, by the principal financial or accounting
officer of Borrower."
21. Subordination. To the extent there is any conflict between the
provisions of this Section 10 and the other provisions of this First Amendment,
the provisions of this Section 10 shall control.
i. Each Lender hereby subordinates to Silicon Valley
Bank ("Bank") any security interest or lien that Lender may have or in the
future obtain in any property of Borrower. Notwithstanding any respective dates
of attachment or perfection of the security interest of Lender and the security
interest of Bank, the security interest of Bank in the property of Borrower
shall at all times be prior to the security interest of Lender.
ii. All indebtedness hereunder (the "Subordinated Debt")
is subordinated in right of payment to all obligations of Borrower to Bank now
existing or hereafter arising, together with all costs of collecting such
obligations (including attorneys' fees), including, without limitation, all
interest accruing after the commencement by or against Borrower of any
bankruptcy, reorganization or similar proceeding (the "Senior Debt").
iii. Lender will not demand or receive from Borrower (and
Borrower will not pay to Lender) all or any part of the Subordinated Debt, by
way of payment, prepayment, setoff, lawsuit or otherwise, nor will Lender
exercise any remedy with respect to any of Bank's collateral, nor will
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<PAGE> 28
Lender commence, or cause to commence, prosecute or participate in any
administrative, legal or equitable action against Borrower, for so long as any
portion of the Senior Debt remains outstanding. The foregoing notwithstanding,
Lender shall be entitled to receive each regularly scheduled payment of interest
that constitutes Subordinated Debt, provided that an event of default, as
defined in the financing agreements between Borrower and Bank, has not occurred
and is not continuing and would not exist immediately after such payment.
iv. Lender shall promptly deliver to Bank in the form
received (except for endorsement or assignment by Lender where required by Bank)
for application to the Senior Debt any payment, distribution, security or
proceeds received by Lender with respect to the Subordinated Debt other than in
accordance with this Section 10.
v. In the event of Borrower's insolvency, reorganization
or any case or proceeding under any bankruptcy or insolvency law or laws
relating to the relief of debtors, the provisions of this Section 10 shall
remain in full force and effect, and Bank's claims against Borrower and the
estate of Borrower shall be paid in full before any payment is made to Lender.
vi. For so long as any of the Senior Debt remains unpaid,
Lender irrevocably appoints Bank as Lender's attorney-in-fact, and grants to
Bank a power of attorney with full power of substitution, in the name of Lender
or in the name of Bank, for the use and benefit of Bank, without notice to
Lender, to perform at Bank's option the following acts in any bankruptcy,
insolvency or similar proceeding involving Borrower:
(1) To file the appropriate claim or claims in
respect of the Subordinated Debt on behalf of Lender if Lender does not do so
prior to 30 days before the expiration of the time to file claims in such
proceeding and if Bank elects, in its sole discretion, to file such claim or
claims; and
(2) To accept or reject any plan of
reorganization or arrangement on behalf of Lender and to otherwise vote Lender's
claims in respect of any Subordinated Debt in any manner that Bank deems
appropriate for the enforcement of its rights hereunder.
vii. This Section 10 shall remain effective for so long as
Borrower owes any amounts to Bank. If, at any time after payment in full of the
Senior Debt any payments of the Senior Debt must be disgorged by Bank for any
reason (including, without limitation, the bankruptcy of Borrower), this Section
10 and the relative rights and priorities set forth herein shall be reinstated
as to all such disgorged payments as though such payments had not been made and
Lender shall immediately pay over to Bank all payments received with respect to
the Subordinated Debt to the extent that such payments would have been
prohibited hereunder. At any time and from time to time, without notice to
Lender, Bank may take such actions with respect to the Senior Debt as Bank, in
its sole discretion, may deem appropriate, including, without limitation,
terminating advances to Borrower, increasing the principal amount, extending the
time of payment, increasing applicable interest rates, renewing, compromising or
otherwise amending the terms of any documents affecting the Senior Debt and any
collateral securing the Senior Debt, and enforcing or failing to enforce any
rights against Borrower or any other person. No such action or inaction shall
impair or otherwise
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<PAGE> 29
affect Bank's rights hereunder. Lender waives the benefits, if any, of
California Civil Code Sections 2809, 2810, 2819, 2845, 2847, 2848, 2849, 2850,
2899 and 3433.
viii. The provisions of this Section 10 shall bind any
successors or assignees of Lender and shall benefit any successors or assigns of
Bank, and, if Borrower refinances a portion of the Senior Debt with a new
lender, such new lender shall be deemed a successor of Bank for the purposes of
this Section 10. This Section 10 is solely for the benefit of Lender and Bank
and not for the benefit of Borrower or any other party.
ix. The provisions of this Section 10 may be amended only
by written instrument signed by Lender and Bank.
x. In the event of any legal action to enforce the
rights of a party under this Section 10, the party prevailing in such action
shall be entitled, in addition to such other relief as may be granted, all
reasonable costs and expenses, including reasonable attorneys' fees, incurred in
such action.
22. Miscellaneous.
a. Incorporation by References. The provisions set forth
in Section 11 of the Agreement are incorporated herein by this reference and
made a part hereof.
b. Notices, etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
registered or certified mail, postage prepaid, or otherwise delivered by hand or
by messenger, addressed (a) if to an Additional Lender, to such Additional
Lender's address set forth in Exhibit A, or at such other address and the
Additional Lender shall have furnished to Borrower in writing, (b) if to any
other holder of any Notes, Additional Warrants or Additional Underlying
Securities issuable upon conversion of the Additional Warrants, at such address
as holder shall have furnished Borrower in writing, or, until any such holder so
furnishes an address to Borrower, then to and at the addresses of the last
holder of such Additional Notes, Additional Warrants or Additional Underlying
Securities issuable upon conversion of the Additional Warrants who has so
furnished an address to Borrower, or (c) if to Borrower, one copy should be sent
to its address set forth at the beginning of this First Amendment and addressed
to the attention of the President of Borrower, or at such other address as
Borrower shall have furnished to the Additional Lenders or (d) if to an Original
Lender, as provided in Section 11.5 to the Agreement.
Each such notice or other communication shall for all purposes
of this First Amendment be treated as effective or having been given when
delivered if delivered personally, or, if sent by mail, at the earlier of its
receipt or 72 hours after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as
aforesaid.
c. California 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
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<PAGE> 30
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS AN
EXEMPTION FROM SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO
THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
OR SUCH EXEMPTION BEING AVAILABLE.
-12-
<PAGE> 31
IN WITNESS WHEREOF, the parties have duly executed this First Amendment
to the Loan Agreement on the day and year first above written.
BORROWER: PROBUSINESS, INC.
a California corporation
By:_________________________________________
Thomas H. Sinton,
President and Chief Executive Officer
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<PAGE> 32
PROBUSINESS, INC.
FIRST AMENDMENT TO
THE LOAN AGREEMENT
ORIGINAL LENDER'S SIGNATURE PAGE
-----------------------------------
(Printed Name of Lender)
-----------------------------------
(Signature)
-----------------------------------
(Title, if Applicable)
<PAGE> 33
PROBUSINESS, INC.
FIRST AMENDMENT TO
THE LOAN AGREEMENT
ADDITIONAL LENDER'S SIGNATURE PAGE
-----------------------------------
(Printed Name of Lender)
-----------------------------------
(Signature)
-----------------------------------
(Title, if Applicable)
<PAGE> 1
EXHIBIT 10.13
COAST
LOAN AND SECURITY AGREEMENT
BORROWER: PROBUSINESS, INC.,
A CALIFORNIA CORPORATION
ADDRESS: 5934 GIBRALTER DR., SUITE 201
PLEASANTON, CA 94588
DATE: APRIL 30, 1996
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
COAST BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan Association
("Coast"), a California corporation, with offices at 12121 Wilshire
Boulevard, Suite 1111, Los Angeles, California 90025, and the borrower named
above (the "Borrower"), whose chief executive office is located at the above
address ("Borrower's Address"). The Schedule to this Agreement (the
"Schedule") shall for all purposes be deemed to be a part of this Agreement,
and the same is an integral part of this Agreement. (Definitions of certain
terms used in this Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 LOANS. Coast will make loans to Borrower (the "Loans"), in
amounts determined by Coast in its reasonable discretion, up to the amounts
(the "Credit Limit") shown on the Schedule, provided no Default or Event of
Default has occurred and is continuing.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Coast's discretion, be charged to Borrower's
loan account, and the same shall thereafter bear interest at the same rate as
the other Loans. Regardless of the amount of Obligations that may be
outstanding from time to time, Borrower shall pay Coast minimum monthly
interest during the term of this Agreement with respect to the Receivable Loans
and the Inventory Loans in the amount set forth on the Schedule (the "Minimum
Annual Interest").
1.3 FEES. Borrower shall pay Coast the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to Coast and are
not refundable.
1.4 CONDITIONS PRECEDENT. The obligation of Coast to make the Loans
is subject to the satisfaction, in the sole and absolute discretion of Coast,
at or prior to the Closing Date, of each, every and all of the following
conditions:
(a) STATUS OF ACCOUNTS AT CLOSING. No accounts payable shall be
due and unpaid ninety (90) days past its due date except for such accounts
payable being contested in good faith in appropriate proceedings and for which
adequate reserves have been provided;
(b) MINIMUM AVAILABILITY. Borrower shall have minimum
availability immediately after the initial funding of the Loans of Four Hundred
Thousand Dollars ($400,000);
(c) LANDLORD WAIVER. Borrower shall have used its best efforts
to obtain executed landlord waivers in form an substance satisfactory to Coast,
in Coast's sole and absolute discretion, and in form for recording in the
appropriate recording office, with respect to all locations where Borrower
maintains any inventory or equipment in excess of One Hundred Thousand
Dollars ($100,000);
(d) EXECUTED LOAN DOCUMENTS. Coast shall have received this
Agreement duly executed by Borrower;
(e) OPINION OF BORROWER'S COUNSEL. Coast shall have received
opinions of Borrower's counsel, in form and substance satisfactory to Coast in
its sole and absolute discretion;
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(f) ASSIGNMENT FROM SILCON VALLEY BANK. Coast shall have
received an assignment of the documents and debt between Borrower and Silcon
Valley Bank and an assignment of the security interests in the assets of
Borrower held by Silcon Valley Bank in form and substance satisfactory to Coast
in its sole and absolute discretion.
(g) WARRANTS. Coast shall have received executed Warrants, in
form and substance satisfactory to Coast in its sole and absolute discretion;
(h) PRIORITY OF COAST'S LIENS. Coast shall have received the
results of "of record" searches satisfactory to Coast in its sole and absolute
discretion, reflecting its Uniform Commercial Code filings against Borrower
indicating that Coast has a perfected, first priority lien in and upon all of
the Collateral, subject only to Permitted Liens;
(i) INSURANCE. Coast shall have received copies of the insurance
binders or certificates evidencing Borrower's compliance with Section 5.2
hereof, including lender's loss payee endorsements;
(j) CORPORATE EXISTENCE. Coast shall have received copies of
Borrower's Articles of Incorporation and all amendments thereto, and a
Certificate of Good Standing, certified by the Secretary of State of California,
and dated a recent date prior to the Closing Date, and Coast shall have received
Certificates of Foreign Qualification for Borrower from the Secretary of State
of each state wherein the failure to be so qualified could have a Material
Adverse Effect;
(k) CORPORATE DOCUMENTS. Coast shall have received copies of
Borrower's Bylaws and all amendments thereto, and Coast shall have received
copies of the resolutions of the board of directors of Borrower, authorizing the
execution and delivery of this Agreement and the other documents contemplated
hereby, and authorizing the transactions contemplated hereunder and thereunder,
and authorizing specific officers of Borrower to execute the same on behalf of
Borrower, in each case certified by the Secretary or other acceptable officer of
Borrower as of the Closing Date;
(l) DUE DILIGENCE. Coast shall have completed its due diligence
with respect to Borrower; and
(m) OTHER DOCUMENTS AND AGREEMENTS. Coast shall have received
such other agreements, instruments and documents, including, but not limited to,
the Subordination Agreements, landlord waivers, fixture filings, termination
statements and security agreements (including covering copyrights, patents and
trademarks), as Coast may require in connection with the transactions
contemplated hereby, all in form and substance satisfactory to Coast in Coast's
sole and absolute discretion, and in form for filing in the appropriate filing
office.
1.5 CONDITIONS SUBSEQUENT. The obligation of Coast to continue to make
the Loans is subject to the satisfaction, in the sole and absolute discretion of
Coast, at or prior to the dates indicated below, of each, every and all of the
following conditions; and the failure to satisfy each, every and all of the
following shall constitute an Event of Default under this Agreement:
(a) SUBORDINATION AGREEMENTS. Coast shall receive, within sixty
(60) days of the date hereof, executed subordination agreements from
Subordinated Debt Holders set forth on Schedule 1.5(a) hereto holding at least
eighty percent (80%) of the Borrower's outstanding subordinated debt, each such
subordination agreement shall be in form and substance satisfactory to Coast in
its sole and absolute discretion.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of
the Obligations when due, Borrower hereby grants to Coast a security interest in
all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located: All Receivables, Inventory, Equipment, and
General Intangibles, including, without limitation, all of Borrower's Deposit
Accounts (except Borrower funds which are segregated from its general funds and
held on behalf of third parties for remittance to taxing authorities), and all
money, and all property now or at any time in the future in Coast's possession
(including claims and credit balances), and all proceeds of any of the foregoing
(including proceeds of any insurance policies, proceeds of proceeds, and claims
against third parties), all products of any of the foregoing, and all books and
records related to any of the foregoing (all of the foregoing, together with all
other property in which Coast may now or in the future be granted a lien or
security interest, is referred to herein, collectively, as the "Collateral").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make
Loans, Borrower represents and warrants to Coast as follows, and Borrower
covenants that the following representations will continue to be true, and that
Borrower will at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is
and will continue to be, duly organized, validly existing and in good standing
under the laws of the
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jurisdiction of its incorporation. Borrower is and will continue to be
qualified and licensed to do business in all jurisdictions in which any failure
to do so would have a Material Adverse Effect. The execution, delivery and
performance by Borrower of this Agreement, and all other documents contemplated
hereby (i) have been duly and validly authorized, (ii) are enforceable against
Borrower in accordance with their terms (except as enforcement may be limited
by equitable principles and by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to creditors' rights generally), and (iii)
do not violate in any material respect Borrower's articles or certificate of
incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or
its property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in
the heading to this Agreement is its correct name. Listed on the Schedule are
all prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Coast 30 days' prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth
in the heading to this Agreement is Borrower's chief executive office. In
addition, Borrower has places of business and Collateral is located only at the
locations set forth on the Schedule. Borrower will give Coast at least 30 days
prior written notice before opening any additional place of business, changing
its chief executive office, or moving any of the Collateral to a location other
than Borrower's Address or one of the locations set forth on the Schedule,
except in connection with the Acquisition.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at
all times in the future be, the sole owner of all the Collateral, except for
items of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Coast now has, and
will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Coast and the Collateral against all claims
of others. None of the Collateral now is or will be affixed to any real
property in such a manner, or with such intent, as to become a fixture.
Borrower is not and will not become a lessee under any real property lease
pursuant to which the lessor may obtain any rights in any of the Collateral and
no such lease now prohibits, restrains, impairs or will prohibit, restrain or
impair Borrower's right to remove any Collateral from the leased premises,
except to the extent a landlord waiver is obtained from lessor pursuant to the
terms hereof. Whenever any Collateral is located upon premises in which any
third party has an interest (whether as owner, mortgagee, beneficiary under a
deed of trust, lien or otherwise). Borrower shall, whenever requested by Coast,
use its best efforts to cause such third party to execute and deliver to Coast,
in form acceptable to Coast, such waivers and subordinations as Coast shall
specify, so as to ensure that Coast's rights in the Collateral are, and will
continue to be, superior to the rights of any such third party. Borrower will
keep in full force and effect, and will comply with all the terms of, any lease
of real property where any of the Collateral now or in the future may be
located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral
in good working condition (ordinary wear and tear excepted), and Borrower will
not use the Collateral for any unlawful purpose. Borrower will immediately
notify Coast in writing of any material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial
statements now or in the future delivered to Coast have been, and will be,
prepared in conformity with generally accepted accounting principles (except,
in the case of unaudited financial statements, for the absence of footnotes and
subject to normal year-end adjustments) and now and in the future will fairly
reflect in all material respects the financial condition of Borrower, at the
times and for the periods therein stated. Between the last date covered by any
such statement provided to Coast and the date hereof, there has been no
Material Adverse Effect. Borrower is now and will continue to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has
timely filed, and will timely file, all tax returns and reports required by
foreign, federal, state and local law, and Borrower has timely paid, and will
timely pay, all foreign, federal, state and local taxes, assessments, deposits
and contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Coast in
writing of the commencement of, and any material development in, the
proceedings, and (iii) establishes reserves or takes any
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other steps required to keep the contested taxes from becoming a lien upon any
of the Collateral. As of the date hereof, Borrower is unaware of any claims or
adjustments proposed for any of Borrower's prior tax years which could result
in additional taxes becoming due and payable by Borrower. Borrower has paid,
and shall continue to pay all amounts necessary to fund all present and
future pension, profit sharing and deferred compensation plans in accordance
with their terms, and Borrower has not and will not withdraw from participation
in, permit partial or complete termination of, or permit the occurrence of any
other event with respect to, any such plan which could result in any liability
of Borrower, including any liability to the Pension Benefit Guaranty
Corporation or its successors or any other governmental agency. Borrower shall,
at all times, utilize the services of an outside payroll service providing for
the automatic deposit of all payroll taxes payable by Borrower.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in
all material respects, with all provisions of all material foreign, federal,
state and local laws and regulations relating to Borrower, including, but not
limited to, those relating to Borrower's ownership of real or personal
property, the conduct and licensing of Borrower's business, and environmental
matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no
claim, suit, litigation, proceeding or investigation pending or (to best of
Borrower's knowledge) threatened by or against or affecting Borrower in any
court or before any governmental agency (or any basis therefor known to
Borrower) which may result, either separately or in the aggregate, in any
Material Adverse Effect. Borrower will promptly inform Coast in writing of any
claim, proceeding, litigation or investigation in the future threatened or
instituted by or against Borrower involving any single claim of One Hundred
Thousand Dollars ($100,000) or more, or involving Two Hundred Thousand Dollars
($200,000) or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely
for lawful business purposes. Borrower is not purchasing or carrying any
"margin stock" (as defined in Regulation G of the Board of Governors of the
Federal Reserve System) and no part of the proceeds of any Loan will be used to
purchase or carry any "margin stock" or to extend credit to others for the
purpose of purchasing or carrying any "margin stock."
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Coast as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE.
Borrower represents and warrants to Coast as follows: All statements made and
all unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct in all material
respects and all such invoices, instruments and other documents and all of
Borrower's books and records are and shall be genuine and in all material
respects what they purport to be. All sales and other transactions underlying or
giving rise to each Receivable shall fully comply with all applicable laws and
governmental rules and regulations. To the best of Borrower's knowledge, all
signatures and indorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to Coast transaction reports and loan requests, schedules of
Receivables, and schedules of collections, all on Coast's standard forms;
provided, however, that Borrower's failure to execute and deliver the same
shall not affect or limit Coast's security interest and other rights in all of
Borrower's Receivables, nor shall Coast's failure to advance or lend against a
specific Receivable affect or limit Coast's security interest and other rights
therein. Loan requests received after 11:00 AM will not be considered by Coast
until the next Business Day. Together with each such schedule, or later if
requested by Coast, Borrower shall furnish Coast with copies of all orders,
invoices, and other similar documents, and all original shipping instructions,
delivery receipts, bills of lading, and other evidence of delivery, for any
goods the sale or disposition of which gave rise to such Receivables, and
Borrower warrants the genuineness of all of the foregoing. Borrower shall also
furnish to Coast an aged accounts receivable trial balance in such form and at
such intervals as Coast shall request. In addition, Borrower shall deliver to
Coast the originals of all instruments, chattel paper, security agreements,
guarantees and other documents and property evidencing or securing any
Receivables, upon receipt thereof and in the same form as received, with all
necessary indorsements, all of which shall be with recourse. Borrower shall
also provide Coast with copies of all credit memos as and when requested
by Coast.
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to
collect all Receivables, unless and until an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
Coast, and Borrower shall deliver all such payments and
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proceeds to Coast within one Business Day after receipt by Borrower, in their
original form, duly endorsed to Coast, to be applied to the Obligations in such
order as Coast shall determine. Coast may, in its discretion, require that all
proceeds of Collateral be deposited by Borrower into a lockbox account, or such
other "blocked account" as Coast may specify, pursuant to a blocked account
agreement in such form as Coast may specify. Coast or its designee may, upon
the occurrence of any Default or Event of Default, notify Account Debtors that
Coast has been granted a security interest in the Receivables.
4.5 REMITTANCE OF PROCEEDS. All proceeds arising from the disposition
of any Collateral shall be delivered to Coast within one Business Day after
receipt by Borrower, in their original form, duly endorsed to Coast, to be
applied to the Obligations in such order as Coast shall determine. Borrower
agrees that it will not commingle proceeds of Collateral with any of Borrower's
other funds or property, but will hold such proceeds separate and apart from
such other funds and property and in an express trust for Coast. Nothing in
this Section limits the restrictions on disposition of Collateral set forth
elsewhere in this Agreement.
4.6 DISPUTES. Borrower shall notify Coast promptly of all disputes or
claims relating to Receivables exceeding One Hundred Thousand Dollars
($100,000) in the aggregate. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (i) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Coast on the regular reports provided to Coast; (ii) no Default or
Event of Default has occurred and is continuing; and (iii) taking into account
all such discounts settlements and forgiveness, the total outstanding Loans
will not exceed the Credit Limit. Coast may, at any time after the occurrence
and continuance of an Event of Default, settle or adjust disputes or claims
directly with Account Debtors for amounts and upon terms which Coast considers
advisable in its reasonable credit judgment and, in all cases, Coast shall
credit Borrower's Loan account with only the net amounts received by Coast in
payment of any Receivables.
4.7 VERIFICATION. Coast may, from time to time, verify directly with
the respective Account Debtors the validity, amount and other matters relating
to the Receivables, by means of mail, telephone or otherwise, either in the
name of Borrower or Coast or such other name as Coast may choose. This
verification shall generally be done by letter in the form attached hereto as
Exhibit 4.7, such form hereby being authorized by Borrower.
4.8 NO LIABILITY. Coast shall not under any circumstances be
responsible or liable for any shortage or discrepancy in, damage to, or loss or
destruction of, any goods, the sale or other disposition of which gives rise to
a Receivable, or for any error, act, omission, or delay of any kind occurring
in the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Coast be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Coast from liability for its
own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule.
5.2 INSURANCE. Borrower shall, at all times insure all of the
tangible personal property Collateral and carry such other business insurance,
with insurers reasonably acceptable to Coast, in such form and amounts as Coast
may reasonably require, and Borrower shall provide evidence of such insurance
to Coast, so that Coast is satisfied that such insurance is, at all times, in
full force and effect. All liability insurance policies of Borrower shall name
Coast as an additional insured, and all property casualty and related insurance
policies of Borrower shall name Coast as a loss payee thereon and Borrower
shall cause a lenders loss payee endorsement in form reasonably acceptable to
Coast. Upon receipt of the proceeds of any such insurance, Coast shall apply
such proceeds in reduction of the Obligations as Coast shall determine in its
sole discretion, except that, provided no Default or Event of Default has
occurred and is continuing, any such proceeds respecting Equipment shall be paid
directly to Borrower to be utilized by Borrower solely for the replacement of
the Equipment with respect to which the insurance proceeds were paid. Coast
may require reasonable assurance that the insurance proceeds so released will be
so used. If Borrower fails to provide or pay for any insurance, Coast may,
but is not obligated to, obtain the same at Borrower's expense. Borrower shall
promptly deliver to Coast copies of all reports made to insurance companies.
5.3 REPORTS. Borrower, at its expense, shall provide Coast with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Coast shall from time to time reasonably
specify.
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times
during regular business hours, and on one
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Business Day's notice, Coast, or its agents, shall have the right to inspect,
audit and copy Borrower's books and records and the Collateral (the "Audits").
Coast shall take reasonable steps to keep confidential all confidential
information obtained in any Audit, but Coast shall have the right to disclose
any such information to its auditors, regulatory agencies, and attorneys, and
pursuant to any subpoena or other legal process. The Audits shall be at
Borrower's expense and the charge for the Audits shall be Five Hundred Fifty
Dollars ($550) per person per day (or such higher amount as shall represent
Coast's then current standard charge for the same not to exceed Six Hundred
Fifty Dollars ($650) per person per day during the first two (2) years of the
term hereof), plus reasonable out of pocket expenses. Borrower will not enter
into any agreement with any accounting firm, service bureau or third party to
store Borrower's books or records at any location other than Borrower's
Address, without first notifying Coast of the same and obtaining the written
agreement from such accounting firm, service bureau or other third party to
give Coast the same rights with respect to access to books and records and
related rights as Coast has under this Loan Agreement.
5.5 NEGATIVE COVENANTS. Except as set forth on Schedule 5.5 hereto
with respect to the Acquisitions, Borrower shall not, without Coast's prior
written consent, do any of the following:
(i) merge or consolidate with another corporation or entity,
except in a transaction in which (A) the shareholders of the Borrower
hold at least 50% of the common stock and all other capital stock of the
surviving corporation immediately after such merger or consolidation,
and (B) the Borrower is the surviving corporation;
(ii) acquire any assets, except (A) in the ordinary course of
business, or (B) in a transaction or a series of transactions not
involving the payment of an aggregate amount in excess of Two Hundred
Thousand Dollars ($200,000);
(iii) enter into any other transaction outside the ordinary
course of business;
(iv) sell or transfer any Collateral, except for the sale of
finished Inventory in the ordinary course of Borrower's business, and
except for the sale of obsolete or unneeded Equipment in the ordinary
course of business;
(v) store any Inventory or other Collateral with any
warehouseman or other third party;
(vi) sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis;
(vii) make any loans of any money or other assets, except (A)
advances to customers or suppliers in the ordinary course of business,
(B) travel advances, employee relocation loans and other employee loans
and advances in the ordinary course of business, and (C) loans to
employees, officers and directors for the purpose of purchasing equity
securities of the Borrower;
(viii) incur any debts, outside the ordinary course of
business, which would have a Material Adverse Effect;
(ix) guarantee or otherwise become liable with respect to the
obligations of another party or entity, other than guarantees limited to
Two Hundred Fifty Thousand Dollars ($250,000) or less with respect to
(A) advances to customers or suppliers in the ordinary course of
business, (B) travel advances, employee relocation loans and other
employee loans and advances in the ordinary course of business, and (C)
loans to employees, officers and directors for the purpose of purchasing
equity securities of the Borrower;
(x) pay or declare any dividends on Borrower's stock (except
for dividends payable solely in stock of Borrower);
(xi) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of Borrower's stock, except that Borrower may repurchase
stock owned by employees, directors and consultants of Borrower pursuant
to terms of employment, consulting or other stock restriction agreements
at such time as any such employee, director or consultant terminates his
or her affiliation with the Borrower, for an aggregate purchase price
not to exceed $250,000 in any fiscal year;
(xii) make any change in Borrower's capital structure which
would have a Material Adverse Effect; or
(xiii) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default would occur as a result of such
transaction.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding
be instituted by or against Coast with respect to any Collateral or relating to
Borrower which
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reasonably be likely to result in a Material Adverse Effect. Borrower shall,
without expense to Coast, make available Borrower and its officers, employees
and agents and Borrower's books and records, to the extent that Coast may deem
them reasonably necessary in order to prosecute or defend any such suit or
proceeding.
5.7 INDEMNITY. Borrower hereby agrees to indemnify Coast and hold Coast
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, reasonable costs and
expenses (including reasonable attorneys' fees), of every nature, character and
description, which Coast may sustain or incur based upon or arising out of any
of the Obligations, any actual or alleged failure to collect and pay over any
withholding or other tax relating to Borrower or its employees, any
relationship or agreement between Coast and Borrower, any actual or alleged
failure of Coast to comply with any writ of attachment or other legal process
relating to Borrower or any of its property, or any other matter, cause or
thing whatsoever occurred, done, omitted or suffered to be done by Coast
relating to Borrower or the Obligations (except any such amounts sustained or
incurred as the result of the gross negligence or willful misconduct of Coast).
Notwithstanding any provision in this Agreement to the contrary, the indemnity
agreement set forth in this Section shall survive any termination of this
Agreement and shall for all purposes continue in full force and effect.
5.8 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Coast, to execute all documents and take all actions, as Coast, may deem
reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"); provided that
the Maturity Date shall automatically be extended, and this Agreement shall
automatically and continuously renew, for successive additional terms of one
(1) year each, upon written notice by Borrower to Coast, not less than sixty
(60) days prior to the next Maturity Date, that Borrower elects to renew this
Agreement effective on the next Maturity Date. If this Agreement is renewed
pursuant to this Section 6.1, Borrower shall pay to Coast a renewal fee (the
"Renewal Fee") in the amount shown on the Schedule. The Renewal Fee shall be
due and payable on the effective date of renewal and thereafter shall bear
interest at a rate equal to the rate applicable to the Receivable Loans.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three (3) Business Days
after written notice of termination is given to Coast; or (ii) by Coast at any
time after the occurrence of an Event of Default, effective immediately upon
notice. If this Agreement is terminated by Borrower or by Coast under this
Section 6.2. Borrower shall pay to Coast a termination fee (the "Early
Termination Fee") in the amount shown on the Schedule. The Early Termination
Fee shall be due and payable on the effective date of termination and thereafter
shall bear interest at a rate equal to the rate applicable to the Receivable
Loans; provided, however, that such Early Termination Fee shall be waived by
Coast if such early termination is the result of the initial public offering of
Borrower's common stock.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Notwithstanding any termination of this Agreement, all of Coast's security
interests in all of the Collateral and all of the terms and provisions of this
Agreement shall continue in full force and effect until all Obligations have
been paid and performed in full; provided that, without limiting the fact that
Loans are subject to the discretion of Coast, Coast may, in its sole discretion,
refuse to make any further Loans after termination. No termination shall in any
way affect or impair any right or remedy of Coast, nor shall any such
termination relieve Borrower of any Obligation to Coast, until all of the
Obligations have been paid and performed in full. Upon payment and performance
in full of all the Obligations and termination of this Agreement, Coast shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be required to fully terminate Coast's security
interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower
shall give Coast immediate written notice thereof:
(a) Any material warranty, representation, statement, report or
certificate made or delivered to Coast by Borrower or any of Borrower's
officers, employees or agents, not or in the future, shall be untrue or
misleading in a material respect; or
(b) Borrower shall fail to pay within five (5) days after due any Loan
or any interest thereon or any other monetary Obligation; or
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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(c) The total Loans and other Obligations outstanding at any time
shall exceed the Credit Limit, which is not cured within five (5) days after the
occurrence thereof; or
(d) Borrower shall fail to deliver the proceeds of Collateral to
Coast as provided in Section 4.5 above, or shall fail to give Coast access to
its books and records or Collateral as provided in Section 5.4 above, or shall
breach any negative covenant set forth in Section 5.5 above; or
(e) Borrower shall fail to comply with the financial covenants
(if any) set forth in the Schedule or shall fail to perform any other
non-monetary Obligation which by its nature cannot be cured; or
(f) Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within five (5) Business Days after the
date due; or
(g) Any levy, assessment, attachment, seizure, lien or
encumbrance (other than a Permitted Lien) is made on all or any part of the
Collateral which is not cured within ten (10) days after the occurrence of the
same; or
(h) Any default or event of default occurs under any obligation
secured by a Permitted Lien, which is not cured within any applicable cure
period or waived in writing by the holder of the Permitted Lien; or
(i) Borrower breaches any material contract or obligation, which
has or may reasonably be expected to have a Material Adverse Effect; or
(j) Dissolution, termination of existence, insolvency or business
failure of Borrower; or appointment of a receiver, trustee or custodian, for all
or any part of the property of, assignment for the benefit of creditors by, or
the commencement of any proceeding by Borrower under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect;
or
(k) The commencement of any proceeding against Borrower or any
guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law
or statute of any jurisdiction, now or in the future in effect, which is not
cured by the dismissal thereof within forty-five (45) days after the date
commenced; or
(l) Revocation or termination of, or limitation or denial of
liability upon, any guaranty of the Obligations or any attempt to do any of the
foregoing, or commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or
(m) Revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset of any kind pledged by any third party to secure any or all
of the Obligations, or any attempt to do any of the foregoing, or commencement
of proceedings by or against any such third party under any bankruptcy or
insolvency law; or
(n) Borrower makes any payment on account of any indebtedness or
obligation which has been subordinated to the Obligations, other than as
permitted in the applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations terminates or in any way limits
his subordination agreement; or
(o) Except as a result of the initial public offering of
Borrower's common stock on a nationally recognized market, there shall be a
change in the record or beneficial ownership of an aggregate of more than 20%
of the outstanding shares of stock of Borrower, in one or more transactions,
compared to the ownership of outstanding shares of stock of Borrower in effect
on the date hereof, without the prior written consent of Coast; or
(p) Borrower shall generally not pay its debts as they become
due, or Borrower shall conceal, remove or transfer any part of its property,
with intent to hinder, delay or defraud its creditors, or make or suffer any
transfer of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law; or
(q) There shall be any Material Adverse Effect, as defined in
Section 8 hereof.
Coast may cease making any Loans hereunder during any of the above cure
periods, and thereafter if an Event of Default has occurred.
7.2 REMEDIES. Upon the occurrence, and during the continuance, of any
Event of Default, Coast, at its option, and without demand of any kind (all of
which are hereby expressly waived by Borrower), may do any one or more of the
following:
(a) Cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations to
be immediately due, payable, and performable, notwithstanding any deferred or
installment
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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payments allowed by any instrument evidencing or relating to any Obligation;
(c) Take possession of any or all of the Collateral wherever it may
be found, and for that purpose Borrower hereby authorizes Coast without
judicial process to enter onto any of Borrower's premises without interference
to search for, take possession of, keep, store, or remove any of the
Collateral, and remain on the premises or cause a custodian to remain on the
premises in exclusive control thereof, without charge for so long as Coast
deems it reasonably necessary in order to complete the enforcement of its
rights under this Agreement or any other agreement; provided, however, that
should Coast seek to take possession of any of the Collateral by Court process,
Borrower hereby irrevocably waives:
(i) any bond and any surety or security relating thereto required
by any statute, court rule or otherwise as an incident to such possession;
(ii) any demand for possession prior to the commencement of any
suit or action to recover possession thereof; and
(iii) any requirement that Coast retain possession of, and not
dispose of, any such Collateral until after trial or final judgment;
(d) Require Borrower to assemble any or all of the Collateral and make
it available to Coast at places designated by Coast which are reasonably
convenient to Coast and Borrower, and to remove the Collateral to such
locations as Coast may deem advisable;
(e) Complete the processing, manufacturing or repair of any Collateral
prior to a disposition thereof and, for such purpose and for the purpose of
removal, Coast shall have the right to use Borrower's premises, vehicles,
hoists, lifts, cranes, equipment and all other property without charge;
(f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private
sales, in lots or in bulk, for cash, exchange or other property, or on credit,
and to adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Coast shall have the right to
conduct such disposition on Borrower's premises without charge, for such time
or times as Coast deems reasonable, or on Coast's premises, or elsewhere and
the Collateral need not be located at the place of disposition. Coast may
directly or through any affiliated company purchase or lease any Collateral at
any such public disposition, and if permissible under applicable law, at any
private disposition. Any sale or other disposition of Collateral shall not
relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General
Intangibles comprising Collateral and, in connection therewith, Borrower
irrevocably authorizes Coast to endorse or sign Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Coast's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Receivables and the like for less than face value;
(h) Offset against any sums in any of Borrower's general, special or
other Deposit Accounts with Coast; and
(i) Demand and receive possession of any of Borrower's federal and
state income tax returns and the books and records utilized in the preparation
thereof or referring thereto. All reasonable attorneys' fees, expenses, costs,
liabilities and obligations incurred by Coast with respect to the foregoing
shall be due from the Borrower to Coast within five (5) Business Days following
receipt of a detailed invoice. Coast may charge the same to Borrower's loan
account, and the same shall thereafter bear interest at the same rate as is
applicable to the Receivable Loans. Without limiting any of Coast's rights and
remedies, from and after the occurrence of any Event of Default, the interest
rate applicable to the Obligations shall be increased by an additional three
percent per annum.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Coast agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable:
(a) Notice of the sale is given to Borrower at least seven days prior
to the sale, and, in the case of a public sale, notice of the sale is published
at least seven days before the sale in a newspaper of general circulation in
the county where the sale is to be conducted;
(b) Notice of the sale describes the collateral in general,
non-specific terms;
(c) The sale is conducted at a place designated by Coast, with or
without the Collateral being present;
(d) The sale commences at any time between 8:00 a.m. and 6:00 p.m.;
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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(e) Payment of the purchase price in cash or by cashier's check
or wire transfer is required; and
(f) With respect to any sale of any of the Collateral, Coast may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from Borrower any and all information concerning the same. Coast shall be free
to employ other methods of noticing and selling the Collateral, in its
discretion, if they are commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence, and during the
continuance, of any Event of Default, without limiting Coast's other rights and
remedies, Borrower grants to Coast an irrevocable power of attorney coupled
with an interest, authorizing and permitting Coast (acting through any of its
employees, attorneys or agents) at any time, at its option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to
do any or all of the following, in Borrower's name or otherwise, but Coast
agrees to exercise the following powers in a commercially reasonable manner;
(a) Execute on behalf of Borrower any documents that Coast may,
in its sole discretion, deem advisable in order to perfect and maintain Coast's
security interest in the Collateral, or in order to exercise a right of
Borrower or Coast, or in order to fully consummate all the transactions
contemplated under this Agreement, and all other present and future agreements;
(b) Execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or to lease (as lessor or lessee) any real or personal property which is part
of Coast's Collateral or in which Coast has an interest;
(c) Execute on behalf of Borrower, any invoices relating to any
Receivable, any draft against any Account Debtor and any notice to any Account
Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of
payment or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may come into
Coast's possession;
(e) Endorse all checks and other forms of remittances received
by Coast;
(f) Pay, contest or settle any lien, charge, encumbrance,
security interest and adverse claim in or to any of the Collateral, or
any judgment based thereon, or otherwise take any action to terminate or
discharge the same;
(g) Grant extensions of time to pay, compromise claims and
settle Receivables and General Intangibles for less than face value and execute
all releases and other documents in connection therewith;
(h) Pay any sums required on account of Borrower's taxes or to
secure the release of any liens therefor, or both;
(i) Settle and adjust, and give releases of, any insurance
claim that relates to any of the Collateral and obtain payment therefor;
(j) Instruct any third party having custody or control of any
books or records belonging to, or relating to, Borrower to give Coast the same
rights of access and other rights with respect thereto as Coast has under this
Agreement; and
(k) Take any action or pay any sum required of Borrower
pursuant to this Agreement and any other present or future agreements. Any and
all reasonable sums paid and any and all reasonable costs, expenses,
liabilities, obligations and attorneys' fees incurred by Coast with respect to
the foregoing shall be added to and become part of the Obligations, and shall
be payable on demand. Coast may charge the foregoing to Borrower's loan account
and the foregoing shall thereafter bear interest at the same rate applicable to
the Receivable Loans. In no event shall Coast's rights under the foregoing
power of attorney or any of Coast's other rights under this Agreement be deemed
to indicate that Coast is in control of the business, management or properties
of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of
any sale of the Collateral shall be applied by Coast first to the reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by Coast
in the exercise of its rights under this Agreement, second to the interest due
upon any of the Obligations, and third to the principal of the Obligations, in
such order as Coast shall determine in its sole discretion. Any surplus shall
be paid to Borrower or other persons legally entitled thereto; Borrower shall
remain liable to Coast for any deficiency. If, Coast, in its sole discretion,
directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale of Collateral, Coast shall have the
option, exercisable at any time, in its sole discretion, of either reducing the
Obligations by the principal amount of purchase price or deferring the
reduction of the Obligations until the actual receipt by Coast of the cash
therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set
forth in this Agreement, Coast shall have
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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all the other rights and remedies accorded a secured party under the California
Uniform Commercial Code and under all other applicable laws, and under any
other instrument or agreement now or in the future entered into between Coast
[Band Borrower, and all of such rights and remedies are cumulative and none is
exclusive. Exercise or partial exercise by Coast of one or more of its rights
or remedies shall not be deemed an election, nor bar Coast from subsequent
exercise or partial exercise of any other rights or remedies. The failure or
delay of Coast to exercise any rights or remedies shall not operate as a waiver
thereof, but all rights and remedies shall continue in full force and effect
until all of the Obligations have been fully paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on a Receivable.
"Acquisitions" means those certain acquisitions as more fully described
on Schedule 5.5 attached hereto.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Business Day" means a day on which Coast is open for business.
"Closing Date" means the date of the initial funding under this
Agreement.
"Code" means the Uniform Commercial Code as adopted and in effect in
the State of California from time to time.
"Collateral" has the meaning set forth in Section 2.1 above.
"Default" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the Code.
"EBIT" means, in any fiscal period, Borrower's net income (other than
extraordinary or non-recurring items of Borrower for such period), plus (i) the
amount of all interest expense and income tax expense of Borrower for such
period, and plus or minus (as the case may be) (ii) any other non-cash charges
which have been added or subtracted, as the case may be, in calculating
Borrower's net income for such period.
"EBITDA" means, in any fiscal period, Borrower's net income (other than
extraordinary or non-recurring items of Borrower for such period), plus (i) the
amount of all interest expense, income tax expense, depreciation and
amortization of Borrower for such period, and plus or minus (as the case may
be) (ii) any other non-cash charges which have been added or subtracted, as the
case may be, in calculating Borrower's net income for such period.
"Eligible Receivables" means Receivables arising in the ordinary course
of Borrower's business from the sale of goods or rendition of services, which
Coast, in its good faith business judgment, shall deem eligible for borrowing,
based on such considerations as Coast may from time to time deem appropriate.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, computer equipment, check
processors, readers, office partitions, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"Event of Default" means any of the events set forth in Section 7.1 of
this Agreement.
"General Intangibles" means all general intangibles of Borrower,
whether now owned or hereafter created or acquired by Borrower, including,
without limitation, all choses in action, causes of action, corporate or other
business records, Deposit Accounts, inventions, designs, drawings, blueprints,
patents, patent applications, trademarks and the goodwill of the business
symbolized thereby, names, trade names, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, customer lists, security and other
deposits, rights in all litigation presently or hereafter pending for any cause
or claim (whether in contract, tort or otherwise), and all judgments now or
hereafter arising therefrom, all claims of Borrower against Coast, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation
life insurance, key man insurance, credit insurance, liability insurance,
property insurance and other insurance), tax refunds and claims, computer
programs, discs, tapes and tape files, claims under guaranties, security
interests or other security held by or granted to Borrower, all rights to
indemnification and all other intangible property of every kind and nature
(other than Receivables).
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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"Inventory" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease (including without
limitation all raw materials, work in process, finished goods and goods in
transit, and including without limitation all farm products), and all materials
and supplies of every kind, nature and description which are or might be used or
consumed in Borrower's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
"Material Adverse Effect" means a material adverse effect on (i) the
business, assets, condition (financial or otherwise) or results of operations
of Borrower or any subsidiary of Borrower, (ii) the ability of Borrower to
perform its obligations under this Agreement (including, without limitation,
repayment of the Obligations as they come due), or (iii) the validity or
enforceability of this Agreement or any other agreement or document entered
into by any party in connection herewith, or the rights or remedies of Coast
hereunder or thereunder.
"Maximum Dollar Amount" means the aggregate amount of Four Million
Dollars ($4,000,000); provided, however, such amount shall increase to an
aggregate amount of Six Million Dollars ($6,000,000) after January 1, 1997 if
(i) Borrower's EBITDA is equal to at least 1.1 times Borrower's total debt
service for any consecutive three (3) month period, including the three (3)
month period ending December 31, 1996, (ii) Borrower has, and shall maintain, a
Minimum Tangible Net Worth (including subordinated debt) equal to or greater
than Three Million Dollars ($3,000,000), and (iii) Borrower shall have complied
with the terms and conditions of this Agreement.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Coast, whether evidenced by this Agreement or any
note or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Coast in
Borrower's debts owing to others), absolute or contingent, due or to become
due, including, without limitation, all interest, charges, expenses, fees,
attorney's fees, expert witness fees, audit fees, letter of credit fees,
collateral monitoring fees, closing fees, facility fees, termination fees,
minimum interest charges and any other sums chargeable to Borrower under this
Agreement or under any other present or future instrument or agreement between
Borrower and Coast.
"Permitted Liens" means the following:
(i) purchase money security interests in specific items of
Equipment;
(ii) leases of specific items of Equipment;
(iii) liens for taxes not yet payable;
(iv) additional security interests and liens consented to in writing
by Coast, which consent shall not be unreasonably withheld;
(v) security interests being terminated substantially concurrently
with this Agreement;
(vi) liens of materialmen, mechanics, warehousemen, carriers, or
other similar liens arising in the ordinary course of business and securing
obligations which are not delinquent;
(vii) liens in favor of Coast;
(viii) liens in existence on the date hereof;
(ix) any judgment, attachment or similar lien, which is fully covered
by insurance or has been discharged or execution thereof is effectively stayed
and bonded against pending appeal within thirty (30) days of the entry thereof;
(x) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above in
clauses (i) or (ii) above, provided that any extension, renewal or replacement
lien is limited to the property encumbered by the existing lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase; or
(xi) liens in favor of customs and revenue authorities which secure
payment of customs duties in connection with the importation of goods.
Coast will have the right to require, as a condition to its consent
under subparagraph (iv) above, that the holder of the additional security
interest or lien sign an intercreditor agreement on Coast's then standard form,
acknowledge that the security interest is subordinate to the security interest
in favor of Coast, and agree not to take any action to enforce its subordinate
security interest so long as any Obligations remain outstanding, and that
Borrower agree that any uncured default in any obligation secured by the
subordinate security interest shall also constitute an Event of Default under
this Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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organization, association, corporation, government, or any agency or political
division thereof, or any other entity.
"Receivables" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents and all other forms
of obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all
rights of stoppage in transit and all other rights or remedies of an unpaid
vendor, lienor or secured party.
"Subordinated Debt Holders" means the holders of subordinated debt of
Borrower listed on Schedule 1.5(a) hereto.
"Subordination Agreements" means those certain Subordination
Agreements, executed by certain of the Subordinated Debt Holders of Borrower,
each in favor of Coast.
"Tangible Net Worth" means, as of the date any determination thereof is
to be made, the difference of: (a) Borrower's total stockholder's equity; minus
(b) the sum of: (i) all intangible assets of Borrower; (ii) all amounts due to
Borrower from its Affiliates, the first Resources acquisition calculated on a
consolidated basis under generally accepted accounting principles.
"Warrants" mean those certain Warrants (including, but not limited to,
the anti-dilution agreement and registration rights agreement between Coast and
Borrower entered into in connection therewith), dated as of , issued
by Borrower.
Other Terms. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with generally accepted accounting principles, consistently applied. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations,
all checks, wire transfers and other items of payment received by Coast
(including proceeds of Receivables and payment of the Obligations in full)
shall be deemed applied by Coast on account of the Obligations two (2) Business
Days after receipt by Coast of immediately available funds, and, for purposes
of the foregoing, any such funds received after 11:00 AM on any day shall be
deemed received on the next Business Day. Coast shall not, however, be required
to credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Coast in its reasonable discretion, and Coast may charge
Borrower's loan account for the amount of any item of payment which is returned
to Coast unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the
Obligations may be applied, and in Coast's sole discretion reversed and
re-applied, to the Obligations, in such order and manner as Coast shall
determine in its sole discretion.
9.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to
Borrower's Loan account, in which event they will bear interest at the same
rate applicable to the Loans. Coast may also, in its discretion, charge any
monetary Obligations to Borrower's Deposit Accounts maintained with Coast.
9.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account constitute prima facie evidence of the items stated and
shall be an account stated (except for reverses and reapplications of payments
made and corrections of errors discovered by Coast), unless Borrower notifies
Coast in writing to the contrary within thirty days after each account is
rendered, describing the nature of any alleged errors or omissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Coast or Borrower at the addresses shown in the heading
to this Agreement, or at any other address designated in writing by one party
to the other party. Notices to Coast shall be directed to the Commercial
Finance Division, to the attention of the Division Manager or the Division
Credit Manager. All notices shall be deemed to have been given upon delivery in
the case of notices personally delivered, or at the expiration of one Business
Day following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by
any court of competent jurisdiction to be void or unenforceable, such defect
shall not affect the remainder of this Agreement, which shall continue in full
force and effect.
9.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and contemporaneous negotiations and
13
<PAGE> 14
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- -----------------------------------------------------------------------------
oral representations and agreements, all of which are merged and integrated in
this Agreement. There are no oral understandings, representations or agreements
between the parties which are not set forth in this Agreement or in other
written agreements signed by the parties in connection herewith.
9.8 WAIVERS. The failure of Coast at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast and delivered
to Borrower. Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Coast on which
Borrower is or may in any way be liable, and notice of any action taken by
Coast, unless expressly required by this Agreement.
9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of its
directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Coast shall be liable for any claims, demands,
losses or damages, of any kind whatsoever, made, claimed, incurred or suffered
by Borrower or any other party through the ordinary negligence of Coast, or any
of its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Coast, but nothing herein shall relieve Coast
from liability for its own gross negligence or willful misconduct.
9.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
9.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse Coast
for all reasonable attorneys' fees and all filing, recording, search, title
insurance, appraisal, audit, and other reasonable costs incurred by Coast,
pursuant to, or in connection with, or relating to this Agreement (whether or
not a lawsuit is filed), including, but not limited to, any reasonable
attorneys' fees and costs Coast incurs in order to do the following: prepare and
negotiate this Agreement and the documents relating to this Agreement; obtain
legal advice in connection with this Agreement or Borrower; enforce, or seek to
enforce, any of its rights; prosecute actions against, or defend actions by,
Account Debtors; commence, intervene in, or defend any action or proceeding;
initiate any complaint to be relieved of the automatic stay in bankruptcy; file
or prosecute any probate claim, bankruptcy claim, third-party claim, or other
claim; examine, audit, copy, and inspect any of the Collateral or any of
Borrower's books and records; protect, obtain possession of, lease, dispose of,
or otherwise enforce Coast's security interest in, the Collateral; and otherwise
represent Coast in any litigation relating to Borrower. If either Coast or
Borrower files any lawsuit against the other predicated on a breach of this
Agreement, the prevailing party in such action shall be entitled to recover its
reasonable costs and attorneys' fees, including (but not limited to) reasonable
attorneys' fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. Borrower shall also pay Coast's
standard charges for returned checks and for wire transfers, in effect from time
to time. All attorney's fees, costs and charges to which Coast may be entitled
pursuant to this Paragraph may be charged by Coast to Borrower's loan account
and shall thereafter bear interest at the same rate as the Receivable Loans.
9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Coast; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Coast, and any prohibited
assignment shall be void. No consent by Coast to any assignment shall release
Borrower from its liability for the Obligations.
9.14 PUBLICITY. Coast is hereby authorized, at its expense, to issue
appropriate press releases and to cause a tombstone to be published announcing
the consummation of this transaction and the aggregate amount thereof.
9.15 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.16 LIMITATION OF ACTIONS. Any claim of cause of action by Borrower
against Coast, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or any
other present or future document or agreement, or any other transaction
contemplated hereby or thereby or relating
14
<PAGE> 15
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
hereto or thereto, or any other matter, cause or thing whatsoever, occurred,
done, omitted or suffered to be done by Coast, its directors, officers,
employees, agents, accountants or attorneys, shall be barred unless asserted by
Borrower by the commencement of an action or proceeding in a court of competent
jurisdiction by the filing of a complaint within one year after the first act,
occurrence or omission upon which such claim or cause of action, or any part
thereof, is based, and the service of a summons and complaint on an officer of
Coast, or on any other person authorized to accept service on behalf of Coast,
within thirty (30) days thereafter; provided, however, that Borrower may not
bring any such claim or cause of action, or any part thereof, if there are
facts in existence, not concealed, which Borrower could reasonably have
discovered after due inquiry, upon which such claim or cause of action, or any
part thereof, could be based, more than one (1) year after the last to occur of
the acts giving rise to such claim or cause of action. Borrower agrees that
such one-year period is a reasonable and sufficient time for Borrower to
investigate and act upon any such claim or cause of action. The one-year
period provided herein shall not be waived, tolled, or extended except by the
written consent of Coast. This provision shall survive any termination of this
Loan Agreement or any other present or future agreement.
9.17 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only
used in this Agreement for convenience. Borrower and Coast acknowledge that
the headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between
the parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Coast or Borrower under any rule
of construction or otherwise.
9.18 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts
and transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the laws of the State of California. As a material part
of the consideration to Coast to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall be litigated in courts located within California, and that the
exclusive venue therefor shall be Los Angeles County; (ii) consents to the
jurisdiction and venue of any such court and consents to service of process in
any such action or proceeding by personal delivery or any other method
permitted by law; and (iii) waives any and all rights Borrower may have to
object to the jurisdiction of any such court, or to transfer or change the
venue of any such action or proceeding.
9.19 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT
OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT,
ACTS OR OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR
BORROWER. IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT
OR OTHERWISE.
BORROWER:
PROBUSINESS, INC.,
a California corporation
By /s/ Steve Klei
----------------------------------
Title: Vice President/CFO
-------------------------------
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific
Thrift & Loan Association
By
----------------------------------
Title: Vice President
------------------------------
By
----------------------------------
Title: Vice President
------------------------------
15
<PAGE> 16
COAST
SCHEDULE TO LOAN AND SECURITY AGREEMENT
BORROWER: PROBUSINESS, INC.,
A CALIFORNIA CORPORATION
ADDRESS: 5934 GIBRALTER DR., SUITE 201
PLEASANTON, CALIFORNIA 94588
DATE: APRIL 30, 1996
This Schedule forms an integral part of the Loan and Security Agreement between
Coast Business Credit, a division of Southern Pacific Thrift & Loan
Association, and the above-borrower of even date.
- ------------------------------------------------------------------------------
1. CREDIT LIMIT
(Section 1.1): Loans in a total amount at any time outstanding not to
exceed the lesser of the then applicable Maximum Dollar
Amount, or the sum of (a) and (b) below:
(a) Loans (the "Receivable Loans") in an amount
not to exceed three (3) times Borrower's average
monthly collections of Eligible Receivables, less
One Hundred Fifty Thousand Dollars ($150,000), for
the preceding three (3) month period, to be
decreased by a factor of one (1) times for each
thirty percent (30%) decrease in Borrower's
revenues, measured on a quarterly basis, plus
(b) Subject to the provisions of Section 7(3) of
this Schedule, Loans (the "Equipment Acquisition
Loans"), in minimum advances of One Hundred
Thousand Dollars ($100,000), with interest only
payable monthly on each drawdown for six (6)
months from the date of each such drawdown
followed by a thirty-six (36) month monthly
amortization of principal plus interest with the
remaining balance due on April 30, 1998, in a
total amount not to exceed the lesser of:
(1) 80% of the invoice cost of new Equipment
less taxes and installation charges, plus,
80% of the appraised liquidation value of
used Equipment acquired by Borrower less
taxes and installation charges, or
(2) One Million Dollars ($1,000,000).
16
<PAGE> 17
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- -------------------------------------------------------------------------------
2. INTEREST.
Interest Rate
(Section 1.2):
The Loans shall bear interest payable monthly at a rate
equal to the "Prime Rate" plus one percent (1.0% per
annum, calculated on the basis of a 360-day year for
the actual number of days elapsed
The interest rate applicable to all Loans shall be
adjusted monthly as of the first day of each month, and
the interest to be charged for each month shall be
based on the highest "Prime Rate" in effect during said
month, but in no event shall the rate of interest
charged on any Loans in any month be less than seven
and one-half percent (7.5%) per annum. "Prime Rate"
means the actual "Reference Rate" or the substitute
therefor of the Bank of America NT & SA whether or not
that rate is the lowest interest rate charged by said
bank. If the Prim Rate, as defined, is unavailable,
"Prime Rate" shall mean the highest of the prime rates
published in the Wall Street Journal on the first
business day of the month, as the base rate on
corporate loans at large U.S. money center commercial
banks.
Minimum Annual
Interest (including any
Rate Adjustment) Payable
Quarterly
(Section 1.2): Thirty Thousand Dollars($30,000) per quarter.
3.FEES
(Section 1.3)
Origination Fee: Ninety Thousand Dollars ($90,000),
payable in installments of Forty - Five Thousand
Dollars ($45,000) due on the Closing Date, and Forty -
Five Thousand Dollars ($45,000) due on the first
anniversary of the Closing Date.
Facility Fee: One Thousand Eight Hundred Dollars
($1,800) per calendar quarter, payable in advance
(prorated for any partial quarter at the beginning of
the term of this Agreement).
Renewal Fee: .5% of the Maximum Dollar Amount per year.
Yield Fee: On the last day of each calendar quarter.
Borrower shall pay a yield fee equal to 1% per annum of
the average daily balance of the Loans outstanding
during the previous three (3) months calculated on the
basis of a 360 day year for actual days elapsed,
pursuant to the formula set forth below:
(average annual loan balance)
--------------------------x 3
12
17
<PAGE> 18
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
4. MATURITY DATE
(Section 6.1): April 30, 1998, subject to automatic renewal as
provided in Section 6.1 above, and early termination as
provided in Section 6.2 above.
EARLY TERMINATION
(Section 6.2): An amount equal to two percent (2%) of the Maximum
Dollar Amount (as defined in the Schedule), if
termination occurs on or before the first anniversary
of the date of this Agreement; one percent (1%) of the
Maximum Dollar Amount, if termination occurs after the
first anniversary and on or before the second
anniversary of the date of this Agreement; and one
percent (1%) of the Maximum Dollar Amount, if
termination occurs after the second anniversary and on
or before the third anniversary of the date of this
Agreement if Borrower renews this Agreement pursuant
to Section 6.1 hereof. Such fees shall be waived if
public trading of Borrower's common stock is
commenced.
5. REPORTING.
(Section 5.3): Borrower shall provide Coast with the following:
(1) Monthly Receivable agings, aged by invoice date,
within ten (10) days after the end of each month.
(2) Monthly accounts payable agings, aged by invoice
date within ten (10) days after the end of each
month.
(3) Monthly within fifteen (15) days after the end of
each month outstanding or held check registers.
(4) Monthly internally prepared financial statements,
as soon as available, and in any event within
thirty (30) days after the end of each month.
(5) Quarterly internally prepared financial
statements, as soon as available, and in any event
within forty-five (45) days after the end of each
fiscal quarter of Borrower.
(6) Semi-Annual customer lists, including customer
name, address, and phone number.
(7) Annual financial statements, as soon as available,
and in any event within ninety (90) days following
the end of Borrower's fiscal year, certified by
independent certified public accountants
acceptable to Coast.
<PAGE> 19
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
6. BORROWER INFORMATION:
PRIOR NAMES OF BORROWER
(Section 3.2): ProBusiness Centers, Inc.
PRIOR TRADE NAMES OF
BORROWER
(Section 3.2): None
EXISTING TRADE NAMES OF
BORROWER
(Section 3.2): None
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): 18400 Von Karman Avenue
Suite 340
Irvine, CA 92714
MATERIAL ADVERSE
LITIGATION (Section 3.10): None
7. OTHER PROVISIONS
(Section 5.1): (1) Borrower shall maintain minimum
Tangible Net Worth of (a) at least Two
Million Dollars ($2,000,000) at all
times when the Maximum Dollar Amount
is equal to Four Million Dollars
($4,000,000), and (b) at least Three
Million Dollars ($3,000,000) at all
times when the Maximum Dollar Amount
is equal to Six Million Dollars
($6,000,000).
(2) Borrower shall at all times maintain a
ration of cash to implementation and
technical support expenditures of at
least .75:1.0 determined on a monthly
basis.
(3) Borrower shall not obtain any
Equipment Acquisition Loans hereunder,
unless Borrower has attained, as of the
date of such requested Equipment
Acquisition Loans, EBIT coverage at
1.1 times total debt service for
immediately preceding three (3)
consecutive months.
<PAGE> 20
Company Name
Address
City, State Zip
In connection with the examination of our accounts receivable records by the
accountants William John and Company, 12121 Wilshire Blvd., Suite 1111, Los
Angeles, CA 90025, we would appreciate it if you would furnish them with the
following information regarding your balance due to us.
(1) Account Receivable outstanding as of 4/1/96 per our records
See attached schedule) ------------.
(2) Terns of Sale Net 10
(3) Are there any credits due to you? YES NO
--------- ---------
Please verify this balance and note any discrepancies in the space below.
- ------------------------------
- ------------------------------
Signature
--------------------------
Your Name Printed
------------------
Title
------------------------------
THIS IS A VERIFICATION OF ACCOUNTS ONLY-NOT A DEMAND FOR PAYMENT
Please fax your reply directly to:
William John and Company
Attn: ?
Phone # (310) 828-2346 Fax # (310) 979-5827
If you have any questions regarding this matter or your balance due, please
call me at (310) 734-9990 x 111. I would appreciate it if you would reply by
Friday, April 26.
Sincerely,
Cathy Cruz
Senior Accountant
<PAGE> 21
AMENDMENT NUMBER ONE TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT, dated as of
October 25, 1996 (this "Amendment"), amends that certain Loan and Security
Agreement, dated as of April 30, 1996, by and between PROBUSINESS, INC., a
California corporation ("Borrower"), and COAST BUSINESS CREDIT, a division of
Southern Pacific Thrift & Loan Association, a California corporation ("Coast"),
as amended from time to time (the "Loan Agreement"). All initially capitalized
terms used in this Amendment shall have the meanings ascribed thereto in the
Loan Agreement unless specifically defined herein.
RECITALS
WHEREAS, Borrower has requested, and Coast has agreed, that Coast
increase the Maximum Dollar Amount available to Borrower under the Loan
Agreement and to amend certain other provisions of the Loan Agreement; and
WHEREAS, subject to the terms and conditions hereof, Coast has agreed
to amend the Loan Agreement as hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
AMENDMENT
Section 1. AMENDMENTS.
1.1 AMENDMENT TO SECTION 8 OF LOAN AGREEMENT. Section 8 of the
Loan Agreement is hereby amended by deleting from such Section the definition
of "Maximum Dollar Amount" in its entirety and replacing it with the following:
"Maximum Dollar Amount" means the aggregate amount of Ten Million
Dollars ($10,000,000)
1.2 AMENDMENT TO SECTION 1 OF SCHEDULE. Section 1 of the
Schedule to the Loan Agreement is hereby amended by deleting such Section in
its entirety and replacing it with the following:
<PAGE> 22
"1. CREDIT LIMIT
(Section 1.1): Loans in a total amount at any time outstanding not to
exceed the lesser of the then applicable Maximum Dollar Amount, or the sum of
(a) and (b) below:
(a) Loans (the "Receivable Loans") in an amount not to exceed four
(4) times Borrower's average monthly collections of Eligible
Receivables, less One Hundred Fifty Thousand Dollars ($150,000),
for the preceding four (4) month period, to be decreased by a
factor of one (1) times for each thirty percent (30%) decrease
in Borrower's revenues, measured on a quarterly basis, plus
(b) Subject to the provisions of Section 7(3) of this Schedule,
Loans (the "Equipment Acquisition Loans"), in minimum advances
of One Hundred Thousand Dollars ($100,000), with interest only
payable monthly on each draw-down for six (6) months from the
date of each such draw-down followed by a thirty-six (36) month
monthly amortization of principal plus interest with the
remaining balance due on April 30, 1998, in a total amount not
to exceed the lesser of:
(1) 80% of the invoice cost of new Equipment less taxes and
installation charges, plus, 80% of the appraised
liquidation value of used Equipment acquired by Borrower
less taxes and installation charges, or
(2) One Million Dollars ($1,000,000)."
1.3 AMENDMENT TO SECTION 3 OF SCHEDULE. Section 3 of
the Schedule to the Agreement is hereby amended such that the Forty-Five
Thousand Dollar ($45,000) balance of the Origination Fee shall be due and
payable upon the effective date of Amendment Number One to this Loan Agreement.
1.4 AMENDMENT TO SECTION 7 OF SCHEDULE. Section 7 of
the Schedule to the Agreement is hereby amended to delete therefrom the minimum
Tangible Net Worth covenant in subsection (1) and to replace it with the
following:
"(1) Intentionally blank."
Section 2. CONDITION PRECEDENT. The effectiveness of this
Amendment is expressly conditioned upon:
2.1 Receipt by Coast of an executed original of this
Amendment;
2
<PAGE> 23
2.2 Receipt by Coast of an executed original of an
amendment to the Warrant to Purchase Stock, dated as of April 30, 1996,
increasing to 19,000 the Series E Preferred Stock subject to such Warrant, and
otherwise in form and substance satisfactory to Coast, or a new Warrant to
Purchase Stock providing for such an increase in stock subject to the Warrant
and otherwise in form and substance satisfactory to Coast;
2.3 Receipt by Coast of payment of all fees and costs,
including legal fees and costs, incurred in connection with the preparation,
negotiation and execution of this Amendment and the amendment to the Warrant to
Purchase Stock; and
2.4 Receipt by Coast of payment of the accelerated
Forty-Five Thousand Dollar balance of the Origination Fee.
Section 3. ENTIRE AGREEMENT. The Loan Agreement, as amended
hereby, embodies the entire agreement and understanding between the parties
hereto and supersedes all prior agreements and understandings relating to the
subject matter hereof. Borrower represents, warrants and agrees that in
entering into the Loan Agreement and consenting to this Amendment, it has not
relied on any representation, promise, understanding or agreement, oral or
written, of, by or with, Coast or any of its agents, employees, or counsel,
except the representations, promises, understandings and agreements
specifically contained in or referred to in the Loan Agreement, as amended
hereby.
Section 4. CONFLICTING TERMS. In the event of a conflict between
the terms and provisions of this Amendment and the terms and provisions of the
Loan Agreement, the terms of this Amendment shall govern. In all other
respects, the Loan Agreement, as amended and supplemented hereby, shall remain
in full force and effect.
Section 5. MISCELLANEOUS. This Amendment shall be governed by and
construed in accordance with the laws of the State of California. This
Amendment may be executed in any number of counterparts, all of which taken
together shall constitute one agreement, and any party hereto may execute this
Amendment by signing such counterpart.
3
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective officers thereunto duly authorized as of the
date first above written.
BORROWER:
PROBUSINESS, INC.
a California corporation
By /s/ Steven Klei
------------------------------
Title: VP/CFO
------------------------
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Thrift
& Loan Association
By
------------------------------
Title:
------------------------
4
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective officers thereunto duly authorized as of the
date first above written.
BORROWER:
PROBUSINESS, INC.
a California corporation
By /s/ Steven Klei
------------------------------
Title: VP/CFO
------------------------
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Thrift
& Loan Association
By [/s/ ILLEGIBLE]
------------------------------
Title: Vice President
------------------------
4
<PAGE> 26
AMENDMENT NUMBER TWO TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER TWO TO LOAN AND SECURITY AGREEMENT, dated as of
January 6, 1997 (this "Amendment"), amends that certain Loan and Security
Agreement, dated as of April 30, 1996, as amended by that certain Amendment
Number One to Loan and Security Agreement, dated as of October 25, 1996 (as
amended from time to time, the "Loan Agreement"), by and between
PROBUSINESS, INC., a California corporation ("Probusiness"), and COAST BUSINESS
CREDIT, a division of Southern Pacific Thrift & Loan Association, a California
corporation ("Coast"), on the other hand. All initially capitalized terms used
in this Amendment shall have the meanings ascribed thereto in the Loan
Agreement unless specifically defined herein.
R E C I T A L S
WHEREAS, Probusiness, and Benesphere Administrators, Inc., a Washington
corporation ("Benesphere") and/or the individual shareholders of Benesphere
("Selling Shareholders") have entered into an agreement for the purchase and
sale of stock dated on or about January 4, 1997 (the "Benesphere Purchase
Agreement"), whereby Probusiness agreed to purchase all of the issued and
outstanding capital stock of Benesphere (the "Acquisition"); and
WHEREAS, in order to consummate such acquisition, Probusiness has
requested Coast's consent to utilize funds obtained pursuant to the Loan
Agreement; and
WHEREAS, Coast, as a condition to its consent to allow Probusiness to
use such funds for the aforementioned acquisition, has required, and Probusiness
and Benesphere (collectively, the "Borrowers") have agreed, to amend the Loan
Agreement in accordance with the terms and provisions of this Amendment.
A M E N D M E N T
NOW, THEREFORE, the parties hereto agree as follows:
A. AMENDMENTS.
1. The definition of "Borrower" as set forth in the introductory
paragraph to the Loan Agreement is hereby amended to include
Benesphere, joint and severally, as an additional borrower.
2. The definition of "Borrowers' Addresses" as set forth in the
introductory paragraph to the Loan Agreement is hereby amended to add
10900 NE 4th, 12th Floor, Bellevue, Washington 98015 as the chief
executive office of Benesphere.
1
<PAGE> 27
3. Coast shall establish a reserve against Borrowers' borrowing
availability such that, on or before April 15, 1997, the amount of the reserve
will be $525,000, such reserve to be released upon the payment of the $250,000
obligation due the Selling Shareholders under the Benesphere Purchase Agreement
and the $275,000 note payable to Alison Elder.
B. CONDITIONS PRECEDENT. The effectiveness of this Amendment is expressly
conditioned upon receipt of an executed copy of this Amendment, together with
the following:
1. Review and approval by Coast of an executed copy of the Benesphere
Purchase Agreement.
2. Receipt by Coast of payment of all fees and costs, including legal
fees and costs, incurred in connection with the preparation, negotiation and
execution of this Amendment and the documents related hereto; and
3. Receipt by Coast of each of the following documents in form and
substance satisfactory to Coast in its sole and absolute discretion:
a. Amended and Restated Secured Promissory Note, in the original
principal amount of One Million Dollars ($1,000,000), executed by Borrowers in
favor of Coast;
b. Joint and Several Borrower Rider, executed by Borrowers in
favor of Coast; and
c. A confirmation of that certain Subordination Agreement among
Coast and the Subordinated Debt Holders or an opinion of Borrower's counsel to
the effect that such Subordination Agreement remains in full force and effect
notwithstanding this Amendment.
C. ADDITIONAL CONDITIONS PRECEDENT TO BENESPHERE ADVANCES. Loans advanced
in reliance upon the Acquisition and the effectiveness of the amendments to the
Loan Agreement contemplated herein in connection therewith are expressly
conditioned upon the receipt by Coast, in form and substance satisfactory to
Coast in its sole and absolute discretion, of (i) evidence that the acquisition
contemplated in the Benesphere Purchase Agreement has been consummated, and
(ii) results of "of record" searches reflecting Coast's Uniform Commercial Code
filings against Benesphere indicating that Coast has a perfected, first
priority lien in and upon all of the assets of Benesphere, subject only to
Permitted Liens.
D. ENTIRE AGREEMENT. The Loan Agreement, as amended hereby, embodies the
entire agreement and understanding between the parties hereto and supersedes
all prior agreements and understandings relating to the subject matter hereof.
Borrowers
2
<PAGE> 28
represent, warrant and agree that in entering into the Loan Agreement and
consenting to this Amendment, they have not relied on any representation,
promise, understanding or agreement, oral or written, of, by or with, Coast or
any of its agents, employees, or counsel, except the representations, promises,
understandings and agreements specifically contained in or referred to in the
Loan Agreement, as amended hereby.
E. CONFLICTING TERMS. In the event of a conflict between the terms
and provisions of this Amendment and the terms and provisions of the Loan
Agreement, the terms of this Amendment shall govern. In all other respects, the
Loan Agreement, as amended and supplemented hereby, shall remain in full force
and effect.
F. MISCELLANEOUS. This Amendment shall be governed by and construed
in accordance with the laws of the State of California. This Amendment may be
executed in any number of counterparts, all of which taken together shall
constitute one agreement, and any party hereto may execute this Amendment by
signing such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective officers thereunto duly authorized as of the
date first above written.
BORROWERS:
PROBUSINESS, INC.,
a California corporation
By /s/ Steven Klei
------------------------------------
President or Vice President
By /s/ Steven Klei
------------------------------------
Secretary or Ass't Secretary
BENESPHERE ADMINISTRATORS, INC.,
a Washington corporation
By /s/ Steven Klei
------------------------------------
President or Vice President
By /s/ Steven Klei
------------------------------------
Secretary or Ass't Secretary
3
<PAGE> 29
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Thrift & Loan
Association
By
--------------------------------------------
Title
---------------------------------
4
<PAGE> 30
JOINT AND SEVERAL BORROWER RIDER
This JOINT AND SEVERAL BORROWER RIDER (this "Rider"), dated as of
January 6, 1997, is executed by PROBUSINESS, INC., a California corporation
("Probusiness") and BENESPHERE ADMINISTRATORS, INC., a California corporation
("Benesphere", together with Probusiness are sometimes collectively referred to
herein as "Borrowers" and individually as a "Borrower"), in favor of and
delivered to COAST BUSINESS CREDIT ("COAST"), A DIVISION OF SOUTHERN PACIFIC
THRIFT & LOAN ASSOCIATION, a California corporation.
WHEREAS, Borrowers are contemporaneously herewith executing and
delivering to Coast (a) that certain Amendment Number Two to Loan and Security
Agreement, dated as of even date herewith, amending that certain Loan and
Security Agreement, dated as of April 30, 1996, as previously amended by that
certain Amendment Number One to Loan and Security Agreement, dated as of
October 25, 1996 (as amended, the "Agreement"), and (b) that certain Amended
and Restated Secured Promissory Note (Equipment Acquisition Loans), dated as of
even date herewith (the "Note") (the Agreement and the Note, together with any
and all other agreements, instruments and documents executed by Borrowers in
connection therewith, and as all of the foregoing may be amended, restated,
supplemented or modified from time to time in accordance with their terms, are
collectively referred to herein as the "Loan Documents");
WHEREAS, each Borrower is interested in the financial success of the
other Borrowers and each Borrower will directly and materially benefit from the
financial accommodations which Coast will extend to all Borrowers pursuant to
the Loan Documents; and
WHEREAS, in order to induce Coast to extend financial accommodations to
Borrowers, and in consideration thereof, Borrowers have agreed to execute and
deliver this Rider to Coast, which Rider shall be a rider to the Loan Documents.
NOW THEREFORE, the parties hereto agree as follows:
1. Each Borrower agrees that it is jointly and severally, directly
and primarily liable to Coast for payment in full of all amounts owing to Coast
under the Loan Documents, whether for principal, interest or otherwise
(collectively, the "Obligations") and that such liability is independent of the
duties, obligations, and liabilities of the other Borrowers. Coast may bring a
separate action or actions on each, any, or all of the Obligations against any
Borrower, whether action is brought against the other Borrowers or whether the
other Borrowers are joined in such action. In the event that any Borrower fails
to make any payment of any Obligations on or before the due date thereof, the
other Borrowers immediately shall cause such payment to be made or each of such
Obligations to be performed, kept, observed, or fulfilled.
1
<PAGE> 31
2. The Loan Documents are a primary and original obligation of each
Borrower, are not the creation of a surety relationship, and are an absolute,
unconditional, and continuing promise of payment and performance which shall
remain in full force and effect without respect to future changes in
conditions, including any change of law or any invalidity or irregularity with
respect to the Loan Documents. Each Borrower agrees that its liability under
the Loan Documents shall be immediate and shall not be contingent upon the
exercise or enforcement by Coast or whatever remedies it may have against the
other Borrowers, or the enforcement of any lien or realization upon any
security Coast may at any time possess. Each Borrower consents and agrees that
Coast shall be under no obligation to marshal any assets of any Borrower
against or in payment of any or all of the Obligations.
3. Each Borrower acknowledges that it is presently informed as to the
financial condition of the other Borrowers and of all other circumstances which
a diligent inquiry would reveal and which bear upon the risk of nonpayment of
the Obligations. Each Borrower hereby covenants that it will continue to keep
informed as to the financial condition of the other Borrowers, the status of
the other Borrowers and of all circumstances which bear upon the risk of
nonpayment. Absent a written request from any Borrower to Coast for
information, such Borrower hereby waives any and all rights it may have to
require Coast to disclose to such Borrower any information which Coast may now
or hereafter acquire concerning the condition or circumstances of the other
Borrowers.
4. The liability of each Borrower under the Loan Documents includes
Obligations arising under successive transactions continuing, compromising,
extending, increasing, modifying, releasing, or renewing the Obligations,
changing the interest rate, payment terms, or other terms and conditions
thereof, or creating new or additional Obligations after prior Obligations have
been satisfied in whole or in part. To the maximum extent permitted by law,
each Borrower hereby waives any right to revoke its liability under the Loan
Documents as to future indebtedness, and in connection therewith, each Borrower
hereby waives any rights it may have under Section 2815 of the California Civil
Code. If such a revocation is effective notwithstanding the foregoing waiver,
each Borrower acknowledges and agrees that (a) no such revocation shall be
effective until written notice thereof has been received by Coast, (b) no such
revocation shall apply to any Obligations in existence on such date (including,
any subsequent continuation, extension, or renewal thereof, or change in the
interest rate, payment terms, or other terms and conditions thereof), (c) no
such revocation shall apply to any Obligations made or created after such date
to the extent made or created pursuant to a legally binding commitment of Coast
in existence on the date of such revocation, (d) no payment by such Borrower or
from any other source prior to the date of such revocation shall reduce the
maximum obligation of the other Borrowers hereunder, and (e) any payment of
such Borrower or from any source other than Borrowers, subsequent to the date
of such revocation, shall first be applied to that portion of the Obligations
as to which the revocation is effective and which are not, therefore,
guaranteed hereunder, and to the extent so applied shall not reduce the maximum
obligation of each Borrower hereunder.
2
<PAGE> 32
5. (a) Each Borrower absolutely, unconditionally,
knowingly, and expressly waives:
(i) (1) notice of acceptance hereof; (2) notice of
any loans or other financial accommodations made or extended under the
Loan Documents or the creation or existence of any Obligations; (3)
notice of the amount of the Obligations, subject, however, to each
Borrower's right to make inquiry of Coast to ascertain the amount of the
Obligations at any reasonable time; (4) notice of any adverse change in
the financial condition of the other Borrowers or of any other fact that
might increase such Borrower's risk hereunder; (5) notice of presentment
for payment, demand, protest, and notice thereof as to any instruments
among the Loan Documents; (6) notice of any unmatured event of default
or event of default under the Loan Documents; and (7) all other notices
(except if such notice is specifically required to be given to Borrowers
hereunder or under the Loan Documents) and demands to which such
Borrower might otherwise be entitled.
(ii) its right, under Sections 2845 or 2850 of the
California Civil Code, or otherwise, to require Coast to institute suit
against, or to exhaust any rights and remedies which Coast has or may
have against, the other Borrowers or any third party, or against any
collateral for the Obligations provided by the other Borrowers, or any
third party. In this regard, each Borrower agrees that it is bound to
the payment of all Obligations, whether now existing or hereafter
accruing, as fully as if such Obligations were directly owing to Coast
by such Borrower. Each Borrower further waives any defense arising by
reason of any disability or other defense (other than the defense that
the Obligations shall have been fully and finally performed and
indefeasibly paid) of the other Borrowers or by reason of the cessation
from any cause whatsoever of the liability of the other Borrowers in
respect thereof.
(iii) (1) any rights to assert against Coast any
defense (legal or equitable), set-off, counterclaim, or claim which such
Borrower may now or at any time hereafter have against the other
Borrowers or any other party liable to Coast; (2) any defense, set-off,
counterclaim, or claim, of any kind or nature, arising directly or
indirectly from the present or future lack of perfection, sufficiency,
validity, or enforceability of the Obligations or any security therefor;
(3) any defense such Borrower has to performance hereunder, and any
right such Borrower has to be exonerated, provided by Sections 2819,
2822, or 2825 of the California Civil Code, or otherwise, arising by
reason of: the impairment or suspension of Coast's rights or remedies
against the other Borrowers; the alteration by Coast of the Obligations;
any discharge of the other Borrowers' obligations to Coast by operation
of law as a result of Coast's intervention or omission; or the
acceptance by Coast of anything in partial satisfaction of the
Obligations; (4) the benefit of any statute of limitations affecting
such Borrower's liability hereunder or the enforcement thereof, and any
act which shall defer or delay the operation of any statute of
limitations applicable to the Obligations shall similarly operate to
defer or
3
<PAGE> 33
delay the operation of such statute of limitations applicable to such
Borrower's liability hereunder.
(b) Each Borrower absolutely, unconditionally,
knowingly, and expressly waives any defense arising by reason of or deriving
from (i) any claim or defense based upon an election of remedies by Coast
including any defense based upon an election of remedies by Coast under the
provisions of Sections 580a, 580b, 580d, and 726 of the California Code of
Civil Procedure or any similar law of California or any other jurisdiction; or
(ii) any election by Coast under Bankruptcy Code Section 1111(b) to limit the
amount of, or any collateral securing, its claim against the Borrowers.
Pursuant to California Civil Code Section 2856(b):
"Each Borrower waives all rights and defenses
arising out of an election of remedies by the creditor, even
though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed
obligation, has destroyed such Borrower's rights of subrogation
and reimbursement against the other Borrowers by the operation
of Section 580(d) of the California Code of Civil Procedure or
otherwise."
If any of the Obligations at any time are secured by a mortgage or deed of trust
upon real property, Coast may elect, in its sole discretion, upon a default with
respect to the Obligations, to foreclose such mortgage or deed of trust
judicially or nonjudicially in any manner permitted by law, before or after
enforcing the Loan Documents, without diminishing or affecting the liability of
any Borrower hereunder except to the extent the Obligations are repaid with the
proceeds of such foreclosure. Each Borrower understands that (a) by virtue of
the operation of California's antideficiency law applicable to nonjudicial
foreclosures, an election by Coast nonjudicially to foreclose such a mortgage or
deed of trust probably would have the effect of impairing or destroying rights
of subrogation, reimbursement, contribution, or indemnity of such Borrower
against the other Borrowers or other guarantors or sureties, and (b) absent the
waiver given by such Borrower, such an election would prevent Coast from
enforcing the Loan Documents against such Borrower. Understanding the foregoing,
and understanding that such Borrower is hereby relinquishing a defense to the
enforceability of the Loan Documents, such Borrower hereby waives any right to
assert against Coast any defense to the enforcement of the Loan Documents,
whether denominated "estoppel" or otherwise, based on or arising from an
election by Coast nonjudicially to foreclose any such mortgage or deed of trust.
Each Borrower understands that the effect of the foregoing waiver may be that
each Borrower may have liability hereunder for amounts with respect to which
such Borrower may be left without rights of subrogation, reimbursement,
contribution, or indemnity against the other Borrower or other guarantors or
sureties. Each Borrower also agrees that the "fair market value" provisions of
Section 580a of the California Code of Civil Procedure shall have no
applicability with respect to the determination of such Borrower's liability
under the Loan Documents.
(c) Each Borrower hereby absolutely,
unconditionally, knowingly, and expressly waives; (i) any right of subrogation
such Borrower has or may have as against
4
<PAGE> 34
the other Borrowers with respect to the Obligations; (ii) any right to proceed
against the other Borrowers or any other person or entity, now or hereafter,
for contribution, indemnity, reimbursement, or any other suretyship rights and
claims, whether direct or indirect, liquidated or contingent, whether arising
under express or implied contract or by operation of law, which such Borrower
may now have or hereafter have as against the other Borrowers with respect to
the Obligations; and (iii) any right to proceed or seek recourse against or
with respect to any property or asset of the other Borrowers.
(d) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS RIDER, EACH BORROWER HEREBY ABSOLUTELY,
KNOWINGLY, UNCONDITIONALLY, AND EXPRESSLY WAIVES AND AGREES NOT TO ASSERT ANY
AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR
MORE OF CALIFORNIA CIVIL CODE SECTIONS 2799, 2808, 2809, 2810, 2815, 2819,
2820, 2821, 2822, 2825, 2839, 2845, 2848, 2849, AND 2850, CALIFORNIA CODE OF
CIVIL PROCEDURE SECTIONS 580a, 580b, 580c, 580d, AND 726, AND CHAPTER 2 OF
TITLE 14 OF THE CALIFORNIA CIVIL CODE.
6. Each Borrower consents and agrees that, without notice to or by
such Borrower, and without affecting or impairing the liability of such
Borrower hereunder, Coast may, by action or inaction:
(a) compromise, settle, extend the duration or the time for the
payment of, or discharge the performance of, or may refuse
to or otherwise not enforce the Loan Documents, or any
part thereof, with respect to the other Borrowers;
(b) release the other Borrowers or grant other indulgences
to the other Borrowers in respect thereof; or
(c) release or substitute any other guarantor, if any, of the
Obligations, or enforce, exchange, release, or waive any
security for the Obligations or any other guaranty of the
Obligations, or any portion thereof.
7. Coast shall have the right to seek recourse against each
Borrower to the fullest extent provided for herein, and no election by Coast to
proceed in one form of action or proceeding, or against any party, or on any
obligation, shall constitute a waiver of Coast's right to proceed in any other
form of action or proceeding or against other parties unless Coast has
expressly waived such right in writing. Specifically, but without limiting the
generality of the foregoing, no action or proceeding by Coast under the Loan
Documents shall serve to diminish the liability of any Borrower under this
Rider except to the extent the Coast finally and unconditionally shall have
realized indefeasible payment by such action or proceeding.
5
<PAGE> 35
8. The Obligations shall not be considered indefeasibly paid for
purposes of this Rider unless and until all payments to Coast are no longer
subject to any right on the part of any person, including any Borrower, any
Borrower as a debtor in possession, or any trustee (whether appointed pursuant
to 11 U.S.C., or otherwise) of any Borrowers' assets to invalidate or set aside
such payments or to seek to recoup the amount of such payments or any portion
thereof, or to declare same to be fraudulent or preferential. Upon such full
and final performance and indefeasible payment of the Obligations, Coast shall
have no obligation whatsoever to transfer or assign its interest in the Loan
Documents to any Borrower. In the event that, for any reason, any portion of
such payments to Coast is set aside or restored, whether voluntarily or
involuntarily, after the making thereof, then the obligation intended to be
satisfied thereby shall be revived and continued in full force and effect as if
said payment or payments had not been made, and each Borrower shall be liable
for the full amount Coast is required to repay plus any and all costs and
expenses (including attorneys' fees and attorneys' fees incurred pursuant to 11
U.S.C.) paid by Coast in connection therewith.
9. At the request of Borrowers to facilitate and expedite the
administration and accounting processes and procedures of their borrowings
under the Agreement, Coast has agreed, in lieu of maintaining separate loan
accounts on Coast's books in the name of each of the Borrowers, that Coast may
maintain a single loan account under the name of all of the Borrowers (the
"Loan Account"). Loans made under the Agreement shall be made jointly and
severally to Borrowers and shall be charged to the Loan Account, together with
all interest and other charges as permitted under and pursuant to this
Agreement. The Loan Account shall be credited with all repayments of
Obligations received by Coast, on behalf of Borrowers, from any Borrower
pursuant to the terms of the Agreement.
10. Coast shall render to Probusiness, on behalf of Borrowers, one
statement of the Loan Account, which shall be deemed to be an account stated as
to each Borrower and which will be deemed correct and accepted by each Borrower
unless Coast receives a written statement of exceptions from any Borrower
within thirty (30) days after such statement has been rendered by Coast. Each
Borrower hereby expressly agrees and acknowledges that Coast shall have no
obligation to account separately to such Borrower.
11. Requests for advances under the Agreement may be made by any
Borrower, pursuant to the terms thereof. Each Borrower expressly agrees and
acknowledges that Coast shall have no responsibility to inquire into the
correctness of the apportionment or allocation of or any disposition by any of
Borrowers of (a) any advances or loans under the Agreement, or (b) any of the
expenses and other items charged to the Loan Account pursuant to the Agreement.
All such advances and loans and such expenses and other items shall be made for
the collective, joint, and several account of Borrowers and shall be charged to
the Loan Account.
12. Each Borrower agrees and acknowledges that the administration
of the Agreement on a combined basis, as set forth in this Rider, is being done
as an
6
<PAGE> 36
accommodation to Borrowers and at their request, and that Coast shall incur no
liability to any of Borrowers as a result thereof. To induce Coast to do so,
and in consideration thereof, each of Borrowers hereby agrees to indemnify and
hold Coast harmless from and against any and all liability, expense, loss,
damage, claim of damage, or injury, made against Coast by any Borrowers or by
any other person or entity, arising from or incurred by reason of such
administration of the Agreement.
13. Each Borrower represents and warrants to Coast that the collective
administration of the loans is being undertaken by Coast pursuant to this
Rider because Borrowers are integrated in their operation and administration
and require financing on a basis permitting the availability of credit from
time to time to each of Borrowers. Each Borrower will derive benefit, directly
and indirectly, from such collective administration and credit availability
because the successful operation of each Borrower is enhanced by the continued
successful performance of the integrated group.
14. This Rider shall append and shall be part and parcel of the Loan
Documents; and the Rider shall be governed by and construed in accordance with
all of the terms of the Loan Documents.
IN WITNESS WHEREOF, this Rider has been executed and delivered as of
the date first above written.
PROBUSINESS, INC.
a California corporation
By /s/ Steven Klei
------------------------------
Title VP/CFO
------------------------
BENESPHERE ADMINISTRATORS, INC.
a Washington corporation
By /s/ Steven Klei
------------------------------
Title VP/CFO
------------------------
7
<PAGE> 37
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Thrift & Loan
Association
By /s/ [Illegible]
-----------------------------------------
Title VP
-------------------------------
4
<PAGE> 1
EXHIBIT 10.14
NOTE
$543,750 Pleasanton, California
December 5, 1996
FOR VALUE RECEIVED, Robert E. Schneider promises to pay to ProBusiness,
Inc., a California corporation (the "Company"), or order, the principal sum of
Five Hundred Forty-Three Thousand Seven Hundred Fifty Dollars ($543,750)
together with interest on the unpaid principal hereof from the date hereof at
the rate of 6.31% per annum, compounded annually.
Principal and interest shall be due and payable on December 5, 2000.
Should the undersigned fail to make full payment of principal or interest for a
period of 10 days or more after the due date thereof, the whole unpaid balance
on this Note of principal and interest shall become immediately due at the
option of the holder of this Note. Payments of principal and interest shall be
made in lawful money of the United States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of December
3, 1996. This Note is secured in part by a pledge of the Company's Common Stock
under the terms of a Security Agreement of even date herewith and is subject to
all the provisions thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event the undersigned shall cease to be an employee or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
______________________________________
Robert E. Schneider
1252 Quandt Road
Lafayette, CA 94549
<PAGE> 1
Exhibit 10.15
NOTE
$543,750 Bellevue, Washington
January 7, 1997
FOR VALUE RECEIVED, Alison M. Elder promises to pay to ProBusiness,
Inc., a California corporation (the "Company"), or order, the principal sum of
Five Hundred and Forty-Three Thousand Seven Hundred Fifty Dollars ($543,750)
together with interest on the unpaid principal hereof from the date hereof at
the rate of 6.10% per annum, compounded annually.
Principal and interest shall be due and payable on January 7, 2001.
Should the undersigned fail to make full payment of principal or interest for a
period of 10 days or more after the due date thereof, the whole unpaid balance
on this Note of principal and interest shall become immediately due at the
option of the holder of this Note. Payments of principal and interest shall be
made in lawful money of the United States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of January 7,
1997. This Note is secured in part by a pledge of the Company's Common Stock
under the terms of a Security Agreement of even date herewith and is subject to
all the provisions thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event the undersigned shall cease to be an employee or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
________________________________
Alison M. Elder
1300 Hampton Court
Byron, CA 94514
<PAGE> 1
EXHIBIT 10.16
NOTE
$250,000 Pleasanton, California
January 31, 1997
FOR VALUE RECEIVED, Jeffrey M. Bizzack ("Borrower") promises to pay to
ProBusiness, Inc., a California corporation (the "Company"), the principal sum
of Two Hundred Fifty Thousand Dollars ($250,000) together with interest on the
unpaid principal hereof from the date hereof at the rate of 6.10% per annum,
compounded annually.
Beginning on the date twenty-five months from the date hereof, Borrower
promises to pay to the Company on a monthly basis accrued interest on the
aggregate amount of outstanding principal and accrued but unpaid interest under
this Note on the date twenty-four months from the date hereof. All outstanding
principal and accrued but unpaid interest shall be due and payable forty-eight
months from the date of this Note. Payments of principal and interest shall be
made in lawful money of the United States of America.
Notwithstanding the foregoing, in the event Borrower's employment with
the Company terminates, Borrower promises to the Company all outstanding
principal and accrued but unpaid interest under this Note on the date (i) twelve
months from the date employment termination, if Borrower voluntarily terminates
employment with the Company, with interest accruing during such twelve months to
be paid on a monthly basis, or (ii) twenty-four months from the date of
employment termination, if the Company terminates Borrower's employment for any
reason. Provided however, in no event shall the outstanding principal and
accrued but unpaid interest under this Note be due and payable later than the
date forty-eight months from the date of this Note.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
The holder of this Note shall have full recourse against the
undersigned in the event of default.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
-----------------------------------
Jeffrey M. Bizzack
426 Pala Avenue
Piedmont, CA 94611
<PAGE> 1
EXHIBIT 10.17
OFFICE BUILDING LEASE
BETWEEN
KOLL CENTER IRVINE NUMBER TWO
LANDLORD
AND
PRO BUSINESS, INC.
TENANT
<PAGE> 2
STANDARD LEASE
[SHORT FORM]
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
1. BASIC LEASE TERMS................................................... 1
2. PREMISES AND COMMON AREAS........................................... 2
3. TERM................................................................ 2
4. POSSESSION.......................................................... 2
5. RENT................................................................ 2
6. OPERATING EXPENSES.................................................. 2
7. SECURITY DEPOSIT.................................................... 3
8. USE................................................................. 3
9. NOTICES............................................................. 4
10. BROKERS............................................................. 4
11. SURRENDER, HOLDING OVER............................................. 4
12. TAXES ON TENANT'S PROPERTY.......................................... 4
13. ALTERATIONS......................................................... 4
14. REPAIRS............................................................. 4
15. LIENS............................................................... 5
16. ENTRY BY LANDLORD................................................... 5
17. UTILITIES AND SERVICES.............................................. 5
18. ASSUMPTION OF RISK AND INDEMNIFICATION.............................. 5
19. INSURANCE........................................................... 6
20. DAMAGE OR DESTRUCTION............................................... 7
21. EMINENT DOMAIN...................................................... 7
22. DEFAULTS AND REMEDIES............................................... 8
23. LANDLORD'S DEFAULT.................................................. 9
24. ASSIGNMENT AND SUBLETTING........................................... 9
25. SUBORDINATION....................................................... 9
26. ESTOPPEL CERTIFICATE................................................ 10
27. BUILDING PLANNING................................................... 10
28. RULES AND REGULATIONS............................................... 10
29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND LESSORS... 10
30. DEFINITION OF LANDLORD.............................................. 10
31. WAIVER ............................................................. 10
32. PARKING............................................................. 11
33. FORCE MAJEURE....................................................... 11
34. SIGNS............................................................... 11
35. LIMITATION ON LIABILITY............................................. 11
36. FINANCIAL STATEMENTS................................................ 11
37. QUIET ENJOYMENT..................................................... 11
38. MISCELLANEOUS....................................................... 12
39. EXECUTION OF LEASE.................................................. 12
</TABLE>
EXHIBITS:
A-I Floor Plan
A-II Site Plan
B (Section deleted and initialed by ME)
C Description of Landlord's Work
D Tenant's Insurance Requirements
E Definition of Operating Expenses
F Standards For Utilities and Services
G Estoppel Certificate
H Rules and Regulations
<PAGE> 3
STANDARD LEASE
[Short Form]
This STANDARD LEASE ("Lease") is entered into as of the 7th day of November,
1994, by and between KOLL CENTER IRVINE NUMBER TWO, a California limited
partnership ("Landlord"), and PRO BUSINESS, INC., a California corporation
("Tenant").
1. BASIC LEASE TERMS. For purposes of this Lease, the following terms have
the following definitions and meanings:
(a) LANDLORD'S ADDRESS (FOR NOTICES):
18500 Von Karman Avenue, Suite 150
Irvine, CA 92715 Attention: Asset Manager
or such other place as Landlord may from time to time designate by notice to
Tenant.
(b) TENANT'S ADDRESS (PREMISES):
18400 Von Karman Avenue, Suite 340
Irvine, CA 92715 Attention: Mitch Everton
(c) PREMISES: Suite(s) 340 of the building located at 18400 Von Karman
Avenue as shown on Exhibit "A-I" (the "Building"), which Premises contains
approximately 2,721 rentable square feet and which Building contains
approximately 218,922 rentable square feet. The Premises are located within the
development commonly known as Koll Center Irvine ("Development") shown on
Exhibit "A-II" in the City of Irvine ("City"), County of Orange ("County"),
State of California ("State").
(d) TENANT'S PERCENTAGE: 1.2429 %
(e) TERM: three (3) Lease Years and Zero (0) Months.
(f) COMMENCEMENT DATE: November 15, 1994.
(g) EXPIRATION DATE: November 14, 1997.
(h) MONTHLY BASE RENT: $ 4,081.50, subject to adjustment as otherwise
provided in this Lease. (Portion deleted and initialed by ME)
(i) OPERATING EXPENSE ALLOWANCE: That portion of Tenant's Percentage of
Operating Expenses as described in paragraph 6 below which Landlord has
included in Monthly Base Rent, which, for purposes of this Lease, will be an
amount equal to Tenant's Percentage of Operating Expenses for the 1995 calendar
year.
(j) SECURITY DEPOSIT: $4,489.65
(k) PERMITTED USE: General office use consistent with other Class "A"
office tenants located within Koll Center Irvine and no other use without the
express written consent of Landlord, which consent Landlord may withhold in its
sole and absolute discretion.
(l) PARKING: Subject to the terms and conditions of Paragraph 32 below and
the Rules and Regulations regarding parking contained in Exhibit "H" attached
hereto, Tenant shall be entitled to four (4) unreserved employee parking spaces
at $30.00 per space per month, four (4) additional unreserved parking spaces at
$30.00 per space per month commencing February 1, 1995, and an additional two
(2) unreserved parking spaces at $30.00 per space per month commencing May 1,
1995.
(m) BROKER(S): Lee & Associates Commercial Real Estate Services, Inc.
(n) GUARANTOR(S): N/A
(o) INTEREST RATE: The greater of ten percent (10%) per annum or two
percent (2%) in excess of the prime lending or reference rate of Wells Fargo
Bank N.A. or any successor bank in effect on the twenty-fifth (25th) day of the
calendar month immediately prior to the event giving rise to the Interest Rate
imposition; provided, however, the Interest Rate will in no event exceed the
maximum interest rate permitted to be charged by applicable law.
(p) EXHIBITS: "A-1" through "H-3", inclusive (excluding Exhibit "B") which
Exhibits are attached to this Lease and incorporated herein by this reference.
This Paragraph 1 represents a summary of the basic terms and definitions of
this Lease. In the event of any inconsistency between the terms contained in
this Paragraph 1 and any specific provision of this Lease, the terms of the more
specific provision shall prevail.
<PAGE> 4
2. PREMISES AND COMMON AREAS.
(a) PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the Premises upon and subject to the terms, covenants and conditions
contained in this Lease to be performed by each party.
(b) TENANT'S USE OF COMMON AREAS. During the Term of this Lease, Tenant shall
have the non-exclusive right to use in common with Landlord and all parties
conducting business in the Development, subject to the terms of this Lease, the
Rules and Regulations referenced in Paragraph 28 below and all covenants,
conditions and restrictions now or hereafter affecting the Development, the
following "Common Areas": all common entrances, hallways, lobbies, public
restrooms, elevators, stairways and accessways, if any, loading docks, ramps,
drives and platforms and any passageways and serviceways thereto, and the common
pipes, conduits, wires and appurtenant equipment within the Building which serve
the Premises, the parking facilities of the Development, loading and unloading
areas, trash areas, roadways, sidewalks, walkways, parkways, driveways,
landscaped areas, plaza areas, fountains and similar areas and facilities
situated within the Development which are not reserved for the exclusive use of
any other parties.
(c) LANDLORD'S RESERVATION OF RIGHTS. Provided Tenant's use of and access to the
Premises is not interfered with in an unreasonable manner, Landlord reserves for
itself and for all other owner(s) and operator(s) of the Common Areas and the
balance of the Development, the right from time to time to: (i) install, use,
maintain, repair, replace and relocate pipes, ducts, conduits, wires and
appurtenant meters and equipment above the ceiling surfaces, below the floor
surfaces, within the walls and in the central core areas of the Building; (ii)
make changes to the design and layout of the Development, including, without
limitation, changes to buildings, driveways, entrances, loading and unloading
areas, direction of traffic, landscaped areas and walkways, parking spaces and
parking areas; and (iii) use or close temporarily the Common Areas, and/or
other portions of the Development while engaged in making improvements, repairs
or alterations to the Building, the Development, or any portion thereof.
3. TERM. The term of this Lease ("Term") will be for the period designated in
Subparagraph 1(e), commencing on the Commencement Date, and ending on the
Expiration Date. Each consecutive twelve (12) month period of the Term of this
Lease, commencing on the Commencement Date, will be referred to herein as a
"Lease Year".
4. POSSESSION.
(a) DELIVERY OF POSSESSION. Landlord will deliver possession of the Premises to
Tenant in its current "as-is" condition with the addition of only those items of
work, if any, described on Exhibit "C" to be completed by Landlord at Landlord's
cost on or before the Commencement Date. If, for any reason, Landlord cannot
deliver possession of the Premises to Tenant on the Commencement Date, this
Lease will not be void or voidable, nor will Landlord be liable to Tenant for
any loss or damage resulting from such delay, but in such event, the
Commencement Date and Tenant's obligation to pay rent will not commence until
Landlord delivers possession to Tenant. If the delay in possession is caused by
Tenant, then the Term and Tenant's obligation to pay rent will commence as of
the Commencement Date even though Tenant does not yet have possession.
Notwithstanding the foregoing, Landlord will not be obligated to deliver
possession of the Premises to Tenant until Landlord has received from Tenant all
of the following: (i) a copy of this Lease fully executed by Tenant and the
guaranty of Tenant's obligations under this Lease, if any, executed by the
Guarantor(s); (ii) the Security Deposit and the first installment of Monthly
Base Rent; and (iii) copies of policies of insurance or certificates thereof as
required under Paragraph 19 of this Lease.
(b) CONDITION OF PREMISES. By taking possession of the Premises, Tenant will be
deemed to have acknowledged that there are no additional items needing work or
repair by Landlord. Tenant acknowledges that neither Landlord nor any agent of
Landlord has made any representation or warranty with respect to the Premises,
the Building, the Development or any portions thereof or with respect to the
suitability of same for the conduct of Tenant's business and Tenant further
acknowledges that Landlord will have no obligation to construct or complete any
additional buildings or improvements within the Development.
5. RENT.
(a) MONTHLY BASE RENT. Tenant agrees to pay Landlord the Monthly Base Rent for
the Premises (subject to adjustment as hereinafter provided) in advance on the
first day of each calendar month during the Term without prior notice or demand,
except that Tenant agrees to pay the Monthly Base Rent for the first month of
the Term directly to Landlord concurrently with Tenant's delivery of the
executed Lease to Landlord. All rent must be paid to Landlord, without any
deduction or offset, in lawful money of the United States of America, at the
address designated by Landlord or to such other person or at such other place as
Landlord may from time to time designate in writing. Monthly Base Rent will be
adjusted during the Term of this Lease as provided in Exhibit "B".
(b) ADDITIONAL RENT. All amounts and charges to be paid by Tenant hereunder,
including, without limitation, payments for Operating Expenses, insurance,
repairs and parking, will be considered additional rent for purposes of this
Lease, and "rent" as used in this Lease will include all such additional rent
unless the context specifically or clearly implies that only Monthly Base Rent
is intended.
(c) LATE PAYMENTS. Late payments of Monthly Base Rent and/or any item of
additional rent will be subject to interest and a late charge as provided in
Subparagraph 22(f) below.
6. OPERATING EXPENSES.
(a) OPERATING EXPENSES. In addition to Monthly Base Rent, throughout the Term of
this Lease, Tenant agrees to pay Landlord as additional rent in accordance with
the terms of this Paragraph 6, Tenant's Percentage of Operating Expenses as
defined in Exhibit "E" attached hereto to the extent Tenant's Percentage of
Operating Expenses exceeds Tenant's Operating Expense Allowance.
(b) ESTIMATE STATEMENT. Prior to the Commencement Date and on or about March 1st
of each subsequent calendar year during the Term of this Lease, Landlord will
endeavor to deliver to Tenant a statement ("Estimate Statement") wherein
Landlord will estimate Tenant's Percentage of Operating Expenses for the then
current calendar year. If the estimate of Tenant's Percentage of Operating
Expenses in the Estimate Statement exceeds Tenant's Operating Expense Allowance,
Tenant agrees to pay Landlord, as "additional rent", one-twelfth (1/12th) of
such excess each month thereafter, beginning with the next installment of rent
due, until such time as Landlord issues a revised Estimate Statement or the
Estimate Statement for the succeeding calendar year; except that, concurrently
with the regular monthly rent payment next due following the receipt of each
such Estimate Statement, Tenant agrees to pay Landlord an amount equal to one
monthly installment of such excess (less any applicable Operating Expenses
already paid) multiplied by the number of months from January, in the current
calendar year, to the month of such rent payment next due, all months inclusive.
If at any time during the Term of this Lease, but not more often than quarterly,
Landlord reasonably determines that Tenant's Percentage of Operating Expenses
for the
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<PAGE> 5
current calendar year will be greater than the amount set forth in the then
current Estimate Statement, Landlord may issue a revised Estimate Statement and
Tenant agrees to pay Landlord, within ten (10) days of receipt of the revised
Estimate Statement, the difference between the amount owed by Tenant under such
revised Estimate Statement and the amount owed by Tenant under the original
Estimate Statement for the portion of the then current calendar year which has
expired. Thereafter Tenant agrees to pay Tenant's Percentage of Operating
Expenses based on such revised Estimate Statement until Tenant receives the next
calendar year's Estimate Statement or a new revised Estimate Statement for the
current calendar year. In the event Tenant's Percentage of Operating Expenses
for any calendar year is less than Tenant's Operating Expense Allowance, Tenant
will not be entitled to a credit against any rent, additional rent or Tenant's
Percentage of future Operating Expenses payable hereunder.
(c) ACTUAL STATEMENT. By March 1st of each calendar year during the Term of this
Lease, Landlord will also endeavor to deliver to Tenant a statement ("Actual
Statement") which states the actual Operating Expenses for the preceding
calendar year. If the Actual Statement reveals that Tenant's Percentage of the
actual Operating Expenses is more than the total Additional Rent paid by Tenant
for Operating Expenses on account of the preceding calendar year, Tenant agrees
to pay Landlord the difference in a lump sum within ten (10) days of receipt of
the Actual Statement. If the Actual Statement reveals that Tenant's Percentage
of the actual Operating Expenses is less than the Additional Rent paid by Tenant
for Operating Expenses on account of the preceding calendar year, Landlord will
credit any overpayment toward the next monthly installment(s) of Tenant's
Percentage of the Operating Expenses due under this Lease.
(d) MISCELLANEOUS. Any delay or failure by Landlord in delivering any Estimate
Statement or Actual Statement pursuant to this Paragraph 6 will not constitute a
waiver of its right to require an increase in rent nor will it relieve Tenant
of its obligations pursuant to this Paragraph 6, except that Tenant will not be
obligated to make any payments based on such Estimate Statement or Actual
Statement until ten (10) days after receipt of such Estimate Statement or Actual
Statement. Even though the Term has expired and Tenant has vacated the Premises,
when the final determination is made of Tenant's Percentage of the actual
Operating Expenses for the year in which this Lease terminates, Tenant agrees to
promptly pay any increase due over the estimated expenses paid and, conversely,
any overpayment made in the event said expenses decrease shall promptly be
rebated by Landlord to Tenant. Such obligation shall be a continuing one which
will survive the expiration or earlier termination of this Lease. Prior to the
expiration or sooner termination of the Lease Term and Landlord's acceptance of
Tenant's surrender of the Premises, Landlord will have the right to estimate the
actual Operating Expenses for the then current Lease Year and to collect from
Tenant prior to Tenant's surrender of the Premises, Tenant's Percentage of any
excess of such actual Operating Expenses over the estimated Operating Expenses
paid by Tenant in such Lease Year.
7. SECURITY DEPOSIT. Concurrently with Tenant's execution of this Lease, Tenant
will deposit with Landlord the Security Deposit designated in Subparagraph 1(j).
The Security Deposit will be held by Landlord as security for the full and
faithful performance by Tenant of all of the terms, covenants, and conditions of
this Lease to be kept and performed by Tenant during the Term hereof. The
Security Deposit is not, and may not be construed by Tenant to constitute, rent
for the last month or any portion thereof. If Tenant defaults with respect to
any provisions of this Lease including, but not limited to, the provisions
relating to the payment of rent or additional rent, Landlord may (but will not
be required to) use, apply or retain all or any part of the Security Deposit for
the payment of any rent or any other sum in default, or for the payment of any
other amount which Landlord may spend by reason of Tenant's default or to
compensate Landlord for any loss or damage which Landlord may suffer by reason
of Tenant's default. If any portion of the Security Deposit is so used or
applied, Tenant agrees, within ten (10) days after Landlord's written demand
therefor, to deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to its original amount and Tenant's failure to do so shall
constitute a default under this Lease. Landlord is not required to keep Tenant's
Security Deposit separate from its general funds, and Tenant is not entitled to
interest on such Security Deposit.
8. USE.
(a) TENANT'S USE OF THE PREMISES. The Premises may be used for the use or uses
set forth in Subparagraph 1(k) only, and Tenant will not use or permit the
Premises to be used for any other purpose without the prior written consent of
Landlord, which consent Landlord may withhold in its sole and absolute
discretion. Nothing in this Lease will be deemed to give Tenant any exclusive
right to such use in the Building or the Development.
(b) COMPLIANCE. At Tenant's sole cost and expense, Tenant agrees to procure,
maintain and hold available for Landlord's inspection, all governmental licenses
and permits required for the proper and lawful conduct of Tenant's business from
the Premises, if any. Tenant agrees not to use, alter or occupy the Premises or
allow the Premises to be used, altered or occupied in violation of, and Tenant,
at its sole cost and expense, agrees to use and occupy the Premises and cause
the Premises to be used and occupied in compliance with: (i) any and all laws,
statutes, zoning restrictions, ordinances, rules, regulations, orders and
rulings now or hereafter in force and any requirements of any insurer, insurance
authority or duly constituted public authority having jurisdiction over the
Premises, the Building or the Development now or hereafter in force, (ii) the
requirements of the Board of Fire Underwriters and any other similar body (iii)
the Certificate of Occupancy issued for the Building, and (iv) any recorded
covenants, conditions and restrictions and similar regulatory agreements, if
any, which affect the use, occupation or alteration of the Premises, the
Building and/or the Development. Tenant agrees to comply with the Rules and
Regulations referenced in Paragraph 28 below. Tenant agrees not to do or permit
anything to be done in or about the Premises which will in any manner obstruct
or interfere with the rights of other tenants or occupants of the Development,
or injure or unreasonably annoy them, or use or allow the Premises to be used
for any unlawful or unreasonably objectionable purpose. Tenant agrees not to
cause, maintain or permit any nuisance or waste in, on, under or about the
Premises or elsewhere within the Development.
(c) HAZARDOUS MATERIALS. Except for ordinary and general office supplies, such
as copier toner, liquid paper, glue, ink and common household cleaning materials
(some or all of which may constitute "Hazardous Materials" as defined in this
Lease), Tenant agrees not to cause or permit any Hazardous Materials to be
brought upon, stored, used, handled, generated, released or disposed of on, in,
under or about the Premises, the Building, the Common Areas or any other portion
of the Development by Tenant, its agents, employees, subtenants, assignees,
licensees, contractors or invitees (collectively, "Tenant's Parties"), without
the prior written consent of Landlord, which consent Landlord may withhold in
its sole and absolute discretion. Upon the expiration or sooner termination of
this Lease, Tenant agrees to promptly remove from the Premises, the Building and
the Development, at its sole cost and expense, any and all Hazardous Materials,
including any equipment or systems containing Hazardous Materials which are
installed, brought upon, stored, used, generated or released upon, in, under or
about the Premises, the Building and/or the Development or any portion thereof
by Tenant or any of Tenant's Parties. To the fullest extent permitted by law,
Tenant agrees to promptly indemnify, protect, defend and hold harmless Landlord
and Landlord's partners, officers, directors, employees, agents, successors and
assigns (collectively, "Landlord Indemnified Parties") from and against any and
all claims, damages, judgments, suits, causes of action, losses, liabilities,
penalties, fines, expenses and costs (including, without limitation, clean-up,
removal, remediation and restoration costs, sums paid in settlement of claims,
attorneys' fees, consultant fees and expert fees and court costs) which arise or
result from the presence of Hazardous Materials on, in, under or about the
Premises, the Building or any other portion of the Development and which are
caused or permitted by Tenant or
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<PAGE> 6
any of Tenant's Parties. Tenant agrees to promptly notify Landlord of any
release of Hazardous Materials at the Premises, the Building or any other
portion of the Development which Tenant becomes aware of during the Term of this
Lease, whether caused by Tenant or any other persons or entities. In the event
of any release of Hazardous Materials caused or permitted by Tenant or any of
Tenant's Parties, Landlord shall have the right, but not the obligation, to
cause Tenant to immediately take all steps Landlord deems necessary or
appropriate to remediate such release and prevent any similar future release to
the satisfaction of Landlord and Landlord's mortgagee(s). As used in this Lease,
the term "Hazardous Materials" shall mean and include any hazardous or toxic
materials, substances or wastes as now or hereafter designated under any law,
statute, ordinance, rule, regulation, order or ruling of any agency of the
State, the United States Government or any local governmental authority,
including, without limitation, asbestos, petroleum, petroleum hydrocarbons and
petroleum based products, urea formaldehyde foam insulation, polychlorinated
biphenyls ("PCBs"), and freon and other chlorofluorocarbons. The provisions of
this Subparagraph 8(c) will survive the expiration or earlier termination of
this Lease.
9. NOTICES. Any notice required or permitted to be given hereunder must be in
writing and may be given by personal delivery (including delivery by overnight
courier or an express mailing service) or by mail, if sent by registered or
certified mail. Notices to Tenant shall be sufficient if delivered to Tenant at
the Premises and notices to Landlord shall be sufficient if delivered to
Landlord at the address designated in Subparagraph l(a). Either party may
specify a different address for notice purposes by written notice to the other,
except that the Landlord may in any event use the Premises as Tenant's address
for notice purposes.
10. BROKERS. The parties acknowledge that the broker(s) who negotiated this
Lease are stated in Subparagraph 1(m). Landlord and Tenant each agree to
promptly indemnify, protect, defend and hold harmless the other from and against
any and all claims, damages, judgments, suits, causes of action, losses,
liabilities, penalties, fines, expenses and costs (including attorneys' fees and
court costs) resulting from any breach by the indemnifying party of the
foregoing representation, including, without limitation, any claims that may be
asserted by any broker, agent or finder undisclosed by the indemnifying party.
The foregoing mutual indemnity shall survive the expiration or earlier
termination of this Lease.
11. SURRENDER; HOLDING OVER.
(a) SURRENDER. The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, shall not constitute a merger, and shall, at the
option of Landlord, operate as an assignment to Landlord of any or all subleases
or subtenancies. Upon the expiration or earlier termination of this Lease,
Tenant agrees to peaceably surrender the Premises to Landlord broom clean and in
a state of good order, repair and condition, ordinary wear and tear and casualty
damage excepted, with all of Tenant's personal property and alterations removed
from the Premises to the extent required under Paragraph 13 and all damage
caused by such removal repaired as required by Paragraph 13. The delivery of
keys to any employee of Landlord or to Landlord's agent or any employee thereof
alone will not be sufficient to constitute a termination of this Lease or a
surrender of the Premises.
(b) HOLDING OVER. If Tenant holds over after the expiration or earlier
termination of the Term, Landlord may, at its option, treat Tenant as a tenant
at sufferance only, and such continued occupancy by Tenant shall be subject to
all of the terms, covenants and conditions of this Lease, so far as applicable,
except that the Monthly Base Rent for any such holdover period shall be equal to
one hundred fifty percent (150%) of the Monthly Base Rent in effect under this
Lease immediately prior to such holdover. Acceptance by Landlord of rent after
such expiration or earlier termination will not result in a renewal of this
Lease. If Tenant fails to surrender the Premises upon the expiration of this
Lease in accordance with the terms of this Paragraph 11 despite demand to do so
by Landlord, Tenant agrees to promptly indemnify, protect, defend and hold
Landlord harmless from all claims, damages, judgments, suits, causes of action,
losses, liabilities, penalties, fines, expenses and costs (including attorneys'
fees and costs), including, without limitation, costs and expenses incurred by
Landlord in returning the Premises to the condition in which Tenant was to
surrender it and claims made by any succeeding tenant founded on or resulting
from Tenant's failure to surrender the Premises. The provisions of this
Subparagraph 11(b) will survive the expiration or earlier termination of this
Lease.
12. TAXES ON TENANT'S PROPERTY. Tenant agrees to pay before delinquency, all
taxes and assessments (real and personal) levied against Tenant's business
operations or any personal property, improvements, alterations, trade fixtures
or merchandise placed by Tenant in or about the Premises.
13. ALTERATIONS. Tenant shall not make any alterations to the Premises or any
other aspect of the Development, without Landlord's prior written consent, which
consent Landlord may withhold in its reasonable but subjective discretion. All
permitted alterations must be performed in compliance with Landlord's standard
rules and regulations regarding alterations. All alterations will become the
property of Landlord and will remain upon and be surrendered with the Premises
at the end of the Term of this Lease; provided, however, Landlord may require
Tenant to remove any or all alterations at the expiration or earlier termination
of this Lease. If Tenant fails to remove by the expiration or earlier
termination of this Lease all of its personal property, or any alterations
identified by Landlord for removal, Landlord may, at its option, treat such
failure as a hold-over pursuant to Subparagraph 11 (b) above, and/or Landlord
may (without liability to Tenant for loss thereof) treat such personal property
and/or alterations as abandoned and, at Tenant's sole cost and in addition to
Landlord's other rights and remedies under this Lease, at law or in equity: (a)
remove and store such items; and/or (b) upon ten (10) days' prior notice to
Tenant, sell, discard or otherwise dispose of all or any such items at private
or public sale for such price as Landlord may obtain or by other commercially
reasonable means. Tenant shall be liable for all costs of disposition of
Tenant's abandoned property and Landlord shall have no liability to Tenant with
respect to any such abandoned property. Landlord agrees to apply the proceeds of
any sale of any such property to any amounts due to Landlord under this Lease
from Tenant (including Landlord's attorneys' fees and other costs incurred in
the removal, storage and/or sale of such items), with any remainder to be paid
to Tenant.
14. REPAIRS.
(a) LANDLORD'S OBLIGATIONS. Landlord agrees to repair and maintain the
structural portions of the Building and the plumbing, heating, ventilating, air
conditioning, elevator and electrical systems installed or furnished by
Landlord, unless such maintenance and repairs are (i) attributable to items
installed in Tenant's Premises which are above standard interior improvements
(such as, for example, custom lighting, special HVAC and/or electrical panels or
systems, kitchen or restroom facilities and appliances constructed or installed
within Tenant's Premises) or (ii) caused in part or in whole by the act, neglect
or omission of any duty by Tenant, its agents, servants, employees or invitees,
in which case Tenant will pay to Landlord, as additional rent, the reasonable
cost of such maintenance and repairs. Except as provided in this Subparagraph
14(a), Landlord has no obligation to alter, remodel, improve, repair, decorate
or paint the Premises or any part thereof. Landlord will not be liable for any
failure to make any such repairs or to perform any maintenance unless such
failure shall persist for an unreasonable time after written notice of the need
of such repairs or maintenance is given to Landlord by Tenant. Except as
provided in Paragraph 20, Tenant will not be entitled to any abatement of rent
and Landlord will not have any liability by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any
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<PAGE> 7
portion of the Building or the Premises or in or to fixtures, appurtenances and
equipment therein. Tenant waives the right to make repairs at Landlord's expense
under any law, statute, ordinance, rule, regulation, order or ruling (including,
without limitation, to the extent the Premises are located in California, the
provisions of California Civil Code Sections 1941 and 1942 and any successor
statutes or laws of a similar nature).
(b) TENANT'S OBLIGATIONS. Tenant agrees to keep, maintain and preserve the
Premises in a state of condition and repair consistent with the Building and,
when and if needed, at Tenant's sole cost and expense, to make all repairs to
the Premises and every part thereof. Any such maintenance and repairs will be
performed by Landlord's contractor, or at Landlord's option, by such contractor
or contractors as Tenant may choose from an approved list to be submitted by
Landlord. Tenant agrees to pay all costs and expenses incurred in such
maintenance and repair within seven (7) days after billing by Landlord or such
contractor or contractors. Tenant agrees to cause any mechanics' liens or other
liens arising as a result of work performed by Tenant or at Tenant's direction
to be eliminated as provided in Paragraph 15 below. If Tenant refuses or
neglects to repair and maintain the Premises properly as required hereunder to
the reasonable satisfaction of Landlord, Landlord, at any time following ten
(10) days from the date on which Landlord makes a written demand on Tenant to
effect such repair and maintenance, may enter upon the Premises and make such
repairs and/or maintenance, and upon completion thereof, Tenant agrees to pay
to Landlord as additional rent, Landlord's costs for making such repairs plus an
amount not to exceed ten percent (10%) of such costs for overhead, within ten
(10) days of receipt from Landlord of a written itemized bill therefor. Any
amounts not reimbursed by Tenant within such ten (10) day period will bear
interest at the Interest Rate until paid by Tenant.
15. LIENS. Tenant agrees not to permit any mechanic's, materialmen's or other
liens to be filed against all or any part of the Development, the Building or
the Premises, nor against Tenant's leasehold interest in the Premises, by reason
of or in connection with any repairs, alterations, improvements or other work
contracted for or undertaken by Tenant or any other act or omission of Tenant or
Tenant's agents, employees, contractors, licensees or invitees. At Landlord's
request, Tenant agrees to provide Landlord with enforceable, conditional and
final lien releases (or other evidence reasonably requested by Landlord to
demonstrate protection from liens) from all persons furnishing labor and/or
materials at the Premises. Landlord will have the right at all reasonable times
to post on the Premises and record any notices of non-responsibility which it
deems necessary for protection from such liens. If any such liens are filed,
Tenant will, at its sole cost and expense, promptly cause such liens to be
released of record or bonded so that it no longer affects title to the
Development, the Building or the Premises. If Tenant fails to cause any such
liens to be so released or bonded within ten (10) days after filing thereof,
such failure will be deemed a material breach by Tenant under this Lease without
the benefit of any additional notice or cure period described in Paragraph 22
below, and Landlord may, without waiving its rights and remedies based on such
breach, and without releasing Tenant from any of its obligations, cause such
liens to be released by any means it shall deem proper, including payment in
satisfaction of the claims giving rise to such liens. Tenant agrees to pay to
Landlord within ten (10) days after receipt of invoice from Landlord, any sum
paid by Landlord to remove such liens, together with interest at the Interest
Rate from the date of such payment by Landlord.
16. ENTRY BY LANDLORD. Landlord and its employees and agents will at all
reasonable times have the right to enter the Premises to inspect the same, to
supply janitorial service and any other service to be provided by Landlord to
Tenant hereunder, to show the Premises to prospective purchasers or tenants, to
post notices of nonresponsibility, and/or to repair the Premises as permitted or
required by this Lease. In exercising such entry rights, Landlord will endeavor
to minimize, as reasonably practicable, the interference with Tenant's business,
and will provide Tenant with reasonable advance notice of any such entry (except
in emergency situations). Landlord will at all times have and retain a key with
which to unlock all doors in the Premises, excluding Tenant's vaults and safes.
Except in the case of the gross negligence or willful misconduct of Landlord,
any entry to the Premises obtained by Landlord will not be construed or deemed
to be a forcible or unlawful entry into the Premises, or an eviction of Tenant
from the Premises and Landlord will not be liable to Tenant for any damages or
losses resulting from any such entry.
17. UTILITIES AND SERVICES. Throughout the Term of the Lease so long as the
Premises are occupied, Landlord agrees to furnish or cause to be furnished to
the Premises the utilities and services described in the Standards for Utilities
and Services attached hereto as Exhibit "F". Landlord will not be liable to
Tenant for any failure to furnish any of the foregoing utilities and services if
such failure is caused by all or any of the following: (i) accident, breakage or
repairs; (ii) strikes, lockouts or other labor disturbance or labor dispute of
any character; (iii) governmental regulation, moratorium or other governmental
action or inaction; (iv) inability despite the exercise of reasonable diligence
to obtain electricity, water or fuel; or (v) any other cause beyond Landlord's
reasonable control. In addition, in the event of any stoppage or interruption of
services or utilities, Tenant shall not be entitled to any abatement or
reduction of rent (except as expressly provided in Subparagraphs 20(f) or 21
(b) if such failure results from a damage or taking described therein), no
eviction of Tenant will result from such failure and Tenant will not be relieved
from the performance of any covenant or agreement in this Lease because of such
failure. In the event of any failure, stoppage or interruption thereof, Landlord
agrees to diligently attempt to resume service promptly. If Tenant requires or
utilizes more water or electrical power than is considered reasonable or normal
by Landlord, Landlord may at its option require Tenant to pay, as additional
rent, the cost, as fairly determined by Landlord, incurred by such extraordinary
usage and/or Landlord may install separate meter(s) for the Premises, at
Tenant's sole expense, and Tenant agrees thereafter to pay all charges of the
utility providing service and Landlord will make an appropriate adjustment to
Tenant's Operating Expenses calculation to account for the fact Tenant is
directly paying such metered charges, provided Tenant will remain obligated to
pay its proportionate share of Operating Expenses subject to such adjustment.
18. ASSUMPTION OF RISK AND INDEMNIFICATION.
(a) ASSUMPTION OF RISK. Tenant, as a material part of the consideration to
Landlord, agrees that neither Landlord nor any Landlord Indemnified Parties (as
defined in Subparagraph 8(c) above) will be liable to Tenant for, and Tenant
expressly assumes the risk of and waives any and all claims it may have against
Landlord or any Landlord Indemnified Parties with respect to, (i) any and all
damage to property or injury to persons in, upon or about the Premises, the
Building or the Development resulting from any act or omission (except for the
grossly negligent or intentionally willful act or omission of Landlord or its
agent or employees), (ii) any such damage caused by other tenants or persons in
or about the Building or the Development, or caused by quasi-public work, (iii)
any damage to property entrusted to employees of the Building, (iv) any loss of
or damage to property by theft or otherwise, or (v) any injury or damage to
persons or property resulting from any casualty, explosion, falling plaster or
other masonry or glass, steam, gas, electricity, water or rain which may leak
from any part of the Building or any other portion of the Development or from
the pipes, appliances or plumbing works therein or from the roof, street or
subsurface or from any other place, or resulting from dampness. Neither Landlord
nor any Landlord Indemnified Parties will be liable for consequential damages
arising out of any loss of the use of the Premises or any equipment or
facilities therein by Tenant or any Tenant Parties or for interference with
light. Tenant agrees to give prompt notice to Landlord in case of fire or
accidents in the Premises or the Building, or of defects therein or in the
fixtures or equipment.
(b) INDEMNIFICATION. Tenant will be liable for, and agrees to the maximum extent
permissible under applicable law, to promptly indemnify, protect, defend and
hold harmless Landlord and all Landlord Indemnified Parties from and against,
any and all claims,
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damages, judgments, suits, causes of action, losses, liabilities, penalties,
fines, expenses and costs, including attorneys' fees and court costs
(collectively, "Indemnified Claims"), arising or resulting from (i) any act or
omission of Tenant or any Tenant Parties (as defined in Subparagraph 8(c)
above); (ii) the use of the Premises and Common Areas and conduct of Tenant's
business by Tenant or any Tenant Parties, or any other activity, work or thing
done, permitted or suffered by Tenant or any Tenant Parties, in or about the
Premises, the Building or elsewhere within the Development; and/or (iii) any
default by Tenant of any obligations on Tenant's part to be performed under the
terms of this Lease. In case any action or proceeding is brought against
Landlord or any Landlord Indemnified Parties by reason of any such Indemnified
Claims, Tenant, upon notice from Landlord, agrees to promptly defend the same at
Tenant's sole cost and expense by counsel approved in writing by Landlord, which
approval Landlord will not unreasonably withhold.
(c) SURVIVAL; NO RELEASE OF INSURERS. Tenant's indemnification obligations under
Subparagraph 18(b) will survive the expiration or earlier termination of this
Lease. Tenant's covenants, agreements and indemnification obligation in
Subparagraphs 18(a) and 18(b) above, are not intended to and will not relieve
any insurance carrier of its obligations under policies required to be carried
by Tenant pursuant to the provisions of this Lease.
19. INSURANCE.
(a) TENANT'S INSURANCE. On or before the earlier to occur of (i) the
Commencement Date, or (ii) the date Tenant commences any work of any type in the
Premises pursuant to this Lease (which may be prior to the Commencement Date),
and continuing throughout the entire Term hereof and any other period of
occupancy, Tenant agrees to keep in full force and effect, at its sole cost and
expense, the insurance specified on Exhibit "D" attached hereto. Landlord
reserves the right to require any other form or forms of insurance as Tenant or
Landlord or any mortgagees of Landlord may reasonably require from time to time
in form, in amounts, and for insurance risks against which, a prudent tenant
would protect itself, but only to the extent coverage for such risks and amounts
are available in the insurance market at commercially acceptable rates. Landlord
makes no representation that the limits of liability required to be carried by
Tenant under the terms of this Lease are adequate to protect Tenant's interests
and Tenant should obtain such additional insurance or increased liability limits
as Tenant deems appropriate.
(b) SUPPLEMENTAL TENANT INSURANCE REQUIREMENTS. All policies must be in a form
reasonably satisfactory to Landlord and issued by an insurer admitted to do
business in the state in which the Building is located. All policies must be
issued by insurers with a policyholder rating of "A" and a financial rating of
"X" in the most recent version of Best's Key Rating Guide. All policies must
contain a requirement to notify Landlord (and Landlord's property manager and
any mortgagees or ground lessors of Landlord who are named as additional
insureds, if any) in writing not less than thirty (30) days prior to any
material change, reduction in coverage, cancellation or other termination
thereof. Tenant agrees to deliver to Landlord, as soon as practicable after
placing the required insurance, but in any event within the time frame specified
in Subparagraph 19(a) above, certificate(s) of insurance and/or if required by
Landlord, certified copies of each policy evidencing the existence of such
insurance and Tenant's compliance with the provisions of this Paragraph 19.
Tenant agrees to cause replacement policies or certificates to be delivered to
Landlord not less than thirty (30) days prior to the expiration of any such
policy or policies. If any such initial or replacement policies or certificates
are not furnished within the time(s) specified herein, Landlord will have the
right, but not the obligation, to obtain such insurance as Landlord deems
necessary to protect Landlord's interests at Tenant's expense. If Landlord
obtains any insurance that is the responsibility of Tenant under this Paragraph
19, Landlord agrees to deliver to Tenant a written statement setting forth the
cost of any such insurance and showing in reasonable detail the manner in which
it has been computed and Tenant agrees to promptly reimburse Landlord for such
costs as additional rent. General Liability and Automobile Liability policies
under Paragraphs 1 and 5 of Exhibit "D" attached hereto must name Landlord and
Landlord's property manager (and at Landlord's request, Landlord's mortgagees
and ground lessors of which Tenant has been informed in writing) as additional
insureds and must also contain a provision that the insurance afforded by such
policy is primary insurance and any insurance carried by Landlord and Landlord's
property manager or Landlord's mortgagees or ground lessors, if any, will be
excess over and non-contributing with Tenant's insurance.
(c) TENANT'S USE. Tenant will not keep, use, sell or offer for sale in or upon
the Premises any article which may be prohibited by any insurance policy
periodically in force covering the Building or the Development Common Areas. If
Tenant's occupancy or business in, or on, the Premises, whether or not Landlord
has consented to the same, results in any increase in premiums for the insurance
periodically carried by Landlord with respect to the Building or the Development
or results in the need for Landlord to maintain special or additional insurance,
Tenant agrees to pay Landlord the cost of any such increase in premiums or
special or additional coverage as additional rent within ten (10) days after
being billed therefor by Landlord. Tenant agrees to promptly comply with all
reasonable requirements of the insurance authority or any present or future
insurer relating to the Premises.
(d) CANCELLATION OF LANDLORD'S POLICIES. If any of Landlord's insurance policies
are canceled or cancellation is threatened or the coverage reduced or threatened
to be reduced in any way because of the use of the Premises or any part thereof
by Tenant or any assignee or subtenant of Tenant or by anyone Tenant permits on
the Premises and, if Tenant fails to remedy the condition giving rise to such
cancellation, threatened cancellation, reduction of coverage, threatened
reduction of coverage, increase in premiums, or threatened increase in premiums,
within forty-eight (48) hours after notice thereof, Tenant will be deemed to be
in material default of this Lease and Landlord may, at its option, either
terminate this Lease or enter upon the Premises and attempt to remedy such
condition, and Tenant shall promptly pay Landlord the reasonable costs of such
remedy as additional rent. If Landlord is unable, or elects not to remedy such
condition, then Landlord will have all of the remedies provided for in this
Lease in the event of a default by Tenant.
(e) WAIVER OF SUBROGATION. Tenant's property insurance shall contain a clause
whereby the insurer waives all rights of recovery by way of subrogation against
Landlord. Tenant shall also obtain and furnish evidence to Landlord of the
waiver by Tenant's worker's compensation insurance carrier of all rights of
recovery by way of subrogation against Landlord.
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20. DAMAGE OR DESTRUCTION
(a) PARTIAL DESTRUCTION. If the Premises or the Building are damaged by fire or
other casualty to an extent not exceeding twenty-five percent (25%) of the full
replacement cost thereof, and Landlord's contractor reasonably estimates in a
writing delivered to Landlord and Tenant that the damage thereto may be
repaired, reconstructed or restored to substantially its condition immediately
prior to such damage within one hundred eighty (180) days from the date of such
casualty, and Landlord will receive insurance proceeds sufficient to cover the
costs of such repairs, reconstruction and restoration (including proceeds from
Tenant and/or Tenant's insurance which Tenant is required to deliver to Landlord
pursuant to Subparagraph 20(e) below to cover Tenant's obligation for the costs
of repair, reconstruction and restoration of any portion of the tenant
improvements and any alterations for which Tenant is responsible under this
Lease), then Landlord agrees to commence and proceed diligently with the work of
repair, reconstruction and restoration and this Lease will continue in full
force and effect.
(b) SUBSTANTIAL DESTRUCTION. Any damage or destruction to the Premises or the
Building which Landlord is not obligated to repair pursuant to Subparagraph
20(a) above will be deemed a substantial destruction. In the event of a
substantial destruction, Landlord may elect to either: (i) repair, reconstruct
and restore the portion of the Building or the Premises damaged by such
casualty, in which case this Lease will continue in full force and effect,
subject to Tenant's termination right contained in Subparagraph 20(d) below; or
(ii) terminate this Lease effective as of the date which is thirty (30) days
after Tenant's receipt of Landlord's election to so terminate.
(c) NOTICE. Under any of the conditions of Subparagraph 20(a) or (b) above,
Landlord agrees to give written notice to Tenant of its intention to repair or
terminate, as permitted in such paragraphs, within the earlier of sixty (60)
days after the occurrence of such casualty, or fifteen (15) days after
Landlord's receipt of the estimate from Landlord's contractor (the applicable
time period to be referred to herein as the "Notice Period").
(d) TERMINATION RIGHTS. If Landlord elects to repair, reconstruct and restore
pursuant to Subparagraph 20(b)(i) hereinabove, and if Landlord's contractor
estimates that as a result of such damage, Tenant cannot be given reasonable use
of and access to the Premises within three hundred sixty-five (365) days after
the date of such damage, then either Landlord or Tenant may terminate this Lease
effective upon delivery of written notice to the other within ten (10) days
after Landlord delivers notice to Tenant of its election to so repair,
reconstruct or restore.
(e) TENANT'S COSTS AND INSURANCE PROCEEDS. In the event of any damage or
destruction of all or any part of the Premises, Tenant agrees to immediately (i)
notify Landlord thereof, and (ii) deliver to Landlord all property insurance
proceeds received by Tenant with respect to any tenant improvements installed by
or at the cost of Tenant and any alterations, but excluding proceeds for
Tenant's furniture, fixtures, equipment and other personal property, whether or
not this Lease is terminated as permitted in this Paragraph 20, and Tenant
hereby assigns to Landlord all rights to receive such insurance proceeds. If,
for any reason (including Tenant's failure to obtain insurance for the full
replacement cost of any Tenant Improvements installed by or at the cost of
Tenant and any alterations from any and all casualties), Tenant fails to receive
insurance proceeds covering the full replacement cost of any such tenant
improvements and any alterations which are damaged, Tenant will be deemed to
have self-insured the replacement cost of such items, and upon any damage or
destruction thereto, Tenant agrees to immediately pay to Landlord the full
replacement cost of such items, less any insurance proceeds actually received by
Landlord from Landlord's or Tenant's insurance with respect to such items.
(f) ABATEMENT OF RENT. In the event of any damage, repair, reconstruction and/or
restoration described in this Paragraph 20, rent will be abated or reduced, as
the case may be, from the date of such casualty, in proportion to the degree to
which Tenant's use of the Premises is impaired during such period of repair
until such use is restored. Except for abatement of rent as provided
hereinabove, Tenant will not be entitled to any compensation or damages for loss
of, or interference with, Tenant's business or use or access of all or any part
of the Premises or for lost profits or any other consequential damages of any
kind or nature, which result from any such damage, repair, reconstruction or
restoration.
(g) DAMAGE NEAR END OF TERM. Landlord and Tenant shall each have the right to
terminate this Lease if any damage to the Premises or the Building occurs during
the last twelve (12) months of the Term of this Lease where Landlord's
contractor estimates in a writing delivered to Landlord and Tenant that the
repair, reconstruction or restoration of such damage cannot be completed within
sixty (60) days after the date of such casualty. If either party desires to
terminate this Lease under this Subparagraph (h), it shall provide written
notice to the other party of such election within ten (10) days after receipt of
Landlord's contractor's repair estimates.
(h) WAIVER OF TERMINATION RIGHT. Landlord and Tenant agree that the foregoing
provisions of this Paragraph 20 are to govern their respective rights and
obligations in the event of any damage or destruction and supersede and are in
lieu of the provisions of any applicable law, statute, ordinance, rule,
regulation, order or ruling now or hereafter in force which provide remedies for
damage or destruction of leased premises (including, without limitation, to the
extent the Premises are located in California, the provisions of California
Civil Code Section 1932, Subsection 2, and Section 1933, Subsection 4 and any
successor statute or laws of a similar nature).
21. EMINENT DOMAIN.
(a) SUBSTANTIAL TAKING. If the whole of the Premises, or such part thereof as
shall substantially interfere with Tenant's use and occupancy of the Premises,
as contemplated by this Lease, is taken for any public or quasi-public purpose
by any lawful power or authority by exercise of the right of appropriation,
condemnation or eminent domain, or sold to prevent such taking, either party
will have the right to terminate this Lease effective as of the date possession
is required to be surrendered to such authority.
(b) PARTIAL TAKING; ABATEMENT OF RENT. In the event of a taking of a portion of
the Premises which does not substantially interfere with Tenant's use and
occupancy of the Premises, then, neither party will have the right to terminate
this Lease and Landlord will thereafter proceed to make a functional unit of the
remaining portion of the Premises (but only to the extent Landlord receives
proceeds therefor from the condemning authority), and rent will be abated with
respect to the part of the Premises which Tenant is deprived of on account of
such taking. Notwithstanding the immediately preceding sentence to the contrary,
if any part of the Building or the Development is taken (whether or not such
taking substantially interferes with Tenant's use of the Premises), Landlord may
terminate this Lease upon thirty (30) days' prior written notice to Tenant if
Landlord also terminates the leases of the other tenants of the Building which
are leasing comparably sized space for comparable lease terms.
(c) CONDEMNATION AWARD. In connection with any taking of the Premises or the
Building, Landlord will be entitled to receive the entire amount of any award
which may be made or given in such taking or condemnation, without deduction or
apportionment for any estate or interest of Tenant, it being expressly
understood and agreed by Tenant that no portion of any such award will be
allowed or paid to Tenant for any so-called bonus or excess value of this Lease,
and such bonus or excess value will be the sole property of Landlord.
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<PAGE> 10
Tenant agrees not to assert any claim against Landlord or the taking authority
for any compensation because of such taking (including any claim for bonus or
excess value of this Lease); provided, however, if any portion of the Premises
is taken, Tenant will have the right to recover from the condemning authority
(but not from Landlord) any compensation as may be separately awarded or
recoverable by Tenant for the taking of Tenant's furniture, fixtures, equipment
and other personal property within the Premises, for Tenant's relocation
expenses, and for any loss of goodwill or other damage to Tenant's business by
reason of such taking.
(d) TEMPORARY TAKING. In the event of taking of the Premises or any part thereof
for temporary use, (i) this Lease will remain unaffected thereby and rent will
not abate, and (ii) Tenant will be entitled to receive such portion or portions
of any award made for such use with respect to the period of the taking which is
within the Term, provided that if such taking remains in force at the expiration
or earlier termination of this Lease, Tenant will then pay to Landlord a sum
equal to the reasonable cost of performing Tenant's obligations under Paragraph
11 with respect to surrender of the Premises and upon such payment Tenant will
be excused from such obligations. For purpose of this Subparagraph 2l(d), a
temporary taking shall be defined as a taking for a period of ninety (90) days
or less.
22. DEFAULTS AND REMEDIES.
(a) DEFAULTS. The occurrence of any one or more of the following events will be
deemed a default by Tenant:
(i) The abandonment or vacation of the Premises by Tenant.
(ii) The failure by Tenant to make any payment of rent or additional rent or any
other payment required to be made by Tenant hereunder, as and when due, where
such failure continues for a period of three (3) days after written notice
thereof from Landlord to Tenant; provided, however, that any such notice will be
in lieu of, and not in addition to, any notice required under applicable law
(including, without limitation, to the extent the Premises are located in
California, the provisions of California Code of Civil Procedure Section 1161
regarding unlawful detainer actions or any successor statute or law of a similar
nature).
(iii) The failure by Tenant to observe or perform any of the express or implied
covenants or provisions of this Lease to be observed or performed by Tenant,
other than as specified in Subparagraph 22(a)(i) or (ii) above, where such
failure continues for a period of five (5) days after written notice thereof
from Landlord to Tenant. The provisions of any such notice will be in lieu of,
and not in addition to, any notice required under applicable law (including,
without limitation, to the extent the Premises are located in California,
California Code of Civil Procedure Section 1161 regarding unlawful detainer
actions and any successor statute or similar law). If the nature of Tenant's
default is such that more than five (5) days are reasonably required for its
cure, then Tenant will not be deemed to be in default if Tenant, with Landlord's
concurrence, commences such cure within such five (5) day period and thereafter
diligently prosecutes such cure to completion.
(iv) (A) The making by Tenant of any general assignment for the benefit of
creditors; (B) the filing by or against Tenant of a petition to have Tenant
adjudged a bankrupt or a petition for reorganization or arrangement under any
law relating to bankruptcy (unless, in the case of a petition filed against
Tenant, the same is dismissed within sixty (60) days); (C) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within thirty (30) days; or (D) the attachment,
execution or other judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease where such seizure
is not discharged within thirty (30) days.
(b) LANDLORD'S REMEDIES; TERMINATION. In the event of any default by Tenant, in
addition to any other remedies available to Landlord at law or in equity under
applicable law (including, without limitation, to the extent the Premises arc
located in California, the remedies of Civil Code Section 1951.4 and any
successor statute or similar law), Landlord will have the immediate right and
option to terminate this Lease and all rights of Tenant hereunder. If Landlord
elects to terminate this Lease then, to the extent permitted under applicable
law, Landlord may recover from Tenant: (i) the worth at the time of award of any
unpaid rent which had been earned at the time of such termination; plus (ii) the
worth at the time of award of the amount by which the unpaid rent which would
have been earned after termination until the time of award exceeds the amount of
such rent loss that Tenant proves could have been reasonably avoided; plus (iii)
the worth at the time of award of the amount by which the unpaid rent for the
balance of the Term after the time of award exceeds the amount of such rent loss
that Tenant proves could be reasonably avoided; plus (iv) any other amount
necessary to compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform its obligations under this Lease or which, in the
ordinary course of things, results therefrom including, but not limited to:
attorneys' fees and costs; brokers' commissions; the costs of refurbishment,
alterations, renovation and repair of the Premises, and removal (including the
repair of any damage caused by such removal) and storage (or disposal) of
Tenant's personal property, equipment, fixtures, alterations, the tenant
improvements and any other items which Tenant is required under this Lease to
remove but does not remove, as well as the unamortized value of any free rent,
reduced rent, free parking, reduced rate parking and any tenant improvement
allowance or other costs or economic concessions provided, paid, granted or
incurred by Landlord pursuant to this Lease. The unamortized value of such
concessions shall be determined by taking the total value of such concessions
and multiplying such value by a fraction, the numerator of which is the number
of months of the Lease Term not yet elapsed as of the date on which the Lease is
terminated, and the denominator of which is the total number of months of the
Lease Term. As used in Subparagraphs 22(b)(i) and (ii) above, the "worth at the
time of award" is computed by allowing interest at the Interest Rate. As used in
Subparagraph 22(b)(iii) above, the "worth at the time of award" is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%).
(c) LANDLORD'S REMEDIES; RE-ENTRY RIGHTS. In the event of any default by Tenant,
in addition to any other remedies available to Landlord under this Lease, at law
or in equity, Landlord will also have the right, with or without terminating
this Lease, to re-enter the Premises and remove all persons and property from
the Premises; such property may be removed and stored in a public warehouse or
elsewhere and/or disposed of at the sole cost and expense of and for the account
of Tenant in accordance with the provisions of Paragraph 13 of this Lease or any
other procedures permitted by applicable law. No re-entry or taking possession
of the Premises by Landlord pursuant to this Subparagraph 22(c) will be
construed as an election to terminate this Lease unless a written notice of such
intention is given to Tenant or unless the termination thereof is decreed by a
court of competent jurisdiction.
(d) LANDLORD'S REMEDIES; RE-LETTING. If Landlord does not elect to terminate
this Lease, Landlord may from time to time, without terminating this Lease,
either recover all rent as it becomes due or relet the Premises or any part
thereof on terms and conditions as Landlord in its sole and absolute discretion
may deem advisable with the right to make alterations and repairs to the
Premises in connection with such reletting. If Landlord elects to relet the
Premises, then rents received by Landlord from such reletting will be applied:
first, to the payment of any indebtedness other than rent due hereunder from
Tenant to Landlord; second, to the payment of any cost of such reletting; third,
to the payment of the cost of any alterations and repairs to the Premises
incurred in connection with such reletting; fourth, to the payment of rent due
and unpaid hereunder and the residue, if any, will be held by Landlord and
applied to payment of future rent as the same may become due and payable
hereunder. Should that portion of such rents received from such
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<PAGE> 11
reletting during any month, which is applied to the payment of rent hereunder,
be less than the rent payable during that month by Tenant hereunder, then Tenant
agrees to pay such deficiency to Landlord immediately upon demand therefor by
Landlord. Such deficiency will be calculated and paid monthly.
(e) LANDLORD'S REMEDIES; PERFORMANCE FOR TENANT. All covenants and agreements to
be performed by Tenant under any of the terms of this Lease are to be performed
by Tenant at Tenant's sole cost and expense and without any abatement of rent.
If Tenant fails to pay any sum of money owed to any party other than Landlord,
for which it is liable under this Lease, or if Tenant fails to perform any other
act on its part to be performed hereunder, and such failure continues for ten
(10) days after notice thereof by Landlord, Landlord may, without waiving or
releasing Tenant from its obligations, but shall not be obligated to, make any
such payment or perform any such other act to be made or performed by Tenant.
Tenant agrees to reimburse Landlord upon demand for all sums so paid by Landlord
and all necessary incidental costs, together with interest thereon at the
Interest Rate, from the date of such payment by Landlord until reimbursed by
Tenant. This remedy shall be in addition to any other right or remedy of
Landlord set forth in this Paragraph 22.
(f) LATE PAYMENT. If Tenant fails to pay any installment of rent within five (5)
days of when due or if Tenant fails to make any other payment for which Tenant
is obligated under this Lease within five (5) days of when due, such late amount
will accrue interest at the Interest Rate and Tenant agrees to pay Landlord as
additional rent such interest on such amount from the date such amount becomes
due until such amount is paid. In addition, Tenant agrees to pay to Landlord
concurrently with such late payment amount, as additional rent, a late charge
equal to five percent (5%) of the amount due to compensate Landlord for the
extra costs Landlord will incur as a result of such late payment. Acceptance of
any such interest and late charge will not constitute a waiver of the Tenant's
default with respect to the overdue amount, or prevent Landlord from exercising
any of the other rights and remedies available to Landlord. If Tenant incurs a
late charge more than three (3) times in any period of twelve (12) months during
the Lease Term, then, notwithstanding that Tenant cures the late payments for
which such late charges are imposed, Landlord will have the right to require
Tenant thereafter to pay all installments of Monthly Base Rent quarterly in
advance throughout the remainder of the Lease Term.
(g) RIGHTS AND REMEDIES CUMULATIVE. All rights, options and remedies of Landlord
contained in this Lease will be construed and held to be cumulative, and no one
of them will be exclusive of the other, and Landlord shall have the right to
pursue any one or all of such remedies or any other remedy or relief which may
be provided by law or in equity, whether or not stated in this Lease. Nothing in
this Paragraph 22 will be deemed to limit or otherwise affect Tenant's
indemnification of Landlord pursuant to any provision of this Lease.
23. LANDLORD'S DEFAULT. Landlord will not be in default in the performance of
any obligation required to be performed by Landlord under this Lease unless
Landlord fails to perform such obligation within thirty (30) days after the
receipt of written notice from Tenant specifying in detail Landlord's failure to
perform; provided however, that if the nature of Landlord's obligation is such
that more than thirty (30) days are required for performance, then Landlord will
not be deemed in default if it commences such performance within such thirty
(30) day period and thereafter diligently pursues the same to completion. Upon
any default by Landlord, Tenant may exercise any of its rights provided at law
or in equity, subject to the limitations on liability set forth in Paragraph 35
of this Lease.
24. ASSIGNMENT AND SUBLETTING.
(a) RESTRICTION ON TRANSFER. Except as expressly provided in this Paragraph 24,
Tenant will not, either voluntarily or by operation of law, assign or encumber
this Lease or any interest herein or sublet the Premises or any part thereof, or
permit the use or occupancy of the Premises by any party other than Tenant (any
such assignment, encumbrance, sublease or the like will sometimes be referred to
as a "Transfer"), without the prior written consent of Landlord, which consent
Landlord will not unreasonably withhold. For purposes of this Paragraph 24, if
Tenant is a corporation, partnership or other entity, any transfer, assignment,
encumbrance or hypothecation of twenty-five percent (25%) or more (individually
or in the aggregate) of any stock or other ownership interest in such entity,
and/or any transfer, assignment, hypothecation or encumbrance of any controlling
ownership or voting interest in such entity, will be deemed a Transfer and will
be subject to all of the restrictions and provisions contained in this Paragraph
24.
(b) TRANSFER NOTICE. If Tenant desires to effect a Transfer, then at least
thirty (30) days prior to the date when Tenant desires the Transfer to be
effective (the "Transfer Date"), Tenant agrees to give Landlord a notice (the
"Transfer Notice"), stating the name, address and business of the proposed
assignee, sublessee or other transferee (sometimes referred to hereinafter as
"Transferee"), reasonable information (including references) concerning the
character, ownership, and financial condition of the proposed Transferee, the
Transfer Date, any ownership or commercial relationship between Tenant and the
proposed Transferee, and the consideration and all other material terms and
conditions of the proposed Transfer, all in such detail as Landlord may
reasonably require.
(c) LANDLORD'S OPTIONS. Within fifteen (15) days of Landlord's receipt of any
Transfer Notice, and any additional information requested by Landlord concerning
the proposed Transferee's financial responsibility, Landlord will notify Tenant
of its election to do one of the following: (i) consent to the proposed Transfer
subject to such reasonable conditions as Landlord may impose in providing such
consent; (ii) refuse such consent, which refusal shall be on reasonable grounds;
or (iii) terminate this Lease as to all or such portion of the Premises which is
proposed to be sublet or assigned and recapture all or such portion of the
Premises for reletting by Landlord.
(d) ADDITIONAL CONDITIONS. A condition to Landlord's consent to any Transfer of
this Lease will be the delivery to Landlord of a true copy of the fully executed
instrument of assignment, sublease, transfer or hypothecation, in form and
substance reasonably satisfactory to Landlord. Tenant agrees to pay to Landlord,
as additional rent, all sums and other consideration payable to and for the
benefit of Tenant by the assignee or sublessee in excess of the rent payable
under this Lease for the same period and portion of the Premises. In calculating
excess rent or other consideration which may be payable to Landlord under this
paragraph, Tenant will be entitled to deduct commercially reasonable third party
brokerage commissions and attorneys' fees and other amounts reasonably and
actually expended by Tenant in connection with such assignment or subletting if
acceptable written evidence of such expenditures is provided to Landlord. No
Transfer will release Tenant of Tenant's obligations under this Lease or alter
the primary liability of Tenant to pay the rent and to perform all other
obligations to be performed by Tenant hereunder. Landlord may require that any
Transferee remit directly to Landlord on a monthly basis, all monies due Tenant
by said Transferee. Consent by Landlord to one Transfer will not be deemed
consent to any subsequent Transfer. In the event of default by any Transferee of
Tenant or any successor of Tenant in the performance of any of the terms hereof,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against such Transferee or successor. If Tenant effects a Transfer or
requests the consent of Landlord to any Transfer (whether or not such Transfer
is consummated), then, upon demand, Tenant agrees to pay Landlord a
non-refundable administrative fee of Two Hundred Fifty Dollars ($250.00), plus
Landlord's reasonable attorneys' fees.
25. SUBORDINATION. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any mortgagee or beneficiary with a deed of trust
encumbering the Building and/or the
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Development, or any lessor of a ground or underlying lease with respect to the
Building, this Lease will be subject and subordinate at all times to: (i) all
ground leases or underlying leases which may now exist or hereafter be executed
affecting the Building, and (ii) the lien of any mortgage or deed of trust
which may now exist or hereafter be executed for which the Building, the
Development or any leases thereof, or Landlord's interest and estate in any of
said items, is specified as security. Notwithstanding the foregoing, Landlord
reserves the right to subordinate any such ground leases or underlying leases or
any such liens to this Lease. If any such ground lease or underlying lease
terminates for any reason or any such mortgage or deed of trust is foreclosed or
a conveyance in lieu of foreclosure is made for any reason, at the election of
Landlord's successor in interest, Tenant agrees to attorn to and become the
tenant of such successor in which event Tenant's right to possession of the
Premises will not be disturbed as long as Tenant is not in default under this
Lease. Tenant hereby waives its rights under any law which gives or purports to
give Tenant any right to terminate or otherwise adversely affect this Lease and
the obligations of Tenant hereunder in the event of any such foreclosure
proceeding or sale. Tenant covenants and agrees to execute and deliver, upon
demand by Landlord and in the form reasonably required by Landlord, any
additional documents evidencing the priority or subordination of this Lease and
Tenant's attornment agreement with respect to any such ground lease or
underlying leases or the lien of any such mortgage or deed of trust. If Tenant
fails to sign and return any such documents within ten (10) days of receipt,
Tenant will be in default hereunder.
26. ESTOPPEL CERTIFICATE. Within ten (10) days following any written request
which Landlord may make from time to time, Tenant agrees to execute and deliver
to Landlord an estoppel certificate, in a form substantially similar to the form
of Exhibit "G" attached hereto or as may reasonably be required by Landlord's
lender. Landlord and Tenant intend that any statement delivered pursuant to this
Paragraph 26 may be relied upon by any mortgagee, beneficiary, purchaser or
prospective purchaser of the Building or any interest therein. Tenant's failure
to deliver such statement within such time will be conclusive upon Tenant (i)
that this Lease is in full force and effect, without modification except as may
be represented by Landlord, (ii) that there are no uncured defaults in
Landlord's performance, and (iii) that not more than one (1) month's rent has
been paid in advance. Without limiting the foregoing, if Tenant fails to deliver
any such statement within such ten (10) day period, Landlord may deliver to
Tenant an additional request for such statement and Tenant's failure to deliver
such statement to Landlord within ten (10) days after delivery of such
additional request will constitute a default under this Lease. Tenant agrees to
indemnify and protect Landlord from and against any and all claims, damages,
losses, liabilities and expenses (including attorneys' fees and costs)
attributable to any failure by Tenant to timely deliver any such estoppel
certificate to Landlord as required by this Paragraph 26.
27. BUILDING PLANNING. If Landlord requires the Premises for use in conjunction
with another suite or for other reasons connected with the planning program for
the Building or the Development, Landlord will have the right, upon sixty (60)
days' prior written notice to Tenant, to move Tenant to other space in the
Building of substantially similar size as the Premises, and with tenant
improvements of substantially similar age, quality and layout as then existing
in the Premises. Any such relocation will be at Landlord's cost and expense,
including the cost of providing such substantially similar tenant improvements
(but not any furniture or personal property) and Tenant's reasonable moving,
telephone installation and stationary reprinting costs. If Landlord so relocates
Tenant, the terms and conditions of this Lease will remain in full force and
effect and apply to the new space, except that (a) a revised Exhibit "A-I" will
become part of this Lease and will reflect the location of the new space, (b)
Paragraph 1 of this Lease will be amended to include and state all correct data
as to the new space, (c) the new space will thereafter be deemed to be the
"Premises", and (d) all economic terms and conditions (e.g. rent, total
Operating Expense Allowance, etc.) will be adjusted on a per square foot basis
based on the total number of rentable square feet of area contained in the new
space. Landlord and Tenant agree to cooperate fully with one another in order to
minimize the inconvenience to Tenant resulting from any such relocation.
28. RULES AND REGULATIONS. Tenant agrees to faithfully observe and comply with
the "Rules and Regulations," a copy of which is attached hereto and incorporated
herein by this reference as Exhibit "H", and all reasonable and
nondiscriminatory modifications thereof and additions thereto from time to time
put into effect by Landlord. Landlord will not be responsible to Tenant for the
violation or non-performance by any other tenant or occupant of the Building of
any of the Rules and Regulations.
29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND LESSORS. If, in
connection with Landlord's obtaining or entering into any financing or ground
lease for any portion of the Building or the Development, the lender or ground
lessor requests modifications to this Lease, Tenant, within ten (10) days after
request therefor, agrees to execute an amendment to this Lease incorporating
such modifications, provided such modifications are reasonable and do not
increase the obligations of Tenant under this Lease or adversely affect the
leasehold estate created by this Lease. In the event of any default on the part
of Landlord, Tenant will give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgage covering the Premises or ground
lessor of Landlord whose address has been furnished to Tenant, and Tenant agrees
to offer such beneficiary, mortgagee or ground lessor a reasonable opportunity
to cure the default (including with respect to any such beneficiary or
mortgagee, time to obtain possession of the Premises, subject to this Lease and
Tenant's rights hereunder, by power of sale or a judicial foreclosure, if such
should prove necessary to effect a cure).
30. DEFINITION OF LANDLORD. The term "Landlord," as used in this Lease, so far
as covenants or obligations on the part of Landlord are concerned, means and
includes only the owner or owners, at the time in question, of the fee title of
the Premises or the lessees under any ground lease, if any. In the event of any
transfer, assignment or other conveyance or transfers of any such title (other
than a transfer for security purposes only), Landlord herein named (and in case
of any subsequent transfers or conveyances, the then grantor) will be
automatically relieved from and after the date of such transfer, assignment or
conveyance of all liability as respects the performance of any covenants or
obligations on the part of Landlord contained in this Lease thereafter to be
performed, so long as the transferee assumes in writing all such covenants and
obligations of Landlord arising after the date of such transfer. Landlord and
Landlord's transferees and assignees have the absolute right to transfer all or
any portion of their respective title and interest in the Development, the
Building, the Premises and/or this Lease without the consent of Tenant, and such
transfer or subsequent transfer will not be deemed a violation on Landlord's
part of any of the terms and conditions of this Lease.
31. WAIVER. The waiver by either party of any breach of any term, covenant or
condition herein contained will not be deemed to be a waiver of any subsequent
breach of the same or any other term, covenant or condition herein contained,
nor will any custom or practice which may develop between the parties in the
administration of the terms hereof be deemed a waiver of or in any way affect
the right of either party to insist upon performance in strict accordance with
said terms. The subsequent acceptance of rent or any other payment hereunder by
Landlord will not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of Tenant
to pay the particular rent so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such rent. No acceptance by
Landlord of a lesser sum than the basic rent and additional rent or other sum
then due will be deemed to be other than on account of the earliest installment
of such rent or other amount due, nor will am endorsement or statement on any
check or any letter accompanying any check be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such installment or other amount or pursue any
other remedy provided in this Lease. The consent or approval of Landlord to or
of any act by Tenant requiring Landlord's consent or
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<PAGE> 13
approval will not be deemed to waive or render unnecessary Landlord's consent or
approval to or of any subsequent similar acts by Tenant.
32. PARKING. So long as this Lease is in effect and provided Tenant is not in
default hereunder, Landlord grants to Tenant a license to use the number and
type of parking spaces designated in Subparagraph 1(l) subject to the terms and
conditions of this Paragraph 32 and the Rules and Regulations regarding parking
contained in Exhibit "H" attached hereto. So long as this Lease is in effect,
Tenant's visitors and guests will be entitled to use those specific parking
areas which are designated for short term visitor parking and which are located
within the surface parking area(s), if any, and/or within the parking
structure(s) which serve the Building. Tenant will not use or allow any of
Tenant's employees or guests to use any parking spaces which have been
specifically assigned by Landlord to other tenants or occupants or for other
uses such as visitor parking or which have been designated by any governmental
entity as being restricted to certain uses. As consideration for the use of
Tenant's parking spaces, Tenant agrees to pay to Landlord or, at Landlord's
election, directly to Landlord's parking operator, as additional rent under
this Lease, the prevailing parking rate for each such parking space as
established by Landlord in its discretion from time to time. Tenant agrees that
all parking charges will be payable on a monthly basis concurrently with each
monthly payment of Monthly Base Rent. Except as provided in Subparagraph 1(l),
Landlord reserves the right to set and increase monthly fees and/or daily and
hourly rates for parking privileges from time to time during the Term of the
Lease. For the duration of the Term, Tenant is obligated to pay for all of the
parking stalls allocated to Tenant, whether or not Tenant actually uses such
stalls. Landlord may assign any unreserved and unassigned parking spaces and/or
make all or any portion of such spaces reserved, if Landlord reasonably
determines that it is necessary for orderly and efficient parking or for any
other reasonable reason. Except in connection with an assignment or sublease
which is expressly permitted under this Lease, Tenant's parking rights and
privileges described herein are personal to Tenant and may not be assigned or
transferred, or otherwise conveyed, without Landlord's prior written consent,
which consent Landlord may withhold in its sole and absolute discretion. In any
event, under no circumstances may Tenant's parking rights and privileges be
transferred, assigned or otherwise conveyed separate and apart from Tenant's
interest in this Lease. Tenant shall comply with all rules and regulations
regarding parking set forth in Exhibit "H" attached hereto and Tenant agrees to
cause its employees, subtenants, assignees, contractors, suppliers, customers
and invitees to comply with such rules and regulations. Landlord reserves the
right from time to time to modify and/or adopt such other reasonable and
non-discriminatory rules and regulations for the parking facilities as it deems
reasonably necessary for the operation of the parking facilities.
33. FORCE MAJEURE. If either Landlord or Tenant is delayed, hindered in or
prevented from the performance of any act required under this Lease by reason of
strikes, lock-outs, labor troubles, inability to procure standard materials,
failure of power, restrictive governmental laws, regulations or orders or
governmental action or inaction (including failure, refusal or delay in issuing
permits, approvals and/or authorizations which is not the result of the action
or inaction of the party claiming such delay), riots, civil unrest or
insurrection, war, fire, earthquake, flood or other natural disaster, unusual
and unforeseeable delay which results from an interruption of any public
utilities (e.g., electricity, gas, water, telephone) or other unusual and
unforeseeable delay not within the reasonable control of the party delayed in
performing work or doing acts required under the provisions of this Lease, then
performance of such act will be excused for the period of the delay and the
period for the performance of any such act will be extended for a period
equivalent to the period of such delay. The provisions of this Paragraph 33 will
not operate to excuse Tenant from prompt payment of rent or any other payments
required under the provisions of this Lease.
34. SIGNS. Landlord will designate the location on the Premises, if any, for one
or more Tenant identification sign(s). Tenant agrees to have Landlord install
and maintain Tenant's identification sign(s) in such designated location in
accordance with this Paragraph 34 at Tenant's sole cost and expense. Tenant has
no right to install Tenant identification signs in any other location in, on or
about the Premises or the Development and will not display or erect any other
signs, displays or other advertising materials that are visible from the
exterior of the Building or from within the Building in any interior or
exterior common areas. The size, design, color and other physical aspects of any
and all permitted sign(s) will be subject to (i) Landlord's written approval
prior to installation, which approval may be withheld in Landlord's discretion,
(ii) any covenants, conditions or restrictions governing the Premises, and (iii)
any applicable municipal or governmental permits and approvals. Tenant will be
solely responsible for all costs for installation, maintenance, repair and
removal of any Tenant identification sign(s). If Tenant fails to remove Tenant's
sign(s) upon termination of this Lease and repair any damage caused by such
removal, Landlord may do so at Tenant's sole cost and expense. Tenant agrees to
reimburse Landlord for all costs incurred by Landlord to effect any
installation, maintenance or removal on Tenant's account, which amount will be
deemed additional rent, and may include, without limitation, all sums disbursed,
incurred or deposited by Landlord including Landlord's costs, expenses and
actual attorneys' fees with interest thereon at the Interest Rate from the date
of Landlord's demand until paid by Tenant. Any sign rights granted to Tenant
under this Lease are personal to Tenant and may not be assigned, transferred or
otherwise conveyed to any assignee or subtenant of Tenant without Landlord's
prior written consent, which consent Landlord may withhold in its sole and
absolute discretion.
35. LIMITATION ON LIABILITY. In consideration of the benefits accruing
hereunder, Tenant on behalf of itself and all successors and assigns of Tenant
covenants and agrees that, in the event of any actual or alleged failure, breach
or default hereunder by Landlord: (a) Tenant's recourse against Landlord for
monetary damages will be limited to Landlord's interest in the Building
including, subject to the prior rights of any Mortgagee, Landlord's interest in
the rents of the Building and any insurance proceeds payable to Landlord; (b)
except as may be necessary to secure jurisdiction of the partnership, no partner
of Landlord shall be sued or named as a party in any suit or action and no
service of process shall be made against any partner of Landlord; (c) no
partner of Landlord shall be required to answer or otherwise plead to any
service of process; (d) no judgment will be taken against any partner of
Landlord and any judgment taken against any partner of Landlord may be vacated
and set aside at any time after the fact; (e) no writ of execution will be
levied against the assets of any partner of Landlord; (f) the obligations under
this Lease do not constitute personal obligations of the individual partners,
directors, officers or shareholders of Landlord, and Tenant shall not seek
recourse against the individual partners, directors, officers or shareholders of
Landlord or any of their personal assets for satisfaction of any liability in
respect to this Lease; and (g) these covenants and agreements are enforceable
both by Landlord and also by any partner of Landlord.
36. FINANCIAL STATEMENTS. Prior to the execution of this Lease by Landlord and
at any time during the Term of this Lease upon ten (10) days prior written
notice from Landlord, Tenant agrees to provide Landlord with a current
financial statement for Tenant and any guarantors of Tenant and financial
statements for the two (2) years prior to the current financial statement year
for Tenant and any guarantors of Tenant. Such statements are to be prepared in
accordance with generally accepted accounting principles and, if such is the
normal practice of Tenant, audited by an independent certified public
accountant.
37. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon Tenant
paying the rent required under this Lease and paying all other charges and
performing all of the covenants and provisions on Tenant's part to be observed
and performed under this Lease, Tenant may peaceably and quietly have, hold and
enjoy the Premises in accordance with this Lease.
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<PAGE> 14
38. MISCELLANEOUS
(a) CONFLICT OF LAWS. This Lease shall be governed by and construed solely
pursuant to the laws of the State, without giving effect to choice of law
principles thereunder.
(b) SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Lease, all of
the covenants, conditions and provisions of this Lease shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns.
(c) PROFESSIONAL FEES AND COSTS. If either Landlord or Tenant should bring suit
against the other with respect to this Lease, then all costs and expenses,
including without limitation, actual professional fees and costs such as
appraisers', accountants' and attorneys' fees and costs, incurred by the party
which prevails in such action, whether by final judgment or out of court
settlement, shall be paid by the other party, which obligation on the part of
the other party shall be deemed to have accrued on the date of the commencement
of such action and shall be enforceable whether or not the action is prosecuted
to judgment. As used herein, attorneys' fees and costs shall include, without
limitation, attorneys' fees, costs and expenses incurred in connection with any
(i) postjudgment motions; (ii) contempt proceedings; (iii) garnishment, levy,
and debtor and third party examination; (iv) discovery; and (v) bankruptcy
litigation.
(d) TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. Words used in any gender include
other genders. The paragraph headings of this Lease are not a part of this Lease
and shall have no effect upon the construction or interpretation of any part
hereof.
(e) TIME. Time is of the essence with respect to the performance of every
provision of this Lease in which time of performance is a factor.
(f) PRIOR AGREEMENT; AMENDMENTS. This Lease constitutes and is intended by the
parties to be a final, complete and exclusive statement of their entire
agreement with respect to the subject matter of this Lease. This Lease
supersedes any and all prior and contemporaneous agreements and understandings
of any kind relating to the subject matter of this Lease. There are no other
agreements, understandings, representations, warranties, or statements, either
oral or in written form, concerning the subject matter of this Lease. No
alteration, modification, amendment or interpretation of this Lease shall be
binding on the parties unless contained in a writing which is signed by both
parties.
(g) SEPARABILITY. The provisions of this Lease shall be considered separable
such that if any provision or part of this Lease is ever held to be invalid,
void or illegal under any law or ruling, all remaining provisions of this Lease
shall remain in full force and effect to the maximum extent permitted by law.
(h) RECORDING. Neither Landlord nor Tenant shall record this Lease nor a short
form memorandum thereof without the consent of the other.
(i) COUNTERPARTS. This Lease may be executed in one or more counterparts, each
of which shall constitute an original and all of which shall be one and the same
agreement.
(j) NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and agrees that the terms
of this Lease are confidential and constitute proprietary information of
Landlord. Disclosure of the terms could adversely affect the ability of Landlord
to negotiate other leases and impair Landlord's relationship with other tenants.
Accordingly, Tenant agrees that it, and its partners, officers, directors,
employees, agents and attorneys, shall not intentionally and voluntarily
disclose the terms and conditions of this Lease to any newspaper or other
publication or any other tenant or apparent prospective tenant of the Building
or other portion of the Development, or real estate agent, either directly or
indirectly, without the prior written consent of Landlord, provided, however,
that Tenant may disclose the terms to prospective subtenants or assignees under
this Lease.
(k) NON-DISCRIMINATION. Tenant acknowledges and agrees that there shall be no
discrimination against, or segregation of, any person, group of persons, or
entity on the basis of race, color, creed, religion, age, sex, marital status,
national origin, or ancestry in the leasing, subleasing, transferring,
assignment, occupancy, tenure, use, or enjoyment of the Premises, or any portion
thereof.
39. EXECUTION OF LEASE.
(a) JOINT AND SEVERAL OBLIGATIONS. If more than one person or entity executes
this Lease as Tenant, their execution of this Lease will constitute their
covenant and agreement that (i) each of them is jointly and severally liable for
the keeping, observing and performing of all of the terms, covenants,
conditions, provisions and agreements of this Lease to be kept, observed and
performed by Tenant, and (ii) the term "Tenant" as used in this Lease means and
includes each of them jointly and severally. The act of or notice from, or
notice or refund to, or the signature of any one or more of them, with respect
to the tenancy of this Lease, including, but not limited to, any renewal,
extension, expiration, termination or modification of this Lease, will be
binding upon each and all of the persons executing this Lease as Tenant with the
same force and effect as if each and all of them had so acted or so given or
received such notice or refund or so signed.
(b) TENANT AS CORPORATION OR PARTNERSHIP. If Tenant executes this Lease as a
corporation or partnership, then Tenant and the persons executing this Lease on
behalf of Tenant represent and warrant that such entity is duly qualified and in
good standing to do business in California and that the individuals executing
this Lease on Tenant's behalf are duly authorized to execute and deliver this
Lease on its behalf, and in the case of a corporation, in accordance with a duly
adopted resolution of the board of directors of Tenant, a copy of which is to be
delivered to Landlord on execution hereof, if requested by Landlord, and in
accordance with the by-laws of Tenant, and, in the case of a partnership, in
accordance with the partnership agreement and the most current amendments
thereto, if any, copies of which are to be delivered to Landlord on execution
hereof, if requested by Landlord, and that this Lease is binding upon Tenant in
accordance with its terms.
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<PAGE> 15
(c) EXAMINATION OF LEASE. Submission of this instrument by Landlord to Tenant
for examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution by and delivery to both Landlord and Tenant.
IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed by
their duly authorized representatives as of the date first above written.
TENANT:
PRO BUSINESS, INC.,
a California corporation
By: /s/ Mitch Everton
------------------------------------------
Print Name: Mitch Everton
-----------------------------
Print Title: EVP - OPERATIONS &
ASST SECRETARY
-----------------------------
By:
------------------------------------------
Print Name:
------------------------------
Print Title:
-----------------------------
LANDLORD:
KOLL CENTER IRVINE NUMBER TWO,
a California limited partnership
By: Connecticut General Life
Insurance Company,
General Partner
By: Cigna Investments, Inc.
Its Authorized Agent
By: /s/ STEPHEN J. OLSTEIN
----------------------------------
Print Name: /s/ STEPHEN J. OLSTEIN
----------------------
Print Title: MANAGING DIRECTOR
---------------------
<PAGE> 16
DESCRIPTION OF LANDLORD'S WORK
Tenant shall lease the Premises from Landlord on an "AS-IS"
basis with the exception that Landlord shall shampoo the carpeting to the best
of Landlord's ability.
<PAGE> 17
TENANT'S INSURANCE REQUIREMENTS
This outlines the insurance requirements of your Lease. To assure
compliance with these terms, we suggest you send a copy of this Exhibit to your
insurer or agent. Initial Certificates must be provided to Landlord prior to
occupancy of the Premises
,renewals ten (10) days before expiration.
1. Comprehensive or Commercial General Liability Insurance:
$1,000,000 Combined Single Limit, each occurrence
$1,000,000 Aggregate (minimum) this location
$1,000,000 Products/Completed Operations Aggregate
$ 50,000 Fire Legal Liability Limit, per fire
Bodily Injury, Property Damage, Personal Injury and
Advertising Injury; Blanket Contractual Liability-Covering
Indemnity Section 18(b); Products and Completed Operations
Liability; Landlord as an Additional Insured; Severability of
Interest, permitting Cross liability among insureds; provision
stating that tenant's insurance is primary and
non-contributing with any insurance carried by Landlord.
2. Tenant's Property Insurance:
All Risks coverage of Property owned by Tenant or for which the
Tenant is legally liable; full replacement cost basis.
3. Tenant's Business Interruption Insurance:
All Risks coverage of operations at leased premises; covering
one-year's business interruption due to insured peril.
4. Tenant's Workers' Compensation and Employer's Liability Insurance:
Statutory Limits and terms required by State; $1,000,000 Employer's
Liability Limit.
5. Tenant's Automobile Insurance:
$1,000,000 Combined Limit per accident; covering all owned,
non-owned, hired autos (Symbol 1 - any auto).
All insurance is to be with licensed insurers having a Best's rating of "A X"
or better, and must include the following:
Waiver of Subrogation in favor of Landlord
Thirty (30) day pre-notice of cancellation/non renewal to Landlord
SEND CERTIFICATE TO:
(Name of Landlord from project file)
KMS Risk Management Services
c/o Johnson & Higgins
695 Town Center Drive, Suite 700
Costa Mesa, California 92626
PLEASE INCLUDE ADDRESS OF PREMISES.
<PAGE> 18
DEFINITION OF OPERATING EXPENSES
1. ITEMS INCLUDED IN OPERATING EXPENSES. The term "Operating Expenses"
as used in the Lease to which this Exhibit "E" is attached means: all costs and
expenses of operation and maintenance of the Building and the Common Areas (as
such terms are defined in the Lease), as determined by standard accounting
practices, calculated assuming the Building is ninety-five percent (95%)
occupied, including the following costs by way of illustration but not
limitation, but excluding those items specifically set forth in Paragraph 3
below: (a) Real Property Taxes and Assessments (as defined in PARAGRAPH 2 below)
and any taxes or assessments imposed in lieu thereof; (b) any and all
assessments imposed with respect to the Building pursuant to any covenants,
conditions and restrictions affecting the Development, the Common Areas or the
Building; (c) water and sewer charges and the costs of electricity, heating,
ventilating, air conditioning and other utilities; (d) utilities surcharges and
any other costs, levies or assessments resulting from statutes or regulations
promulgated by any government or quasi-government authority in connection with
the use, occupancy or alteration of the Building or the Premises or the parking
facilities serving the Building or the Premises; (e) costs of insurance obtained
by Landlord pursuant to PARAGRAPH 19 of the Lease; (f) waste disposal and
janitorial services; (g) security; (h) labor; (i) costs incurred in the
management of the Building, including, without limitation: (i) supplies, (ii)
wages and salaries (and payroll taxes and similar governmental charges related
thereto) of employees used in the management, operation and maintenance of the
Building, (iii) Building management office rental, supplies, equipment and
related operating expenses, and (iv) a management/administrative fee determined
as a percentage of the annual gross revenues of the Building exclusive of the
proceeds of financing or a sale of the Building and an administrative fee for
the management of the Development Common Area determined as a percentage of
Development Common Area Operating Expenses; (j) supplies, materials, equipment
and tools including rental of personal property used for maintenance; (k) repair
and maintenance of the elevators and the structural portions of the Building,
including the plumbing, heating, ventilating, air-conditioning and electrical
systems installed or furnished by Landlord; (l) maintenance, costs and upkeep of
all parking and Development Common Areas; (m) depreciation on a straight line
basis and rental of personal property used in maintenance; (n) amortization on a
straight line basis over the useful life [together with interest at the Interest
Rate on the unamortized balance] of all capitalized expenditures which are: (i)
reasonably intended to produce a reduction in operating charges or energy
consumption; or (ii) required under any governmental law or regulation that was
not applicable to the Building at the time it was originally constructed; or
(iii) for replacement of any Building equipment needed to operate the Building
at the same quality levels as prior to the replacement; (o) costs and expenses
of gardening and landscaping; (p) maintenance of signs (other than signs of
tenants of the Building); (q) personal property taxes levied on or attributable
to personal property used in connection with the Building or the Common Areas;
(r) reasonable accounting, audit, verification, legal and other consulting fees;
and (s) costs and expenses of repairs, resurfacing, repairing, maintenance,
painting, lighting, cleaning, refuse removal, security and similar items,
including appropriate reserves. When calculating Operating Expenses for purposes
of establishing Tenant's Operating Expense Allowance, Operating Expenses shall
not include Real Property Taxes and Assessments attributable to special
assessments, charges, costs, or fees or due to modifications or changes in
governmental laws or regulations including, but not limited to, the institution
of a split tax roll, and shall exclude market-wide labor-rate increases due to
extraordinary circumstances including, but not limited to, boycotts and strikes
and utility increases due to extraordinary circumstances including, but not
limited to, conservation surcharges, boycotts, embargoes or other shortages.
2. REAL PROPERTY TAXES AND ASSESSMENTS. The term "Real Property Taxes
and Assessments", as used in this Exhibit "E", means: any form of assessment,
license fee, license tax, business license fee, commercial rental tax, levy,
charge, improvement bond, tax or similar imposition imposed by any authority
having the direct power to tax, including any city, county, state or federal
government, or any school, agricultural, lighting, drainage or other improvement
or special assessment district thereof, as against any legal or equitable
interest of Landlord in the Premises, Building, Common Areas or the Development
(as such terms are defined in the Lease), adjusted to reflect an assumption that
the Building is fully assessed for real property tax purposes as a completed
building ready for occupancy, including the following by way of illustration but
not limitation: (a) any tax on Landlord's "right" to rent or "right" to other
income from the Premises or as against Landlord's business of leasing the
Premises; (b) any assessment, tax, fee, levy or charge in substitution,
partially or totally, of any assessment, tax, fee, levy or charge previously
included within the definition of real property tax, it being acknowledged by
Tenant and Landlord that Proposition 13 was adopted by the voters of the State
of California in the June, 1978 election and that assessments, taxes, fees,
levies and charges may be imposed by governmental agencies for such services as
fire protection, street, sidewalk and road maintenance, refuse removal and for
other governmental services formerly provided without charge to property owners
or occupants. It is the intention of Tenant and Landlord that all such new and
increased assessments, taxes, fees, levies and charges be included within the
definition of "real property taxes" for the purposes of this Lease; (c) any
assessment, tax, fee, levy or charge allocable to or measured by the area of the
Premises or other premises in the Building or the rent payable by Tenant
hereunder or other tenants of the Building, including, without limitation, any
gross receipts tax or excise tax levied by state, city or federal government, or
any political subdivision thereof, with respect to the receipt of such rent, or
upon or with respect to the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or
any portion thereof but not on Landlord's other operations; (d) any assessment,
tax, fee, levy or charge upon this transaction or any document to which Tenant
is a party, creating or transferring an interest or an estate in the Premises;
and/or (e) any assessment, tax, fee, levy or charge by any governmental agency
related to any transportation plan, fund or system (including assessment
districts) instituted within the geographic area of which the Building is a
part.
Notwithstanding the foregoing, if at any time after the Commencement Date, the
amount of Real Property Taxes and Assessments decreases, then for purposes of
all subsequent Lease Years, including the Lease Year in which such decrease in
Real Property Taxes and Assessments occurs, Tenant's Operating Expense Allowance
shall be decreased by an amount equal to such decrease in Real Property Taxes
and Assessments.
3. ITEMS EXCLUDED FROM OPERATING EXPENSES. Notwithstanding the
provisions of PARAGRAPHS 1 AND 2 above to the contrary, "Operating Expenses"
will not include: (a) Landlord's federal or state income, franchise, inheritance
or estate taxes; (b) any ground lease rental; (c) costs incurred by Landlord for
the repair of damage to the Building to the extent that Landlord is reimbursed
by insurance or condemnation proceeds or by tenants, warrantors or other third
persons; (d) depreciation, amortization and interest payments, except as
specifically provided herein, and except on materials, tools, supplies and
vendor-type equipment purchased by Landlord to enable Landlord to supply
services Landlord might otherwise contract for with a third party, where such
depreciation, amortization and interest payments would otherwise have been
included in the charge for such third party's services, all as determined in
accordance with standard accounting practices; (e) brokerage commissions,
finders' fees, attorneys' fees, space planning costs and other costs incurred by
Landlord in leasing or attempting to lease space in the Building; (f) costs of a
capital nature, including, without limitation, capital improvements, capital
replacements, capital repairs, capital equipment and capital tools, all as
determined in accordance with standard accounting practices; provided, however,
the capital expenditures set forth in Subparagraph l(n) above will in any event
be included in the definition of Operating Expenses; (g) interest, principal,
points and fees on debt or amortization on any mortgage, deed of trust or other
debt encumbering the Building or the Development; (h) costs, including permit,
license and inspection costs, incurred with respect to the installation of
tenant improvements for tenants in the Building (including the original Tenant
Improvements for the Premises), or incurred in renovating or otherwise
improving, decorating, painting or redecorating space for tenants
<PAGE> 19
or other occupants of the Building, including space planning and interior design
costs and fees; (i) attorneys' fees and other costs and expenses incurred in
connection with negotiations or disputes with present or prospective tenants or
other occupants of the Building; provided, however, that Operating Expenses will
include those attorneys' fees and other costs and expenses incurred in
connection with negotiations, disputes or claims relating to items of Operating
Expenses, enforcement of rules and regulations of the Building, and such other
matters relating to the maintenance of standards required of Landlord under the
Lease; (j) except for the administrative/management fees described in
SUBPARAGRAPH 1(i) above, costs of Landlord's general corporate overhead; (k) all
items and services for which Tenant or any other tenant in the Building
reimburses Landlord (other than through operating expense pass-through
provisions); (l) electric power costs for which any tenant directly contracts
with the local public service company; and (m) costs arising from Landlord's
charitable or political contributions.
E-2
<PAGE> 20
STANDARDS FOR UTILITIES AND SERVICES
The following standards for utilities and services are in effect.
Landlord reserves the right to adopt nondiscriminatory modifications and
additions hereto.
Subject to the terms and conditions of the Lease and provided Tenant
remains in occupancy of the Premises, Landlord will provide or make available
the following utilities and services:
1. Provide non-attended automatic elevator facilities Monday through
Friday, except holidays, from 8 a.m. to 6 p.m., and have one elevator available
for Tenant's use at all other times.
2. On Monday through Friday, except holidays, from 8 a.m. to 6 p.m. and
on Saturday from 8 a.m. to 12 Noon (and other times for a reasonable additional
charge to be fixed by Landlord), ventilate the Premises and furnish air
conditioning or heating on such days and hours, when in the reasonable judgment
of Landlord it may be required for the comfortable occupancy of the Premises.
The air conditioning system achieves maximum cooling when the window coverings
are extended to the full length of the window opening and adjusted to a 45
degrees angle upwards. Landlord will not be responsible for room temperatures if
Tenant does not keep all window coverings in the Premises extended to the full
length of the window opening and adjusted to a 45 degrees angle upwards whenever
the system is in operation. Tenant agrees to cooperate fully at all times with
Landlord, and to abide by all reasonable regulations and requirements which
Landlord may prescribe for the proper function and protection of said air
conditioning system. Tenant agrees not to connect any apparatus, device, conduit
or pipe to the chilled and hot water air conditioning supply lines of the
Building. Tenant further agrees that neither Tenant nor its servants, employees,
agents, visitors, licensees or contractors shall at any time enter the
mechanical installations or facilities of the Building or the Development or
adjust, tamper with, touch or otherwise in any manner affect said installations
or facilities. The cost of maintenance and service calls to adjust and regulate
the air conditioning system will be charged to Tenant if the need for
maintenance work results from either Tenant's adjustment of room thermostats or
Tenant's failure to comply with its obligations under this Exhibit, including
keeping window coverings extended to the full length of the window opening and
adjusted to a 45 degrees angle upwards. Such work will be charged at hourly
rates equal to then-current journeyman's wages for air conditioning mechanics.
3. Landlord will make available to the Premises, 24 hours per day,
seven days a week, electric current as required by the Building standard office
lighting and fractional horsepower office business machines including copiers,
personal computers and word processing equipment in an amount not to exceed six
(6) watts per square foot per normal business day. Tenant agrees, should its
electrical installation or electrical consumption be in excess of the aforesaid
quantity or extend beyond normal business hours, to reimburse Landlord monthly
for the measured consumption at the average cost per kilowatt hour charged to
the Building during the period. If a separate meter is not installed at Tenant's
cost, such excess cost will be established by an estimate agreed upon by
Landlord and Tenant, and if the parties fail to agree, such cost will be
established by an independent licensed engineer selected in Landlord's
reasonable discretion, whose fee shall be shared equally by Landlord and Tenant.
Tenant agrees not to use any apparatus or device in, upon or about the Premises
(other than standard office business machines, personal computers and word
processing equipment) which may in any way increase the amount of such services
usually furnished or supplied to said Premises, and Tenant further agrees not to
connect any apparatus or device with wires, conduits or pipes, or other means by
which such services are supplied, for the purpose of using additional or unusual
amounts of such services without the written consent of Landlord. Should Tenant
use the same to excess, the refusal on the part of Tenant to pay upon demand of
Landlord the amount established by Landlord for such excess charge will
constitute a breach of the obligation to pay rent under this Lease and will
entitle Landlord to the rights therein granted for such breach. Tenant's use of
electric current will never exceed the capacity of the feeders to the Building,
or the risers or wiring installation and Tenants will not install or use or
permit the installation or use of any computer or electronic data processing
equipment in the Premises (except standard office business machines, personal
computers and word processing equipment) without the prior written consent of
Landlord.
4. Water will be available in public areas for drinking and lavatory
purposes only, but if Tenant requires, uses or consumes water for any purpose in
addition to ordinary drinking and lavatory purposes, of which fact Tenant
constitutes Landlord to be the sole judge, Landlord may install a water meter
and thereby measure Tenant's water consumption for all purposes. Tenant agrees
to pay Landlord for the cost of the meter and the cost of the installation
thereof and throughout the duration of Tenant's occupancy Tenant will keep said
meter and installation equipment in good working order and repair at Tenant's
own cost and expense, in default of which Landlord may cause such meter and
equipment to be replaced or repaired and collect the cost thereof from Tenant.
Tenant agrees to pay for water consumed, as shown on such meter, as and when
bills are rendered, and on default in making such payment, Landlord may pay such
charges and collect the same from Tenant. Any such costs or expenses incurred,
or payments made by Landlord for any of the reasons or purposes hereinabove
stated will be deemed to be additional rent payable by Tenant and collectible by
Landlord as such.
5. Landlord will provide janitor service to the Premises, provided the
same are used exclusively as offices, and are kept reasonably in order by
Tenant, and unless otherwise agreed to by Landlord and Tenant no one other than
persons approved by Landlord shall be permitted to enter the Premises for such
purposes. If the Premises are not used exclusively as offices, they will be kept
clean and in order by Tenant, at Tenant's expense, and to the satisfaction of
Landlord, and by persons approved by Landlord. Tenant agrees to pay to Landlord
the cost of removal of any of Tenant's refuse and rubbish to the extent that the
same exceeds the refuse and rubbish usually attendant upon the use of the
Premises as offices.
6. Landlord reserves the right to stop service of the elevator,
plumbing, ventilation, air conditioning and electrical systems, when necessary,
by reason of accident or emergency or for repairs, alterations or improvements,
when in the judgment of Landlord such actions are desirable or necessary to be
made, until said repairs, alterations or improvements shall have been completed,
and Landlord will have no responsibility or liability for failure to supply
elevator facilities, plumbing, ventilating, air conditioning or electric
service, when prevented from so doing by strike or accident or by any cause
beyond Landlord's reasonable control, or by laws, rules, orders, ordinances,
directions, regulations or by reason of the requirements of any federal, state,
county or municipal authority or failure of gas, oil or other suitable fuel
supply or inability by exercise of reasonable diligence to obtain gas, oil or
other suitable fuel supply. It is expressly understood and agreed that any
covenants on Landlord's part to furnish any services pursuant to any of the
terms, covenants, conditions, provisions or agreements of this Lease, or to
perform any act or thing for the benefit of Tenant, will not be deemed
breached if Landlord is unable to furnish or perform the same by virtue of a
strike or labor trouble or any other cause whatsoever beyond Landlord's control.
<PAGE> 21
ESTOPPEL CERTIFICATE
The undersigned,____________________________________________________
("Tenant"), hereby certifies to ____________________________________, as
follows:
1. Attached hereto is a true, correct and complete copy of that certain
lease dated _______________ ,19__, between_________________________________ ,
a _____________________________ ("Landlord") and Tenant (the "Lease"), regarding
the premises located at _______________________________________________________
(the "Premises"). The Lease is now in full force and effect and has not been
amended, modified or supplemented, except as set forth in Paragraph 4 below.
2. The Term of the Lease commenced on _________________, 19__ .
3. The Term of the Lease shall expire on ___________________ 19,__ .
4. The Lease has: (Initial one)
(_______) not been amended, modified, supplemented, extended, renewed
or assigned.
(_______) been amended, modified, supplemented, extended, renewed or
assigned by the following described terms or agreements, copies of which are
attached hereto:
_______________________________________________________________________
_______________________________________________________________________
5. Tenant has accepted and is now in possession of the Premises.
6. Tenant and Landlord acknowledge that Landlord's interest in the
Lease will be assigned to ______________________________ and that no
modification, adjustment, revision or cancellation of the Lease or amendments
thereto shall be effective unless written consent of___________________________
_______________________________ is obtained, and that until further notice,
payments under the Lease may continue as heretofore.
7. The amount of Monthly Base Rent is $___________ .
8. The amount of security deposits (if any) is $______________ .
No other security deposits have been made except as follows: _________
______________________________________________________________________________ .
9. Tenant is paying the full lease rental which has been paid in full
as of the date hereof. No rent or other charges under the Lease have been paid
for more than thirty (30) days in advance of its due date except as follows:
______________________________________________________________________________ .
10. All work required to be performed by Landlord under the Lease has
been completed except as follows: _____________________________________________
______________________________________________________________________________ .
11. There are no defaults on the part of the Landlord or Tenant under
the Lease except as follows: __________________________________________________
______________________________________________________________________________ .
12. Neither Landlord nor Tenant has any defense as to its obligations
under the Lease and claims no set-off or counterclaim against the other party
except as follows: _____________________________________________________________
______________________________________________________________________________ .
13. Tenant has no right to any concession (rental or otherwise) or
similar compensation in connection with renting the space it occupies other than
as provided in the Lease except as follows: ___________________________________
______________________________________________________________________________ .
All provisions of the Lease and the amendments thereto (if any) referred to
above are hereby ratified.
The foregoing certification is made with the knowledge that
_________________________________is about to fund a loan to Landlord or
____________________ is about to purchase the Building from Landlord and that
___________________ is relying upon the representations herein made in funding
such loan or in purchasing the Building.
IN WITNESS WHEREOF, this certificate has been duly executed and
delivered by the authorized officers of the undersigned as of _________, l9__ .
TENANT:
_______________________________________,
a______________________________________
By:____________________________________
Print Name:____________________________
Title:_________________________________
SAMPLE ONLY
[NOT FOR EXECUTION]
EXHIBIT "G"
<PAGE> 22
RULES AND REGULATIONS
A. GENERAL RULES AND REGULATIONS. The following rules and regulations
govern the use of the Building and the Development Common Areas. Tenant will be
bound by such rules and regulations and agrees to cause Tenant's Authorized
Users, its employees, subtenants, assignees, contractors, suppliers, customers
and invitees to observe the same.
1.Except as specifically provided in the Lease to which these Rules and
Regulations are attached, no sign, placard, picture, advertisement, name or
notice may be installed or displayed on any part of the outside or inside of the
Building or the Development without the prior written consent of Landlord.
Landlord will have the right to remove, at Tenant's expense and without notice,
any sign installed or displayed in violation of this rule. All approved signs or
lettering on doors and walls are to be printed, painted, affixed or inscribed at
the expense of Tenant and under the direction of Landlord by a person or company
designated or approved by Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades,
screens or hanging plants or other similar objects attached to or used in
connection with any window or door of the Premises, or placed on any windowsill,
which is visible from the exterior of the Premises, Tenant will immediately
discontinue such use. Tenant agrees not to place anything against or near glass
partitions or doors or windows which may appear unsightly from outside the
Premises including from within any interior common areas.
3. Tenant will not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, escalators, or stairways of the Development. The halls,
passages, exits, entrances, elevators and stairways are not open to the general
public, but are open, subject to reasonable regulations, to Tenant's business
invitees. Landlord will in all cases retain the right to control and prevent
access thereto of all persons whose presence in the reasonable judgment of
Landlord would be prejudicial to the safety, character, reputation and interest
of the Development and its tenants, provided that nothing herein contained will
be construed to prevent such access to persons with whom any tenant normally
deals in the ordinary course of its business, unless such persons are engaged in
illegal or unlawful activities. No tenant and no employee or invitee of any
tenant will go upon the roof of the Building.
4. Tenant will not obtain for use on the Premises ice, drinking water,
food, food vendors, beverage, towel or other similar services or accept
barbering or bootblacking service upon the Premises, except at such reasonable
hours and under such reasonable regulations as may be fixed by Landlord.
Landlord expressly reserves the right to absolutely prohibit solicitation,
canvassing, distribution of handbills or any other written material, peddling,
sales and displays of products, goods and wares in all portions of the
Development except as may be expressly permitted under the Lease. Landlord
reserves the right to restrict and regulate the use of the common areas of the
Development and Building by invitees of tenants providing services to tenants on
a periodic or daily basis including food and beverage vendors. Such restrictions
may include limitations on time, place, manner and duration of access to a
tenant's premises for such purposes. Without limiting the foregoing, Landlord
may require that such parties use service elevators, halls, passageways and
stairways for such purposes to preserve access within the Building for tenants
and the general public.
5. Landlord reserves the right to require tenants to periodically
provide Landlord with a written list of any and all business invitees which
periodically or regularly provide goods and services to such tenants at the
premises. Landlord reserves the right to preclude all vendors from entering or
conducting business within the Building and the Development if such vendors are
not listed on a tenant's list of requested vendors
6. Landlord reserves the right to exclude from the Building between the
hours of 6 p.m. and 8 a.m. the following business day, or such other hours as
may be established from time to time by Landlord, and on Sundays and legal
holidays, any person unless that person is known to the person or employee in
charge of the Building or has a pass or is properly identified. Tenant will be
responsible for all persons for whom it requests passes and will be liable to
Landlord for all acts of such persons. Landlord will not be liable for damages
for any error with regard to the admission to or exclusion from the Building of
any person. Landlord reserves the right to prevent access to the Building in
case of invasion, mob, riot, public excitement or other commotion by closing the
doors or by other appropriate action.
7. The directory of the Building or the Development will be provided
exclusively for the display of the name and location of tenants only and
Landlord reserves the right to exclude any other names therefrom.
8. All cleaning and janitorial services for the Development and the
Premises will be provided exclusively through Landlord, and except with the
written consent of Landlord, no person or persons other than those approved by
Landlord will be employed by Tenant or permitted to enter the Development for
the purpose of cleaning the same. Tenant will not cause any unnecessary labor by
carelessness or indifference to the good order and cleanliness of the Premises.
9. Landlord will furnish Tenant, free of charge, with two keys to each
door lock in the Premises. Landlord may make a reasonable charge for any
additional keys. Tenant shall not make or have made additional keys, and Tenant
shall not alter any lock or install any new additional lock or bolt on any door
of the Premises. Tenant, upon the termination of its tenancy, will deliver to
Landlord the keys to all doors which have been furnished to Tenant, and in the
event of loss of any keys so furnished, will pay Landlord therefor.
10. If Tenant requires telegraphic, telephonic, burglar alarm,
satellite dishes, antennae or similar services, it will first obtain Landlord's
approval, and comply with, Landlord's reasonable rules and requirements
applicable to such services, which may include separate licensing by, and fees
paid to, Landlord.
11. Freight elevator(s) will be available for use by all tenants in the
Building, subject to such reasonable scheduling as Landlord, in its discretion,
deems appropriate. No equipment, materials, furniture, packages, supplies,
merchandise or other property will be received in the Building or carried in the
elevators except between such hours and in such elevators as may be designated
by Landlord. Tenant's initial move in and subsequent deliveries of bulky items,
such as furniture, safes and similar items will, unless otherwise agreed in
writing by Landlord, be made during the hours of 6:00 p.m. to 6:00 a.m. or on
Saturday or Sunday. Deliveries during normal office hours shall be limited to
normal office supplies and other small items. No deliveries will be made which
impede or interfere with other tenants or the operation of the Building.
12. Tenant will not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord will have the right to reasonably prescribe
the weight, size and position of all safes, heavy equipment, files, materials,
furniture or other property brought into the Building. Heavy objects will, if
considered necessary by Landlord, stand on such platforms as determined by
Landlord to be necessary to properly distribute the weight, which platforms will
be provided at Tenant's expense. Business machines and mechanical equipment
belonging to Tenant, which cause noise or vibration that may be transmitted to
the structure of the Building or to any space therein to such a degree as to be
objectionable to any tenants in the Building or Landlord, are to be placed and
maintained by Tenant, at Tenant's expense, on vibration eliminators or other
devises sufficient to eliminate noise or vibration. Tenant will be responsible
for all structural engineering required to determine structural load, as well as
the expense thereof. The persons employed to move such equipment in or out of
the Building must be reasonably acceptable to Landlord. Landlord will not be
responsible for loss of, or damage to, any such equipment or other property from
any cause, and all damage done to the Building by maintaining or moving such
equipment or other property will be repaired at the expense of Tenant.
EXHIBIT "H"
<PAGE> 23
13. Tenant will not use or keep in the Premises any kerosene, gasoline
or inflammable or combustible fluid or material other than those limited
quantities necessary for the operation or maintenance of office equipment.
Tenant will not use or permit to be used in the Premises any foul or noxious gas
or substance, or permit or allow the Premises to be occupied or used in a manner
offensive or objectionable to Landlord or other occupants of the Building by
reason of noise, odors or vibrations, nor will Tenant bring into or keep in or
about the Premises any birds or animals.
14. Tenant will not use any method of heating or air conditioning other
than that supplied by Landlord without Landlord's prior written consent.
15. Tenant will not waste electricity, water or air conditioning and
agrees to cooperate fully with Landlord to assure the most effective operation
of the Building's heating and air conditioning and to comply with any
governmental energy-saving rules, laws or regulations of which Tenant has actual
notice, and will refrain from attempting to adjust controls. Tenant will keep
corridor doors closed, and shall keep all window coverings pulled down.
16. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
Without the written consent of Landlord, Tenant will not use the name of the
Building or the Development in connection with or in promoting or advertising
the business of Tenant except as Tenant's address.
17. Tenant will close and lock the doors of its Premises and entirely
shut off all water faucets or other water apparatus, and lighting or gas before
Tenant and its employees leave the Premises. Tenant will be responsible for any
damage or injuries sustained by other tenants or occupants of the Building or by
Landlord for noncompliance with this rule.
18. The toilet rooms, toilets, urinals, wash bowls and other apparatus
will not be used for any purpose other than that for which they were constructed
and no foreign substance of any kind whatsoever shall be thrown therein. The
expense of any breakage, stoppage or damage resulting from any violation of this
rule will be borne by the tenant who, or whose employees or invitees, break this
rule. Cleaning of equipment of any type is prohibited. Shaving is prohibited.
19. Tenant will not sell, or permit the sale at retail of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises. Tenant will not use the Premises for any
business or activity other than that specifically provided for in this Lease.
Tenant will not conduct, nor permit to be conducted, either voluntarily or
involuntarily, any auction upon the Premises without first having obtained
Landlord's prior written consent, which consent Landlord may withhold in its
sole and absolute discretion.
20. Tenant will not install any radio or television antenna,
loudspeaker, satellite dishes or other devices on the roof(s) or exterior walls
of the Building or the Development. Tenant will not interfere with radio or
television broadcasting or reception from or in the Development or elsewhere.
21. Except for the ordinary hanging of pictures and wall decorations,
Tenant will not mark, drive nails, screw or drill into the partitions, woodwork
or plaster or in any way deface the Premises or any part thereof, except in
accordance with the provisions of the Lease pertaining to alterations. Landlord
reserves the right to direct electricians as to where and how telephone and
telegraph wires are to be introduced to the Premises. Tenant will not cut or
bore holes for wires. Tenant will not affix any floor covering to the floor of
the Premises in any manner except as approved by Landlord. Tenant shall repair
any damage resulting from noncompliance with this rule.
22. Tenant will not install, maintain or operate upon the Premises any
vending machines without the written consent of Landlord.
23. Landlord reserves the right to exclude or expel from the
Development any person who, in Landlord's judgment, is intoxicated or under the
influence of liquor or drugs or who is in violation of any of the Rules and
Regulations of the Building.
24. Tenant will store all its trash and garbage within its Premises or
in other facilities provided by Landlord. Tenant will not place in any trash box
or receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash and garbage disposal. All garbage and refuse disposal
is to be made in accordance with directions issued from time to time by
Landlord.
25. The Premises will not be used for lodging or for the storage of
merchandise held for sale to the general public, or for lodging or for
manufacturing of any kind, nor shall the Premises be used for any improper,
immoral or objectionable purpose. No cooking will be done or permitted on the
Premises without Landlord's consent, except the use by Tenant of Underwriters'
Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar
beverages shall be permitted, and the use of a microwave oven for employees use
will be permitted, provided that such equipment and use is in accordance with
all applicable federal, state, county and city laws, codes, ordinances, rules
and regulations.
26. Neither Tenant nor any of its employees, agents, customers and
invitees may use in any space or in the public halls of the Building or the
Development any hand truck except those equipped with rubber tires and side
guards or such other material-handling equipment as Landlord may approve. Tenant
will not bring any other vehicles of any kind into the Building.
27. Tenant agrees to comply with all safety, fire protection and
evacuation procedures and regulations established by Landlord or any
governmental agency.
28. Tenant assumes any and all responsibility for protecting its
Premises from theft, robbery and pilferage, which includes keeping doors
locked and other means of entry to the Premises closed.
29. To the extent Landlord reasonably deems it necessary to exercise
exclusive control over any portions of the Common Areas for the mutual benefit
of the tenants in the Building or the Development, Landlord may do so subject to
reasonable, non-discriminatory additional rules and regulations.
30. Landlord may prohibit smoking in the Building and may require
Tenant and any of its employees, agents, clients, customers, invitees and guests
who desire to smoke, to smoke within designated smoking areas within the
Development.
31. Tenant's requirements will be attended to only upon appropriate
application to Landlord's asset management office for the Development by an
authorized individual of Tenant. Employees of Landlord will not perform any work
or do anything outside of their regular duties unless under special
instructions from Landlord, and no employee of Landlord will admit any person
(Tenant or otherwise) to any office without specific instructions from Landlord.
32. These Rules and Regulations are in addition to, and will not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of the Lease. Landlord may waive any one or
more of these Rules and Regulations for the benefit of Tenant or any other
tenant, but no such waiver by Landlord will be construed as a waiver of such
Rules and Regulations in favor of Tenant or any other tenant, nor prevent
Landlord from thereafter enforcing any such Rules and Regulations against any
or all of the tenants of the Development.
H-2
<PAGE> 24
33. Landlord reserves the right to make such other and reasonable and
non-discriminatory Rules and Regulations as, in its judgment, may from time to
time be needed for safety and security, for care and cleanliness of the
Development and for the preservation of good order therein. Tenant agrees to
abide by all such Rules and Regulations herein above stated and any additional
reasonable and non-discriminatory rules and regulations which are adopted.
Tenant is responsible for the observance of all of the foregoing rules by
Tenant's employees, agents, clients, customers, invitees and guests.
B. PARKING RULES AND REGULATIONS. The following rules and regulations
govern the use of the parking facilities which serve the Building. Tenant will
be bound by such rules and regulations and agrees to cause its employees,
subtenants, assignees, contractors, suppliers, customers and invitees to observe
the same:
1. Tenant will not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenant's employees, subtenants, customers or invitees to
be loaded, unloaded or parked in areas other than those designated by Landlord
for such activities. No vehicles are to be left in the parking areas overnight
and no vehicles are to be parked in the parking areas other than normally sized
passenger automobiles, motorcycles and pick-up trucks. No extended term storage
of vehicles is permitted.
2. Vehicles must be parked entirely within painted stall lines of a
single parking stall.
3. All directional signs and arrows must be observed.
4. The speed limit within all parking areas shall be five (5) miles per
hour.
5. Parking is prohibited: (a) in areas not striped for parking; (b) in
aisles or on ramps; (c) where "no parking" signs are posted; (d) in
cross-hatched areas; and (e) in such other areas as may be designated from time
to time by Landlord or Landlord's parking operator.
6. Landlord reserves the right, without cost or liability to Landlord,
to tow any vehicle if such vehicle's audio theft alarm system remains engaged
for an unreasonable period of time.
7. Washing, waxing, cleaning or servicing of any vehicle in any area
not specifically reserved for such purpose is prohibited.
8. Landlord may refuse to permit any person to park in the parking
facilities who violates these rules with unreasonable frequency, and any
violation of these rules shall subject the violator's car to removal, at such
car owner's expense. Tenant agrees to use its best efforts to acquaint its
employees, subtenants, assignees, contractors, suppliers, customers and invitees
with these parking provisions, rules and regulations.
9. Parking stickers, access cards, or any other device or form of
identification supplied by Landlord as a condition of use of the parking
facilities shall remain the property of Landlord. Parking identification
devices, if utilized by Landlord, must be displayed as requested and may not be
mutilated in any manner. The serial number of the parking identification device
may not be obliterated. Parking identification devices, if any, are not
transferable and any device in the possession of an unauthorized holder will be
void. Landlord reserves the right to refuse the sale of monthly stickers or
other parking identification devices to Tenant or any of its agents, Employees
or representatives who willfully refuse to comply with these rules and
regulations and all unposted city, state or federal ordinances, laws or
agreements.
10. Loss or theft of parking identification devices or access cards
must be reported to the management office in the Development immediately, and a
lost or stolen report must be filed by the Tenant or user of such parking
identification device or access card at the time. Landlord has the right to
exclude any vehicle from the parking facilities that does not have a parking
identification device or valid access card. Any parking identification device or
access card which is reported lost or stolen and which is subsequently found in
the possession of an unauthorized person will be confiscated and the illegal
holder will be subject to prosecution.
11. All damage or loss claimed to be the responsibility of Landlord
must be reported, itemized in writing and delivered to the management office
located within the Development within ten (10) business days after any claimed
damage or loss occurs. Any claim not so made is waived. Landlord is not
responsible for damage by water or fire, or for the acts or omissions of others,
or for articles left in vehicles. In any event, the total liability of Landlord,
if any, is limited to Two Hundred Fifty Dollars ($250.00) for all damages or
loss to any car. Landlord is not responsible for loss of use.
12. The parking operators, managers or attendants are not authorized to
make or allow any exceptions to these rules and regulations, without the express
written consent of Landlord. Any exceptions to these rules and regulations made
by the parking operators, managers or attendants without the express written
consent of Landlord will not be deemed to have been approved by Landlord.
13. Landlord reserves the right, without cost or liability to Landlord,
to tow any vehicles which are used or parked in violation of these rules and
regulations.
14. Landlord reserves the right from time to time to modify and/or
adopt such other reasonable and non-discriminatory rules and regulations for the
parking facilities as it deems reasonably necessary for the operation of the
parking facilities.
H-3
<PAGE> 25
DEVELOPMENT
SITE PLAN
[MAP OF KOLL CENTER IRVINE]
EXHIBIT "A-II"
<PAGE> 26
PREMISES
FLOORPLAN
[FLOORPLAN KOLL CENTER IRVINE NATIONAL EDUCATION BLDG.]
EXHIBIT "A-1"
<PAGE> 27
[KOLL CENTER IRVINE LETTER HEAD]
March 13, 1996
Mr. Mitch Everton
PRO BUSINESS, INC.
5934 Gibraltar, Suite 201
Pleasanton, California 94588
Re: Fully Executed Amendment No. #1 by and between Koll Center Irvine
Number Two, Landlord, and Pro Business, Inc., Tenant.
Dear Mitch:
Please find enclosed one (1) fully executed copy of the above-referenced
Amendment No. 1 for Suite 340 in the building located at 18400 Von Karman
Avenue, Irvine, California.
If I can be of any further assistance, please contact me at (714) 474-1800.
Sincerely yours,
KOLL MARKETING GROUP
/s/ John D. Weiner
- -----------------------------------
John D. Weiner
Senior Marketing Consultant
JDW:jek
Enclosure
cc: Brad Schweitzer, Esq.
Craig Ersek
<PAGE> 28
AMENDMENT NO. 2 TO OFFICE BUILDING LEASE
This AMENDMENT NO. 2 TO OFFICE BUILDING LEASE ("Amendment") is
made as of the ___ day of April, 1996, by and between KOLL CENTER IRVINE NUMBER
TWO, a California limited partnership ("Landlord"), and PRO BUSINESS, INC., a
California corporation ("Tenant"), with reference to the facts set forth in the
Recitals below.
RECITALS
A. Landlord and Tenant are parties to that certain Office
Building Lease dated November 7, 1994 (the "Original Lease"), and Amendment No.
I thereto dated March 8, 1996 (the "First Amendment"), pursuant to which
Landlord currently leases to Tenant certain space in the building commonly known
as 18400 Von Karman Avenue, Irvine, California (the "Premises"). The Premises
presently consists of approximately 4,471 Rentable Square Feet of space on the
3rd floor of the Building, commonly known as Suites 340 and 350.
B. The Original Lease as amended by the First Amendment is
collectively referred to in this Amendment as the "Lease". Capitalized terms not
defined in this Amendment have the meanings given to them in the Lease.
C. Landlord and Tenant desire to further amend the Lease in
order to memorialize certain terms concerning demolishing a wall in the
Premises.
AGREEMENT
NOW THEREFORE, in consideration of the above Recitals and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Upon execution of this Amendment by Tenant, Tenant shall pay to
Landlord the sum of $2,730.00 toward the costs incurred by Landlord in
demolishing a wall in the Premises Upon expiration or the earlier
termination of the Additional Space Term (as defined in the First
Amendment), Tenant shall pay to Landlord, as additional rent under the
Lease as amended hereby, an amount equal to $1,654.80 to compensate
Landlord for the cost of reinstalling the demolished wall following
Tenant's vacation of the Additional Space.
2. Except as modified in this Amendment, all other terms and conditions of
the Lease shall remain unchanged and in full force and effect. To the
extent of a conflict between the terms of the Lease and the terms of
this Amendment, the terms of this Amendment shall prevail.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first written above.
TENANT: LANDLORD:
PRO BUSINESS, INC., KOLL CENTER IRVINE NUMBER TWO,
a California corporation a California limited partnership
By: Connecticut General Life Insurance
By: /s/ Mitch Everton Company, General Partner
__________________________
Name: Mitch Everton
_____________________
Title: EVP - OPERATIONS
________________________ By: Cigna Investments, Inc.
Its Authorized Agent
By:______________________________
Name:________________________ By: /s/ Chuel D. Hwang
____________________________
Title:_______________________ Name: Chuel D. Hwang
_______________________
Title: Vice President
______________________
<PAGE> 29
AMENDMENT NO. I TO OFFICE BUILDING LEASE
This AMENDMENT NO. I TO OFFICE BUILDING LEASE ("Amendment") is
made as of the 8th day of March, 1996, by and between KOLL CENTER IRVINE NUMBER
TWO, a California limited partnership ("Landlord"), and PRO BUSINESS, INC., a
California corporation ("Tenant"), with reference to the facts set forth in the
Recitals below.
RECITALS
A. Landlord and Tenant are parties to that certain Office
Building Lease dated November 7, 1994 (the "Lease"), pursuant to which Landlord
leased to Tenant certain space in the building (the "Building") commonly known
as 18400 Von Karman Avenue, Irvine, California (the "Original Premises"). The
Original Premises presently consists of approximately 2,721 Rentable Square Feet
of space on the 3rd floor of the Building, commonly known as Suite 340.
B. Capitalized terms not defined in this Amendment have the
meanings given to them in tile Lease.
C. Landlord and Tenant desire to amend the Lease in order to
expand the Original Premises by approximately 1,750 Rentable Square Feet on the
terms hereinafter provided.
AGREEMENT.
NOW THEREFORE, in consideration of the above Recitals and
other good and valuable consideration, THE receipt of which is hereby
acknowledged, the parties agree as follows.-
1. Additional Premises. Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord, as of the date hereof, the approximately
1,750 Rentable Square Feet adjacent to the Original Premises depicted
on Exhibit "A" attached hereto (the "Additional Space"). Tenant's
leasing of the Additional Space shall be on all of the terms and
conditions of the Lease as relate to the Original Premises, except as
expressly set forth in this Amendment. The Additional Space together
with the Original Premises shall sometimes be referred to in this
Amendment as the "New Premises," and the New Premises shall consist of
a total of approximately 4,471 Rentable Square Feet. From and after the
date hereof, except as expressly set forth in this Amendment, the
defined term "Premises" as used in the Lease shall mean and refer to
the New Premises. The term of Tenant's leasing of the Additional Space
(the "Additional Space Term") shall commence on March 1, 1996 and shall
expire on February 28, 1997. Monthly Base Rent on the Additional Space
during the Additional Space Term shall be $1.55/RSF/mo. or $2,712.50
per month.
2. Operating Expenses and Tenant's Percentage. The Operating Expense
Allowance for the Additional Space shall be Tenant's Percentage of
Operating Expenses for the 1996 calendar year. Tenant's Percentage for
the Additional Space shall be .7994%.
3. Condition of Additional Space. Tenant shall accept the Additional Space
in its "AS IS" existing condition and acknowledges that Landlord shall
not be obligated to improve or pet-form any work in the Additional
Space.
4. Parking. In accordance with the terms of the Lease, Tenant shall be
entitled to use, and shall pay for whether or not it uses, two (2)
unreserved employee parking stalls for the Additional Space at the rate
of $30.00 per space per month during the Additional Space Term.
5. Brokers Landlord and Tenant each represent and warrant to the other
that it is not aware of any brokers or finders, other than Lee &
Associates, who may claim a fee or commission in connection with tile
consummation of the transactions contemplated by this Amendment. If
any other claims for brokers' or finders' fees in connection with the
transactions contemplated by this Amendment arise, then Tenant agrees
to indemnify, protect, hold harmless and defend Landlord (with counsel
satisfactory to Landlord) from
<PAGE> 30
and against any such claims if they shall be based upon any statement,
representation or agreement made by Tenant, and Landlord agrees to
indemnify, protect, hold harmless and defend Tenant (with counsel
satisfactory to Tenant) if such claims are based upon any statement,
representation or agreement made by Landlord.
6. No Other Modifications. Except as modified in this Amendment, all other
terms and conditions of the Lease shall remain unchanged and in full
force and effect. To the extent of a conflict between the terms of the
Lease and the terms of this Amendment, the terms of this Amendment
shall prevail.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first written above.
TENANT: LANDLORD:
PRO BUSINESS, INC., a California KOLL CENTER IRVINE NUMBER TWO,
corporation a California limited partnership
By: /s/ Mitch Everton
_____________________________ By: Connecticut General Life Insurance
Name: Mitch Everton Company, General Partner
_______________________
Title: EVP - OPERATIONS By: Cigna Investments, Inc.
_______________________ Its Authorized Agent
By:______________________________
Name:_______________________
Title:______________________ By: /s/ Leon Pouncy
______________________________
Name: ________________________
Title: LEON POUNCY
________________________
MANAGING DIRECTOR
<PAGE> 31
DEPICTION OF ADDITIONAL SPACE
[FLOOR PLAN - FLOOR 3 KOLL CENTER IRVINE]
<PAGE> 32
[KOLL LETTERHEAD]
November 29, 1994
Mr. Mitch Everton
Pro-Business, Inc.
18400 Von Karman Ave, Inc.
Suite 340
Irvine, CA 92715
Dear Mitch:
This letter confirms that Pro-Business, Inc. is ready to begin occupancy
of Suite 340, in the 18400 Building at Koll Center Irvine.
Upon execution of this letter, by yourself or representatives of your
firm, acknowledging Pro-Business's acceptance of the leased premises, we
will tender possession to you so that you may take occupancy on November
29, 1994. Your lease will commence effective November 29, 1994.
Sincerely,
/s/ Craig T. Ersek
_________________________
Craig T. Ersek
Manager
Koll Center Irvine
Accepted this 29th day of November, 1994
PRO-BUSINESS, INC.
By: /s/ Terri Berg
____________________________________
Its:____________________________________
<PAGE> 1
Exhibit 10.18
Date(s) Revised:___________________
TENANT (LEASE) SUMMARY
FULL SERVICE OFFICE
Lease Execution Date: 10/9/87
Lease Amendments (purpose, date): Letter metering expenses -- 12/16/87
Landlord: Hacienda Park Associates
Address: 4637 Chabot Drive, Suite 300
Pleasanton, CA 94566
Contact: Joe Callahan
Tenant: Johansen Investment Corp. dba SCJ Insurance Serv.
Address: 4698 Willow Rd.
Pleasanton, CA 94566
Contact: Shirley Rapp
Phone #: 463-1374
Broker: Ted Helgans
Company: CPS
Phone #: 463-2300
PROPERTY INFORMATION:
Property/Project: Site 30A -- Saratoga Center
Bldg.: A&B Acreage: 5,575 APN: 941-2759-20
Sqft.: A-41,656 1B-41,574 (bldg.) 13,179/B-2117 (tenant)
Address: 5934 Gibraltar Drive Suite: 100 & 202
Pleasanton, CA 94566
*Tenant's Project %: 15.8-A/2.5-B Tenant's Building %: 31.6-A/5%-B
Lease Term: 5 years 0 months
Estimated Lease Commencement date: 10/15/87 Actual Date: 10/15/87
Lease Expiration Date: 9/14/92
Late Payment Charges: 5 days or 5%
Deposit Received: (Security) N/A (Mo. rent) 1 mo.
Renewal Option (term, base rent, notice date): Holdover @ 100% of existing rent
rate. No option presided.
Landlord's Tenant Improvements: (AT&T moved into Spec Bldg 2 space.)
Information below if from Spec Bldg 2 Construction File.
Architect (company): Interform (contact): D. Gould
General Contractor (company): Vanderson (contact): J. Merryman
Consultants (by Specialty):
Building Permit #: 9496-1 Building Permit #:_________________
Type: TI Type:______________________________
Date Issued: 9/ /8 Date Issued:_______________________
Date Final: 7/25/87 Date Final:________________________
Notice of Completion: (dt) / /8 #- 828 (dt)___________#________
Executed Plans, Specs (Date): /
As Built Drawings (Date): N/A
Comments (punchlist, etc.): Signed punchlist 10/26/87
Page 1 of 2
<PAGE> 2
Tenant Improvement Cost Allowance - Turnkey
Total Allowance ($/sq.ft.): 29.37 = Existing: 8.97 + New: 20.40
Actual Tenant Improvement Cost ($/sq.ft.): 29.57
Construction Cost (Gen'l Cont.): +29,451
Change Orders (Date Executed, Amount): (1)Dt: 10/20/87 Amt: 2634
-------- --------
(2)Dt: 11/9/87 Amt: 353 (3)Dt: Amt:
-------- -------- -------- --------
(4)Dt: Amt: (5)Dt: Amt:
-------- -------- -------- --------
(5)Dt: Amt: (7)Dt: Amt:
-------- -------- -------- --------
Indirect Cost (Permits, A&E, etc.): A&E-3,616.45, allowance-31,795.76
_______________________________________________________________________
_______________________________________________________________________
Excess Tenant Improvements:
Actual Amount Over Allowance ($/sq.ft.): N/A
Rent Adjustment Factor: N/A
Maximum T.I. Amount ($/sq.ft.): N/A
Monthly Rental: Operating Expenses (base year 1987)
Total Monthly
Outside Area Building Rental
Period Base Rent Expense Expense -----------------------
(Month) (Rate/sf/mo) + (Rate/sf/mo) + (Rate/sf/mo) = (Rate/sf/mo) ($Amount)
- ------- ------------ ------------ ------------ ------------ ---------
5 .22 $0.43 Inc. $0.65 10,000
25 1.22 $0.43 Inc. 1.65 25,200
30 1.38 0.43 Inc. 1.81 27,720
NNN Rent - per limitation expenses, any $ paid by landlord must be deducted
from base rent to get NNN.
Additional Rent (Item, Payment Cycle, Rate/SF/Mo): Adj operating as needed with
actual start due 120 days after EOY. Use 10% vacancy to calculate estimate.
Rental Escalations (Date, Reason, Rate/SF/Mo):_________________________________
_______________________________________________________________________________
Miscellaneous (Limitations on Expenses, etc.): Expenses do not include optional
services.
Operating expenses capped at $0.43 1st year only_______________________________
Lease Amendment Required: (Date, Reason, Adj to Rate/SF/Mo): Site moving
expenses.
Operating Expenses:
Landlord: Tenant pays estimated base year operating expenses per
Exhibit D of the lease. Operating expenses include
building expenses not limited to real property taxes and
assessments, insurance, gas and electric service for
normal business hours (7:00 a.m. to 6:30 p.m.), HVAC
maintenance and repair, property management at 3% of the
annual gross income, domestic and irrigation water and
sewer rental, general building maintenance, building
supplies, fire, alarm, and HVAC system monitoring and
repair. Outside area expenses include but are not
limited to landscape irrigation and landscaping
maintenance, replacement and repair.
Tenant: None except off hour PG&E usage and adjustments to Base
Year.
Utilities & Services: By Tenant, gas, electrical, telephone, domestic water
and sewer rental separatley metered for Tenant.
Comments (General): Lease form used: Full Service Office.
Page 2 of 2
<PAGE> 3
Date: November 16, 1989
CALLAHAN PROPERTY COMPANY - SUMMARY OF LEASE COSTS
TENANT: SCJ INSURANCE SERVICES
-----------------------------------
PROJECT: SARATOGA CENTER - SITE 30A SQUARE FEET: 3,100
----------------------------------- --------------
<TABLE>
<CAPTION>
ESTIMATE FINAL
-------- -----
TENANT IMPROVEMENT COSTS:
- ------------------------
<S> <C> <C>
Date: 11/15/89 Date:
---------- ----------
General Contractor VCI: $22,455
---------- ----------
Change Orders #1:
---------- ----------
Change Orders #2:
---------- ----------
Other Contractors:
1. TELCO COMMUNICATION $ 5,950
----------------------- ---------- ----------
2.
----------------------- ---------- ----------
3.
----------------------- ---------- ----------
Landlord Pre-Purchased Materials:
1.
----------------------- ---------- ----------
2.
----------------------- ---------- ----------
3.
----------------------- ---------- ----------
Sub Total: $28,405
Other Costs:
Permits and Plan Check: INCLUDED IN VCI
--------------- ----------
Other Municipal Fees:
---------- ----------
Space Planning $ 2,500
---------- ----------
Other Costs:
1. MOVING EXPENSE $ 2,100
----------------------- ---------- ----------
2.
----------------------- ---------- ----------
SIGNAGE
Commissions - None - No rent increase
Callahan Property Company
---------- ----------
Other
---------- ----------
Sub Total: $ 4,600
========== ==========
TOTAL: $33,005
BY: GTC
---------- ----------
</TABLE>
<PAGE> 4
LEASE
(FULL SERVICE OFFICE LEASE)
BY AND BETWEEN
CALLAHAN PENTZ PROPERTIES, PLEASANTON -
SITE 30A, A CALIFORNIA GENERAL PARTNERSHIP
("LANDLORD")
AND
JOHANSEN INVESTMENT CORPORATION
dba SCJ INSURANCE SERVICE
("TENANT")
OCT. 9, 1987
FOR THE APPROXIMATELY 13,179 SF PREMISES AT
5934 GIBRALTAR DRIVE, PLEASANTON, CA 94566 AND
2,117 SF PREMISES AT 4698 WILLOW ROAD,
PLEASANTON, CA 94566
<PAGE> 5
LEASE SUMMARY
FULL SERVICE OFFICE LEASE
<TABLE>
<S> <C>
LEASE DATE: October 9, 1987
LANDLORD: Callahan Pentz Properties, Pleasanton -
Site 30A
LANDLORD'S ADDRESS: 4637 Chabot Drive, Suite 300
Pleasanton, CA 94566
TENANT: Johansen Investment Corporation dba
SCJ Insurance Service
TENANT'S ADDRESS: 4698 Willow Road,
Pleasanton, CA 94566
CONTACT: Shirley Lapp
TELEPHONE: (415) 463-1374
PREMISES: Premises A: 13,179 Square Feet, 5934 Gibraltar Drive,
Pleasanton, CA 94566 and Premises B: 2,117 Square
Feet, 4698 Willow Road, Pleasanton, CA 94566
BUILDING SQUARE 41,656 Square Feet at 5934 Gibraltar
FOOTAGE: 41,574 Square Feet at 4698 Willow Road
PROJECT ACREAGE: 4,575
ANTICIPATED
COMMENCEMENT DATE: October 15, 1987
TERM: October 15, 1987, to September 14, 1992
NET MONTHLY RENT: $3,434.35/month
ESTIMATED OPERATING $5,930.55/month (Premises A)
EXPENSE BASE: $ 635.10/month (Premises B)
TOTAL: $10,000.00/month
NET MONTHLY RENT March 15, 1988 - $18,634.35
INCREASES: April 15, 1990 - $21,154.35
SECURITY DEPOSIT: N/A.
TENANT'S PERCENTAGE: 31.6% at 5934 Gibraltar Drive
5% at 4698 Willow Road
</TABLE>
<PAGE> 6
TABLE OF CONTENTS
(FULL SERVICE OFFICE LEASE)
<TABLE>
<CAPTION>
PARAGRAPH PAGE
<S> <C> <C>
1. BASIC LEASE PROVISIONS . . . . . . . . . . . . . . . . . . 1
2. PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 2
4. LEASE TERM . . . . . . . . . . . . . . . . . . . . . . . . 4
5. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6. LATE PAYMENT CHARGES . . . . . . . . . . . . . . . . . . . 5
7. SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . 5
8. HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . 6
9. TENANT IMPROVEMENTS . . . . . . . . . . . . . . . . . . . 6
10. CONDITION OF PREMISES . . . . . . . . . . . . . . . . . . 6
11. USE OF THE PREMISES . . . . . . . . . . . . . . . . . . . 6
12. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . 7
13. ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . 7
14. SURRENDER OF THE PREMISES . . . . . . . . . . . . . . . . 7
15. OPERATING EXPENSES . . . . . . . . . . . . . . . . . . . . 8
16. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . 12
17. UTILITIES AND SERVICES . . . . . . . . . . . . . . . . . . 13
18. REPAIR AND MAINTENANCE . . . . . . . . . . . . . . . . . . 13
19. LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . 14
20. LANDLORD'S RIGHT TO ENTER THE PREMISES . . . . . . . . . . 14
21. SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . 14
22. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
i
<PAGE> 7
<TABLE>
<S> <C> <C>
23. WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . 16
24. DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . 17
25. CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . 18
26. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . 18
27. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . 19
28. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . 21
29. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . 22
30. ATTORNEYS' FEES . . . . . . . . . . . . . . . . . . . . . 22
31. TENANT STATEMENTS . . . . . . . . . . . . . . . . . . . . 22
32. TRANSFER OF THE BUILDING BY LANDLORD . . . . . . . . . . . 23
33. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS . . . . . . 23
34. TENANT'S REMEDY . . . . . . . . . . . . . . . . . . . . . 23
35. MORTGAGEE PROTECTION . . . . . . . . . . . . . . . . . . . 23
36. BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . 23
37. ACCEPTANCE . . . . . . . . . . . . . . . . . . . . . . . . 23
38. RECORDING . . . . . . . . . . . . . . . . . . . . . . . . 23
39. DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . 23
40. PARKING . . . . . . . . . . . . . . . . . . . . . . . . . 24
41. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . 24
42. TERMINATION AGREEMENT . . . . . . . . . . . . . . . . . . 25
</TABLE>
ii
<PAGE> 8
LIST OF EXHIBITS
<TABLE>
<S> <C>
EXHIBIT A The Premises
EXHIBIT B The Project
EXHIBIT C Work Letter Agreement
EXHIBIT D Commencement Date Memorandum
EXHIBIT E Rules and Regulations
EXHIBIT F Utilities and Services
EXHIBIT G Termination Agreement
</TABLE>
iii
<PAGE> 9
LEASE
(FULL SERVICE OFFICE LEASE)
THIS LEASE (the "Lease"), for reference purposes only dated October 9,
1987, is entered into by and between Callahan Pentz Properties, Pleasanton -
Site 30A ("Landlord"), whose address is 4637 Chabot Drive, Suite 300,
Pleasanton, California and Johansen Investment Corporation, a California
corporation dba SCJ Insurance Service ("Tenant"), whose address is 4698 Willow
Road, Pleasanton, California.
1. BASIC LEASE PROVISIONS.
1.1 PREMISES. Approximately thirteen thousand one
hundred and seventy-nine (13,179) square feet (Premises A), commonly known as
the street address of 5934 Gibraltar Drive, Suite No. 100, and Suite No. 202,
and two thousand one hundred seventeen (2,117) square feet (Premises B),
commonly known as the street address of 4698 Willow Road, in the City of
Pleasanton (the "City"), County of Alameda (the "County"), California, as more
particularly described in EXHIBIT A. Premises A and Premises B are sometimes
hereafter referred to collectively as the "Premises".
1.2 BUILDING. The Building in which each of the
respective Premises is located.
1.3 ANTICIPATED COMMENCEMENT DATE. October 15, 1987.
1.4 TERM. Five (5) years and zero (0) months, commencing
upon the Commencement Date as defined in Paragraph 3.3 and ending October 14,
1992.
1.5 USE. General office purposes, subject to
Paragraph II.
1.6 MONTHLY RENT. Commencing on the first month of the
Term and continuing on the first day of each month thereafter, Tenant shall pay
to Landlord Total Monthly Rent consisting of the following:
1.6.1 NET MONTHLY RENT: Commencing on the first day of the
first month of the Term, Tenant shall pay Three Thousand Four Hundred and
Thirty-four and 35/100ths ($3,434.35) Dollars.
1.6.2 OPERATING EXPENSE BASE. The amount of Operating
Expenses for Premises A, as defined in Paragraph 15.1.1, is Five Thousand Nine
Hundred and Thirty and 55/100ths ($5,930.55) Dollars per month. The Operating
Expense Base is forty-five hundredths Dollars ($.45) per rentable square foot
of the Premises per month. The amount of Operating Expenses for Premises B, as
defined in Paragraph 15.1.2, is Six Hundred and Thirty-five and 10/100ths
($635.10) Dollars for Premises B per month. The Operating Expense Base is
thirty hundredths ($.30) Dollars per rentable square foot of the Premises per
month.
1.7 NET MONTHLY RENT ADJUSTMENTS. The Monthly Rent shall
be increased during the Term as follows: March 15, 1988, to Eighteen Thousand
Six Hundred and Thirty-four and 35/100ths ($18,634.35) Dollars and then April
15, 1990, to Twenty-one Thousand One Hundred and Fifty-four and 35/100ths
($21,154.35) Dollars.
1
<PAGE> 10
Landlord hereby acknowledges receipt of one month's payment of Monthly
Rent to be applied toward the first month of the Term.
1.8 SECURITY DEPOSIT. N/A.
1.9 TENANT'S PERCENTAGE. The percentage determined by
dividing the approximate square footage of the Premises by the approximate
total square footage of the Building. Tenant's Percentage is to be 31.6% for
the purposes of this Lease at 5934 Gibraltar Drive and 5.0% at 4698 Willow
Road.
1.10 PROJECT. The real property upon which the Building
is located consisting of approximately 4.575 acres, as more particularly
described in EXHIBIT B.
1.11 CC&R'S. Those Covenants, Conditions and Restrictions
recorded as Instrument No. 85-1439.6, of the Official Records of the County, on
January 24, 1987, as amended, incorporated herein by this reference. By
placing its initials below, Tenant hereby acknowledges that it has received and
read a complete copy of the CC&R's.
Tenant's
Initials: [SIG]
-----------------
1.12 BROKER(S) N/A.
1.13 ADDENDUM PROVISIONS. Options to renew: N/A
2. PREMISES. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord the Premises together with a right in common to the Common
Area, as defined in Paragraph 3.2, and the Outside Area, as defined in
Paragraph 3.7. Tenant's right to use the Common Area shall be a right in common
with other tenants of the Building, and Tenant's right to use the Outside Area
shall be a right in common with other tenants of the Project.
3. DEFINITIONS. The following terms shall have the following
meanings in this Lease:
3.1 ALTERATIONS. Any alterations, additions or
improvements made in, on or about the Building or the Premises after the
Commencement Date, including, but not limited to, lighting, heating,
ventilating, air conditioning, electrical, partitioning, drapery and carpentry
installations.
3.2 COMMON AREA. All areas and facilities within the
Building provided and designated by Landlord for the general use, convenience
or benefit of Tenant and other tenants and occupants of the Building,
including, without limitation, hallways, stairs, elevators, entrances and
exits, restrooms, appurtenant equipment serving the Building, and trash
disposal facilities, subject to the reasonable rules and regulations and
changes therein from time to time promulgated by Landlord governing the use of
the Common Area.
3.3 COMMENCEMENT DATE. If no Tenant Improvements are to
be constructed, the Commencement Date shall be the Anticipated Commencement
Date set forth in Paragraph 1.3. If Tenant Improvements are to be constructed,
the Commencement Date shall be the earliest occurring of the following:
2
<PAGE> 11
3.3.1 The date the City has approved the Tenant
Improvements constructed pursuant to EXHIBIT C in accordance with its building
code, evidenced by its completion of a final inspection and written approval of
such improvements as so completed in accordance with the building permit issued
for such improvements; or
3.3.2 The date Landlord's architect and general contractor
have both certified in writing to Tenant that all work described in the plans
approved by Landlord and Tenant for the Tenant Improvements to be constructed
pursuant to EXHIBIT C has been substantially completed in accordance with such
plans; or
3.3.3 The date Tenant commences occupancy of the Premises.
Once the actual Commencement Date has been determined pursuant to the
foregoing, the parties shall execute a Commencement Date Memorandum in the form
attached hereto as EXHIBIT D.
3.4 HVAC. Heating, ventilating and air conditioning.
3.5 INTEREST RATE. Twelve percent (12%) per annum,
however, in no event to exceed the maximum rate of interest permitted by law.
3.6 LANDLORD'S AGENTS. Landlord's authorized agents,
partners, subsidiaries, directors, officers, and employees.
3.7 OUTSIDE AREA. All areas and facilities within the
Project, exclusive of the interior of the Building and any other buildings on
the Project, provided and designated by Landlord for the general use and
convenience of Tenant and other tenants and occupants of the Project,
including, without limitation, the parking areas, access and perimeter roads,
sidewalks, landscaped areas, service areas, trash disposal facilities, and
similar areas and facilities, subject to the reasonable rules and regulations
and changes therein from time to time promulgated by Landlord governing the use
of the Outside Area.
3.8 REAL PROPERTY TAXES. Any form of assessment,
license, fee, rent tax, levy, penalty (if a result of Tenant's delinquency), or
tax (other than net income, estate, succession, inheritance, transfer or
franchise taxes), imposed by any authority having the direct or indirect power
to tax, or by any city, county, state or federal government or any improvement
or other district or division thereof, whether such tax is: (i) determined by
the area of the Project or any part thereof or the rent and other sums payable
hereunder by Tenant or by other tenants, including, but not limited to, any
gross income or excise tax levied by any of the foregoing authorities with
respect to receipt of such rent or other sums due under this Lease; (ii) upon
any legal or equitable interest of Landlord in the Project or the buildings
thereon or any part thereof; (iii) upon this transaction or any document to
which Tenant is a party creating or transferring any interest in all or any
part of the Project; (iv) levied or assessed in lieu of, in substitution for,
or in addition to, existing or additional taxes against the Project whether or
not now customary or within the contemplation of the parties; or (v) surcharged
against the Outside Area.
3.9 RENT. Monthly Rent plus the Additional Rent defined
in Paragraph 5.2.
3.10 SUBLET. Any transfer, sublet, assignment, license or
concession agreement, change of ownership, mortgage, or hypothecation of this
Lease or the Tenant's interest in the Lease or in and to all or a portion of
the Premises.
3
<PAGE> 12
3.11 SUBRENT. Any consideration of any kind received, or
to be received, by Tenant from a subtenant if such sums are related to Tenant's
interest in this Lease or in the Premises, including, but not limited to, bonus
money and payments (in excess of fair market value) for Tenant's assets
including its trade fixtures, equipment and other personal property, goodwill,
general intangibles, and any capital stock or other equity ownership of Tenant.
3.12 SUBTENTANT. The person or entity with whom a Sublet
agreement is proposed to be or is made.
3.13 TENANT IMPROVEMENTS. Those improvements to the
Premises to be constructed by Landlord pursuant to EXHIBIT C, if any.
3.14 TENANT'S PERSONAL PROPERTY. Tenant's trade fixtures,
furniture, equipment and other personal property in the Premises.
4. LEASE TERM.
4.1 TERM. The Term shall be as set forth in Paragraph
1.4, as it may be renewed pursuant to any options to renew granted herein.
4.2 DELIVERY OF POSSESSION. If Landlord is unable to
deliver possession of the Premises to Tenant on the Commencement Date, Landlord
shall not be subject to liability therefor, nor shall such failure effect the
validity of this Lease, the obligations of Tenant, or extend the Term. In such
case, subject to the provisions of Section 4.3, Tenant shall not be obligated
to pay Rent or perform any other obligations of Tenant under this Lease, except
as may be otherwise provided herein, until possession of the Premises is
tendered to Tenant; provided, however, if Landlord has not delivered possession
of the Premises within sixty (60) days from the Commencement Date, Tenant may,
at Tenant's option with notice in writing to Landlord within ten (10) days
thereafter, cancel this Lease. If such notice is not received by Landlord
within such ten (10) day period, Tenant's right to cancel this Lease shall
terminate and be of no further force and effect.
4.3 TENANT DELAYS. If the Commencement Date has not
occurred on or before the Anticipated Commencement Date set forth in Paragraph
1.3, due to the fault of the Tenant, then notwithstanding any other provision
hereof, the Commencement Date of this Lease shall be the date specified as the
Anticipated Commencement Date and Tenant shall commence payment to Landlord of
the Monthly Rent set forth in Paragraph 1.6. Delays "due to the fault" of
Tenant shall include those caused by:
4.3.1 Tenant's failure to furnish information to
Landlord for the preparation of plans and drawings for the Tenant Improvements
in accordance with EXHIBIT C;
4.3.2 Tenant's request for special materials,
finishes or installations which are not readily available;
4.3.3 Tenant's failure to reasonably approve the
space plan for the Tenant Improvements in accordance with the time period set
forth in EXHIBIT C;
4.3.4 Tenant's changes in the space plan or the
Final Plans after their approval by Landlord;
4
<PAGE> 13
4.3.5 Tenant's failure to complete any of its own
improvement work to the extent Tenant delays completion by the City of its
final inspection and approval of the Tenant Improvements described in EXHIBIT
C; or
4.3.6 Interference with Landlord's work caused by
Tenant or by Tenant's contractors or subcontractors.
4.4. EARLY ENTRY. If Tenant is permitted to occupy the
Premises prior to the Commencement Date for the purpose of fixturing or any
other purpose permitted by Landlord, such early entry shall be at Tenant's sole
risk and subject to all the terms and provisions hereof, except for the payment
of Monthly Rent which shall commence on the date set forth in Paragraph 1.6.
Landlord shall have the right to impose such additional conditions on Tenant's
early entry as Landlord shall deem appropriate, and shall further have the
right to require that Tenant execute an early entry agreement containing such
conditions prior to Tenant's early entry.
5. RENT.
5.1 MONTHLY RENT. Tenant shall pay to Landlord, in
lawful money of the United States, commencing on the date specified in
Paragraph 1.6 and continuing on the first day of each calendar month thereafter
throughout the Term, the Monthly Rent, subject to adjustments as provided in
Paragraph 1.7. Monthly Rent shall be payable in advance, without abatement,
deduction, claim, offset, prior notice or demand and shall be prorated for any
partial month.
5.2 ADDITIONAL RENT. All monies required to be paid by
Tenant under this Lease, including, without limitation, Accrued Excess and
Estimated Excess of Operating Expenses, as defined in Paragraph 15.3, and
insurance premiums shall be deemed Additional Rent.
6. LATE PAYMENT CHARGES. Tenant acknowledges that late payment
by Tenant to Landlord of Rent and other charges provided for under this Lease
will cause Landlord to incur costs not contemplated by this Lease, the exact
amount of such costs being extremely difficult or impracticable to fix.
Therefore, if any installment of Rent or any other charge due from Tenant is
not received by Landlord within five (5) days of its due date, Tenant shall pay
to Landlord an additional sum equal to five percent (5%) of the amount overdue
as a late charge for every month or portion thereof that the Rent or other
charges remain unpaid. The parties agree that this late charge represents a
fair and reasonable estimate of the costs that Landlord will incur by reason of
the late payment by Tenant.
Landlord's Tenant's
Initials /SIG/ Initials /SIG/
---------------- ----------------
7. SECURITY DEPOSIT. Tenant shall deposit with Landlord on the
Commencement Date the Security Deposit set forth in Paragraph 1.9 for the full
and faithful performance of every provision of this Lease to be performed by
Tenant. If Tenant defaults with respect to any provision of this Lease,
Landlord may apply all or any part of the Security Deposit for the payment of
any Rent or other sum in default, the repair of such damage to the Premises or
the payment of any other amount which Landlord may spend or become obligated to
spend by reason of Tenant's default or to compensate Landlord for any other
loss or damage which Landlord may suffer by reason of Tenant's default to the
full extent permitted by law. If any portion of the Security Deposit is so
applied, Tenant shall, within ten (10) days after written demand therefor,
deposit cash with Landlord in an amount sufficient to restore the Security
Deposit to its original amount. If the Monthly Rent increases during the Term,
Landlord shall have the right, upon ten (10) days' notice to Tenant, to
5
<PAGE> 14
require that the Security Deposit be increased by an amount equal to the
increase in the Monthly Rent. If Tenant is not otherwise in default, the
Security Deposit or any balance thereof shall be returned to Tenant within
thirty (30) days of termination of the Lease.
8. HOLDING OVER. If Tenant remains in possession of all or any
part of the Premises after the expiration of the Term, with or without the
express or implied consent of Landlord, such tenancy shall be from
month-to-month only and not a renewal hereof or any extension for any further
term, and in such case, Rent and other monetary sums due hereunder shall be
payable in the amount and at the time applicable at the time of expiration and
at the time specified in this Lease and such month-to-month tenancy shall be
subject to every other term, covenant and agreement of this Lease.
9. TENANT IMPROVEMENTS. Landlord agrees to construct the Tenant
Improvements, if any, pursuant to the terms of EXHIBIT C.
10. CONDITION OF PREMISES. If no Tenant Improvements are to be
constructed by Landlord, Tenant acknowledges that Tenant has inspected the
Premises and accepts the Premises as of the Commencement Date in their "as is"
condition. If Tenant Improvements are to be constructed by Landlord, within
ten (10) days after completion of the Tenant Improvements, Tenant shall conduct
a walk-through inspection of the Premises with Landlord and complete a
punch-list of items needing additional work by Landlord. Other than the items
specified in the punch-list, by taking possession of the Premises, Tenant shall
be deemed to have accepted the Premises as improved with the Tenant
Improvements in good, clean and completed condition and repair, subject to all
applicable laws, codes and ordinances. The punch-list to be prepared by Tenant
shall not include any damage to the Premises caused by Tenant's move-in, which
damage shall be repaired or corrected by Tenant, at its expense. Tenant
acknowledges that neither Landlord nor its Agents have made any representations
or warranties as to the suitability or fitness of the Premises for the conduct
of Tenant's business or for any other purpose, nor has Landlord or its Agents
agreed to undertake any Alterations or construct any Tenant Improvements to the
Premises except as expressly provided in this Lease. If Tenant fails to submit
a punch-list to Landlord within such ten (10) day period, it shall be deemed
that there are no items needing additional work or repair. Landlord's
contractor shall complete all reasonable punch-list items within thirty (30)
days after the walk-through inspection or as soon as practicable thereafter.
Upon completion of such punch-list items, Tenant shall approve such completed
items in writing to Landlord. If Tenant fails to reasonably approve such items
within seven (7) days of completion, such items shall be deemed approved by
Tenant.
11. USE OF THE PREMISES.
11.1 TENANT'S USE. Tenant shall use the Premises solely
for the purposes specified in Paragraph 1.5 and shall not use the Premises for
any other purpose without obtaining the prior written consent of Landlord.
Tenant's use of the Premises, the Common Area, and the Outside Area shall be
subject to the Rules and Regulations set forth in EXHIBIT E as amended from
time to time by Landlord. Tenant agrees that the Project is subject and this
Lease is subordinate to the CC&R's. Tenant acknowledges that it has read the
CC&R's and knows the contents thereof. Throughout the Term, Tenant shall
faithfully and timely perform and comply with the CC&R's and any modification
or amendments thereof. Tenant shall hold Landlord and its Agents harmless and
indemnify Landlord and its Agents against any loss, expense, damage, attorneys'
fees and costs or liability arising out of or in connection with the failure of
Tenant to so perform or comply with the CC&R's.
6
<PAGE> 15
11.2 COMPLIANCE. Tenant shall not use the Premises or
suffer or permit anything to be done in or about the Project which will in any
way conflict with any law, statute, zoning restriction, ordinance or
governmental law, rule, regulation or requirement of duly constituted public
authorities now in force or which may hereafter be in force, or the
requirements of the Board of Fire Underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use or occupancy
of the Premises or the Project. Tenant shall continuously and uninterruptedly
conduct its business in the Premises during the Term and shall not abandon the
Premises. Tenant shall not commit any public or private nuisance or any other
act or thing which might or would disturb the quiet enjoyment of any other
tenant of Landlord or any occupant of nearby property. Tenant shall place no
loads upon the floors, walls or ceilings in excess of the maximum designed load
determined by Landlord or which endanger the structure; nor place any harmful
liquids in the drainage systems; nor dump or store waste materials or refuse or
allow such to remain outside the Building proper, except in the enclosed trash
areas provided, if any. Tenant shall not store or permit to be stored or
otherwise placed any other material of any nature whatsoever outside the
Building. In particular, Tenant, at its sole cost, shall comply with all laws
relating to the storage, use and disposal of hazardous, toxic or radioactive
matter, including those materials identified in Sections 66680 through 66685 of
Title 22 of the California Administrative Code, Division 4, Chapter 30 ("Title
22") as they may be amended from time to time (collectively "Toxic Materials").
If Tenant does store, use or dispose of any Toxic Materials, Tenant shall
notify Landlord in writing at least ten (10) days prior to their first
appearance on the Premises.
12. QUIET ENJOYMENT. Landlord covenants that Tenant, upon
performing the terms, conditions and covenants of this Lease, shall have the
quiet and peaceful possession of the Premises as against any person claiming
the same by, through or under Landlord.
13. ALTERATIONS. After the Commencement Date, Tenant shall not
make or permit any Alterations in, on or about the Premises, except for
nonstructural Alterations not exceeding Five Thousand and no/100ths Dollars
($5,000.00) in cost, without the prior written consent of Landlord, which
consent shall not be unreasonably withheld, and according to plans and
specifications reasonably approved in writing by Landlord. Notwithstanding the
foregoing, Tenant shall not, without the prior written consent of the Landlord,
make any (i) alterations to the exterior of the Building; (ii) alterations to
and penetrations of the roof of the Building; or (iii) alterations visible from
outside the Building to which Landlord may withhold Landlord's consent on
wholly aesthetic grounds. All Alterations shall be installed at Tenant's sole
expense, in compliance with all applicable laws, permit requirements and the
CC&R's, by a licensed contractor, shall be done in a good and workmanlike
manner conforming in quality and design with the Premises existing as of the
Commencement Date, and shall not diminish the value of either the Building or
the Premises. All Alterations made by Tenant shall be and become the property
of Landlord upon installation and shall not be deemed Tenant's Personal
Property; provided, however, that Landlord may, at its option, require that
Tenant, at Tenant's expense, remove any or all nonstructural Alterations
installed by Tenant and return the Premises to their condition as of the
Commencement Date of this Lease, normal wear and tear excepted and subject to
the provisions of Paragraph 24. Notwithstanding any other provision of this
Lease, Tenant shall be solely responsible for the maintenance and repair of any
Alterations made by it to the Premises.
14. SURRENDER OF THE PREMISES. Upon the expiration or earlier
termination of the Term, Tenant shall surrender the Premises to Landlord in its
condition existing as of the Commencement Date, normal wear and tear and fire
or other casualty excepted, with all interior areas cleaned. Tenant shall
remove from the Premises all of Tenant's Alterations required to be removed
pursuant to Paragraph 13, and all Tenant's Personal Property and repair any
damage and perform any restoration work caused by such removal. If Tenant
fails to remove such Alterations
7
<PAGE> 16
and Tenant's Personal Property, and such failure continues after the
termination of this Lease, Landlord may retain such property and all rights of
Tenant with respect to it shall cease, or Landlord may place all or any portion
of such property in public storage for Tenant's account. Tenant shall be
liable to Landlord for costs of removal of any such Alterations and Tenant's
Personal Property and storage and transportation costs of same, and the cost of
repairing and restoring the Premises, together with interest at the Interest
Rate from the date of expenditure by Landlord.
15. OPERATING EXPENSES. The term "Operating Expenses" shall be
defined to include the "Building Expenses" and the "Outside Area Expenses," as
defined in Paragraphs 15.1.1, 15.1.2 and 15.2.
15.1.1 (PREMISES A) BUILDING EXPENSES. The term "Building
Expenses" for Premises A shall mean all expenses, costs and disbursements of
every kind and nature which Landlord shall pay or become obligated to pay in
connection with the ownership, maintenance, repair and operation of the
Building and Common Area and such additional Building or Common Area facilities
in subsequent years as may be determined by Landlord to be necessary,
including, but not limited to, the following:
(i) Wages and salaries of all employees engaged
in the operation, maintenance and security of the Building and Common Area,
including taxes, insurance and benefits relating thereto; and the rental cost
and overhead of any office and storage space used to provide such services;
(ii) Cost of all supplies, materials and labor
used in the operation, repair, replacement and maintenance of the Building and
Common Area;
(iii) Cost of all utilities, including surcharges,
for the Building and Common Area, including the cost of water, sewer, gas,
power, heating, lighting, air conditioning and ventilating;
(iv) Cost of all maintenance and service
agreements for the Building and Common Area and the equipment thereon,
including, but not limited to, security and energy management services, tenant
security phone line monitoring, window cleaning, floor waxing, elevator
maintenance, janitorial service, including janitorial service to interior
leased premises, if Landlord elects to provide such service, engineers,
gardeners, and trash removal services;
(v) Cost of all insurance which Landlord or
Landlord's lender deems necessary for the Building and Common Area such as the
cost of "All-Risk" property insurance, including, at Landlord's option,
earthquake and flood coverage, insurance against loss of rents on an "All-Risk"
basis, a lender's loss payable endorsement in favor of Landlord's lender, and
naming Landlord and its subsidiaries, directors, agents, officers and employees
as named insureds; and casualty and liability insurance applicable to the
Building and Landlord's personal property used in connection therewith, naming
Landlord and its subsidiaries, directors, agents, officers and employees as
additional insureds, all as more particularly described in Paragraph 22;
(vi) Cost of repairs and maintenance of the
Building and Common Area (excluding repairs and general maintenance paid by
proceeds of insurance or by Tenant or other third parties, and alterations
attributable solely to tenants of the Building);
(vii) A reasonable management fee for the manager
of the Building;
8
<PAGE> 17
(viii) The costs of any additional services not
provided to the Building and Common Area at the Commencement Date but
thereafter provided by Landlord in its management of the same;
(ix) The cost of any capital improvements made to
the Building after the Commencement Date required by the CC&R's, or by any
committee or association formed in connection therewith, or any governmental
law or regulation, or that reduce other operating expenses, provided that such
cost together with interest at the Interest Rate shall be amortized over such
reasonable period as Landlord shall determine, and only the monthly amortized
cost shall be included in the Building Operating Expenses;
(x) Accounting and attorneys' fees; and
(xi) Licenses, permits, and inspection and related
governmental fees.
The cost of additional or extraordinary services
provided to Tenant and not paid or payable by Tenant pursuant to other
provisions of this Lease shall be payable by Tenant and may be included by
Landlord with Tenant's Percentage of the Building Expenses payable by Tenant on
a monthly basis or may be billed to Tenant separately, in a lump sum, as
Landlord shall elect.
Building Expenses shall not include: (i) the cost of
any additional or extraordinary services provided to other tenants of the
Building; (ii) costs paid for directly by Tenant; (iii) principal and interest
payments on loans secured by deed of trust recorded against the Building; (iv)
real estate sales or leasing brokerage commissions; or (v) executive salaries
of off-site personnel employed by Landlord except for the management fee
referenced in Paragraph 15.1(vii) above; (vi) janitorial service.
15.1.2 (PREMISES B) BUILDING EXPENSES. The term "Building
Expenses" for Premises B shall mean all expenses, costs and disbursements of
every kind and nature which Landlord shall pay or become obligated to pay in
connection with the ownership, maintenance, repair and operation of the
Building and Common Area and such additional Building or Common Area facilities
in subsequent years as may be determined by Landlord to be necessary,
including, but not limited to, the following:
(i) Wages and salaries of all employees engaged
in the operation, maintenance and security of the Building and Common Area,
including taxes, insurance and benefits relating thereto; and the rental cost
and overhead of any office and storage space used to provide such services;
(ii) Cost of all supplies, materials and labor
used in the operation, repair, replacement and maintenance of the Building and
Common Area;
(iii) Cost of all utilities, including surcharges,
for the Building and Common Area, including the cost of water, sewer, gas,
power, heating, lighting, air conditioning and ventilating;
(iv) Cost of all maintenance and service
agreements for the Building and Common Area and the equipment thereon,
including, but not limited to, security and energy management services, window
cleaning, engineers, gardeners, and trash removal services.
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(v) Cost of all insurance which Landlord or
Landlord's lender deems necessary for the Building and Common Area such as the
cost of "All-Risk" property insurance, including, at Landlord's option,
earthquake and flood coverage, insurance against loss of rents on an "All-Risk"
basis, a lender's loss payable endorsement in favor of Landlord's lender, and
naming Landlord and its subsidiaries, directors, agents, officers and employees
as named insureds; and casualty and liability insurance applicable to the
Building and Landlord's personal property used in connection therewith, naming
Landlord and its subsidiaries, directors, agents, officers and employees as
additional insureds, all as more particularly described in Paragraph 22;
(vi) Cost of repairs and maintenance of the
Building and Common Area (excluding repairs and general maintenance paid by
proceeds of insurance or by Tenant or other third parties, and alterations
attributable solely to tenants of the Building);
(vii) A reasonable management fee for the manager
of the Building;
(viii) The costs of any additional services not
provided to the Building and Common Area at the Commencement Date but
thereafter provided by Landlord in its management of the same;
(ix) The cost of any capital improvements made to
the Building after the Commencement Date required by the CC&R's, or by any
committee or association formed in connection therewith, or any governmental
law or regulation, or that reduce other operating expenses, provided that such
cost together with interest at the Interest Rate shall be amortized over such
reasonable period as Landlord shall determine, and only the monthly amortized
cost shall be included in the Building Operating Expenses;
(x) Accounting and attorneys' fees; and
(xi) Licenses, permits, and inspection and related
governmental fees.
The cost of additional or extraordinary services
provided to Tenant and not paid or payable by Tenant pursuant to other
provisions of this Lease shall be payable by Tenant and may be included by
Landlord with Tenant's Percentage of the Building Expenses payable by Tenant on
a monthly basis or may be billed to Tenant separately, in a lump sum, as
Landlord shall elect.
Building Expenses shall not include: (i) the cost of
any additional or extraordinary services provided to other tenants of the
Building; (ii) costs paid for directly by Tenant; (iii) principal and interest
payments on loans secured by deed of trust recorded against the Building; (iv)
real estate sales or leasing brokerage commissions; or (v) executive salaries
of off-site personnel employed by Landlord except for the management fee
referenced in Paragraph 15.1(vii) above; (vi) janitorial service.
15.2 Outside Area Expenses. The term "Outside Area Expenses" shall
mean all expenses, costs and disbursements of every kind and nature which
Landlord shall pay or become obligated to pay in connection with the Outside
Area, including, without limitation, the cost of any policies of insurance
covering the Outside Area, the Real Property Taxes for the Project, dues
payable to any owner's association established pursuant to the CC&R`s (the
"Owners' Association"), and the cost of labor, materials, supplies and services
used or consumed in operating, maintaining, repairing and replacing the Outside
Area, including, without limitation, the following:
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(i) Maintaining, repairing and replacing
landscaping and sprinkler systems;
(ii) Maintaining, repairing and replacing concrete
walkways and paved parking area;
(iii) Maintaining, repairing and replacing signs
and site lighting;
(iv) All utilities provided to the Outside Area;
and
(v) Alterations or improvements to the Outside
Areas required by governmental laws or regulations, the CC&R's or the Owners'
Association.
If there is more than one (1) building on the
Project, Outside Area Expenses shall be allocated among the buildings on the
Project for all Operating Expense accounting purposes, including the
determination of the amount of Operating Expense increases chargeable to Tenant
pursuant to Paragraph 15.3, on the basis of the ratio of the square footage of
each building to the total square footage of all buildings on the Project.
15.3 ACCOUNTING. If Tenant's Percentage of the Operating
Expenses paid or incurred by Landlord for any calendar year during which this
Lease is in effect exceeds the Operating Expense Base included in the Monthly
Rent, then Tenant shall pay such excess ("Accrued Excess") as Additional Rent.
Within one hundred twenty (120) days after the end of each calendar year,
Landlord shall give to Tenant a statement of any Accrued Excess payable by
Tenant for the previous calendar year which shall be due and payable within
five (5) days of receipt of such statement. In addition, for each calendar
year or portion thereof after the first (1st) calendar year or portion thereof
that this Lease is in effect, Tenant shall pay Tenant's Percentage of
Landlord's estimate of the amount by which the Operating Expenses for that year
exceed the Operating Expense Base (the "Estimated Excess"). Tenant shall pay
to Landlord, concurrently with the regular Monthly Rent payment next due
following receipt of the statement of the Estimated Excess, an amount equal to
one monthly installment of the Estimated Excess multiplied by the number of
months from January in the calendar year in which such statement is submitted
to the month of such payment, both months inclusive. Subsequent installments
of the Estimated Excess shall be paid concurrently with the regular Monthly
Rent payments for the balance of that calendar year as Additional Rent, and
shall continue until the next calendar year's statement is delivered. If, in
any calendar year, Tenant's Percentage of actual Operating Expenses is less
than the estimate for that year, then, upon receipt of Landlord's annual
statement, any overpayments of Estimated Excess made by Tenant shall be
credited toward the next Monthly Rent falling due and the monthly installments
of Estimated Excess for the current year shall be adjusted to reflect such
lower Operating Expenses. Even though the Term has expired and Tenant has
vacated the Premises, when the final determination is made of Tenant's
Percentage of Operating Expenses for the year in which this Lease terminates,
Tenant shall immediately pay any increase due over the estimated Operating
Expenses paid and, conversely, any overpayment made if the Operating Expense
decrease shall be rebated by Landlord to Tenant. Operating Expenses shall be
calculated using standard accounting principles and a vacancy factor of ten
percent (10%).
15.4 PRORATION. Tenant's liability to pay for Expenses
shall be prorated on the basis of a 365-day year to account for any fractional
portion of a year included at the commencement or expiration of the Term of
this Lease.
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15.5 AUDIT. Tenant, at its expense, shall have the right at
all reasonable times and upon reasonable written notice to Landlord to audit
Landlord's books and records relating to the Operating Expenses for the first
year of the Term and any year or years for which Accrued Excess payments become
due; or at Landlord's sole discretion Landlord will provide such audit and
work papers prepared by a certified public accountant.
16. TAXES.
16.1 PAYMENT BY TENANT. Real Property Taxes for the Project
shall be included within the Operating Expenses pursuant to Paragraph 15.2
16.2 TAXES ON TENANT IMPROVEMENTS AND PERSONAL PROPERTY.
Notwithstanding any other provision hereof, Tenant shall pay the full amount of
any increase in Real Property Taxes during the Term resulting from any and all
Alterations and Tenant Improvements of any kind whatsoever placed in, on or
about the Premises and the Project for the benefit of, at the request of, or by
Tenant. Tenant shall pay prior to delinquency all taxes assessed or levied
against Tenant's Personal Property in, on or about the Premises. When
possible, Tenant shall cause its Personal Property to be assessed and billed
separately from the real or personal property of Landlord.
16.3 INCLUDED ASSESSMENTS. With respect to any assessments
which may be levied against or upon the Project, or which under the laws then
in force may be evidenced by improvements or other bonds or may be paid in
annual installments, only the amount of such annual installment (with
appropriate proration for any partial year) and interest due thereon shall be
included within the computation of the annual Real Property Taxes levied
against the Project.
16.4 DESCRIPTION. Real Property Taxes and Assessments shall
have that definition set forth in the Lease. The term "assessment" as used in
such definition shall include any payment for assessment districts and other
funding mechanisms, including, but not limited to, improvement districts,
maintenance districts, landscaping and lighting districts, public utility
districts, special utility districts, special service zones or districts or any
combination thereof (collectively "Assessment Districts") for the
construction, operation and maintenance of on-site and off-site improvement
or services, as required by the City or other governmental entity for
construction of certain public improvements which shall benefit the Premises,
the Project or Hacienda Business Park. The Assessment Districts may include
the following:
(a) ASSESSMENT DISTRICT NUMBER 1986-7. Assessment District
No. 1986-7, North Pleasanton Improvement District No. 2;
(b) NORTH PLEASANTON IMPROVEMENT DISTRICT (FREEWAYS).
Assessment District, North Pleasanton Improvement District (Freeways). The
funding provides for the design and construction of interchanges for
Interstates 580 and 680; and
(c) FIRE ASSESSMENT DISTRICT. The North Pleasanton Fire
Refunding District No. 1986-4.
16.5 TENANT'S CONSENT. Tenant hereby consents to the
formation of the Assessment Districts or any other districts formed for
maintenance, utilities, landscaping lighting special service zones or other
improvements in Hacienda Business Park. Tenant hereby waives any right of
notice and protest of formation, evidencing such consent and waiver upon request
of Landlord or the City.
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17. UTILITIES AND SERVICES. Utilities and services shall be
provided to the Premises pursuant to the Standards for Utilities and Services
set forth in EXHIBIT F, subject to the conditions and in accordance with the
terms of such exhibit. Landlord shall not be liable in damages or otherwise
for any failure or interruption of any utility service or other service
furnished to the Premises, except that resulting from the act or neglect of
Landlord. Any utilities which are not separately metered to the Premises shall
be charged to Tenant on an equitable basis as determined by Landlord.
18. REPAIR AND MAINTENANCE.
18.1 BUILDING.
18.1.1 LANDLORD'S OBLIGATIONS. Landlord shall keep in
good order, condition and repair the structural parts of the Building, which
structural parts include only the foundation, subflooring, exterior walls and
roof of the Building, except for any damage thereto caused by the negligence or
willful acts or omissions of Tenant or of Tenant's agents, employees or
invitees, or by reason of the failure of Tenant to perform or comply with any
terms, conditions or covenants in this Lease, or caused by Alterations made by
Tenant or by Tenant's agents, employees or contractors, which shall be Tenant's
responsibility. Landlord shall also maintain, repair and replace the HVAC
system for the Premises. It is a condition precedent to all obligations of
Landlord to repair and maintain under this Paragraph 18.1.1 that Tenant shall
have notified Landlord in writing of the need for such repairs or maintenance.
The cost of the repair, maintenance and replacement expenses incurred by
Landlord under this paragraph shall be included in the Operating Expenses
payable pursuant to Paragraph 15.
18.1.2 TENANT'S OBLIGATIONS. Tenant shall at all
times and at its own expense clean, keep and maintain in first class condition
and repair every part of the Premises which is not within Landlord's obligation
pursuant to Paragraph 18.1.1. Tenant's repair and maintenance obligations
shall include, without limitation, all plumbing and sewage facilities within
the Premises, fixtures, interior walls, floors, ceilings, interior windows,
store front, doors, entrances, plateglass, showcases, skylights, all electrical
facilities and equipment, including lighting fixtures, lamps, fans and any
exhaust equipment and systems, any automatic fire extinguisher equipment within
the Premises, electrical motors and all other appliances and equipment of every
kind and nature located in, upon or about the Premises. All glass is at the
sole risk of Tenant, and any broken glass shall promptly be replaced by Tenant
at Tenant's expense with glass of the same kind, size and quality.
18.2 COMMON AREA AND OUTSIDE AREA.
18.2.1 LANDLORD'S OBLIGATIONS. Landlord shall
maintain and repair the Common Area and Outside Area in a good, safe and
sanitary manner. Landlord shall at all times have exclusive control of the
Common Area and Outside Area and may at any reasonable time temporarily close
any part thereof, exclude and restrain anyone from any part thereof, except the
bona fide customers, employees and invitees of Tenant who use such areas in
accordance with the reasonable rules and regulations as Landlord may from time
to time promulgate, and may reasonably change the configuration or location of
the Common Area or Outside Area. In exercising any such rights, Landlord shall
use diligent efforts to minimize any disruption of Tenant's business. Landlord
shall have the right to reconfigure the parking area and ingress to and egress
from the parking area, and to modify the directional flow of traffic of the
parking area.
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18.2.2 COMMON AREA AND OUTSIDE AREA EXPENSES. All costs and
expenses as may be paid or incurred by Landlord in maintaining, operating,
repairing and replacing the Common Area and Outside Area shall be included
within the Operating Expenses pursuant to Paragraph 15.
18.3 WAIVER. Tenant waives the provisions of Sections 1941 and 1942
of the California Civil Code and any similar or successor law regarding
Tenant's right to make repairs and deduct the expenses of such repairs from the
Rent due under this Lease.
18.4 COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Tenant shall, at its
cost, comply with, including the making by Tenant of any Alteration to the
Premises, all present and future regulations, rules, laws, ordinances, and
requirements of all governmental authorities (including state, municipal,
County and federal governments and their departments, bureaus, boards and
officials) arising from the use or occupancy of, or applicable to, the Premises
or the Project or privileges appurtenant thereto.
19. LIENS. Tenant shall keep the Building and the Project free
from any liens arising out of any work performed, materials furnished or
obligations incurred by or on behalf of Tenant and hereby indemnifies and holds
Landlord and its Agents harmless from all liability and cost, including
attorneys' fees and costs, in connection with or arising out of any such lien
or claim of lien. Tenant shall cause any such lien imposed to be released of
record by payment or posting of a proper bond acceptable to Landlord within ten
(10) days after written request by Landlord. Tenant shall give Landlord
written notice of Tenant's intention to perform work on the Premises which
might result in any claim of lien at least ten (10) days prior to the
commencement of such work to enable Landlord to post and record a Notice of
Nonresponsibility or other notice reasonably deemed proper by Landlord. If
Tenant fails to so remove any such lien within the prescribed ten (10) day
period, then landlord may do so and Tenant shall reimburse Landlord upon
demand. Such reimbursement shall include all sums incurred by Landlord
including Landlord's reasonable attorneys' fees, with interest thereon at the
Interest Rate.
20. LANDLORD'S RIGHT TO ENTER THE PREMISES. Tenant shall permit
Landlord and its Agents to enter the Premises at all reasonable times with
reasonable notice, except for emergencies in which case no notice shall be
required, to inspect the same, to post Notices of Nonresponsibility and similar
notices, to show the Premises to interested parties such as prospective lenders
and purchasers, to make necessary repairs, to discharge Tenant's obligations
hereunder when Tenant has failed to do so within a reasonable time after
written notice from Landlord, and at any reasonable time within one hundred
eighty (180) days prior the expiration of the Term, to place upon the Building
or in the Outside Area ordinary "For Lease" signs and to show the Premises to
prospective tenants. The above rights are subject to reasonable security
regulations of Tenant, and to the requirement that Landlord shall at all times
act in a manner to cause the least possible interference with Tenant's business.
21. SIGNS. Landlord shall provide Tenant a listing in the Building
directory. Tenant shall have no right to maintain Tenant identification signs
in any other location in, on or about the Premises, the Building or the Project
and shall not display or erect any other Tenant identification sign, display or
other advertising material that is visible from the exterior of the Building.
The size, design, color and other physical aspects of any permitted sign shall
be subject to the Landlord's written reasonable approval prior to installation,
any Design Guidelines established pursuant to the CC&R's and any appropriate
municipal or other governmental approvals. The cost of the sign installation,
and its maintenance and removal expense shall be Tenant's sole expenses. If
Tenant fails to maintain any of its permitted signs, or, if Tenant fails to
remove any such sign upon termination
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of this Lease, Landlord may do so at tenant's expense and Tenant's
reimbursement to Landlord for such amounts shall be deemed Additional Rent.
22. INSURANCE.
22.1 INDEMNIFICATION. Tenant hereby agrees to defend,
indemnify and hold harmless Landlord and its Agents from and against any and
all damage, loss, liability or expense including, without limitation,
attorneys' fees and legal costs suffered directly or by reason of any claim,
suit or judgment brought by or in favor of any person or persons for damage,
loss or expense due to, but not limited to, bodily injury and property damage
sustained by such person or persons which arises out of, is occasioned by or in
any way attributable to the use or occupancy of the Premises, the Building or
the Project or any part thereof and adjacent areas by the Tenant, the acts or
omissions of the Tenant, its agents, employees or any contractors brought onto
the Premises, the Building or the Project by Tenant, except to the extent
caused by the negligence or willful misconduct of Landlord or its Agents.
Tenant agrees that the obligations assumed herein shall survive this Lease.
22.2 TENANT'S INSURANCE. Tenant agrees to maintain in full
force and effect at all times during the Term, at its own expense, for the
protection of Tenant and Landlord, as their interests may appear, policies of
insurance issued by a responsible carrier or carriers acceptable to Landlord
which afford the following coverages:
22.2.1 LIABILITY. Comprehensive general liability
insurance in an amount not less than Three Million and no/100ths Dollars
($3,000,000.00) combined single limit for both bodily injury and property
damage which includes blanket contractual liability broad form property damage,
personal injury, completed operations, products liability, and fire damage
legal (in an amount not less than Twenty-Five Thousand and no/100ths Dollars
($25,000.00)), naming Landlord and its Agents as additional insureds.
22.2.2 PERSONAL PROPERTY. "All Risk" property
insurance (including, without limitation, vandalism, malicious mischief,
inflation endorsement, and sprinkler leakage endorsement) on Tenant's Personal
Property located on or in the Premises. Such insurance shall be in the full
amount of the replacement cost, as the same may from time to time increase as a
result of inflation or otherwise, and shall be in a form providing coverage
comparable to the coverage provided in the standard ISO All-Risk form.
22.3 ALL-RISK INSURANCE. During the Term, Landlord shall
maintain "All Risk" property insurance (including, at Landlord's option,
inflation endorsement, sprinkler leakage endorsement, and earthquake and flood
coverage) on the Building, excluding coverage of all Tenant's Personal Property
located on or in the Premises, but including the Tenant Improvements. Such
insurance shall also include insurance against loss of rents on an "All Risk"
basis, including earthquake and flood, in an amount equal to the Monthly Rent
and Additional Rent, and any other sums payable under the Lease, for a period of
at least twelve (12) months commencing on the date of loss. Such insurance
shall name Landlord and its Agents as named insureds and include a lender's loss
payable endorsement in favor of Landlord's lender (Form 438 BFU Endorsement).
The cost of such policy shall be included in the Operating Expenses payable
pursuant to Paragraph 15. If such insurance premiums are increased after the
Commencement Date due to Tenant's use of the Premises or any other cause solely
attributable to Tenant, Tenant shall pay the full amount of the increase within
ten (10) days of notice of such increase. Landlord shall have the right to
insure the Building on a policy which includes other buildings on the Project,
if any. In such case, the amount of the
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policy cost to be included in the Building Expenses shall be determined by
dividing the square footage of the Premises by the square footage of all
buildings covered by such policy.
22.4 CERTIFICATES. Tenant shall deliver to Landlord at least
thirty (30) days prior to the time such insurance is first required to be
carried by Tenant, and thereafter at least thirty (30) days prior to expiration
of each such policy, certificates of insurance evidencing the above coverage
with limits not less than those specified above. The certificates shall
expressly provide that the interest of Landlord therein shall not be affected by
any breach of Tenant of any policy provision for which such certificates
evidence coverage. All certificates shall expressly provide that no less than
thirty (30) days' prior written notice shall be given Landlord in the event of
cancellation of the coverages evidenced by such certificates.
22.5 CO-INSURER. If, due to Tenant's failure to comply with
the foregoing provisions, Landlord is adjudged a co-insurer by its insurance
carrier, then, any loss or damage Landlord sustains by reason thereof, including
attorneys' fees and costs, shall be borne by Tenant and shall be immediately
paid by Tenant upon receipt of a bill therefor and evidence of such loss.
22.6 INSURANCE REQUIREMENTS. All insurance shall be in a
form satisfactory to Landlord and shall be carried with companies that have a
general policy holder's rating of not less than "A" and a financial rating of
not less than Class "X" in the most current edition of Best's Insurance Reports;
shall provide that such policies shall not be subject to material alteration or
cancellation except after at least thirty (30) days' prior written notice to
Landlord; and shall be primary as to Landlord. The policy or policies, or duly
executed certificates for them, together with satisfactory evidence of payment
of the premium thereon, if any, shall be deposited with Landlord prior to the
Commencement Date, and upon renewal of such policies, not less than thirty (30)
days prior to the expiration of the term of such coverage. If Tenant fails to
procure and maintain the insurance required hereunder, Landlord may, upon
written notice to Tenant, order such insurance at Tenant's expense and Tenant
shall reimburse Landlord. Such reimbursement shall include all sums incurred by
Landlord, including Landlord's reasonable attorneys' fees and costs, with
interest thereon at the Interest Rate.
22.7 LANDLORD'S DISCLAIMER. Landlord and its Agents shall
not be liable for any loss or damage to persons or property resulting from fire,
explosion, falling plaster, glass, tile or sheetrock, steam, gas, electricity,
water or rain which may leak from any part of the Building, or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
whatsoever, unless caused by or due to the negligence or willful acts of
Landlord. Landlord and its Agents shall not be liable for interference with the
light, air, or any latent defect in the Premises. Tenant shall give prompt
written notice to Landlord in case of a casualty, accident or repair needed in
the Premises.
23. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive
all rights of recovery against the other on account of loss and damage
occasioned to such waiving party for its property or the property of others
under its control to the extent that such loss or damage is insured against
under any insurance policies which may be in force at the time of such loss or
damage. Tenant and Landlord shall, upon obtaining policies of insurance
required hereunder, give notice to the insurance carrier that the foregoing
mutual waiver of subrogation is contained in this Lease and Tenant and Landlord
shall cause each insurance policy obtained by such party to provide that the
insurance company waives all right of recovery by way of subrogation against
either Landlord or Tenant in connection with any damage covered by such policy.
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24. DAMAGE OR DESTRUCTION.
24.1 PARTIAL DAMAGE - INSURED. If the Premises are damaged
by any casualty which is covered under the "All-Risk" insurance carried by
Landlord pursuant to Paragraph 22.3, then Landlord shall restore such damage,
provided insurance proceeds are available to pay at least ninety percent (90%)
or more of the cost of restoration and provided such restoration can be
completed within ninety (90) days after the commencement of the work in the
reasonable opinion of a registered architect or engineer appointed by Landlord
for such determination. In such event, this Lease shall continue in full force
and effect, except that Tenant shall be entitled to a proportionate reduction
of Monthly Rent while such restoration takes place, such proportionate
reduction to be based upon the extent to which the restoration efforts
interfere with Tenant's use of the Premises, as reasonably agreed upon between
Tenant and Landlord. Any dispute between Landlord and Tenant as to the amount
of such rent reduction shall be resolved by arbitration.
24.2 PARTIAL DAMAGE - UNINSURED. If the Premises or the
Building is damaged by a risk not covered by Landlord's insurance, or the
proceeds of available insurance are less than ninety percent (90%) of the cost
of restoration, or the restoration cannot be completed within one hundred
twenty (120) days after the commencement of work, in the reasonable opinion of
the registered architect or engineer appointed by Landlord for such
determination, then Landlord shall have the option either to: (i) repair or
restore such damage, this Lease continuing in full force and effect, but the
Monthly Rent to be proportionately abated as provided in Paragraph 24.1; or
(ii) give notice to Tenant at any time within thirty (30) days after such
damage terminating this Lease as of a date to be specified in such notice,
which date shall be not less than thirty (30) nor more than sixty (60) days
after giving such notice. If notice of termination is given, this Lease shall
expire and all interest of Tenant in the Premises shall terminate on such date
so specified in such notice and the Monthly Rent, reduced by any proportionate
reduction based upon the extent, if any, to which such damage interfered with
the use of the Premises by Tenant, shall be paid to the date of such
termination.
24.3 TOTAL DESTRUCTION. If the Premises or the Building is
totally destroyed or the Premises or Building, as the case may be, cannot be
reasonably restored under applicable laws and regulations or due to the
presence of hazardous factors such as earthquake faults, chemical waste and
similar dangers, notwithstanding the availability of insurance proceeds, this
Lease shall be terminated effective the date of the damage.
24.4 LANDLORD'S OBLIGATIONS. Landlord shall not be required
to repair any injury or damage by fire or other cause, or to make any
restoration or replacement of any panelings, decorations, partitions, railings,
floor coverings, office fixtures which are Alterations or Personal Property
installed in the Premises by Tenant or at the expense of Tenant. Tenant shall
be required to restore or replace the same. Except for abatement of Monthly
Rent, if any, Tenant shall have no claim against Landlord for any damage
suffered by reason of any such damage, destruction, repair or restoration; nor
shall Tenant have the right to terminate this Lease as the result of any
statutory provision now or hereafter in effect pertaining to the damage and
destruction of the Premises, except as expressly provided herein.
24.5 DAMAGE NEAR END OF TERM. Anything herein to the
contrary notwithstanding, if the Premises or the Building is destroyed or
damaged during the last twelve (12) months of the Term, then Landlord may
cancel and terminate this Lease as of the date of
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the occurrence of such damage. If Landlord does not elect to so terminate this
Lease, the repair of such damage shall be governed by the other provisions of
this Paragraph 24.
25. CONDEMNATION. If title to all of the Premises, the Building or
the Project or so much thereof is taken or appropriated for any public or
quasi-public use under any statute or by right of eminent domain so that
reconstruction of the Premises or the Building will not, in Landlord's and
Tenant's mutual reasonable judgment, result in the Premises being suitable for
Tenant's continued occupancy for the uses and purposes permitted by this Lease,
this Lease shall terminate as of the date that possession of the Premises or
Building or part thereof be taken. A sale by Landlord to any authority having
the power of eminent domain, either under threat of condemnation or while
condemnation proceedings are pending, shall be deemed a taking under the power
of eminent domain for all purposes of this paragraph. If any part of the
Premises, the Building or the Project is taken and the remaining part is
reasonably suitable for Tenant's continued occupancy for the purposes and uses
permitted by this Lease, this Lease shall, as to the part so taken, terminate
as of the date that possession of such part of the Premises or Building is
taken. If the Premises is so partially taken the Rent and other sums payable
hereunder shall be reduced in the same proportion that Tenant's use and
occupancy of the Premises is reduced. If the parties disagree as to suitability
of the Premises for Tenant's continued occupancy or the amount of any
applicable Rent reduction, the matter shall be resolved by arbitration. No
award for any partial or entire taking shall be apportioned. Tenant assigns to
Landlord its interest in any award which may be made in such taking or
condemnation, together with any and all rights of Tenant arising in or to the
same or any part thereof. Nothing contained herein shall be deemed to give
Landlord any interest in or require Tenant to assign to Landlord any separate
award made to Tenant for the taking of Tenant's Personal Property, for the
interruption of Tenant's business, or its moving costs, or for the loss of its
good will. No temporary taking of the Premises shall terminate this Lease or
give Tenant any right to any abatement of Rent. Any award made to Tenant by
reason of such temporary taking shall belong entirely to Tenant and Landlord
shall not be entitled to share therein. Each party agrees to execute and
deliver to the other all instruments that may be required to effectuate the
provisions of this paragraph.
26. ASSIGNMENT AND SUBLETTING.
26.1 LANDLORD'S CONSENT. Tenant shall not enter into a
Sublet without Landlord's prior written consent, which consent shall not be
unreasonably withheld. Any attempted or purported Sublet without Landlord's
prior written consent shall be void and confer no rights upon any third person
and shall be deemed a material default of this Lease. Each Subtenant shall
agree in writing, for the benefit of Landlord, to assume, to be bound by, and
to perform the terms, conditions and covenants of this Lease to be performed by
Tenant. Notwithstanding anything contained herein, Tenant shall not be released
from personal liability for the performance of each term, condition and
covenant of this Lease by reason of Landlord's consent to a Sublet unless
Landlord specifically grants such release in writing.
26.2 INFORMATION TO BE FURNISHED. If Tenant desires at any
time to Sublet the Premises or any portion thereof, it shall first notify
Landlord of its desire to do so and shall submit in writing to Landlord: (i)
the name of the proposed Subtenant; (ii) the nature of the proposed Subtenant's
business to be carried on in the Premises; (iii) the terms and provisions of
the proposed Sublet and a copy of the proposed Sublet form containing a
description of the subject premises; and (iv) such financial information,
including financial statements, as Landlord may reasonably request concerning
the proposed Subtenant.
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<PAGE> 27
26.3 LANDLORD'S ALTERNATIVES. At any time within thirty (30)
days after Landlord's receipt of the information specified in Paragraph 26.2,
Landlord may, by written notice to Tenant, elect: (i) to lease for its own
account the Premises or the portion thereof so proposed to be Sublet by Tenant,
upon the same terms as those offered to the proposed Subtenant but on a form
acceptable to Landlord; (ii) to lease for its own account the Premises or the
portion thereof so proposed to be Sublet by Tenant to any person upon any terms
desired by Landlord; (iii) to consent to the Sublet by Tenant; or (iv) to
refuse its consent to the Sublet. If Landlord consents to the Sublet, Tenant
may thereafter enter into a valid Sublet of the Premises or portion thereof,
upon the terms and conditions and with the proposed Subtenant set forth in the
information furnished by Tenant to Landlord pursuant to Paragraph 26.2,
subject, however, to the condition that any excess of the Subrent over the Rent
required to be paid by Tenant hereunder shall be paid to Landlord as and with
the Monthly Rent.
26.4 PRORATION. If a portion of the Premises is Sublet, the
pro rata share of the Rent attributable to such partial area of the Premises
shall be determined by Landlord by dividing the Rent payable by Tenant
hereunder by the total square footage of the Premises and multiplying the
resulting quotient (the per square foot rent) by the number of square feet of
the Premises which are Sublet.
26.5 EXECUTED COUNTERPART. No Sublet shall be valid nor
shall any Subtenant take possession of the Premises until an executed
counterpart of the Sublet agreement has been delivered to Landlord.
26.6 EXEMPT SUBLETS. Notwithstanding the above, Landlord's
prior written consent shall not be required for an assignment of this Lease to
a subsidiary, affiliate or parent corporation of Tenant, or a corporation into
which Tenant merges or consolidates, if Tenant gives Landlord prior written
notice of the name of any such assignee, and if the assignee assumes, in
writing, all of Tenant's obligations under the Lease. An assignment or other
transfer of this Lease to a purchaser of all or substantially all of the assets
of Tenant shall be deemed a Sublet requiring Landlord's prior written consent.
27. DEFAULT.
27.1 TENANT'S DEFAULT. A default under this Lease by Tenant
shall exist if any of the following events shall occur.
27.1.1 If Tenant fails to pay Rent or any other sum
required to be paid hereunder when due; or
27.1.2 If Tenant shall have failed to perform any
term, covenant or condition of this Lease except those requiring the payment of
money, and Tenant shall have failed to cure such breach within twenty (20) days
after written notice from Landlord where such breach could reasonably be cured
within such twenty (20) day period; provided, however, that where such failure
could not reasonably be cured within the twenty (20) day period, that Tenant
shall not be in default if it commences such performance within the twenty (20)
day period and diligently thereafter prosecutes the same to completion; or
27.1.3 If Tenant assigns its assets for the benefit of
its creditors; or
19
<PAGE> 28
27.1.4 If the sequestration or attachment of or
execution on any material part of Tenant's Personal Property essential to the
conduct of Tenant's business occurs, and Tenant fails to obtain a return or
release of such Personal Property within thirty (30) days thereafter, or prior
to sale pursuant to such sequestration, attachment or levy, whichever is
earlier; or
27.1.5 If a court shall make or enter any decree or
order other than under the bankruptcy laws of the United States adjudging
Tenant to be insolvent; or approving as properly filed a petition seeking
reorganization of Tenant; or directing the winding up or liquidation of Tenant
and such decree or order shall have continued for a period of thirty (30) days.
27.2 REMEDIES. Upon a default, Landlord shall have the
following remedies, in addition to all other rights and remedies provided by
law or otherwise provided in this Lease, to which Landlord may resort
cumulatively or in the alternative:
27.2.1 Landlord may continue this Lease in full force
and effect, and this Lease shall continue in full force and effect as long as
Landlord does not terminate this Lease, and Landlord shall have the right to
collect Rent when due.
27.2.2 Landlord may terminate Tenant's right to
possession of the Premises at any time by giving written notice to that
effect, and relet the Premises or any part thereof. Tenant shall be liable
immediately to Landlord for all costs Landlord incurs in reletting the Premises
or any part thereof, including, without limitation, broker's commissions,
expenses of cleaning and redecorating the Premises required by the reletting
and like costs. Reletting may be for a period shorter or longer than the
remaining Term of this Lease. No act by Landlord other than giving written
notice to Tenant shall terminate this Lease. Acts of maintenance, efforts to
relet the Premises or the appointment of a receiver on Landlord's initiative to
protect Landlord's interest under this Lease shall not constitute a termination
of Tenant's right to possession. On termination, Landlord has the right to
remove all Tenant's Personal Property and store same at Tenant's cost and to
recover from Tenant as damages:
(a) The worth at the time of award of
unpaid Rent and other sums due and payable which had been earned at the time of
termination; plus
(b) The worth at the time of award of the
amount by which the unpaid Rent and other sums due and payable which would have
been payable after termination until the time of award exceeds the amount of
such Rent loss that Tenant proves could have been reasonably avoided; plus
(c) The worth at the time of award of the
amount by which the unpaid Rent and other sums due and payable for the balance
of the Term after the time of award exceeds the amount of such Rent loss that
Tenant proves could be reasonably avoided; plus
(d) Any other amount necessary which is to
compensate Landlord for all the detriment proximately caused by Tenant's
failure to perform Tenant's obligations under this Lease, or which in the
ordinary course of things, would be likely to result therefrom, including,
without limitation, any costs or expenses incurred by Landlord: (i) in
retaking possession of the Premises; (ii) in maintaining, repairing,
preserving, restoring, replacing, cleaning, altering or rehabilitating the
Premises or any portion thereof, including such
20
<PAGE> 29
acts for reletting to a new tenant or tenants; (iii) for leasing commissions;
or (iv) for any other costs necessary or appropriate to relet the Premises; plus
(e) At Landlord's election, such other
amounts in addition to or in lieu of the foregoing as may be permitted from
time to time by the laws of the State of California.
The "worth at the time of award" of the amounts
referred to in Paragraph 27.2.2(a) and 27.2.2(b) is computed by allowing
interest at the Interest Rate on the unpaid rent and other sums due and payable
from the termination date through the date of award. The "worth at the time of
award" of the amount referred to in Paragraph 27.2.2(c) is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%).
27.2.3 Landlord may, with or without terminating this
Lease, re-enter the Premises and remove all persons and property from the
Premises; such property may be removed and stored in a public warehouse or
elsewhere at the cost of and for the account of Tenant. No re-entry or taking
possession of the Premises by Landlord pursuant to this paragraph shall be
construed as an election to terminate this Lease unless a written notice of such
intention is given to Tenant.
27.3 LANDLORD'S DEFAULT. Landlord shall not be deemed to be in
default in the performance of any obligation required to be performed by it
hereunder unless and until it has failed to perform such obligation within
twenty (20) days after receipt of written notice by Tenant to Landlord
specifying the nature of such default; provided, however, that if the nature of
Landlord's obligation is such that more than twenty (20) days are required for
its performance, then Landlord shall not be deemed to be in default if it shall
commence such performance within such twenty (20) day period and thereafter
diligently prosecute the same to completion.
28. SUBORDINATION. This Lease is subject and subordinate to ground
and underlying leases, mortgages and deeds of trust (collectively
"Encumbrances") which may now affect the Premises, the Building, or the
Project, to the CC&R's and to all renewals, modifications, consolidations,
replacements and extensions thereof; provided, however, if the holder or
holders of any such Encumbrance ("Holder") shall require that this Lease to be
prior and superior thereto, within ten (10) days of written request of Landlord
to Tenant. Tenant shall execute, have acknowledged and deliver any and all
documents or instrument, in the form presented to Tenant, which Landlord or
Holder deems necessary or desirable for such purposes. Landlord shall have the
right to cause this Lease to be and become and remain subject and subordinate
to any and all Encumbrances which are now or may hereafter be executed covering
the Premises, the Building, or the Project, or any renewals, modifications,
consolidations, replacements or extensions thereof, for the full amount of all
advances made or to be made thereunder and without regard to the time or
character of such advances, together with interest thereon and subject to all
the terms and provisions thereof; provided only, that in the event of
termination of any such lease or upon the foreclosure of any such mortgage or
deed of trust, so long as Tenant is not in default, Holder agrees to recognize
Tenant's rights under this Lease as long as Tenant shall pay the Rent and
observe and perform all the provisions of this Lease to be observed and
performed by Tenant. Within ten (10) days after Landlord's written request,
Tenant shall execute any and all documents required by Landlord or the Holder
required to effectuate such subordination to make this Lease subordinate to any
lien of the Encumbrance. If Tenant fails to do so, it shall be deemed that
this lease is so subordinated. Notwithstanding
21
<PAGE> 30
anything to the contrary set forth in this paragraph, Tenant hereby attorns and
agrees to attorn to any entity purchasing or otherwise acquiring the Building
at any sale or other proceeding or pursuant to the exercise of any other
rights, powers or remedies under such Encumbrance.
29. NOTICES. Any notice or demand required or desired to be given
under this Lease shall be in writing and shall be personally served or in lieu
of personal service may be given by mail. If given by mail, such notice shall
be deemed to have been given when seventy-two (72) hours have elapsed from the
time when such notice was deposited in the United States mail, registered or
certified, and postage prepaid, addressed to the party to be served. At the
date of execution of this Lease, the addresses of Landlord and Tenant are as
set forth in the first paragraph of this Lease. After the Commencement Date,
the address of Tenant shall be the address of the Premises. Either party may
change its address by giving notice of same in accordance with this paragraph.
30. ATTORNEY'S FEES. If either party brings any action or legal
proceeding for damages for an alleged breach of any provision of this Lease, to
recover rent, or other sums due, to terminate the tenancy of the Premises or to
enforce, protect or establish any term, condition or covenant of this Lease or
right of either party, the prevailing party shall be entitled to recover as a
part of such action or proceedings, or in a separate action brought for that
purpose, reasonable attorneys' fees and costs.
31. TENANT STATEMENTS. Tenant shall within seven (7) days
following written request by Landlord:
31.1 ESTOPPEL CERTIFICATES. Execute and deliver to Landlord
any documents, including estoppel certificates, in the form prepared by
Landlord (a) certifying that this Lease is unmodified and in full force and
effect or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect and the date to
which the Rent and other charges are paid in advance, if any, (b)
acknowledging that there are not, to Tenant's knowledge, any uncured defaults
on the part of the Landlord, or if there are uncured defaults on the part of
Landlord, stating the nature of such uncured defaults, and (c) evidencing the
status of the Lease as may be required either by a lender making a loan to
Landlord to be secured by deed of trust or mortgage covering the Building or
the Property or a purchase of the Building or Property from Landlord. Tenant's
failure to deliver an estoppel certificate within seven (7) days after delivery
of Landlord's written request therefor shall be conclusive upon Tenant (a) that
this Lease is in full force and effect, without modification except as may be
represented by Landlord, (b) that there are now no uncured defaults in
Landlord's performance, and (c) that no Rent has been paid in advance. If
Tenant fails to so deliver a requested estoppel certificate within the
prescribed time it shall be deemed that there exist no defaults under this
Lease on the part of Landlord, that the rent is current and that Tenant has no
claims against Landlord.
31.2 FINANCIAL STATEMENTS. Deliver to Landlord the current
financial statements of Tenant, and financial statements of the two (2) years
prior to the current financial statements year, with an opinion of a certified
public accountant, including a balance sheet and profit and loss statement for
the most recent prior year, all prepared in accordance with generally accepted
accounting principles consistently applied.
32. TRANSFER OF THE BUILDING BY LANDLORD. In the event of any
conveyance of the Building or the Project and assignment by Landlord of this
Lease, Landlord shall be and is hereby entirely released from all liability
under any and all of its covenants and
22
<PAGE> 31
obligations contained in or derived from this Lease occurring after the date of
such conveyance and assignment, provided such transferee assumes Landlord's
obligations under this Lease, and Tenant agrees to attorn to such transferee.
33. LANDLORD'S RIGHT TO PERFORM TENANTS COVENANTS. If Tenant
fails to make any payment or perform any other act on its part to be made or
performed under this Lease, provided that Landlord has delivered to Tenant
written notice, Landlord may, but shall not be obligated to and without waiving
or releasing Tenant from any obligations of Tenant under this Lease, make such
payment or perform such other act to the extent Landlord may deem desirable,
and in connection therewith, pay expenses and employ counsel. All sums so paid
by Landlord and all penalties, interest and costs in connection therewith shall
be due and payable by Tenant on the next day after any such payment by
Landlord, together with interest thereon at the Interest Rate from such date to
the date of payment by Tenant to Landlord, plus collection costs and attorneys'
fees. Landlord shall have the same rights and remedies for the nonpayment
thereof as in the case of default in the payment of Rent.
34. TENANT'S REMEDY. If, as a consequence of a default by
Landlord under this Lease, Tenant recovers a money judgment against Landlord,
such judgment shall be satisfied only out of the proceeds of sale received upon
execution of such judgment and levied thereon against the right, title and
interest of Landlord in the Building and out of Rent or other income from the
Building receivable by Landlord or out of consideration received by Landlord
from the sale or other disposition of all or any part of Landlord's right,
title or interest in the Building, and neither Landlord nor its Agents shall be
liable for any deficiency.
35. MORTGAGEE PROTECTION. If Landlord defaults under this Lease,
Tenant will notify by registered or certified mail to any beneficiary of a deed
of trust or mortgagee of a mortgage covering the Building or the Project, and
offer such beneficiary or mortgagee a reasonable opportunity to cure the
default, including time to obtain possession of the Building or the Project by
power of sale or a judicial foreclosure, if such should prove necessary to
effect a cure.
36. BROKERS. Tenant warrants and represents that it has had no
dealings with any real estate broker or agent in connection with the
negotiation of this Lease, except for the broker(s) referred to in Paragraph 1.
14 and that it knows of no other real estate broker or agent who is or might be
entitled to a commission in connection with this Lease. Tenant agrees to
defend, indemnify and hold Landlord and its Agents from and against any and all
liabilities or expenses, including attorneys' fees and costs, arising out of or
in connection with claims made by any other broker or individual for
commissions or fees resulting from Tenant's execution of this Lease.
37. ACCEPTANCE. Delivery of this Lease, duly executed by Tenant,
constitutes an offer to lease the Premises, and under no circumstances shall
such delivery be deemed to create an option or reservation to lease the Premises
for the benefit of Tenant. This Lease shall only become effective and binding
upon full execution hereof by Landlord and delivery of a signed copy to Tenant.
38. RECORDING. Neither party shall record this Lease nor a short
form memorandum thereof.
39. DISCLOSURE. The principals of Landlord are licensed real
estate brokers or salesmen and are principals or employees of Callahan, Sweeney
and O'Brien, Inc.
23
<PAGE> 32
40. PARKING. Tenant shall have the right to park on the Project's
parking facilities in common with other tenants of the Project upon the terms
and conditions, including imposition of a reasonable parking charge as may from
time to time be established by Landlord. Tenant agrees not to overburden the
parking facilities and agrees to cooperate with Landlord and other tenants in
the use of the parking facilities. Landlord reserves the right in its
discretion to determine whether the parking facilities are becoming crowded and
to allocate and assign parking spaces among Tenant and the other tenants.
41. GENERAL.
41.1 CAPTIONS. The captions and headings used in this
Lease are for the purpose of convenience only and shall not be construed to
limit or extend the meaning of any part of this Lease.
41.2 EXECUTED COPY. Any fully executed copy of this Lease
shall be deemed an original for all purposes.
41.3 TIME. Time is of the essence for the performance of
each term, condition and covenant of this Lease.
41.4 SEPARABILITY. If one or more of the provisions
contained herein, except for the payment of Rent, is for any reason be held to
be invalid, illegal or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provision of this
Lease, but this Lease shall be construed as if such invalid, illegal or
unenforceable provision had not been contained herein.
41.5 CHOICE OF LAW. This Lease shall be construed and
enforced in accordance with the laws of the State of California. The language
in all parts of this Lease shall in all cases be construed as a whole according
to its fair meaning and not strictly for or against either Landlord or Tenant.
41.6 GENDER, SINGULAR, PLURAL. When the context of this
Lease requires, the neuter gender includes the masculine, the feminine, a
partnership or corporation or joint venture, and the singular includes the
plural.
41.7 BINDING EFFECT. The covenants and agreement
contained in this Lease shall be binding on the parties hereto and on their
respective successors and assigns to the extent this Lease is assignable.
41.8 WAIVER. The waiver by Landlord of any breach of any
term, condition or covenant of this Lease shall not be deemed to be a waiver of
such provision or any subsequent breach of the same or any other term,
condition or covenant of this Lease. The subsequent acceptance of Rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding
breach at the time of acceptance of such payment. No covenant, term or
condition of this Lease shall be deemed to have been waived by Landlord unless
such waiver is in writing signed by Landlord.
41.9 ENTIRE AGREEMENT. This Lease is the entire agreement
between the parties, and there are no agreements or representations between the
parties except as expressed
24
<PAGE> 33
herein. Except as otherwise provided herein, no subsequent change or addition
to this Lease shall be binding unless in writing and signed by the parties
hereto.
41.10 AUTHORITY. If Tenant is a corporation or a
partnership, each individual executing this Lease on behalf of said corporation
or partnership, as the case may be, represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of said entity in
accordance with its corporate bylaws, statement of partnership or certificate
of limited partnership, as the case may be, and that this Lease is binding upon
said entity in accordance with its terms. Landlord, at its option, may require
a copy of such written authorization to enter into this Lease. The failure of
Tenant to deliver the same to Landlord within seven (7) days of Landlord's
request therefor shall be deemed a default under this Lease.
41.11 EXHIBITS. All exhibits, amendments, riders and
addendums attached hereto are hereby incorporated herein and made a part
hereof.
42. TERMINATION AGREEMENT. Concurrent with execution of this
lease, Landlord and Tenant have executed a Termination Agreement, a copy of
which is attached as Exhibit G.
THIS LEASE is effective as of the date the last signatory necessary to
execute the Lease shall have executed this Lease.
LANDLORD: TENANT:
CALLAHAN PENTZ PROPERTIES, JOHANSEN INVESTMENT CORPORATION,
PLEASANTON - SITE 30A, a a California Corporation, d/b/a
California General Partnership SCJ Insurance Service
By: [SIG] By: [SIG]
----------------------------- -----------------------------
Its: Managing General Partner Its: PRESIDENT
----------------------------
By: [SIG] By: [SIG]
----------------------------- -----------------------------
Its: Managing General Partner Its: VICE-PRESIDENT
----------------------------
Dated 12/3, 1987 Dated 10/10, 1987
25
<PAGE> 34
EXHIBIT A
THE PREMISES
(to be attached)
A-1
<PAGE> 35
<TABLE>
<S> <C> <C>
SITE 30A TOTAL: 20,390
LEASED: 20,390
AVAILABLE: 0
</TABLE>
[FLOOR PLAN GRAPHIC]
BUILDING A
FIRST FLOOR PLAN
5934 GIBRALTAR DRIVE
<PAGE> 36
<TABLE>
<S> <C> <C>
SITE 30A TOTAL: 21,266
LEASED: 20,359
AVAILABLE: 907
</TABLE>
[FLOOR PLAN GRAPHIC]
BUILDING A
SECOND FLOOR PLAN
5934 GIBRALTAR DRIVE
<PAGE> 37
<TABLE>
<S> <C>
TOTAL: 41,574
LEASED: 41,574
AVAILABLE: 41,574
</TABLE>
[FLOOR PLAN GRAPHIC]
4698 WILLOW ROAD
<PAGE> 38
EXHIBIT B
THE PROJECT
(to be attached)
B-1
<PAGE> 39
GIBRALTAR DRIVE NORTH
[GRAPHIC OF BUILDING & GROUND AREA]
SARATOGA ONE
TWO STORY
6934 GIBRALTAR DRIVE
SARATOGA TWO
ONE STORY
6920 GIBRALTAR DRIVE
WILLOW ROAD
<PAGE> 40
EXHIBIT C
WORK LETTER AGREEMENT
In connection with the Tenant Improvements to be installed on the
Premises, the parties hereby agree as follows:
1. PLANS AND SPECIFICATIONS. The Tenant Improvements shall
include only those improvements described in EXHIBIT C-1 attached hereto.
Landlord shall retain ____________ as the architect ("Architect") for the
completion of final working architectural and engineering plans and
specifications for the Tenant Improvements to be constructed on the Premises
("Final Plans and Specifications"). Landlord reserves the right to substitute
the Architect with another architect of its selection. Tenant shall cooperate
diligently with the Architect, and shall furnish on or before _____________,
19___, all information required by the Architect for completion of the Final
Plans and Specifications. Landlord and Tenant shall indicate their approval of
the Final Plans and Specifications by initialing them and attaching them hereto
as EXHIBIT C-2. Either party shall have the right to terminate this Lease upon
notice to the other party, if the Final Plans and Specifications are not
approved by Tenant and Landlord in writing on or before _______________, 19__
through no fault of the terminating party.
2. LANDLORD TO CONSTRUCT. Landlord shall complete construction
of the Tenant Improvements, in a good and workmanlike manner at Landlord's sole
cost and expense, except as provided in Paragraph 3.
3. TENANT IMPROVEMENTS COST. The Tenant Improvements cost
("Tenant Improvements Cost") to be paid by Landlord shall include:
(a) All costs of preliminary and final architectural and
engineering plans and specifications for the Tenant Improvements, and
engineering costs associated with completion of the State of California energy
utilization calculations under Title 24 legislation;
(b) All costs of obtaining building permits and other necessary
authorizations from the City;
(c) All direct and indirect costs of procuring, constructing and
installing the Tenant Improvements in the Premises, including, but not limited
to, the construction fee for overhead and profit and the cost of all on-site
supervisory and administrative staff, office, equipment and temporary services
rendered by Landlord's contractor in connection with construction of the Tenant
Improvements;
(d) Sewer connection fees; and
(e) All costs of the Building Standard Work, described in
EXHIBIT C-3.
In no event shall the Tenant Improvement Costs include any costs of
procuring, constructing or installing in the Premises any of Tenant's Personal
Property.
4. CHANGE REQUESTS. No revisions to the approved Final Plans and
Specifications shall be made by either Landlord or Tenant unless approved in
writing by both parties. Tenant agrees to make all changes: (i) required by
any public agency to conform with governmental
C-1
<PAGE> 41
regulations, or (ii) requested in writing by Tenant and approved in writing by
Landlord which approval shall not be unreasonably withheld. Any costs related
to such changes shall be added to the Tenant Improvements Cost and shall be
paid for by Tenant in cash within ten (10) days of receipt of a statement
therefor. The billing for such additional costs to Tenant shall be accompanied
by evidence of the amounts billed as is customarily used in the business.
Costs related to changes shall include, without limitation, any architectural
or design fees, and Landlord's general contractor's price for effecting the
change.
5. TERMINATION. If the Lease is terminated prior to the
Commencement Date and prior to completion of the Tenant Improvements, either by
Landlord pursuant to the provisions of Paragraph 1 of this Work Letter
Agreement, or for any reason due to the default of Tenant hereunder, Tenant
shall pay to Landlord, within five (5) days of receipt of a statement therefor,
any costs incurred by Landlord through the date of termination in connection
with the Tenant Improvements.
6. CONDITION. If Landlord is unable to obtain a building permit
for the Tenant Improvements within one hundred twenty (120) days from the date
of execution hereof, then either party shall have the right to terminate this
Lease upon written notice to the other.
LANDLORD: TENANT:
By: [SIG] By: [SIG]
----------------------------- -----------------------------
Its: Managing General Partner Its: PRESIDENT
----------------------------
By: [SIG] By: [SIG]
----------------------------- -----------------------------
Its: Managing General Partner Its: VICE-PRESIDENT
----------------------------
Dated 10/3, 1987 Dated 10/10, 1987
--------------------------- ---------------------------
C-2
<PAGE> 42
EXHIBIT D
COMMENCEMENT DATE MEMORANDUM
LANDLORD: Callahan Pentz Properties, Pleasanton Site 30A
TENANT: Johansen Investment Corp., dba SCJ Insurance Services
LEASE
DATE: October 9, 1987
13,179 5934 Gibraltar Drive Pleasanton
PREMISES: 2,117 square feet at 4698 Willow Road, Pleasanton
Pleasanton, CA 94566
The Commencement Date of the above referenced Lease is hereby established as
October 15, 1987
LANDLORD: TENANT:
CALLAHAN PENTZ PROPERTIES, JOHANSEN INVESTMENT CORPORATION,
PLEASANTON - SITE 30A, a a California Corporation, d/b/a
California General Partnership SCJ Insurance Service
By: [SIG] By: [SIG]
----------------------------- -----------------------------
Its: Managing General Partner Its: PRESIDENT
----------------------------
By: [SIG] By: [SIG]
----------------------------- -----------------------------
Its: Managing General Partner Its: VICE-PRESIDENT
----------------------------
D-1
<PAGE> 43
EXHIBIT E
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall
be installed or displayed on any part of the outside or inside of the Building
without the prior written consent of the Landlord. Landlord shall have the
right to remove, at Tenant's expense and without notice, any sign installed or
displayed in violation of this rule. All approved signs or lettering on doors
and walls shall be printed, painted, affixed or inscribed at the expense of
Tenant by a person chosen by Landlord.
2. If Landlord objects in writing to any curtains, blinds,
shades, screens or hanging plants or other similar objects attached to or used
in connection with any window or door of the Premises, Tenant shall immediately
discontinue such use. No awning shall be permitted on any part of the
Premises. Tenant shall not place anything against or near glass partitions or
doors or windows which may appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages,
exits, entrances, elevators, escalators, or stairways of the Building. The
halls, driveways, passages, exits, entrances, elevators, escalators and
stairways are not open to the general public. Landlord shall in all cases
retain the right to control and prevent access thereto of all persons whose
presence in the judgment of Landlord would be prejudicial to the safety,
character, reputation and interest of the Property and its tenants; provided
that nothing herein contained shall be construed to prevent such access to
persons with whom any tenant normally deals in the ordinary course of its
business, unless such persons are engaged in illegal activities. No tenant and
no employee or invitee of any tenant shall go upon the roof of the Building or
make any roof penetrations.
4. The directory of the Building will be provided exclusively for
the display of the name and location of tenants only, and Landlord reserves the
right to exclude any other names therefrom.
5. All cleaning and janitorial services for the Building shall be
provided exclusively through Landlord, and, except with the written consent of
Landlord, no person or persons other than those approved by Landlord shall be
employed by Tenant or permitted to enter the Building for the purpose of
cleaning the same. Tenant shall not cause any unnecessary labor by
carelessness or indifference to the good order and cleanliness of the Premises
or the Building. Landlord shall not in any way be responsible to any tenant
for any loss of property on the Premises, however occurring, or for any damage
to any of Tenant's property by the janitor or any other employee or any other
person.
6. Landlord will furnish Tenant, free of charge, with two keys to
each door lock in the Premises. Landlord may make a reasonable charge for any
additional keys and for having any locks changed. Tenant shall not make or
have made additional keys, and Tenant shall not alter any lock or install a new
additional lock or bolt on any door of its Premises. Tenant, upon the
termination of its tenancy, shall deliver to Landlord the keys of all doors
which have been furnished to Tenant, and in the event of loss of any keys so
furnished, shall pay Landlord therefor.
7. If Tenant requires telegraphic, telephonic, burglar alarm or
similar services, it shall first obtain, and comply with, Landlord's
instructions in their installation.
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<PAGE> 44
8. Any freight elevator shall be available for use by all tenants
in the Building, subject to such reasonable scheduling as Landlord in its
discretion shall deem appropriate. No equipment, materials, furniture,
packages, supplies, merchandise or other property will be received in the
Building or carried in the elevators except between such hours and in such
elevators as may be designated by Landlord.
9. Tenant shall not place a load upon any floor of the Premises
which exceeds the load per square foot which such floor was designed to carry
and which is allowed by law. Landlord shall have the right to prescribe the
weight, size and position of all equipment, materials, furniture or other
property brought into the Building. Heavy objects shall, if considered
necessary by Landlord, stand on such platforms as determined by Landlord to be
necessary to properly distribute the weight. Business machines and mechanical
equipment belonging to Tenant, which cause noise or vibration that may be
transmitted to the structure of the Building or to any space therein to such a
degree as to be objectionable to Landlord or to any tenants in the Building,
shall be placed and maintained by Tenant, at Tenant's expense, on vibration
eliminators or other devices sufficient to eliminate noise or vibration. The
persons employed to move such equipment in or out of the Building must be
acceptable to Landlord. Landlord will not be responsible for loss of, or
damage to, any such equipment or other property from any cause, and all damage
done to the Building by maintaining or moving such equipment or other property
shall be repaired at the expense of Tenant.
10. Tenant shall not use or keep in the Premises any kerosene,
gasoline or flammable or combustible fluid or material other than those limited
quantities necessary for the operation or maintenance of office equipment.
Tenant shall not use or permit to be used in the Premises any foul or noxious
gas or substance, or permit or allow the Premises to be occupied or used in a
manner offensive or objectionable to Landlord or other occupants of the
Building by reason of noise, odors or vibrations, nor shall Tenant bring into
or keep in or about the Premises any birds or animals.
11. Tenant shall not use any method of heating or air-conditioning
other than that supplied by Landlord.
12. Tenant shall not waste electricity, water or air-conditioning
and agrees to cooperate fully with Landlord to assure the most effective
operation of the Building's heating and air-conditioning and to comply with any
governmental energy-saving rules, laws or regulations of which Tenant has
actual notice, and shall refrain from attempting to adjust controls other than
room thermostats installed for Tenant's use. Tenant shall keep corridor doors
closed and shall close window coverings at the end of each business day.
13. Landlord reserves the right, exercisable, without notice and
without liability to Tenant, to change the name and street address of the
Building.
14. Landlord reserves the right to exclude from the Building
between the hours of 6 p.m. and 7 a.m. the following day, or such other hours
as may be established from time to time by Landlord, and on Sundays and legal
holidays, any person unless that person is known to the person or employee in
charge of the Building and has a pass or is properly identified. Tenant shall
be responsible for all persons for whom it requests passes and shall be liable
to Landlord for all acts of such persons. Landlord shall not be liable for
damages for any error with regard to the admission to or exclusion from the
Building of any person. Landlord reserves the right to prevent access to the
Building in case of invasion, mob, riot, public excitement or other commotion
by closing the doors or by other appropriate action.
E-2
<PAGE> 45
15. Tenant shall close and lock the doors of its Premises and
entirely shut off all water faucets or other water apparatus, and turn off all
lights and other equipment which is not required to be continuously run.
Tenant shall be responsible for any damage or injuries sustained by other
tenants or occupants of the Building or by Landlord for noncompliance with this
rule.
16. Tenant shall not obtain for use on the Premises ice, drinking
water, food, beverage, towel or other similar services or accept barbering
service upon the Premises, except at such hours and under such regulations as
may be fixed by Landlord and Landlord's prior written approval.
17. The toilet rooms, toilets, urinals, wash bowls and other
apparatus shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees or
invitees, shall have caused it.
18. Tenant shall not sell, or permit the sale at retail, of
newspapers, magazines, periodicals, theater tickets or any other goods or
merchandise to the general public in or on the Premises. Tenant shall not make
any room-to-room solicitation of business from other tenants or occupants of
the Building. Tenant shall not use the Premises for any business or activity
other than that specifically provided for in Tenant's Lease.
19. Tenant shall not install any radio or television antenna,
loudspeaker or other devices on the roof or exterior walls of the Building.
Tenant shall not interfere with radio or television broadcasting or reception
from or in the Building or elsewhere.
20. Tenant shall not mark, drive nails, screw or drill into the
partitions, woodwork or plaster or in any way deface the Premises or any part
thereof. Landlord reserves the right to direct electricians as to where and
how telephone and telegraph wires are to be introduced to the Premises. Tenant
shall not cut or bore holes for wires. Tenant shall not affix any floor
covering to the floor of the Premises in any manner except as approved by
Landlord. Tenant shall repair any damage resulting from noncompliance with
this rule.
21. Tenant shall not install, maintain or operate upon the
Premises any vending machine without the written consent of Landlord.
22. Canvassing, soliciting and distribution of handbills or any
other written material, and peddling in the Building are prohibited, and each
tenant shall cooperate to prevent same.
23. Landlord reserves the right to exclude or expel from the
Building any person who, in Landlord's judgment, is intoxicated or under the
influence of liquor or drugs or other substance or who is in violation of any
of the Rules and Regulations of the Building.
24. Tenant shall store all its trash and garbage within its
Premises. Tenant shall not place in any trash box or receptacle any material
which cannot be disposed of in the ordinary and customary manner of trash and
garbage disposal. All garbage and refuse disposal shall be made in accordance
with directions issued from time to time by Landlord.
25. The Premises shall not be used for the storage of merchandise
held for sale to the general public or for lodging or for manufacturing of any
kind, nor shall the Premises be used for any improper, immoral or objectional
purpose. No cooking shall be done or permitted by any tenant on the Premises,
except that use by Tenant of Underwriters' Laboratory approved equipment for
E-3
<PAGE> 46
brewing coffee, tea, hot chocolate and similar beverages shall be permitted,
provided that such equipment and use is in accordance with all applicable
federal, state, county and city laws, codes ordinances, rules and regulations.
26. Tenant shall not use in any space or in the public halls of
the Building any hand truck except those equipped with rubber tires and side
guards or such other material-handling equipment as Landlord may approve.
Tenant shall not bring any other vehicles of any kind into the Building.
27. Without the written consent of Landlord, Tenant shall not use
the name of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
28. Tenant shall comply with all safety, fire protection and
evacuation procedures and regulations established by Landlord or any
governmental agency.
29. Tenant assumes any and all responsibility for protecting its
Premises from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed.
30. The requirements of Tenant will be attended to only upon
appropriate application to the office of the Building by an authorized
individual. Employees of Landlord shall not perform any work or do anything
outside of their regular duties unless under special instructions from
Landlord, and no employee of Landlord will admit any person (Tenant or
otherwise) to any office without specific instructions from Landlord.
31. Tenant and its employees shall not park its vehicles in any
parking areas designated by Landlord as areas for parking by visitors to the
Building or other reserved parking spaces. Tenant shall not leave vehicles in
the Building parking areas overnight nor park any vehicles in the Building
parking areas other than automobiles, motorcycles, motor driven or non-motor
driven bicycles, or four-wheeled trucks. Tenant, its agents, employees and
invitees shall not park any one (1) vehicle in more than one (1) parking space.
32. Landlord may waive any one or more of these Rules and
Regulations for the benefit of Tenant or any other tenant, but no such waiver
by Landlord shall be construed as a waiver of such Rules and Regulations in
favor of Tenant or any other tenant, nor prevent Landlord from thereafter
enforcing any such Rules and Regulations against any or all of the tenants of
the Building.
33. These Rules and Regulations are in addition to, and shall not
be construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the Building.
34. Landlord reserves the right to make such other and reasonable
Rules and Regulations as, in its judgment, may from time to time be needed for
safety and security, for care and cleanliness of the Building and the Property,
and for the preservation of good order therein. Tenant agrees to abide by all
such Rules and Regulations hereinabove stated and any additional rules and
regulations which are adopted.
35. Tenant shall be responsible for the observance of all of the
foregoing rules by Tenant's employees, agents, clients, customers, invitees and
guests.
E-4
<PAGE> 47
EXHIBIT F
UTILITIES AND SERVICES
The following standards for utilities and services for Premises A are
in effect. Landlord reserves the right to adopt nondiscriminatory
modifications and additions hereto.
As long as Tenant is not in default under any of the terms, covenants,
conditions, provisions or agreements of this Lease, Landlord shall:
(a) Provide unattended automatic elevator facilities
Monday through Friday, except holidays, from 7 a.m. to 8 p.m., and have at
least one (1) elevator available at all other times.
(b) On Monday through Friday, except holidays, from 7
a.m. to 6 p.m. (and other times for a reasonable additional charged to be fixed
by Landlord), ventilate the Premises and furnish air conditioning or heating on
such days and hours when in the judgment of Landlord it may be required for the
comfortable occupancy of the Premises. The air conditioning system achieves
maximum cooling when the window coverings are closed. Landlord shall not be
responsible for room temperatures if Tenant does not keep all window coverings
in the Premises closed whenever the system is in operation. Tenant agrees to
cooperate fully at all times with Landlord and to abide by all regulations and
requirements which Landlord may prescribe for the proper functioning and
protection of said air conditioning system. Tenant agrees not to connect any
apparatus, device, conduit or pipe to the Building's chilled and hot water air
conditioning supply lines. Tenant further agrees that neither Tenant nor its
servants, employees, agents, visitors, licensees or contractors shall at any
time enter mechanical installations or facilities of the Building or adjust,
tamper with, touch or otherwise in any manner affect said installations or
facilities.
(c) Furnish to the Premises, during the usual business
hours on business days, electric current as required by the Building Standard
office lighting and fractional horsepower office business machines in the
amount of approximately two and one-half (2.5) watts per square foot. Tenant
agrees, should its electrical installation or electrical consumption be in
excess of the aforesaid quantity or extend beyond normal business hours, to
reimburse Landlord monthly for the measured consumption at the terms,
classifications and rate charges to similar consumers by the public utility
serving the neighborhood in which the Building is located. If a separate meter
is not installed at Tenant's cost, such excess cost will be established by an
estimate agreed upon by Landlord and Tenant, and if the parties fail to agree,
as established by an independent licensed engineer. Tenant agrees not to use
any apparatus or device in, or upon, or about the Premises which may in any way
increase the amount of such services usually furnished or supplied to said
Premises, and Tenant further agrees not to connect any apparatus or device with
wires, conduits or pipes, or other means by which such services are supplied,
for the purpose of using additional or unusual amounts of such services without
written consent of Landlord. Should Tenant use such services to excess, the
refusal on the part of Tenant to pay upon demand of Landlord the amount
established by Landlord for such excess charge shaH constitute a breach of the
obligation to pay rent under this Lease and shall entitle Landlord to the
rights therein granted for such breach. At all times Tenant's use of electric
current shall never exceed the capacity of the feeders to the Building or the
risers or wiring installation and Tenant shall not install or use or permit the
installation or use of any computer or electronic data processing equipment in
the Premises without the prior written consent of Landlord.
(d) Make water available in public areas for drinking and
lavatory purposes only, but if Tenant requires, uses or consumes water for any
purposes in addition to ordinary
F-1
<PAGE> 48
drinking and lavatory purposes of which fact Tenant constitutes Landlord to be
the sole judge, Landlord may install a water meter and thereby measure Tenant's
water consumption for all purposes. Tenant shall pay Landlord for the cost of
the meter and the cost of the installation thereof, and throughout the duration
of Tenant's occupancy Tenant shall keep said meter and installation equipment
in good working order and repair at Tenant's own cost and expense, in default
of which Landlord may cause such meter and equipment to be replaced or repaired
and collect the cost thereof from Tenant. Tenant agrees to pay for water
consumed, as shown on said meter, as and when bills are rendered, and on
default in making such payment, Landlord may pay such charges and collect the
same from Tenant. Any such costs or expenses incurred, or payments made, by
Landlord for any of the reasons or purposes hereinabove stated shall be deemed
to be Additional Rent payable by Tenant and collectible by Landlord as such.
(e) Provide janitorial service to the Premises, provided
the same are used exclusively as offices, and are kept reasonably in order by
Tenant, and if to be kept clean by Tenant, no one other than persons approved
by Landlord shall be permitted to enter the Premises for such purposes. If the
Premises are not used exclusively as offices, they shall be kept clean and in
order by Tenant, at Tenant's expense, and to the satisfaction of Landlord, and
by persons approved by Landlord. Tenant shall pay to Landlord the cost of
removal of any of Tenant's refuse and rubbish, to the extent that the same
exceeds the refuse and rubbish usually attendant upon the use of the Premises
as offices.
(f) Landlord reserves the right to stop service of the
elevator, plumbing, ventilation, air conditioning and electric systems, when
necessary by reason of accident or emergency or for repairs, alterations or
improvements, in the judgment of Landlord desirable or necessary to be made,
until said repairs, alterations or improvements shall have been completed, and
shall further have no responsibility or liability for failure to supply
elevator facilities, plumbing, ventilating, air conditioning or electric
service, when prevented from so doing by strike or accident or by any cause
beyond Landlord's reasonable control, or by laws, rules, orders, ordinances,
directions, regulations - requirements of any federal, state, county or
municipal authority or failure of gas, oil or other suitable fuel supply or
inability by exercise of reasonable diligence to obtain gas, oil or other
suitable fuel. It is expressly understood and agreed that any covenants on
Landlord's part to furnish any service pursuant to any of the terms, covenants,
conditions, provisions or agreements of this Lease, or to perform any act or
thing for the benefit of Tenant, shall not be deemed breached if Landlord is
unable to furnish or perform the same by virtue of a strike or labor trouble or
any other cause whatsoever beyond Landlord's control.
F-2
<PAGE> 49
EXHIBIT G
TERMINATION AGREEMENT
This TERMINATION AGREEMENT ("Agreement") between CALLAHAN PENTZ
PROPERTIES, PLEASANTON - SITE 30A, ("Landlord"), a California general
partnership and JOHANSEN INVESTMENT CORPORATION dba SCJ Insurance Service
("Tenant"), is entered as of this __________ day of October 1987.
R E C I T A L S
A. Landlord and Tenant entered a Lease dated April 17, 1985, for
certain premises ("Premises") located at 5920 Gibraltar Drive, Pleasanton, CA.
B. The Term of the Lease was scheduled to expire on December 14,
1990.
C. Tenant desires to terminate the Lease as of October 14, 1987.
Unless otherwise provided herein, all defined terms shall be as defined in the
Lease. A copy of the Lease is attached hereto as EXHIBIT A.
NOW, THEREFORE, the parties do agree as follows:
1. Termination. Upon satisfaction of all the terms and conditions
contained in this Agreement, Landlord agrees to terminate the Lease as of
October 14, 1987, ("Termination Date").
2. Consideration. As consideration for this Agreement, Tenant
shall simultaneously execute a lease for the following locations (i) 4,581
square feet on the first floor and 8,598 square feet on the second floor of
Building A, located at 5934 Gibraltar Drive, Pleasanton, CA and (ii) 2,117
square feet located at 4698 Willow Road, Pleasanton, CA. In addition, Landlord
shall be responsible for the reasonable cost of moving computers and
telephones.
3. Operating Expenses. In addition to the consideration specified
in Paragraph 2, Tenant shall pay to Landlord Tenant's Estimated Operating
Expenses and Estimated Outside Area Expenses through the Termination Date.
4. Surrender. Tenant shall surrender the Premises as provided in
Section 3 of the Lease and Tenant shall be liable to Landlord for cost of
removing Alterations and Tenant's Personal Property, if any, as provided in
Section 14.
G-1
<PAGE> 50
5. Survival. The obligations specified in Paragraphs 3 and 4, in
addition to the covenants which are specified in the Lease to survive
termination of the Lease, shall continue after the Termination Date.
IN WITNESS WHEREOF, this Termination Agreement is executed as of the
10th day of October, 1987.
LANDLORD: TENANT:
CALLAHAN PENTZ PROPERTIES JOHANSEN INVESTMENT
CORPORATION,
PLEASANTON - SITE 30A, a California Corporation, dba
a California general SCJ Insurance Service
partnership
By: [SIG] By: [SIG]
------------------------------- -------------------------------
Its: Managing General Partner Its:
------------------------------
By: [SIG] By: [SIG]
------------------------------- -------------------------------
Its: Managing General Partner Its: Vice President
------------------------------
G-2
<PAGE> 51
TENANT (LEASE) SUMMARY
AMENDMENT #1
Amendment Execution Date: 12/16/87 Original Lease Execution Date: 10/9/87
Amendment Purpose: expense payment
Tenant: SCI Insurance Service
Landlord: Site 30A -- Hacienda Park Associates
Address: 5934 Gibraltar Dr. & 4698 Willow
Pleasanton, CA 94566
Sqft: 41656/41974 (bldg) 10179 - A/2117 - B (tenant)
LANDLORD'S TENANT IMPROVEMENTS APPLICABLE TO AMENDMENT:
Architect (company):____________________ (contact):____________________
General Contractor (company):____________________ (contact):____________________
Consultants (by Specialty):_____________________________________________________
Building Permit #:________________________
Type:___________________
Date Issued:____________
Date Final:_____________
Notice of completion: (dt)______________#________________
Executed Plans, Specs (Date):____________________________
As Built Drawings (Date):________________________________
Comments (punchlist, etc.):_____________________________________________________
TENANT IMPROVEMENT COST ALLOWANCE APPLICABLE TO TENANT:
Total Allowance ($/sq.ft.):___________ = Existing:____________ + New:___________
Actual Tenant Improvement Cost ($/sq.ft.):______________
Construction Cost (Gen'l Cont.):________________
Change Orders (Date Executed, Amount): (1)Dt:__________ Amt:___________
(2)Dt:__________ Amt:_________ (3)Dt:__________ Amt:___________
Indirect cost (Permits, A&E, etc.):____________________________________
EXCESS TENANT IMPROVEMENTS:
Actual Amount Over Allowance ($/sq.ft.):______________
Rent Adjustment Factor:_______________________________
Maximum T.I. Amount ($/sq.ft.):_______________________
Addtional Deposits (amount, purpose):_________________
REVISED MONTHLY RENTAL: Operating Expenses (base year 1986)
<TABLE>
<CAPTION>
Total Monthly
Outside Area Building Rental
Period Base Rent Expense Expense -------------
(Month) (Rate/sf/mo) + (Rate/sf/mo) + (Rage/sf/mo) = (Rate/sf/mo) ($Amount)
- ------ ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
2 $0.43 $0.43 Inc 0 0
1 $0.19 $0.43 Inc 9,530.74
2 $0.22 $0.43 Inc .65 10,000
25 $1.22 $0.43 Inc .65 25,200
30 $1.38 $0.43 Inc .81 27,720
</TABLE>
Additional Rent (Item, Payment Cycle, Rate/SF/Mo):______________________________
Rental Escalations (Date, Reason, Rate/S.F./Mo):________________________________
Miscellaneous (Limitations on Expenses, etc.):__________________________________
Next Lease Amendment Required: (Date, Reason, Adj to Rate/S.F./Mo):_____________
Comments (General):_____________________________________________________________
Page 1 of 1
<PAGE> 52
FIRST AMENDMENT TO LEASE AGREEMENT
THIS AMENDMENT to that certain Lease by and between Callahan Pentz
Properties, Pleasanton - Site 30-A, a California general partnership
(hereinafter "Landlord"), and Johansen Investment Corporation, a California
corporation dba SCJ Insurance Service (hereinafter "Tenant"), dated October 9,
1987, for the Premises designated as Premises A: 5934 Gibraltar Drive and
Premises B: 4698 Willow Road is entered into this 16th day of December, 1987.
R E C I T A L S:
A. Pursuant to a Termination Agreement between Landlord and
Tenant dated October 10, 1987, Landlord agreed to pay Tenants reasonable moving
expenses.
B. In lieu of the provisions of the Termination Agreement,
respecting reimbursement for moving expenses, the parties have agreed to
provide for an offset against Tenant's rental obligation.
NOW THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
Paragraph 5.1 Rent. Tenant shall receive a credit against Rent and estimated
operating expenses in the amount of $10,000.00 for the month of December 1987
and a credit against Rent and operating expenses in the amount of $10,000.00
for the month of January 1988, and a partial abatement in the amount of $469.26
for the month of February 1988.
Except as amended herein, the Lease is and shall remain in full force
and effect.
Executed on the date and year first written above.
ACKNOWLEDGED AND AGREED:
TENANT: LANDLORD:
JOHANSEN INVESTMENT CORPORATION, CALLAHAN PENTZ PROPERTIES - SITE 30A,
a California corporation, dba a California general partnership
SCJ Insurance Service
By: [SIG] By: /s/ J.W. CALLAHAN
---------------------------------- ---------------------------------
Its: President Its: Managing General Partner
---------------------------------- ---------------------------------
By: [SIG]
---------------------------------
Its: Managing General Partner
<PAGE> 53
EXHIBIT G
TERMINATION AGREEMENT
This TERMINATION AGREEMENT ("Agreement") between CALLAHAN PENTZ
PROPERTIES, PLEASANTON - SITE 30A, ("Landlord"), a California general
partnership and JOHANSEN INVESTMENT CORPORATION dba SCJ Insurance Service
("Tenant"), is entered as of this _____________ day of October 1987.
R E C I T A L S:
A. Landlord and Tenant entered a Lease dated April 17, 1985, for
certain premises ("Premises") located at 5920 Gibraltar Drive, Pleasanton, CA.
B. The Term of the Lease was scheduled to expire on
December 14, 1990.
C. Tenant desires to terminate the Lease as of October 14, 1987.
Unless otherwise provided herein, all defined terms shall be as defined in the
Lease. A copy of the Lease is attached hereto as EXHIBIT A.
NOW, THEREFORE, the parties do agree as follows:
1. Termination. Upon satisfaction of all the terms and conditions
contained in this Landlord agrees to terminate the Lease as of October 14, 1987,
("Termination Date").
2. Consideration. As consideration for this Agreement, Tenant
shall simultaneously execute a lease for the following locations (i) 4,581
square feet on the first floor and 8,598 square feet on the second floor of
Building A, located at 5934 Gibraltar Drive, Pleasanton, CA and (ii) 2,117
square feet located at 4698 Willow Road, Pleasanton, CA. In addition, Landlord
shall be responsible for the reasonable cost of moving computers and
telephones.
3. Operating Expenses. In addition to the consideration
specified in Paragraph 2, Tenant shall pay to Landlord Tenant's Estimated
Operating Expenses and Estimated Outside Area Expenses through the Termination
Date.
4. Surrender. Tenant shall surrender the Premises as provided in
Section 3 of the Lease and Tenant shall be liable to Landlord for cost of
removing Alterations and Tenant's Personal Property, if any, as provided in
Section 14.
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<PAGE> 54
5. SURVIVAL. The obligations specified in Paragraphs 3, 4,
in addition to the covenants which are specified in the Lease to survive
termination of the Lease, shall continue after the Termination Date.
IN WITNESS WHEREOF, this Termination Agreement is executed as of the
10th day of October, 1987.
LANDLORD: TENANT:
CALLAHAN PENTZ PROPERTIES, JOHANSEN INVESTMENT CORPORATION,
PLEASANTON - SITE 30A, a California Corporation, dba
a California General Partnership SCJ Insurance Service
By: [SIG] By: [SIG]
----------------------------- -----------------------------
Its: Managing General Partner Its:
----------------------------
By: [SIG] By: [SIG]
----------------------------- -----------------------------
Its: Managing General Partner Its: VICE PRESIDENT
----------------------------
G-2
<PAGE> 55
TENANT (LEASE) SUMMARY
AMENDMENT #: 2
Amendment Execution Date: 10/25/89 Original Lease Execution Date: 10/9/87
Amendment Purpose: Surrender of 2,117 square feet in Building B and
addition of 3,100 square feet in Building A
Tenant: SCJ INSURANCE
Landlord: HACIENDA PARK ASSOCIATES
Address: 5674 Stoneridge Drive Suite: 209
Pleasanton, CA 94566
Sqft 41,656 (bldg) 16,279 (tenant)
LANDLORD'S TENANT IMPROVEMENTS APPLICABLE TO AMENDMENT:
Architect (company): INTERFORM (contact):------
General Contractor (company): VANDERSON CONSTRUCTION INC. (contact):------
Consultants (by Specialty): Computer/phone cabeling Telco Communications
Building Permit #: ________________________________
Type: ________________________________
Date Issued: ________________________________
Date Final: ________________________________
Notice of Completion: (dt) __________#___________
Executed Plans, Specs (Date): ________________________________
As Built Drawings (Date): ________________________________
Comments (punchlist, etc.): __________________________________________________
TENANT IMPROVEMENT COST ALLOWANCE APPLICABLE TO TENANT:
Total Allowance ($/sq.ft.): __________ = Existing: __________ + New: __________
Actual Tenant Improvement Cost ($/sq.ft.): ________________________________
Construction Cost (Gen'l Cont.): ________________________________
Change Orders (Date Executed, Amount): (1)Dt ___________ Amt ___________
(2)Dt ___________ Amt ___________ (3)Dt ___________ Amt ___________
Indirect Cost (Permits, A&E, etc.): ____________________________________
________________________________________________________________________
Excess Tenant Improvements:
Actual Amount Over Allowance ($/sq.ft.): _____________
Rent Adjustment Factor: _____________
Maximum T.I. Amount ($/sq.ft.): _____________
Additional Deposits (amount, purpose): ________________________________________
REVISED MONTHLY RENTAL: OPERATING EXPENSES (base year 19__)
<TABLE>
<CAPTION>
TOTAL MONTHLY
OUTSIDE AREA BUILDING RENTAL
PERIOD BASE RENT EXPENSE EXPENSE ------
(MONTH) (RATE/SF/MO) + (RATE/SF/MO) + (RATE/SF/MO) = (RATE/SF/MO) ($AMOUNT)
- ------- ------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
- ------- ------------ ------------ ------------ ------------ ---------
NO CHANGE IN RENTAL RATE -- THERE IS A CHANGE TO ??? RENTAL RATE --
- ------- ------------ ------------ ------------ ------------ ---------
PER SQ.FT. PER MONTH
- ------- ------------ ------------ ------------ ------------ ---------
- ------- ------------ ------------ ------------ ------------ ---------
</TABLE>
Additional Rent (Item, Payment Cycle, Rate/SF/Mo): ____________________________
_______________________________________________________________________________
Rental Escalations (Date, Reason, Rate/S.F./Mo): ______________________________
_______________________________________________________________________________
Miscellaneous (Limitations on Expenses, etc.): Landlord to provide moving
costs to Tenant not to exceed an amount of $2,100.
Next Lease Amendment Required: (Date, Reason, Adj to Rate/S.F./Mo): ___________
_______________________________________________________________________________
Comments (General): ___________________________________________________________
Page 1 of 1 INITIAL
-------
-------
<PAGE> 56
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE ("AMENDMENT") IS ENTERED INTO THIS 23RD DAY OF
OCTOBER, 1989 AND AMENDS THAT CERTAIN LEASE BY AND BETWEEN HACIENDA PARK
ASSOCIATES, A CALIFORNIA GENERAL PARTNERSHIP ("LANDLORD") SUCCESSOR IN INTEREST
TO CALLAHAN PENTZ PROPERTIES, PLEASANTON - SITE 30A AND SCJ INSURANCE SERVICES,
A CALIFORNIA CORPORATION SUCCESSOR IN INTEREST TO JOHANSEN INVESTMENT
CORPORATION, A CALIFORNIA CORPORATION, ("TENANT") DATED OCTOBER 9, 1987.
Recitals
A. Landlord and Tenant have entered into a Lease for approximately
thirteen thousand one hundred seventy-nine (13,179) square feet
(Premise A) commonly known as the street address of 5934 Gibraltar
Drive, Suite 100 and Suite 202, Pleasanton, CA and two thousand one
hundred seventeen (2,117) square feet (Premises B) commonly known as
the street address of 4698 Willow Road, Pleasanton, CA. Premises A
and Premises B are referred to as the "Premise". The Property on
which the Premises are located is shown on Exhibit A attached hereto.
B. The Net Monthly Rent for the Premises for the period March 15, 1988 to
April 14, 1990 is $18,634.35 and the Net Monthly Rent shall be
increased on April 15, 1990 to Twenty-One Thousand One Hundred
Fifty-Four and 35/100ths Dollars ($21,154.35).
C. Landlord and Tenant desire to expand the Premises A to include Suite
208 ("New Premises") at 5934 Gibraltar Drive attached hereto as
Exhibit B, and to remove from the Premises, Premises B at 4698 Willow
Road.
NOW, THEREFORE, the parties agree as follows:
1. PREMISES: Section 1.1 of the Lease is amended to provide that the
Premises shall include thirteen thousand one hundred seventy-nine
(13,179) square feet, original Premises A and an additional three
thousand one hundred square feet (3,100) square feet known as Suite
208 ("New Premises"), and the Tenant shall surrender use of two
thousand one hundred and seventeen (2,117) square feet consisting of
Premises B at 4698 Willow Road, Pleasanton, CA.
2. TENANT'S PERCENTAGE: Section 1.9 of the Lease is amended to provide
that Tenant's Building Percentage is to be thirty-nine and one tenths
percent (39.1%) for the purposes of the Premises at 5934 Gibraltar
Drive and zero percentage (0%) at 4698 Willow Road.
3. TENANT IMPROVEMENTS: Suite 208 has been improved by the Landlord. The
Landlord shall modify such improvements and install an exterior
doorway in Suite 100 of Premises A. The Landlord shall construct the
Tenant Improvements in accordance with the Work Letter Agreement
attached as Exhibit C.
1
<PAGE> 57
Second Amendment to Lease
SCJ Insurance Service
October 23, 1989
Page 2
4. OCCUPANCY OF NEW PREMISES: The Landlord anticipates completion of the
improvement of the Original Premises and the New Premises by December
1, 1989. Tenant agrees to relocate its property from and surrender
the possession of Premises B at 4698 Willow Road by December 8, 1989.
5. Except as expressly provided herein, the Lease shall remain in full
force and effect and unamended.
LANDLORD: TENANT:
HACIENDA PARK ASSOCIATES SCJ INSURANCE SERVICES,
A CALIFORNIA GENERAL PARTNERSHIP A CALIFORNIA CORPORATION
BY: SIG BY: SIG
------------------------------- -------------------------------
ITS: MANAGING PARTNER ITS: PRESIDENT
------------------------------- -------------------------------
BY: BY:
------------------------------- -------------------------------
ITS: ITS:
------------------------------- -------------------------------
2
<PAGE> 58
THE PROJECT
Real Property in the City of Pleasanton, County of Alameda, State California.
Shell construction for a 85,090 square foot, two building R&D complex situated
on 5.577 acres described as Lot 30A, Parcel Map 4147, filed January 9, 1984 in
Book 141 of Maps, Page 89, Alameda County Records, APN Number 941-2759-20.
[GRAPHIC]
<PAGE> 59
EXHIBIT B
THE PREMISES
Site 30A - Saratoga Center
5934 Gibraltar Drive
Pleasanton, California
[GRAPHIC]
<PAGE> 60
EXHIBIT C
WORK LETTER AGREEMENT
SCJ INSURANCE SERVICES
In connection with the Tenant Improvements to be installed on the
Premises, the parties hereby agree as follows:
1. PLANS AND SPECIFICATIONS. The Tenant Improvements shall
include only those improvements described in the Preliminary Plans and
Specifications attached hereto as EXHIBIT C-1. Landlord shall retain
INTERFORM as the architect ("Architect") for the completion of final working
architectural and engineering plans and specifications for the Tenant
Improvements to be constructed on the Premises ("Final Plans and
Specifications"). Tenant shall cooperate diligently with the Architect, and
shall furnish on or before October 13, 1989, all information required by the
Architect for completion of the Final Plans and Specifications. Landlord and
Tenant shall indicate their approval of the Final Plans and Specifications by
initialing them and attaching them hereto as EXHIBIT C-2.
2. CONSTRUCTION OF TENANT IMPROVEMENTS.
2.1 Landlord shall employ VANDERSON CONSTRUCTION, INC.
("the Contractor") as the General Contractor for the construction of the Tenant
Improvements in the Premises. The Contractor shall construct the Tenant
Improvements substantially in conformance with the Plans and Specifications as
set forth in Exhibits C-1 and C-2 hereof. In the event any materials required
for the Tenant Improvements are not readily available, Landlord and/or the
Contractor may substitute equivalent materials provided, however, Landlord
shall notify Tenant of the substitution of said materials. Contractor shall
construct the Tenant Improvements in a timely fashion to provide Tenant
occupancy of the Premises as set forth in Paragraph 3.2 of the Lease for the
Tenant Improvement Cost, as set forth in Paragraph 3 hereof. Contractor shall
construct the Tenant Improvements in a timely and workmanlike fashion in
accordance with the Final Plans and Specifications, attached hereto as
Exhibit C-2.
2.2 Tenant may construct improvements to the Premises that
are constructed at its sole cost and expense, or install personal property such
as telephones, data cabling, etc. that are required to effect its occupancy of
the Premises concurrently with Landlord's Contractor's construction of the
Tenant Improvements. Such activity by Tenant shall not cause delays in
Landlord's construction or cause the cost of the Landlord's Tenant Improvements
to be increased. In such event, Tenant shall be responsible for such increased
cost.
3. Tenant Improvements Cost. The Tenant Improvements Cost
("Tenant Improvements Cost") to be paid by Landlord shall be defined to include
all direct and indirect costs associated with Landlord's construction of the
Tenant Improvements in accordance with Exhibit C-1 and C-2, including but not
limited to those items as follows:
(a) all costs of preliminary and final architectural and
engineering plans and specifications, including as-built drawings, for the
Tenant Improvements, and engineering costs associated with completion of the
State of California energy utilization calculations under Title 24 legislation;
(b) All costs of obtaining building permits and other
necessary authorizations from the appropriate governmental agencies;
Exhibit C
Page 1
<PAGE> 61
THIRD AMENDMENT TO LEASE
THIS THIRD AMENDMENT TO LEASE ("AMENDMENT") IS ENTERED INTO THIS 6TH DAY
OF MARCH, 1992 AND AMENDS THAT CERTAIN LEASE BY AND BETWEEN HACIENDA
PARK ASSOCIATES, A CALIFORNIA GENERAL PARTNERSHIP ("LANDLORD") SUCCESSOR
IN INTEREST TO CALLAHAN PENTZ PROPERTIES, PLEASANTON -- SITE 30A AND
SCJ INSURANCE SERVICES, A CALIFORNIA CORPORATION SUCCESSOR IN INTEREST
TO JOHANSEN INVESTMENT CORPORATION, A CALIFORNIA CORPORATION, ("TENANT")
DATED OCTOBER 9, 1987, ATTACHED AS EXHIBIT "A".
NOW, THEREFORE, the parties agree as follows:
1. TERM: Section 1.4 of the Lease is amended to provide the term as
sixty-six (66) months, commencing September 1, 1992 and terminating
February 28, 1998.
2. NET MONTHLY RENT: Section 1.6.1 of the Lease is amended to provide that
the monthly rent commencing on the first day of the first month of the
term, Tenant shall pay Nineteen Thousand Five Hundred Thirty-Four and
80/100 ($19,534.80) Dollars.
3. OPERATING EXPENSE BASE: Section 1.6.2 of the Lease is amended to provide
that the operating expense base shall be the actual operating expenses
incurred during 1992 as defined in Paragraphs 15 and 16. In the event
the building is less than one hundred percent (100%) leased during 1992,
the expenses shall be adjusted to reflect a one hundred percent (100%)
leased building. Notwithstanding anything to the contrary, Tenant shall
not be obligated to pay for any increases in operating expenses
resulting from any increases in the North Pleasanton Assessment
districts referred to in 1.6.4 a, b, and c. In the event the building is
sold during the base lease term and the sale results in an increase in
real property taxes, Landlord shall credit the tenant at the close of
escrow an amount equal to the resulting real property tax increase
discounted by the prevailing prime rate at the close of escrow. This
payment shall only apply to the increase in taxes Tenant would be
subject to in the base lease term and does not apply to any subsequent
extensions.
4. NET MONTHLY RENT ADJUSTMENTS: Section 1.7 of the Lease is amended to
provide that the rent be increased during the term as follows: March 1,
1993 to Twenty thousand Three Hundred Forty-eight and 75/100ths
($20,348.75), March 1, 1995 to Twenty-One Thousand Nine Hundred
Seventy-Six and 65/100ths ($21,976.65) dollars March 1, 1997 to
Twenty-Two Thousand Seven Hundred Ninety and 60/100ths ($22,790.60)
dollars.
<PAGE> 62
THIRD AMENDMENT TO LEASE
Page 2
5. Tenant Improvements: Landlord shall paint and recarpet the Tenant's
Premises located on the second floor of the building and recarpet the
ground floor reception area only at Landlord's sole cost with building
standard materials which are of similar quality to the existing carpet
and paint.* Tenant and Landlord shall mutually agree on an acceptable
time for the work to be completed. Landlord shall not be obligated to
paint or recarpet Tenant's space known as Suite 100, located on the
ground floor of the building, except as stated above.
6. Notification of Available Space: In the event space comes available
within the building during tenant's lease term. Landlord shall notify
Tenant in writing of the availability. Landlord shall have no
obligation to hold available space off the market and shall only be
obligated to notify Tenant of the availability of the space.
7. Option to Renew: Provided that Tenant is not in default hereunder
either at the time of exercise or at the time extended term commences,
Tenant shall have the option to extend the Lease for one (1) extended
five (5) year term on the same terms, covenants and conditions provided
herein, except that upon such renewal the monthly base rent due
hereunder shall be determined pursuant to Paragraph B. Tenant shall
exercise its option by giving Landlord written notice ("Option Notice")
at least one hundred eighty (180) days prior to the expiration of the
initial term of this Lease.
B. Option Period Monthly Rent. The Monthly Rent for the Option Period,
which shall include the initial Monthly Rent and all adjustments, shall
be determined as follows:
(i) The parties shall have fifteen (15) days after Landlord receives
the Option Notice within which to agree on the Monthly Rent for the
Option Period based upon the then fair market rental value of the
Premises as defined in Paragraph B (iii). If the parties agree on the
Monthly Rent for the Option Period within fifteen (15) days, they shall
immediately execute an amendment to this Lease stating the Monthly Rent
for the Option Period.
(ii) If the parties are unable to agree on the Monthly Rent for the
Option Period within fifteen (15) days, then, the Monthly Rent for the
Option period shall be the then current fair market value of the
Premises as determined in accordance with Paragraph B (iv).
(iii) The "then fair market rental value of the Premises" shall be
defined to mean the fair market rental value of the Premises as of the
commencement of the Option Period, taking into consideration the uses
permitted under this lease, the quality, size, design and location of
the Premises, and the rent for comparable buildings located in
Pleasanton. In no event shall the fair market monthly value of the
Premises for the Option Period be less than the Monthly Rent last
payable under the Lease.
*Tenant shall be responsible for moving Tenant's furniture and equipment
both prior to commencement and after completion of Landlord's work.
[Initial]
<PAGE> 63
THIRD AMENDMENT TO LEASE
Page 3
(iv) Within seven (7) days after the expiration of the fifteen (15) day
period set forth in Paragraph 51.B(ii), each party, at its cost and by
giving notice to the other party, shall appoint a real estate appraiser
with at least five (5) years' full time commercial appraisal experience
in the area in which the Premises are located to appraise and set the
then fair market rental value of the Premises for the Option Period. If
a party does not appoint an appraiser within ten (10) days after the
other party has given notice of the name of its appraiser, the single
appraiser appointed shall be the sole appraiser and shall set the then
fair market rental value of the Premises. If the two (2) appraisers are
appointed by the parties as stated in this paragraph, they shall meet
promptly and attempt to set the then fair market rental value of the
Premises. If they are unable to agree within thirty (30) days after the
second appraiser has been appointed, they shall attempt to elect a third
appraiser meeting the qualifications stated in this paragraph within ten
(10) days after the last day the two (2) appraisers are given to set the
then fair market rental value of the Premises. If they are unable to
agree on the third appraiser, either of the parties to this Lease, by
giving ten (10) days' notice to the other party, can apply to the then
President of the Alameda County Superior court, for the selection of a
third appraiser who meets the qualifications stated in this paragraph.
Each of the parties shall bear one-half (1/2) of the cost of appointing
the third appraiser and of paying the third appraiser's fee. The third
appraiser, however selected, shall be a person who has not previously
acted in any capacity for either party.
Within thirty (30) days after the selection of the third appraiser, a
majority of the appraisers shall set the then fair market value of the
Premises. If a majority of the appraisers are unable to set the then
fair market rental value of the Premises within the stipulated period of
time, the three (3) appraisals shall be added together and their total
divided by three (3); the resulting quotient shall be the then fair
market rental value of the Premises.
If, however, the low appraisal and/or the high appraisal are/is more
than ten percent (10%) lower and/or higher than the middle appraisal,
the low appraisal and/or the high appraisal shall be disregarded. If
only one appraisal is disregarded, the remaining two (2) appraisals
shall be added together and their total divided by two (2); the
resulting quotient shall be the then fair market rental value of the
Premises. If both the low appraisal and the high appraisal are
disregarded as stated in this paragraph, the middle appraisal shall be
the then fair market rental value of the Premises.
<PAGE> 64
THIRD AMENDMENT TO LEASE
Page 4
After the then fair market rental value of the Premises has been set,
the appraisers shall immediately notify the parties and the Monthly Rent
for the Option Period shall be such amount.
8. Except as expressly provided herein, the Lease shall remain in full
force and effect.
LANDLORD: TENANT:
Hacienda Park Associates SCJ Insurance Services
A California General Partnership A California Corporation
By: [SIG] By: [SIG]
----------------------------- -----------------------------
Its: Vice President Its: President
---------------------------- ----------------------------
After Hour HVAC/Lights: Landlord shall make the necessary adjustments to the
building HVAC/Energy Management system to allow Tenant the ability to turn
lights on during non-business hours, free of after-hour charges, but Tenant
shall be responsible for paying reasonable charges for HVAC usage during
non-business hours.
[SIG]
<PAGE> 65
FOURTH AMENDMENT TO LEASE
THIS FOURTH AMENDMENT TO LEASE ("AMENDMENT") IS ENTERED INTO THIS 18TH DAY OF
AUGUST, 1992 AND AMENDS THAT CERTAIN LEASE BY AND BETWEEN HACIENDA PARK
ASSOCIATES, A CALIFORNIA GENERAL PARTNERSHIP ("LANDLORD") SUCCESSOR IN INTEREST
TO CALLAHAN PENTZ PROPERTIES, PLEASANTON - SITE 30A AND SCJ INSURANCE SERVICES,
A CALIFORNIA CORPORATION SUCCESSOR IN INTEREST TO JOHANSEN INVESTMENT
CORPORATION, A CALIFORNIA CORPORATION, ("TENANT") DATED OCTOBER 9, 1987,
ATTACHED AS EXHIBIT "A".
NOW, THEREFORE, the parties agree as follows:
1. PREMISES: Section 1.1 of the Lease is amended to provide that the
Premises, upon the completion of the tenant improvements described in
Exhibit "C" is approximately 8,882 rentable square feet located on the
first and second floor of 5934 Gibraltar Drive as outlined Exhibit "B"
attached hereto.
2. NET MONTHLY RENT: Section 1.7 is amended to provide that the rent would
be adjusted as follows: Upon completion of the tenant improvements as
described in Exhibit "C" attached hereto, the monthly rental rate shall
be $12,878.90.
3. SECURITY DEPOSIT: Section 1.8 and Section 7 is amended to provide that
upon execution of this document, Tenant shall provide Landlord with a
security deposit of $13,000.00. Provided Tenant has not been in default
during the first twenty-four (24) months of the lease term, Landlord
shall return to Tenant said security deposit.
4. TENANT'S PERCENTAGE: Upon completion of the tenant improvements
described in Exhibit "C", Tenant's percentage in Section 1.9 shall be
21.32 percent of 5934 Gibraltar Drive and 10.67 percent of the Project.
5. TENANT IMPROVEMENTS: Landlord shall modify the Premises at its sole
cost as described in Exhibit "C" attached hereto. Tenant shall be
responsible for, at its sole cost and expense, removal and replacement
of all its furniture from the areas described in Exhibit "C" at the
request of the general contractor to accommodate tenant improvement
construction. In the event Tenant fails to move said furniture,
Landlord shall do so and Tenant shall promptly reimburse Landlord for
the cost associated there with.
6. NOTIFICATION OF AVAILABLE SPACE:
In the event space comes available within the building during tenant's
lease term, Landlord shall notify Tenant in writing of the availability.
Landlord shall have no obligation to hold available space off the market
and shall only be obligated to notify Tenant of the availability of the
space.
7. Except as expressly provided herein, the Lease and First, Second, and
Third amendments shall remain in full force and effect.
LANDLORD: TENANT:
Hacienda Park Associates SCJ Insurance Services
A California General Partnership A California Corporation
By: [SIG] By: [SIG]
----------------------------- -----------------------------
Its: Vice President Its: President
---------------------------- ----------------------------
<PAGE> 66
MUTUAL RELEASE
In consideration of the mutual covenants contained in that certain
Agreement Regarding Landlord's Consent to Assignment, dated as of February 29,
1996, (the "Agreement") by and among SCJ Insurance Services, a California
corporation ("Assignor"), Pro Business, Inc., a Delaware corporation
("Assignee"), and Hacienda Park Associates, a California general partnership
("Landlord"), Landlord fully releases and discharges Assignor and its partners,
employees, agents, brokers, contractors, officers and directors from any
actions, causes of action, claims and demands, costs, from, and relinquish all
rights, claims and actions that Landlord may have against Assignor which arise
under that certain Lease; dated as of October 9, 1987, as amended, between
Landlord and Assignee (the "Lease"). Landlord represents and warrants that it
has not sold, assigned, or otherwise transferred any of the claims released by
this Mutual Release.
In consideration of the mutual covenants contained in the Agreement,
Assignor and Assignee fully release and discharge Landlord and its partners,
employees, agents, brokers, contractors, officers and directors and their
respective employees, officers and directors from any actions, causes of
action, claims and demands, costs, from, and relinquish all rights, claims and
actions that either Assignor or Assignee may have against Landlord which arise
under the Lease and which relate to obligations of Landlord under the Lease to
be performed or accruing prior to the date of this Mutual Release. Assignor
and Assignee each represents and warrants that it has not sold, assigned, or
otherwise transferred any of the claims released by this Mutual Release.
Each party agrees that all rights under Civil Code Section 1542 and
under any other applicable, similar law are expressly waived. California Civil
Code Section 1542 provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
Each party represents and warrants to the other party that the party
has read and understood this Mutual Release and the releases contained herein
and that each party has had the legal effect of this Mutual Release explained
by competent legal counsel of that party's own choice and that each party is
executing this Mutual Release of that party's own free will.
EXHIBIT A
1
<PAGE> 67
This Mutual Release may be executed in counterparts, each of which
shall be deemed an original, but all of which, together, shall constitute one
Release.
This Mutual Release shall be governed by and construed in accordance
with the laws of the State of California.
If any lawsuit is filed which relates to or arises out of this Mutual
Release, the prevailing party shall be entitled to recover from each other
party such attorneys' fees as the court may award in addition to such other
costs and expenses of suit as may be allowed by law. A party need not be
entitled to recover a monetary judgment in order to be found to be the
"prevailing party".
DATED: , 1996
------------------
LANDLORD:
HACIENDA PARK ASSOCIATES,
a California general partnership
By PaineWebber Equity Partners Two
Limited Partnership,
a Virginia limited partnership,
Its General Partner
By: Second Equity Partners, Inc.
Its Managing General Partner
By: /s/ SIG
----------------------------
Its: VICE PRESIDENT
----------------------------
EXHIBIT A
2
<PAGE> 68
ASSIGNOR:
SCJ Insurance Services,
a California corporation
By: /s/ SHIRLEY LAPP
----------------------------
Shirley Lapp, President
ASSIGNEE:
Pro Business, Inc.,
a Delaware corporation
By: [SIG]
----------------------------
Its: EVP-OPERATIONS
----------------------------
EXHIBIT A
3
<PAGE> 69
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT AND ASSUMPTION OF LEASE (this "Assignment"), dated as
of February 29, 1996, is entered into by and between SCJ Insurance Services, a
California corporation ("Assignor"), and Pro Business, Inc., a Delaware
corporation ("Assignee").
WITNESSETH:
WHEREAS, Assignor is the tenant under that certain lease by and
between Hacienda Park Associates, a California general partnership
("Landlord"), and Assignor, dated as of October 9, 1987, as amended by that
certain First Amendment, dated October 9, 1987, that certain Second Amendment,
dated October 30, 1989, that certain Third Amendment, dated March 6, 1992, and
that certain Fourth Amendment, dated August 18, 1992 (collectively, the
"Lease"); and
WHEREAS, Assignor desires to assign its interest as tenant under the
Lease to Assignee, and Assignee desires to accept such assignment and has
agreed to assume Assignor's obligations under the Lease.
NOW, THEREFORE, in consideration of the promises and conditions
contained herein, Assignor and Assignee hereby agree as follows:
1. Assignor hereby assigns to Assignee all of its right, title
and interest in and to the Lease, effective as of October 1, 1996 (the
"Effective Date"). Assignor and Assignee may mutually agree upon an earlier
Effective Date provided that they give Landlord written notice of such earlier
Effective Date.
2. Assignee hereby assumes all obligations of Assignor under the
Lease, effective as of the Effective Date.
3. Assignor hereby acknowledges that its obligations under the
Lease shall not be diminished or relieved in any way by reason of this
Assignment or any modification of the Lease made subsequent to the date of this
Assignment and that it shall remain liable for all obligations under the Lease
to be performed or accruing prior to the Effective Date.
4. This Assignment shall be binding on and inure to the benefit
of the parties hereto and their successors in interest and assigns.
5. Assignor agrees to pay all rent and other sums payable under
the Lease when due and not to otherwise default under the Lease so as to
prevent Landlord's consent to assignment of the Lease upon the Effective Date.
Assignee agrees to pay all
<PAGE> 70
rent and other sums payable when due and not to otherwise default under that
certain Lease, dated as of August 12, 1992, by and between Landlord and
Assignee's predecessor-in-interest so as to prevent Landlord's consent to
assignment of the Lease upon the Effective Date.
6. Assignor agrees to timely keep, perform and discharge all of
the obligations as tenant under the Lease that shall have accrued and/or are to
have been performed prior to the Effective Date. Assignor shall indemnify,
defend and hold Assignee harmless from and against any and all claims, demands,
liabilities and obligations of tenant under the Lease arising out of or relating
to the period prior to the Effective Date. Assignee agrees to timely keep,
perform and discharge all of the obligations of tenant under the Lease that
shall accrue and/or are to be performed after the Effective Date. Assignee
shall indemnify, defend and hold Assignor harmless from and against any and all
claims, demands, liabilities and obligations of tenant under the Lease arising
out of or relating to the period after the Effective Date.
7. Notwithstanding Paragraph 6 above, Assignor and Assignee agree
that (a) Assignee shall be entitled to receive any refund or credit given by
Landlord after the Effective Date as a result of the overpayment by Assignor of
its prorata share of operating expenses, common area expenses and real property
taxes applicable to any period prior to the Effective Date; and (b) Assignee
shall pay the amount of the shortfall, if any, determined by Landlord after the
Effective Date in the amount paid by Assignor of its prorata share of operating
expenses, common area expenses and real property taxes applicable to any period
prior to the Effective Date.
2
<PAGE> 71
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment as of the date first above written.
ASSIGNOR:
SCJ Insurance Services,
a California corporation
By: /s/ SHIRLEY LAPP
----------------------------
Shirley Lapp, President
ASSIGNEE:
Pro Business, Inc.,
a Delaware corporation
By: [SIG]
----------------------------
Its: EVP-OPERATIONS
----------------------------
3
<PAGE> 72
AGREEMENT REGARDING LANDLORD'S CONSENT TO ASSIGNMENT
THIS AGREEMENT REGARDING LANDLORD'S CONSENT TO ASSIGNMENT (this
"Agreement"), dated as of February 29, 1996, is entered into by and among SCJ
Insurance Services, a California corporation ("Assignor"), Pro Business, Inc.,
a Delaware corporation ("Assignee"), and Hacienda Park Associates, a California
general partnership.("Landlord").
WITNESSETH:
WHEREAS, Assignor is the tenant under that certain lease by and
between Landlord and Assignor, dated as of October 9, 1987, as amended by that
certain First Amendment, dated October 9, 1987, that certain Second Amendment,
dated October 30, 1989, that certain Third Amendment, dated March 6, 1992, and
that certain Fourth Amendment, dated August 18, 1992 (collectively, the
"Lease"); and
WHEREAS, Assignor desires to assign its interest as tenant under the
Lease to Assignee, effective as of October 1, 1996 (the "Effective Date"), and
Assignee desires to accept such assignment and has agreed to assume Assignor's
obligations under the Lease effective as of the Effective Date.
NOW, THEREFORE, in consideration of the promises and conditions
contained herein, Assignor and Landlord hereby agree as follows:
1. Assignor and Assignee may designate an earlier Effective Date
upon not less than fifteen (15) days written notice signed by Assignor and
Assignee to Landlord.
2. Landlord agrees to consent to the assignment of the interest
of Assignor under the Lease to Assignee as of the Effective Date and to release
and discharge Assignor from its obligations under the Lease to be performed or
accruing after the Effective Date upon the written request of Assignor and
Assignee delivered to Landlord not earlier than fifteen (15) days prior to or
more than fifteen (15) days following the Effective Date; provided that as of
the Effective Date (a) Assignor is not in material default under the Lease, (b)
there has then occurred no event which would constitute a material default
under the Lease with notice or the passage of time, or both, (c) Assignee is
not in material default under that certain Lease, dated as of August 12, 1992,
by and between Landlord and Assignee's predecessor-in-interest ("Assignee's
Lease"'), (d) there has then occurred no event which would constitute a
material default under Assignee's Lease with notice or the passage of time, or
both, (e) Assignor has vacated the leased premises in the condition required by
the Lease and (f) Assignor and Assignee release and discharge Landlord in
writing from all obligations under to be performed by Landlord prior to the
Effective Date. In furtherance of the foregoing Assignor agrees that Landlord
<PAGE> 73
shall have no obligation to release Assignor as of the Effective Date unless
Assignor shall have made all payments, including, without limitation, base
rent, reimbursements of operating expenses, common area expenses and real
property taxes required by the Lease when due under the Lease and within the
periods allowed for such payments under the Lease. A monetary default under
the Lease shall be deemed to be a material default thereunder. Prior to
executing and delivering the release referred to above Landlord shall have the
right to inspect the leased premises in order to ascertain their condition.
The parties agree that the release referred to above shall be in the form of
Exhibit A attached hereto.
2. Assignor hereby releases and discharges Landlord, and its
partners, employees, agents, brokers and contractors from the obligations of
Landlord and any claims which Assignor may have relating to the obligations of
Landlord, and its partners, employees, agents, brokers and contractors under
the Lease accruing or arising prior to the date of this Agreement.
3. Notwithstanding Paragraph 6 of that certain Assignment and
Assumption of Lease of even date herewith between Assignor and Assignee (a)
Assignee shall be entitled to receive any refund or credit given by Landlord
after the Effective Date as a result of the overpayment by Assignor of its
prorata share of operating expenses, common area expenses and real property
taxes applicable to any period prior to the Effective Date; and (b) Assignee
shall pay the amount of the shortfall, if any, determined by Landlord after the
Effective Date in the amount paid by Assignor of its prorata share of operating
expenses, common area expenses and real property taxes applicable to any period
prior to the Effective Date. Assignee hereby expressly assumes the obligation
to pay the amount of the shortfall, if any, determined by Landlord after the
Effective Date in the amount paid by Assignor of its prorata share of operating
expenses, common area expenses and real property taxes applicable to any period
prior to the Effective Date.
2
<PAGE> 74
4. This Agreement shall be binding on and inure to the benefit of
the parties hereto and their successors in interest and assigns.
IN WITNESS WHEREOF, Assignor and Landlord have executed this
Assignment as of the date first above written.
LANDLORD:
HACIENDA PARK ASSOCIATES,
a California general partnership
By PaineWebber Equity Partners Two
Limited Partnership,
a Virginia limited partnership,
Its General Partner
By: Second Equity Partners, Inc.
Its Managing General Partner
By: [SIG]
----------------------------
Its: VICE PRESIDENT
----------------------------
ASSIGNOR:
SCJ Insurance Services,
a California corporation
By: /s/ SHIRLEY LAPP
---------------------------------
Shirley Lapp, President
ASSIGNEE:
Pro Business, Inc.,
a Delaware corporation
By: [SIG]
---------------------------------
Its: EVP-OPERATIONS
---------------------------------
3
<PAGE> 75
ACCESS AND HOLD HARMLESS AGREEMENT
This agreement is dated May 8, 1996 and entered into by SCJ Insurance
Services (SCJ), a California corporation and Pro Business, Inc. (Pro Business),
a Delaware corporation.
WHEREAS, SCJ and Pro Business have mutually agreed that the assumption
effective date of the Assignment and Assumption of Lease by and between SCJ
Insurance Services, a California Corporation and Pro Business Inc., a Delaware
Corporation dated February 29, 1996 and the assumption effective date of the
Agreement Regarding Landlord's Consent to Assignment by and among Hacienda Park
Associates, a California general partnership, Pro Business Inc., a Delaware
corporation and SCJ Insurance Services, a California corporation dated February
29, 1966 has been revised to July 1, 1996;
WHEREAS, Pro Business desires access to such premises covered by the
Assignment and Assumption of Lease prior to July 1, 1996 but not earlier than
May 13, 1996 for the sole purpose of preparing the premises for their occupancy
on or after July 1, 1996;
WHEREAS, SCJ has agreed to allow Pro Business access to such premises
covered by the Assignment and Assumption of Lease prior to the July 1, 1996 but
not earlier than May 13, 1996 for the sole purpose of preparing the premises
for Pro Business's occupancy on or after July 1, 1996;
WHEREAS, Pro Business has examined the premises in detail and agrees to
accept the space in "AS IS" condition and Pro Business agrees that all costs
associated with improvements or modifications required for their occupancy are
Pro Business's responsibility;
WHEREAS, has agreed to pay Pro Business $6,000 on July 1, 1996;
WHEREAS, Pro Business acknowledges and agrees that their occupancy on or
after July 1, 1996 is contigent upon Hacienda Park Associates, a California
general partnership, signing that certain release shown as Exhibit "A" to the
Agreement Regarding Landlord's Consent to Assignment by and among Hacienda Park
Associates, a California general partnership, SCJ Insurance Services, a
California corporation and Pro Business Inc., a Delaware corporation dated
February 29, 1996. In other words Pro Business may not occupy the premises
prior to Hacienda Park Associates signing the Exhibit "A" release in favor
of SCJ.
NOW, THEREFORE, in consideration of the promises and conditions contained
herein, Pro Business hereby agrees to defend and hold harmless SCJ Insurance
Services and its employees, agents, brokers, contractors, officers, and
directors from any actions, causes of action, claims and demands or costs of
any type, including attorney fees, directly or indirectly related to or in any
manner caused by Pro Business in preparation of the premises for occupancy or
any activity by Pro Business, its employees, agents, brokers, contractors,
officers and directors.
<PAGE> 76
This agreement, the Assignment and Assumption agreement dated February
29, 1996 and the Landlord's Consent to Assignment dated February 29, 1996
represent all of the agreements between Pro Business and SCJ related to the
assignment and assumption of the lease. No other representations, understanding
or agreements have been made or relied upon.
IN WITNESS WHEREOF, SCJ and Pro Business have executed this as of the
date first above written.
SCJ Insurance Services,
5860 West Las Positas Blvd., Suite 25
Pleasanton, CA 94588
By: _________________________________
John B. McKenzie, CFO
Dated: ______________________________
Pro Business Inc.,
5934 Gibralter Drive, Suite 101
Pleasanton, CA 94588
By: _________________________________
Its: ________________________________
Dated: ______________________________
<PAGE> 77
June 24, 1996
Mitch Everton
Vice President - Operations
Pro Business
5934 Gibralter Drive
Pleasanton, CA 94588
Re: Assignment and Assumption of Lease
Dear Mitch:
This letter is an addendum to the Access and Hold Harmless Agreement
dated May 8, 1996 by and between SCJ Insurance Service, a California
Corporation and Pro Business Inc., a Delaware Corp[oration. We have agreed to
the following changes:
* The requirement that SCJ Insurance Services pay Pro Business $6,000 on
July 1, 1996 or at any time is hereby eliminated.
* Pro Business may occupy the premises at any time on or after June 24,
1996.
Mitch, I believe this summarizes what we talked about. If so, please sign
and return a copy of this letter for my records.
Sincerely,
John B. McKenzie, CFO
Accepted and agreed by
Pro Business Inc.
By: ___________________________
Its: __________________________
Dated: ________________________
<PAGE> 1
EXHIBIT 10.19
PROMISSORY NOTE
U.S. $275,000 December 31, 1996
Benesphere Administrators, Inc. (the "Company") for value received,
hereby promises to pay Alison M. Elder ("Holder"), her heirs, successors or
assigns, or order, the principal sum of TWO HUNDRED SEVENTY FIVE THOUSAND
DOLLARS ($275,000), and to pay interest thereon at the rate of 9% per annum from
the date hereof. All principal and interest shall be payable on April 15, 1997
(the "Maturity Date") at Benesphere Administrators, Inc., 7041 Koll Center
Parkway, Suite 275, Pleasanton, California 94566; provided, however, that any
such payment may be made at the option of the Holder by check mailed to the
address of the Holder as such address shall appear on the records of the
Company.
Interest shall be computed by dividing the interest rate by 365 which
results in a daily factor ("factor"). The outstanding principal balance shall
then be multiplied by that factor which results in the daily interest amount.
The accrued daily interest amount is payable monthly and if not so paid shall
become part of the principal, at the option of Holder. All payments shall be
applied first to accrued interest due and payable, and the remainder, if any, to
principal.
The Company may prepay the Note in whole or in part at any time without
penalty. Any partial prepayment shall be applied to the payment of interest
accrued to date and the balance to principal.
The Company hereby acknowledges that late payment by the Company to
Holder of any payment hereunder will cause Holder to incur costs not
contemplated by this Note, the exact amount of which will be extremely difficult
to ascertain. Accordingly, if any payment hereunder shall not be received by
Holder within five days after such amount shall be due, the Company shall pay to
Holder a late charge of four cents ($.04) for each dollar ($1.00) which is not
paid when due. The parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Holder will incur by reason of late payment
by the Company. Acceptance of such late charge by Holder shall in no event
constitute a waiver of the Company's default with respect to such overdue
amount, nor prevent Holder from exercising any of the other rights and remedies
available hereunder. The Company promises to pay all reasonable costs and
expenses of collection and all reasonable attorneys' fees incurred by Holder on
account of such collection, whether or not suit is filed thereon. Such costs and
expenses shall be payable on demand and if not so paid shall become part of the
principal at the option of Holder.
The Company waives all rights to require Holder to do the following:
(a) demand payment of amounts due (presentment); (b) give notice that amounts
due have not been paid (notice of dishonor); and (c) obtain an official
certification of non-payment (protest). Any waiver by Holder or modification of
this Note, shall not be effective unless it is in writing and signed by Holder
on the reverse side of the original of this Note.
<PAGE> 1
EXHIBIT 10.20
----------
PROBUSINESS, INC.
SERIES F PREFERRED STOCK PURCHASE AGREEMENT
MARCH 12, 1997
----------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1 Authorization and Sale of Preferred Stock.............................................................. 4
1.1 Authorization................................................................................... 4
1.2 Sale of Series F Preferred...................................................................... 4
1.3 Use of Proceeds................................................................................. 4
SECTION 2 Closing Date; Delivery................................................................................. 4
2.1 Closing Date.................................................................................... 4
2.2 Delivery........................................................................................ 5
SECTION 3 Representations and Warranties of the Company.......................................................... 5
3.1 Organization and Standing; Articles of Incorporation and Bylaws................................. 5
3.2 Corporate Power................................................................................. 5
3.3 Subsidiaries.................................................................................... 5
3.4 Capitalization.................................................................................. 5
3.5 Authorization................................................................................... 6
3.6 No Contravention................................................................................ 7
3.7 Financial Statements............................................................................ 7
3.8 Employees....................................................................................... 7
3.9 Governmental Consent, etc....................................................................... 8
3.10 Brokers or Finders; Other Offers................................................................ 8
3.11 No Material Liabilities......................................................................... 8
3.12 FIRPTA.......................................................................................... 8
3.13 Registration Rights............................................................................. 8
3.14 Environmental Matters........................................................................... 8
3.15 Litigation...................................................................................... 9
3.16 Compliance with Laws............................................................................ 9
3.17 No Default or Breach; Contractual Obligations................................................... 9
3.18 Taxes........................................................................................... 9
3.19 No Material change; Ordinary Course of Business................................................. 10
3.20 Investment Company.............................................................................. 10
3.21 Labor Relations................................................................................. 10
3.22 Employee Benefit Plans.......................................................................... 10
3.23 Title to Assets................................................................................. 10
3.24 Intellectual Property........................................................................... 10
3.25 Year 2000 Compliance............................................................................ 11
3.26 Potential Conflicts of Interest................................................................. 11
3.27 Trade Relations................................................................................. 11
3.28 Insurance....................................................................................... 11
3.29 Disclosure...................................................................................... 11
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 4 Representations and Warranties of the Purchasers....................................................... 12
4.1 Investment Representations and Covenants of the Purchasers...................................... 12
4.2 No Public Market................................................................................ 13
4.3 Receipt of Information.......................................................................... 13
4.4 Authorization................................................................................... 13
4.5 Brokers or Finders.............................................................................. 14
4.6 Tax Advisors.................................................................................... 14
4.7 Investor Counsel................................................................................ 14
SECTION 5 Conditions to Closing of the Purchasers................................................................ 14
5.1 Representations and Warranties Correct.......................................................... 14
5.2 Covenants....................................................................................... 14
5.3 Compliance Certificate.......................................................................... 14
5.4 Opinion of Company's Counsel.................................................................... 15
5.5 Blue Sky........................................................................................ 15
5.6 Legal Matters................................................................................... 15
5.7 Registration Rights Agreement. ................................................................ 15
5.8 Secretary's Certificate......................................................................... 15
5.9 Documents....................................................................................... 15
5.10 Filing of Amendment to Certificate of Incorporation............................................. 15
5.11 Shares.......................................................................................... 15
5.12 Shareholders Agreement.......................................................................... 15
SECTION 6 Conditions to Closing of Company....................................................................... 16
6.1 Representations and Warranties.................................................................. 16
6.2 Blue Sky........................................................................................ 16
6.3 Legal Matters................................................................................... 16
6.4 Board and Shareholder Approval.................................................................. 16
6.5 Registration Rights Agreements.................................................................. 16
6.6 Shareholders Agreement.......................................................................... 16
6.7 Lockup.......................................................................................... 16
SECTION 7 Affirmative Covenants of the Company and the Purchasers................................................ 17
7.1 Financial Information........................................................................... 17
7.2 Rights of Inspection............................................................................ 17
7.3 Assignment of Rights to Financial Information................................................... 18
7.4 Termination of Covenants........................................................................ 18
7.5 Reservation of Common Stock and Preferred Stock................................................. 18
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 8 Miscellaneous.......................................................................................... 18
8.1 Governing Law................................................................................... 18
8.2 Survival........................................................................................ 18
8.3 Successors and Assigns.......................................................................... 18
8.4 Entire Agreement; Amendment..................................................................... 19
8.5 Notices, etc.................................................................................... 19
8.6 Delays or Omissions............................................................................. 19
8.7 California Corporate Securities Law............................................................. 20
8.8 Expenses........................................................................................ 20
8.9 Counterparts.................................................................................... 20
8.10 Severability.................................................................................... 20
8.11 Further Assurances.............................................................................. 20
8.12 Publicity....................................................................................... 20
</TABLE>
-iii-
<PAGE> 5
EXHIBITS
A. Schedule of Purchasers
B. Certificate of Amendment of Articles of Incorporation
C. Schedule of Exceptions
D. Employee Confidential Information Agreement
E. Compliance Certificate
F. Opinion of Company's Counsel
G. Amended and Restated Registration Rights Agreement
H. Stockholders' Agreement
I. Lock-up Agreement
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<PAGE> 6
PROBUSINESS, INC.
SERIES F PREFERRED STOCK PURCHASE AGREEMENT
This Series F Preferred Stock Purchase Agreement (the "AGREEMENT") is
made as of the 12th day of March 1997 by and between ProBusiness, Inc., a
California corporation (the "COMPANY"), with its principal office at 5934
Gibraltar Drive, Pleasanton, California 94588, and the persons listed on the
Schedule of Purchasers attached hereto as Exhibit A (the "PURCHASERS").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
DEFINITIONS
As used in this Agreement, and unless the context requires a different
meaning, the following terms have the meanings indicated:
"Affiliate" shall mean, with respect to any Person, any other
Person who controls, is controlled by or is under common control with such
Person. In addition, the following shall be deemed to be Affiliates of GAP LP:
(a) GAP, LLC, the members of GAP LLC and the limited partners of GAP LP; (b) any
Affiliate of GAP LLC, the members of GAP LLC and the limited partners of GAP LP;
and (c) any limited liability company or partnership a majority of whose members
or partners, as the case may be, are members of GAP LLC. In addition, GAP LP and
GAP Coinvestment shall be deemed to be Affiliates of one another.
"Agreement" shall have the meaning as defined above.
"Articles of Incorporation" means the Articles of
Incorporation of the Company, as amended and as in effect as of the Closing
Date.
"Board of Directors" means the Board of Directors of the
Company.
"Bylaws" means the bylaws of the Company as amended and as in
effect as of the Closing Date.
"Certificate" shall have the meaning as defined in Section
1.1.
"Closing" shall have the meaning as defined in Section 2.1.
"Closing Date" shall have the meaning as defined in Section
2.1.
"Code" means the Internal Revenue Code of 1986, as amended, or
any successor statute thereto.
<PAGE> 7
"Commission" shall have the meaning as defined in Section
4.1(c).
"Common Stock" means Common Stock, par value $.01 per share,
of the Company, or any other capital stock of the Company into which such stock
is reclassified or reconstituted.
"Common Stock Equivalents" means any security or obligation
which is by its terms convertible into or exchangeable for shares of Common
Stock, including, without limitation the Preferred Stock, and any option,
warrant or other subscription or purchase right with respect to Common Stock and
Preferred Stock.
"Condition of the Company and the Subsidiary" means the
assets, business, properties, operations or financial condition of the Company
and the Subsidiary, taken as a whole.
"Contractual Obligations" means any agreement, note, contract,
indenture, mortgage, deed of trust or other instrument to which the Company or
the Subsidiary is a party or by which it or the Subsidiary or any of their
respective properties are bound.
"Copyrights" means any foreign or United States copyright
registrations and applications for registration thereof and any non-registered
copyrights.
"Environmental Laws" means federal, state, local and foreign
laws, principles of common law, civil law, regulations and codes relating to
pollution, protection of the environment or public health and safety.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Financial Statements" shall have the meaning set forth in
Section 3.7.
"GAAP" means generally accepted accounting principles in
effect from time to time.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware
limited liability company and the general partner of GAP LP, and any successor
to such entity.
"Governmental Authority" means the government of any nation,
state, city, locality or other political subdivision thereof, any entity
exercising, executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"Intellectual Property" shall have the meaning as defined in
Section 3.24.
"Internet Assets" means any internet domain names and other
computer user identifiers and any rights in and to sites on the Worldwide Web,
including rights in and to any text, graphics, audio and video files and html or
other code incorporated in such sites.
-2-
<PAGE> 8
"Lien" means any mortgage, deed of trust, pledge, assignment,
encumbrance, lien (statutory or other) or other charge.
"Mask Works" means any mask works and registrations and
applications for registrations thereof.
"Orders" shall have the meaning as set forth in Section 3.6
hereof.
"Patents" means any foreign or United States patents and
patent applications, including any divisions, continuations,
continuations-in-part, substitutions or reissues thereof, whether or not patents
are issued on such applications and whether or not such applications are
modified, withdrawn or resubmitted.
"Permits" shall have the meaning as defined in Section
3.16(b)(i).
"Person" means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company, Governmental Authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"Preferred Stock" shall have the meaning as defined in Section
3.4.
"Registration Rights Agreement" shall mean the Amended and
Restated Registration Rights Agreement dated the date hereof between the
Company, the Purchasers and the Original Holders (as defined therein).
"Requirements of Law" means any law, statute, treaty, rule, or
regulation of a court or other Governmental Authority, in each case applicable
or binding upon the Company, the Subsidiary or any of their respective property
or to which the Company, the Subsidiary or any of their respective properties
are bound.
"Securities Act" shall have the meaning as defined in Section
3.13.
"Securities Exchange Act" shall have the meaning as defined in
Section 4.1(c).
"Series F Preferred" shall have the meaning as defined in
Section 1.1.
"Software" means any computer software programs, source code,
object code and manuals and other written material with respect thereto.
"Stockholders' Agreement" shall mean the Stockholders'
Agreement dated the date hereof between the Company, the Purchasers and the
Sinton Stockholders (as defined therein).
"Subsidiary" means BeneSphere Administrators, Inc.
-3-
<PAGE> 9
"Trade Secrets" means any trade secrets, research records,
processes, procedures, manufacturing formulae, technical know-how, technology,
blue prints, designs, plans, inventions (whether patentable and whether reduced
to practice), invention disclosures and improvements thereto.
"Trademarks" means any foreign or United States trademarks,
service marks, trade dress, trade names, brand names, designs and logos,
corporate names, product or service identifiers, whether registered or
unregistered, and all registrations and applications for registration thereof.
"Transaction Documents" means the Agreement, the Stockholders'
Agreement and the Registration Rights Agreement.
SECTION 1
AUTHORIZATION AND SALE OF PREFERRED STOCK
1.1 AUTHORIZATION. The Company has authorized the sale and
issuance of up to 574,733 shares (the "SHARES") of its Series F Preferred Stock
(the "SERIES F PREFERRED"), having rights, privileges and preferences as set
forth in the Certificate of Amendment to the Articles of Incorporation (the
"CERTIFICATE") in the form attached to this Agreement as Exhibit B. The
Company's Certificate authorizes the issuance of up to 574,733 shares of Series
F Preferred.
1.2 SALE OF SERIES F PREFERRED. Subject to the terms and
conditions hereof, the Company will severally issue and sell to the Purchasers
and the Purchasers will severally purchase from the Company, at the Closing, the
respective number of shares of Series F Preferred indicated on the Schedule of
Purchasers at a purchase price of $17.40 per share, for the aggregate purchase
price for each Purchaser as indicated thereon.
1.3 USE OF PROCEEDS. Company intends to use the net proceeds
received by it from the sale of the Shares contemplated hereby to repay a
portion of its outstanding indebtedness and, the remainder will be used for
other general working capital purposes.
SECTION 2
CLOSING DATE; DELIVERY
2.1 CLOSING DATE. The closing of the execution of this Agreement
and the sale and purchase of the Shares hereunder shall be held at the offices
of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California
94304 at 5:00 p.m., local time, on March 12, 1997 (the "CLOSING") or at such
other time and place upon which the Company and the Purchasers shall agree (the
date of the Closing is hereinafter referred to as the "CLOSING DATE").
-4-
<PAGE> 10
2.2 DELIVERY. At the Closing, the Company will deliver to each
Purchaser an executed counterpart of this Agreement together with a certificate,
registered in such Purchaser's name, representing the number of Shares to be
issued on the Closing Date as set forth beside such Purchaser's name on the
Schedule of Purchasers, against delivery of an executed counterpart of this
Agreement, together with payment of the purchase price for the Shares by check
payable to the Company or wire transfer per the Company's instructions.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the "Schedule of Exceptions" attached hereto as
Exhibit C, the Company hereby represents and warrants to the Purchasers as of
the Closing Date as follows:
3.1 ORGANIZATION AND STANDING; ARTICLES OF INCORPORATION AND
BYLAWS. Each of the Company and the Subsidiary is a corporation duly organized
and validly existing under, and by virtue of, the laws of the state of its
incorporation and is in good standing under such laws. Each of the Company and
the Subsidiary has requisite corporate power and authority to own, lease and
operate its respective properties and assets and to carry on its respective
business as presently conducted and as proposed to be conducted. Neither the
Company, nor the Subsidiary is presently qualified to do business as a foreign
corporation in any jurisdiction where the failure to be so qualified would have
a material adverse effect on the Condition of the Company and the Subsidiary. No
jurisdiction has claimed in writing or otherwise, that either the Company or the
Subsidiary is required to qualify as a foreign corporation therein. Except as
set forth on Schedule 3.1, the Company does not own, lease or operate property
in any jurisdiction other than its jurisdiction of incorporation. The Company
has furnished to the Purchasers or their special counsel copies of its Articles
of Incorporation, as amended, and Bylaws, as amended. Said copies are true,
correct and complete and contain all amendments through the Closing Date.
3.2 CORPORATE POWER. The Company has all requisite legal and
corporate power and authority to execute and deliver this Agreement, to sell and
issue the Shares hereunder, to issue the Common Stock issuable upon conversion
of the Shares and to carry out and perform its obligations under the terms of
the Transaction Documents.
3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
equity interest in any corporation, association or business entity except for
BeneSphere Administrators, Inc., a Washington Corporation.
3.4 CAPITALIZATION. The authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock, par value $.01 per share,
1,518,868 of which are issued and outstanding as of the Closing Date, and
6,000,000 shares of Preferred Stock, par value $.01 per share (the "PREFERRED
STOCK"), 920,000 of which have been designated Series A Preferred Stock (the
"SERIES A PREFERRED"), all of which are issued and outstanding as of the Closing
Date, 1,500,000 of
-5-
<PAGE> 11
which have been designated Series B Preferred Stock (the "SERIES B PREFERRED"),
of which 919,400 are issued and outstanding as of the Closing Date, 1,500,000 of
which have been designated Series C Preferred Stock (the "SERIES C PREFERRED"),
of which 260,785 are issued and outstanding as of the Closing Date, 500,000 of
which have been designated Series D Preferred Stock (the "SERIES D PREFERRED"),
of which 300,000 are issued and outstanding as of the Closing Date, 500,000 of
which have been designated Series E Preferred Stock (the "SERIES E PREFERRED"),
of which 253,116 are issued and outstanding as of the Closing Date, and 574,733
of which have been designated Series F Preferred Stock (the "SERIES F
PREFERRED"), none of which are issued and outstanding immediately before the
Closing. No other series of Preferred Stock has been designated. The outstanding
shares have been duly authorized and validly issued, and are fully paid and
nonassessable and were issued in compliance with the registration and
qualification requirements of all applicable federal and state securities laws.
The Company has reserved 574,733 shares of Series F Preferred for issuance
hereunder, 1,149,466 shares of Common Stock for issuance upon conversion of the
Series F Preferred, 506,232 shares of Common Stock for issuance upon the
conversion of the Series E Preferred, 600,000 shares of Common Stock for
issuance upon the conversion of the Series D Preferred, 521,570 shares of Common
Stock for issuance upon conversion of the Series C Preferred, 1,838,800 shares
of Common Stock for issuance upon conversion of the Series B Preferred,
1,840,000 shares of Common Stock for issuance upon conversion of the Series A
Preferred, 777,787 shares of Common Stock for issuance upon exercise of options
granted and 1,440,593 shares of Common Stock for issuance upon exercise of
options not yet granted under the Company's 1989 Stock Option Plan and Executive
Stock Option Plan. The Series F Preferred shall have the rights, preferences,
privileges and restrictions set forth in the Certificate. The Company has
reserved 186,872 shares of Series E Preferred for issuance upon exercise of
warrants to purchase Series E Preferred and 373,744 shares of Common Stock for
issuance upon conversion of the Series E Preferred issued pursuant to exercise
of warrants. The Company has reserved 50,000 shares of Common Stock for issuance
upon exercise of warrants to purchase Common Stock. Schedule 3.4 sets forth a
true and complete list of (i) the stockholders of the Company and, opposite the
name of each stockholder, the amount of all outstanding capital stock and Common
Stock Equivalents owned by such stockholder and (ii) the holders of Common Stock
Equivalents (other than the stockholders set forth in clause (i) above) and,
opposite the name of each such holder, the amount of all outstanding Common
Stock Equivalents owned by such holder. Except as set forth in the Stockholders'
Agreement and on Schedule 3.4, there are no options, warrants or other rights,
including convertible debentures or notes, granted or issued by or binding upon
the Company to purchase any of the Company's capital stock or other conversion
or preemptive rights, co-sale rights or rights of first refusal or rights of
first offer granted by the Company to any Person, or voting, proxy or other
stockholder agreements granting such similar rights to any Person to which the
Company is a party. None of the rights set forth in Schedule 3.4 is in
preference to or in conflict with the rights granted to the Purchasers by the
Company in the Transaction Documents.
3.5 AUTHORIZATION. All corporate action on the part of the
Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance of the Transaction Documents by the Company,
the authorization, sale, issuance and delivery of the Shares (and the Common
Stock issuable upon conversion of the Shares) and the performance of all of the
Company's obligations hereunder and thereunder have been taken or will be taken
prior to the Closing. Each of
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the Transaction Documents, when executed and delivered by the Company, shall
constitute a valid and binding obligation of the Company, enforceable in
accordance with its terms, except, (i) as limited by laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies
and (ii) to the extent that the enforceability of the indemnification provisions
of the Registration Rights Agreement and the involuntary transfers and corporate
governance provisions of the Stockholders' Agreement may be limited by
applicable law. The Shares, when issued in compliance with the provisions of
this Agreement, will be validly issued, fully paid and nonassessable and will
have the rights, preferences and privileges described in the Certificate. The
Common Stock issuable upon conversion of the Shares has been duly and validly
reserved and, when issued in compliance with the provisions of this Agreement
and the Certificate, will be validly issued, fully paid and nonassessable. The
Shares and such Common Stock will be issued in compliance with registration and
qualification requirements of all applicable federal and state securities laws
subject to restrictions on transfer under state and/or federal securities laws
as set forth herein and will be free of any liens or encumbrances, assuming the
Purchasers take the Shares with no notice thereof, and other than any liens or
encumbrances created by or imposed upon the holders through no action of the
Company. The Shares are not subject to any preemptive rights, co-sale rights,
rights of first refusal or rights of first offer.
3.6 NO CONTRAVENTION. Except as set forth in Section 3.6, the
execution, delivery and performance by the Company of each of the Transaction
Documents and the transactions contemplated hereunder and thereunder (a) do not
contravene the terms of the Articles of Incorporation or the Bylaws; (b) do not
violate, conflict with or result in any breach or contravention of, or the
creation of any Lien under, any Contractual Obligation, or any Requirement of
Law, except where the violation, conflict, breach, contravention or Lien would
not have a material adverse effect on the Condition of the Company and the
Subsidiary; and (c) do not violate any material provision of any judgment,
injunction, writ, award, decree or order of any nature (collectively, "ORDERS")
of any Governmental Authority against, or binding upon, the Company.
3.7 FINANCIAL STATEMENTS. The Company has delivered to each
Purchaser the Company's unaudited financial statements (balance sheet and
statement of operations) for the six months ended December 31, 1996, and the
audited financial statements for the twelve-month periods ending June 30, 1995
and June 30, 1996 (the "FINANCIAL STATEMENTS"), which are complete and correct
in all material respects and were prepared in accordance with generally accepted
accounting principles applied on a consistent basis except that the unaudited
financial statements do not contain footnotes or typical year end adjustments.
The Financial Statements accurately set out in all material respects and
describe the financial condition, operating results and cash flows of the
Company as of the respective dates and for the respective periods indicated
except that the unaudited financial statements do not contain typical year end
adjustments.
3.8 EMPLOYEES. To the best of the Company's knowledge, no employee
of the Company or the Subsidiary is in violation of any term of any employment
contract, patent disclosure agreement or any other contract or agreement
relating to the relationship of such employee with the Company or the Subsidiary
or any other party because of the nature of the business conducted or to be
conducted by the Company or the Subsidiary. Each employee of the Company and the
Subsidiary with access to
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confidential or proprietary information has executed an Employee Confidential
Information Agreement in a form substantially similar to the agreement attached
hereto as Exhibit D.
3.9 GOVERNMENTAL CONSENT, ETC. No consent, approval,
qualification, order or authorization of, or filing with, any Governmental
Authority on the part of the Company is required in connection with the valid
execution, delivery or performance by, or enforcement against the Company of any
of the Transaction Documents, or the offer, sale or issuance of the Shares (and
the Common Stock issuable upon conversion of the Shares), or the consummation of
any other transaction contemplated hereby (or thereby), except the qualification
(or taking such action as may be necessary to secure an exemption from
qualification, if available) of the offer and sale of the Shares (and the Common
Stock issuable upon conversion of the Shares) under applicable Blue Sky laws,
which filings and qualifications, if required, will be accomplished in a timely
manner.
3.10 BROKERS OR FINDERS; OTHER OFFERS. The Company has not
incurred, and will not incur, directly or indirectly, as a result of any action
taken by the Company, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with any of the Transaction
Documents.
3.11 NO MATERIAL LIABILITIES. Neither the Company nor the
Subsidiary has liabilities or obligations in excess of $100,000, other than: (a)
liabilities and obligations disclosed in the Financial Statements; (b)
liabilities incurred in the ordinary course of business since December 31, 1996;
(c) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected in the Financial Statements; and (d) leases for operating
headquarters and branches of the Company.
3.12 FIRPTA. The Company is not a "foreign person" within the
meaning of Section 1445 of the Code.
3.13 REGISTRATION RIGHTS. Except as set forth in Schedule 3.13 and
provided in the Registration Rights Agreement attached hereto as Exhibit G, the
Company is not obligated to register under the Securities Act of 1933, as
amended (the "Securities Act") any of its presently outstanding securities or
any of its securities that may subsequently be issued.
3.14 ENVIRONMENTAL MATTERS. To the Company's knowledge, each of the
Company and the Subsidiary is and has been in compliance with all applicable
Environmental Laws, except to the extent that the failure to comply with such
Environmental Laws would not have a material adverse effect on the Condition of
the Company and the Subsidiary. There is no civil, criminal or administrative
judgment, action, suit, demand, claim, hearing, notice of violation,
investigation, proceeding, notice or demand letter pending or, to the knowledge
of the Company, threatened against the Company or the Subsidiary pursuant to
Environmental Laws which would reasonably be expected to result in a fine,
penalty or other obligation, cost or expense that would have a material adverse
affect on the Condition of the Company and the Subsidiary; and, to the knowledge
of the Company, there are no past or present events, conditions, circumstances,
activities, practices, incidents, agreements, actions or plans which may prevent
compliance with, or which have given rise to or will
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<PAGE> 14
give rise to liability under, Environmental Laws that would have a material
adverse effect on the Condition of the Company and the Subsidiary.
3.15 LITIGATION. There are no actions, suits, proceedings, claims,
complaints, disputes, arbitrations or investigations pending or, to the
knowledge of the Company, threatened, at law, in equity, in arbitration or
before any Governmental Authority against the Company or the Subsidiary which
would, if adversely determined, have a material adverse effect on (a) the
Condition of the Company and the Subsidiary or (b) the ability of the Company to
perform its obligations under any of the Transaction Documents. No Order has
been issued by any court or other Governmental Authority against the Company
purporting to enjoin or restrain the execution, delivery or performance of any
of the Transaction Documents.
3.16 COMPLIANCE WITH LAWS.
(a) To its knowledge, each of the Company and the
Subsidiary is in compliance with all Requirements of Law and Orders issued by
any court or Governmental Authority against the Company or the Subsidiary, as
the case may be, except to the extent that the failure to comply with such
Requirements of Law or Orders would not have a material adverse effect on the
Condition of the Company and the Subsidiary.
(b) Except as set forth on Schedule 3.16, (i) Each of the
Company and the Subsidiary have all licenses, permits, orders and approvals of
any Governmental Authority (collectively, "PERMITS") that are necessary for the
conduct of its respective business as now being conducted by it, except to the
extent that the failure to have such Permits would not have a material adverse
effect on the Condition of the Company and the Subsidiary; (ii) such Permits are
in full force and effect; and (iii) no violations have been recorded in respect
of any such Permit.
3.17 NO DEFAULT OR BREACH; CONTRACTUAL OBLIGATIONS. Except as set
forth in Schedule 3.17, neither the Company nor the Subsidiary has received
notice of, or is in default under, any Contractual Obligation which, could have
a material adverse effect on (i) the Condition of the Company and the Subsidiary
or (ii) the ability of the Company to perform its obligations under the
Transaction Documents. Schedule 3.17 lists all of the Contractual Obligations to
which the Company and/or the Subsidiary is a party, other than the Transaction
Documents and Contractual Obligations which would not be required to be filed by
the Company as an exhibit under Item 601 of Regulation S-K promulgated under the
Securities Act to a registration statement filed with the Commission to register
shares of Common Stock of the Company.
3.18 TAXES. Each of the Company and the Subsidiary has paid all
taxes and assessments due and required to be paid by it by law through the date
hereof. Each of the Company and the Subsidiary has filed all tax returns and
reports as required by law to be filed by it on and through the date hereof. The
returns and reports are true and correct in all material respects. The provision
for taxes of the Company and the Subsidiary as shown in the Financial Statements
is adequate for taxes due or accrued as of the date hereof. To the knowledge of
the Company, there is no unassessed tax deficiency proposed or, to the knowledge
of the Company, threatened against the Company or the
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<PAGE> 15
Subsidiary and no audit is in progress with respect to any tax return filed by
the Company or the Subsidiary.
3.19 NO MATERIAL CHANGE; ORDINARY COURSE OF BUSINESS. Since
December 31, 1996, there has not been any material adverse change, nor to the
knowledge of the Company is any such change threatened, in the Condition of the
Company and the Subsidiary from that reflected in the Financial Statements,
except changes in the ordinary course of business. Except as set forth in the
Financial Statements, since December 31, 1996, neither the Company nor the
Subsidiary have participated in any material transaction outside the ordinary
course of business, including, without limitation, declaring or paying dividends
or declaring or making any distribution to its stockholders, except out of the
earnings of the Company.
3.20 INVESTMENT COMPANY. The Company is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
3.21 LABOR RELATIONS. There is (i) no grievance or arbitration
proceeding pending or arising out of or under any collective bargaining
agreements or, to the knowledge of the Company, threatened against the Company
or the Subsidiary, and (ii) no strike, labor dispute, slowdown or stoppage
pending or, to the knowledge of the Company, threatened against the Company or
the Subsidiary. Neither the Company nor the Subsidiary is a party to any
collective bargaining agreement or similar contract. To the knowledge of the
Company, no union organizing activities are taking place with respect to the
Company or the Subsidiary.
3.22 EMPLOYEE BENEFIT PLANS. The Company has no actual or
contingent, direct or indirect, liability in respect of any employee benefit
plan or arrangement, employment contract, severance arrangement or executive
compensation arrangement, including any plan subject to ERISA, except as set
forth in the Financial Statements and other than to make contributions under or
pay benefits pursuant to the plans listed on Schedule 3.22 (collectively, the
"Plans"). All of the Plans are in compliance with all applicable Requirements of
Law except to the extent that noncompliance with such Requirements of Law would
not have a material adverse effect on the Condition of the Company and the
Subsidiary.
3.23 TITLE TO ASSETS. Except as set forth on Schedule 3.23, each of
the Company and the Subsidiary owns and has good and marketable title to all of
its respective properties and assets and has good title to all of its respective
leasehold interests used in its respective business and reflected as owned or
leased, respectively, on the Financial Statements, in each case free and clear
of all Liens, except for (a) Liens specifically described in the Financial
Statements, (b) Liens of current taxes not yet due and payable, and (c) Liens
not material to the Condition of the Company and the Subsidiary.
3.24 INTELLECTUAL PROPERTY. Each of the Company and the Subsidiary
has sufficient ownership of or has the license or right to use, sell, license or
dispose of all of the Copyrights, Patents, Trade Secrets, Trademarks, Internet
Assets, Mask Works, Software and other proprietary rights (collectively
"INTELLECTUAL PROPERTY") necessary for its respective business as presently
conducted. Schedule 3.24 sets forth all of the Intellectual Property owned by,
and applications for
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<PAGE> 16
any of the above filed by, the Company or the Subsidiary. Schedule 3.24 sets
forth all Intellectual Property licenses, sublicenses and other agreements under
which the Company or the Subsidiary is either a licensor or licensee of any
Intellectual Property, except such licenses, sublicenses and other agreements
relating to (i) Software licensed to clients of the Company or the Subsidiary,
pursuant to a standard end-user license agreement, (ii) used solely on the
computers of the Company or the Subsidiary or (iii) end user license agreements
for third party software generally available through commercial channels. The
Company has not received any communications alleging that either the Company or
the Subsidiary has violated or, by conducting its business as now conducted,
would violate or infringe upon any Intellectual Property of any third party. To
the knowledge of the Company, but without independent investigation, no Person
is infringing upon or otherwise violating the Intellectual Property rights of
the Company. None of the Intellectual Property listed on Schedule 3.24 is
subject to any outstanding Order, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand is pending or, to the
knowledge of the Company, threatened, which challenges the validity,
enforceability, use or ownership of the Intellectual Property listed on Schedule
3.24.
3.25 YEAR 2000 COMPLIANCE. The Software used by the Company and/or
its Subsidiary will accurately process date information after January 1, 2000
without having a material adverse effect on the Condition of the Company and the
Subsidiary.
3.26 POTENTIAL CONFLICTS OF INTEREST. Except for the transactions
contemplated by the Transaction Documents and except as set forth on Schedule
3.26, no officer, director or 5% shareholder of the Company has entered into any
transaction with the Company that would be required to be described in a
registration statement filed with the Commission under Item 404 of Regulation
S-K promulgated under the Securities Act.
3.27 TRADE RELATIONS. There exists no actual or, to the knowledge
of the Company, threatened termination, cancellation or limitation of, or any
adverse modification or change in, the business relationship of the Company or
the Subsidiary with any client or clients, which individually, or in the
aggregate would have a material adverse effect on the Condition of the Company
and the Subsidiary.
3.28 INSURANCE. Each of the Company and the Subsidiary maintains
insurance with insurance companies or associations in such amounts and covering
such risks as are usually and customarily carried by Persons engaged in the
business conducted by the Company and the Subsidiary, respectively. Such
policies are in full force and effect.
3.29 DISCLOSURE. This Agreement and the documents and certificates
furnished to the Purchasers by the Company (including, without limitation, the
Form S-1 Registration Statement, dated March 11, 1997, prepared by the Company
but not filed with the SEC as of the date hereof), taken as a whole, do not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which they were made, not misleading.
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<PAGE> 17
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby represents and warrants (severally as to itself
and not jointly) to the Company with respect to its purchase of the Shares as
follows:
4.1 INVESTMENT REPRESENTATIONS AND COVENANTS OF THE PURCHASERS.
(a) This Agreement is made by the Company with the
Purchaser in reliance upon such Purchaser's representations and covenants made
in this Section 4, which by its execution of this Agreement the Purchaser hereby
confirms. The Purchaser represents that the Series F Preferred to be received
will be acquired for investment for its own account, not as a nominee or agent,
and not with a view to the sale or distribution of any part thereof, and that it
has no present intention of selling, granting any participation in or otherwise
distributing the same. The Purchaser further represents that it does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Series F Preferred or any Common Stock acquired on
conversion thereof.
(b) The Purchaser understands and acknowledges that the
offering of the Series F Preferred pursuant to this Agreement will not, and any
issuance of Common Stock on conversion thereof may not, be registered under the
Securities Act on the ground that the sale provided for in this Agreement and
the issuance of securities hereunder is exempt pursuant to Section 4(2) of the
Securities Act, and that the Company's reliance on such exemption is predicated
on the Purchasers' representations set forth herein.
(c) The Purchaser covenants that in no event will it make
any disposition of any of the Series F Preferred, or any Common Stock acquired
upon the conversion thereof, except in accordance with the Registration Rights
Agreement and the Stockholders' Agreement. The Purchaser further covenants that
it will not make any sale, transfer or other disposition of the Series F
Preferred or the Common Stock issuable upon conversion thereof in violation of
the Securities Act, the Securities and Exchange Act of 1934 (the "SECURITIES
EXCHANGE ACT"), or the rules of the Securities and Exchange Commission (the
"COMMISSION") promulgated thereunder.
(d) The Purchaser represents that it is experienced in
evaluating companies similar to the Company, is able to fend for itself in
transactions such as the one contemplated by this Agreement, has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of its prospective investment in the Company,
has the ability to bear the economic risks of the investment and is an
"accredited investor" as defined by Regulation E promulgated under the
Securities Act of 1933, as amended.
(e) The Purchaser acknowledges and understands that the
Series F Preferred, and any Common Stock acquired upon the conversion thereof,
must be held indefinitely unless it is
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<PAGE> 18
subsequently registered under the Securities Act or an exemption from such
registration is available, and that, except as otherwise provided in the
Registration Rights Agreement and Schedule 3.13, the Company is under no
obligation to register either the Series F Preferred or Common Stock.
(f) The Purchaser acknowledges that it has reviewed a
copy of Rule 144 promulgated under the Securities Act, which permits limited
public resales of securities acquired in a nonpublic offering, subject to the
satisfaction of certain conditions. The Purchaser understands that before the
Series F Preferred, or any Common Stock issued upon conversion thereof, may be
sold under Rule 144 as in effect on April 29, 1997, the following conditions
must be fulfilled: (i) certain public information about the Company must be
available, (ii) the sale must occur at least one year after the Purchaser
purchased and paid for the Series F Preferred, (iii) the sale must be made in a
broker's transaction and (iv) the number of shares of Series F Preferred sold
must not exceed certain volume limitations. The Purchaser understands that the
current information referred to above is not now available and the Company has
no present plans to make such information available.
(g) The Purchaser acknowledges that in the event the
applicable requirements of Rule 144 are not met, registration under the
Securities Act, compliance with the Commission's Regulation A or another
exemption from registration will be required for any disposition of its stock.
The Purchaser understands that although Rule 144 is not exclusive, the
Commission has expressed its opinion that persons proposing to sell restricted
securities received in a private offering other than in a registered offering or
pursuant to Rule 144 will have a substantial burden of proof in establishing
that an exemption from registration is available for such offers or sales and
that such persons and the brokers who participate in the transactions do so at
their own risk.
4.2 NO PUBLIC MARKET. The Purchaser understands that no public
market now exists for any of the securities issued by the Company and that it is
unlikely that a public market will ever exist for the Series F Preferred.
4.3 RECEIPT OF INFORMATION. The Purchaser has received and
reviewed the Transaction Documents and all exhibits hereto and thereto and the
draft of the Registration Statement on Form S-1 which has not been filed with
the Commission. The Purchaser and its counsel have had access to and an
opportunity to review all documents and other materials requested of the
Company; the Purchaser and its counsel have been given an opportunity to ask any
and all questions of, and receive answers from, the Company concerning the terms
and conditions of the offering and to obtain all information it or they believe
necessary or appropriate to evaluate the suitability of an investment in the
Series F Preferred; and, in evaluating the suitability of an investment in the
Series F Preferred, it and they have not relied upon any representations or
other information (whether oral or written) other than as set forth in the
documents and answers referred to above.
4.4 AUTHORIZATION. The Transaction Documents when executed and
delivered by the Purchaser will constitute a valid and legally binding
obligation of the Purchaser, enforceable in accordance with its terms, except
(i) as limited by laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies and (ii) to the extent that the
enforceability of the indemnification
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provisions of the Registration Rights Agreement and the involuntary transfers
and corporate governance provisions of the Stockholders' agreement may be
limited by applicable law.
4.5 BROKERS OR FINDERS. The Purchasers have not, and will not,
incur, directly or indirectly, as a result of any action taken by any Purchaser,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement.
4.6 TAX ADVISORS. The Purchaser has reviewed with its own tax
advisors the federal, state, local and foreign tax consequences of this
investment, where applicable, and the transactions contemplated by this
Agreement. The Purchaser is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents and
understands that it (and not the Company) shall be responsible for the
Purchaser's own tax liability that may arise as a result of this investment or
the transactions contemplated by this Agreement.
4.7 INVESTOR COUNSEL. The Purchaser acknowledges that it has had
the opportunity to review the Transaction Documents, the exhibits and the
schedules attached hereto and thereto and the transactions contemplated by the
Transaction Documents with its own legal and investment counsel. The Purchaser
is relying solely on such counsel and not on any statements or representations
of the Company or any of its agents for legal or investment advice with respect
to this investment or the transactions contemplated by the Transaction
Documents.
SECTION 5
CONDITIONS TO CLOSING OF THE PURCHASERS
The Purchasers' obligations to purchase the Shares at the Closing and
to perform any obligations hereunder are, at the option of the Purchasers,
subject to the fulfillment of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations
and warranties made by the Company in Section 3 hereof shall be true and correct
in all material respects on the Closing Date as if made on such date.
5.2 COVENANTS. All covenants, agreements and conditions contained
in this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with in all material respects.
5.3 COMPLIANCE CERTIFICATE. The Company shall have delivered to
the Purchasers a certificate of the Company in the form of Exhibit E hereto,
executed by the President of the Company, dated the Closing Date, and
certifying, among other things, to the fulfillment of the conditions specified
in Sections 5.1 and 5.2 of this Agreement.
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<PAGE> 20
5.4 OPINION OF COMPANY'S COUNSEL. The Purchasers shall have
received from Wilson, Sonsini, Goodrich & Rosati, P.C., counsel to the Company,
an opinion addressed to the Purchasers, dated the Closing Date, in substantially
the form attached as Exhibit F.
5.5 BLUE SKY. The Company shall have obtained all necessary Blue
Sky law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Series F
Preferred and the Common Stock issuable upon conversion of the Series F
Preferred.
5.6 LEGAL MATTERS. All material matters of a legal nature that
pertain to the Transaction Documents and the transactions contemplated hereby
and thereby, shall have been reasonably approved by special counsel to the
Purchasers.
5.7 REGISTRATION RIGHTS AGREEMENT. The Company, each Purchaser and
a majority of the Original Holders (as defined therein) shall have entered into
the Registration Rights Agreement in substantially the form attached hereto as
Exhibit G.
5.8 SECRETARY'S CERTIFICATE. The Purchasers shall have received a
certificate from the Company, in form and substance satisfactory to the
Purchasers, dated the Closing Date and signed by the Secretary or an Assistant
Secretary of the Company, certifying (a) that the attached copies of the
Articles of Incorporation, the Bylaws and resolutions of the Board of Directors
of the Company approving each of the Transaction Documents to which the Company
is a party, are true, complete and correct and remain unamended and in full
force and effect and (b) as to the incumbency and specimen signature of each
officer of the Company executing each Transaction Document and any other
document delivered at the Closing on behalf of the Company.
5.9 DOCUMENTS. The Purchasers shall have received true, complete
and correct copies of such documents as they may reasonably request in
connection with or relating to the sale of the Shares and the transactions
contemplated hereby, all in form and substance reasonably satisfactory to the
Purchasers.
5.10 FILING OF AMENDMENT TO CERTIFICATE OF INCORPORATION. The
Amendment to the Articles of Incorporation shall have been filed by the Company
with the Secretary of State of the State of California in accordance with the
General Corporation Law of the State of California.
5.11 SHARES. The Company shall have delivered to the Purchasers
certificates in definitive form representing the number of Shares set forth
opposite such Purchaser's name on Exhibit A hereto, registered in the name of
such Purchaser.
5.12 SHAREHOLDERS AGREEMENT. The Company, each Purchaser and Sinton
(as defined therein) shall have entered into the Stockholders' Agreement,
substantially in the form attached hereto as Exhibit H.
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SECTION 6
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Shares pursuant to
Section 1.2 hereof and to perform any obligations hereunder, is, at the option
of the Company, subject to the fulfillment as of the Closing Date of the
following conditions:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Purchasers in Section 4 hereof shall be true and correct
when made, and shall be true and correct on the Closing Date.
6.2 BLUE SKY. The Company shall have obtained all necessary Blue
Sky law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Shares and the
Common Stock issuable upon conversion of the Shares.
6.3 LEGAL MATTERS. All material matters of a legal nature that
pertain to the Transaction Documents and the transactions contemplated hereby
and thereby, shall have been reasonably approved by counsel to the Company. At
the time of the Closing, the purchase of the Shares shall be legally permitted
by all laws and regulations to which each Purchaser and the Company are subject.
6.4 BOARD AND SHAREHOLDER APPROVAL. All approvals of the Company's
Board of Directors and shareholders necessary for performance of the
transactions contemplated by the Transaction Documents shall have been obtained.
6.5 REGISTRATION RIGHTS AGREEMENTS. The Company, each Purchaser
and a majority of the Original Holders (as defined therein) shall have entered
into the Registration Rights Agreement in substantially the form attached hereto
as Exhibit G.
6.6 SHAREHOLDERS AGREEMENT. The Company, each Purchaser and Sinton
(as defined therein) shall have entered into the Stockholders' Agreement,
substantially in the form attached hereto as Exhibit H.
6.7 LOCKUP. Purchasers shall have signed a Lock-up agreement in
the form attached hereto as Exhibit I.
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<PAGE> 22
SECTION 7
AFFIRMATIVE COVENANTS OF THE COMPANY AND THE PURCHASERS
The Company hereby covenants and agrees as follows:
7.1 FINANCIAL INFORMATION. The Company will furnish to each
Purchaser for so long as such Purchaser holds any shares of Series F Preferred
or Common Stock issued upon conversion thereof:
(a) As soon as practicable after the end of each fiscal
year, and in any event within 120 days thereafter, consolidated balance sheets
of the Company and its subsidiaries, if any, as of the end of such fiscal year,
and consolidated statements of income and cash flows of the Company and its
subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail and
certified by independent public accountants of reputable standing selected by
the Company.
(b) With reasonable promptness, such other information
and data with respect to the Company and its subsidiaries as any such holder may
from time to time reasonably request; provided, however, that the Company shall
not be obligated pursuant to this Section 7.1(b) to disclose or provide any
information that it reasonably considers to be a trade secret or to contain
confidential proprietary information.
(c) So long as such Purchaser holds 25,000 shares of
Series F Preferred or Common Stock issued upon conversion thereof, as
appropriately adjusted for recapitalization, stock splits, stock dividends and
the like, as soon as practicable after the end of the first, second and third
quarterly accounting periods in each fiscal year of the Company and in any event
within 60 days thereafter, unaudited consolidated statements of income of the
Company and its subsidiaries for such period and for the current fiscal year to
date, prepared in accordance with generally accepted accounting principles, with
the exception of footnotes, all in reasonable detail and signed, subject to
changes resulting from year-end audit adjustments, by the principal financial or
accounting officer of the Company.
(d) So long as such Purchaser holds shares of Series F
Preferred or Common Stock issued upon conversion thereof, the Company shall
provide to a Purchaser, upon its written request as promptly as practicable but
no later than 5 days after the end of such fiscal year of the Company, a
certification signed by the President of the Company in customary form
certifying that the Company is not a "foreign person" within the meaning of
Section 1445 of the Code.
7.2 RIGHTS OF INSPECTION. For so long as a Purchaser is eligible
to receive reports under Section 7.1(c), such Purchaser shall also have the
right, at the Purchaser's expense, to visit and inspect any of the properties of
the Company and to discuss its affairs, finances and accounts with its officers,
all at such reasonable times and as often as may be reasonably requested,
provided that the
-17-
<PAGE> 23
Company shall not be required at any time to disclose any manufacturing or trade
secret or secret process or other data of a proprietary nature the disclosure of
which the Company reasonably believes may adversely affect its business,
provided, further, that the Company shall not be required at any time to
disclose any customer data to any Purchaser or any transferee of a Purchaser, as
provided in Section 7.3, engaged in a business similar to the business in which
the Company is engaged at such time, and provided, further, that the Company
shall not be required at any time to disclose any information or data that is
classified by any governmental agency.
7.3 ASSIGNMENT OF RIGHTS TO FINANCIAL INFORMATION. The rights
granted pursuant to Sections 7.1 and 7.2 may not be assigned or otherwise
conveyed by a Purchaser or by any subsequent transferee of any such rights
without the prior written consent of the Company; provided, however, that a
Purchaser may assign such rights to any transferee, other than a competitor of
the Company, and after giving notice to the Company, who acquires at least
25,000 shares (subject to appropriate adjustment for stock splits, dividends,
subdivisions, combinations, recapitalizations and the like) of the Series F
Preferred and/or Common Stock issued upon conversion thereof.
7.4 TERMINATION OF COVENANTS. The covenants set forth in Sections
7.1, 7.2 and 7.3 shall terminate and be of no further force or effect at such
time as the Company is required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act.
7.5 RESERVATION OF COMMON STOCK AND PREFERRED STOCK. The Company
shall at all times reserve and keep available out of its authorized shares of
Common Stock, solely for the purpose of issue or delivery upon conversion of the
Shares, as provided in the Articles of Incorporation, the maximum number of
shares of Common Stock that may be issuable or deliverable upon such conversion.
The Company shall issue such shares of Common Stock in accordance with the terms
of the Articles of Incorporation and otherwise comply with the terms thereof.
SECTION 8
MISCELLANEOUS
8.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California. The parties expressly stipulate
that any litigation under this Agreement shall be brought in the state courts of
the County of Alameda, California and in the United States District Court for
the Northern District of California. The parties agree to submit to the
jurisdiction and venue of those courts.
8.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by a Purchaser and
the closing of the transactions contemplated hereby.
8.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and
-18-
<PAGE> 24
administrators of the parties hereto, provided, however, that the rights of a
Purchaser to purchase the Series F Preferred shall not be assignable without the
consent of the Company, except subject to applicable securities laws, the
Purchasers may assign any of their rights under any of the Transaction Documents
to any of their respective Affiliates; provided however, the Company shall not
be obligated to register transfers to more than 15 such transferees, without
prior written consent.
8.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered pursuant hereto at the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought;
provided, however, that any provisions hereof may be amended, waived, discharged
or terminated, on behalf of all holders, upon the written consent of the Company
and the holders of a majority of the Common Stock issued or issuable upon the
conversion of the Series F Preferred.
8.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to a Purchaser, to such Purchaser's address set forth on the
Schedule of Purchasers, or at such other address as the Purchaser shall have
furnished to the Company in writing with a copy to: Paul, Weiss, Rifkind,
Wharton & Garrison, 1285 Avenue of the Americas, New York, New York 10019-6064,
Telecopy: (212) 757-3990, Attention: Matthew Nimetz, Esq., or (b) if to any
other holder of any Shares, at such address as such holder shall have furnished
the Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Shares who has so
furnished an address to the Company, or (c) if to the Company, one copy should
be sent to its address set forth at the beginning of this Agreement and
addressed to the attention of the President of the Company, or at such other
address as the Company shall have furnished to the Purchasers with a copy to
Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California
94304, Telecopy: (415) 493-6811, Attention: Alan K. Austin, Esq.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid.
8.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy accruing to any holder
of any Shares, upon any breach or default of the Company under this Agreement,
shall impair any such right, power or remedy of such holder nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any
-19-
<PAGE> 25
waiver, permit, consent or approval of any kind or character on the part of any
holder of any breach or default under this Agreement or any waiver on the part
of any holder of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
8.7 CALIFORNIA 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
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS AN EXEMPTION FROM SUCH
QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, OR SUCH EXEMPTION
BEING AVAILABLE.
8.8 EXPENSES. Each of the Company and the Purchasers shall bear
its own expenses and legal fees incurred with respect to this Agreement and the
transactions contemplated hereby.
8.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be enforceable against the party actually
executing such counterpart, and all of which together shall constitute one
instrument.
8.10 SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
8.11 FURTHER ASSURANCES. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
8.12 PUBLICITY. Except as may be required by applicable Requirement
of Law, none of the parties hereto shall issue a publicity release or public
announcement or otherwise make any disclosure concerning this Agreement or the
transactions contemplated hereby, without prior approval by the other parties
hereto; provided, however, that nothing in this Agreement shall restrict any
Purchaser from disclosing information (a) that is already publicly available;
(b) to the prospective transferee in connection with any contemplated transfer
of any of the Purchased Shares; (c) to its attorneys, accountants, consultants
and other advisors to the extent necessary to obtain their services in
connection with such Purchaser's investment in the Company; and (d) orally to
business partners. If any announcement is required by law to be made by any
party hereto, prior to making such announcement such party will deliver a draft
of such announcement to the other parties and shall give the other parties an
opportunity to comment thereon.
-20-
<PAGE> 26
IN WITNESS WHEREOF, the foregoing Agreement is hereby executed as of
the date first above written.
PROBUSINESS, INC.
By: ______________________________
Thomas H. Sinton, President
-21-
<PAGE> 27
PROBUSINESS, INC.
SERIES F PREFERRED STOCK PURCHASE AGREEMENT
PURCHASERS' SIGNATURE PAGE
___________________________________
(Printed Name of Purchaser)
___________________________________
(Signature)
___________________________________
(Title, if Applicable)
-22-
<PAGE> 28
EXHIBIT A
PROBUSINESS, INC.
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Name and Address Number of Shares Total Purchase Price
- ---------------------------------------- ---------------- --------------------
<S> <C> <C>
General Atlantic Partners 39, L.P. 489,184 $ 8,511,801.60
General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attn: Mr. Stephen P. Reynolds
GAP Coinvestment Partners, L.P. 85,549 1,488,552.60
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attn: Mr. Stephen P. Reynolds
------- --------------
Total 574,733 $10,000,354.20
</TABLE>
<PAGE> 1
EXHIBIT 10.21
==============================================================================
STOCKHOLDERS AGREEMENT
among
PROBUSINESS, INC.,
GENERAL ATLANTIC PARTNERS 39, L.P.,
GAP COINVESTMENT PARTNERS, L.P.
THOMAS H. SINTON,
JANE N. SINTON,
THOMAS H. SINTON & JANE N. SINTON
1989 IRREVOCABLE TRUST,
JANE N. SINTON AS CUSTODIAN FOR
ROBERT HOLLISTER SINTON,
JANE N. SINTON AS CUSTODIAN FOR
LAUREN TAYLOR SINTON,
SILAS D. SINTON TRUST ESTATE
and
SILAS JACK SINTON FAMILY TRUST
___________________________________
Dated: March 12, 1997
___________________________________
==============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Restrictions on Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 Limitation on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 Permitted Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Permitted Transfer Procedures . . . . . . . . . . . . . . . . . . . . . . . 8
2.4 Transfers in Compliance with Law; Substitution of Transferee . . . . . . . . 8
3. Right of First Offer and Tag-Along Rights. . . . . . . . . . . . . . . . . . . . . . . . 9
3.1 Proposed Voluntary Transfers. . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Involuntary Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4. Future Issuance of Shares; Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . 15
4.1 Offering Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.2 Preferred Stockholder Option; Exercise. . . . . . . . . . . . . . . . . . . 15
4.3 Preemptive Rights; Exercise . . . . . . . . . . . . . . . . . . . . . . . . 16
4.4 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.5 Sale to Subject Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . 17
5. After-Acquired Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6. Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Stockholders Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.3 Election of Directors; Number and Composition . . . . . . . . . . . . . . . 18
6.4 Reduction of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 Removal and Replacement of Directors . . . . . . . . . . . . . . . . . . . . 19
6.6 Reimbursement of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 19
7. Stock Certificate Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.2 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.3 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.7 Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.8 Variations in Pronouns . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
8.9 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.11 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
EXHIBITS
A Form of Transfer Agreement (Previously issued shares)
</TABLE>
ii
<PAGE> 4
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated March 12, 1997 (this
"AGREEMENT"), among ProBusiness, Inc., a California corporation (the
"COMPANY"), General Atlantic Partners 39, L.P., a Delaware limited partnership
("GAP LP"), GAP Coinvestment Partners, L.P., a New York limited partnership
("GAP COINVESTMENT"), Thomas H. Sinton ("THS"), Jane N. Sinton ("JNS"), Thomas
H. Sinton & Jane N. Sinton 1989 Irrevocable Trust ("1989 TRUST"), Jane N.
Sinton as custodian for Robert Hollister Sinton ("RHS"), Jane N. Sinton as
custodian for Lauren Taylor Sinton ("LTS"), Silas D. Sinton Trust Estate
("TRUST ESTATE") and Silas Jack Sinton Family Trust ("FAMILY TRUST"; and,
together with THS, JNS, 1989 Trust, RHS, LTS and Trust Estate, "SINTON").
WHEREAS, on the date hereof, Sinton owns (i) 100,000
shares, par value $.01 per share, of Common Stock of the Company (the "COMMON
STOCK"), (ii) 902,751 shares, par value $.01 per share, of Series A Preferred
Stock of the Company ("SERIES A STOCK"), (iii) 408,362 share, par value $.01
per share, of Series B Preferred Stock of the Company ("SERIES B STOCK") and
(iv) 58,921 shares, par value $.01 per share, of Series D Preferred Stock of
the Company ("SERIES D STOCK");
WHEREAS, on the date hereof, the Company, GAP LP and GAP
Coinvestment are entering into the Series F Preferred Stock Purchase Agreement,
dated the date hereof (the "STOCK PURCHASE AGREEMENT"), pursuant to which the
Company has agreed to, among other things, sell to (a) GAP LP an aggregate of
489,184 shares, par value $.01 per share, of Series F Preferred Stock of the
Company (the "SERIES F STOCK") and (b) GAP Coinvestment an aggregate of 85,549
shares of Series F Stock; and
WHEREAS, the parties hereto wish to restrict the transfer
of the Shares (as hereinafter defined) and to provide for, among other things,
first offer and preemptive rights and certain other rights under certain
conditions.
NOW, THEREFORE, in consideration of the mutual promises and
agreements set forth herein, the adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
"Affiliate" shall mean, with respect to any Person,
any other Person who controls, is controlled by or is under common control with
such Person. In addition, the following shall be deemed to be Affiliates of
GAP LP: (a) GAP LLC, the members of GAP LLC and the limited partners of GAP
LP; (b) any
<PAGE> 5
2
Affiliate of GAP LLC, the members of GAP LLC and the limited partners of GAP
LP; and (c) any limited liability company or partnership a majority of whose
members or partners, as the case may be, are members of GAP LLC. In addition,
GAP LP and GAP Coinvestment shall be deemed to be Affiliates of one another.
"Board of Directors" means the Board of Directors of
the Company.
"Business Day" means any day other than a Saturday,
Sunday or other day on which commercial banks in the State of California are
closed.
"Charter Documents" means the Articles of
Incorporation and the By-laws of the Company as in effect on the date hereof.
"Commission" means the Securities and Exchange
Commission or any similar agency then having jurisdiction to enforce the
Securities Act.
"Common Stock" means the Common Stock, par value
$.01 per share, of the Company, or any other capital stock of the Company into
which such stock is reclassified or reconstituted.
"Common Stock Equivalents" means any security or
obligation which is by its terms convertible into shares of Common Stock,
including, without limitation, the Preferred Stock, and any option, warrant or
other subscription or purchase right with respect to Preferred Stock or Common
Stock.
"Company" has the meaning assigned to such term in
the recital to this Agreement.
"Company Option" has the meaning set forth in Section 3.1.2 of this Agreement.
"Company Option Period" has the meaning set forth in
Section 3.1.2 of this Agreement.
"Contract Date" has the meaning set forth in Section
3.1.5 of this Agreement.
"Excess Offered Securities" has the meaning set
forth in Section 3.1.3 of this Agreement.
<PAGE> 6
3
"Exchange Act" means the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Commission thereunder.
"Fair Value" has the meaning set forth in Section
3.2.2.
"Family Members" has the meaning set forth in Section
2.2 of this Agreement.
"GAAP" means generally accepted United States
accounting principles in effect from time to time.
"GAP Coinvestment" has the meaning assigned to such
term in the recital to this Agreement.
"GAP Director" has the meaning set forth in Section
6.3 of this Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a
Delaware limited liability company and the general partner of GAP LP, and any
successor to such entity.
"GAP LP" has the meaning assigned to such term in the
recital to this Agreement.
"General Atlantic Stockholders" means GAP LP, GAP
Coinvestment and any Permitted Transferee of either of them to which Shares are
transferred in accordance with Section 2.2, and the term "General Atlantic
Stockholder" shall mean any such Person.
"Governmental Authority" means the government of any
nation, state, city, locality or other political subdivision thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Initial Public Offering" means the consummation of
firm commitment underwritten initial public offering pursuant to an effective
Registration Statement filed under the Securities Act covering the offer and
sale of shares of Common Stock for the account of the Company.
<PAGE> 7
4
"Involuntary Transfer" means any transfer (other
than a Permitted Pledge), proceeding or action by or in which a Stockholder
shall be deprived or divested of any right, title or interest in or to any of
the Shares (except for any transfer, proceeding or action pursuant to the death
of a Stockholder), including, without limitation, any seizure under levy of
attachment or execution, any transfer in connection with bankruptcy (whether
pursuant to the filing of a voluntary or an involuntary petition under the
United States Bankruptcy Code of 1978, or any modifications or revisions
thereto) or other court proceeding to a debtor in possession, trustee in
bankruptcy or receiver or other officer or agency, any transfer to a state or
to a public officer or agency pursuant to any statute pertaining to escheat or
abandoned property and any transfer pursuant to a divorce or separation
agreement or a final decree of a court in a divorce action.
"Involuntary Transferee" has the meaning assigned
such term in Section 3.2.1 of this Agreement.
"IPO Effectiveness Date" means the date upon which
the Company commences its Initial Public Offering.
"Liens" has the meaning assigned such term in Section
3.1.4 of this Agreement.
"New Issuance Notice" has the meaning set forth in
Section 4.1 of this Agreement.
"New Securities" has the meaning set forth in Section
4.1 of this Agreement.
"Offer Price" has the meaning assigned such term in
Section 3.1.1 of this Agreement.
"Offered Securities" has the meaning assigned such
term in Section 3.1.1 of this Agreement.
"Offering Notice" has the meaning assigned such term
in Section 3.1.1 of this Agreement.
"Option Agreements" means those Option Agreements
dated as of October 31, 1991 and March 27, 1992 between Thomas H. Sinton and
the persons named therein.
"Option Period" has the meaning set forth in Section
3.1.3 of this Agreement.
<PAGE> 8
5
"Other Stockholder" means any transferee of a Sinton
Stockholder or a General Atlantic Stockholder (other than a Permitted
Transferee thereof) who has agreed to be bound by the terms and conditions of
this Agreement in accordance with Section 2.4 and to whom Shares have been
transferred in accordance with Section 3.1.5.
"Permitted Pledge" has the meaning assigned to such
term in Section 2.1 of this Agreement.
"Permitted Transferee" has the meaning assigned such
term in Section 2.2 of this Agreement.
"Person" means any individual, corporation,
partnership, limited liability company, firm, joint venture, association, joint
stock company, trust, unincorporated organization, Governmental Authority or
other entity.
"Preemptive Rightholder" has the meaning set forth in
Section 4.3 of this Agreement.
"Preferred Stock" means, collectively, the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, par
value $.01 per share, of the Company.
"Preferred Stockholders" means the General Atlantic
Stockholders and the Sinton Stockholders, and the term "Preferred Stockholder"
shall mean any such Person.
"Proportionate Percentage" has the meaning set forth
in Section 4.3 of this Agreement.
"Proposed Price" has the meaning set forth in Section
4.1 of this Agreement.
"Registration Statement" means a registration
statement filed pursuant to the Securities Act.
"Rightholder" has the meaning set forth in Section
3.1.3 of this Agreement.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
<PAGE> 9
6
"Selling Stockholder" has the meaning set forth in
Section 3.1.1 of this Agreement.
"Shares" means, with respect to each Stockholder, all
shares, whether now owned or hereafter acquired, of Common Stock and Preferred
Stock owned thereby; provided, however, for the purposes of any computation of
the number of Shares either outstanding (with respect to the Company) or owned
or held by any Stockholder or otherwise to be determined pursuant to Sections 2,
3, 4, 6 and 8.2(b), the shares of Common Stock issuable upon conversion,
exercise or exchange of all Common Stock Equivalents shall be deemed
outstanding, owned or held whether or not such conversion, exercise or exchange
has actually been effected.
"Sinton" means, collectively, THS, JNS, 1989 Trust,
RHS, LTS, Trust Estate and Family Trust.
"Sinton Stockholders" means Sinton and any Permitted
Transferee thereof to which Shares are transferred in accordance with Section
2.2, and the term "Sinton Stockholder" shall mean any such Person.
"Stock Purchase Agreement" has the meaning assigned
to such term in the recital to this Agreement.
"Stockholders" means the Sinton Stockholders and the
General Atlantic Stockholders and any transferee thereof who has agreed to be
bound by the terms and conditions of this Agreement in accordance with Section
2.4, and the term "Stockholder" shall mean any such Person.
"Stockholders Meeting" has the meaning set forth in
Section 6.1.
"Subject Purchaser" has the meaning set forth in
Section 4.1 of this Agreement.
"Subsidiaries" means, as of the relevant date of
determination, with respect to any Person, a corporation or other Person of
which 50% or more of the voting power of the outstanding voting equity
securities or 50% or more of the outstanding economic equity interest is held,
directly or indirectly, by such Person. Unless otherwise qualified, or the
context otherwise requires, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Company
"Tag-Along Rightholder" has the meaning set forth in
Section 3.1.6(a) of this Agreement.
<PAGE> 10
7
"transfer" has the meaning set forth in Section 2.1
of this Agreement.
"Transferred Shares" has the meaning set forth in
Section 3.2.1 of this Agreement.
"Third Party Purchaser" has the meaning set forth
in Section 3.1.1 of this Agreement.
"Written Consent" has the meaning set forth in
Section 6.1 of this Agreement.
2. Restrictions on Transfer of Shares.
2.1 Limitation on Transfer. No Stockholder shall
sell, give, assign, hypothecate, pledge, encumber, grant a security interest in
or otherwise dispose of (whether by operation of law or otherwise) (each a
"TRANSFER") any Shares or any right, title or interest therein or thereto,
except in accordance with the provisions of this Agreement; provided, however,
that (i) as collateral for a loan to THS by a financial institution, THS may
pledge (a "PERMITTED PLEDGE") to such financial institution up to 200,000 shares
of Preferred Stock (subject to adjustment for stock splits, stock dividends,
recapitalizations or similar events) or the Common Stock Equivalent and (ii) the
Sinton Stockholders may transfer up to an aggregate of 28,612 shares of
Preferred Stock (subject to adjustment as provided for in the Option Agreements)
to certain holders of Series B Stock pursuant to the Option Agreements. In the
event of such transfer, any transferee obtaining any record of beneficial
interest or right to vote such Shares hereunder shall agree to be bound by this
Agreement and shall comply with Section 2.4. Any attempt to transfer any Shares
or any rights thereunder in violation of the preceding sentence shall be null
and void ab initio and the Company shall not register any such transfer.
2.2 Permitted Transfers. Notwithstanding anything to
the contrary contained in this Agreement, but subject to Sections 2.3 and 2.4,
at any time, (a) Sinton may transfer all or a portion of Shares held by Sinton
to (i) a member of such Sinton's respective immediate family, which shall
include parents, spouse, siblings, children or grandchildren ("FAMILY MEMBERS")
or (ii) a trust, corporation, partnership or limited liability company, all of
the beneficial interests in which shall be held by Sinton or one or more Family
Members of Sinton or which would otherwise be an Affiliate of Sinton; provided,
however, that during the period that any such trust, corporation, partnership or
limited liability company holds any right, title or interest in any Shares, no
Person other than Sinton or one or more Family Members of Sinton may be or
become beneficiaries, stockholders, limited or general partners or members
thereof; and (b) each of GAP LP and GAP Coinvestment may transfer all or a
portion of its Shares to any of its Affiliates (the Persons referred to in
<PAGE> 11
8
the preceding clauses (a) and (b) are each referred to hereinafter as a
"PERMITTED TRANSFEREE"). A Permitted Transferee of Shares pursuant to this
Section 2.2 may transfer its Shares pursuant to this Section 2.2 only to the
transferor Stockholder or to a Person that is a Permitted Transferee of such
transferor Stockholder. Notwithstanding anything to the contrary contained in
this Agreement, (a) if any Permitted Transferee of Sinton to whom or which
Shares have been transferred in accordance with this Section 2.2 ceases to be a
Permitted Transferee of Sinton, then, prior to such event, the Sinton
Stockholders (other than such Permitted Transferee) may repurchase such Shares
or, if such Sinton Stockholders do not wish to repurchase such Shares, then
such Permitted Transferee shall offer the Shares held by such Permitted
Transferee to the Company and the General Atlantic Stockholders in accordance
with Section 3.1 and (b) if any Permitted Transferee of GAP LP or GAP
Coinvestment, as the case may be, to whom or which Shares have been transferred
in accordance with this Section 2.2 ceases to be an Affiliate of GAP LP or GAP
Coinvestment, as the case may be, then, prior to such event, the General
Atlantic Stockholders (other than such Permitted Transferee) may repurchase
such Shares or, if such General Atlantic Shareholders do not wish to repurchase
such Shares, then such Permitted Transferee of GAP LP or GAP Coinvestment, as
the case may be, shall offer the Shares held by such Permitted Transferee to
the Company and the Sinton Stockholders in accordance with Section 3.1.
2.3 Permitted Transfer Procedures. If any
Stockholder wishes to transfer Shares to a Permitted Transferee under Section
2.2, such Stockholder shall give notice to the Company of its intention to make
any transfer permitted under Section 2.2 not less than ten (10) days prior to
effecting such transfer, which notice shall state the name and address of each
Permitted Transferee to whom such transfer is proposed and the number of Shares
proposed to be transferred to such Permitted Transferee.
2.4 Transfers in Compliance with Law;
Substitution of Transferee. Notwithstanding any other provision of this
Agreement, no transfer may be made pursuant to this Section 2 or Section 3
unless (a) the transferee has agreed in writing to be bound by the terms and
conditions of this Agreement pursuant to an instrument substantially in the
form attached hereto as Exhibit A, (b) the transfer complies in all respects
with the applicable provisions of this Agreement and (c) the transfer complies
in all respects with applicable federal and state securities laws, including,
without limitation, the Securities Act. If requested by the Company in its
reasonable judgment, an opinion of counsel to such transferring Stockholder
shall be supplied to the Company at such transferring Stockholder's expense, to
the effect that such transfer complies with the applicable federal and state
securities laws. Upon becoming a party to this Agreement, (i) the Permitted
Transferee of a Sinton Stockholder shall be substituted for, and shall enjoy
the same rights and be subject to the same obligations as, the transferring
Sinton Stockholder hereunder with respect to the Shares transferred to such
Permitted Transferee, (ii) the Permitted Transferee of a
<PAGE> 12
9
General Atlantic Stockholder shall be substituted for, and shall enjoy
the same rights and be subject to the same obligations as, a General Atlantic
Stockholder hereunder, (iii) an Other Stockholder shall be subject to the same
obligations as, but none of the rights of, the transferring Sinton Stockholder
or General Atlantic Stockholder, as the case may be, and (iv) the transferee of
an Other Stockholder shall be substituted for, and shall be subject to the same
obligations as, the transferring Other Stockholder hereunder with respect to
the Shares transferred to such transferee.
3. Right of First Offer and Tag-Along Rights.
3.1 Proposed Voluntary Transfers.
3.1.1 Offering Notice. Subject to Section
2, if any Stockholder (a "SELLING STOCKHOLDER") wishes to transfer all or any
portion of its or his Shares to any Person (other than to a Permitted
Transferee) (a "THIRD PARTY PURCHASER"), such Selling Stockholder shall offer
such Shares first to the Company by sending written notice (the "OFFERING
NOTICE") to the Company and the other Stockholders which shall state (a) the
number of Shares proposed to be transferred (the "OFFERED SECURITIES") and (b)
the proposed purchase price per Share which the Selling Stockholder is willing
to accept (the "OFFER PRICE"). Upon delivery of the Offering Notice, such
offer shall be irrevocable unless and until the rights of first offer provided
for herein shall have been waived or shall have expired.
3.1.2 Company Option; Exercise. For a period
of fifteen (15) days after the giving of the Offering Notice pursuant to
Section 3.1.1 (the "COMPANY OPTION PERIOD"), the Company shall have the right
(the "COMPANY OPTION") to purchase any or all of the Offered Securities at a
purchase price equal to the Offer Price and upon the terms and conditions set
forth in the Offering Notice. The right of the Company to purchase any or all
of the Offered Securities under this Section 3.1.2 shall be exercisable by
delivering written notice of the exercise thereof, prior to the expiration of
the 15-day period referred to above, to the Selling Stockholder, with a copy to
the Sinton Stockholders and the General Atlantic Stockholders, which notice
shall state the number of Offered Securities proposed to be purchased by the
Company. The failure of the Company to respond within such 15-day period shall
be deemed to be a waiver of the Company's rights under this Section 3.1.2,
provided that the Company may waive its rights under this Section 3.1.2 prior
to the expiration of such 15-day period by giving written notice to the Selling
Stockholder, with a copy to the Sinton Stockholders and the General Atlantic
Stockholders.
3.1.3 Stockholder Option; Exercise.
(a) If the Company does not elect to
purchase all of the Offered Securities pursuant to Section 3.1.2, then for a
period of thirty (30)
<PAGE> 13
10
days after the earlier to occur of (a) the expiration of the Company Option
Period pursuant to Section 3.1.2 and (b) the date upon which the Selling
Stockholder shall have received written notice from the Company of its exercise
of the Company Option pursuant to Section 3.1.2 or its waiver thereof (the
"OPTION PERIOD"), each of the Sinton Stockholders (in the event that the
Selling Stockholder is not a Sinton Stockholder) and each of the General
Atlantic Stockholders (in the event that the Selling Stockholder is not a
General Atlantic Stockholder) (each, a "RIGHTHOLDER") shall have the right to
purchase all, but not less than all, of the remaining Offered Securities at a
purchase price equal to the Offer Price and upon the terms and conditions set
forth in the Offering Notice. Each such Rightholder shall have the right to
purchase that percentage of the Offered Securities determined by dividing (i)
the total number of Shares then owned by such Rightholder by (ii) the total
number of Shares then owned by all such Rightholders. If any Rightholder does
not fully subscribe for the number or amount of Offered Securities it or he is
entitled to purchase, then each other participating Rightholder shall have the
right to purchase that percentage of the Offered Securities not so subscribed
for (for the purposes of this Section 3.1.3, the "EXCESS OFFERED SECURITIES")
determined by dividing (x) the total number of Shares then owned by such fully
participating Rightholder by (y) the total number of Shares then owned by all
fully participating Rightholders who elected to purchase Offered Securities.
The procedure described in the preceding sentence shall be repeated until there
are no remaining Excess Offered Securities. If the Company and/or the
Rightholders do not purchase all, but not less than all, of Offered Securities
pursuant to Section 3.1.2 and/or Section 3.1.3, then the Selling Stockholder
may, subject to Section 3.1.6, sell the Offered Securities to a Third Party
Purchaser in accordance with Section 3.1.5 without any of the obligations set
forth in Sections 3.1.2, 3.1.3 and 3.1.4.
(b) The right of each Rightholder to purchase
all of the remaining Offered Securities under subsection (a) above shall be
exercisable by delivering written notice of the exercise thereof, prior to the
expiration of the 30-day period referred to in subsection (a) above, to the
Selling Stockholder with a copy to the Company and the other Stockholders.
Each such notice shall state (i) the number of Shares held by such Rightholder
and (ii) the number of Shares that such Rightholder is willing to purchase
pursuant to this Section 3.1.3. The failure of a Rightholder to respond within
such 30-day period to the Selling Stockholder shall be deemed to be a waiver of
such Rightholder's rights under this Section 3.1.3, provided that each
Rightholder may waive its rights under this Section 3.1.3 prior to the
expiration of such 30-day period by giving written notice to the Selling
Stockholder, with a copy to the Company.
3.1.4 Closing. The closing of the purchases
of Offered Securities subscribed for by the Company under Section 3.1.2 and/or
the Rightholders under Section 3.1.3 shall be held at the principal office of
the Company at 11:00 a.m., local time, on the 60th day after the giving of the
Offering Notice
<PAGE> 14
11
pursuant to Section 3.1.1 or at such other time and place as the parties to the
transaction may agree. At such closing, the Selling Stockholder shall deliver
certificates representing the Offered Securities, duly endorsed for transfer
and accompanied by all requisite transfer taxes, if any, and such Offered
Securities shall be free and clear of any liens, claims, options, charges,
encumbrances or rights ("LIENS") (other than those arising hereunder and those
attributable to actions by the purchasers) and the Selling Stockholder shall so
represent and warrant, and further represent and warrant that it is the sole
beneficial and record owner of such Offered Securities. The Company or each
Rightholder, as the case may be, purchasing Offered Securities shall deliver at
the closing payment in full in immediately available funds for the Offered
Securities purchased by it or him. At such closing, all of the parties to the
transaction shall execute such additional documents as are otherwise necessary
or appropriate.
3.1.5 Sale to a Third Party Purchaser. Unless
the Company and/or the Rightholders elect to purchase all, but not less than
all, of the Offered Securities under Sections 3.1.2 and 3.1.3, the Selling
Stockholder may, subject to Section 3.1.6, sell the Offered Securities to a
Third Party Purchaser on the terms and conditions set forth in the Offering
Notice; provided, however, that such sale is bona fide and made pursuant to a
contract entered into within ninety (90) days of the earlier to occur of (i)
the waiver by the Company and the Rightholders of their options to purchase the
Offered Securities and (ii) the expiration of the Option Period (the earlier of
such dates being offered herein as the "CONTRACT DATE"); and provided further,
that such sale shall not be consummated unless and until all of the following
conditions are met:
(a) The Selling Stockholder shall deliver to
the Company a certificate of a Third Party Purchaser stating that (i)
such Third Party Purchaser is aware of the rights of the Company, the
Sinton Stockholders and the General Atlantic Stockholders contained in
Section 3.1 and (ii) prior to the purchase by such Third Party
Purchaser of any of such Offered Securities, such Third Party
Purchaser shall become a party to this Agreement and agree to be bound
by the terms and conditions hereof in accordance with Section 2.4
hereof.
(b) The consummation of such sale to a Third
Party Purchaser shall not be subject to any conditions (other than
necessary filings under the HSR Act), except that it may be
conditioned upon the truth as of the closing of the proposed purchase
of customary representations and warranties and conditions (including,
compliance with applicable securities laws) and the delivery of stock
certificates and a customary legal opinion.
(c) A Third Party Purchaser shall have
furnished evidence satisfactory to the Company, in its reasonable
judgment, as
<PAGE> 15
12
to the financial ability of such Third Party Purchaser to consummate the
proposed purchase.
If such sale is not consummated within forty-five (45) days of the Contract
Date for any reason, then the restrictions provided for herein shall again
become effective, and no transfer of such Offered Securities may be made
thereafter by the Selling Stockholder without again offering the same to the
Company, the Sinton Stockholders and the General Atlantic Stockholders in
accordance with this Section 3.1.
3.1.6 Tag-Along Rights.
(a) If a Sinton Stockholder is transferring
Offered Securities to a Third Party Purchaser pursuant to Section 3.1.5, then
each of the General Atlantic Stockholders (each, a "TAG-ALONG RIGHTHOLDER")
shall have the right to sell to such Third Party Purchaser, upon the terms set
forth in the Offering Notice, that number of Shares held by such Tag-Along
Rightholder equal to that percentage of the Offered Securities determined by
dividing (i) the total number of Shares then owned by such Tag-Along
Rightholder by (ii) the total number of Shares then owned by all Tag-Along
Rightholders exercising their rights pursuant to this Section 3.1.6 plus the
total number of Shares then owned by the Sinton Stockholders. The Selling
Stockholder and the Tag-Along Rightholder(s) shall effect the sale of the
Offered Securities and such Tag-Along Rightholder(s) shall sell the number of
Offered Securities required to be sold pursuant to this Section 3.1.6(a), and
the number of Offered Securities to be sold to such Third Party Purchaser by
the Selling Stockholder shall be reduced accordingly.
(b) In order to exercise its right to sell
Shares to a Third Party Purchaser pursuant to this Section 3.1.6, a Tag-Along
Rightholder must agree to make substantially the same representations,
warranties, covenants and indemnities and other similar agreements as a Sinton
Stockholder agrees to make in connection with the proposed sale by it or him of
Offered Securities to a Third Party Purchaser. Each Sinton Stockholder shall
give notice to each Tag-Along Rightholder of each proposed sale by it or him of
Offered Securities which gives rise to the rights of the Tag-Along Rightholders
set forth in this Section 3.1.6, at least thirty (30) days prior to the
proposed consummation of such sale, setting forth the name of such Sinton
Stockholder, the number of Offered Securities, the name and address of the
proposed Third Party Purchaser, the proposed amount and form of consideration
and terms and conditions of payment offered by such Third Party Purchaser, the
percent of Shares that such Tag-Along Rightholder may sell to such Third Party
Purchaser (determined in accordance with Section 3.1.6(a)), and a
representation that such Third Party Purchaser has been informed of the
"tag-along" rights provided for in this Section 3.1.6 and has agreed to
purchase Shares in accordance with the terms hereof. The tag-along rights
provided by this Section 3.1.6 must be exercised by such Tag-Along Rightholder
wishing to sell its Shares within fifteen (15) days following receipt
<PAGE> 16
13
of the notice required by the preceding sentence, by delivery of a written
notice to such Sinton Stockholder indicating such Tag-Along Rightholder's wish
to exercise its rights and specifying the number of Shares (up to the maximum
number of Shares owned by such Tag-Along Rightholder required to be purchased
by such Third Party Purchaser) it wishes to sell, provided that such Tag-Along
Rightholder may waive its rights under this Section 3.1.6 prior to the
expiration of such 15-day period by giving written notice to the Selling
Stockholder, with a copy to the Company. The failure of a Tag-Along
Rightholder to respond within such 15-day period shall be deemed to be a waiver
of such Tag-Along Rightholder's rights under this Section 3.1.6. If such Third
Party Purchaser fails to purchase Shares from any Tag-Along Rightholder that
has properly exercised its tag-along rights pursuant to this Section 3.1.6(b),
then such Sinton Stockholder shall not be permitted to consummate the proposed
sale of the Offered Securities, and any such attempted sale shall be null and
void and the Company shall not register any such transfer.
3.2 Involuntary Transfers.
3.2.1 Rights of First Offer upon Involuntary
Transfer. If an Involuntary Transfer of any Shares (the "TRANSFERRED SHARES")
owned by any Stockholder shall occur, then the Company, the Sinton Stockholders
and the General Atlantic Stockholders (unless such Stockholder is the
Involuntary Transferee) shall have the same rights as specified in Sections
3.1.2 and 3.1.3, respectively, with respect to such Transferred Shares as if
the Involuntary Transfer had been a proposed voluntary transfer by a Selling
Stockholder and shall be governed by Section 3.1 except that (a) the time
periods shall run from the date of receipt by the Company of actual notice of
the Involuntary Transfer (and the Company shall immediately give notice to the
Rightholders of the date of receipt of such notice), (b) such rights shall be
exercised by notice to the transferee of such Transferred Shares (the
"INVOLUNTARY TRANSFEREE") rather than to the Stockholder who suffered or will
suffer the Involuntary Transfer and (c) the purchase price per Transferred
Share shall be agreed upon by the Involuntary Transferee and the Company or the
purchasing Rightholders, as the case may be; provided, however, that if such
parties fail to agree as to such purchase price, the purchase price shall be
the Fair Value thereof as determined in accordance with Section 3.2.2.
3.2.2 Fair Value. If the parties fail to
agree upon the purchase price of the Transferred Shares in accordance with
Section 3.2.1 hereof, then the Company or the Rightholders, as the case may be,
shall purchase the Transferred Shares at a purchase price equal to the Fair
Value (as hereinafter defined) thereof. The Fair Value of the Transferred
Shares shall be determined by a panel of three independent appraisers, which
shall be nationally recognized investment banking firms or nationally
recognized experts experienced in the valuation of corporations engaged in the
business conducted by the Company. Within five (5) Business Days after the
date the applicable parties determine that they cannot agree as to the
<PAGE> 17
14
purchase price, the Involuntary Transferee and the Board of Directors (in the
case of a purchase by the Company) or the purchasing Rightholders, as the case
may be, shall each designate one such appraiser that is willing and able to
conduct such determination. If either the Involuntary Transferee or the Board
of Directors or the purchasing Rightholders, as the case may be, fails to make
such designation within such period, then other party that has made the
designation shall have the right to make the designation on its behalf. The
two appraisers designated shall, within a period of five (5) Business Days
after the designation of the second appraiser, agree to designate a third
appraiser. The three appraisers shall conduct their determination as promptly
as practicable, and the Fair Value of the Transferred Shares shall be the
average of the determination of the two appraisers that are closer to each
other than to the determination of the third appraiser, which third
determination shall be discarded; provided, however, that if the determination
of two appraisers are equally close to the determination of the third
appraiser, then the Fair Value of the Transferred Shares shall be the average
of the determination of all three appraisers. Such determination shall be
final and binding on the Involuntary Transferee, the Company and the
Rightholders. The Involuntary Transferee shall be responsible for the fees and
expenses of the appraiser designated by or on behalf of it, and the Company or
the purchasing Rightholders, as the case may be, for the fees and expenses of
the appraiser designated by or on behalf of the Board of Directors or the
Purchasing Rightholders, as the case may be. The Involuntary Transferee and
the Company or the purchasing Rightholders, as the case may be, shall each
share half the fees and expenses of the appraiser designated by the appraisers.
For purposes of this Section 3.2.2, the "Fair Value" of the Transferred Shares
means the fair market value of such Transferred Shares determined in accordance
with this Section 3.2.2 based upon all considerations that the appraisers
determine to be relevant.
3.2.3 Closing. The closing of any purchase
under this Section 3.2 shall be held at the principal office of the Company at
11:00 a.m., local time, on the earlier to occur of (a) the fifth Business Day
after the purchase price per Transferred Share shall have been agreed upon by
the Involuntary Transferee and the Company or the purchasing Rightholders, as
the case may be, in accordance with Section 3.2.1(c) or (b) the fifth Business
Day after the determination of the Fair Value of the Transferred Shares in
accordance with Section 3.2.2, or at such other time and place as the parties
to the transaction may agree. At such closing, the Involuntary Transferee
shall deliver certificates, if applicable, or other instruments or documents
representing the Transferred Shares being purchased under this Section 3.2,
duly endorsed with a signature guarantee for transfer and accompanied by all
requisite transfer taxes, if any, and such Transferred Shares shall be free and
clear of any Liens (other than those arising hereunder) arising through the
action or inaction of the Involuntary Transferee and the Involuntary Transferee
shall so represent and warrant, and further represent and warrant that it is
the beneficial owner of such Transferred Shares. The Company or each
Rightholder, as the case may be, purchasing such Transferred Shares shall
deliver at closing payment in full in
<PAGE> 18
15
immediately available funds for such Transferred Shares. At such closing, all
parties to the transaction shall execute such additional documents as are
otherwise necessary or appropriate.
3.2.4 General. In the event that the
provisions of this Section 3.2 shall be held to be unenforceable with respect
to any particular Involuntary Transfer, the Company and the Rightholders shall
have the rights specified in Sections 3.1.2 and 3.1.3, respectively, with
respect to any transfer by an Involuntary Transferee of such Shares, and each
Rightholder agrees that any Involuntary Transfer shall be subject to such
rights, in which case the Involuntary Transferee shall be deemed to be the
Selling Stockholder for purposes of Section 3.1 of this Agreement and shall be
bound by the provisions of Section 3.1 and other related provisions of this
Agreement.
4. Future Issuance of Shares; Preemptive Rights.
4.1 Offering Notice. Except for (a) capital
stock of the Company which may be issued to employees, consultants or directors
of the Company pursuant to a stock option plan or other employee benefit
arrangement approved by the Board of Directors, (b) a dividend on the
outstanding shares of Common Stock in capital stock of the Company or a
subdivision of the outstanding shares of Common Stock into a larger number of
shares of Common Stock, (c) capital stock of the Company issued upon exercise,
conversion or exchange of any Common Stock Equivalent, (d) capital stock of the
Company issued in consideration of the acquisition, approved by the Board of
Directors, by the Company or any of its Subsidiaries of another Person, (e)
capital stock of the Company which may be issued in connection with bank or
lease financings, facilities leases or strategic alliances; provided, however,
that (i) aggregated on an annual basis, such issuances do not exceed 1% of the
outstanding Shares of the Company and (ii) each such issuance is approved by
the Board of Directors or (f) the Series F Stock purchased under the Stock
Purchase Agreement (collectively, "NEW SECURITIES"), if the Company wishes to
issue any shares of capital stock or any other securities convertible into or
exchangeable for capital stock of the Company to any Person (the "SUBJECT
PURCHASER") after the date hereof and prior to the IPO Effectiveness Date, then
the Company shall offer such New Securities first to the Preferred Stockholders
by sending written notice (the "NEW ISSUANCE NOTICE") to the General Atlantic
Stockholders and the Sinton Stockholders, which New Issuance Notice shall state
(a) the number of New Securities proposed to be issued and (b) the proposed
purchase price per share of the New Securities that the Company is willing to
accept (the "PROPOSED PRICE"). Upon delivery of the New Issuance Notice, such
offer shall be irrevocable unless and until the rights provided for in Sections
4.2 and 4.3 shall have been waived or shall have expired.
<PAGE> 19
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4.2 Preferred Stockholder Option; Exercise. For
a period of fifteen (15) days after the giving of the New Issuance Notice
pursuant to Section 4.1, the Preferred Stockholders shall have the right (the
"PREFERRED OPTION") to purchase all, but not less than all, of the New
Securities at a purchase price equal to the Proposed Price and upon the terms
and conditions set forth in the New Issuance Notice. The Sinton Stockholders
shall have the right to purchase that percentage (the "SINTON PERCENTAGE") of
the New Securities determined by dividing (i) the total number of Shares then
owned by the Sinton Stockholders by (ii) the total number of Shares then
outstanding. The General Atlantic Stockholders shall have the right to
purchase that percentage of the New Securities equal to one (1) minus the
Sinton Percentage. If any Preferred Stockholder does not fully subscribe for
the number or amount of New Securities it is entitled to purchase, then each
other participating Preferred Stockholder shall have the right to purchase the
New Securities not so subscribed for. The right of the Preferred Stockholders
to purchase all of the New Securities under this Section 4.2 shall be
exercisable by delivering written notice of the exercise thereof, prior to the
expiration of the 15-day period referred to above, to the Company, which notice
shall state that the Preferred Stockholders elect to purchase all of the New
Securities. The failure of the Preferred Stockholders to respond within such
15-day period shall be deemed to be a waiver of the Preferred Stockholders'
rights under this Section 4.2, provided that the Preferred Stockholders may
waive their rights under this Section 4.2 prior to the expiration of such
15-day period by giving written notice to the Company.
4.3 Preemptive Rights; Exercise.
(a) If the Preferred Stockholders do not elect
to purchase all, but not less than all, of the New Securities pursuant to
Section 4.2, then for a period of fifteen (15) days after the earlier to occur
of (a) the expiration of the 15-day period referred to in Section 4.2 and (b)
the date upon which the Company shall have received written notice from the
Preferred Stockholders of their exercise of the Preferred Option pursuant to
Section 4.2 or the waiver thereof, the General Atlantic Stockholders and the
Sinton Stockholders (each, a "PREEMPTIVE RIGHTHOLDER") shall have the right to
purchase its Proportionate Percentage (as hereinafter defined) of the New
Securities at a purchase price equal to the Proposed Price and upon the terms
and conditions set forth in the New Issuance Notice. Each such Preemptive
Rightholder shall have the right to purchase that percentage of the New
Securities determined by dividing (a) the total number of Shares then owned by
such Preemptive Rightholder exercising its rights under this Section 4.3 by (b)
the total number of Shares then outstanding (the "PROPORTIONATE PERCENTAGE").
(b) The right of each Preemptive Rightholder
to purchase the New Securities under subsection (a) above shall be exercisable
by delivering written notice of the exercise thereof, prior to the expiration
of the 15-day period referred to in subsection (a) above, to the Company, which
notice shall state
<PAGE> 20
17
the amount of New Securities that such Preemptive Rightholder elects to
purchase pursuant to Section 4.3(a). The failure of a Preemptive Rightholder
to respond within such 15-day period shall be deemed to be a waiver of such
Preemptive Rightholder's rights under Section 4.3(a), provided that each
Preemptive Rightholder may waive its rights under Section 4.3(a) prior to the
expiration of such 15-day period by giving written notice to the Company.
4.4 Closing. The closing of the purchase of New
Securities subscribed for by the Preferred Stockholders under Section 4.2 or by
the Preemptive Rightholders under Section 4.3, as the case may be, shall be
held at the principal office of the Company at 11:00 a.m., local time, on (a)
the 30th day after the giving of the New Issuance Notice pursuant to Section
4.1, if the Preferred Stockholders elect to purchase all of the New Securities
pursuant to Section 4.2, (b) the 45th day after the giving of the New Issuance
Notice pursuant to Section 4.1, if the Preemptive Rightholders elect to
purchase any of the New Securities under Section 4.3 or (c) at such other time
and place as the parties to the transaction may agree. At such closing, the
Company shall deliver certificates representing the New Securities, and such
New Securities shall be issued free and clear of all Liens and the Company
shall so represent and warrant, and further represent and warrant that such New
Securities shall be, upon issuance thereof to the General Atlantic Stockholders
or the Sinton Stockholders as the case may be, and after payment therefor, duly
authorized, validly issued, fully paid and nonassessable. The General Atlantic
Stockholders or the Sinton Stockholders, as the case may be, purchasing the New
Securities shall deliver at the closing payment in full in immediately
available funds for the New Securities purchased by him or it. At such
closing, all of the parties to the transaction shall execute such additional
documents as are otherwise necessary or appropriate.
4.5 Sale to Subject Purchaser. Unless all of the
New Securities are purchased pursuant to Section 4.2 or Section 4.3, the
Company may sell to the Subject Purchaser the New Securities not purchased by
the Preferred Stockholders pursuant to Section 4.2 or the Preemptive
Rightholders pursuant to Section 4.3 on terms and conditions that are no more
favorable to the Subject Purchaser than those set forth in the New Issuance
Notice; provided, however, that such sale is bona fide and made pursuant to a
contract entered into within six (6) months of the earlier to occur of (i) the
notice or waiver by the Preemptive Rightholders of their option to purchase the
New Securities pursuant to Section 4.3 and (ii) the expiration of the 15-day
period referred to in Section 4.3. If such sale is not consummated within 30
days of the contract date referred to above for any reason, then the
restrictions provided for herein shall again become effective, and no issuance
and sale of New Securities may be made thereafter by the Company without again
offering the same in accordance with this Section 4. The closing of any issue
and purchase pursuant to this Section 4.5 shall be held at the time and place
as the parties to the transaction may agree.
<PAGE> 21
18
5. After-Acquired Securities. All of the provisions of
this Agreement shall apply to all of the Shares or Common Stock Equivalents now
owned or which may be issued or transferred hereafter to a Stockholder in
consequence of any additional issuance, purchase, exchange or reclassification
of any of such Shares or Common Stock Equivalents, corporate reorganization, or
any other form of recapitalization, consolidation, merger, share split or share
dividend, or which are acquired by a Stockholder in any other manner.
6. Corporate Governance.
6.1 General. From and after the execution of
this Agreement, each Stockholder shall vote its or his Shares at any regular or
special meeting of stockholders of the Company (a "STOCKHOLDERS MEETING") or in
any written consent executed in lieu of such a meeting of stockholders (a
"WRITTEN CONSENT"), and shall take all other actions necessary, to give effect
to the provisions of this Agreement (including, without limitation, Section 6.3
hereof) and to ensure that the Charter Documents do not, at any time hereafter,
conflict in any respect with the provisions of this Agreement.
6.2 Stockholders Actions. In order to effectuate
the provisions of this Section 6, each Stockholder (a) hereby agrees that when
any action or vote is required to be taken by such Stockholder pursuant to
Section 6 of this Agreement, such Stockholder shall use its best efforts to
call, or cause the appropriate officer and directors of the Company to call, a
Stockholders Meeting or to execute or cause to be executed a Written Consent to
effectuate such stockholder action, (b) shall use its best efforts to cause the
Board of Directors to adopt, either at a meeting of the Board of Directors or
by unanimous written consent of the Board of Directors, all the resolutions
necessary to effectuate the provisions of Section 6 of this Agreement and (c)
shall use its best efforts to cause the Board of Directors to cause the
Secretary of the Company, or if there be no secretary, such other officer of
the Company as the Board of Directors may appoint to fulfill the duties of
Secretary, not to record any vote or consent contrary to the terms of this
Section 6.
6.3 Election of Directors; Number and
Composition. Each Stockholder shall vote its or his Shares at any Stockholders
Meeting, or act by Written Consent with respect to such Shares, and take all
other actions necessary to ensure that the number of directors constituting the
entire Board of Directors shall be not less than five (5) nor more than nine
(9). Each Stockholder shall vote its or his Shares at any Stockholders Meeting
called for the purpose of filling the positions on the Board of Directors, or
in any Written Consent executed for such purpose, and to take all other actions
necessary to ensure the election to the Board of Directors of one (1)
individual designated by the General Atlantic Stockholders (who shall initially
be David C. Hodgson) (the "GAP DIRECTOR"). Provided that the Stockholders have
<PAGE> 22
19
satisfied their obligations under this Section 6.3, the Sinton Stockholders may
vote their Shares (to the extent available) to elect THS to the Board of
Directors.
6.4 Reduction of Directors. Notwithstanding
anything to the contrary contained in this Agreement, if at any time the
General Atlantic Stockholders own less than 25% of the total number of Shares
purchased under the Stock Purchase Agreement, then the General Atlantic
Stockholders shall no longer be entitled to designate a director pursuant to
Section 6.3.
6.5 Removal and Replacement of Directors.
6.5.1 Removal of General Atlantic Directors.
If at any time the General Atlantic Stockholders notify the other Stockholders
of their wish to remove at any time and for any reason (or no reason) the GAP
Director, then each Stockholder shall vote all of its or his Shares so as to
remove such GAP Director.
6.5.2 Replacement of Directors.
(a) If at any time, a vacancy is created on
the Board of Directors by reason of the incapacity, death, removal or
resignation of the GAP Director, then the General Atlantic Stockholders shall
designate an individual who shall be appointed to fill such vacancy until the
next Stockholders Meeting.
(b) Upon receipt of notice of the
designation of a nominee, each Stockholder shall, as soon as practicable after
the date of such notice, take action, including the voting of its or his
Shares, to elect the director designated by the General Atlantic Stockholders,
as the case may be, to fill such vacancy.
6.6 Reimbursement of Expenses. Notwithstanding
anything to the contrary contained in this Agreement, the Company shall
reimburse GAP LP and GAP Coinvestment, or their respective designee, for all
reasonable travel and accommodation expenses incurred by the GAP Director in
connection with his attendance at a meeting of the Board of Directors or any
committee thereof.
7. Stock Certificate Legend. A copy of this Agreement
shall be filed with the Secretary of the Company and kept with the records of
the Company. Each certificate representing Shares now held or hereafter
acquired by any Stockholder shall for as long as this Agreement is effective
bear legends substantially in the following forms:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE
<PAGE> 23
20
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT
AND SUCH LAWS OR PURSUANT TO A WRITTEN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
STOCKHOLDERS AGREEMENT, DATED MARCH __, 1997, AMONG PROBUSINESS, INC.,
GENERAL ATLANTIC PARTNERS 39, L.P., GAP COINVESTMENT PARTNERS, L.P.
AND SINTON (AS DEFINED THEREIN), A COPY OF WHICH MAY BE INSPECTED AT
THE COMPANY'S PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER THE
TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND
UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE
STOCKHOLDERS AGREEMENT.
8. Miscellaneous.
8.1 Notices. All notices, demands or other
communications provided for or permitted hereunder shall be made in writing and
shall be by registered or certified first class mail, return receipt requested,
telecopier, courier service, overnight mail or personal delivery:
(a) if the Company:
ProBusiness, Inc.
5934 Gibraltar Drive
Pleasanton, California 94588
Telecopy:
Attention: Thomas H. Sinton
<PAGE> 24
21
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Telecopy: (415) 493-6811
Attention: Alan K. Austin, Esq.
(b) if to any of the Sinton Stockholders:
c/o ProBusiness, Inc.
5934 Gibraltar Drive
Pleasanton, California 94588
Telecopy:
Attention: Thomas H. Sinton
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Telecopy: (415) 493-6811
Attention: Alan K. Austin, Esq.
(c) if to any of the General Atlantic
Stockholders:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: Mr. Stephen P. Reynolds
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(d) if to any other Stockholder, at its address
as it appears on the record books of the
Company.
<PAGE> 25
22
Any party may by notice given in accordance with this Section 8.1 designate
another address or Person for receipt of notices hereunder. All such notices
and communications shall be deemed to have been duly given when delivered by
hand, if personally delivered; when delivered by courier or overnight mail, if
delivered by commercial courier service or overnight mail; five (5) Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is mechanically acknowledged, if telecopied.
8.2 Amendment and Waiver.
(a) No failure or delay on the part of
any party hereto in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the parties hereto at law, in equity or otherwise.
(b) Any amendment, supplement or
modification of or to any provision of this Agreement, any waiver of any
provision of this Agreement, and any consent to any departure by any party from
the terms of any provision of this Agreement, shall be effective only if it is
made or given in writing and signed by (i) (x) the Company, (y) the Sinton
Stockholders holding Shares representing (after giving effect to any
adjustments) at least 60% of the Shares owned by all of the Sinton Stockholders
and (z) the General Atlantic Stockholders holding Shares representing (after
giving effect to any adjustments) at least 60% of the Shares owned by all of
the General Atlantic Stockholders and (ii) only in the specific instance and
for the specific purpose for which made or given. Any such amendment,
supplement, modification, waiver or consent shall be binding upon the Company
and all of the Stockholders.
8.3 Specific Performance. The parties hereto
intend that each of the parties have the right to seek damages or specific
performance in the event that any other party hereto fails to perform such
party's obligations hereunder. Therefore, if any party shall institute any
action or proceeding to enforce the provisions hereof, any party against whom
such action or proceeding is brought hereby waives any claim or defense therein
that the plaintiff party has an adequate remedy at law.
8.4 Headings. The headings in this Agreement
are for convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
<PAGE> 26
23
8.5 Severability. If any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way
impaired, unless the provisions held invalid, illegal or unenforceable shall
substantially impair the benefits of the remaining provisions hereof.
8.6 Entire Agreement. This Agreement, together
with the exhibits and schedules hereto, and the other Transaction Documents (as
defined the Stock Purchase Agreement) are intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect
of the subject matter contained herein and therein. There are no restrictions,
promises, representations, warranties or undertakings, other than those set
forth or referred to herein or therein. This Agreement, together with the
exhibits and schedules hereto, and the other Transaction Documents supersede
all prior agreements and understandings between the parties with respect to
such subject matter.
8.7 Term of Agreement. This Agreement shall
become effective upon the execution hereof and shall terminate upon the IPO
Effectiveness Date; except that the provisions contained in Section 6 shall
terminate on the earlier of (i) the date the General Atlantic Stockholders are
no longer entitled to designate a director pursuant to Section 6.4 and (ii) the
date of the third annual Stockholder's Meeting occurring after the IPO
Effectiveness Date (the "THIRD STOCKHOLDER'S MEETING"). It is understood by
the parties hereto that the Sinton Stockholders shall not be obligated to take
any action or vote pursuant to Section 6 at the Third Stockholder's Meeting.
8.8 Variations in Pronouns. All pronouns and
any variations thereof refer to the masculine, feminine or neuter, singular or
plural, as the context may require.
8.9 GOVERNING LAW. THIS AGREEMENT SHALL BE
GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
8.10 Further Assurances. Each of the parties
shall, and shall cause their respective Affiliates to, execute such instruments
and take such action as may be reasonably required or desirable to carry out
the provisions hereof and the transactions contemplated hereby.
<PAGE> 27
24
8.11 Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the parties and their
respective successors, heirs, legatees and legal representatives. This
Agreement is not assignable except in connection with a transfer of Shares in
accordance with this Agreement.
8.12 Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original, and all of which taken together shall constitute one and the same
instrument.
<PAGE> 28
25
IN WITNESS WHEREOF, the undersigned have executed, or have
cause to be executed, this Agreement on the date first written above.
PROBUSINESS, INC.
By:________________________________________
Name:
Title:
GENERAL ATLANTIC PARTNERS 39, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
Its General Partner
By:____________________________________
Name:
Title: A Managing Member
GAP COINVESTMENT PARTNERS, L.P.
By:_________________________________________
Name:
Title: A General Partner
____________________________________________
Thomas H. Sinton
____________________________________________
Jane N. Sinton
<PAGE> 29
26
THOMAS H. SINTON & JANE N. SINTON
1989 IRREVOCABLE TRUST
By:_________________________________________
Name:
Title:
SILAS D. SINTON TRUST ESTATE
By:_________________________________________
Name:
Title:
SILAS JACK SINTON FAMILY TRUST
By:_________________________________________
Name:
Title:
____________________________________________
Jane N. Sinton, custodian for
Robert Hollister Sinton
____________________________________________
Jane N. Sinton, custodian
for Lauren Taylor Sinton
<PAGE> 30
27
IN WITNESS WHEREOF, the undersigned have executed, or have
cause to be executed, this Agreement on the date first written above.
PROBUSINESS, INC.
By:________________________________________
Name:
Title:
GENERAL ATLANTIC PARTNERS 39, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
Its General Partner
By:____________________________________
Name:
Title: A Managing Member
GAP COINVESTMENT PARTNERS, L.P.
By:_________________________________________
Name:
Title: A General Partner
____________________________________________
Thomas H. Sinton
____________________________________________
Jane N. Sinton
<PAGE> 31
28
THOMAS H. SINTON & JANE N. SINTON
1989 IRREVOCABLE TRUST
By:_________________________________________
Name:
Title:
SILAS D. SINTON TRUST ESTATE
By:_________________________________________
Name:
Title:
SILAS JACK SINTON FAMILY TRUST
By:_________________________________________
Name:
Title:
____________________________________________
Jane N. Sinton, custodian for
Robert Hollister Sinton
____________________________________________
Jane N. Sinton, custodian for
Lauren Taylor Sinton
<PAGE> 32
29
IN WITNESS WHEREOF, the undersigned have executed, or have
cause to be executed, this Agreement on the date first written above.
PROBUSINESS, INC.
By:________________________________________
Name:
Title:
GENERAL ATLANTIC PARTNERS 39, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
Its General Partner
By:____________________________________
Name:
Title: A Managing Member
GAP COINVESTMENT PARTNERS, L.P.
By:_________________________________________
Name:
Title: A General Partner
____________________________________________
Thomas H. Sinton
____________________________________________
Jane N. Sinton
<PAGE> 33
30
THOMAS H. SINTON & JANE N. SINTON
1989 IRREVOCABLE TRUST
By:_________________________________________
Name:
Title:
SILAS D. SINTON TRUST ESTATE
By:_________________________________________
Name:
Title:
SILAS JACK SINTON FAMILY TRUST
By:_________________________________________
Name:
Title:
____________________________________________
Jane N. Sinton, custodian for
Robert Hollister Sinton
____________________________________________
Jane N. Sinton, custodian for
Lauren Taylor Sinton
<PAGE> 34
Exhibit A (1)
ACKNOWLEDGMENT AND AGREEMENT
The undersigned wishes to receive from __________
("Transferor") certain shares or certain options, warrants or other rights to
purchase _____ shares, par value $.01 per share, of Common Stock or Preferred
Stock, as the case may be (the "Shares"), of ProBusiness, Inc., a California
corporation (the "Company");
The Shares are subject to the Stockholders Agreement, dated
March __, 1997 (the "Agreement"), among the Company, General Atlantic Partners
39, L.P., GAP Coinvestment Partners, L.P., Thomas H. Sinton, Jane N. Sinton,
Thomas H. Sinton & Jane N. Sinton 1989 Irrevocable Trust, June N. Sinton as
Custodian for Robert Hollister Sinton, Jane N. Sinton as Custodian for Lauren
Taylor Sinton, Silas D. Sinton Trust Estate and Silas Jack Sinton Family
Trust;
The undersigned has been given a copy of the Agreement and
afforded ample opportunity to read it, and the undersigned is thoroughly
familiar with its terms;
Pursuant to terms of the Agreement, the Transferor is
prohibited from transferring such Shares and the Company is prohibited from
registering the transfer of the Shares unless and until the recipient of such
Shares acknowledges the terms and conditions of the Agreement and agrees to be
bound thereby; and
The undersigned wishes to receive such Shares and have the
Company register the transfer of such Shares.
NOW, THEREFORE, in consideration of the mutual premises
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and to induce the Transferor to
transfer such Shares to the undersigned and the Company to register such
transfer, the undersigned does hereby acknowledge and agree that (i) he has
been given a copy of the Agreement and ample opportunity to read it, and the
undersigned is thoroughly familiar with its terms, (ii) the Shares are subject
to the terms and conditions set forth in the Agreement, and (iii) the
undersigned does hereby agree fully to be bound thereby as [a "Sinton
Stockholder"](2) or [a "General Atlantic Stockholder"](3) [an "Other
Stockholder"].(4)
This _____ day of ____________, 19__.
___________________________________
____________________
(1) For transfers of previously issued stock.
(2) For transfers made by a Sinton Stockholder (as defined in
the Agreement).
(3) For transfers made by a General Atlantic Stockholder (as
defined in the Agreement).
(4) To be used for all other transfers.
<PAGE> 1
EXHIBIT 11.1
PROBUSINESS, INC.
STATEMENT REGARDING THE COMPUTATION OF NET LOSS
AND PROFORMA NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
YEAR ENDED JUNE 30, ENDED DEC. 31, PROFORMA FOR PROFORMA FOR THE SIX-
---------------------------------- ---------------------- YEAR ENDED MONTH PERIOD ENDED
1994 1995 1996 1995 1996 JUNE 30, 1996 DECEMBER 31, 1996
---------- ---------- ---------- ---------- ---------- ------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net loss....................... $(1,477) $(979) $(2,386) $(456) $(2,974) $(2,730) $(3,678)
Shares used in net loss per
share computation:
Weighted average shares of
common stock outstanding... 3,340 7,126 129,408 47,914 211,979 129,408 211,979
Shares related to Staff
Accounting Bulletin Topic
4D:
Cheap stock................ 1,305,540 1,305,540 1,305,540 1,305,540 1,305,540 1,305,540 1,305,540
Common stock options....... 245,673 245,673 245,673 245,673 245,673 245,673 245,673
Preferred stock............ 1,229,466 1,229,466 1,229,466 1,229,466 1,229,466 1,229,466 1,229,466
Warrants................... 74,917 74,917 74,917 74,917 74,917 74,917 74,917
---------- ---------- ---------- ---------- ---------- ---------- ----------
Shares used in net loss per
share computation............ 2,858,936 2,862,722 2,985,004 2,903,510 3,067,575 2,985,004 3,067,575
========== ========== ========== ========== ========== ========== ==========
Net loss per share............. $(0.52) $(0.34) $(0.80) $(0.16) $(0.97) $(0.91) $(1.20)
Calculation of shares
outstanding for computing pro
forma net loss per share:
Shares used in computing
historical net loss per
share (from above)....... 2,985,004 3,067,575 2,985,004 3,067,575
Adjustment to reflect the
effect of the assumed
conversion of convertible
preferred stock from the
date of issuance......... 5,226,602 5,226,602 5,226,602 5,226,602
---------- ---------- ---------- ----------
Shares used in computing pro
forma net loss per share..... 8,211,606 8,294,177 8,211,606 8,294,177
========== ========== ========== ==========
Proforma net loss per share.... $ (0.29) $ (0.36) $ (0.33) $ (0.44)
========== ========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 16.1
February 3, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the statements made by ProBusiness, Inc. (copy attached), which we
understand will be filed with the Commission, as part of the Company's Form S-1.
We agree with the statements concerning our Firm in such Form S-1.
Very truly yours,
<PAGE> 2
CHANGE IN ACCOUNTANTS
Effective June 1996, the Company engaged Ernst & Young as its
principal independent auditors to replace Coopers & Lybrand LLP ("Coopers &
Lybrand"), who were dismissed as auditors of the Company effective January 1996.
The decision to change independent auditors was approved by the Company's Audit
Committee and the Board of Directors. In connection with audits of the two
fiscal years ended June 30, 1995, and in the subsequent interim period, there
were no disagreements with Coopers & Lybrand on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope and
procedures which, if not resolved to the satisfaction of Coopers & Lybrand,
would have caused them to make reference to the matter in their report. The
reports of Coopers & Lybrand on the financial statements of the Company for the
past two years did not contain an adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope, or accounting
principles.
<PAGE> 1
EXHIBIT 21.0
Subsidiaries of the Registrant
BeneSphere Administrators, Inc. (Washington)
<PAGE> 1
EXHIBIT 23.1
CONSENT AND REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
We consent to the reference of our firm under the captions "Selected Financial
Data" and "Experts" and to use of our reports with respect to the financial
statements of ProBusiness Services, Inc., dated March 10, 1997, Dimension
Solutions, Inc., dated November 20, 1996 and BeneSphere Administrators, Inc.,
dated December 20, 1996 in the Registration Statement (Form S-1) and related
Prospectus of ProBusiness, Inc. for the registration of 2,300,000 shares of its
common stock.
Our audit also includes the financial statement schedule of ProBusiness, Inc.
listed in Item 16(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audit. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
---------------------------
Walnut Creek, California
March 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS 6-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1994 JUN-30-1995 JUN-30-1996 JUN-30-1996 JUN-30-1997
<PERIOD-START> JUL-01-1993 JUL-01-1994 JUL-01-1995 JUL-01-1995 JUL-01-1996
<PERIOD-END> JUN-30-1994 JUN-30-1995 JUN-30-1996 DEC-31-1995 DEC-31-1996
<CASH> 0 852 4,041 0 1,254
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 0 688 1,354 0 2,349
<ALLOWANCES> 0 0 0 0 0
<INVENTORY> 0 0 0 0 0
<CURRENT-ASSETS> 0 1,653 5,722 0 4,263
<PP&E> 0 3,242 6,205 0 8,849
<DEPRECIATION> 0 (1,270) (2,213) 0 (2,916)
<TOTAL-ASSETS> 0 4,134 10,939 0 11,904
<CURRENT-LIABILITIES> 0 1,584 2,750 0 4,231
<BONDS> 0 0 0 0 0
0 0 0 0 0
0 11,684 12,201 0 12,362
<COMMON> 0 3 370 0 977
<OTHER-SE> 0 (10,321) (12,707) 0 (16,225)
<TOTAL-LIABILITY-AND-EQUITY> 0 4,134 10,939 0 11,904
<SALES> 0 0 0 0 0
<TOTAL-REVENUES> 4,069 7,095 13,863 5,106 10,199
<CGS> 0 0 0 0 0
<TOTAL-COSTS> 1,629 2,703 6,435 2,278 5,238
<OTHER-EXPENSES> 3,871 5,285 9,410 3,167 7,427
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 46 86 404 117 508
<INCOME-PRETAX> (1,477) (979) (2,386) (456) (2,974)
<INCOME-TAX> 0 0 0 0 0
<INCOME-CONTINUING> (1,477) (979) (2,386) (456) (2,974)
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> (1,477) (979) (2,386) (456) (2,974)
<EPS-PRIMARY> 0.00 0.00 (0.29) 0.00 (0.36)
<EPS-DILUTED> 0.00 0.00 0.00 0.00 0.00
</TABLE>
