<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PEREGRINE SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
--------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7372 95-3773312
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
--------------------------
PEREGRINE SYSTEMS, INC.
12670 HIGH BLUFF DRIVE
SAN DIEGO, CALIFORNIA 92130
(619) 481-5000
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
--------------------------
ALAN H. HUNT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PEREGRINE SYSTEMS, INC.
12670 HIGH BLUFF DRIVE
SAN DIEGO, CALIFORNIA 92130
(619) 481-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
DOUGLAS H. COLLOM, ESQ. FREDERICK T. MUTO, ESQ.
ROBERT F. KORNEGAY, ESQ. ERIC J. LOUMEAU, ESQ.
BETSEY SUE, ESQ. DAVID B. BERGER, ESQ.
MARK B. BAUDLER, ESQ. BLAKE T. BILSTAD, ESQ.
WILSON SONSINI GOODRICH & ROSATI COOLEY GODWARD LLP
PROFESSIONAL CORPORATION 4365 EXECUTIVE DRIVE
650 PAGE MILL ROAD SUITE 1100
PALO ALTO, CA 94304 SAN DIEGO, CA 92121
(415) 493-9300 (619) 550-6000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) PRICE(1)(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par value.............. 3,450,000 $12.00 $41,400,000 $12,546
</TABLE>
(1) Includes shares that 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.
--------------------------
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 COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 10, 1997
PROSPECTUS
3,000,000 SHARES
[LOGO]
COMMON STOCK
----------------
Of the 3,000,000 shares of Common Stock offered hereby, 2,000,000 are
being sold by Peregrine Systems, Inc. ("Peregrine" or the "Company") and
1,000,000 shares are being sold by the Selling Stockholders. The Company will
not receive any of the proceeds from the sale of shares by the Selling
Stockholders. See "Principal and Selling Stockholders." 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 per share will be
between $10.00 and $12.00 per share. See "Underwriting" for a discussion of
factors to be considered in determining the initial public offering price.
Application has been made to have the Common Stock approved for quotation on the
Nasdaq National Market under the symbol "PRGN."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING ON PAGE 5.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions (1) Company (2) Stockholders
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total (3).................. $ $ $ $
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses of the offering payable by the Company, estimated
at $650,000.
(3) Certain of the Selling Stockholders have granted the Underwriters an
option, exercisable within 30 days from the date hereof, to purchase up to
450,000 additional shares of Common Stock on the same terms set forth above,
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public will be $ , the Underwriting
Discounts and Commissions will be $ and the Proceeds to Selling
Stockholders will be $ . See "Underwriting."
---------------------
The shares of Common Stock offered by the Underwriters are subject to
prior sale, receipt and acceptance by them and are subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that delivery of such shares will be made at the
offices of UBS Securities LLC, 299 Park Avenue, New York, New York, on or about
, 1997.
---------------------
UBS SECURITIES
, 1997
<PAGE>
[Schematic Depicting Conceptual
Framework for Company's Product]
------------------------
PEREGRINE SYSTEMS, STATIONVIEW,and OPENSNA are registered United States
trademarks of the Company, and PNMS, SERVERVIEW and IREXPERT are also trademarks
of the Company. This Prospectus also contains trademarks and tradenames of other
companies.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS, INCLUDING THE INFORMATION UNDER "RISK FACTORS." THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER "RISK FACTORS."
THE COMPANY
Peregrine Systems, Inc. ("Peregrine" or the "Company") is a leading provider
of Enterprise Service Desk software. The Company develops, markets and supports
SERVICECENTER, an integrated suite of applications that automates the management
of complex, enterprise-wide information technology ("IT") infrastructures.
SERVICECENTER is specifically designed to address the IT management requirements
of large organizations and is distinguished by its breadth of functionality and
its ability to be deployed across all major hardware platforms and network
operating systems and protocols. SERVICECENTER utilizes advanced client/server
and sophisticated intelligent agent technologies as well as a unique modular
architecture to enable customers to meet their strategic objectives, effectively
leverage existing IT investments and reduce the cost of IT management.
Today, IT is an integral part of many core business functions and is
critical to many new tactical and strategic initiatives, such as business
process reengineering, supply chain management and enhanced customer care. The
changing role of IT, combined with advances in enabling technology, has led to a
proliferation of diverse systems, platforms and applications within large
organizations. As a result, management of the IT infrastructure is becoming
increasingly complex. Organizations must grapple with a greater volume of
support activity while mastering a broader base of IT products, systems,
architectures and network environments. In a 1996 report, The Gartner Group
estimated that corporations spend on average $10,400 annually to service and
support every networked PC, representing a significant multiple of the initial
capital outlay for hardware and software.
Many companies have applied internal help desk software solutions to better
manage their IT infrastructure. However, these solutions are limited in their
approach and design, primarily automating IT problem management and resolution
without integrating with other critical management functions, such as inventory
and change management. In addition, stand-alone internal help desk solutions are
generally designed only to manage a single platform or a specific network
environment. Consequently, these solutions are typically deployed on a
departmental or divisional level only. Their functionality is "reactive" in
orientation, focusing on problem resolution rather than prevention.
The Company's SERVICECENTER software offers capabilities that extend beyond
those of traditional internal help desk solutions to create an Enterprise
Service Desk, meeting the operational and strategic needs of today's enterprise.
SERVICECENTER'S fully integrated suite of six critical IT management
applications works across all major hardware platforms and network operating
systems and protocols, allowing it to effectively manage the complexity of
today's enterprise IT infrastructure. An important feature of SERVICECENTER is
its utilization of sophisticated agent technology to anticipate and prevent
problems before they occur, thereby keeping IT systems functioning efficiently
and with minimal downtime.
The Company's objective is to be the leading provider of Enterprise Service
Desk solutions worldwide. The Company's strategy is to maintain its functional
and technical leadership, expand its target market to the Global 2000, expand
its international sales efforts, continue to build customer partnerships and
expand its channels and third party relationships. In addition, the Company
believes it can continue to successfully leverage its unique product authorship
compensation model, a compensation system that rewards the Company's software
developers based on a percentage of license revenues of products they design and
develop.
The Company has licensed SERVICECENTER to customers worldwide, including
Bankers Trust, Bell Atlantic, Deere and Company, Dow Corning, EDS, Lufthansa,
GE, Mitsubishi Electric, Northrop Grumman, Packard Bell NEC, Procter & Gamble,
Philip Morris, Shell Oil and Texas Instruments.
The Company was incorporated in California in 1981 and reincorporated in
Delaware in 1994. Unless the context otherwise requires, references in this
Prospectus to "Peregrine" and the "Company" refer to Peregrine Systems, Inc., a
Delaware corporation, and its predecessor, Peregrine Systems, Inc., a California
corporation. The Company's executive offices are located at 12670 High Bluff
Drive, San Diego, California 92130 and its telephone number is (619) 481-5000.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company......... 2,000,000 shares
Common Stock offered by the Selling
Stockholders.............................. 1,000,000 shares
Total Common Stock offered.................. 3,000,000 shares
Common Stock to be outstanding after the
Offering.................................. 15,019,019 shares (1)
Use of proceeds............................. For working capital and other general
corporate purposes, including repayment of
bank debt. See "Use of Proceeds."
Proposed Nasdaq National Market symbol...... PRGN
</TABLE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, December 31,
--------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1995 1996
--------- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues......................... $ 7,414 $ 12,844 $ 15,760 $ 19,628 $ 23,766 $ 17,638 $ 24,527
Gross profit........................... 5,389 10,376 11,981 15,662 19,825 14,650 20,949
Operating income (loss)................ (5,883) (664) (705) (3,919) (4,266) (2,879) 2,730
Net income (loss)...................... (6,004) (736) (735) 51(2) (6,411) (3,736) 2,364
Net income (loss) per share............ $ (0.52) $ 0.16
Shares used in per share calculation... 12,331 14,438
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Total revenues............................................................ $ 6,128 $ 7,500 $ 7,500 $ 9,527
Gross profit............................................................. 5,175 6,290 6,326 8,333
Operating income (loss).................................................. (1,387) 401 525 1,804
Net income (loss)........................................................ (1,499) 289 408 1,667
Net income (loss) per share.............................................. $ (0.11) $ 0.02 $ 0.03 $ 0.11
Shares used in per share calculation..................................... 13,552 14,230 14,212 14,519
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
AS ADJUSTED
ACTUAL (3)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash.................................................................................. $ 1,271 $ 16,767
Working capital (deficit)............................................................. (7,300) 12,510
Total assets.......................................................................... 19,034 34,530
Borrowings under bank line of credit.................................................. 4,314 --
Stockholders' equity (deficit)........................................................ (6,353) 13,457
</TABLE>
- --------------------------
(1) Based upon shares outstanding as of December 31, 1996. Excludes 3,771,408
shares of Common Stock issuable upon exercise of options outstanding at
December 31, 1996 under the Company's Nonqualified Stock Option Plan, 1991
Nonqualified Stock Option Plan and 1994 Stock Option Plan at a weighted
average price of $1.85. See "Management--Stock Plans," "Description of
Capital Stock" and Notes 10 and 13 of Notes to Consolidated Financial
Statements. Also excludes (i) 204,400 shares reserved at December 31, 1996
for future issuance under the 1994 Stock Option Plan and (ii) 1,000,000
shares reserved after December 31, 1996 for future grant under the 1994
Stock Option Plan, the 1997 Director Option Plan and the 1997 Employee Stock
Purchase Plan. See Note 13 of Notes to Consolidated Financial Statements.
(2) Includes a gain on the sale of a software product line in April 1994 of
$4,025,000. See Note 4 of Notes to Consolidated Financial Statements.
(3) Adjusted to give effect to the estimated net proceeds of this offering based
on an assumed initial public offering price of $11.00 and the application of
the estimated net proceeds therefrom, including the repayment of bank debt.
See "Use of Proceeds."
--------------------------
EXCEPT AS SET FORTH IN THE CONSOLIDATED FINANCIAL STATEMENTS OR OTHERWISE
INDICATED HEREIN, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. SEE "DESCRIPTION OF
CAPITAL STOCK" AND "UNDERWRITING." EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN
THIS PROSPECTUS (I) HAS BEEN ADJUSTED TO GIVE EFFECT TO A TWO-FOR-ONE SPLIT OF
THE COMPANY'S COMMON STOCK TO BE EFFECTED IN FEBRUARY 1997 IN THE FORM OF A
STOCK DIVIDEND AND (II) REFLECTS THE EXERCISE OF OPTIONS TO ACQUIRE UP TO
115,000 SHARES BY CERTAIN SELLING STOCKHOLDERS IN CONNECTION WITH THIS OFFERING.
SEE "PRINCIPAL AND SELLING STOCKHOLDERS," "DESCRIPTION OF CAPITAL STOCK" AND
NOTE 10 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS IN THE SHARES OF COMMON STOCK OFFERED HEREBY SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS.
LIMITED PROFITABILITY; HISTORY OF OPERATING LOSSES
The Company has recorded cumulative net losses of approximately $19.2
million through December 31, 1996, including a net loss of approximately $6.4
million in fiscal 1996. In recent years, the Company's product line has changed
substantially. The Company's current version of SERVICECENTER, from which the
Company derived substantially all of its license revenues for the nine months
ended December 31, 1996, only began shipping in mid-1995. As a result,
prediction of the Company's future operating results is difficult, if not
impossible. Although the Company achieved limited profitability during each of
the quarters in the nine months ended December 31, 1996, there can be no
assurance that the Company will be able to remain profitable on a quarterly
basis or achieve profitability on an annual basis. In addition, the Company does
not believe that the growth in revenues it has experienced in recent years is
indicative of future operating results. See "--Product Concentration; Dependence
on Market Acceptance of Enterprise Service Desk Software," "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY
The Company's quarterly operating results have varied significantly in the
past and may vary significantly in the future depending upon a number of
factors, many of which are beyond the Company's control. These factors include,
among others, the ability of the Company to develop, introduce and market new
and enhanced versions of its software on a timely basis; market demand for the
Company's software; the size, timing and contractual terms of significant
orders; the timing and significance of new software product announcements or
releases by the Company or its competitors; changes in pricing policies by the
Company or its competitors; changes in the Company's business strategies;
budgeting cycles of its potential customers; changes in the mix of software
products and services sold; changes in the mix of revenues attributable to
domestic and international sales; the impact of acquisitions of competitors;
seasonal trends; the cancellations of licenses or maintenance agreements;
product life cycles; software defects and other product quality problems; and
personnel changes. The Company has often recognized a substantial portion of its
revenues in the last month or weeks of a quarter. As a result, license revenues
in any quarter are substantially dependent on orders booked and shipped in the
last month or weeks of that quarter. Due to the foregoing factors, quarterly
revenues and operating results are not predictable with any significant degree
of accuracy. In particular, the timing of revenue recognition can be affected by
many factors, including the timing of contract execution and delivery. The
timing between initial customer contact and fulfillment of criteria for revenue
recognition can be lengthy and unpredictable, and revenues in any given quarter
can be adversely affected as a result of such unpredictability. In the event of
any downturn in potential customers' businesses or the economy in general,
planned purchases of the Company's products may be deferred or canceled, which
could have a material adverse effect on the Company's business, operating
results and financial condition.
The Company's business has experienced and is expected to continue to
experience seasonality. The Company's revenues and operating results in its
December quarter typically benefit from purchase decisions made by the large
concentration of customers with calendar year-end budgeting requirements, while
revenues and operating results in the March quarter typically benefit from the
efforts of the Company's sales force to meet fiscal year-end sales quotas. In
addition, the Company is currently attempting to expand its presence in
international markets, including Europe, the Pacific Rim and Latin America.
International revenues comprise a significant percentage of the Company's total
revenues, and the Company may experience additional variability in demand
associated with seasonal buying patterns in such foreign markets. See
"--International Operations; Currency Fluctuations" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
5
<PAGE>
PRODUCT CONCENTRATION; DEPENDENCE ON MARKET ACCEPTANCE OF ENTERPRISE SERVICE
DESK SOFTWARE
The Company currently derives substantially all of its license revenues from
the sale of SERVICECENTER and expects SERVICECENTER to account for a significant
portion of the Company's revenues for the foreseeable future. As a result, the
Company's future operating results are dependent upon continued market
acceptance of SERVICECENTER, including future enhancements. Factors adversely
affecting the pricing of, demand for, or market acceptance of SERVICECENTER,
such as competition or technological change, could have a material adverse
effect on the Company's business, operating results and financial condition.
The Company's product strategy has focused on integrating a broad array of
IT management applications with other traditional internal help desk
applications to create an Enterprise Service Desk. The market for Enterprise
Service Desk software is relatively new and is characterized by ongoing
technological developments, frequent new product announcements and
introductions, evolving industry standards and changing customer requirements.
The Company's future financial performance will depend in part on continued
growth in the number of organizations implementing Enterprise Service Desk
solutions.
DEPENDENCE ON KEY PERSONNEL; NEW MANAGEMENT TEAM; ABILITY TO RECRUIT PERSONNEL
The Company's success will depend to a significant extent on the continued
service of its senior management and certain other key employees of the Company,
including selected sales, consulting, technical and marketing personnel. None of
the Company's employees, including its senior management, is bound by an
employment or non-competition agreement, and the Company does not maintain key
man life insurance on any employee. The loss of the services of one or more of
the Company's executive officers or key employees or the decision of one or more
of such officers or employees to join a competitor or otherwise compete directly
or indirectly with the Company could have a material adverse effect on the
Company's business, operating results and financial condition. In addition,
several of the Company's executive officers, including its President and Chief
Executive Officer, Chief Financial Officer, and certain operating vice
presidents, have been employed by the Company for a relatively short period of
time. Since joining the Company, the new management team has devoted substantial
effort in refocusing the Company's product, sales and marketing strategies. In
connection with such changes, the Company restructured its sales and marketing
departments, which resulted in the replacement of a significant number of
employees. Although management believes that this restructuring has benefitted
the Company, many of the Company's current employees have been with the Company
for only a limited period of time.
In addition, the Company believes that its future success will depend in
large part on its ability to attract and retain additional highly skilled
technical, sales, management and marketing personnel. Competition for such
personnel in the computer software industry is intense, and the Company has at
times in the past experienced difficulty in recruiting qualified personnel. New
employees hired by the Company generally require substantial training in the use
and implementation of the Company's products. There can be no assurance that the
Company will be successful in attracting and retaining such personnel, and the
failure to do so could have a material adverse effect on the Company's business,
operating results and financial condition.
COMPETITION
The market for the Company's products is highly competitive, fragmented and
subject to rapid technological change and frequent new product introductions and
enhancements. Competitors vary in size and in the scope and breadth of the
products and services offered. The Company encounters competition from a number
of sources, including (i) providers of internal help desk software applications
such as Remedy Corporation and Software Artistry, Inc., (ii) customer
interaction software companies such as Clarify Inc. and The Vantive Corporation,
whose products include internal help desk applications, and (iii) large
information technology and systems management companies such as International
Business Machines Corporation ("IBM") and Computer Associates International,
Inc. Because barriers to entry in the software market are relatively low, the
Company anticipates additional competition from other established and emerging
companies as the market for
6
<PAGE>
Enterprise Service Desk applications expands. In addition, current and potential
competitors have established or may in the future establish cooperative
relationships among themselves or with third parties. The Company expects
software industry consolidation to occur in the future, and it is possible that
new competitors or alliances among competitors may emerge and rapidly acquire
significant market share. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which could
have a material adverse effect on the Company's business, operating results and
financial condition. Some of the Company's current and many of its potential
competitors have significantly greater financial, technical, marketing and other
resources than the Company. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the development, promotion and sale of their
products than the Company. There can be no assurance that the Company will be
able to compete successfully against current and future competitors or that
competitive pressures faced by the Company will not have a material adverse
effect on the Company's business, operating results and financial condition. See
"Business--Competition."
MANAGEMENT OF GROWTH
The Company's business has grown substantially in recent periods, with total
revenues increasing from $15.8 million in fiscal 1994 to $23.8 million in fiscal
1996 and to $24.5 million for the nine months ended December 31, 1996. In
addition, in connection with an internal restructuring of the Company that
occurred in the latter half of fiscal 1996 and the beginning of fiscal 1997, the
Company replaced its senior management and a significant portion of its sales
staff employed at that time in an effort to improve sales productivity and
revenue growth. As a result of the restructuring, a number of the key members of
the Company's management, including its President and Chief Executive Officer
and Chief Financial Officer, have been employed with the Company for only a
limited period of time. If the Company is successful in achieving its growth
plans, such growth is likely to place a significant burden on the Company's
operating and financial systems, resulting in increased responsibility for
senior management and other personnel within the Company. The Company's ability
to compete effectively and to manage future growth, if any, and its future
operating results will depend in part on the ability of its officers and other
key employees to implement and expand operational, customer support and
financial control systems and to expand, train and manage its employee base.
There can be no assurance that the Company's existing management or any new
members of management will be able to augment or improve existing systems and
controls or implement new systems and controls in response to future growth, if
any. The Company's failure to do so could have a material adverse effect on the
Company's business, operating results and financial condition. See "--Dependence
on Key Personnel; New Management Team; Ability to Recruit Personnel" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LENGTHY SALES CYCLES
The license of the Company's software generally requires the Company to
engage in a sales cycle that typically takes approximately six to nine months to
complete. The length of the sales cycle may vary depending on a number of
factors over which the Company may have little or no control, including the size
of the transaction and the level of competition which the Company encounters in
its selling activities. In addition, the sales cycle is typically extended 90
days for product sales through indirect channels. During the sales cycle, the
Company typically provides a significant level of education to prospective
customers regarding the use and benefits of the Company's products. Any delay in
the sale cycle of a large license or a number of smaller licenses could have a
material adverse effect on the Company's business, operating results and
financial condition. See "--Potential Fluctuations in Quarterly Results;
Seasonality."
EXPANSION OF DISTRIBUTION CHANNELS
The Company has historically sold its products through its direct sales
force and a limited number of distributors and has provided maintenance and
support services through its technical and customer support
7
<PAGE>
staff. The Company is currently investing and intends to continue to invest
significant resources in developing additional sales and marketing channels
through system integrators and original equipment manufacturers ("OEMs") and
other channel partners. There can be no assurance that the Company will be able
to attract channel partners that will be able to market the Company's products
effectively and will be qualified to provide timely and cost-effective customer
support and service. To the extent the Company establishes distribution through
such indirect channels, its agreements with channel partners may not be
exclusive and such channel partners may also carry competing product lines. Any
failure by the Company to establish and maintain such distribution relationships
could have a material adverse effect on the Company's business, operating
results and financial condition. See "--Management of Growth," "--International
Operations; Currency Fluctuations," "Business--Strategy" and "Business--Sales
and Marketing."
INTERNATIONAL OPERATIONS; CURRENCY FLUCTUATIONS
International sales represented approximately 29% and 28% of the Company's
total revenues in fiscal 1996 and for the nine months ended December 31, 1996,
respectively. The Company currently has international sales offices in London,
Paris, Frankfurt and Amsterdam. The Company believes that its continued growth
and profitability will require expansion of its international operations,
particularly in Europe, Latin America and the Pacific Rim. Accordingly, the
Company intends to expand its international operations and enter additional
international markets, which will require significant management attention and
financial resources. In addition, the Company's international operations are
subject to a variety of risks associated with conducting business
internationally, including fluctuations in currency exchange rates, longer
payment cycles, difficulties in staffing and managing international operations,
problems in collecting accounts receivable, seasonal reductions in business
activity during the summer months in Europe and certain other parts of the
world, increases in tariffs, duties, price controls or other restrictions on
foreign currencies, and trade barriers imposed by foreign countries, any of
which could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, the Company has only limited
experience in developing localized versions of its products and marketing and
distributing its products internationally. There can be no assurance that the
Company will be able to successfully localize, market, sell and deliver its
products internationally. The inability of the Company to expand its
international operations successfully and in a timely manner could have a
material adverse effect on the Company's business, operating results and
financial condition.
A significant portion of the Company's business is conducted in currencies
other than the U.S. dollar. Foreign currency transaction gains and losses
arising from normal business operations are credited to or charged against
earnings in the period incurred. As a result, fluctuations in the value of the
currencies in which the Company conducts its business relative to the U.S.
dollar have caused and will continue to cause currency transaction gains and
losses. Due to the substantial volatility of currency exchange rates, among
other factors, the Company cannot predict the effect of exchange rate
fluctuations upon future operating results. There can be no assurance that the
Company will not experience currency losses in the future. The Company has not
previously undertaken hedging transactions to cover its currency exposure but
may hedge a portion of its currency exposure in the future as management deems
appropriate. See "--Management of Growth," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and "Business-- Sales and
Marketing."
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
The Company's success is dependent upon proprietary technology. The Company
relies primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights. Despite precautions taken by the Company, it may be possible
for unauthorized third parties to copy aspects of its current or future products
or to obtain and use information that the Company regards as proprietary. The
Company may provide its licensees with access to its data model and other
proprietary information underlying its licensed applications. There can be no
assurance that the
8
<PAGE>
Company's means of protecting its proprietary rights will be adequate or that
the Company's competitors will not independently develop similar or superior
technology. Policing unauthorized use of the Company's software is difficult
and, while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. Litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, operating
results and financial condition.
There can be no assurance that third parties will not claim infringement by
the Company with respect to its current or future products. The Company expects
that software product developers will increasingly be subject to infringement
claims as the number of products and competitors in the Company's industry
segment grows and the functionality of products in different industry segments
overlaps. Any such claims, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment delays or require the
Company to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the Company
or at all, which could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business--Intellectual
Property."
RAPID TECHNOLOGICAL CHANGE AND PRODUCT DEVELOPMENT RISKS
The market for the Company's products is subject to rapid technological
change, changing customer needs, frequent new product introductions and evolving
industry standards that may render existing products and services obsolete. As a
result, the Company's position in its existing markets or other markets that it
may enter could be eroded rapidly by product advances. The life cycles of the
Company's products are difficult to estimate. The Company's growth and future
financial performance will depend in part upon its ability to enhance existing
applications, develop and introduce new applications that keep pace with
technological advances, meet changing customer requirements and respond to
competitive products. The Company's product development efforts are expected to
continue to require substantial investments by the Company. There can be no
assurance that the Company will have sufficient resources to make the necessary
investments. The Company has in the past experienced development delays, and
there can be no assurance that the Company will not experience such delays in
the future. There can be no assurance that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction or marketing of new or enhanced products. In addition, there can be
no assurance that such products will achieve market acceptance, or that the
Company's current or future products will conform to industry requirements. The
inability of the Company, for technological or other reasons, to develop and
introduce new and enhanced products in a timely manner could have a material
adverse effect on the Company's business, operating results and financial
condition.
Software products as complex as those offered by the Company may contain
errors that may be detected at any point in a product's life cycle. The Company
has in the past discovered software errors in certain of its products and has
experienced delays in shipment of products during the period required to correct
these errors. There can be no assurance that, despite testing by the Company and
by current and potential customers, errors will not be found, resulting in loss
of, or delay in, market acceptance and sales, diversion of development
resources, injury to the Company's reputation, or increased service and warranty
costs, any of which could have a material adverse effect on the Company's
business, results of operations and financial condition. See
"Business--Products" and "Business--Product Development; Product Authorship
Model."
9
<PAGE>
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of this offering, the Company's officers, directors and
their affiliates together will beneficially own approximately 75.8% of the
outstanding shares of Common Stock (70.9% if the Underwriters' over-allotment
option is exercised in full). In particular, John J. Moores, Chairman of the
Company's Board of Directors, and entities affiliated with Mr. Moores
collectively will own approximately 66.8% of the outstanding shares of Common
Stock (62.0% if the Underwriters' over-allotment option is exercised in full).
As a result, these stockholders will be able to control most matters requiring
stockholder approval, including the election of directors and the approval of
mergers, consolidations and sales of all or substantially all of the assets of
the Company. This may prevent or discourage potential bids to acquire the
Company unless the terms of acquisition are approved by such stockholders. See
"Principal and Selling Stockholders."
PRODUCT LIABILITY
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in the Company's license agreements may not be effective
under the laws of certain jurisdictions. Although the Company has not
experienced any product liability claims to date, the sale and support of
products by the Company may entail the risk of such claims, and there can be no
assurance that the Company will not be subject to such claims in the future. A
product liability claim brought against the Company could have a material
adverse effect on the Company's business, operating results and financial
condition.
EFFECT OF CERTAIN CHARTER PROVISIONS; LIMITATION OF LIABILITY OF DIRECTORS;
ANTITAKEOVER EFFECTS OF DELAWARE LAW
Effective upon completion of this offering, the Company will be authorized
to issue 5,000,000 shares of undesignated Preferred Stock. The Board of
Directors has the authority to issue the Preferred Stock in one or more series
and to fix the price, rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting a series or the designation of such series, without any
further vote or action by the Company's stockholders. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders and may adversely affect the market price of the
Common Stock and the voting and other rights of the holders of Common Stock. The
issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. The Company has no current plans to issue any shares
of Preferred Stock.
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Bylaws eliminate the right of stockholders to act by written
consent without a meeting and specify certain procedures for nominating
directors and submitting proposals for consideration at stockholder meetings.
Such provisions are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions which may involve an actual or threatened change of control of the
Company. Such provisions are designed to reduce the vulnerability of the Company
to an unsolicited acquisition proposal and, accordingly, could discourage
potential acquisition proposals and could delay or prevent a change in control
of the Company. Such provisions are also intended to discourage certain tactics
that may be used in proxy fights but could, however, have the effect of
discouraging others from making tender offers for the Company's shares and,
consequently, may also inhibit fluctuations in the market price of the Company's
Common Stock that could result from actual or rumored takeover attempts. These
provisions may also have the effect of preventing changes in the management of
the Company.
10
<PAGE>
The Company is subject to Section 203 of the Delaware General Corporation
Law (the "Antitakeover Law"), which regulates corporate acquisitions. The
Antitakeover Law prevents certain Delaware corporations, including those whose
securities are listed for trading on the Nasdaq National Market, from engaging,
under certain circumstances, in a "business combination" with any "interested
stockholder" for three years following the date that such stockholder became an
interested stockholder. For purposes of the Antitakeover Law, a "business
combination" includes, among other things, a merger or consolidation involving
the Company and the interested stockholder and the sale of more than 10% of the
Company's assets. In general, the Antitakeover Law defines an "interested
stockholder" as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the Company and any entity or person affiliated with
or controlling or controlled by such entity or person. A Delaware corporation
may "opt out" of the Antitakeover Law with an express provision in its original
certificate of incorporation or an express provision in its certificate of
incorporation or bylaws resulting from amendments approved by the holders of at
least a majority of the company's outstanding voting shares. The Company has not
"opted out" of the provisions of the Antitakeover Law. See "Description of
Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price for the
Company's Common Stock. The number of shares of Common Stock available for sale
in the public market is limited by restrictions under the Securities Act of
1933, as amended (the "Securities Act"), and lock-up agreements under which the
holders of such shares have agreed not to sell or otherwise dispose of any of
their shares for a period of 180 days after the date of this Prospectus without
the prior written consent of UBS Securities LLC. UBS Securities LLC may,
however, in its sole discretion and at any time without notice, release all or
any portion of the securities subject to lockup agreements. As a result of these
restrictions, based on shares outstanding as of December 31, 1996, in addition
to the 3,000,000 shares offered hereby, approximately 70,000 shares will be
eligible for sale on the date of this Prospectus pursuant to Rule 144(k) under
the Securities Act. Approximately 1,000 shares will become eligible for sale 90
days after the date of this Prospectus, approximately 9,500,000 shares will
become eligible for sale 180 days after the date of this Prospectus (the
"Release Date"), and approximately 2,500,000 shares will become available at
various times after the Release Date pursuant to Rules 144 and 701 under the
Securities Act. On or prior to the Release Date, the Company intends to register
on Form S-8 an additional 5,727,308 shares of Common Stock reserved for issuance
under the Company's Nonqualified Stock Option Plan, 1991 Nonqualified Stock
Option Plan, 1994 Stock Option Plan, 1997 Director Option Plan and 1997 Employee
Stock Purchase Plan, as well as 600,000 shares of Common Stock issued under
restricted stock purchase agreements to certain employees of the Company. Of the
shares isssuable upon exercise of outstanding options to be registered on the
Form S-8, approximately 2,403,205 shares will be vested and eligible for sale on
the Release Date. See "Shares Eligible for Future Sale."
The Securities and Exchange Commission has recently proposed reducing the
initial Rule 144 holding period to one year and the Rule 144(k) holding period
to two years. There can be no assurance as to when or whether such rule changes
will be enacted. If enacted, such modifications will have a material effect on
the times when shares of the Company's Common Stock become eligible for resale.
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the book
value per share of Common Stock. Investors purchasing Common Stock in this
offering will, therefore, incur immediate dilution of $10.10 in net tangible
book value per share of Common Stock (based upon the assumed initial public
offering price of $11.00 per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by the
Company) from the initial public offering price and will incur additional
dilution upon the exercise of outstanding stock options.
11
<PAGE>
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering there has been no public market for the Common Stock
of the Company. The initial public offering price was determined by negotiations
between the Company and the representatives of the Underwriters. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. There can be no assurance that an active public
market will develop or be sustained after this offering or that the market price
of the Common Stock will not decline below the initial public offering price.
Future announcements concerning the Company or its competitors, quarterly or
annual variations in results of operations, announcements of technological
innovations, the introduction of new products or changes in pricing policies by
the Company or its competitors, proprietary rights or other litigation, changes
in earnings estimates by analysts, the Company's failure to meet analysts'
estimates or other factors could cause the market price of the Common Stock to
fluctuate substantially. In addition, stock prices for many technology companies
fluctuate widely for reasons which may be unrelated to results of operations.
These fluctuations, as well as general economic, market and political
conditions, could have a material adverse effect on the market price of the
Company's Common Stock.
DISCRETION AS TO USE OF PROCEEDS
The primary purposes of this offering are to create a public market for the
Company's Common Stock, to facilitate future access to public markets and to
obtain additional working capital. As of the date of this Prospectus, the
Company has no specific plans to use the net proceeds from this offering other
than for working capital and general corporate purposes, including repayment of
bank debt. Accordingly, the Company's management will retain broad discretion as
to the allocation of the net proceeds from this offering. Pending any such uses,
the Company plans to invest the net proceeds in investment grade,
interest-bearing securities. See "Use of Proceeds."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$19,810,000 assuming an initial public offering price of $11.00 per share and
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company.
The primary purposes of this offering are to create a public market for the
Common Stock, to facilitate future access to public markets and to obtain
additional working capital. The Company expects to use the net proceeds of this
offering for working capital and other general corporate purposes, including the
repayment of outstanding bank debt under the Company's line of credit, which
totaled $4,314,000 at December 31, 1996. A portion of the net proceeds may also
be used for the acquisition of businesses, products and technologies that are
complementary to those of the Company. The Company has no present plans,
agreements or commitments and is not currently engaged in any negotiations with
respect to any such transactions. Pending such uses, the net proceeds of this
offering will be invested in investment-grade, interest bearing securities.
The Company will not receive any proceeds from the sale of the shares of
Common Stock offered by the Selling Stockholders hereby.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company currently expects to retain future earnings, if any, for use in the
operation and expansion of its business and does not anticipate paying any cash
dividends in the foreseeable future.
13
<PAGE>
CAPITALIZATION
The following table sets forth at December 31, 1996 the capitalization
(deficit) of the Company after giving effect to a two-for-one stock split in the
form of a stock dividend to be effected in February 1997, and as adjusted to
reflect the Company's receipt of net proceeds from the sale of 2,000,000 shares
of Common Stock at an assumed initial public offering price of $11.00 per share
and the application of the net proceeds therefrom. The capitalization
information set forth in the table below is qualified by, and should be read in
conjunction with, the more detailed Consolidated Financial Statements and notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Borrowings under line of credit (1)...................................................... $ 4,314 $ --
---------- -----------
---------- -----------
Notes payable and capital lease obligations, net of current portion (1).................. 1,553 1,553
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value, 2,000,000 shares authorized, no shares issued and
outstanding, actual; 5,000,000 shares authorized, no shares issued and outstanding,
as adjusted.......................................................................... -- --
Common Stock, $0.001 par value, 20,000,000 shares authorized, 12,904,000 shares issued
and outstanding, actual; 50,000,000 shares authorized, 15,019,000 shares issued and
outstanding, as adjusted (2)......................................................... 13 15
Additional paid-in capital............................................................... 13,540 33,348
Accumulated deficit...................................................................... (19,245) (19,245)
Unearned portion of restricted stock compensation........................................ (473) (473)
Cumulative translation adjustment........................................................ (188) (188)
---------- -----------
Total stockholders' equity (deficit)................................................. (6,353) 13,457
---------- -----------
Total capitalization (deficit)....................................................... $ (4,800) $ 15,010
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) See Note 6 of Notes to Consolidated Financial Statements.
(2) Based upon shares outstanding as of December 31, 1996. Excludes 3,771,408
shares of Common Stock issuable upon exercise of options outstanding at
December 31, 1996 under the Company's Nonqualified Stock Option Plan, 1991
Nonqualified Stock Option Plan and 1994 Stock Option Plan at a weighted
average price of $1.85. See "Management--Stock Plans," "Description of
Capital Stock" and Notes 10 and 13 of Notes to Consolidated Financial
Statements. Also excludes (i) 204,400 shares reserved at December 31, 1996
for future grant under the 1994 Stock Option Plan and (ii) 1,000,000 shares
reserved after December 31, 1996 for future grant under the 1994 Stock
Option Plan, the 1997 Director Option Plan, and the 1997 Employee Stock
Purchase Plan. See Note 13 of Notes to Consolidated Financial Statements.
14
<PAGE>
DILUTION
As of December 31, 1996, the net tangible book value of the Company's Common
Stock was $(6.4) million or $(0.49) per share of Common Stock. Net tangible book
value per share represents the Company's total tangible assets less total
liabilities, divided by the number of outstanding shares of Common Stock then
outstanding. Dilution per share represents the difference between the amount per
share paid by investors in the offering and the pro forma net tangible book
value per share after the offerings. After giving effect to the sale of
2,000,000 shares in the offerings (at an assumed initial public offering price
of $11.00 per share and after deducting the estimated underwriting discounts and
commissions and offering expenses payable by the Company), the Company's pro
forma net tangible book value as of December 31, 1996 would have been
$13,457,000 or $0.90 per share of Common Stock. This represents an immediate
increase of pro forma net tangible book value of $1.39 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$10.10 per share to new investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $ 11.00
Net tangible book value per share as of December 31, 1996........ $ (0.49)
---------
Increase in net tangible book value per share attributable to new
investors...................................................... 1.39
---------
Pro forma net tangible book value per share after offering......... 0.90
---------
Dilution per share to new investors................................ $ 10.10
---------
---------
</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 the existing
stockholders and by new investors purchasing shares in this offering (at an
assumed initial public offering price of $11.00 per share and before deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------------- --------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).............. 13,019,000 86.7% $ 13,553,000 38.1% $ 1.04
New investors(1)...................... 2,000,000 13.3 22,000,000 61.9 11.00
------------- ----- -------------- -----
Total............................. 15,019,000 100.0% $ 35,553,000 100.0%
------------- ----- -------------- -----
------------- ----- -------------- -----
</TABLE>
- ------------------------
(1) Sales by the Selling Stockholders in this offering will reduce the number
of shares of Common Stock held by existing stockholders to 12,019,019 or
approximately 80.0% (11,569,019 shares, or approximately 77.0%, if the
underwriters' over-allotment option is exercised in full) and will increase
the number of shares held by new investors to 3,000,000 or approximately
20.0% (3,450,000 shares, or approximately 23.0%, if the Underwriters
over-allotment option is exercised in full) of the total number of shares of
Common Stock outstanding after this offering. See "Principal and Selling
Stockholders."
The foregoing computations assume no exercise of stock options after
December 31, 1996. As of December 31, 1996, there were outstanding options to
purchase 3,771,408 shares of Common Stock under the Company's Nonqualified Stock
Option Plans, 1991 Nonqualified Stock Option Plan and 1994 Stock Option Plan at
a weighted average price of $1.85 per share and 204,400 shares reserved for
future issuance under the 1994 Stock Option Plan. After December 31, 1996, an
additional 1,000,000 shares of Common Stock were reserved for future issuance
under the 1994 Stock Option Plan, 1997 Director Option Plan and 1997 Employee
Stock Purchase Plan. See Note 13 of Notes to Consolidated Financial Statements.
To the extent that any shares are issued upon exercise of options, warrants or
rights that are presently outstanding or granted in the future, or reserved for
future issuance under the Company's stock plans, there will be further dilution
to new investors. See "Management--Stock Plans," "Description of Capital Stock"
and Notes 10 and 13 of Notes to Consolidated Financial Statements.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company presented
below as of March 31, 1996 and December 31, 1996, and for each of the years in
the two-year period ended March 31, 1996, and the nine-month period ended
December 31, 1996, are derived from the consolidated financial statements of
Peregrine Systems, Inc. and its subsidiaries, which financial statements have
been audited by Arthur Andersen LLP, independent public accountants. The
consolidated financial statements as of March 31, 1996 and December 31, 1996,
and for each of the years in the two-year period ended March 31, 1996, and the
nine-month period ended December 31, 1996, and the report thereon, are included
elsewhere in this Prospectus. The selected consolidated financial data set forth
below is qualified in its entirety by, and should be read in conjunction with,
the Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses............................... $ 4,051 $ 6,311 $ 6,714 $ 9,137 $ 11,642 $ 8,791 $ 13,932
Maintenance............................ 3,115 5,629 6,857 7,918 8,967 6,765 7,659
Services............................... 248 904 2,189 2,573 3,157 2,082 2,936
--------- --------- --------- --------- --------- --------- ---------
Total revenues....................... 7,414 12,844 15,760 19,628 23,766 17,638 24,527
--------- --------- --------- --------- --------- --------- ---------
Costs of revenues:
Cost of licenses....................... 194 303 322 393 415 320 155
Cost of maintenance and services....... 1,831 2,165 3,457 3,573 3,526 2,668 3,423
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenues............... 2,025 2,468 3,779 3,966 3,941 2,988 3,578
--------- --------- --------- --------- --------- --------- ---------
Gross profit............................. 5,389 10,376 11,981 15,662 19,825 14,650 20,949
Operating expenses:
Sales and marketing.................... 4,533 5,218 6,118 9,549 11,820 8,392 11,217
Research and development............... 4,737 3,983 4,670 7,089 7,742 6,166 4,368
General and administrative............. 2,002 1,839 1,898 2,943 4,529 2,971 2,634
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses............. 11,272 11,040 12,686 19,581 24,091 17,529 18,219
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss).................. (5,883) (664) (705) (3,919) (4,266) (2,879) 2,730
Interest expense......................... (141) (122) (118) (112) (389) (275) (337)
Other income (expense)................... 20 50 88 4,082 103 101 (29)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes.................... (6,004) (736) (735) 51 (4,552) (3,053) 2,364
Provision for income taxes............... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations............................. (6,004) (736) (735) 51 (4,552) (3,053) 2,364
Loss from discontinued operations:
Loss from operations................... -- -- -- -- (781) (683) --
Loss on disposal....................... -- -- -- -- (1,078) -- --
--------- --------- --------- --------- --------- --------- ---------
Loss from discontinued operations.... -- -- -- -- (1,859) (683) --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)........................ $ (6,004) $ (736) $ (735) $ 51 $ (6,411) $ (3,736) $ 2,364
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per share.............. $ (0.52) $ 0.16
--------- ---------
--------- ---------
Shares used in per share calculation..... 12,331 14,438
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DEC. 31,
----------------------------------------------------- ---------
1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................................. $ 209 $ 385 $ 587 $ 57 $ 437 $ 1,271
Working capital (deficit)............................ (2,300) (2,604) (3,045) (4,118) (9,442) (7,300)
Total assets......................................... 4,739 4,267 6,689 9,787 13,817 19,034
Borrowings under bank line of credit................. 600 300 658 1,315 2,829 4,314
Stockholders' deficit................................ (1,332) (2,120) (2,859) (2,197) (8,450) (6,353)
</TABLE>
16
<PAGE>
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 RELATING TO FUTURE
EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY, WHICH 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," "BUSINESS" AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company develops, markets and supports SERVICECENTER, a suite of
software applications for managing the Enterprise Service Desk. The Company was
founded in 1981 primarily to provide consulting services for IT management
software. In 1987, the Company launched its first software product, PNMS, a
product designed to manage and monitor complex mainframe computer networks. In
1995, the Company commenced sales of SERVICECENTER, the Company's solution for
the Enterprise Service Desk. SERVICECENTER is currently available for the
Windows NT, UNIX and MVS platforms. Since the release of SERVICECENTER in July
1995, SERVICECENTER has accounted for substantially all of the Company's license
revenues. In addition, since the release of SERVICECENTER, over 80% of the
Company's new license sales of SERVICECENTER have been attributable to UNIX and
Windows NT platforms.
In the latter half of fiscal 1996 and the beginning of fiscal 1997, the
Company implemented an internal restructuring to capitalize on the market
opportunity for products addressing the requirements of the Enterprise Service
Desk. This restructuring included rebuilding the Company's senior management
team, redefining the product development strategy, initiating a comprehensive
marketing strategy and strengthening the Company's financial and budgeting
processes. In addition, in April 1996, the Company substantially reorganized its
sales force and instituted new sales management procedures.
The Company's revenues are derived from product licensing, maintenance and
services. License fees are generally due upon the granting of the license and
typically include a one-year maintenance period as part of the license
agreement. The Company also provides ongoing maintenance services, which include
technical support and product enhancements, for an annual fee based upon the
current price of the product. In fiscal 1995 and 1996 and for the nine months
ended December 31, 1996, maintenance revenues represented 40%, 38% and 31% of
total revenues, respectively. A substantial majority of the Company's original
PNMS customers have transitioned to SERVICECENTER, and represent a sizable
installed base of customers, which has generated a high level of maintenance
revenues. In fiscal 1995 and 1996 and for the nine months ended December 31,
1996, more than 90% of the Company's customers renewed their maintenance
agreements. Maintenance revenues from new licenses of SERVICECENTER combined
with recurring maintenance revenues from existing customers are expected to
provide a growing source of revenues as the Company's installed customer base
increases.
Revenues from license agreements are recognized currently, provided that all
of the following conditions are met: a non-cancelable license agreement has been
signed, the product has been delivered, there are no material uncertainties
regarding customer acceptance, collection of the resulting receivable is deemed
probable, and no other significant vendor obligations exist. Revenues from
post-contract support services are recognized ratably over the term of the
support period, generally one year. Maintenance revenues which are bundled with
license agreements are unbundled using vendor-specific evidence. Consulting
revenues are primarily related to implementation services most often performed
on a time and material basis under separate service agreements for the
installation of the Company's products. Revenues from consulting and training
services are recognized as the respective services are performed.
The Company currently derives substantially all of its license revenues from
the sale of SERVICECENTER and expects SERVICECENTER to account for a significant
portion of the Company's revenues for the foreseeable future. As a result, the
Company's future operating results are dependent upon continued market
acceptance of
17
<PAGE>
SERVICECENTER, including future enhancements. Factors adversely affecting the
pricing of, demand for or market acceptance of SERVICECENTER, such as
competition or technological change, could have a material adverse effect on the
Company's business, operating results and financial condition.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected
consolidated statements of operations data as a percentage of total revenues.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ----------- ---------- -----------
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses.................................................. 54.7 % 49.2 % 42.6 % 46.6% 49.0 %
Maintenance............................................... 42.0 43.8 43.5 40.3 37.7
Services.................................................. 3.3 7.0 13.9 13.1 13.3
----- ----- ----- ----- -----
Total revenues.......................................... 100.0 100.0 100.0 100.0 100.0
Costs of revenues:
Cost of licenses.......................................... 2.6 2.4 2.0 2.0 1.7
Cost of maintenance and services.......................... 24.7 16.8 22.0 18.2 14.9
----- ----- ----- ----- -----
Total cost of revenues.................................. 27.3 19.2 24.0 20.2 16.6
----- ----- ----- ----- -----
Gross profit................................................ 72.7 80.8 76.0 79.8 83.4
Operating expenses:
Sales and marketing....................................... 61.1 40.7 38.8 48.7 49.7
Research and development.................................. 64.0 31.0 29.6 36.1 32.6
General and administrative................................ 27.0 14.3 12.1 15.0 19.1
----- ----- ----- ----- -----
Total operating expenses................................ 152.1 86.0 80.5 99.8 101.4
----- ----- ----- ----- -----
Operating income (loss)..................................... (79.4) (5.2) (4.5) (20.0) (18.0)
Interest expense............................................ (1.9) (0.9) (0.8) (0.5) (1.6)
Other income (expense)...................................... 0.3 0.4 0.6 20.8 0.4
----- ----- ----- ----- -----
Income (loss) from continuing operations before income
taxes..................................................... (81.0) (5.7) (4.7) 0.3 (19.2)
Provision for income taxes.................................. 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- -----
Income (loss) from continuing operations.................... (81.0) (5.7) (4.7) 0.3 (19.2)
Loss from discontinued operations:
Loss from operations...................................... 0.0 0.0 0.0 0.0 (3.3)
Loss on disposal.......................................... 0.0 0.0 0.0 0.0 (4.5)
----- ----- ----- ----- -----
Loss from discontinued operations....................... 0.0 0.0 0.0 0.0 (7.8)
----- ----- ----- ----- -----
Net income (loss)........................................... (81.0)% (5.7)% (4.7)% 0.3% (27.0)%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
-----------------------
1995 1996
----------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses.................................................. 49.8 % 56.8%
Maintenance............................................... 38.4 31.2
Services.................................................. 11.8 12.0
----- -----
Total revenues.......................................... 100.0 100.0
Costs of revenues:
Cost of licenses.......................................... 1.8 0.6
Cost of maintenance and services.......................... 15.1 14.0
----- -----
Total cost of revenues.................................. 16.9 14.6
----- -----
Gross profit................................................ 83.1 85.4
Operating expenses:
Sales and marketing....................................... 47.6 45.8
Research and development.................................. 35.0 17.8
General and administrative................................ 16.8 10.7
----- -----
Total operating expenses................................ 99.4 74.3
----- -----
Operating income (loss)..................................... (16.3) 11.1
Interest expense............................................ (1.6) (1.4)
Other income (expense)...................................... 0.6 (0.1)
----- -----
Income (loss) from continuing operations before income
taxes..................................................... (17.3) 9.6
Provision for income taxes.................................. 0.0 0.0
----- -----
Income (loss) from continuing operations.................... (17.3) 9.6
Loss from discontinued operations:
Loss from operations...................................... (3.9) 0.0
Loss on disposal.......................................... 0.0 0.0
----- -----
Loss from discontinued operations....................... (3.9) 0.0
----- -----
Net income (loss)........................................... (21.2)% 9.6%
----- -----
----- -----
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1995
REVENUES
The Company's revenues are derived primarily from the licensing and
maintenance of its software products and to a lesser extent the providing of
services to customers. The Company's revenues increased 39% from $17.6 million
for the nine months ended December 31, 1995 to $24.5 million for the nine months
ended December 31, 1996.
LICENSES. Software license revenues increased 58% from $8.8 million for the
nine months ended December 31, 1995 to $13.9 million for the nine months ended
December 31, 1996, representing 50% and 57% of total revenues in the respective
periods. International license revenues increased 43% from $3.1 million for the
nine months ended December 31, 1995 to $4.5 million for the nine months ended
December 31,
18
<PAGE>
1996, representing 36% and 32% of total license revenues in the respective
periods. The increases in license revenues are attributable to increased demand
for new licenses of SERVICECENTER, additional seats purchased by existing
SERVICECENTER customers, higher average transaction sizes, more effective
corporate marketing programs, a substantial increase in sales force productivity
and expansion of the Company's international sales force.
MAINTENANCE. Maintenance revenues consist of charges for both renewed
annual agreements and unbundled amounts included as part of initial license
agreements. Maintenance revenues increased 13% from $6.8 million for the nine
months ended December 31, 1995 to $7.7 million for the nine months ended
December 31, 1996, representing 38% and 31% of total revenues in the respective
periods. The dollar increase is attributable to renewal of ongoing maintenance
agreements by a high percentage of the Company's installed customer base and to
an increase in revenues from new license agreements.
SERVICES. Service revenues consist of fees for consulting services and
customer training. Consulting services typically arise from facilitating
customer implementation of purchased products under a separate consulting
agreement. Service revenues increased 38% from $2.1 million for the nine months
ended December 31, 1995 to $2.9 million for the nine months ended December 31,
1996, representing 12% of total revenues in both periods. The dollar increase is
attributable to consulting work associated with the increase in new license
revenues.
COST OF REVENUES
COST OF LICENSES. Cost of license revenues consists of amounts paid to
third party software providers, product media, and manuals, packaging and
related distribution costs. Cost of license revenues were $320,000 and $155,000
for the nine months ended December 31, 1995 and 1996, respectively, representing
4% and 1% of total license revenues in the respective periods.
COST OF MAINTENANCE AND SERVICES. Cost of maintenance and service revenues
consists primarily of salaries, benefits, and other costs incurred in providing
customer support, consulting and training. Cost of maintenance and services
revenues was $2.7 million and $3.4 million for the nine months ended December
31, 1995 and 1996, respectively, representing 30% and 32% of total maintenance
and services revenues. The increases were due primarily to personnel additions
required to perform the increased number of consulting engagements.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses include salaries,
commissions and other related sales and marketing expenses. Sales and marketing
expenses were $8.4 million and $11.2 million for the nine months ended December
31, 1995 and 1996, respectively, representing 47% and 46% of total revenues in
the respective periods. The dollar increase is attributable primarily to the
expansion of the Company's direct sales force, increased commission expenses
resulting from increased license revenues and the implementation of enhanced
corporate marketing programs. The Company believes that substantial sales and
marketing expenditures are essential to revenue growth and expects to continue
to invest in and expand its sales and marketing organization.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of compensation and related costs of product development personnel and
also include commissions paid to product authors employed by the Company. Upon
completion of a new product, a commission rate is established and used to
calculate product author commissions based on license revenues attributable to
such author's products. The Company views its product author commissions as an
important incentive to its product development personnel and intends to continue
these commissions for the foreseeable future. Research and development expenses
were $6.2 million and $4.4 million for the nine months ended December 31, 1995
and 1996, respectively, representing 35% and 18% of total revenues in the
respective periods. The decreases are
19
<PAGE>
attributable primarily to the October 1995 divestiture of a mainframe software
development business. See "Certain Transactions" and Note 8 of Notes to
Consolidated Financial Statements.
GENERAL AND ADMINISTRATIVE. General and administrative expenses are
comprised primarily of personnel costs and professional fees associated with the
Company's executive, financial, legal and administrative functions and other
related costs. General and administrative costs were $3.0 million and $2.6
million for the nine months ended December 31, 1995 and 1996, respectively,
representing 17% and 11% of total revenues in the respective periods. General
and administrative costs were higher for the nine months ended December 31, 1995
primarily due to costs associated with a management restructuring.
INTEREST EXPENSE AND OTHER INCOME
Interest expense consists of interest paid on the Company's bank debt.
Interest expense totaled $275,000 and $337,000 for the nine months ended
December 31, 1995 and 1996, respectively.
PROVISION FOR INCOME TAXES
The Company experienced an operating loss for the nine months ended December
31, 1995 and, accordingly, recorded no income taxes. The Company did not record
any provision for income taxes for the nine months ended December 31, 1996 due
to the utilization of the Company's available net operating loss carry-forwards
as an offset against net income. As of December 31, 1996, the Company had net
operating loss carry forwards of approximately $1,100,000 for federal tax
reporting purposes which expire beginning in 2004. Utilization of the net
operating losses may be subject to annual limitations resulting from certain
changes in ownership of the Company. The Company has recorded a valuation
allowance to completely offset the carrying value of its net deferred tax assets
due to uncertainty surrounding its realization. Management evaluates on a
quarterly basis the recoverability of the deferred tax assets and the amount of
the valuation allowance. At such time as it is determined that it is more likely
than not that the deferred tax assets are realizable, the valuation allowance
will be reduced.
DISCONTINUED OPERATIONS
During fiscal 1996, the Company acquired XVT Software, Inc. ("XVT"),
substantially all of the outstanding equity of which was owned by the majority
stockholder of the Company. In January 1996, the Company determined that
maintaining an interest in XVT was not consistent with the Company's business
strategy and adopted a plan to discontinue the operations of XVT. The loss from
the discontinued operation of XVT for the nine months ended December 31, 1995
was $683,000.
FISCAL YEARS ENDED MARCH 31, 1994, 1995 AND 1996
REVENUES
Total revenues were $15.8 million, $19.6 million and $23.8 million in fiscal
1994, 1995 and 1996, respectively, representing year-to-year increases of 24%
between 1994 and 1995 and 21% between 1995 and 1996.
LICENSES. License revenues were $6.7 million, $9.1 million and $11.6
million in fiscal 1994, 1995 and 1996, respectively, representing 43%, 47% and
49% of total revenues in the respective periods. The increases resulted
primarily from licenses to new customers, purchases of product upgrades by
existing customers and sales of SERVICECENTER following its commercial
introduction in July 1995.
MAINTENANCE. Maintenance revenues were $6.9 million, $7.9 million and $9.0
million in fiscal 1994, 1995 and 1996, respectively, representing 44%, 40% and
38% of total revenues in the respective periods. The dollar increases are
attributable to renewals of maintenance agreements from the Company's expanded
installed base of customers and maintenance revenues included as part of new
licenses.
20
<PAGE>
SERVICES. Services revenues were $2.2 million, $2.6 million and $3.2
million in fiscal 1994, 1995 and 1996, respectively, representing 13% of total
revenues in all fiscal years. The dollar increases are attributable to an
increased number of consulting engagements related to implementation of software
from initial license agreements.
COST OF REVENUES
COST OF LICENSES. Cost of license revenues were $322,000, $393,000 and
$415,000 for fiscal 1994, 1995 and 1996, respectively, representing 2.0% of
total revenues in all fiscal years.
COST OF MAINTENANCE AND SERVICES. Cost of maintenance and services were
$3.5 million, $3.6 million and $3.5 million in fiscal 1994, 1995 and 1996,
respectively, representing 38%, 34% and 29% of related maintenance and services
revenues for each fiscal year. Cost of maintenance and services remained
relatively constant in dollar amounts throughout the periods but decreased as a
percentage of related revenues because of improved operating efficiencies.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses were $6.1 million, $9.5
million and $11.8 million in fiscal 1994, 1995 and 1996, respectively,
representing 39%, 49% and 50% of total revenues in the respective periods. The
increase in sales and marketing expenses as a percentage of total revenue from
fiscal 1994 to fiscal 1995 is attributable to the significant expansion of both
the North American and international sales forces with moderate operating
expense increases. If the Company experiences a decrease in sales force
productivity or for any other reason a decline in revenues, it is likely that
operating margins will decline as well.
RESEARCH AND DEVELOPMENT. Research and development expenses were $4.7
million, $7.1 million and $7.7 million in fiscal 1994, 1995 and 1996,
respectively, representing 30%, 36% and 33% of total revenues in the respective
periods. The increase from fiscal 1994 to fiscal 1995 is attributable primarily
to an acquisition in fiscal 1995 which resulted in a one-time charge of $606,000
for purchased research and development, increased expenses including the hiring
of additional personnel incurred in conjunction with the development of
SERVICECENTER and the hiring of a significant number of mainframe software
developers. The increase from fiscal 1995 to fiscal 1996 is due primarily to the
hiring of additional mainframe software developers, which was offset, in part,
by the Company's divestiture of the entire mainframe software development
portion of its business in October 1995.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $1.9
million, $2.9 million and $4.5 million in fiscal 1994, 1995 and 1996,
respectively, representing 12%, 15% and 19% of total revenues in the respective
periods. The increases are attributable primarily to administrative personnel
additions to support growth and costs associated with a management
restructuring.
INTEREST EXPENSE AND OTHER INCOME
In fiscal 1995, the Company sold the rights to one of its software products,
resulting in other income of $4.0 million. The purchase price from the product
sale is payable to the Company in annual installments ending in fiscal 1998. See
Note 4 of Notes to Consolidated Financial Statements.
PROVISION FOR INCOME TAXES
The Company has not incurred any significant income taxes during fiscal
1994, 1995 and 1996 due to operating losses or the existence of net operating
losses available to offset taxes payable.
21
<PAGE>
DISCONTINUED OPERATIONS
As a result of the Company's discontinuation of the operations of XVT in
January 1996, the Company incurred a loss from discontinued operations of $1.9
million.
QUARTERLY RESULTS
In each of the first three quarters of fiscal 1997, the Company reported
both operating income and margin improvement. The enhanced operating performance
for the first three quarters of fiscal 1997 is attributable primarily to
significant license revenue growth resulting from improved sales force
productivity combined with a slower growth rate in fixed operating expenses,
resulting in an improvement in operating margins. Total revenues increased from
$7.5 million for the quarter ended June 30, 1996 to $9.5 million for the quarter
ended December 31, 1996. License revenues also increased 56% from $3.9 million
to $6.1 million in the quarter ended December 31, 1996 from the prior year. In
addition, operating expenses have been reduced as a percentage of total revenues
from 79% in the first fiscal quarter to 69% in the third fiscal quarter.
The Company has reported substantial year-to-year revenue increases in
recent quarters but does not believe this rate of growth will be indicative of
future growth rates. The Company's revenues and operating results in its
December quarter typically benefit from purchase decisions made by the large
concentration of customers with calendar year-end budgeting requirements, while
revenues and operating results in the March quarter typically benefit from the
efforts of the Company's sales force to meet fiscal year-end sales quotas. The
Company believes that sales during the June quarter may be negatively affected
by adjustments and reassignments of sales territories implemented at the
beginning of each fiscal year. The Company also believes that because of summer
vacations taken by both sales personnel and customers, the typical sales cycle
is lengthened within the September quarter, especially in Europe. The Company
has no material backlog of unfilled orders since substantially all revenues
reported in any given quarter are generally the result of sales made within that
quarter.
The Company's quarterly operating results have varied significantly in the
past and may vary significantly in the future depending upon a number of
factors, many of which are beyond the Company's control. These factors include,
among others, the ability of the Company to develop, introduce and market new
and enhanced versions of its software on a timely basis; market demand for the
Company's software; the size, timing and contractual terms of significant
orders; the timing and significance of new software product announcements or
releases by the Company or its competitors; and changes in pricing policies by
the Company or its competitors. In addition, license revenues in any quarter are
substantially dependent on orders booked and shipped in the last month or weeks
of that quarter. Due to these and other factors, quarterly revenue and operating
results are not predictable with any significant degree of accuracy.
22
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth selected consolidated statement of operations
data for the seven quarters ended December 31, 1996, both in dollar amounts and
as a percentage of revenues. This information has been derived from the
Company's unaudited consolidated financial statements. The unaudited
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements contained herein and, in the opinion
of management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such information when read in
conjunction with the Company's annual audited consolidated financial statements
and notes thereto appearing elsewhere in this Prospectus. The Company's
quarterly results are subject to fluctuations. The operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1995 1995 1995 1996 1996 1996
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses.............................. $ 2,910 $ 2,020 $ 3,861 $ 2,851 $ 3,760 $ 4,096
Maintenance........................... 2,142 2,320 2,303 2,202 2,468 2,590
Services.............................. 835 537 710 1,075 1,272 814
----------- ----------- ----------- ----------- ----------- -----------
Total revenues...................... 5,887 4,877 6,874 6,128 7,500 7,500
Cost of revenues:
Cost of licenses...................... 110 69 141 95 61 44
Cost of maintenance and services...... 828 827 1,013 858 1,149 1,130
----------- ----------- ----------- ----------- ----------- -----------
Total cost of revenues.............. 938 896 1,154 953 1,210 1,174
----------- ----------- ----------- ----------- ----------- -----------
Gross profit............................ 4,949 3,981 5,720 5,175 6,290 6,326
Operating expenses:
Sales and marketing................... 2,687 2,442 3,263 3,428 3,725 3,597
Research and development.............. 2,007 1,944 2,215 1,576 1,415 1,385
General and administrative............ 619 742 1,610 1,558 749 819
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses............ 5,313 5,128 7,088 6,562 5,889 5,801
----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss)................. (364) (1,147) (1,368) (1,387) 401 525
Interest expense........................ (64) (80) (131) (114) (113) (108)
Other income (expense).................. 9 4 88 2 1 (9)
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes................... (419) (1,223) (1,411) (1,499) 289 408
Provision for income taxes.............. -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations............................ $ (419) $ (1,223) $ (1,411) $ (1,499) $ 289 $ 408
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
DEC. 31,
1996
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses.............................. $ 6,076
Maintenance........................... 2,601
Services.............................. 850
-----------
Total revenues...................... 9,527
Cost of revenues:
Cost of licenses...................... 50
Cost of maintenance and services...... 1,144
-----------
Total cost of revenues.............. 1,194
-----------
Gross profit............................ 8,333
Operating expenses:
Sales and marketing................... 3,895
Research and development.............. 1,568
General and administrative............ 1,066
-----------
Total operating expenses............ 6,529
-----------
Operating income (loss)................. 1,804
Interest expense........................ (116)
Other income (expense).................. (21)
-----------
Income (loss) from continuing operations
before income taxes................... 1,667
Provision for income taxes.............. --
-----------
Income (loss) from continuing
operations............................ $ 1,667
-----------
-----------
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1995 1996 1996
------------ ------------ ------------ ------------- ------------
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses............................................ 49.4 % 41.4 % 56.2 % 46.5 % 50.1%
Maintenance......................................... 36.4 47.6 33.5 35.9 32.9
Services............................................ 14.2 11.0 10.3 17.6 17.0
----- ----- ----- ----- -----
Total revenues.................................... 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Cost of licenses.................................... 1.9 1.4 2.1 1.5 0.8
Cost of maintenance and services.................... 14.0 17.0 14.7 14.0 15.3
----- ----- ----- ----- -----
Total cost of revenues............................ 15.9 18.4 16.8 15.5 16.1
----- ----- ----- ----- -----
Gross profit.......................................... 84.1 81.6 83.2 84.5 83.9
Operating expenses:
Sales and marketing................................. 45.7 50.0 47.5 56.0 49.7
Research and development............................ 34.1 39.9 32.2 25.7 18.9
General and administrative.......................... 10.5 15.2 23.4 25.4 10.0
----- ----- ----- ----- -----
Total operating expenses.......................... 90.3 105.1 103.1 107.1 78.6
----- ----- ----- ----- -----
Operating income (loss)............................... (6.2) (23.5) (19.9) (22.6) 5.3
----- ----- ----- ----- -----
Interest expense...................................... (1.1) (1.7) (1.9) (1.8) (1.5)
Other income (expense)................................ 0.2 0.1 1.3 0.0 0.0
----- ----- ----- ----- -----
Income (loss) from continuing operations before income
taxes............................................... (7.1) (25.1) (20.5) (24.4) 3.8
----- ----- ----- ----- -----
Provision for income taxes............................ 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- -----
Income (loss) from continuing operations.............. (7.1)% (25.1)% (20.5)% (24.4)% 3.8%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
<CAPTION>
SEPT. 30, DEC. 31,
1996 1996
------------ ------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses............................................ 54.6% 63.8%
Maintenance......................................... 34.5 27.3
Services............................................ 10.9 8.9
----- -----
Total revenues.................................... 100.0 100.0
Cost of revenues:
Cost of licenses.................................... 0.6 0.5
Cost of maintenance and services.................... 15.1 12.0
----- -----
Total cost of revenues............................ 15.7 12.5
----- -----
Gross profit.......................................... 84.3 87.5
Operating expenses:
Sales and marketing................................. 48.0 40.9
Research and development............................ 18.5 16.5
General and administrative.......................... 10.9 11.2
----- -----
Total operating expenses.......................... 77.4 68.5
----- -----
Operating income (loss)............................... 6.9 18.9
----- -----
Interest expense...................................... (1.4) (1.2)
Other income (expense)................................ (0.1) (0.2)
----- -----
Income (loss) from continuing operations before income
taxes............................................... 5.4 17.5
----- -----
Provision for income taxes............................ 0.0 0.0
----- -----
Income (loss) from continuing operations.............. 5.4% 17.5%
----- -----
----- -----
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations through bank
borrowings, cash generated from operations and private sales of Common Stock. In
fiscal 1994, 1995 and 1996 and for the nine months ended December 31, 1996, the
Company received net proceeds from bank borrowings of $73,000, $194,000, $3.7
million and $1.4 million, respectively. In fiscal 1995 and for the nine months
ended December 31, 1996, the Company received proceeds of $2.9 million and
$700,000, respectively, from the sale of a product line. In fiscal 1994, 1995
and 1996 and the nine months ended December 31, 1996, the Company invested cash
in the amounts of $905,000, $1.8 million, $3.5 million, and $382,000,
respectively, for purchases of property and equipment including computer
hardware and software to support the Company's growing employee base and to
relocate to its new San Diego headquarters and training facility.
The Company has a $4.5 million revolving credit line which expires November
15, 1997, and a term loan from the same bank with an unpaid principal balance of
$1.7 million at December 31, 1996 payable in equal monthly installments of
$37,000 plus interest at the bank's prime rate with the final payment due
November 2000. The Company's revolving credit line had an outstanding balance at
December 31, 1996 of $4.3 million with a variable annual interest rate equal to
the prime rate announced by NationsBank of Texas, N.A. The term loan is secured
by trade receivables and fixed assets of the Company and the revolving credit
line is secured by accounts receivable, equipment and certain other assets of
the Company. Both facilities are personally guaranteed by the Company's majority
stockholder. The Company intends to repay the outstanding balance of the
revolving line of credit with a portion of the proceeds from this offering. See
"Use of Proceeds," "Certain Transactions" and Note 6 of Notes to Consolidated
Financial Statements.
The Company believes that the net proceeds from the sale of the Common Stock
offered by the Company hereby, together with its current cash balances, cash
available under its bank facilities and cash flow from operations will be
sufficient to meet its working capital requirements for at least the next 12
months. Although operating activities may provide cash in certain periods, to
the extent the Company experiences growth in the future, the Company anticipates
that its operating and investing activities may use cash. Consequently, any such
future growth may require the Company to obtain additional equity or debt
financing, which may not be available on commercially reasonable terms or which
may be dilutive.
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BUSINESS
THE FOLLOWING BUSINESS SECTION CONTAINS FORWARD-LOOKING STATEMENTS RELATING
TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY, WHICH
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
Peregrine Systems, Inc. ("Peregrine" or the "Company") is a leading provider
of Enterprise Service Desk software. The Company develops, markets and supports
SERVICECENTER, an integrated suite of applications that automates the management
of complex, enterprise-wide information technology ("IT") infrastructures.
SERVICECENTER is specifically designed to address the IT management requirements
of large organizations and is distinguished by its breadth of functionality and
its ability to be deployed across all major hardware platforms and network
operating systems and protocols. SERVICECENTER utilizes advanced client/server
and sophisticated intelligent agent technologies as well as a unique modular
architecture to enable customers to meet their strategic objectives, effectively
leverage existing IT investments and reduce the cost of IT management.
The Company's SERVICECENTER software offers capabilities that extend beyond
those of traditional internal help desk solutions to create an Enterprise
Service Desk, meeting the operational and strategic needs of today's enterprise.
SERVICECENTER'S fully integrated suite of six critical IT management
applications works across all major hardware platforms and network operating
systems and protocols, allowing it to effectively manage the complexity of
today's enterprise IT infrastructure. An important feature of SERVICECENTER is
its utilization of sophisticated agent technology to anticipate and prevent
problems before they occur, thereby keeping IT systems functioning efficiently
and with minimal downtime.
The Company's objective is to be the leading provider of Enterprise Service
Desk solutions worldwide. The Company's strategy is to maintain its functional
and technical leadership, expand its target market to the Global 2000, expand
its international sales efforts, continue to build customer partnerships and
expand its channels and third party relationships. In addition, the Company
believes it can continue to successfully leverage its unique product authorship
compensation model, a compensation system that rewards the Company's software
developers based on a percentage of license revenues of products they design and
develop.
INDUSTRY BACKGROUND
Today's increasingly competitive business environment has forced many
organizations to improve their operational efficiency, react more quickly to
changes in the marketplace, and better understand and respond to customer needs.
Information technology has played a key role in these efforts and, when
implemented effectively, becomes an important source of competitive advantage.
Today, IT is an integral part of many core business functions, such as plant
management, inventory management and customer billing, and is critical to many
new tactical and strategic initiatives, such as business process reengineering,
supply chain management and enhanced customer care.
The changing role of IT, combined with advances in enabling technology, has
led to a proliferation of diverse systems and applications within large
organizations. For example, a typical enterprise maintains mission-critical
applications such as customer billing on a mainframe system, utilizes
client/server applications to manage human resource and finance functions, and
employs both wide-area networks ("WANs") and local-area networks ("LANs") to
manage internal corporate documents and communications. The components of these
systems may include Microsoft Windows or Windows NT, different versions of UNIX,
multiple relational database management systems and several networking
standards, all of which may vary widely across distinct operational areas and
geographies. In addition, the increasing use of open computing environments,
internets/intranets, mobile computing and workgroup computing has further
contributed to the complexity of an organization's IT system.
The result is that while IT is becoming more integral and strategic to an
organization's operations, management of the IT infrastructure is becoming
increasingly difficult. Organizations must grapple with a
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greater volume of support activity while mastering a broader base of IT
products, systems, architectures and network environments.
At the same time that the role of IT is becoming increasingly important to
an organization's operations and strategy, the cost of maintaining the IT
infrastructure is also rising. These costs may be direct, measured by the lost
productivity of individuals, departments or operations, or indirect, measured by
lower quality products and service or delays in receiving key market or customer
data. In a 1996 report, The Gartner Group estimated that corporations spend on
average $10,400 annually to service and support every networked PC, representing
a significant multiple of the initial capital outlay for hardware and software.
In addition, failure to effectively implement and deploy IT within the
enterprise may compromise an organization's competitive position.
To avoid the heavy financial and strategic costs associated with maintaining
the IT infrastructure, many organizations have expanded the size of their IT
support structure. However, these support structures have had difficulty keeping
pace with the rapid advances in technology and the diversity of systems and
applications within the IT system. The technical challenges confronting
organizations with IT infrastructures have been compounded by reduced cost
efficiencies of the IT infrastructure as support costs have increased, and by
the shortage of available qualified IT professionals. To control escalating IT
management costs, relieve the technical staffing difficulties and address the
complexities of growing IT infrastructures, many companies have turned to
internal help desk software applications to enable their support professionals
to better manage the IT infrastructure.
LIMITATIONS OF EXISTING SOFTWARE SOLUTIONS
Internal help desk applications provide IT professionals with access to a
database of system or product information which supplements their own individual
experience and also provide automated procedures to organize, track and resolve
end-user problems. These applications are usually deployed on a departmental or
divisional level or otherwise take a segmented approach to IT management that
requires a specific and separate application to manage each component or system
within the IT infrastructure. Although these internal help desk applications may
improve the operation of the IT infrastructure, these improvements generally
fail to address the IT requirements of the organization as an integrated
enterprise.
Some of the significant limitations of existing internal help desk
applications include:
DEPARTMENTAL/SEGMENTED APPROACH. The IT infrastructure of large enterprises
typically encompasses a number of different servers, network links and
protocols, operating systems and applications and spans multiple departments and
locations. Effective problem diagnosis and resolution require the ability to
monitor and analyze all elements of an enterprise's IT infrastructure across
departments and technologies. Traditional help desk applications segment problem
management primarily on a departmental or platform basis, and lack the ability
to monitor, identify and resolve problems across the many departments and
networks that comprise a large enterprise.
LACK OF INTEGRATION. Most traditional help desk solutions have been
designed to address a limited set of problems associated with IT management,
principally problem tracking and problem resolution. Effective IT management,
however, requires a broader base of functions that can be integrated with each
other. These functions include managing changes to the computing environment
(change management), tracking the individual components of the infrastructure
(inventory management), ordering company-approved hardware and software (order
control), and tracking the infrastructure's financial and accounting information
(financial management). Organizations have found that existing internal help
desk applications cannot easily be expanded with additional applications that
integrate with each other and are scalable to accommodate growth in the
enterprise. Moreover, these systems cannot be easily integrated and made
scalable with other essential third party IT applications.
REACTIVE ORIENTATION. Most internal help desk solutions are reactive in
orientation and respond to problems only as they occur. Because these solutions
are designed to "manage by exception," they fail to
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provide the proactive benefits that would be achieved if the technology
supporting the solutions were able to anticipate and resolve network problems
before they occur.
LACK OF IT ASSET KNOWLEDGE. The proliferation of diverse products,
platforms and technologies within the typical enterprise IT infrastructure has
outpaced the ability of many companies to track their IT assets and monitor the
costs involved in supporting these complex systems. The failure to maintain an
accurate inventory of IT assets hinders the ability of the IT manager to respond
expeditiously to problems.
THE PEREGRINE SOLUTION
The Company's SERVICECENTER software offers capabilities that extend beyond
those of traditional help desk solutions to meet the operational and strategic
needs of today's enterprise. SERVICECENTER provides a fully integrated and
automated suite of six applications, consisting of problem management,
knowledge-based resolution, change management, order and catalog management,
inventory/configuration management and financial management. In addition,
SERVICECENTER works across all major hardware platforms, network operating
systems and network protocols. SERVICECENTER extends traditional help desk
applications and integrates a broad base of applications and platforms to
support the Enterprise Service Desk.
The Company believes that SERVICECENTER is the only software solution that
effectively meets all of the IT management requirements of large enterprises
based on the following factors:
WIDE RANGE OF FUNCTIONALITY. The wide range of applications offered by
SERVICECENTER provides customers with the centralized service and asset
information required to optimize management of IT resources and achieve their
business objectives. The Gartner Group, a reputed industry information source,
has recently evaluated the Company's SERVICECENTER as having more functionality
than competitive products, based on a weighted ranking of application
functionality criteria provided in a survey of IT professionals.
HIGH LEVEL OF INTEGRATION. SERVICECENTER's six applications tightly
integrate with one another to enable comprehensive systems and network
management and support from a single console. In addition, SERVICECENTER can be
easily integrated with third party applications. SERVICECENTER's integration
features allow the IT manager to monitor events on assets ranging from servers
and PCs to bank ATMs and cash registers. These integration features also provide
the manager with greater access to information and data across the enterprise,
thus facilitating expedited problem identification and resolution.
BROAD PLATFORM SUPPORT. The Company believes that SERVICECENTER is unique
in its breadth of platform support. In addition to managing Windows NT and UNIX
environments, the Company's SERVICECENTER supports management of the MVS host
environment, preserving an organization's investment in its IT infrastructure.
SERVICECENTER also supports management of multiple PC LAN/WAN environments,
databases and network protocols and interfaces. These extensive support levels
significantly enhance the integration and functionality of the IT system and
enhance the productivity of the network user who has access to the Enterprise
Service Desk.
PROACTIVE SUPPORT. SERVICECENTER monitors and controls IT operations to
anticipate problems before they occur. The proactive orientation of
SERVICECENTER is enhanced by the Company's sophisticated intelligent agent
technology that automatically collects information from across the system. This
information is made available to the IT manager on a continuous basis to
identify and anticipate system trends and potential problems. With the Company's
SERVICECENTER, the manager is able to resolve problems before they occur, thus
keeping the system functioning efficiently and without interruption.
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STRATEGY
The Company's objective is to be the leading supplier of Enterprise Service
Desk solutions worldwide. To achieve this objective, the Company is pursuing the
following strategies:
MAINTAIN FUNCTIONAL AND TECHNICAL LEADERSHIP POSITION. The Company believes
that SERVICECENTER is the first software solution that meets the extensive
integration and functionality requirements of today's enterprise. The Company
believes that the performance features of SERVICECENTER are superior to those of
traditional help desk solutions, both in terms of product breadth and
functionality as well as integration across applications and network platforms.
The Company intends to maintain a leadership position by continuing to develop
applications that integrate with the core suite of applications comprising
SERVICECENTER and by increasing the use of intelligent agent technology to
enhance the proactive benefits of the Company's products.
BROADEN TARGET MARKET TO GLOBAL 2000. Historically, the Company has
targeted the Fortune 500. As more complex IT systems have proliferated both in
the United States and internationally, the Company has expanded its sales and
marketing focus to include smaller organizations worldwide. The Company believes
that the companies within the Global 2000 represent a significant market
opportunity as the continuing evolution and complexity of open systems drive the
need for Enterprise Service Desk solutions.
EXPAND INTERNATIONAL SALES. The Company believes that international markets
present a substantial growth opportunity. The Company believes it is well
positioned to exploit this opportunity due to its already established market
presence outside of the United States, its commitment to multiple computing
platforms, including MVS, which is still growing in Europe, and its double-byte
character support, an early product differentiation for the Company in the
Pacific Rim. The Company has assembled an experienced senior management team to
lead its international expansion efforts. The Company has international sales
and support offices in London, Paris, Frankfurt and Amsterdam and an extensive
network of channel and distribution partners in Europe, Latin America and the
Pacific Rim.
LEVERAGE PRODUCT AUTHORSHIP MODEL. A key factor in the Company's product
development activities is its product authorship incentive program. This program
rewards the Company's developers individually with commissions based on the
market success of the software applications designed, written, marketed and
supported by them. As a result of this program, the Company is able to hire and
retain highly skilled developers who assume personal responsibility for the
design and delivery of their products. The Company believes that the proximity
of its product authors to the customer is critical, and its product authorship
program is designed to encourage developers to evaluate the effectiveness of a
product in the actual user environment.
LEVERAGE SALES MODEL. The Company will continue to employ a direct sales
model which minimizes the number of remote sales offices and focuses on
effective use of the telephone and network communications for product
demonstrations and product sales. The Company's experience in the use of this
model has enabled it to improve margins through reduced selling costs and
greater market coverage.
BUILD CUSTOMER PARTNERSHIPS. The Company has established several programs
which promote an active exchange of information between the Company and its
customers. These programs include monthly executive briefings in which customers
and prospects are invited to meet with the senior management of the Company,
frequent focus group meetings with customers to evaluate product positioning,
and regional user group meetings to provide a forum for the exchange of market
and product information. The Company believes that these programs are critical
to the continued success of the Company's products.
EXPAND CHANNELS AND THIRD PARTY RELATIONSHIPS. The Company believes it can
significantly leverage its sales and marketing resources in the Enterprise
Service Desk market by pursuing channel relationships with major distributors,
systems integrators and OEMs. The Company has already established a number of
channel relationships, both domestically and internationally, and will continue
to concentrate on the expansion of its indirect channels. In addition, the
Company continually evaluates complementary products of other vendors and will
seek to license or acquire products that enhance the Company's Enterprise
Service Desk software.
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CUSTOMERS
The following is a representative list of the Company's customers that have
purchased at least $100,000 in licensed software and first year maintenance over
the period from April 1, 1995 to the present. No customer accounted for more
than 10% of the Company's total revenues in fiscal 1996 or for the nine months
ended December 31, 1996.
<TABLE>
<S> <C>
Alamo Rent-A-Car Fidelity Investments
Allstate Insurance Company General Electric Corporation
Ameritech J Sainsbury
Bankers Trust New York Mellon Bank Electronic
Corporation Merisel
Bell Atlantic Mitsubishi Electronic
Canadian Pacific Rail Northrop Grumman
Crestar Bank Packard Bell NEC
debis Systemhaus Philip Morris International
Deere and Company Procter & Gamble
Deutsche Lufthansa Safeway Stores Inc.
Dow Corning Corporation Shell Oil Company
Dresdner Bank Texas Instruments
EDS International The Depository Trust Company
Edward Jones and Company
</TABLE>
PRODUCTS
Peregrine's principal product is SERVICECENTER, an Enterprise Service Desk
software solution that integrates six critical management applications, or
modules, on a common platform. SERVICECENTER's multi-tier client/server
architecture provides a scalable solution for diverse support environments.
SERVICECENTER supports most major computing platforms, including UNIX, Microsoft
Windows 3.1, Windows 95, Windows NT, MVS and Apple Macintosh. While
SERVICECENTER can be implemented readily without modification, SERVICECENTER
users can customize the applications, screen formats, databases or reports using
the Company's Rapid Application Development ("RAD") environment, a full-featured
fourth generation application language. List prices for SERVICECENTER range from
$25,000 to $220,000 per server and from $3,550 to $7,100 per end-user.
SERVICECENTER APPLICATIONS
PROBLEM MANAGEMENT. The problem management application automates the
process of reporting and tracking specific problems or classes of problems
associated with an enterprise network computing environment. Help desk personnel
open problem tickets using templates specific to the class of problem reported.
KNOWLEDGE-BASED RESOLUTION. The problem management application works
together with the Company's IR EXPERT, a text search expert system that employs
neural network technology to allow network operators to retrieve relevant
information quickly and accurately. This application assists in problem solving,
based on prior solutions. The IR EXPERT reduces a user's question, or query, to
a number of "terms," effectively refining the query to fit knowledge in the
database and can then search resolution databases using related terms. This
application is self-learning, so the customer does not have to perform any work
to keep the knowledge base up to date.
CHANGE MANAGEMENT. The change management application provides a functional
framework for proposing, accepting, scheduling, approving, reviewing and
coordinating network changes. Change management permits end users to enter
proposed changes to the production environment and then circulate those changes
electronically for review and action. Change requests can be tracked and details
can be added at any time to the initial specifications.
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INVENTORY/CONFIGURATION MANAGEMENT. The inventory/configuration management
application provides the service desk with a central repository of information
about an organization's network environment, including inventories of networked
devices, applications and personnel. Easy access to inventory information
permits the service desk to respond to end-user problems more effectively, to
plan changes and services, and to create accurate reports about the network's
status and environmental trends.
ORDER AND CATALOG MANAGEMENT. The order and catalog management application
automates and tracks an organization's equipment and services ordering process
from initial request through installation and follow-up. Using SERVICECENTER, an
end-user identifies and orders products or services from a catalog of items.
SERVICECENTER then consolidates requests, forwards orders through an
organization's standard approval and order processing procedures, and
consolidates orders by vendor. End-users can track the status of requests
through SERVICECENTER at all times.
FINANCIAL MANAGEMENT. The financial management application monitors all
financial and cost information relating to hardware and software in the network
inventory, including component status (e.g., installed, disconnected, on order,
in repair), purchase order/lease numbers, physical location, device type, fixed
asset number and purchase accrual data.
OTHER NETWORK MANAGEMENT PRODUCTS
The Company's network management solutions provide critical network
information on a real-time basis, enabling organizations to evaluate the status
of their network computing environment and to respond proactively. OPENSNA
permits users to manage IBM SNA networks graphically from a SNMP-based
management console, to determine network status, and to issue commands
instantly. STATIONVIEW and SERVERVIEW manage Novell NetWare, Microsoft Windows
NT, and Compaq Insight Manager-based servers and workstations from SNMP-based
management platforms. STATIONVIEW and SERVERVIEW provide network administrators
with a centralized solution for server and PC management.
PRODUCT DEVELOPMENT; PRODUCT AUTHORSHIP MODEL
The Company believes that attracting and retaining talented software
developers is an important component of the Company's product development
activities. To this end, the Company has instituted a product authorship
incentive program that rewards the Company's developers individually with
commissions based on the market success of the applications designed, written,
marketed and supported by them. The Company believes that the proximity of its
product authors to the customer is critical, and its product authorship program
is designed to encourage the Company's developers to evaluate the effectiveness
of a product in the actual user environment. As a result of this program, the
Company is able to hire and retain highly skilled developers who assume personal
responsibility for the design and delivery of their products.
The Company believes that the ability to deliver new and enhanced products
to customers is a key success factor. The Company has historically developed its
products through a consultative process with existing and potential customers.
The Company expects that continued dialogue with such existing and potential
customers may result in enhancements to existing products and the development of
new products, including product suites designed for a specific market segment.
The Company has in the past devoted and expects in the future to continue to
devote a significant amount of resources to developing new and enhanced
products. The Company currently has a number of product development initiatives
underway. There can be no assurance that any enhanced products, new products or
product suites will be embraced by existing or new customers. The failure of
these products to achieve market acceptance would have a material adverse effect
on the Company's business, operating results and financial condition.
The Company's research and development expenditures in fiscal 1996 and for
the nine months ended December 31, 1996 were $7.7 million and $4.4 million,
respectively, representing 33% and 18% of total
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revenues in the respective periods. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The market for the Company's products is subject to rapid technological
change, changing customer needs, frequent new product introductions and evolving
industry standards that may render existing products and services obsolete. As a
result, the Company's position in its existing markets or other markets that it
may enter could be eroded rapidly by product advances. The life cycles of the
Company's products are difficult to estimate. The Company's growth and future
financial performance will depend in part on its ability to enhance existing
applications, develop and introduce new applications that keep pace with
technological advances, meet changing customer requirements, respond to
competitive products and achieve market acceptance. The Company's product
development efforts are expected to continue to require substantial investments
by the Company. There can be no assurance that the Company will have sufficient
resources to make the necessary investments. The Company has in the past
experienced development delays, and there can be no assurance that the Company
will not experience such delays in the future. There can be no assurance that
the Company will not experience difficulties that could delay or prevent the
successful development, introduction, or marketing of new or enhanced products.
In addition, there can be no assurance that such products will meet the
requirements of the marketplace and achieve market acceptance, or that the
Company's current or future products will conform to industry requirements. The
inability of the Company, for technological or other reasons, to develop and
introduce new and enhanced products in a timely manner, could have a material
adverse effect on the Company's business, results of operations and financial
condition.
TECHNOLOGY
The Company's products take advantage of a number of standard, commercially
available technologies for relational database storage and retrieval and
client/server communications. The Company's products are designed to provide
comprehensive support for a wide range of implementations of the Enterprise
Service Desk within medium-sized organizations to very large enterprises. In
addition, the Company has created a number of technologies that provide a
comprehensive environment to build, deploy and customize a wide range of
applications.
THREE-TIERED ARCHITECTURE. The Company's database, business rules and
presentation technologies create a three-tiered client/server architecture for
maximum scalability and flexibility. The tiers are logically separated, allowing
changes to the database design or the graphical interface to be made without
requiring changes to the business rules or other related tiers. For example, the
same application may interact with a user over the World Wide Web, an IBM 3270
terminal, an ASCII terminal or a fat GUI client without change to the
application. Similarly, the customer may switch from one third party database to
another without making any changes to the applications.
EASY CUSTOMIZATION/EXTENSION. In order to make the software fit the
customers' needs, the product provides a number of easy-to-use tools that enable
customers to customize and extend SERVICECENTER. The design of the database, the
contents and appearance of the user interface, and the business rules can be
modified using the Company's standard tools provided with the system.
RAPID APPLICATION DEVELOPMENT ENVIRONMENT. The Company has created a
fill-in-the-blanks development environment that is easy to use for building and
deploying applications. All SERVICECENTER applications are implemented using the
Company's RAD environment. If a customer requires more extensive modification,
the system can be customized by changing the applications provided by the
Company or implementing completely new applications using the RAD environment.
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DISTRIBUTED SERVICES. The Company has announced for delivery in 1997 a
distributed technology that provides both replication services and the
capability to move work from one SERVICECENTER system to another. These services
are database vendor independent and contain knowledge of the application schema
ensuring that all relevant data are transmitted between servers. For example,
the transfer of a problem ticket from one server to another requires moving not
only the problem description, but also information about the person affected by
the problem and the inventory items, such as the type of software being used or
the name of the server to which the user is connected. Distributed services
ensure that all data are transmitted as a discrete unit.
ADAPTORS. The Company provides a large number of adaptors to industry
standard APIs, such as SMTP e-mail, and leading vendors products. These adaptors
expand the reach of the Company's products by allowing them to interact with
other products currently in the customer's environment. The Company has created
a number of adaptors that permit the system to communicate using e-mail, beeper,
fax and Lotus Notes. The adaptors also provide communication with third-party
network management tools such as Hewlett Packard's OpenView, Tivoli's TME,
Cabletron Spectrum, Sun's SunNet Manager and others. In addition, the Company
has created an open API permitting software developed by third parties,
end-users or the Company's Professional Services group to be easily integrated
into the system.
INTELLIGENT AGENTS. The Company provides a number of intelligent agents
that gather and feed information to SERVICECENTER. The agents provide effective
automated inventory gathering and problem determination data that are beneficial
in problem resolution and proactive management of an IT environment. The agents
have the capability to open, update and close trouble tickets based on criteria
provided by the customers.
SALES AND MARKETING
The Company sells its software and services in both North America and
internationally primarily through a direct sales force. The North American sales
force is located in San Diego and Houston. The international sales force is
located in London, Paris, Frankfurt and Amsterdam. The Company utilizes a sales
model which minimizes the number of remote sales offices and focuses on
effective use of the telephone and network communications for product
demonstrations and product sales. When necessary, however, the Company's sales
force will also travel to customer locations and pursue a consultative sales
process. In addition to its direct sales strategy, the Company is pursuing
indirect distribution channels. In the Pacific Rim and Latin America, the
Company has established a network of channel partners. In North America, the
Company has established a network of regional, national and strategic
integrators. When sold through direct channels, the sales cycle for the product
is typically six to nine months depending on a number of factors, including the
size of the transaction and the level of competition which the Company
encounters in its selling activities. This sales cycle is typically extended 90
days for product sales through indirect channels.
The Company has significantly increased the size of its sales force over the
last year and expects to continue hiring sales personnel, both domestically and
internationally, over the next twelve months. The Company also expects to
increase the number of its regional, national, and strategic integrators,
domestically and internationally. Any failure by the Company to expand its
direct sales force or other distribution channels could materially and adversely
affect the Company's business, operating results, and financial condition.
The Company believes there is a significant growth opportunity in the
international marketplace, due in part to the Company's already established
international presence, its commitment to multiple platforms including the MVS
platform, which is still growing in Europe, and double byte character support
that differentiates the Company's products in the Pacific Rim. In addition, the
international marketplace is still in the early stages of growth and Enterprise
Service Desk product offerings in this area are fragmented. To take advantage of
the international market opportunity, the Company has assembled an experienced
senior management team to manage the Company's expansion into Europe, the
Pacific Rim and Latin America. The Company intends to concentrate its
international expansion efforts on the rapid implementation of an extensive
network of distributors as well as growth of its direct sales force.
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To support its growing sales organization, the Company in the last year has
devoted significant resources in restructuring and building a highly qualified
marketing organization. In the course of this restructuring, the marketing
organization has launched a new corporate marketing strategy, helped redefine
the Company's position within the marketplace, and internally emphasized the
Company's objective to be the leading Enterprise Service Desk solution
worldwide. As part of its marketing strategy, the Company has implemented a
number of enhanced marketing programs such as seminars, monthly executive
briefings, industry trade shows, advertising and extensive public relations. The
Company recently completed a series of product seminars in 30 cities in the
United States and abroad, which generated a significant amount of sales leads.
The Company plans to continue to expand its marketing organization to broaden
the Company's market presence.
PROFESSIONAL SERVICES AND CUSTOMER SUPPORT
The Company's Professional Services group provides technical consulting and
training to assist customers in successfully implementing SERVICECENTER.
The Company provides a broad range of consulting services. Basic consulting
services include analyzing user requirements and providing the customer with a
starter system that will quickly demonstrate significant benefits of
SERVICECENTER. More advanced consulting services include providing turn-key
implementations using its Advanced Implementation Methodology, which begins with
structured analysis to map the customer's business rules onto the Company's
service desk tools, continues with the technical design and construction, and
finishes with system roll out. Implementation assistance frequently involves
process reengineering and the development of interfaces between the Company's
products and legacy systems and other tools or systems.
The Company offers four different hands-on training courses in the
implementation and administration of its products. On a periodic basis, the
Company offers product training at its facilities in San Diego and London for
customers and channel partners. On-site training is available for a fee.
The Company maintains a staff of customer service personnel, who provide
technical support and training, and periodic software updates to the Company's
customers and partners. The Company offers technical support services 24 hours a
day, seven days a week through its local offices in Europe and San Diego via
toll free lines. In addition to telephone support, the Company provides support
via fax, e-mail and a Web server.
COMPETITION
The market for the Company's products is highly competitive, fragmented and
subject to rapid technological change and frequent new product introductions and
enhancements. Competitors vary in size and in the scope and breadth of the
products and services offered. The Company encounters competition from a number
of sources, including (i) providers of internal help desk software applications
such as Remedy Corporation and Software Artistry, Inc., (ii) customer
interaction software companies such as Clarify Inc. and The Vantive Corporation,
whose products include internal help desk applications, and (iii) large
information technology and systems management companies such as IBM and Computer
Associates International, Inc. Because barriers to entry in the software market
are relatively low, the Company anticipates additional competition from other
established and emerging companies as the market for Enterprise Service Desk
applications expands. In addition, current and potential competitors have
established or may in the future establish cooperative relationships among
themselves or with third parties, or large software companies could acquire or
establish alliances with smaller competitors of the Company. The Company expects
software industry consolidation to occur in the future, and it is possible that
new competitors or alliances among competitors may emerge and rapidly acquire
significant market share. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which could
have a material adverse effect on the Company's business, operating results and
financial condition. Some of the Company's current and many of its potential
competitors have significantly greater financial, technical, marketing and other
resources than the Company. As a result, they may be able to respond more
quickly to new or emerging technologies and
33
<PAGE>
changes in customer requirements or to devote greater resources to the
development, promotion, and sale of their products than the Company. There can
be no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially and adversely affect its business, operating results
and financial condition.
The Company believes that the principal competitive factors affecting its
market include product features such as adaptability, scalability, ability to
integrate with third party products, functionality, ease of use, product
reputation, quality, performance, price, customer service and support,
effectiveness of sales and marketing efforts and company reputation. Although
the Company believes that it currently competes favorably with respect to such
factors, there can be no assurance that the Company can maintain its competitive
position against current and potential competitors, especially those with
greater financial, marketing, service, support, technical, and other resources
than the Company.
INTELLECTUAL PROPERTY
The Company's success is heavily dependent upon proprietary technology. The
Company relies primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights. The Company seeks to protect its software, documentation and
other written materials under trade secret and copyright laws, which afford only
limited protection. Despite precautions taken by the Company, it may be possible
for unauthorized third parties to copy aspects of its products or future
products or to obtain and use information that the Company regards as
proprietary. In particular, the Company may provide its licensees with access to
its data model and other proprietary information underlying its licensed
applications. There can be no assurance that the Company's means of protecting
its proprietary rights will be adequate or that the Company's competitors will
not independently develop similar or superior technology or design around any
patents owned by the Company. Policing unauthorized use of the Company's
software is difficult and, while the Company is unable to determine the extent
to which piracy of its software products exists, software piracy can be expected
to be a persistent problem. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights to the same extent as do the laws
of the United States. Litigation may be necessary in the future to enforce the
Company's intellectual property rights, to protect the Company's trade secrets
or to determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, operating
results and financial condition.
The Company is not aware that any of its software product offerings
infringes the proprietary rights of third parties. There can be no assurance,
however, that third parties will not claim infringement by the Company with
respect to current or future products. The Company expects that software product
developers will increasingly be subject to infringement claims as the number of
products and competitors in the Company's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect on the Company's business, operating
results and financial condition. The Company also relies on certain technology
which it licenses from third parties, including software which is integrated
with internally developed software and used in the Company's products to perform
key business functions. There can be no assurance that these third party
technology licenses will continue to be available to the Company on commercially
reasonable terms. The loss or the inability of the Company to maintain any of
these technology licenses could result in delays or reductions in product
shipments until equivalent technology could be identified, licensed and
integrated. Any such delays or reductions in product shipments could materially
and adversely affect the Company's business, operating results and financial
condition.
34
<PAGE>
FACILITIES
The Company's principal administrative, sales, marketing, support, research
and development and training functions are located at its headquarters facility
in San Diego, California. The Company currently occupies 95,110 square feet of
space in the San Diego facility, and the lease extends through August 2003.
Management believes that its current facilities are adequate to meet its needs
through the next twelve months. An additional 13,310 square feet of leased space
at the San Diego headquarters is subleased to JMI, Inc., an affiliate of the
Company. See "Certain Transactions."
The Company also leases office space for research and development in Cary,
North Carolina and Colorado Springs, Colorado and for sales activities in
Houston, Texas. In Europe, the Company leases space in London, Paris, Frankfurt
and Amsterdam for European sales, customer support, professional services and
administration.
EMPLOYEES
As of December 31, 1996, the Company employed 163 persons, including 65 in
sales and marketing, 27 in research and development, 14 in customer support, 25
in professional services, and 32 in finance and administration. Of the Company's
employees, 34 are located in Europe and the remainder are located in North
America. The Company believes that its future success will depend in part on its
continued ability to attract, hire and retain qualified personnel. Competition
for such personnel is intense, and there can be no assurance that the Company
will be able to identify, attract, and retain such personnel in the future. None
of the Company's employees is represented by a labor union. The Company has not
experienced any work stoppages and considers its relations with its employees to
be good.
35
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the Company's
executive officers and directors as of the date of this Prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --------- ---------------------------------------------------------------------
<S> <C> <C>
Alan H. Hunt....................... 54 President, Chief Executive Officer and Director
David A. Farley.................... 41 Vice President, Finance, Chief Financial Officer and Director
David G. Fisher.................... 39 Vice President, Marketing
Douglas F. Garn.................... 38 Vice President, North American Sales
William G. Holsten................. 60 Vice President, Professional Services
Richard T. Nelson.................. 37 Vice President, Secretary and General Counsel
Douglas S. Powanda................. 40 Vice President, International Sales
Charles H. Rudolph................. 43 Vice President, Research and Development
John J. Moores (2)................. 52 Chairman of the Board of Directors
Christopher A. Cole................ 42 Director
Richard A. Hosley II (2)........... 51 Director
Charles E. Noell III (1)(2)........ 45 Director
Norris van den Berg (1)............ 58 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
ALAN H. HUNT has served as the Company's President and Chief Executive
Officer and as a member of the Board of Directors since October 1995. From July
1994 until November 1995, Mr. Hunt was President and Chief Executive Officer and
a director of XVT Software, Inc., a development tools software company ("XVT").
From March 1991 until May 1994, Mr. Hunt was Senior Vice President of Sales and
Marketing (North America) for BMC Software, Inc., a vendor of software system
utilities for IBM mainframe computing environments ("BMC"). Mr. Hunt holds a
B.S. in Business Administration and Industrial Management from San Jose State
College.
DAVID A. FARLEY has served as the Company's Vice President, Finance, and
Chief Financial Officer and as a member of the Board of Directors since October
1995. Mr. Farley served as Secretary of the Company from October 1995 until
February 1997. From November 1994 to November 1995, Mr. Farley was Vice
President, Finance, and Chief Financial Officer and a director of XVT. From
December 1984 until October 1994, Mr. Farley held various accounting and
financial positions at BMC, most recently as Chief Financial Officer and as a
director. Mr. Farley holds a B.S. in Accounting from the University of Alabama.
DAVID G. FISHER has served as the Company's Vice President, Marketing since
April 1996. From March 1993 to April 1996, Mr. Fisher was Vice President of
Sales and Marketing for Restrac, Inc., a developer and vendor of recruitment and
staffing software applications. From February 1991 to March 1993, Mr. Fisher was
Vice President of Worldwide Marketing for Continuum, Inc., a developer and
vendor of insurance and banking software applications. Mr. Fisher holds a B.S.
in Business Administration and a B.A. in Political Science from the University
of California at Berkeley.
DOUGLAS F. GARN has served as the Company's Vice President, North American
Sales since April 1996. From July 1995 until April 1996, Mr. Garn was Vice
President of Sales with Syntax, Inc., a networking software company. From
November 1993 until July 1995, Mr. Garn was Regional Sales Manager with BMC.
From May 1992 until November 1993, Mr. Garn was Vice President and General
Manager of Sales with NYNEX Mobile Communications, a wireless communications
company. Mr. Garn holds a B.S. in Marketing from the University of Southern
California.
36
<PAGE>
WILLIAM G. HOLSTEN has served as the Company's Vice President, Professional
Services since November 1995. From July 1994 until November 1995, Mr. Holsten
was Director of Professional Services for XVT. From August 1992 until June 1994,
he was a consultant with Engineering Software Solutions, a consulting firm
co-owned by Mr. Holsten and a partner, which provided consulting services to XVT
from May 1993 to June 1994. From October 1984 to July 1992, Mr. Holsten held a
variety of positions with Precision Visuals, Inc., a graphics software company,
most recently as Director of Professional Services. Mr. Holsten holds a B.A. in
Mathematics from the University of California at Santa Barbara.
RICHARD T. NELSON has served as the Company's General Counsel since November
1995, as Vice President since October 1996 and as Secretary since February 1997.
From August 1991 until November 1995, Mr. Nelson was an associate in the
Houston, Texas office of Jackson & Walker LLP, a law firm. Mr. Nelson holds a
B.S. in Accounting from Bentley College and a J.D. from the University of Iowa
College of Law.
DOUGLAS S. POWANDA has served as the Company's Vice President, International
Sales since June 1994. From June 1994 until September 1995, he served as the
Company's Vice President, North American Sales. He was the Company's Director of
Sales for Europe from September 1993 until June 1994, Regional Sales Manager
from December 1992 to August 1993, and Senior Accounts Manager from February
1992 until December 1992. Mr. Powanda holds a B.S. in Business Management from
Trenton State University and an M.B.A. from Pepperdine University.
CHARLES H. RUDOLPH has served as the Company's Vice President, Research and
Development since December 1994. From June 1994 until December 1994, Mr. Rudolph
served as the Company's Director of Marketing. From April 1993 until June 1994,
he served as a director of Step-by-Step, Inc., a computer consulting and
training firm. From March 1990 until April 1993, Mr. Rudolph served as President
of Pacific Data Products, Inc., a manufacturer of printer enhancement products.
Mr. Rudolph holds a B.S. in Information Systems from King's College.
JOHN J. MOORES has served as Chairman of the Company's Board of Directors
since March 1990 and as a Board member since March 1989. In 1980, Mr. Moores
founded BMC and served as its President and Chief Executive Officer from 1980 to
1986 and as Chairman of its Board of Directors from 1980 to 1992. Since December
1994, Mr. Moores has served as owner and Chairman of the Board of the San Diego
Padres Baseball Club, L.P. and since September 1991 as Chairman of the Board of
JMI Services, Inc., a private investment company. Mr. Moores also serves as a
director of Homegate Hospitality, Inc. Mr. Moores holds a B.S. in economics and
a J.D. from the University of Houston.
CHRISTOPHER A. COLE has served as a member of the Company's Board of
Directors since founding the Company in 1981. He also served as its President
and Chief Executive Officer from 1986 until 1989. Since 1992, Mr. Cole has
served as President and Chief Executive Officer of Questrel, Inc., a software
development company. Mr. Cole holds an A.B. and an A.M. in Physics from Harvard
University.
RICHARD A. HOSLEY II has served as a member of the Company's Board of
Directors since January 1992. Prior to retiring from full-time employment, Mr.
Hosley served as President and Chief Executive Officer of BMC. Mr. Hosley also
serves as a director of Logic Works, Inc. and as a director and member of the
compensation committee of Axent Technologies, Inc. Mr. Hosley holds a B.A. in
Economics from Texas A&M University.
CHARLES E. NOELL III has served as a member of the Company's Board of
Directors since January 1992. Since January 1992, Mr. Noell has served as
President and Chief Executive Officer of JMI Services, Inc., a private
investment company, and as a General Partner of JMI Equity Fund, L.P., a venture
capital investment firm ("JMI Equity Fund"). Mr. Noell also serves as a director
of Expert Software, Inc. and Transaction Systems Architects, Inc. and as a
director and member of the compensation committee of Homegate Hospitality, Inc.
Mr. Noell holds a B.A. in History from the University of North Carolina at
Chapel Hill and an M.B.A. from Harvard University.
37
<PAGE>
NORRIS VAN DEN BERG has served as a member of the Company's Board of
Directors since January 1992. Mr. van den Berg has served as a General Partner
of JMI Equity Fund, L.P., a venture capital investment firm, since July 1991 and
also serves as a member of the Board of Directors of Prism Solutions, Inc. Mr.
van den Berg holds a B.A. in Philosophy and Mathematics from the University of
Maryland.
DIRECTOR COMPENSATION
The Company reimburses each member of the Company's Board of Directors for
out-of-pocket expenses incurred in connection with attending Board meetings. No
member of the Company's Board of Directors currently receives any additional
cash compensation. The Company has granted each of directors Christopher A.
Cole, Richard A. Hosley II, Charles E. Noell III and Norris van den Berg options
to acquire 45,000 shares of Common Stock at an exercise price of $1.34 under the
Company's 1991 Nonqualified Stock Option Plan. All such options vested in annual
installments over four years, are now fully exercisable, and expire if not
exercised prior to May 2002. See "Principal and Selling Stockholders." In
addition, in December 1990, the Company granted Christopher A. Cole an option to
acquire 225,000 shares of Common Stock at an exercise price of $0.51 per share
under the Nonqualified Stock Option Plan. Following Mr. Cole's resignation as an
executive officer of the Company and in consideration of his continuing service
as a member of the Company's Board of Directors, the Company extended the
exercisability of such option with respect to 56,250 vested shares for so long
as Mr. Cole remains a member of the Board of Directors but no later than
December 2000. See "Certain Transactions."
The Company's 1997 Director Option Plan (the "Director Plan") provides that
options will be granted to non-employee directors, other than non-employee
directors who hold or are affiliated with a holder of three percent of the
Company's outstanding Common Stock, pursuant to an automatic nondiscretionary
grant mechanism. Each new non-employee director is automatically granted an
option to purchase 25,000 shares of Common Stock at the time he or she is first
elected to the Board of Directors. Each non-employee director will subsequently
be granted an option to purchase 5,000 shares of Common Stock at each annual
meeting of stockholders beginning with the 1998 Annual Meeting of Stockholders.
Each such option will be granted at the fair market value of the Common Stock on
the date of grant. Options granted to non-employee directors under the Director
Plan will become exercisable over four years, with 25% of the shares vesting
after one year and the remaining shares vesting in quarterly installments
thereafter. See "Stock Plans--1997 Director Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company and administers various incentive compensation and
benefit plans. The Compensation Committee consists of directors Richard A.
Hosley II, John J. Moores and Charles E. Noell III. Alan H. Hunt, President,
Chief Executive Officer and director of the Company, participates in all
discussions and decisions regarding salaries and incentive compensation for all
employees and consultants of the Company, except that he is excluded from
discussions regarding his own salary and incentive compensation. No interlocking
relationship exists between any member of the Company's Compensation Committee
and any member of any other company's board of directors or compensation
committee.
38
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth in summary form information concerning the
compensation awarded to, earned by, or paid for services rendered to the Company
in all capacities during the fiscal year ended March 31, 1996 by (i) each of the
individuals who served as Chief Executive Officer during such fiscal year and
(ii) the Company's next four most highly compensated executive officers whose
salary and bonus for such fiscal year exceeded $100,000 and who served as an
executive officer of the Company during such fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
--------------------------------
ANNUAL COMPENSATION (1) SECURITIES
----------------------------- RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS STOCK AWARDS OPTIONS (#) COMPENSATION
- ---------------------------- ----------- ---------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
Alan H. Hunt (2)............ $ 192,500 $ 130,557 $ 344,000(9) 400,000 $ 16,124(10)
President and Chief
Executive Officer
David A. Farley (3)......... 120,000 73,146 172,000(9) 200,000 98,446(11)
Vice President, Finance,
and Chief Financial
Officer
William G. Holsten (4)...... 90,000 201,574 -- 100,000 34,793(12)
Vice President,
Professional Services
Douglas S. Powanda.......... 106,000 179,127(7) -- -- 5,364(13)
Vice President,
International Sales
FORMER EXECUTIVE OFFICERS
James W. Butler (5)......... 101,654 91,955 -- -- 1,894,954(14)
President and Chief
Executive Officer
John W. Woodall (6)......... 119,962 49,901(8) -- 37,500 634(15)
President and Chief
Executive Officer
</TABLE>
- --------------------------
(1) Other than the salary and bonus described herein, the Company did not pay
any executive officer named in the Summary Compensation Table any fringe
benefits, perquisites or other compensation in excess of such executive
officer's salary and bonus.
(2) Mr. Hunt became President and Chief Executive Officer of the Company in
October 1995. Mr. Hunt's salary and bonus include amounts paid to him as
President and Chief Executive Officer of XVT Software, Inc. ("XVT"). The
Company acquired XVT in November 1995.
(3) Mr. Farley became Vice President, Finance, and Chief Financial Officer of
the Company in October 1995. Mr. Farley's salary and bonus include amounts
paid to him as Vice President, Finance, and Chief Financial Officer of XVT.
(4) Mr. Holsten became Vice President, Professional Services, in November 1995.
Mr. Holsten's salary and bonus include amounts paid to him as Director,
Professional Services, of XVT.
(5) Mr. Butler resigned as President and Chief Executive Officer of the Company
in July 1995 and as Vice Chairman and member of the Board of Directors in
October 1995.
(6) Mr. Woodall served as President and Chief Executive Officer of the Company
from July 1995 until October 1995 and as Senior Vice President, Sales and
Marketing, from October 1995 to April 1996. Mr. Woodall is currently
employed as a Consulting Account Executive with the Company.
(7) Includes $54,737 of commission income.
(8) Includes $10,284 of commission income.
39
<PAGE>
(9) In November 1995, the Company issued Mr. Hunt an aggregate of 400,000
shares of Common Stock and Mr. Farley an aggregate of 200,000 shares of
Common Stock pursuant to restricted stock agreements in connection with
their initial employment. The price of such shares at the time of issuance
was $0.86 per share. Such shares vest incrementally over ten years, subject
to earlier vesting over six years contingent upon the Company's achieving
certain financial milestones. See "Employment Agreements and Change in
Control Arrangements" and "Certain Transactions."
(10) Consists of $238 in group life insurance excess premiums and $15,886 in
relocation expenses.
(11) Consists of $84 in group life insurance excess premiums and $98,362 in
relocation expenses.
(12) Consists of $509 in group life insurance excess premiums and $34,284 in
relocation expenses.
(13) Consists of $248 in group life insurance excess premiums and $5,116 in
relocation expenses.
(14) Includes (i) $15,419 in accrued vacation paid at the time of Mr. Butler's
resignation as an executive officer of the Company, (ii) $30,000 paid in
consulting fees following such resignation, (iii) $287 in group life
insurance excess premiums, (iv) $250,251 in compensation from the Company's
forgiveness of an unpaid advance of $120,000 and its payment of an
additional $130,251 to cover Mr. Butler's tax obligations arising from such
forgiveness, and (v) approximately $1,598,997 in compensation relating to
the Company's forgiveness of an outstanding note and assumption of Mr.
Butler's obligations under a residential mortgage loan. See "Certain
Transactions."
(15) Consists of $634 in group life insurance excess premiums.
40
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1996
The following table sets forth certain information relating to stock options
awarded to each of the Named Executive Officers during the fiscal year ended
March 31, 1996. All such options were awarded under the Company's 1994 Stock
Option Plan.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTIONS TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------------
NAME GRANTED FISCAL 1996 (2) SHARE (3)(4) DATE (5) 5% 10%
- -------------------------------- ----------- --------------- ------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
Alan H. Hunt.................... 400,000 32.8% $ 2.34 11/01/05 $ 588,645 $ 1,491,743
David A. Farley................. 200,000 16.4% 2.34 11/01/05 294,323 745,871
William G. Holsten.............. 100,000 8.2% 2.34 11/01/05 147,161 372,936
Douglas S. Powanda.............. -- -- -- -- -- --
FORMER EXECUTIVE OFFICERS
James W. Butler (6)............. -- -- -- -- -- --
John W. Woodall (7)............. 37,500 3.1% 2.34 7/01/05 55,186 139,851
</TABLE>
- ------------------------
(1) Potential realizable value is based on the assumption that the Common Stock
of the Company appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the ten year option term.
These numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's estimate
of future stock price growth.
(2) Based on options to acquire 594,570 shares granted under the Company's 1994
Stock Option Plan and options to acquire 15,558 shares of the Company's
Common Stock granted to employees of XVT. The Company acquired XVT in
November 1995 and assumed certain outstanding XVT options. See "Certain
Transactions." All options granted to the Named Executive Officers during
fiscal 1996 are governed by the Company's 1994 Stock Option Plan.
(3) Options were granted at an exercise price equal to not less than the fair
market value of the Company's Common Stock on the date of grant.
(4) Exercise price may be paid in cash, check, by delivery of already-owned
shares of the Company's Common Stock subject to certain conditions, or
pursuant to a cashless exercise procedure under which the optionee provides
irrevocable instructions to a brokerage firm to sell the purchased shares
and to remit to the Company, out of the sale proceeds, an amount equal to
the exercise price plus all applicable withholding taxes.
(5) Twenty-five percent (25%) of the shares issuable upon exercise of options
granted under the Company's 1994 Stock Option Plan become vested on the
first anniversary of the date of grant, and the remaining shares vest over
three years at the rate of 6.25% of the shares subject to option at the end
of each three-month period thereafter.
(6) Mr. Butler resigned as President and Chief Executive Officer in July 1995
and as Vice Chairman of the Board of Directors in October 1996.
(7) Mr. Woodall served as President and Chief Executive Officer of the Company
from July 1995 to October 1995 and as Senior Vice President, Sales and
Marketing, from October 1995 through April 1996. Mr. Woodall is currently
employed as a Consulting Account Executive with the Company.
41
<PAGE>
AGGREGATE OPTION EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
No Named Executive Officer exercised any stock option during fiscal year
1996. The following table sets forth certain information regarding stock options
held as of March 31, 1996 by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT MARCH 31, 1996 MARCH 31, 1996 (1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
Alan H. Hunt......................................... -- 400,000 $ -- $ 3,464,000
David A. Farley...................................... -- 200,000 -- 1,732,000
William G. Holsten................................... 236(2) 100,708(3) 1,595 870,786
Douglas S. Powanda................................... 37,500 52,500 339,750 469,650
FORMER EXECUTIVE OFFICERS
James W. Butler (4).................................. 825,000 -- 8,343,000 --
John W. Woodall (5).................................. -- 37,500 -- 324,750
</TABLE>
- --------------------------
(1) Based upon an initial public offering price of $11.00 per share minus the
exercise price.
(2) Includes an option to acquire 236 shares of the Company's Common Stock
assumed by the Company in connection with the Company's acquisition of XVT
in November 1995. See "Certain Transactions."
(3) Includes an option to acquire 708 shares of the Company's Common Stock
assumed by the Company in connection with the acquisition of XVT.
(4) Mr. Butler resigned as President and Chief Executive Officer of the Company
in July 1995 and as Vice Chairman of the Board of Directors in October 1995.
As of October 1995, Mr. Butler held vested options to acquire 825,000 shares
of Common Stock under the Nonqualified Stock Option Plan and 1991
Nonqualified Stock Option Plan. In connection with Mr. Butler's resignation
as an executive officer and director of the Company, the Company agreed to
extend the exercisability of such options through October 23, 2000. See
"Certain Transactions."
(5) Mr. Woodall served as President and Chief Executive Officer of the Company
from July 1995 to October 1995 and as Senior Vice President, Sales and
Marketing, from October 1995 through April 1996. Mr. Woodall is currently
employed as a Consulting Account Executive with the Company.
STOCK PLANS
1994 STOCK OPTION PLAN. The Company's 1994 Stock Option Plan, as amended
(the "1994 Plan"), provides for the grant to employees of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and for the grant to employees and consultants of
nonstatutory stock options. The 1994 Plan was adopted by the Board of Directors
in January 1994 and approved by the Company's stockholders in April 1994. The
1994 Plan replaces the Company's Nonqualified Stock Option Plan and 1991
Nonqualified Stock Option Plan (the "Prior Plans"). Options previously issued
under the Prior Plans shall be exercisable according to their terms. Unless
terminated sooner, the 1994 Plan will terminate automatically in January 2004. A
total of 2,548,000 shares of Common Stock was reserved for issuance under the
1994 Plan at December 31, 1996. After December 31, 1996, in connection with this
offering, the Board of Directors and stockholders of the Company approved a
600,000 share increase in the number of shares reserved under the 1994 Plan.
The 1994 Plan may be administered by the Board of Directors or a committee
of the Board (the "Committee"), which Committee shall, in the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, consist of two or more "outside directors" within
the meaning of Section 162(m) of the Code. The Committee has the power to
determine the terms of the options granted, including the exercise price, the
number of shares subject to each option, the exercisability thereof, and the
form of consideration payable upon such exercise. In addition, the Committee has
the
42
<PAGE>
authority to amend, suspend or terminate the 1994 Plan, provided that no such
action may affect any share of Common Stock previously issued and sold or any
option previously granted under the 1994 Plan.
Options granted under the 1994 Plan are not generally transferable by the
optionee, and each option is generally exercisable during the lifetime of the
optionee only by such optionee. Options granted under the 1994 Plan must
generally be exercised within three months of the end of optionee's status as an
employee or consultant of the Company, within six months after such optionee's
termination by disability, or within 12 months after such optionee's termination
by death, but in no event later than the expiration of ten-years from the date
of grant of such option. The administrator of the 1994 Plan has the discretion
to extend the exercisability of options following a termination of the
optionee's employment but in no event for more than ten years after the date of
grant of such option. The exercise price of all incentive stock options granted
under the 1994 Plan must be at least equal to the fair market value of the
Common Stock on the date of grant. The exercise price of nonstatutory stock
options granted under the 1994 Plan is determined by the Committee, but with
respect to nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the exercise
price must at least be equal to the fair market value of the Common Stock on the
date of grant. With respect to any participant who owns stock possessing more
than ten percent of the voting power of all classes of the Company's outstanding
capital stock, the exercise price of any incentive stock option granted must
equal at least 110% of the fair market value on the grant date and the term of
such incentive stock option must not exceed five years. The term of all other
options granted under the 1994 Plan may not exceed ten years.
The 1994 Plan provides that in the event of a merger or consolidation of the
Company with or into another corporation, a sale of substantially all of the
Company's assets or certain other changes in control of the Company, the
optionee shall have the right to exercise all of the optioned stock, including
shares as to which it would not otherwise be exercisable.
As of December 31, 1996, 105,000 shares of Common Stock had been issued upon
exercise of options outstanding under the Prior Plans and 46,500 shares of
Common Stock had been issued upon exercise of options outstanding under the 1994
Plan. Options to purchase 1,458,750 shares of Common Stock at a weighted average
exercise price of $1.06 were outstanding under the Prior Plans, and options to
purchase 2,297,100 shares of Common Stock at a weighted average exercise price
of $2.34 were outstanding under the 1994 Plan. In addition, options to acquire
15,558 shares of the Company's Common Stock assumed by the Company in connection
with the acquisition of XVT were outstanding with a weighted average exercise
price of $4.24.
1997 EMPLOYEE STOCK PURCHASE PLAN. The Company's 1997 Employee Stock
Purchase Plan (the "1997 Purchase Plan") was adopted by the Board of Directors
and approved by the Company's stockholders in February 1997 but will not become
effective until the date of the offering. A total of 250,000 shares of Common
Stock has been reserved for issuance under the 1997 Purchase Plan. The 1997
Purchase Plan, which is intended to qualify under Section 423 of the Internal
Revenue Code, has four three-month offering periods each year beginning on the
first trading day on or after May 1, August 1, November 1 and February 1,
respectively, except for the first such offering period which commences on the
first trading day on or after the effective date of this Offering and ends on
the last trading day on or before July 31, 1997. The 1997 Purchase Plan is
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 participating subsidiary for at least 20 hours per week and more
than five months in any calendar year; provided, however, that officers of the
Company are not eligible to participate in the 1997 Purchase Plan. The 1997
Purchase Plan permits participants to purchase Common Stock through payroll
deductions of up to 15% of an employee's compensation, including commissions,
but excluding overtime, bonuses and other incentive compensation. The price of
stock purchased under the 1997 Purchase Plan is 85% of the lower of the fair
market value of the Common Stock at the beginning or at the end of each offering
period. Shares purchased under the 1997 Purchase Plan may not be sold or
otherwise transferred by a participant for a period of 12 months after the date
of their purchase. Employees may end their participation at any time during an
offering period, and they will be paid
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their payroll deductions to date. Participation ends automatically upon
termination of employment with the Company.
Rights granted under the 1997 Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 1997 Purchase Plan. The 1997 Purchase Plan provides
that, in the event of a merger of the Company with or into another corporation
or a sale of substantially all of the Company's assets, the Board of Directors
shall shorten the offering period then in progress (so that employees' rights to
purchase stock under the Plan are exercised prior to the merger or sale of
assets). In addition, the twelve-month restriction on transfers applicable to
shares purchased under the 1997 Purchase Plan shall lapse in such event. The
1997 Purchase Plan will terminate in February 2007. The Board of Directors has
the authority to amend or terminate the 1997 Purchase Plan, except that no such
action may adversely affect any outstanding rights to purchase stock under the
1997 Purchase Plan.
1997 DIRECTOR OPTION PLAN. Outside directors are entitled to participate in
the 1997 Director Option Plan (the "Director Plan"); provided, however, that no
outside director who is directly or indirectly the holder of more than three
percent of the Company's outstanding Common Stock may be granted an option under
the Director Plan. The Director Plan was adopted by the Board of Directors in
and approved by the stockholders in February 1997, but it will not become
effective until the date of this offering. The Director Plan has a term of ten
years, unless terminated sooner by the Board. A total of 150,000 shares of
Common Stock have been reserved for issuance under the Director Plan.
The Director Plan provides for the automatic grant of 25,000 shares of
Common Stock (the "First Option") to each eligible outside director on the date
such person first becomes an outside director. After the First Option is granted
to the eligible outside director, he or she shall automatically be granted an
option to purchase 5,000 shares (a "Subsequent Option") each year on the date of
the annual shareholder's meeting of the Company, if on such date he or she shall
have served on the Board for at least six months. Each First Option and each
Subsequent Option shall have a term of ten years and the shares subject to the
option shall vest as to 25% of the shares on the first anniversary of the grant
date and as to 6 1/4% of the shares on the last day of each consecutive
three-month period thereafter. The exercise prices of the First Option and each
Subsequent Option shall be 100% of the fair market value per share of the Common
Stock, generally determined with reference to the closing price of the Common
Stock as reported on the Nasdaq National Market on the date of grant. In the
event of a merger of the Company or the sale of substantially all of the assets
of the Company, each option may be assumed or an equivalent option substituted
by the successor corporation. If an option is assumed or substituted for, it
shall remain exercisable and shall continue to vest as provided in the Director
Plan. However, if an eligible outside director's status as a director of the
Company or the successor corporation, as applicable, is terminated following
such assumption or substitution, other than upon a voluntary resignation by such
outside director, each option granted to such director shall become fully vested
and exercisable. If the successor does not agree to assume or substitute for the
option, each option shall also become fully vested and exercisable. Options
granted under the Director Plan must be exercised within three months of the end
of the optionee's tenure as a director of the Company, or within 12 months after
such director's termination by death or disability, but in no event later than
the expiration of the option's ten-year term. No option granted under the
Director Plan is transferable by the optionee other than by will or the laws of
descent and distribution, and each option is exercisable, during the lifetime of
the optionee, only by such optionee.
401(K) PLAN. The Company participates in a tax-qualified employee savings
and retirement plan (the "401(k) Plan") which covers all of the Company's
full-time employees. Pursuant to the 401(k) Plan, employees may elect to reduce
their current compensation by up to the lower of 20% or the statutorily
prescribed annual limit and have the amount of such reduction contributed to the
401(k) Plan. The Company makes matching contributions on behalf of all
participants in the 401(k) Plan in the amount of 25% of employee contributions.
The Company may also make additional discretionary contributions in such amounts
as determined by the Board of Directors, subject to statutory limitations on
contributions made by employees and employers under such plans. To date, the
Company has made no such additional discretionary contributions. The 401(k) Plan
is
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<PAGE>
intended to qualify under Section 401 of the Internal Revenue Code of 1986, as
amended, so that contributions by employees or by the Company to the 401(k)
Plan, and income earned on plan contributions, are not taxable to employees
until withdrawn from the 401(k) Plan, and so that contributions by the Company,
if any, will be deductible by the Company when made. The trustee under the
401(k) Plan, at the direction of each participant, invests the assets of the
401(k) Plan in any of a number of investment options.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company does not currently have any employment contracts in effect with
any Named Executive Officer. The Company and certain Named Executive Officers
are parties to separate agreements relating to restricted stock issuances,
severance arrangements and consulting arrangements. See "Certain Transactions."
The Company and Alan J. Hunt, its President and Chief Executive Officer, are
parties to a restricted stock agreement dated November 1, 1995 pursuant to which
the Company issued Mr. Hunt 400,000 shares of Common Stock. The Company and
David A. Farley, its Chief Financial Officer, are parties to a substantially
equivalent restricted stock agreement dated November 1, 1995 pursuant to which
the Company issued Mr. Farley 200,000 shares of Common Stock. The shares issued
to each of Messrs. Hunt and Farley vest incrementally over ten years, subject to
earlier vesting over six years contingent upon the Company's achieving certain
financial milestones. In the event of a merger or change in control of the
Company, all such shares will become automatically vested. See
"Management--Executive Compensation."
Under the 1994 Plan, in the event of a merger or a change in control of the
Company, vesting of options outstanding under the 1994 Plan will automatically
accelerate such that outstanding options will become fully exercisable,
including with respect to shares for which such options would be otherwise
unvested. See "Stock Plans--1994 Stock Option Plan."
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Amended and Restated Certificate
of Incorporation that eliminate to the fullest extent permissible under Delaware
law the liability of its directors to the Company for monetary damages. Such
limitation of liability does not affect the availability of equitable remedies
such as injunctive relief or rescission. The Company's Bylaws provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by Delaware law, including in circumstances in which indemnification
is otherwise discretionary under Delaware law. The Company has entered into
indemnification agreements with its officers and directors containing provisions
which may require the Company, among other things, to indemnify the officers and
directors against certain liabilities that may arise by reason of their status
or service as directors or officers (other than liabilities arising from willful
misconduct of a culpable nature), and to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified.
There is no currently pending litigation or proceeding involving a director,
officer, employee or other agent of the Company in which indemnification would
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
OTHER MANAGEMENT MATTERS
Certain of the Company's officers have been interviewed in connection with
an investigation being conducted by the Securities and Exchange Commission
regarding trading in the securities of a publicly held company. These officers
were previously employed by that company. Although these officers conducted
trades in securities of the company during the period covered by the
investigation, such trades were conducted subsequent to the termination of their
employment. No person has been accused of any wrongdoing in connection with the
investigation and the Staff has stated that the investigation should not be
construed as an indication by the Commission or its Staff that any violation of
law has occurred, or considered as a reflection upon any person, entity, or
security.
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<PAGE>
CERTAIN TRANSACTIONS
John J. Moores, the Chairman of the Company's Board of Directors and the
majority stockholder of the Company, is party to a Continuing and Unconditional
Guaranty dated November 13, 1995 (as subsequently amended) with NationsBank of
Texas, N.A. ("NationsBank"), pursuant to which Mr. Moores guaranteed the
Company's obligations under its bank line of credit agreement and term loan with
NationsBank. As of December 31, 1996, the Company's outstanding obligations
under such credit line and term loan were $4.3 million and $1.7 million,
respectively. The Company intends to repay the outstanding balance of the
revolving line of credit with a portion of the proceeds from this offering. See
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and Note 6 of Notes
to Consolidated Financial Statements.
From time to time since becoming a stockholder of the Company, JMI Equity
Fund, L.P. ("JMI") has made working capital loans to the Company on an as-needed
basis in amounts up to $250,000, typically bearing interest at the prime rate
announced by major commercial banks. At December 31, 1996 the Company owed JMI
approximately $250,000 in connection with such advances. Mr. Moores is a limited
partner of JMI and Charles E. Noell III, a director of the Company, is General
Partner of JMI. JMI holds, prior to this offering, more than 10% of the
Company's outstanding Common Stock.
The Company and JMI are parties to a sublease pursuant to which the Company
subleases approximately 13,310 square feet of office space at its San Diego
headquarters to JMI Services, Inc., an investment management company ("JMI
Services"). The term of the sublease is from June 1, 1996 through October 21,
2003. The sublease provides for initial monthly rental payments of $16,638 to
increase by $666 per month on each anniversary of the sublease. Mr. Moores
serves as Chairman of the Board of JMI Services, and Mr. Noell serves as
President and Chief Executive Officer. The Company believes that the terms of
the sublease are at competitive market rates.
The Company leases a suite at San Diego's Jack Murphy Stadium at competitive
rates and on an informal basis from the San Diego Padres Baseball Club, L.P.
(the "Padres"). Mr. Moores has served as owner and Chairman of the Board of the
Padres since December 1994. The Company's annual payments for such suite total
approximately $45,000.
Pursuant to an Acquisition Agreement dated November 29, 1995 among the
Company, Skunkware, Inc. ("Skunkware") and Peregrine/Bridge Transfer
Corporation, a database software subsidiary of the Company ("PBTC"), the Company
sold all the outstanding shares of PBTC to Skunkware for an aggregate purchase
price of approximately $559,000. In addition, under the Acquisition Agreement,
the Company receives a royalty on certain license sales of PBTC. The royalty
payments to the Company are limited to an aggregate of $677,000. The fairness of
the financial terms of the transaction was validated by an independent valuation
firm. Mr. Moores is a controlling stockholder of Skunkware, and Mr. Noell was
president of Skunkware. Pursuant to the Acquisition Agreement, the Company
provides certain computer and administrative resources to PBTC for a monthly fee
of $37,500.
Pursuant to an Agreement and Plan of Merger dated as of November 30, 1995,
the Company acquired XVT Software, Inc., a development tools software company
("XVT"). In connection with the acquisition, the Company issued approximately
2,018,808 shares of its Common Stock in exchange for all of XVT's issued and
outstanding preferred and common stock. Mr. Moores and persons and entities
affiliated with Mr. Moores owned substantially all of XVT's outstanding capital
stock, and in connection with the acquisition, the Company issued 1,579,436
shares of the Company's Common Stock to Mr. Moores and affiliated persons and
entities. In addition, David A. Farley, the Company's Vice President, Finance,
and Chief Financial Officer, held approximately 65,667 shares of XVT's
outstanding Series C Preferred Stock. In consideration of such shares and in
payment for certain accumulated dividends owing on the Series C Preferred, the
Company issued Mr. Farley 149,408 shares of its Common Stock in connection with
the acquisition of XVT. The Company also assumed all outstanding options to
acquire XVT's Common Stock, including outstanding options to William G. Holsten,
the Company's Vice President, Professional Services, and Christopher A. Cole, a
director of
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<PAGE>
the Company. Following such assumption and after adjustment of the number of
shares subject to such options to reflect the applicable exchange ratio, Messrs.
Cole and Holsten received options to acquire 2,828 and 944 shares, respectively,
of the Company's Common Stock. Outstanding options to acquire XVT's Common Stock
held by Alan H. Hunt, the Company's President and Chief Executive Officer, and
Mr. Farley were cancelled in connection with their becoming executive officers
of the Company.
The Company is a party to restricted stock agreements with Messrs. Hunt and
Farley pursuant to which the Company issued a total of 600,000 shares of its
Common Stock. See "Employment Agreements and Change in Control Arrangements."
The Company and James W. Butler are parties to an agreement dated December
13, 1995 (the "Butler Agreement") governing Mr. Butler's resignation as an
executive officer and member of the Company's Board of Directors. Mr. Butler
resigned as President and Chief Executive Officer of the Company in July 1995
and as Vice Chairman of the Company's Board of Directors in October 1995.
Pursuant to the Butler Agreement, the Company retained Mr. Butler's services as
a consultant to the Company from January 1996 through December 1996 in
consideration of a monthly consulting fee of $10,000. In addition, the Company
forgave an outstanding advance of $120,000 paid to Mr. Butler in anticipation of
his transfer to a Texas-based operating subsidiary of the Company. In connection
with such forgiveness, the Company also paid Mr. Butler an additional $130,251
to cover Mr. Butler's tax obligations. In addition, pursuant to the Butler
Agreement, Mr. Butler conveyed certain residential property in San Diego County,
California to the Company in satisfaction of an outstanding loan from the
Company in the amount of $454,331 plus $85,000 in accrued interest. The Company
also assumed Mr. Butler's obligations under a note and mortgage in the amount of
$1,059,665 relating to such property. In connection with Mr. Butler's
resignation, the Company agreed to extend the exercisability of options to
acquire 825,000 vested shares of the Company's Common Stock through October 23,
2000. The Butler Agreement also contains certain non-competition and
confidentiality provisions. See "Management--Executive Compensation."
The Company agreed to extend the exercisability of the vested portion of an
option granted to Christopher A. Cole in December 1990 for so long as Mr. Cole
remains a member of the Company's Board of Directors. The option was originally
granted under the Company's Nonqualified Stock Option Plan and, in accordance
with the form of stock option agreement used in connection with such plan, would
otherwise have terminated following a termination of Mr. Cole's continuous
employment with the Company. At the time of Mr. Cole's resignation as an
executive officer of the Company, such option was vested with respect to 56,250
shares. See "Management--Director Compensation."
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1996 and as adjusted
to reflect the sale of the 3,000,000 shares of Common Stock offered hereby by
(i) each person or entity who is known by the Company to own beneficially 5% or
more of the Company's outstanding Common Stock; (ii) each director of the
Company; (iii) each of the Named Executive Officers; (iv) all current directors
and executive officers of the Company as a group; and (v) each Selling
Stockholder.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(2) NUMBER OF AFTER OFFERING(2)
-------------------------- SHARES --------------------------
NAME AND ADDRESS (1) NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------------------- ------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
JMI Equity Fund, L.P................................ 1,280,620 9.8% 94,000 1,186,620 7.9%
12680 High Bluff Drive
San Diego, CA 92130
John J. Moores (3).................................. 10,830,404 83.2 791,370 10,039,034 66.8
Charles E. Noell III (4)............................ 1,325,620 10.1 94,000 1,231,620 8.2
Norris van den Berg (5)............................. 1,325,620 10.1 94,000 1,231,620 8.2
James W. Butler (6)................................. 825,000 6.0 60,000 765,000 4.8
Christopher A. Cole (7)............................. 630,821 4.8 39,000 591,821 3.9
Alan H. Hunt (8).................................... 525,000 4.0 -- 525,000 3.5
David A. Farley (9)................................. 411,908 3.1 -- 411,908 2.7
Douglas S. Powanda (10)............................. 97,500 * -- 97,500 *
Richard A. Hosley II (11)........................... 45,000 * -- 45,000 *
John W. Woodall (12)................................ 37,500 * -- 37,500 *
William J. Holsten (13)............................. 32,194 * -- 32,194 *
All current executives officers and directors
as a group (12 persons) (14)...................... 12,740,227 93.3 870,370 11,869,957 75.8
OTHER SELLING STOCKHOLDERS
- ----------------------------------------------------
Robert Ashton....................................... 237,000 1.8 25,000 212,000 1.4
Marc Rochkind....................................... 236,632 1.8 17,000 219,632 1.5
Charles H. Rudolph (15)............................. 86,250 * 40,000 46,250 *
Sheila Broderick.................................... 75,700 * 5,500 70,200 *
Alysa Moores........................................ 75,000 * 5,500 69,500 *
Norris Merritt (16)................................. 71,450 * 15,000 56,450 *
Heath Dylan Lubojasky 1990 Trust.................... 11,500 * 815 10,685 *
Kiley Diane Lubojasky 1990 Trust.................... 11,500 * 815 10,685 *
</TABLE>
- --------------------------
* Less than 1%.
(1) Unless otherwise indicated, the address for each listed stockholder is c/o
Peregrine Systems, Inc., 12670 High Bluff Drive, San Diego, California
92130. Except as otherwise indicated, and subject to applicable community
property laws, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock held by them.
(2) Applicable percentage ownership is based on 13,019,019 shares of Common
Stock outstanding as of December 31, 1996 and 15,019,019 shares immediately
following the completion of this offering (assuming no exercise of the
Underwriters' over-allotment option), together with applicable options for
such shareholder. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities, subject to community
property laws, where applicable. Shares of Common Stock subject to options
that are presently exercisable or exercisable within 60 days of December 31,
1996 are deemed to be beneficially owned by the person holding such options
for the purpose of computing the percentage of ownership of such person but
are not treated as outstanding for the purpose of computing the percentage
of any other person. To the extent that any shares are issued upon exercise
of options, warrants or other rights to acquire the Company's capital stock
that are presently outstanding or granted in the future or reserved for
future issuance under the Company's stock plans, there will be further
dilution to new public investors.
(3) Includes 1,280,620 shares of Common Stock held by JMI Equity Fund, L.P. and
3,753,816 shares held by Mr. Moores as trustee under various trusts,
substantially all of which were established for the members of Mr. Moores'
family. Of the 791,370 shares
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being sold by Mr. Moores in this offering, 429,000 are being sold by Mr.
Moores individually, 94,000 are being sold by JMI Equity Fund, L.P. and
268,370 are being sold by trusts for which Mr. Moores serves as trustee. Mr.
Moores is a limited partner of JMI Equity Fund, L.P. and Chairman of the
Company's Board of Directors.
(4) Includes 45,000 shares of Common Stock issuable upon exercise of outstanding
stock options which are presently exercisable or will become exercisable
within 60 days of December 31, 1996 and 1,280,620 shares of Common Stock
held by JMI Equity Fund, L.P. Mr. Noell is a director of the Company and a
General Partner of JMI Equity Fund, L.P. Mr. Noell disclaims beneficial
ownership of all shares held by JMI Equity Fund, L.P. except to the extent
of his pecuniary interest therein. All shares indicated as being sold by Mr.
Noell are being sold by JMI Equity Fund, L.P.
(5) Includes 45,000 shares of Common Stock issuable upon exercise of outstanding
stock options which are presently exercisable or will become exercisable
within 60 days of December 31, 1996 and 1,280,620 shares of Common Stock
held by JMI Equity Fund, L.P. Mr. van den Berg is a director of the Company
and a General Partner of JMI Equity Fund, L.P. Mr. van den Berg disclaims
beneficial ownership of all shares held by JMI Equity Fund, L.P. except to
the extent of his pecuniary interest therein. All shares indicated as being
sold by Mr. van den Berg are being sold by JMI Equity Fund, L.P.
(6) Includes 825,000 shares of Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of December 31, 1996, of which options to acquire
60,000 shares will be exercised in connection with this offering. Mr. Butler
is the former President and Chief Executive Officer of the Company.
(7) Includes 104,078 shares of common Stock issuable upon exercise of stock
options which are presently exercisable or will become exercisable within 60
days of December 31, 1996. Mr. Cole is a member of the Company's Board of
Directors.
(8) Includes 125,000 shares of Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of December 31, 1996 and 400,000 shares subject
to a restricted stock agreement. Mr. Hunt is the Company's President and
Chief Executive Officer and a member of its Board of Directors. See
"Management-- Employment Agreements and Change in Control Arrangements."
(9) Includes 62,500 shares of common Stock issuable upon exercise of outstanding
stock options which are presently exercisable or will become exercisable
within 60 days of December 31, 1996 and 200,000 shares subject to a
restricted stock agreement. Mr. Farley is the Company's Vice President,
Finance, and Chief Financial Officer and a member of its Board of Directors.
See "Management--Employment Agreements and Change in Control Arrangements."
(10) Includes 97,500 shares of Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of December 31, 1996. Mr. Powanda is the
Company's Vice President, International Sales.
(11) Includes 45,000 shares of Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of December 31, 1996. Mr. Hosley is a member of
the Company's Board of Directors.
(12) Includes 37,500 shares of Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of December 31, 1996. Mr. Woodall was formerly
the Company's President and Chief Executive Officer and is now a Consulting
Account Executive with the Company.
(13) Includes 32,194 shares of Common Stock issuable upon exercised outstanding
stock options which are presently exercisable or will become exercisable
within 60 days of December 31, 1996. Mr. Holsten is the Company's Vice
President, Professional Services.
(14) Includes 633,772 shares of Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of December 31, 1996.
(15) Includes 86,250 shares of Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of December 31, 1996, of which options to acquire
40,000 shares will be exercised in connection with this offering. Mr.
Rudolph is the Company's Vice President, Research and Development.
(16) Includes 71,450 shares of Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of December 31, 1996, of which options to acquire
15,000 shares will be exercised in connection with this offering. Mr.
Merritt is a product author with the Company.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, the Company will be authorized to
issue 50,000,000 shares of Common Stock, $0.001 par value, and 5,000,000 shares
of undesignated Preferred Stock, $0.001 par value. Immediately after the
completion of this offering and assuming no exercise of the Underwriters' over-
allotment option, the Company estimates there will be an aggregate of 15,019,019
shares of Common Stock outstanding, 3,771,408 shares of Common Stock will be
issuable upon exercise of outstanding options and no shares of Preferred Stock
will be issued and outstanding.
The following description of the Company's capital stock does not purport to
be complete and is subject to and qualified in its entirety by the Company's
Amended and Restated Certificate of Incorporation and Bylaws and by the
provisions of applicable Delaware law.
The Amended and Restated Certificate of Incorporation and Bylaws contain
certain provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and which may have the
effect of delaying, deferring, or preventing a future takeover or change in
control of the Company unless such takeover or change in control is approved by
the Board of Directors.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Holders of Common Stock do not have
cumulative voting rights, and, therefore, holders of a majority of the shares
voting for the election of directors can elect all of the directors. In such
event, the holders of the remaining shares will not be able to elect any
directors.
Holders of the Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the terms of any existing or future agreements
between the Company and its debtholders. The Company has never declared or paid
cash dividends on its capital stock, expects to retain future earnings, if any,
for use in the operation and expansion of its business, and does not anticipate
paying any cash dividends in the foreseeable future. In the event of the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets legally available for
distribution after payment of all debts and other liabilities and subject to the
prior rights of any holders of Preferred Stock then outstanding.
PREFERRED STOCK
Effective upon the closing of this offering, the Company will be authorized
to issue 5,000,000 shares of undesignated Preferred Stock. The Board of
Directors has the authority to issue the Preferred Stock in one or more series
and to fix the price, rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting a series or the designation of such series, without any
further vote or action by the Company's stockholders. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders and may adversely affect the market price of, and the
voting and other rights of, the holders of Common Stock. The issuance of
Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others. The Company has no current plans to issue any shares of
Preferred Stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS
The Company's Amended and Restated Certificate of Incorporation provides
that all stockholder actions must be effected at a duly called annual or special
meeting and may not be effected by written consent. The
50
<PAGE>
Company's Bylaws provide that, except as otherwise required by law, special
meetings of the stockholders can only be called by the Board of Directors, the
Chairman of the Board of Directors, the Chief Executive Officer of the Company
or stockholders holding shares in the aggregate entitled to cast not less than
10% of the votes at such meeting. In addition, the Company's Bylaws establish an
advance notice procedure for stockholder proposals to be brought before an
annual meeting of stockholders, including proposed nominations of persons for
election to the Board. Stockholders at an annual meeting may only consider
proposals or nominations specified in the notice of meeting or brought before
the meeting by or at the direction of the Board of Directors or by a stockholder
who was a stockholder of record on the record date for the meeting, who is
entitled to vote at the meeting and who has delivered timely written notice in
proper form to the Company's Secretary of the stockholder's intention to bring
such business before the meeting.
The foregoing provisions of the Company's Amended and Restated Certificate
of Incorporation and Bylaws are intended to enhance the likelihood of continuity
and stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions which may involve an actual or threatened change of control of the
Company. Such provisions are designed to reduce the vulnerability of the Company
to an unsolicited acquisition proposal and, accordingly, could discourage
potential acquisition proposals and could delay or prevent a change in control
of the Company. Such provisions are also intended to discourage certain tactics
that may be used in proxy fights but could, however, have the effect of
discouraging others from making tender offers for the Company's shares and,
consequently, may also inhibit fluctuations in the market price of the Company's
shares that could result from actual or rumored takeover attempts. These
provisions may also have the effect of preventing changes in the management of
the Company. See "Risk Factors--Effect of Certain Charter Provisions; Limitation
of Liability of Directors; Antitakeover Effects of Delaware Law."
EFFECT OF DELAWARE ANTITAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law (the "Antitakeover Law"), which regulates corporate acquisitions. The
Antitakeover Law prevents certain Delaware corporations, including those whose
securities are listed for trading on the Nasdaq National Market, from engaging,
under certain circumstances in a "business combination" with any "interested
stockholder" for three years following the date that such stockholder became an
interested stockholder. For purposes of the Antitakeover Law, a "business
combination" includes, among other things, a merger or consolidation involving
the Company and the interested shareholder and the sale of more than ten percent
(10%) of the Company's assets. In general, the Antitakeover Law defines an
"interested stockholder" as any entity or person beneficially owning 15% or more
the outstanding voting stock of the Company and any entity or person affiliated
with or controlling or controlled by such entity or person. A Delaware
corporation may "opt out" of the Antitakeover Law with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or bylaws resulting from amendments approved by the
holders of at least a majority of the Company's outstanding voting shares. The
Company has not "opted out" of the provisions of the Antitakeover Law. See "Risk
Factors--Effect of Certain Charter Provisions; Limitation of Liability of
Directors; Antitakeover Effects of Delaware Law."
TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, LLC.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock and
there is no assurance that a significant public market for the Common Stock will
develop or be sustained after this offering. Sales of substantial amounts of
Common Stock in the public market could adversely affect the market price of the
Common Stock and could impair the Company's future ability to raise capital
through the sale of its equity securities.
Upon completion of this offering, the Company will have outstanding
15,019,019 shares of Common Stock based upon shares outstanding as of December
31, 1996. In addition to the 3,000,000 shares of Common Stock offered hereby
(assuming no exercise of the Underwriters' over-allotment option), as of the
effective date of the Registration Statement (the "Effective Date"), there will
be 12,019,019 shares of Common Stock outstanding, all of which are "restricted"
shares (the "Restricted Shares") under the Securities Act of 1933, as amended
(the "Securities Act"). Approximately 70,000 Restricted Shares will be eligible
for sale immediately following the Effective Date in reliance on Rule 144(k) of
the Securities Act. Beginning 90 days after the Effective Date approximately
1,000 Restricted Shares of Common Stock will become eligible for sale in the
public market pursuant to Rule 144 and Rule 701 of the Securities Act. Beginning
180 days after the Effective Date, approximately 9,500,000 additional Restricted
Shares of Common Stock subject to lock-up agreements between the Underwriters
and certain stockholders, including officers and directors, will become eligible
for sale in the public market (unless the Representatives elect, in their sole
discretion, the earlier release of such shares from the lock-up agreement). Of
the approximately 9,500,000 Restricted Shares that will become available for
sale in the public market beginning 180 days after the Effective Date,
approximately 9,100,000 shares will be subject to certain volume and other
resale restrictions pursuant to Rule 144. The Representatives of the
Underwriters may release the shares subject to the lock-up agreements in whole
or in part at any time with or without notice.
OPTIONS
On December 31, 1996, options to purchase 3,771,408 shares were outstanding,
of which options to purchase approximately 1,918,242 shares were then
exercisable. See "Management--1994 Stock Option Plan." The Company intends to
file, within 180 days after the date of this prospectus, a Form S-8 registration
statement under the Securities Act to register shares reserved for issuance
under this stock option plan and upon exercise of outstanding options. Shares of
Common Stock issued upon exercise of options after the effective date of the
Form S-8 will be available for sale in the public market, subject to Rule 144
volume limitations applicable to affiliates and lock-up agreements. Beginning
180 days after the Effective Date, approximately 2,403,205 shares issuable upon
the exercise of vested options will become eligible for sale.
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has beneficially
owned Restricted Shares for at least two years but less than three years, will
be entitled to sell in any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of the Common Stock
(approximately 150,190 shares immediately after this offering) or (ii) the
average weekly trading volume during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission (the "Commission"). Sales pursuant to Rule 144 are subject
to certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or 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. Under Rule 701, shares issued under certain compensatory
stock-based plans, such as the Company's option plan, may be resold under Rule
144 by non-affiliates subject only to the manner of sale requirements, and by
affiliates without regard to the two-year holding period requirements,
commencing 90 days after the date of this offering.
52
<PAGE>
Rule 144A under the Securities Act would permit the immediate sale of
Restricted Shares to qualified institutional buyers, subject to compliance with
conditions of the Rule.
LOCK-UP AGREEMENTS
All officers and directors and certain holders of Common Stock and options
to purchase Common Stock have agreed pursuant to certain "lock-up" agreements
that they will not offer, sell, contract to sell, pledge, grant any option to
sell, or otherwise dispose of, directly or indirectly, any shares of Common
Stock or securities convertible or exchangeable for Common Stock, or warrants or
other rights to purchase Common Stock for a period of 180 days after the
transfer or date of this Prospectus without the prior written consent of UBS
Securities LLC. All other holders of Common Stock and options to purchase Common
Stock have agreed pursuant to existing agreements with the Company not to sell
or otherwise transfer or dispose of any Common Stock for a period of 180 days
after the effective date of this offering.
53
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC is
acting as representative (the "Representative"), have agreed to purchase from
the Company and the Selling Stockholders the following respective number of
shares of Common Stock:
<TABLE>
<CAPTION>
TOTAL NUMBER
UNDERWRITERS OF SHARES
- ----------------------------------------------------------------------------------------- ------------
<S> <C>
UBS Securities LLC.......................................................................
------------
Total................................................................................ 3,000,000
------------
------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel. The nature
of the Underwriters' obligations is such that they are committed to purchase all
shares of Common Stock offered hereby if any of such shares are purchased.
The Representative has advised the Company and the Selling Stockholders that
the Underwriters propose to offer the shares of Common Stock directly to the
public at the offering price set forth on the cover page of this Prospectus, and
to certain dealers at such price less a commission not in excess of $ per
share. The Underwriters may allow and such dealers may reallow a concession not
in excess of $ per share to certain other dealers. After the public offering
of the shares of Common Stock, the offering price and other selling terms may be
changed by the Underwriters.
Certain of the Selling Stockholders have granted to the Underwriters an
option, exercisable no later than 30 days after the date of this Prospectus, to
purchase up to 450,000 additional shares of Common Stock to cover
over-allotments, if any, at the public offering price set forth on the cover
page of this Prospectus, less the underwriting discounts and commissions. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
Such Selling Stockholders will be obligated, pursuant to the option, to sell
such shares to the Underwriters.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
All officers, directors and significant stockholders of the Company and
certain other Selling Stockholders of the Company who beneficially own or have
dispositive power over substantially all of the shares of Common Stock
outstanding prior to this offering, have agreed that they will not, without the
prior written consent of UBS Securities LLC, offer, sell, contract to sell,
pledge, grant any option to sell or otherwise dispose of shares of Common Stock
or securities convertible, or exchangeable for, Common Stock, or warrants or
other rights to purchase shares of Common Stock, whether now owned or hereafter
acquired, for a period of 180 days after the date of this Prospectus. The
Company has agreed that it will not, without the prior written consent of UBS
Securities LLC, offer, sell or otherwise dispose of any shares of Common Stock,
for a period of 180 days after the date of this Prospectus, except that the
Company may grant additional options and issue stock under its stock option
plans or issue shares of Common Stock upon the exercise of outstanding stock
options.
The Representative has advised the Company and the Selling Stockholders that
the Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority in excess of 5% of the number of shares of
Common Stock offered hereof.
The Underwriters have reserved for sale, at the initial public offering
price, a limited number of the shares of Common Stock offered hereby for certain
customers and vendors of the Company and certain other individuals and entities
who have expressed an interest in purchasing such shares of Common Stock in the
offering. The number of shares available for sale to the general public will be
reduced to the extent such
54
<PAGE>
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the Underwriters to the general public on the same basis as other
shares offered hereby.
Prior to this offering, there has been no public market for the Common Stock
of the Company. The initial public offering price will be determined through
negotiations among the Company and the Representative. Among the factors to be
considered in determining the initial public offering price, in addition to
prevailing market and economic conditions, are certain financial information of
the Company, the history of, and the prospects for, the Company and the industry
in which it competes, an assessment of the Company's management, its past and
present operations, the prospects for, and timing of, future revenues of the
Company, the present stage of the Company's development, and the above factors
in relation to market values and various valuation measures of other companies
engaged in activities similar to those of the Company. The initial public
offering price set forth on the cover page of this Prospectus should not,
however, be considered an indication of the actual value of the Common Stock.
Such price is subject to change as a result of market conditions and other
factors. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to this offering at or above the initial offering price.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Cooley Godward LLP, San Diego, California, is acting as
counsel for the Underwriters in connection with certain legal matters relating
to the shares of Common Stock offered hereby.
EXPERTS
The consolidated financial statements as of March 31, 1996 and December 31,
1996 and for the two years in the period ended March 31, 1996 and the nine
months ended December 31, 1996 included in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement and the exhibits and schedules filed as a part
thereof. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete. In each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, and each such statement is qualified in
all respects by such reference. The Registration Statement, including exhibits
and schedules thereto, may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Seven World
Trade Center, Suite 1300, New York, New York 10048 and Northwestern Atrium
Center, 500 Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such materials may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates,
and through the National Association of Securities Dealers, Inc. located at 1735
K Street, N.W., Washington, D.C. 20006. 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 Commission's Web site is http://www.sec.gov.
55
<PAGE>
PEREGRINE SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Report of Independent Public Accountants.................................................................... F-2
Consolidated Balance Sheets--March 31, 1996 and December 31, 1996........................................... F-3
Consolidated Statements of Operations--Years ended March 31, 1995 and 1996 and Nine Months ended December
31, 1996.................................................................................................. F-4
Consolidated Statements of Stockholders' Deficit--Years ended March 31, 1995 and 1996 and Nine Months ended
December 31, 1996......................................................................................... F-5
Consolidated Statements of Cash Flows--Years ended March 31, 1995 and 1996 and Nine Months ended December
31, 1996.................................................................................................. F-6
Notes to Consolidated Financial Statements.................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Peregrine Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Peregrine
Systems, Inc. (a Delaware corporation) and subsidiaries as of March 31, 1996 and
December 31, 1996, and the related consolidated statements of operations,
stockholders' deficit and cash flows for each of the two years in the period
ended March 31, 1996, and for the nine months 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 Peregrine Systems, Inc. and
subsidiaries as of March 31, 1996 and December 31, 1996, and the results of
their operations and their cash flows for each of the two years in the period
ended March 31, 1996 and for the nine months ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
February 6, 1997
F-2
<PAGE>
PEREGRINE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash............................................................................ $ 437,000 $ 1,271,000
Accounts receivable, net of allowance for doubtful accounts of $130,000 and
$133,000, respectively........................................................ 6,255,000 9,848,000
Financed receivables............................................................ -- 1,814,000
Other current assets............................................................ 1,461,000 687,000
-------------- --------------
Total current assets........................................................ 8,153,000 13,620,000
Property and Equipment, net....................................................... 5,349,000 4,547,000
Other Assets...................................................................... 315,000 867,000
-------------- --------------
$ 13,817,000 $ 19,034,000
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank line of credit............................................................. $ 2,829,000 $ 4,314,000
Accounts payable................................................................ 1,415,000 1,018,000
Accrued expenses................................................................ 3,366,000 4,971,000
Deferred revenue................................................................ 7,568,000 8,917,000
Current portion of long-term debt............................................... 537,000 772,000
Current portion of capital lease obligation..................................... 407,000 428,000
Net liabilities of discontinued operation....................................... 1,473,000 500,000
-------------- --------------
Total current liabilities..................................................... 17,595,000 20,920,000
Capital Lease Obligation, net of current portion.................................. 332,000 42,000
Long-Term Debt, net of current portion............................................ 1,842,000 1,511,000
Deferred Revenue, net of current portion.......................................... 2,243,000 2,748,000
Other............................................................................. 255,000 166,000
-------------- --------------
Total liabilities........................................................... 22,267,000 25,387,000
-------------- --------------
Commitments and Contingencies
Stockholders' Deficit:
Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares issued
or outstanding................................................................
Common stock, $.001 par value; 50,000,000 shares authorized; 12,898,000 and
12,904,000 shares issued and outstanding, respectively........................ 13,000 13,000
Additional paid-in capital...................................................... 13,525,000 13,540,000
Accumulated deficit............................................................. (21,609,000) (19,245,000)
Unearned portion of restricted stock compensation............................... (516,000) (473,000)
Cumulative translation adjustment............................................... 137,000 (188,000)
-------------- --------------
Total stockholders' deficit................................................. (8,450,000) (6,353,000)
-------------- --------------
$ 13,817,000 $ 19,034,000
-------------- --------------
-------------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
PEREGRINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, NINE MONTHS ENDED DECEMBER 31,
------------------------------ ------------------------------
1995 1996 1995 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
Licenses...................................... $ 9,137,000 $ 11,642,000 $ 8,791,000 $ 13,932,000
Maintenance................................... 7,918,000 8,967,000 6,765,000 7,659,000
Services...................................... 2,573,000 3,157,000 2,082,000 2,936,000
-------------- -------------- -------------- --------------
Total revenues.............................. 19,628,000 23,766,000 17,638,000 24,527,000
-------------- -------------- -------------- --------------
Cost of Revenues:
Cost of licenses.............................. 393,000 415,000 320,000 155,000
Cost of maintenance and services.............. 3,573,000 3,526,000 2,668,000 3,423,000
-------------- -------------- -------------- --------------
Total cost of revenues...................... 3,966,000 3,941,000 2,988,000 3,578,000
-------------- -------------- -------------- --------------
Gross profit................................ 15,662,000 19,825,000 14,650,000 20,949,000
-------------- -------------- -------------- --------------
Operating Expenses:
Sales and marketing........................... 9,549,000 11,820,000 8,392,000 11,217,000
Research and development...................... 7,089,000 7,742,000 6,166,000 4,368,000
General and administrative.................... 2,943,000 4,529,000 2,971,000 2,634,000
-------------- -------------- -------------- --------------
Total operating expenses.................... 19,581,000 24,091,000 17,529,000 18,219,000
-------------- -------------- -------------- --------------
Operating income (loss)..................... (3,919,000) (4,266,000) (2,879,000) 2,730,000
Interest expense................................ (112,000) (389,000) (275,000) (337,000)
Other income (expense).......................... 4,082,000 103,000 101,000 (29,000)
-------------- -------------- -------------- --------------
Income (loss) from continuing operations before
income taxes.................................. 51,000 (4,552,000) (3,053,000) 2,364,000
Provision for income taxes...................... -- -- -- --
-------------- -------------- -------------- --------------
Income (loss) from continuing operations........ 51,000 (4,552,000) (3,053,000) 2,364,000
-------------- -------------- -------------- --------------
Loss from discontinued business:
Loss from operations.......................... -- (781,000) (683,000) --
Loss on disposal.............................. -- (1,078,000) -- --
-------------- -------------- -------------- --------------
Loss from discontinued business................. -- (1,859,000) (683,000) --
-------------- -------------- -------------- --------------
Net income (loss)........................... $ 51,000 $ (6,411,000) $ (3,736,000) $ 2,364,000
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Net income (loss) per share:
Income (loss) from continuing operations $ -- $ (0.37) $ (0.25) $ 0.16
Loss from discontinued operations............. -- (0.15) (0.06) --
-------------- -------------- -------------- --------------
Net income (loss)........................... $ -- $ (0.52) $ (0.31) $ 0.16
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Weighted average common and common equivalent
shares outstanding............................ 12,250,000 12,331,000 11,924,000 14,438,000
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
PEREGRINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
UNEARNED
PORTION OF
NUMBER OF ADDITIONAL RESTRICTED CUMULATIVE
SHARES COMMON PAID-IN ACCUMULATED STOCK TRANSLATION
OUTSTANDING STOCK CAPITAL DEFICIT COMPENSATION ADJUSTMENT
----------- ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1994........................... 10,012,000 $ 10,000 $ 8,519,000 $(11,324,000) $ -- $ (64,000)
Net income...................................... -- -- -- 51,000 -- --
Issuance of common stock........................ 225,000 -- 525,000 -- -- --
Equity adjustment from foreign currency
translation................................... -- -- -- -- -- 86,000
----------- ----------- ------------ ------------ ------------ -----------
Balance, March 31, 1995........................... 10,237,000 10,000 9,044,000 (11,273,000) -- 22,000
Net loss........................................ -- -- -- (6,411,000) -- --
Issuance of shares for XVT...................... 2,018,000 2,000 3,923,000 (3,925,000) -- --
Issuance of common stock........................ 43,000 -- 43,000 -- -- --
Restricted stock shares granted................. 600,000 1,000 515,000 -- (516,000) --
Equity adjustment from foreign currency
translation................................... -- -- -- -- -- 115,000
----------- ----------- ------------ ------------ ------------ -----------
Balance, March 31, 1996........................... 12,898,000 13,000 13,525,000 (21,609,000) (516,000) 137,000
Net income...................................... -- -- -- 2,364,000 -- --
Issuance of common stock........................ 6,000 -- 15,000 -- -- --
Compensation expense related to restricted
stock......................................... -- -- -- -- 43,000 --
Equity adjustment from foreign currency
translation................................... -- -- -- -- -- (325,000)
----------- ----------- ------------ ------------ ------------ -----------
Balance, December 31, 1996........................ 12,904,000 $ 13,000 $ 13,540,000 $(19,245,000) $ (473,000) $(188,000)
----------- ----------- ------------ ------------ ------------ -----------
----------- ----------- ------------ ------------ ------------ -----------
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIT
------------
<S> <C>
Balance, March 31, 1994........................... $(2,859,000)
Net income...................................... 51,000
Issuance of common stock........................ 525,000
Equity adjustment from foreign currency
translation................................... 86,000
------------
Balance, March 31, 1995........................... (2,197,000)
Net loss........................................ (6,411,000)
Issuance of shares for XVT...................... --
Issuance of common stock........................ 43,000
Restricted stock shares granted................. --
Equity adjustment from foreign currency
translation................................... 115,000
------------
Balance, March 31, 1996........................... (8,450,000)
Net income...................................... 2,364,000
Issuance of common stock........................ 15,000
Compensation expense related to restricted
stock......................................... 43,000
Equity adjustment from foreign currency
translation................................... (325,000)
------------
Balance, December 31, 1996........................ $(6,353,000)
------------
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
PEREGRINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED ------------------------
---------------------- DECEMBER DECEMBER
MARCH 31, MARCH 31, 31, 31,
1995 1996 1995 1996
---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net income (loss).................................. $ 51,000 $(6,411,000) ($3,736,000) $2,364,000
Adjustments to reconcile net income (loss) to net
cash, excluding effects of acquisitions, provided
by (used in) operating activities:
Depreciation and amortization...................... 952,000 1,540,000 1,033,000 1,227,000
Loss from discontinued business.................. -- 1,859,000 683,000 --
Gain on sale of fixed assets..................... -- (93,000) -- --
Gain on sale of product line..................... (4,025,000) -- -- --
Increase (decrease) in cash resulting from
changes in:
Accounts receivable............................ (305,000) (2,416,000) (1,577,000) (5,407,000)
Other current assets........................... (480,000) 311,000 (325,000) 74,000
Accounts payable............................... 744,000 714,000 337,000 (397,000)
Accrued expenses............................... 101,000 2,209,000 1,761,000 1,605,000
Deferred revenue............................... 1,282,000 2,364,000 2,818,000 1,854,000
Other.......................................... 113,000 507,000 (252,000) (641,000)
---------- ---------- ----------- -----------
(1,567,000) 584,000 742,000 679,000
---------- ---------- ----------- -----------
Net cash used by discontinued business............. -- (738,000) (646,000) (973,000)
---------- ---------- ----------- -----------
Total cash provided by (used in) operating
activities................................. (1,567,000) (154,000) 96,000 (294,000)
---------- ---------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment................ (1,775,000) (3,516,000) (2,582,000) (382,000)
Proceeds from sale of product line................. 2,925,000 -- -- 700,000
Proceeds from sale of subsidiary and fixed assets,
net.............................................. -- 653,000 -- --
Acquisition of certain business assets, net of cash
acquired......................................... (304,000) -- -- --
---------- ---------- ----------- -----------
Net cash provided by (used in) investing
activities................................. 846,000 (2,863,000) (2,582,000) 318,000
---------- ---------- ----------- -----------
Cash flows from financing activities:
Proceeds from bank line of credit, net............. 657,000 1,514,000 683,000 1,485,000
Proceeds from long-term debt....................... -- 3,508,000 3,508,000 287,000
Repayments of long-term debt....................... (463,000) (1,354,000) (143,000) (383,000)
Issuance of common stock........................... -- 15,000 -- 15,000
Principal payments under capital lease
obligation....................................... (89,000) (401,000) (342,000) (269,000)
---------- ---------- ----------- -----------
Net cash provided by financing activities.... 105,000 3,282,000 3,706,000 1,135,000
---------- ---------- ----------- -----------
Effect of exchange rate changes on cash.............. 86,000 115,000 (539,000) (325,000)
---------- ---------- ----------- -----------
Net increase (decrease) in cash...................... (530,000) 380,000 681,000 834,000
Cash, beginning of year.............................. 587,000 57,000 57,000 437,000
---------- ---------- ----------- -----------
Cash, end of year.................................... $ 57,000 $ 437,000 $ 738,000 $1,271,000
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest......................................... $ 131,000 $ 389,000 $ 259,000 $ 337,000
Income taxes..................................... $ 99,000 $ 36,000 $ -- $ --
Supplemental Disclosure of Non Cash Investing and
Financing Activities:
Stock issued for acquisition....................... $ -- $3,925,000 $ -- $ --
Stock issued as compensation....................... $ -- $ 28,000 $ -- $ --
Common stock issued for acquisition of business
assets........................................... $ 525,000 $ -- $ -- $ --
Liabilities assumed in acquisition of certain
business assets.................................. $ 103,000 $ -- $ -- $ --
Fixed assets acquired under capital lease.......... $1,229,000 $ -- $ -- $ --
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
PEREGRINE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATING TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 IS UNAUDITED)
1. COMPANY OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Peregrine Systems, Inc. ("Peregrine" or the "Company") is a leading provider
of Enterprise Service Desk software. The Company develops, markets and supports
SERVICECENTER, an integrated suite of applications that automates the management
of complex, enterprise-wide information technology ("IT") infrastructures.
SERVICECENTER is specifically designed to address the IT management requirements
of large organizations and is distinguished by its breadth of functionality and
its ability to be deployed across all major hardware platforms and network
operating systems and protocols. SERVICECENTER utilizes advanced client/server
and sophisticated intelligent agent technologies as well as a unique modular
architecture to enable customers to meet their strategic objectives, effectively
leverage existing IT investments and reduce the cost of IT management. The
Company sells its software and services in both North America and
internationally primarily through a direct sales force.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Peregrine
Systems, Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The unaudited interim statements of operations and cash flows and related
notes for the nine months ended December 31, 1995 have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations in accordance with generally accepted accounting principles. Results
for the interim period are not necessarily indicative of results to be expected
for the full fiscal year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company generates revenues from licensing the rights to use its software
products primarily to end users. The Company also generates revenues from
post-contract support (maintenance), consulting and training services performed
for customers who license its products.
Revenues from software license agreements are recognized currently, provided
that all of the following conditions are met: a noncancelable license agreement
has been signed, the software has been delivered, there are no material
uncertainties regarding customer acceptance, collection of the resulting
receivable is deemed probable, and no other significant vendor obligations
exist. Revenues from maintenance services are recognized ratably over the term
of the maintenance period, generally one year. Maintenance revenues which are
bundled
F-7
<PAGE>
PEREGRINE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 IS UNAUDITED)
1. COMPANY OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
with license agreements are unbundled using vendor specific objective evidence.
Consulting revenues are primarily related to implementation services performed
on a time and material basis under separate service agreements for the
installation of the Company's software products. Revenues from consulting and
training services are recognized as the respective services are performed.
Cost of license revenues consists primarily of amounts paid to third-party
vendors, product media, manuals, packaging materials, personnel and related
shipping costs. Cost of maintenance and service revenues consists primarily of
salaries, benefits, and allocated overhead costs incurred in providing telephone
support, consulting services, and training to customers.
BUSINESS RISK AND CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk principally consist of trade and other
receivables. The Company performs ongoing credit evaluations of its customers
financial condition. Management believes that the concentration of credit risk
with respect to trade receivables is further mitigated as the Company's customer
base consists primarily of Fortune 1000 companies. The Company maintains
reserves for credit losses and such losses historically have been within
management expectations.
A significant portion of the Company's revenues are from its SERVICECENTER
product and related services. Any factor adversely affecting the pricing of,
demand for or market acceptance of, the SERVICECENTER product could have a
material adverse affect on the Company's business, financial condition and
results of operations.
See "Risk Factors" for a more complete analysis of risks affecting the
Company's business.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of certain of the Company's financial instruments,
including accounts receivable, accounts payable and accrued expenses
approximates fair value due to their short maturities. Based on borrowing rates
currently available to the Company for loans with similar terms, the carrying
value of its notes payable, capital lease obligations and borrowings under the
Company's line of credit approximates fair value.
FINANCED RECEIVABLES
Financed receivables represent trade accounts receivable for which the
payment terms extend beyond the Company's customary payment terms. These
receivables are substantially all due within the next twelve months. Amounts due
greater than one year from the balance sheet date are included in other assets
in the accompanying consolidated financial statements. The majority of these
long term receivables relate to items included in long-term deferred revenues.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided using the straight-line method over estimated useful lives, generally
three to five years for furniture and equipment. Amortization of leasehold
improvements is provided using the straight-line method over the lesser of the
useful lives of the assets or the terms of the related leases.
F-8
<PAGE>
PEREGRINE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 IS UNAUDITED)
1. COMPANY OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Maintenance and repairs are charged to operations as incurred. When assets
are sold, or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is included in
operations for the applicable period.
CAPITALIZED COMPUTER SOFTWARE
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed", software development costs are capitalized from the time the
product's technological feasibility has been established until the product is
released for sale to the general public. During the two years in the period
ended March 31, 1996 and during the nine months ended December 31, 1996 no
software development costs were capitalized as the costs incurred between
achieving technological feasibility and product release were minimal. Research
and development costs, including the design of product enhancements, are
expensed as incurred.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign operations are translated
into United States dollars at the exchange rate in effect at the balance sheet
date, and revenue and expenses are translated at the average exchange rate for
the period. Translation gains or losses of the Company's foreign subsidiaries
are not included in operations but are reported as a separate component of
stockholders' deficit. The functional currency of those subsidiaries is the
primary currency in which the subsidiary operates. Gains and losses on
transactions in denominations other than the functional currency of the
Company's foreign operations, while not significant in amount, are included in
the results of operations. The Company does not enter into foreign exchange
transactions to hedge its balance sheet exposures or intercompany balances
against movements in foreign exchange rates.
INCOME TAXES
Deferred taxes are provided utilizing the liability method as prescribed by
SFAS No. 109, "Accounting for Income Taxes," whereby deferred tax assets are
recognized for deductible temporary differences and operating loss
carryforwards, and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
common and common equivalent shares outstanding during the periods. Common
equivalent shares are included in the per share calculations where the effect of
their inclusion would be dilutive. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83, common and common equivalent shares
issued by the Company during the twelve months preceding the initial filing of
the Company's initial public offering, using
F-9
<PAGE>
PEREGRINE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 IS UNAUDITED)
1. COMPANY OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the treasury stock method and the midpoint of the initial filing range, have
been included in the calculation of Net income (loss) per share for all periods
presented.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
Compensation", which provides companies the option to account for employee stock
compensation awards based on their estimated fair value at the date of grant
resulting in a charge to operations in the period the awards are granted or to
present pro forma footnote disclosure describing the effect on the Company's
operations and per share data. SFAS No. 123 is effective for financial
statements with fiscal years beginning after December 15, 1995. As permitted,
the Company has not adopted the recognition and measurement aspects of SFAS No.
123 but has adopted the disclosure requirements in the consolidated financial
statements as of April 1, 1996.
In June 1996, the American Institute of Certified Public Accountants issued
"Proposed Statement of Position: Software Revenue Recognition," which if
adopted, will be effective for years beginning after December 31, 1996. The
Company has reviewed the proposed statement of position and believes its
adoption will not have a material effect on the Company's financial position or
results of operations.
2. DISCONTINUED OPERATION
During fiscal 1996, the Company acquired XVT Software Inc. ("XVT"), with the
Company issuing approximately 2,018,000 shares of its common stock in exchange
for all of XVT's issued and outstanding shares of common and preferred stock.
Effective June 1, 1995 the majority stockholder of the Company owned
substantially all of the issued and outstanding shares of XVT. Due to the common
majority ownership of the two companies, XVT's results of operations were
consolidated with Peregrine effective June 1, 1995. XVT's acquired assets and
liabilities were accounted for at historical cost. On the date of the
acquisition, XVT's liabilities exceeded its assets by approximately $915,000.
In January 1996, management of the Company determined that maintaining an
interest in XVT was not consistent with the Company's business strategy,
primarily as a result of, among other things, the dissimilarity of the companies
business operations, customer bases, technology, products and services.
Accordingly, at that time, the Company's Board of Directors adopted a plan to
discontinue the operations of XVT. As a result of this decision, XVT has been
presented as a discontinued operation in the accompanying consolidated financial
statements.
In September 1996, the Company sold substantially all of the net assets of
XVT. The loss on disposal of approximately $1,100,000, as reflected in the
accompanying consolidated statement of operations, includes the loss on the sale
of the net assets of approximately $1,200,000 reduced by the results of
operations from February 1, 1996 through the date of disposal.
F-10
<PAGE>
PEREGRINE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 IS UNAUDITED)
2. DISCONTINUED OPERATION (CONTINUED)
The operating results of the discontinued operation are summarized as
follows:
For the period June 1, 1995 through January 31, 1996:
<TABLE>
<S> <C>
Revenues...................................................... $8,483,000
----------
----------
Net loss...................................................... $ (781,000)
----------
----------
</TABLE>
The net liabilities of the discontinued operation as of March 31, 1996 and
December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
------------- ------------
<S> <C> <C>
Current assets, primarily accounts receivable................. $ 1,600,000 $ --
Non current assets............................................ 1,053,000 --
Current liabilities, primarily deferred revenue and accrued
expenses.................................................... 4,126,000 500,000
------------- ------------
Net liabilities of discontinued operation..................... $ 1,473,000 $ 500,000
------------- ------------
------------- ------------
</TABLE>
3. BALANCE SHEET COMPONENTS
Other current assets consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
------------- ------------
<S> <C> <C>
Receivable from sale of product line (Note 4)................. $ 950,000 $ 250,000
Prepaid expenses and other.................................... 393,000 312,000
Employee advances............................................. 118,000 125,000
------------- ------------
$ 1,461,000 $ 687,000
------------- ------------
------------- ------------
</TABLE>
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
-------------- --------------
<S> <C> <C>
Furniture and equipment..................................... $ 6,835,000 $ 7,130,000
Leasehold improvements...................................... 1,881,000 1,974,000
-------------- --------------
8,716,000 9,104,000
Less accumulated depreciation............................... (3,367,000) (4,557,000)
-------------- --------------
$ 5,349,000 $ 4,547,000
-------------- --------------
-------------- --------------
</TABLE>
F-11
<PAGE>
PEREGRINE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 IS UNAUDITED)
3. BALANCE SHEET COMPONENTS (CONTINUED)
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
------------- -------------
<S> <C> <C>
Salaries and benefits......................................... $ 888,000 $ 557,000
Commissions................................................... 834,000 1,884,000
Deferred rent................................................. 290,000 336,000
Legal......................................................... 305,000 245,000
Taxes......................................................... 227,000 473,000
Other......................................................... 822,000 1,476,000
------------- -------------
$ 3,366,000 $ 4,971,000
------------- -------------
------------- -------------
</TABLE>
4. SALE OF PRODUCT LINE
In April 1994, the Company sold the rights to one of its products for
$4,025,000. The gain on the sale of the software product right of $4,025,000 is
included in other income in the March 31, 1995 consolidated statement of
operations. Amounts due the Company from the sale at December 31, 1996 were
$400,000 and at March 31, 1996 were $1,100,000. The remaining balance at
December 31, 1996 is due as follows: $250,000 in fiscal 1997 and $150,000 in
fiscal 1998. See Note 3.
5. EMPLOYEE ADVANCES
During fiscal 1995, the Company advanced its former President and Chief
Executive Officer and another employee amounts which were expected to be repaid
from future bonuses and commissions, as earned. During fiscal 1996, all advances
to the former President and Chief Executive Officer totaling $420,000 were
forgiven and charged to operations.
6. DEBT
LINE OF CREDIT
At March 31, 1996, the Company had a line of credit with a bank which
provided for maximum borrowings of $4,000,000. In December 1996, the Company and
the bank amended the line of credit to increase the maximum available commitment
to $4,500,000 and to extend the maturity date to November 30, 1997. The maximum
available commitment is reduced by outstanding letters of credit ($128,500 at
December 31, 1996). Borrowings under the agreement bear interest at the bank's
prime rate (8.25% at December 31, 1996). During the nine months ended December
31, 1996 the weighted average interest rate under the agreement was
approximately 8.5%, with interest only payable monthly. The line of credit is
personally guaranteed by the Company's majority stockholder and is
collateralized by the Company's accounts receivable, equipment and certain other
assets.
F-12
<PAGE>
PEREGRINE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 IS UNAUDITED)
6. DEBT (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
------------- -------------
<S> <C> <C>
Note payable to bank. Note secured by trade receivables, fixed assets and guaranteed
by the majority stockholder. Interest at prime (8.25% as of December 31, 1996).
Equal monthly installments of principal of $37,000 plus interest, due November 13,
2000.............................................................................. $ 2,017,000 $ 1,723,000
Note payable to lessor. Unsecured; interest at 8%. Monthly payments of principal and
interest of $4,200 through November 2003.......................................... 285,000 259,000
Advance from majority stockholder................................................... -- 250,000
Other............................................................................... 77,000 51,000
------------- -------------
2,379,000 2,283,000
Less current portion................................................................ (537,000) (772,000)
------------- -------------
$ 1,842,000 $ 1,511,000
------------- -------------
------------- -------------
</TABLE>
Principal payments on long-term debt due as of March 31 are as follows:
<TABLE>
<S> <C>
January 1, 1997 - March 31, 1997.............................. $ 130,000
1998.......................................................... 759,000
1999.......................................................... 473,000
2000.......................................................... 476,000
2001.......................................................... 332,000
2002.......................................................... 113,000
----------
$2,283,000
----------
----------
</TABLE>
F-13
<PAGE>
PEREGRINE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 IS UNAUDITED)
7. INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax assets are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 2,942,000 $ 1,644,000
Deferred maintenance revenue.............................. 1,158,000 1,148,000
Other..................................................... 603,000 884,000
-------------- --------------
4,703,000 3,676,000
Deferred tax liabilities:
Depreciation.............................................. (135,000) (295,000)
Deferred revenue.......................................... (440,000) (160,000)
-------------- --------------
4,128,000 3,221,000
Valuation allowance......................................... (4,128,000) (3,221,000)
-------------- --------------
$ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
A reconciliation between expected income taxes using the statutory federal
income tax rate to the effective income tax provision is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
MARCH 31, ------------
--------------------------- DECEMBER 31,
1995 1996 1996
----------- -------------- ------------
<S> <C> <C> <C>
Federal statutory rate.......................... $ 31,000 $ (2,180,000) $ 805,000
State tax, net of federal benefit............... 5,000 (385,000) 145,000
Imputed interest................................ 85,000 75,000 114,000
Foreign losses (not benefited).................. 759,000 418,000 --
Other........................................... (27,000) 152,000 (157,000)
Change in valuation allowance................... (853,000) 1,920,000 (907,000)
----------- -------------- ------------
$ -- $ -- $ --
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
As of December 31, 1996, the Company has net operating loss carryforwards of
approximately $1,100,000 for federal tax reporting purposes, which expire
beginning in 2004. In certain circumstances, as specified in the Internal
Revenue Code, a fifty percent or more ownership change by certain combinations
of the Company's stockholders during any three year period could result in a
limitation on the Company's ability to utilize its net operating loss
carryforwards. As of December 31, 1996 the Company also has foreign net
operating loss carryforwards of approximately $3,700,000.
A valuation allowance has been recorded to offset completely the carrying
value of the deferred tax asset due to the uncertainty surrounding its
realization, including a lack of earnings history and the variability of
operating results. Management evaluates on a quarterly basis the recoverability
of the deferred tax assets and
F-14
<PAGE>
PEREGRINE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 IS UNAUDITED)
7. INCOME TAXES (CONTINUED)
the amount of the valuation allowance. At such time as it is determined that it
is more likely than not that the deferred tax assets are realizable, the
valuation allowance will be reduced.
8. SALE OF DATABASE SOFTWARE SUBSIDIARY
On October 31, 1995, the Company sold all of the issued and outstanding
shares of common stock of its database software subsidiary ("the Subsidiary")
for approximately $560,000, to a company which was controlled by the Company's
majority stockholder. In accordance with the terms of the Acquisition Agreement
(the Agreement), the Company will receive a royalty of 7 percent of gross
license revenue derived from certain licensed sales of the Subsidiary, as
defined in the Agreement, commencing November 1, 1995. The royalty payments to
be received by the Company under the Agreement will be limited to $600,000 in
any single calendar period, as defined, and will be limited to an aggregate of
$677,000. There were no royalties earned during the year ended March 31, 1996 or
the nine months ended December 31, 1996. There was no material gain or loss
realized on the sale of the Subsidiary. The Company provides certain computer
and administrative services to the former subsidiary for a monthly fee of
$37,500.
9. COMMITMENTS AND CONTINGENCIES
The Company leases certain buildings and equipment under noncancelable
operating lease agreements. The leases generally require the Company to pay all
executory costs such as taxes, insurance and maintenance related to the leased
assets. Certain of the leases contain provisions for periodic rate escalations
to reflect cost-of-living increases. Rent expense for such leases totaled
approximately $855,000 and $1,961,000, in fiscal 1995 and 1996, and $1,471,000
and $1,559,000 for the nine months ended December 31,1995 and 1996,
respectively.
Future minimum lease payments for capital and operating leases, excluding
sublease income, at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
------------- -----------
<S> <C> <C>
January 1, 1997 - March 31, 1997................................ $ 340,000 $ 114,000
1998............................................................ 1,397,000 378,000
1999............................................................ 1,420,000 --
2000............................................................ 1,379,000 --
2001............................................................ 1,401,000 --
2002............................................................ 1,469,000 --
Thereafter...................................................... 1,538,000 --
------------- -----------
Total minimum lease payments................................ $ 8,944,000 492,000
-------------
-------------
Amount representing interest.................................... 22,000
-----------
$ 470,000
-----------
-----------
</TABLE>
F-15
<PAGE>
PEREGRINE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 IS UNAUDITED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In January, 1995, the Company entered into a three year capital lease with a
8.2% interest rate for computer equipment. At December 31, 1996, $1,194,000 of
such leased equipment is included in property and equipment, net of accumulated
depreciation of $668,000.
The Company subleases office space at its corporate headquarters to an
affiliated company. The term of the sublease is from June, 1996 to October, 2003
and requires monthly rental payments of approximately $17,000.
During fiscal 1995, the Company acquired the assets of a company for
$181,000 in cash plus 225,000 shares of the Company's common stock. The
acquisition was accounted for as a purchase. The acquisition agreement included
provisions for additional shares to be issued to the seller over a three year
period if revenue generated from certain of the products acquired achieve
stipulated amounts, as defined in the acquisition agreement. During fiscal 1996,
12,000 shares of common stock were issued in accordance with the provisions of
the agreement. No shares were required to be issued during the nine months ended
December 31, 1996. Up to an additional 90,000 shares of common stock may be
earned in the future. In connection with the acquisition, the Company recorded a
one time charge to fiscal 1995 operations of $606,000 for purchased research and
development. The remaining net assets acquired were not significant.
The Company pays commissions to employees who have authored certain of the
Company's products based on a percentage of the respective product's sales.
Commissions paid under such agreements are included in research and development
expense in the accompanying consolidated statements of operations and were
approximately $700,000 and $600,000 for fiscal 1995 and 1996 and $602,000 and
$789,000 for the nine months ended December 31, 1995 and December 31, 1996,
respectively.
The Company is involved in various legal proceedings and claims arising in
the ordinary course of business, none of which, in the opinion of management, is
expected to have a material adverse effect on the Company's consolidated
financial position or results of operations.
10. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company has authorized 5,000,000 $.001 par value undesignated preferred
shares, none of which were issued or outstanding at March 31, 1996 and December
31, 1996. The Board of Directors has the authority to issue the preferred stock
in one or more series and to fix the price, rights, preferences, privileges, and
restrictions, including dividend rights and rates, conversion and voting rights,
and redemption terms and pricing without any further vote or action by the
Company's stockholders. See Note 13.
STOCK OPTIONS
The Company has three stock option plans, the 1990 Nonqualified Stock Option
Plan ("1990 Plan"), the 1991 Nonqualified Stock Option Plan ("1991 Plan"), and
the 1994 Stock Option Plan ("1994 Plan").
The Company may no longer grant options under the 1990 and 1991 Plans. The
Company may grant up to 2,563,560 options under the 1994 Plan. Through December
31, 1996 the Company has granted options to purchase 536,250, 997,500, and
2,352,650 shares, respectively, under these plans. Under the Plans, the
F-16
<PAGE>
PEREGRINE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
option exercise price is determined by the Board of Directors on a per-grant
basis, but shall not be less than fair market value. Option grants under all
three stock option plans generally vest over four years.
A summary of the status of the Company's three stock option plans at March
31, 1995 and 1996 and December 31, 1996 as well as changes during the periods
then ended is as follows:
<TABLE>
<CAPTION>
MARCH 31, 1995 MARCH 31, 1996 DECEMBER 31, 1996
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000) PRICE (000) PRICE (000) PRICE
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year....... 2,411.2 $ 1.18 2,981.2 $ 1.42 3,537.4 $ 1.79
--------- ----- --------- ----- --------- -----
Granted.............................. 885.0 2.34 1,440.4 2.37 830.4 2.34
Exercised............................ -- -- (30.0) 1.01 (6.6) 0.83
Forfeited............................ -- -- -- -- -- --
Expired.............................. (315.0) .51 (854.2) 1.18 (474.8) 1.34
--------- ----- --------- ----- --------- -----
Outstanding, end of year............. 2,981.2 $ 1.42 3,537.4 $ 1.79 3,886.4 $ 1.83
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
Exercisable, end of year............. 1,481.2 $ 1.26 1,726.0 $ 1.34 2,033.2 $ 1.93
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
Weighted average fair value of
options granted.................... $ -- $ -- $ --
----- ----- -----
----- ----- -----
</TABLE>
701,400 of the 3,886,400 options outstanding at December 31, 1996 have an
exercise price of $1.34. 3,157,600 of the options outstanding have an exercise
price of $2.34. The remaining 27,400 options have an exercise price of $4.24.
Because the options awarded to date have been granted at significant
premiums, under the minimum value pricing model the options were determined to
have no value. As a result, had compensation cost for stock options granted
during the year ended March 31, 1996 and the nine months ended December 31, 1996
been determined consistent with SFAS No. 123, the Company's net income (loss)
and related per share amounts on a pro forma basis would be the same as reported
in the accompanying consolidated statements of operations for the year ended
March 31, 1996 and the nine months ended December 31, 1996.
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to March 31, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The fair value of each option grant is estimated on the date of grant using
the minimum value method of option pricing model with the following assumptions
used for the twenty-one option grants in fiscal 1996 and the nine months ended
December 31, 1996: weighted average risk-free interest rate of 6.63 percent;
expected dividend yields of 0.00 percent; and an expected life of 10 years.
F-17
<PAGE>
PEREGRINE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
RESTRICTED STOCK
During fiscal 1996, the Company granted 600,000 shares of nontransferable
common stock under restricted stock agreements to certain employees. These
shares were valued at a fair value of $0.86 as determined by an independent
appraisal. The restrictions lapse on the shares ten years from the date of grant
or, if the Company achieves certain objectives for earnings growth from fiscal
1997 through fiscal 2002, or, on a change in control of the Company. The
unearned portion of restricted stock is included in stockholders' deficit and is
being amortized as compensation expense on a straight-line basis over the
vesting period.
11. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Employee Savings Plan ("Plan") covering
substantially all employees. The Plan provides for savings and pension benefits
and is subject to the provisions of the Employee Retirement Income Security Act
of 1974. Those employees who participate in the Plan are entitled to make
contributions of up to 20 percent of their compensation, limited by IRS
statutory contribution limits. In addition to employee contributions, the
Company also contributes to the Plan by matching 25% of employee contributions.
Amounts contributed to the Employee Savings Plan by the Company during fiscal
1995 and 1996, and the nine months ended December 31, 1995 and 1996, were
$170,000 and $203,000, $126,000 and $121,000, respectively.
12. GEOGRAPHIC OPERATIONS
The Company operates exclusively in the computer software industry. A
summary of the Company's continuing operations by geographic area is presented
below:
<TABLE>
<CAPTION>
UNITED
STATES EUROPE CONSOLIDATED
-------------- ------------- --------------
<S> <C> <C> <C>
Year ended March 31, 1995
Revenues........................................................ $ 16,216,000 $ 3,412,000 $ 19,628,000
Operating profit (loss)......................................... 481,000 (430,000) 51,000
Identifiable assets............................................. 6,855,000 2,932,000 9,787,000
Year ended March 31, 1996
Revenues........................................................ $ 16,818,000 $ 6,948,000 $ 23,766,000
Operating profit (loss)......................................... (5,010,000) 458,000 (4,552,000)
Identifiable assets............................................. 9,427,000 4,390,000 13,817,000
Nine months ended December 31, 1995
Revenues........................................................ $ 13,047,000 $ 4,591,000 $ 17,638,000
Operating profit (loss)......................................... (3,397,000) 344,000 (3,053,000)
Identifiable assets............................................. 14,130,000 2,285,000 16,415,000
Nine months ended December 31, 1996
Revenues........................................................ $ 17,776,000 $ 6,751,000 $ 24,527,000
Operating profit................................................ 1,902,000 462,000 2,364,000
Identifiable assets............................................. 14,351,000 4,683,000 19,034,000
</TABLE>
F-18
<PAGE>
PEREGRINE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE NINE MONTHS ENDED
DECEMBER 31, 1995 IS UNAUDITED)
13. SUBSEQUENT EVENTS
RECAPITALIZATION AND STOCK SPLIT
In February 1997, the Board of Directors adopted, and the stockholders
approved, (i) an increase in the number of authorized common shares from 20 to
50 million shares, and an increase in the number of authorized preferred shares
from 2 to 5 million shares, and (ii) a two-for-one stock split of the Company's
common stock. These events have been retroactively reflected in the accompanying
consolidated financial statements.
1997 EMPLOYEE STOCK PURCHASE PLAN
In February 1997, the Board adopted, and the stockholders approved, the 1997
Employee Stock Purchase Plan ("Purchase Plan"). The Company has reserved 250,000
shares of common stock for issuance under the Purchase Plan. The Purchase Plan
will enable eligible employees to purchase common stock at 85% of the lower of
the fair market value of the Company's common stock on the first or last day of
each option purchase period, as defined.
DIRECTOR OPTION PLAN
In February 1997, the Board adopted, and the stockholders approved, the 1997
Director Option Plan ("Director Plan"). The Company has reserved 150,000 shares
of common stock for issuance under the Director Plan. The Director Plan provides
an initial grant of options to purchase 25,000 shares of common stock to each
new eligible outside director of the Company upon election to the Board. In
addition, commencing with the 1998 Annual Stockholders meeting, such eligible
outside directors are granted an option to purchase 5,000 shares of common stock
at each annual meeting. The exercise price per share of all options granted
under the Director Plan will be equal to the fair market value of the Company's
common stock on the date of grant. Options may be granted for periods up to ten
years and generally vest over four years.
1994 STOCK OPTION PLAN
In February 1997, the Board adopted, and the stockholders approved, an
increase in the number of shares reserved under the 1994 Stock Option Plan of
600,000 shares.
F-19
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED HEREIN AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. 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
DATE SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 5
Use of Proceeds................................. 13
Dividend Policy................................. 13
Capitalization.................................. 14
Dilution........................................ 15
Selected Financial Data......................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 17
Business........................................ 25
Management...................................... 36
Certain Transactions............................ 46
Principal and Selling Stockholders.............. 48
Description of Capital Stock.................... 50
Shares Eligible for Future Sale................. 52
Underwriting.................................... 54
Legal Matters................................... 55
Experts......................................... 55
Additional Information.......................... 55
Index to Financial Statements................... F-1
</TABLE>
---------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS 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.
3,000,000 Shares
[LOGO]
Common Stock
----------------
PROSPECTUS
, 1997
------------------------
UBS SECURITIES
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts, commissions and certain accountable expenses, payable by
the Company in connection with the sale of Common Stock being registered. All
amounts are estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 12,546
NASD Filing Fee................................................. 4,640
Nasdaq National Market Listing Fee.............................. 50,000
Printing Fees and Expenses...................................... 125,000
Legal Fees and Expenses......................................... 250,000
Accounting Fees and Expenses.................................... 150,000
Blue Sky Fees and Expenses...................................... 5,000
Transfer Agent and Registrar Fees............................... 15,000
Miscellaneous................................................... 37,814
---------
Total....................................................... $ 650,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article IX of the Registrant's Amended and Restated Certificate of
Incorporation provides for the indemnification of directors to the fullest
extent permissible under Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the corporation if
such person acted in good faith and in a manner reasonably believed to be in and
not opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, the indemnified party had no reason to believe
his conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1994, the Registrant has issued and sold the following
unregistered securities:
1. From January 1, 1994 to December 31, 1996, the Registrant issued and
sold 36,500 shares of Common Stock to employees at prices ranging from $1.34
to $2.34 upon exercise of stock options pursuant to Registrant's 1991
Nonqualified Stock Option Plan and its 1994 Stock Option Plan.
2. Pursuant to an Agreement and Plan of Reorganization dated March 16,
1995, whereby the Company acquired Bridge Technology, Inc. ("Bridge
Technology"), the Company issued 237,000 shares of its Common Stock to the
selling stockholder of Bridge Technology.
3. On November 1, 1995 the Registrant issued Alan H. Hunt, the
Company's President and Chief Executive Officer, an aggregate of 400,000
shares of Common Stock and David A. Farley, the Company's Vice President,
Finance, and Chief Financial Officer, an aggregate of 200,000 shares under
Restricted Stock Agreements. The shares under these agreements vest
incrementally over ten years,
II-1
<PAGE>
subject to earlier vesting over six years contingent upon the Company's
achieving certain financial milestones.
4. Pursuant to an Agreement and Plan of Reorganization dated as of
November 30, 1995, whereby the Company acquired XVT Software, Inc. ("XVT"),
the Company issued 2,018,808 shares of its Common Stock to the selling
stockholders of XVT.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act as transactions by an issuer not involving a public
offering or transactions pursuant to compensatory benefit plans and contracts
relating to compensation as provided under such Rule 701. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions. All recipients had
adequate access, through their relationships with the Company, to information
about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation filed with the Delaware Secretary of State on
February 28, 1994.
3.2 Bylaws, as amended.
*4.1 Specimen Common Stock Certificate.
4.2 See Exhibit 3.1.
4.3 See Exhibit 3.2.
4.4 Registration Rights Agreement dated as of March 16, 1995 by and among the
Registrant and Robert B. Ashton.
*5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Nonqualified Stock Option Plan, as amended, and forms of Stock Option Agreement
and Stock Buy-Sell Agreement.
10.2 1991 Nonqualified Stock Option Plan, as amended, and forms of Stock Option
Agreement and Stock Buy-Sell Agreement.
10.3 1994 Stock Option Plan, as amended through February 6, 1997, including 1995
Stock Option Plan for French Employees.
10.4 Form of Stock Option Agreement under 1994 Stock Option Plan, as amended through
February 6, 1997.
10.5 1997 Employee Stock Purchase Plan.
10.6 1997 Director Option Plan.
10.7 Form of Indemnification Agreement for directors and officers.
10.8 Loan Agreement dated November 13, 1995 by and between the Registrant and
NationsBank of Texas, N.A., as amended through December 16, 1996.
10.9 Sublease between the Registrant and JMI, Inc.
10.10 Lease between the Registrant and The Mutual Life Insurance Company of New York
dated October 26, 1994, as amended in August 1995, and Notifications of
Assignment dated June 14, 1996 and December 9, 1996 for the Registrant's
headquarters at 12670 High Bluff Drive, San Diego, CA.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.11 Lease between the Registrant and The Mutual Life Insurance Company of New York
dated October 26, 1994, as amended in August 1995, and Notification of
Assignment dated December 9, 1996 for the Registrant's headquarters at 12680
High Bluff Drive, San Diego, CA.
10.12 Severance Settlement Agreement and Release of Claims between James W. Butler
and the Company.
10.13 XVT Stock Option Agreement dated January 18, 1995 between the Registrant and
William Holsten, as amended on October 3, 1996.
10.14 XVT Stock Option Agreement dated January 18, 1995 between the Registrant and
Christopher Cole, as amended on October 3, 1996.
+10.15 Restricted Stock Agreement dated November 1, 1995 between the Registrant and
Alan Hunt.
+10.16 Restricted Stock Agreement dated November 1, 1995 between the Registrant and
David Farley.
10.17 Stock Option Agreement dated as of December 7, 1990 between the Registrant and
Christopher Cole, as amended on October 26, 1995.
10.18 Form of Stock Option Agreement under 1995 Stock Option Plan for French
Employees.
10.19 Form of Stock Option Agreement under 1997 Director Option Plan.
10.20 Continuing and Unconditional Guaranty dated November 13, 1995 between
NationsBank of Texas, N.A. and John Moores, as amended through December 16,
1996.
10.21 Promissory Note dated December 16, 1996 delivered by the Registrant to
NationsBank of Texas, N.A.
10.22 Revolving Promissory Note dated December 16, 1996 delivered by the Registrant
to NationsBank of Texas, N.A.
10.23 Security Agreement dated November 13, 1995 between the Registrant and
NationsBank of Texas, N.A.
11.1 Calculation of earnings per share.
21.1 List of Subsidiaries of the Registrant.
*23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included
in Exhibit 5).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions
of this exhibit pursuant to a request for confidential treatment filed with
the Securities and Exchange Commission. Omitted portions have been filed
separately with the Commission.
(b) Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not, applicable or is shown in the financial
statements or notes thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereto, which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement; and (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of this offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, 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 San
Diego, State of California, on the seventh day of February 1997.
PEREGRINE SYSTEMS, INC.
By: /s/ ALAN H. HUNT
-----------------------------------------
Alan H. Hunt
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Alan H. Hunt and David A. Farley and each
one of them, acting individually and without the other, as his attorney-in-fact,
each with full power of substitution, for him in any and all capacities, to sign
any and all amendments to this Registration Statement (including post-effective
amendments), and to sign any registration statement for the same offering
covered by this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all
post-effective amendments thereto, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes may 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
- ------------------------------------------------------ ---------------------------------- ---------------------
<C> <S> <C>
/s/ ALAN H. HUNT President and Chief Executive
------------------------------------------- Officer (Principal Executive February 7, 1997
(Alan H. Hunt) Officer) and Director
/s/ DAVID A. FARLEY Chief Financial Officer (Principal
------------------------------------------- Financial and Accounting February 7, 1997
(David A. Farley) Officer) and Director
/s/ JOHN J. MOORES
------------------------------------------- Chairman of the Board of Directors February 5, 1997
(John J. Moores)
------------------------------------------- Director February 7, 1997
(Christopher A. Cole)
/s/ RICHARD A. HOSLEY II
------------------------------------------- Director February 7, 1997
(Richard A. Hosley II)
/s/ CHARLES E. NOELL III
------------------------------------------- Director February 7, 1997
(Charles E. Noell III)
/s/ NORRIS VAN DEN BERG
------------------------------------------- Director February 7, 1997
(Norris van den Berg)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------- -------------------
<C> <S> <C>
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation filed with the Delaware Secretary of State on February 28,
1994.
3.2 Bylaws, as amended.
*4.1 Specimen Common Stock Certificate.
4.2 See Exhibit 3.1.
4.3 See Exhibit 3.2.
4.4 Registration Rights Agreement dated as of March 16, 1995 by and among the Registrant and
Robert B. Ashton.
*5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Nonqualified Stock Option Plan, as amended, and forms of Stock Option Agreement and Stock
Buy-Sell Agreement.
10.2 1991 Nonqualified Stock Option Plan, as amended, and forms of Stock Option Agreement and
Stock Buy-Sell Agreement.
10.3 1994 Stock Option Plan, as amended through February 6, 1997, including 1995 Stock Option
Plan for French Employees.
10.4 Form of Stock Option Agreement under 1994 Stock Option Plan, as amended through February 6,
1997.
10.5 1997 Employee Stock Purchase Plan.
10.6 1997 Director Option Plan.
10.7 Form of Indemnification Agreement for directors and officers.
10.8 Loan Agreement dated November 13, 1995 by and between the Registrant and NationsBank of
Texas, N.A., as amended through December 16, 1996.
10.9 Sublease between the Registrant and JMI, Inc.
10.10 Lease between the Registrant and The Mutual Life Insurance Company of New York dated
October 26, 1994, as amended in August 1995, and Notifications of Assignment dated June
14, 1996 and December 9, 1996 for the Registrant's headquarters at 12670 High Bluff
Drive, San Diego, CA.
10.11 Lease between the Registrant and The Mutual Life Insurance Company of New York dated
October 26, 1994, as amended in August 1995, and Notification of Assignment dated
December 9, 1996 for the Registrant's headquarters at 12680 High Bluff Drive, San Diego,
CA.
10.12 Severance Settlement Agreement and Release of Claims between James W. Butler and the
Company.
10.13 XVT Stock Option Agreement dated January 18, 1995 between the Registrant and William
Holsten, as amended on October 3, 1996.
10.14 XVT Stock Option Agreement dated January 18, 1995 between the Registrant and Christopher
Cole, as amended on October 3, 1996.
+10.15 Restricted Stock Agreement dated November 1, 1995 between the Registrant and Alan Hunt.
+10.16 Restricted Stock Agreement dated November 1, 1995 between the Registrant and David Farley.
10.17 Stock Option Agreement dated as of December 7, 1990 between the Registrant and Christopher
Cole, as amended on October 26, 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------- -------------------
<C> <S> <C>
10.18 Form of Stock Option Agreement under 1995 Stock Option Plan for French Employees.
10.19 Form of Stock Option Agreement under 1997 Director Option Plan.
10.20 Continuing and Unconditional Guaranty dated November 13, 1995 between NationsBank of Texas,
N.A. and John Moores, as amended through December 16, 1996.
10.21 Promissory Note dated December 16, 1996 delivered by the Registrant to NationsBank of
Texas, N.A.
10.22 Revolving Promissory Note dated December 16, 1996 delivered by the Registrant to
NationsBank of Texas, N.A.
10.23 Security Agreement dated November 13, 1995 between the Registrant and NationsBank of Texas,
N.A.
11.1 Calculation of earnings per share.
21.1 List of Subsidiaries of the Registrant.
*23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit
5).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions
of this exhibit pursuant to a request for confidential treatment filed with
the Securities and Exchange Commission. Omitted portions have been filed
separately with the Commission.
<PAGE>
CERTIFICATE OF INCORPORATION
---------------------------
OF
--
PEREGRINE SYSTEMS, INC.
----------------------
Article I.
The name of the corporation is Peregrine Systems, Inc. (the "Corporation").
Article II.
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
Article III.
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.
Article IV.
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 Common Stock which this Corporation shall have the authority to issue
shall be 20,000,000, $.001 par value, and the total number of shares of
Preferred Stock this Corporation shall have authority to issue shall be
2,000,000, $.001 par value.
The 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, may increase or decrease (but not below the
number of shares in any such series then outstanding) the number of shares of
any series subsequent to the issue of shares of that series.
<PAGE>
Article V.
The name and mailing address of the incorporator are as follows:
Bruce D. Bower
c/o Wilson, Sonsini, Goodrich & Rosati
Two Palo Alto Square
Palo Alto, CA 94306
Article VI.
The Corporation is to have perpetual existence.
Article VII.
Elections of directors need not be by written ballot unless a stockholder
demands election by written ballot at the meeting and before voting begins or
unless the Bylaws of the Corporation shall so provide.
Article VIII.
The number of directors which constitute the whole Board of Directors of
the Corporation shall be designated in the Bylaws of the Corporation.
Article IX.
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.
Article X.
(a) To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach fiduciary duty as a director.
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<PAGE>
(b) The Corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or served at any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor to the Corporation.
(c) Neither any amendment nor repeal of this Article X, nor the adoption
of any provision of this Corporation's Certificate of Incorporation inconsistent
with this Article X, shall eliminate or reduce the effect of this Article X, in
respect of any matter occurring, or any action or proceeding accruing or arising
or that, but for this Article X, would accrue or arise, prior to such amendment,
repeal or adoption of an inconsistent provision.
Article XI.
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.
Article XII.
Vacancies created by the resignation of one or more members, of the Board
of Directors and newly created directorships, created in accordance with the
Bylaws of this Corporation, may be filled by the vote of a majority, although
less than a quorum, of the directors then in office, or by a sole remaining
director.
Article XIII.
Advance notice of new business and stockholder nominations for the election
of directors shall be given in the manner and to the extent provided in the
Bylaws of the Corporation.
Article XIV.
Following the effectiveness of the registration of any class of securities
of the Corporation pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, 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.
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<PAGE>
Article XV.
Until a Registration Statement regarding the sale of the Corporation's
Common Stock to the public is declared effective by the Securities and Exchange
Commission, stockholders shall be entitled to cumulative voting rights as set
forth in this Article XV and the Bylaws of the Corporation. At all elections of
directors of the Corporation, each holder of stock or of any class or classes or
of a series or series thereof shall be entitled to as many votes as shall equal
the number of votes which (except for this provision as to cumulative voting)
such stockholder would be entitled to cast for the election of directors with
respect to such stockholder's shares of stock multiplied by the number of
directors to be elected, and such stockholder may cast all of such votes for a
single director or may distribute them among the number of directors to be voted
for, or for any two or more of them as such stockholder may see fit. As of the
date that a Registration Statement regarding the sale of the Corporation's
Common Stock to the public is declared effective by the Securities and Exchange
Commission, this Article XV shall no longer be effective and may be deleted
herefrom upon any restatement of this Certificate of Incorporation.
Article XVI.
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 stockholders
herein are granted subject to this reservation.
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<PAGE>
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the Corporation Law of the State of
Delaware, do make this certificate, hereby declaring and certifying, under
penalties of perjury, that this is my act and deed and the facts herein stated
are true, and accordingly have hereunto set my hand this 28th day of February
1994.
/s/ Bruce D. Bower
Bruce D. Bower, Incorporator
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<PAGE>
BYLAWS
OF
PEREGRINE SYSTEMS, INC.,
A DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
----
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 1
2.4 NOTICE OF STOCKHOLDERS' MEETINGS 2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND
STOCKHOLDER BUSINESS 2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE 3
2.7 QUORUM 3
2.8 ADJOURNED MEETING; NOTICE 4
2.9 VOTING 4
2.10 WAIVER OF NOTICE 4
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING 4
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING
CONSENTS 5
2.13 PROXIES 5
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE 6
2.15 CONDUCT OF BUSINESS 6
ARTICLE III - DIRECTORS 6
3.1 POWERS 6
3.2 NUMBER 7
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS 7
3.4 RESIGNATION AND VACANCIES 7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE 8
3.6 FIRST MEETINGS 8
3.7 REGULAR MEETINGS 8
3.8 SPECIAL MEETINGS; NOTICE 9
3.9 QUORUM 9
3.10 WAIVER OF NOTICE 9
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
Page
----
3.11 ADJOURNED MEETING; NOTICE 9
3.12 CONDUCT OF BUSINESS 10
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING 10
3.14 FEES AND COMPENSATION OF DIRECTORS 10
3.15 APPROVAL OF LOANS TO OFFICERS 10
3.16 REMOVAL OF DIRECTORS 10
ARTICLE IV - COMMITTEES 11
4.1 COMMITTEES OF DIRECTORS 11
4.2 COMMITTEE MINUTES 12
43 MEETINGS AND ACTION OF COMMITTEES 12
ARTICLE V - OFFICERS 12
5.1 OFFICERS 12
5.2 ELECTION OF OFFICERS 12
5.3 REMOVAL AND RESIGNATION OF OFFICERS 13
5.4 CHAIRMAN OF THE BOARD 13
5.5 CHIEF EXECUTIVE OFFICER 13
5.6 PRESIDENT 14
5.7 VICE PRESIDENT 14
5.8 SECRETARY 14
5.9 CHIEF FINANCIAL OFFICER 15
5.10 ASSISTANT SECRETARY 15
5.11 AUTHORITY AND DUTIES OF OFFICERS 15
ARTICLE VI - INDEMNITY 15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS 15
6.2 INDEMNIFICATION OF OTHERS 16
6.3 INSURANCE 16
ARTICLE VII - RECORDS AND REPORTS 16
7.1 MAINTENANCE AND INSPECTION OF RECORDS 16
7.2 INSPECTION BY DIRECTORS 17
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS 17
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
Page
----
ARTICLE VIII - GENERAL MATTERS 17
8.1 CHECKS 17
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS 18
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES 18
8.4 SPECIAL DESIGNATION ON CERTIFICATES 18
8.5 LOST CERTIFICATES 19
8.6 CONSTRUCTION; DEFINITIONS 19
8.7 DIVIDENDS 19
8.8 FISCAL YEAR 20
8.9 SEAL 20
8.10 TRANSFER OF STOCK 20
8.11 STOCK TRANSFER AGREEMENTS 20
8.12 REGISTERED STOCKHOLDERS 20
ARTICLE IX - AMENDMENTS 20
ARTICLE X - DISSOLUTION 21
ARTICLE XI - CUSTODIAN 21
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES 21
11.2 DUTIES OF CUSTODIAN 22
ARTICLE XII - LOANS TO OFFICERS 22
<PAGE>
BYLAWS
------
OF
--
ARTICLE
-------
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the Corporation shall be in the City of Dover,
County of Kent, State of Delaware. The name of the registered agent of the
Corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish other 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
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. At the meeting, directors shall be
elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the (i)
board of directors, (ii) the chairman of the board, (iii) the president, (iv)
the chief executive officer or (v) one or more stockholders holding shares in
the aggregate entitled to cast not less than ten percent (10%) of the votes at
that meeting.
<PAGE>
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.6 of these Bylaws not less
than 10 nor more than 60 days before the date of the meeting to each stockholder
entitled to vote at such meeting. The notice shall specify the place, date and
hour of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER
-------------------------------------------------------
BUSINESS
--------
To be properly brought before an annual meeting or special meeting,
nominations for the election of director or other 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 such nominations or
other business to be considered properly brought before the meeting by a
stockholder, such stockholder must have given timely notice and in proper form
of his intent to bring such business before such meeting. To be timely, such
stockholder's notice must be delivered to or mailed and received by the
secretary of the Corporation not less than 90 days prior to the meeting;
provided, however, that in the event that less than 100 days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. To be in
proper form, a stockholder's notice to the secretary shall set forth:
(i) the name and address of the stockholder who intends to make
the nominations, propose the business, and, as the case may be, the name
and address of the person or persons to be nominated or the nature of the
business to be proposed;
(ii) a representation that the stockholder is a holder of record
of stock of the Corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice or introduce the
business specified in the notice;
(iii) if applicable, 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
nomination or nominations are to be made by the stockholder;
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<PAGE>
(iv) such other information regarding each nominee or each matter
of business to be proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, or the matter been proposed, or intended to be
proposed by the board of directors; and
(v) if applicable, the consent of each nominee to serve as
director of the Corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the foregoing
procedure.
2.6 MANNER OF NOTICE; AFFIDAVIT OF NOTICE
-------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the Corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.7 QUORUM
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then either (i) the chairman of the meeting, or (ii) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that night have been transacted at
the meeting as originally noticed.
When a quorum is present or represented at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provisions of the statutes or
of the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of the question.
2.8 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time or place, unless these Bylaws
otherwise require, notice need not be given of the adjourned meeting the time
and place thereof are announced at the
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<PAGE>
meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business that might have been transacted at the
original meeting. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting,
2.9 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Sections 2.12 and 2.14 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 of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
2.10 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these Bylaws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of a Corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by
-4-
<PAGE>
such section concerning any vote of stockholders, that written notice and
written consent have been given as provided in Section 228 of the General
Corporation Law of Delaware.
Notwithstanding the foregoing, effective upon the registration of any class
of securities of the Corporation pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, the stockholders of the Corporation may not
take action by written consent without a meeting but must take any such actions
at a duly called annual or special meeting.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING
--------------------------------------------------
CONSENTS
--------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action.
If the board of directors does not so fix a record date, the fixing of such
record date shall be governed by the provisions of Section 213 of the General
Corporation Law of Delaware.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.13 PROXIES
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the Corporation, but no such
proxy shall be voted or aced upon after 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. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of a Corporation shall
prepare and make, at least 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
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<PAGE>
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 IO 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 stock ledger 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. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list of stockholders or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders and
of the number of shares held by each such stockholder.
2.15 CONDUCT OF BUSINESS
-------------------
Meetings of stockholders shall be presided over by the chairman of the
board, if any, or in his absence by the president, or in his absence by a vice
president, or in the absence of the foregoing persons by a chairman designated
by the board of directors, or in the absence of such designation by a chairman
chosen at the meeting. The secretary shall act as secretary of the meeting, but
in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting. The chairman of any meeting of stockholders shall
determine the order of business and the procedures at the meeting, including
such matters as the regulation of the manner of voting and conduct of business.
ARTICLE III
DIRECTORS
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and
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
------
The authorized number of directors of the Corporation shall be seven (7).
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION. QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
--------------------------------------------------------
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<PAGE>
Except as provided in Section 3.4 of these Bylaws, at each annual meeting
of stockholders, directors of the Corporation shall be elected to hold office
until the expiration of the term for which they are elected, and until their
successors have been duly elected and qualified; except that if any such
election shall not be so held, such election shall take place at a stockholders'
meeting called and held in accordance with the Delaware General Corporation Law.
Directors need not be stockholders unless so required by the certificate of
incorporation or these Bylaws, wherein other qualifications for directors may be
prescribed.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign at any time upon written notice to the Corporation.
Stockholders may remove directors with or without cause. Any vacancy occurring
in the board of directors with or without cause may be filled by a majority of
the remaining members of the board of directors, although such majority is less
than a quorum, or by a plurality of the votes cast at a meeting of stockholders,
and each director so elected shall hold office until the expiration of the term
of office of the director whom he has replaced.
Unless otherwise provided in the certificate of incorporation or these
Bylaws:
(i) 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.
(ii) 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 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
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<PAGE>
holding at least 10% of the total number of the shares at the time outstanding
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.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The board of directors of the Corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence 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 at
such time and at such place as shall from time to time be determined by the
board.
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 president, any vice
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 4 days before the time of
the holding of the meeting. If
-8-
<PAGE>
the notice is delivered personally or by telephone or by telegram, it shall be
delivered personally or by telephone or to the telegraph company at least 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
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
------
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation.
3.10 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these Bylaws.
3.11 ADJOURNED MEETING; NOTICE
-------------------------
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.12 CONDUCT OF BUSINESS
-------------------
Meetings of the board of directors shall be presided over by the chairman
of the board, if any, or in his absence by the chief executive officer, 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. The chairman of any
meeting shall determine the order of business and the procedures at the meeting.
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
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<PAGE>
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.14 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, the board of directors shall have the authority to fix the compensation
of directors. The directors may be paid their expenses, if any, of attendance
at each meeting of the board of directors and may be paid a fixed sum for
attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
3.15 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 in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the Corporation at
common law or under any statute.
3.16 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these Bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors. If at any time a class or series
of shares is entitled to elect one or more directors, the provisions of this
Article 3.16 shall apply to the vote of that class or series and not to the vote
of the outstanding shares as a whole.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
ARTICLE IV
COMMITTEES
----------
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4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the Corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the Bylaws of the Corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers that may require it; 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 15 1 (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 or 252 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 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 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 and meetings by telephone), 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 and notice of adjournment),
Section 3.12 (conduct of business) and 3.13 (action without a 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
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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.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the Corporation shall be a chief executive officer, one or
more vice presidents, a secretary and a chief financial officer. The
Corporation may also have, at the discretion of the board of directors, a
chairman of the board, a president, a chief operating officer, one or more
executive, senior or assistant vice presidents, assistant secretaries and any
such other officers as may be appointed in accordance with the provisions of
Section 5.2 of these Bylaws. Any number of offices may be held by the same
person.
5.2 ELECTION OF OFFICERS
--------------------
Except as otherwise provided in this Section 5.2, the officers of the
Corporation shall be chosen by the board of directors, subject to the rights, if
any, of an officer under any contract of employment. The board of directors may
appoint, or empower an officer to appoint, such officers and agents of the
business as the Corporation may require (whether or not such officer or agent is
described in this Article V), 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. Any vacancy
occurring in any office of the Corporation shall be filled by the board of
directors or may be filled by the officer, if any, who appointed such officer.
5.3 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 an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the 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 or, in the case of an officer appointed by
another officer, by such other officer.
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.
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5.4 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of 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 5.5 of these Bylaws.
5.5 CHIEF EXECUTIVE 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 or she 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 or she
shall have the general powers and duties of management usually vested in the
chief executive officer of a Corporation, including general supervision,
direction and control of the business and supervision of other officers of the
Corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws.
The Chief Executive Officer shall, without limitation, have the authority
to execute bonds, mortgages and other contracts requiring a seal, under the seal
of the Corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation.
5.6 PRESIDENT
---------
Subject to such supervisory powers as may be given by these Bylaws or the
Board of Directors to the Chairman of the Board or the Chief Executive Officer,
if there be such officers, the president shall have general supervision,
direction and control of the business and supervision of other officers of the
Corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws. In the event a Chief Executive Officer
shall not be appointed, the President shall have the duties of such office.
5.7 VICE PRESIDENT
--------------
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 chief executive officer and when so acting shall have all the
powers of and be subject to all the restrictions upon, the chief executive
officer. 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 chief executive officer or the chairman of
the board.
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5.8 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 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.
5.9 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 depositories as may be
designated by the board of directors. He 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 transactions as treasurer 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.
5.10 ASSISTANT SECRETARY
-------------------
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such
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other duties and have such other powers as the board of directors or the
stockholders may from time to time prescribe.
5.11 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing authority and duties, all officers of the
Corporation shall respectively have such authority and perform such duties in
the management of the business of the Corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
-------------
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. 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 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
---------
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<PAGE>
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 and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware,
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.
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 position 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 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
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The chairman of the board, the chief executive officer, 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 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 granted herein 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 CHECKS
------
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.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------
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.
8.3 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 president or vice-president, and by the treasurer
or an assistant treasurer, or 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
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placed upon a certificate has to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
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 be consideration actually paid thereon.
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8.4 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.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the Corporation and cancelled at the same time. The Corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law 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.
8.7 DIVIDENDS
---------
The directors of the Corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the Corporation's
capital stock.
The directors of the Corporation may set apart out of any of the funds of
the Corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve.
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Such purposes shall include but not be limited to equalizing dividends,
repairing or maintaining any property of the Corporation, and meeting
contingencies.
8.8 FISCAL YEAR
-----------
The fiscal year of the Corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
----
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
-----------------
Upon surrender to the Corporation or the transfer agent of the Corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
-------------------------
The Corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
Corporation to restrict the transfer of shares of stock of the Corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
-----------------------
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
riot be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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ARTICLE IX
AMENDMENTS
----------
The original or other Bylaws of the Corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
Corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal Bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal Bylaws.
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 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.
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:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect
successors to
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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 is 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.
ARTICLE XII
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
subsidiaries, including any officer or employee who is a Director of the
corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the corporation. The loan, guarantee 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 in this Bylaw shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the corporation at common law
or under any statute.
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PEREGRINE SYSTEMS, INC.
REGISTRATION RIGHTS AGREEMENT
MARCH 16, 1995
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1 RESTRICTIONS ON TRANSFERABILITY; REGISTRATION RIGHTS
1.1 CERTAIN DEFINITIONS 1
1.2 RESTRICTIONS 2
1.3 RESTRICTIVE LEGEND 2
1.4 NOTICE OF PROPOSED TRANSFERS 3
1.5 COMPANY REGISTRATION 4
1.6 REGISTRATION ON FORM S-3 5
1.7 EXPENSES OF REGISTRATION 6
1.8 REGISTRATION PROCEDURES 6
1.9 INDEMNIFICATION 7
1.10 INFORMATION BY HOLDER 8
1.11 RULE 144 REPORTING 8
1.12 TRANSFER OF REGISTRATION RIGHTS 9
1.13 MARKET STANDOFF AGREEMENT 9
1.14 TERMINATION OF RIGHTS 10
SECTION 2 AFFIRMATIVE COVENANTS OF THE COMPANY 10
2.1 FINANCIAL INFORMATION 10
2.2 INSPECTION 11
2.3 TERMINATION OF COVENANTS 11
SECTION 3 MISCELLANEOUS 11
3.1 ASSIGNMENT 11
3.2 THIRD PARTIES 11
3.3 GOVERNING LAW 11
3.4 COUNTERPARTS 12
3.5 NOTICES 12
3.6 SEVERABILITY 12
3.7 AMENDMENT AND WAIVER 12
3.8 RIGHTS OF HOLDERS 12
3.9 DELAYS OR OMISSIONS 12
3.10 ARBITRATION 13
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is entered into as of
the 16th day of March, 1995 by and among Peregrine Systems, Inc., a Delaware
corporation (the "COMPANY") and Robert B. Ashton (the "BRIDGE STOCKHOLDER").
RECITALS
The Company and the Bridge Stockholder are parties to an Agreement and Plan
of Reorganization of even date herewith, pursuant to which the Company has
issued to the Bridge Stockholder shares of the Company's Common Stock (the
"SHARES").
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
SECTION
1
RESTRICTIONS ON TRANSFERABILITY; REGISTRATION RIGHTS
1.1 CERTAIN DEFINITIONS. As used in this Agreement the following terms
shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"HOLDER" shall mean any holder, or an assignee under Section 1. 12 hereof
of Outstanding Registrable Securities.
"INITIATING HOLDERS" shall mean any Holders who in the aggregate are
Holders of not less than fifty percent (50%) of the Registrable Securities.
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 (excluding underwriting
discounts and selling commissions) incurred in connection with a registration
under Sections 1.5 and 1.6 hereof,
<PAGE>
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).
"REGISTRABLE SECURITIES" means (a) the Shares and (b) any Common Stock of
the Company issued or issuable in respect of the Shares or other securities
issued or issuable with respect to the Shares upon any stock split, stock
dividend, recapitalization, or similar event, or any Common Stock otherwise
issued or issuable with respect to the Shares; provided, however, that shares of
Common Stock or other securities shall only be treated as Registrable Securities
if and so long as they have not been (x) sold to or through a broker or dealer
or underwriter in a public distribution or a public securities transaction, or
(y) sold in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(l) thereof so that all
transfer restrictions and restrictive legends with respect thereto are removed
upon the consummation of such sale.
"RESTRICTED SECURITIES" shall mean the securities of the Company required
to bear the legend set forth in Section 1.3 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any
similar or successor 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 the Holders (as
limited by Section 1.7).
1.2 RESTRICTIONS. The Shares shall not be sold, assigned, transferred or
pledged except upon the conditions specified in this Agreement, which conditions
are intended to ensure compliance with the provisions of the Securities Act.
The Bridge Stockholder will cause any proposed purchaser, assignee, transferee
or pledgee of the Shares to agree to take and hold such securities subject to
the provisions and upon the conditions specified in this Agreement.
1.3 RESTRICTIVE LEGEND. Each certificate representing (a) the Shares and
(b) any other securities issued in respect of the Shares upon any stock split,
stock dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of Section 1.4 below) be stamped
or otherwise imprinted with a legend in substantially 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 HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. SUCH SHARES
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MAY NOT BE SOLD, TRANSFERRED OR PLEDGED 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."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY
IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND
THE ORIGINAL STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY."
Each Bridge Stockholder and Holder consent to the Company making a
notation on its records and giving instructions to any transfer agent of the
Restricted Securities in order to implement the restrictions on transfer
established in this Section 1.
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 Section 1. Prior to any proposed sale,
assignment, transfer or pledge 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, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied at such holder's expense by either (a) an unqualified written
opinion of legal counsel who shall, and whose legal opinion shall be, reasonably
satisfactory to the Company, addressed to the Company, to the effect that the
proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (b) 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, or (c) any other evidence reasonably
satisfactory to counsel to the Company, 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.
The Company will not require such a legal opinion or "no action" letter in any
transaction in compliance with Rule 144; provided, however, that each transferee
agrees in writing to be subject to the terms of this Section 1. Each certificate
evidencing the Restricted Securities transferred as above provided shall bear,
except if such transfer is made pursuant to Rule 144, the appropriate
restrictive legends set forth in this Section I. except that such certificate
shall not bear such restrictive legend if in the opinion of counsel for such
holder and the Company, such legend is not required in order to establish
compliance with any provisions of the Securities Act.
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1.5 COMPANY REGISTRATION.
(a) Notice of Registration. If at any time or from time to time, the
Company shall determine to register any of its securities, either for its own
account or the account of a security holder 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 twenty (20) days after receipt of such written notice from
the Company by any Holder, except as set forth in Section 1.5(b) below.
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 after the Company has effected two (2) such registrations pursuant
to this subparagraph 1.5(a), and such registrations have been declared or
ordered effective and the securities offered pursuant to each such registration
have been sold.
(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 Section
1.5(a)(i). In such event, 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 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 holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company (or by the holders who have
demanded such registration, as the case may be). Notwithstanding any other
provision of this Section 1.5, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, (a) if such registration is the first registered offering of the
Company's securities to the public, the Underwriter may exclude from such
registration and underwriting some or all of the Registrable Securities which
would otherwise be underwritten pursuant hereto, and (b) if such registration is
other than the first registered offering of be sale of the Company's securities
to the public, the managing underwriter may limit the number of Registrable
Securities to be included in the registration and underwriting, on a pro rata
basis based on the total number of securities (including, without limitation,
Registrable Securities) entitled to registration pursuant to registration rights
granted to the participating Holders by the Company; provided, however, that no
such reduction may reduce the number of securities being sold by the Holders to
less than ten percent (10%) of the total number of shares being registered. To
facilitate the allocation of shares in accordance with the above provisions, the
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Company or the underwriters may round the number of shares allocated to any
Holder or other holder to the nearest 100 shares. If any Holder or other holder
disapproves of the terms of any such underwriting, he or she 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 withdrawn from such registration, and shall not be transferred in a public
distribution prior to ninety (90) days (one hundred eighty (180) days in the
case of the Company's Initial Public Offering) after the date of the final
prospectus included in the registration statement relating thereto.
(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 1.5 prior to the effectiveness of such registration, whether or not any
Holder has elected to include securities in such registration.
1.6 REGISTRATION ON FORM S-3.
(a) If any Holder or Holders of Registrable Securities requests
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 the Registrable Securities,
the reasonably anticipated aggregate price to the public of which, net of
underwriting discounts and commissions, would exceed $500,000, and the Company
is a registrant 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; provided,
however, that the Company shall not be required to effect more than two
registrations pursuant to this Section 1.6 in any twelve (12) month period. The
Company will (i) promptly give written notice of the proposed registration to
all other Holders, and (ii) as soon as practicable, use its best efforts to
effect such registration (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 written notice from the Company. The
substantive provisions of Section 1.5(b) shall be applicable to each
registration initiated under this Section 1.6.
(b) Notwithstanding the foregoing, the Company shall not be obligated to
take any action pursuant to this Section 1.6: (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; (ii) during the period starting with the date
sixty (60) days prior to the filing of, and ending on the earlier of (x) one
year from the date sixty (60) days prior to the Company's date of filing of, or
(y) a date six (6) months following the effective date of, a registration
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<PAGE>
statement (other than with respect to a registration statement relating to a
Rule 145 transaction, an offering solely to employees or any other registration
which is not appropriate for the registration of Registrable Securities),
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, then 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 twenty (120) days from the
receipt of the request to file such registration by such Holder or Holders.
1.7 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration pursuant to Section 1.5 shall be borne by the
Company. All Registration Expenses incurred in connection with any registration
pursuant to Section 1.6 shall be borne by the Holders of the registered
securities included in such registration pro rata on the basis of the number of
shares so registered. Unless otherwise stated, all other Selling Expenses
relating to securities registered on behalf of the Holders shall be borne by the
Holders of the registered securities included in such registration pro rata on
the basis of the number of shares so registered.
1.8 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:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use is best efforts to cause such
registration statement to become and remain effective for at least ninety (90)
days or until the distribution described in the registration statement has been
completed; and
(b) Furnish to the Holders participating in such registration and
to the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities.
1.9 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its officers
and directors and partners 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 or liabilities
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(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 any rule or
regulation promulgated under the Securities Act applicable to the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such Holder, each of its officers and directors, and
each person controlling such Holder, 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, as such expenses are incurred,
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, controlling person or
underwriter and stated to be specifically for use therein.
(b) 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, 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 or other person selling securities pursuant to such
registration statement, each of its officers and directors and each person
controlling such Holder or other person within the meaning of 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, in light of the circumstances in
which they were made, not misleading, and will reimburse the Company, such
Holders, such directors, officers, persons, underwriters or 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, as
such expenses are incurred, 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
obligation of such Holders hereunder shall be limited to an amount equal to the
proceeds to each such Holder of securities sold as contemplated herein.
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(c) Each party entitled to indemnification under this Section 1.11
(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; provided, however, that an Indemnified Party (together with all
other Indemnified Parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the fees and
expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. The failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section I unless the failure to give such notice is materially prejudicial to an
Indemnifying Party's ability to defend such action. 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.
1.10 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.
1.11 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:
(a) 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 that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT");
(b) File with the Commission 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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(c) So long as the Bridge Stockholder owns any Restricted
Securities, to furnish to the Bridge Stockholder 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 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 of the Company and other
information in the possession of or reasonably obtainable by the Company as the
Bridge Stockholder may reasonably request in availing itself of any rule or
regulation of the Commission allowing the Bridge Stockholder to sell any such
securities without registration.
1.12 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to
register securities granted to the Bridge Stockholder under Sections 1.5 and 1.6
may be assigned to a transferee or assignee reasonably acceptable to the Company
in connection with any transfer or assignment of Registrable Securities by the
Bridge Stockholder (together with any affiliate); provided, however, that (a)
such transfer may otherwise be effected in accordance with applicable securities
laws, (b) written notice of such assignment is given to the Company and (c) the
Registrable Securities to be assigned or transferred represent at least one
percent (1%) of the outstanding capital stock of the Company on the date of
transfer.
1.13 MARKET STANDOFF AGREEMENT. ]Each Holder agrees in connection with
any registration of the Company's securities (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan) that, upon request of the Company or the underwriters managing any
underwritten offering of the Company's securities, not to sell, make any short
sale of, loan, grant any option for the purchase of, pledge, hypothecate, make
any short sale of or otherwise dispose of any Registrable Securities (other than
those included in the registration) or other capital stock of the Company or
securities exchangeable or convertible into capital stock of the Company without
the prior written consent of the Company or such underwriters, as the case may
be, for such period of time (not to exceed one hundred eighty (180) days from
the date of the final prospectus used in such registration) as may be requested
by the Company or such managing underwriters; provided, however, that the
officers and directors of the Company who own stock of the Company also agree to
such restrictions. The certificates for the Shares shall contain, for so long
as such market standoff provision remains in place, a legend in substantially
the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER INCLUDING A MARKET STANDOFF AGREEMENT BETWEEN THE
COMPANY AND THE ORIGINAL SHAREHOLDER THAT PROHIBITS SALE OR TRANSFER OF
SUCH SHARES FOR A PERIOD OF UP TO 180 DAYS FOLLOWING THE DATE OF THE FINAL
PROSPECTUS FOR THE INITIAL PUBLIC OFFERING OF THE ISSUER'S COMMON STOCK. A
COPY OF THE AGREEMENT IS ON FILE WITH THE SECRETARY OF THE ISSUER.
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1.14 TERMINATION OF RIGHTS. The rights of any particular Holder to cause
the Company to register securities under Sections 1.5 and 1.6 shall terminate
with respect to such Holder on the earlier of (i) the date when such securities
may be sold during a one-year period pursuant to Rule 144 (but not Rule 144A) or
---
similar or successor Rule and (ii) the date five (5) years after the effective
date of the Company's Initial Public Offering.
SECTION 2
AFFIRMATIVE COVENANTS OF THE COMPANY
The Company hereby covenants and agrees as follows:
2.1 FINANCIAL INFORMATION. So long as the Bridge Stockholder is a
holder of 50,000 Shares (as adjusted for any stock splits, consolidations and
the like), the Company will furnish to such Bridge Stockholder the following
reports:
As soon as practicable after the end of each fiscal year, and in any
event within one hundred twenty (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 national standing selected by the
Company; and
As soon as practicable, but in any event within forty-five (45) days
after the end of each of the first three (3) quarters of each fiscal year of the
Company, an unaudited profit or loss statement, schedule as to the sources and
application of funds for such fiscal quarter and an unaudited balance sheet and
a statement of shareholder's equity as of the end of such fiscal quarter and a
statement showing the number of shares of each class and series of capital stock
and securities convertible into or exercisable for shares of capital stock
outstanding at the end of the period, the number of common shares issuable upon
conversion or exercise of any outstanding securities convertible or exercisable
for common shares and the exchange ratio or exercise price applicable thereto,
all in sufficient detail as to permit the Bridge Stockholder to calculate its
percentage equity ownership in the Company.
2.2 INSPECTION. The Company shall permit each Bridge Stockholder, at
such Bridge Stockholder's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by the Bridge Stockholder; provided,
however, that the
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Company shall not be obligated pursuant to this Section 2.2 to provide access to
any information which it reasonably considers to be a trade secret or similar
confidential information.
2.3 TERMINATION OF COVENANTS. The covenants set forth in this Section 2
shall terminate on, and be of no further force or effect after, the earlier of
the date the holders of a majority of the Shares so agree or the date on which
the Company is required to file reports with the SEC pursuant to Section 13 or
15(d) of the Exchange Act.
SECTION 3
MISCELLANEOUS
3.1 ASSIGNMENT. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties hereto.
3.2 THIRD PARTIES. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
3.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements entered into
and performed in the State of California solely by residents thereof.
3.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.5 NOTICES. Any notice required or permitted by this Agreement shall
be in writing and shall be sent by prepaid registered or certified mail, return
receipt requested, addressed to the other party at the address shown below or at
such other address for which such party gives notice hereunder. Such notice
shall be deemed to have been given four (4) days after deposit in the mail,
postage prepaid.
3.6 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.
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3.7 AMENDMENT AND WAIVER. Any provision of this Agreement may be
amended with the written consent of the Company and the Holders of at least a
majority of the outstanding shares of the Registrable Securities. Any amendment
or waiver effected in accordance with this paragraph shall be binding upon each
Holder of Registrable Securities and the Company. In addition, the Company may
waive performance of any obligation owing to it, as to some or all of the
Holders of Registrable Securities, or agree to accept alternatives to such
performance, without obtaining the consent of any Holder of Registrable
Securities. In the event that an underwriting agreement is entered into between
the Company and any Holder, and such underwriting agreement contains terms
differing from this Agreement, as to any such Holder the terms of such
underwriting agreement shall govern.
3.8 RIGHTS OF HOLDERS. Each holder of Registrable Securities shall have
the absolute right to exercise or refrain from exercising any right or rights
that such holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.
3.9 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching 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 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 party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made 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.
3.10 ARBITRATION. Any dispute or controversy arising out of or relating
to any interpretation, construction, performance or breach of this Agreement
shall be resolved exclusively by binding arbitration in Santa Clara County,
California, in accordance with the rules then in effect of the American
Arbitration Association. The arbitrator may grant injunctions or other relief
in such dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction. The
Company and the Bridge Stockholder shall each pay one-half of the costs and
expenses of such arbitration, and each of them shall separately pay their
counsel fees and expenses.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
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<PAGE>
PEREGRINE SYSTEMS, INC.
By: /s/ David Thatcher
Title: VP/Chief Financial Officer
BRIDGE STOCKHOLDER:
/s/ Robert B. Ashton
Robert B. Ashton
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<PAGE>
PEREGRINE SYSTEMS, INC.
NONQUALIFIED STOCK OPTION PLAN
November 29, 1990
<PAGE>
PEREGRINE SYSTEMS, INC.
CONTENTS
Heading Page
------- ----
1. PURPOSE 1
2. DEFINITIONS 1
3. ADMINISTRATION 2
4. ELIGIBILITY 2
5. NUMBER OF SHARES 3
6. OPTION PRICE 3
7. TERM 0F PLAN 3
8. EXERCISE OF OPTIONS 3
9. AUTHORIZATION TO ISSUE SHARES AND
SHAREHOLDER APPROVAL 5
l0. STOCK OPTION AGREEMENT 6
11. STOCK BUY-SELL AGREEMENT 6
12. AMENDMENT OR TERMINATION OF PLAN 6
13. OPTIONS NOT TRANSFERABLE 6
14. RESTRICTIONS ON ISSUANCE OF STOCK 7
15. ADJUSTMENTS UPON CHANGES IN
CAPITALIZATION 7
16. REPRESENTATIONS AND WARRANTIES 7
17. NO ENLARGEMENT OF EMPLOYEES RIGHTS 7
l8. PRIVILEGES OF STOCK OWNERSHIP 8
19. LEGENDS ON OPTIONS AND STOCK
CERTIFICATES 8
20. AVAILABILITY OF PLAN 8
21. APPLICABLE LAW 9
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PEREGRINE SYSTEMS, INC.
NONQUALIFIED STOCK OPTION PLAN
l. PURPOSE. The purpose of this Peregrine Systems, Inc.
Nonqualified Stock Option Plan (the "Plan") is to permit Peregrine Systems,
Inc., a California corporation (the "Company"), and its Parent Corporation or
Subsidiary Corporation(s), if any, to retain the best available persons for
positions of substantial responsibility and to provide additional incentives
for the accomplishment of key Company objectives. The Nonqualified Stock
Option Plan is intended to accomplish this purpose by allowing the Company to
grant options to purchase shares of the Company's common stock. It is
intended that all options granted under this Nonqualified Stock Option Plan
are nonqualified options and shall not qualify as incentive stock options
("Incentive Stock options") within the meaning of Section 422A(b) of the
Internal Revenue Code of 1986, as amended.
2. DEFINITIONS
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Committee" shall mean the Stock Option Plan
Committee, which is appointed by the Board.
(c) "Company" shall mean Peregrine Systems, Inc., a
California corporation.
(d) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(e) "Option" shall mean a right to purchase Stock, granted
pursuant to the Plan.
(f) "Optionee" shall mean an employee of or consultant to
the Company, or of any Subsidiary of the Company, to whom an Option is granted
under the Plan.
(g) "Option Price" shall mean the purchase price for Stock
under an Option, as determined in Section 6, below.
(h) "Plan" shall mean this Peregrine Systems, Inc.
Nonqualified Stock Option Plan.
(i) "Stock" shall mean the common stock of the Company.
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<PAGE>
(j) "Subsidiary" shall mean a subsidiary corporation of the
Company, as defined in Sections 425(f) and 425(g) of the Code.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board or by the
Committee as appointed by the Board. (For purpose of this Plan document, the
term "Board" shall mean the Committee to the extent that the Board's powers
have been delegated to the Committee.)
(b) The Board shall have sole authority in its absolute
discretion to (i) determine which employees of or consultants to the Company
shall receive Options; (ii) subject to the express provisions of this Plan,
to determine the time when Options shall be granted, the terms and conditions
of Options other than those terms and conditions fixed under this Plan, and
the number of shares which may be issued upon exercise of the Options. The
Board shall adopt by resolution such rules and regulations as may be required
to carry out the purposes of the Plan and shall have authority to do
everything necessary or appropriate to administer the Plan. All decisions,
determinations, and interpretations of the Board shall be final and binding
on all Optionees. Administration of the Plan with respect to members of the
Committee shall not be delegated, but shall at all times remain vested in the
Board. The Board may from time to time remove members from, or add members
to, the Committee, and vacancies on the Committee shall be filled by the
Board. Furthermore, the Board at any time by resolution may abolish the
Committee and revest in the Board the administration of the Plan.
(c) With respect to Options granted to a key employee or
consultant who is also a member of the Board, the Board shall take action by
a vote sufficient without counting the vote of such member of the Board,
although such member of the Board may be counted in determining the presence
of a quorum at a meeting of the Board which authorizes the granting of
Options to such member of the Board.
(d) The Committee, if appointed pursuant to this Section 4,
shall report to the Board the name of employees or consultants granted
Options, the number of shares covered by each Option and the terms and
conditions of each such Option.
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<PAGE>
4. ELIGIBILITY.
(a) Options under this Plan may be granted to employees of or consultants
to the Company. The determination as to whether an employee or consultant is
eligible to receive Options hereunder shall be made by the Board in its sole
discretion (except that grants of options to any member of the Board shall be
made by a majority vote of disinterested directors), and the decision of the
Board shall be binding and final. For purposes of this Plan, the term
"consultant" shall mean any person, including an advisor, who is engaged by
the Company or any parent or subsidiary of the Company to render services and
is compensated for such services, and any member of the Company's Board of
Directors.
5. NUMBER OF SHARES. The maximum aggregate number of shares which
may be optioned and sold under this Plan is Five Hundred Thousand (500,000)
shares of authorized but unissued Stock of the Company. In the event that
Options granted under this Plan shall terminate or expire without being
exercised, in whole or in part, the shares subject to such unexercised
options shall again become available for the granting of Options under this
Plan.
6. OPTION PRICE. The Option Price for shares of Stock to be issued
under this Plan shall be equal to the fair market value of such shares on the
date on which the Option covering such shares is granted. The fair market
value of shares of Stock for all purposes of this Plan shall be determined by
the Board in its sole discretion, exercised in good faith.
7. TERM OF PLAN. The Plan shall be effective as of
November 15, 1990, and shall continue in effect until November 15, 2000
unless terminated earlier. No Option may be granted hereunder after
November 15, 2000.
8. EXERCISE OF OPTIONS. Subject to the limitations set forth herein
and/or any applicable Stock Option Agreement entered into hereunder, Options
granted under this Plan shall be exercisable in accordance with the following
rules:
(a) GENERAL. Subject to the other provisions of this Section 8,
Options shall vest and become exercisable at such times and in such
installments as the Board shall provide in an individual stock option
agreement to be entered by the Company and each Optionee. Notwithstanding
the foregoing, the Board may in its own discretion, accelerate the time at
which an Option or installment thereof may be exercised. For purposes of
this Plan, any vested installment of an option granted hereunder shall be
referred to as an "Accrued Installment."
(b) TERMINATION OF OPTIONS. All installments of an Option
shall expire and terminate on such date as the Board shall determine, but in
no event later than ten (10) years from the date such option was granted
("Option Termination Date"). Unless provided otherwise in this Section 8 or
in the
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<PAGE>
Stock Option Agreement pursuant to which an Option is granted, an Option may
be exercised when Accrued Installments accrue as provided in such Stock
Option Agreement and at any time thereafter until, and including, the day
before the Option Termination Date.
(c) SALE OR REORGANIZATION
(i) Upon the dissolution or liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company with one or
more corporations as a result of which the Company goes out of existence or
becomes a subsidiary of another corporation, or upon a sales of substantially
all the property or more than eighty percent (80%) of the then outstanding
stock of the Company (other than a reorganization, merger, consolidation,
sale or similar transaction effected solely for the purpose of
reincorporation the Company in another jurisdiction), an Option shall become
immediately vested and exercisable with respect to the full number of shares
subject to that Option during the period commencing as of the date an
agreement providing for such transaction is executed and ending as of the
earlier of:
(A) The applicable expiration date for such Option as
provided for in the Stock Option Agreement; or
(B) The date on which the disposition of assets or
stock contemplated by any such agreement is consummated.
(ii) Upon the consummation of any transaction specified in
Section 8(c)(i) above, this Plan and any unexercised Options issued hereunder
(or any unexercised portion thereof) shall terminate and cease to be
effective, unless provision is made in connection with such transaction for
assumption of such Options previously granted or the substitution for such
Options of new options covering the securities of a successor corporation or
an affiliate thereof, with appropriate adjustments as to the number and kind
of securities and prices.
(d) TERMINATION OF EMPLOYMENT OR CONSULTANCY OTHER THAN BY
DEATH OR DISABILITY. In the event that the employment or consultancy of an
Optionee with the Company is terminated for any reason other than the death
or permanent and total disability, any installments under the Option which
have not accrued as of the termination date shall expire and become
unexercisable as of the termination date. All Accrued Installments as of the
termination date shall remain exercisable for a period not to exceed thirty
(30) days following the termination date; PROVIDED, HOWEVER, that the Board
of Directors may in its discretion extend the period of exercisability of the
Option beyond a termination of such Optionee's employment or consultancy
until a date not later than the Option Termination Date.
(e) DEATH OR DISABILITY OF OPTIONEE WHILE EMPLOYED. In the
event that the employment of an Optionee with the Company is terminated by
reason of death or permanent and
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<PAGE>
total disability, any unexercised Accrued Installments of Options granted
hereunder to such Optionee shall expire and become unexerciseable as of the
earlier of
(i) The applicable Options Termination Date; or
(ii) The first anniversary of the date of termination
of employment or consultancy of such Optionee by reason of his death
or permanent and total disability. Any such Accrued Installments of
a deceased Optionee may be exercised prior to their expiration only
by the person or persons to whom the Optionee's Option rights pass by
will or by laws of descent and distribution. Any installments under
such a deceased or disabled Optionee's Option that have not accrued as
of the date of his termination of employment or consultancy, due to
death or permanent and total disability shall expire and become
unexerciseable as of said termination date. For purpose of this Plan,
the term "permanent and total disability" shall be defined under
Internal Revenue Code Section 105(d)(4).
(f) EXERCISE OF OPTIONS. An Option may be exercised in
accordance with this Section 8 as to all or any portion of the shares covered
by an Accrued Installment of the Option from time to time during the
applicable option period, except that an Option shall not be exercisable with
respect to fractions of a share.
(g) PAYMENT. The entire Option Price shall be paid in cash at
the time the Option is exercised; provided, however, that an Optionee may
elect to pay for all or some of his Option shares with shares of Stock of the
Company previously acquired and owned at the time of exercise by the
Optionee, subject to all restrictions and limitations of applicable law. An
Optionee's right to use Company shares to exercise an Option is expressly
conditioned upon his making representations and warranties satisfactory to
the Company regarding his title to the shares used to exercise such Option.
The equivalent dollar value of the shares used to effect the purchase shall
be the fair market value of the shares as determined by the Board. As a
condition to the exercise of an Option, the Board may in its sole discretion,
require the Optionee to pay, in addition to the purchase price of the shares
covered by the option, an amount equal to any federal, state and local taxes
that may be required to be withheld in connection with the exercise of such
Option.
9. AUTHORIZATION TO ISSUE OPTIONS AND SHAREHOLDER APPROVAL.
Options granted under the Plan shall be conditioned upon the Company
satisfying requirements imposed by any regulatory authority. The grant of
Options under the Plan
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<PAGE>
also is conditioned on approval of the Plan by the stockholders of the
company as required by applicable law and/or the Company's Articles of
Incorporation or Bylaws, and no Option shall be granted hereunder unless and
until the Plan has been so approved.
10. STOCK OPTION AGREEMENT. The terms and conditions of Options
granted under the Plan shall be evidenced by a Stock Option Agreement
executed by the Company and the person to whom the Option is granted. Each
Stock Option Agreement shall incorporate this Plan by reference and shall
include such provisions as are determined to be necessary or appropriate by
the Board.
11. STOCK BUY-SELL AGREEMENT. As a condition to the granting of any
Option hereunder and the subsequent exercise of any such option, the Board
may require the Optionee to enter into a stock restriction agreement with the
Company for the purpose of limiting the sale or other transfer of ownership
of Stock acquired by the Optionee,
12. AMENDMENT OR TERMINATION OF THE PLAN.
(a) The Board may amend, suspend and/or terminate the Plan at
any time; provided, however, that except as provided in Section 16 below, the
Board shall not amend the Plan in the following respects without shareholder
approval:
(i) To increase the maximum number of shares subject to
the Plan;
(ii) To change the designation or class of persons eligible
to receive Options under the Plan;
(iii) To extend the term of the Plan or the maximum
Option exercise period; or
(iv) To decrease the minimum price at which shares may be
optioned under the Plan.
(b) No amendment, suspension or termination of the Plan shall
adversely affect Options granted on or prior to the date hereof, as evidenced
by the execution of a stock option agreement by both the Company and the
Optionee, without the consent of such Optionee.
13. OPTIONS NOT TRANSFERABLE. Options granted under this Plan may
not be sold, pledged, hypothecated, assigned, encumbered, gifted or otherwise
transferred or alienated in any manner, either voluntarily or involuntarily
by operation of law, other than by will or the laws of descent or
distribution, and
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<PAGE>
may be exercised during the lifetime of an Optionee only by such Optionee.
14. RESTRICTIONS ON ISSUANCE OF SHARES. The Company, during the
term of this Plan, will use its best efforts to seek to obtain from the
appropriate regulatory agencies any requisite authorization in order to issue
and sell such number of shares of its Stock as shall be sufficient to satisfy
the requirements of the Plan. The inability of the Company to obtain from
any such regulatory agency having jurisdiction thereof the authorization
deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any shares of its stock hereunder shall relieve the Company of any
liability in respect of the non-issuance or sale of such stock as to which
such requisite authorization shall not have been obtained.
15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. If the outstanding
shares of Stock of the Company are increased, decreased, changed into or
exchanged for a different number of kind of shares of the Company through
reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or any other increase or decrease in such shares
effected without receipt of consideration by the Company, upon proper
authorization of the Board an appropriate and proportionate adjustment shall
be made in the number or kind of shares, and the per-share option price
thereof, which may be issued in the aggregate and to individual Optionees
under this Plan upon exercise of Options granted under the Plan; provided,
however, that no such adjustment need be made if, upon the advice of counsel,
the Board determines that such adjustments may result in the receipt of
federally taxable income to holders of Options granted hereunder or the
holders of Stock or other classes of the Company's securities.
16. REPRESENTATIONS AND WARRANTIES. As a condition to the granting
and the exercise of any portion of an Option, the Company may require the
person receiving or exercising such Option to make any representation and/or
warranty to the Company as may, in the judgement of counsel to the Company,
be required under any applicable law or regulation, including but not limited
to a representation and warranty that the Option and/or shares are being
acquired 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 under the Securities Act of 1933 or any other
applicable law, regulation, or rule of any governmental agency.
17. NO ENLARGEMENT OF EMPLOYEE OR CONSULTANT RIGHTS. This Plan is
purely voluntary on the part of the Company, and while the Company hopes to
continue the Plan indefinitely, the continuance
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<PAGE>
of the Plan shall not be deemed to constitute a contract between the Company
and any employee or consultant, or to be consideration for or a condition of
employment or consultancy of any employee. Nothing contained in the Plan
shall be deemed to give any employee or consultant the right to be retained
in the employ of the Company or to interfere with the right of the Company to
discharge or retire any employee or consultant thereof at any time. No
employee or consultant shall have any right to or interest in Options
authorized hereunder prior to the grant of such an Option to such employee or
consultant, and upon such grant he shall have only such rights and interests
as are expressly provided herein, subject, however, to all applicable
provisions of the Company's Articles of Incorporation and Bylaws, as the same
may be amended from time to time.
18. PRIVILEGES OF STOCK OWNERSHIP. No person entitled to exercise
any Option granted under the Plan shall have any of the rights or privileges
of a stockholder of the Company in respect of any shares of Stock issuable
upon exercise of such shares shall have been issued. No adjustments shall be
made for dividends or other rights for which the record date is prior to the
date of issuance of such certificate, except as provided in Section 15.
19. LEGENDS ON OPTIONS AND STOCK CERTIFICATES. Unless an
appropriate registration statement is filed pursuant to the Federal
Securities Act of 1933, as amended with respect to the shares of Stock
issuable under this Plan, each certificate representing such Stock shall be
endorsed with the following legend or its equivalent:
Neither the option pursuant to which the shares represented by this
certificate are issued nor said shares have been registered under
the Federal Securities Act of 1933, as amended ("Act"). Transfer
or sale of such securities or any interest therein is unlawful
except after registration, or pursuant to an exemption from the
registration requirements, as provided in the Act and the
regulations thereunder and except as otherwise provided in
Peregrine System, Inc.'s Nonqualified Stock Option Plan.
In addition to the foregoing legend, each Stock option Agreement and each
certificate representing shares of Stock acquired upon exercise of an option
shall be endorsed with all legends, if any, required by applicable state
securities laws to be placed on the Stock Option Agreement and/or the
certificate.
20. AVAILABILITY OF PLAN. A copy of this Plan shall be delivered to
the secretary of the Company and shall be
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<PAGE>
shown by the Secretary to any eligible person making reasonable inquiry
concerning the Plan.
21. APPLICABLE LAW. This Plan shall be governed by and Construed in
accordance with the internal substantive laws of the State of California without
reference to conflicts of law principles.
IN WITNESS WHEREOF, pursuant to the due authorization and
adoption of this Plan by-the Board on November 29, 1990, the Company has caused
this Plan to be duly executed by its duly authorized officers, effective as of
the date of such Board adoption.
PEREGRINE SYSTEMS, INC.
By: /s/ James W. Butler
James W. Butler,
President
By: /s/ Deborah S. Mings
Deborah S. Mings,
Secretary
<PAGE>
PEREGRINE SYSTEMS, INC.
STOCK OPTION AGREEMENT
Form Date: 11/29/90
<PAGE>
PEREGRINE SYSTEMS, INC.
STOCK OPTION AGREEMENT
This AGREEMENT is made effective as of the _________day of
______, 19 _____ ("Option Grant Date"), by and between PEREGRINE SYSTEMS, INC.,
a California corporation, ("Company") and ("Optionee").
RECITALS
WHEREAS, the Board of Directors of the Company has established the
Peregrine Systems, Inc. Nonqualified Stock Option Plan ("Plan") effective as of
November 29, 1990; and
WHEREAS, pursuant to the provisions of said Plan, the Board of
Directors of the Company, by action duly taken on _________, 19___ , granted to
the Optionee an option or options ("0ption(s)") to purchase shares of the common
stock of the Company ("Common Stock") on the terms and conditions set forth
herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein and other good and valuable consideration, the
parties hereto agree as follows:
1. THE OPTION(s). The Optionee at the optionee's option and on the
terms and conditions set forth herein, may purchase all or any part of an
aggregate of shares of common Stock at the price per share set forth in Section
2 below ("Option Price").
2. OPTION PRICE AND EXERCISE DATES. The Option(s) shall be
exercisable at the option Price as to the specified number of shares ("Optioned
Shares") on and after the "Start" dates and on or before the "Terminate" dates
set forth below:
Option Exercise Dates
Number of Shares Price Start Terminate
________________ _____ __________ _________
________________ _____ __________ _________
________________ _____ __________ _________
________________ _____ __________ _________
________________ _____ __________ _________
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<PAGE>
Optionee acknowledges that he understands he has no right whatsoever to exercise
the Option(s) granted hereunder with respect to any Optioned Shares covered by
any installment except as provided above. Optionee further understands that the
Option(s) granted hereunder shall expire and become unexercisable as provided in
Section 3(c) below.
3. GOVERNING PLAN. This Agreement hereby incorporates by
reference the Plan and all of the terms and conditions of the Plan as the same
may be amended from time to time hereafter in accordance with the terms thereof,
but no such subsequent amendment shall adversely affect the Optionee's rights
under this Agreement and the Plan except as may be required by applicable law.
Optionee expressly acknowledges and agrees that the provisions of this Agreement
are subject to the Plan; the terms of this Agreement shall in no manner limit or
modify the controlling provisions Of the Plan; and in case of any conflict
between the provisions of the Plan and this Agreement, the provisions of the
Plan shall be controlling and binding upon the parties hereto. The Optionee
also hereby expressly acknowledges, represents and agrees as follows:
(a) Acknowledges receipt of a copy of the Plan, a copy of which
is attached hereto and by reference incorporated herein, and represents that
Optionee is familiar with the terms and provisions of said Plan, and hereby
accepts this Agreement subject to all the terms and provisions of said Plan.
(b) Agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board of Directors (or the Committee, if so
authorized) upon any questions arising under the Plan.
(c) Acknowledges that Optionee is familiar with Section 8 of the
Plan regarding the terms and conditions of the Option(s) and represents that
Optionee understands that said Option(s) must be exercised an or before the
earliest of the following dates, whichever is applicable: (i) the "Terminate"
date noted above in Section 2; (ii) the day prior to the day the Option shall
expire, as provided in Section 8(b) of the Plan; (iii) the date on which a
transaction specified under Section 8(c) of the Plan is consummated; (iv) the
date which is not more than three (3) months following the Optionee's
termination of employment for any reason other than death or total and permanent
disability, as provided under Section 8(d) of the Plan; or (v) the date that is
one year following the Optionee's termination of employment by reason of his
death, or the date that is one year following his termination of employment by
reason of total and permanent disability, whichever is applicable, as provided
in Section 8(e) of the Plan.
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<PAGE>
(d) Acknowledges and understands that Optionee shall pay the
entire option Price in cash or shares of the Company's Common Stock at the time
the Option(s) are exercised, as permitted by Section 8(h) of the Plan; that use
Of Common Stock to pay the exercise price of an Option may have significant
adverse tax consequences for Optionee; and that Optionee should consult with a
competent tax advisor prior to utilizing common Stock of the Company to exercise
an Option.
(e) Acknowledges and understands that the Option(s) granted
hereunder to optionee supersede any and all other options, or promise(s) to
grant options, that may have been previously granted or made at any prior time
to Optionee by the Company, and that any and all other option plans of the
Company, and any unexercised options existing pursuant to those plans,
terminated on the date that the Plan was adopted.
4. EXERCISE.
(a) In order to exercise an Option, the Optionee shall deliver a
written notice of exercise to the Company at its principal business office,
which notice shall specify the number of shares to be purchased and shall be
accompanied by payment in cash or check made payable to the order of the Company
in the full amount of the Option Price of the shares to be purchased.
(b) In lieu of paying the total purchase price by cash or check,
the Optionee shall have the right to pay all or any portion of the total
purchase price with shares of common Stock of the Company held by the Optionee.
The amount of the purchase price deemed paid in this manner shall be the fair
market value as of the date of exercise of the shares surrendered, as determined
by the Board of Directors of the Company in its sole discretion, exercised in
good faith. If the Optionee elects to pay all or any portion of the total
purchase price in this manner, he shall accompany his notice of exercise with
the stock certificates he desires to surrender, duly endorsed for transfer to
the Company.
5. STOCK BUY-SELL AGREEMENT. As a condition to the exercise of any
portion of an Option, the Board may require the Optionee to enter into a Stock
Buy-Sell Agreement with the company in the form that is in effect at the time of
the exercise.
6. REPRESENTATION AND WARRANTIES. Optionee represents and warrants
that optionee is acquiring this Option for his own account and not with any
distribution of this Option or the shares of Common Stock which may be acquired
upon exercise
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of the Option. As a condition to the exercise of any portion of an Option, the
Company may require the person exercising such Option to make any representation
and/or warranty to the Company as may, in the judgment of counsel to the
Company, be required under any applicable law or regulation, including but not
limited to a representation and warranty that the shares are being acquired 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 under the Securities Act of 1933 or any other applicable law,
regulation or rule of any governmental agency.
7. OPTIONS NOT TRANSFERABLE. The Option(s) may be exercised during
the lifetime of the Optionee only by the Optionee. The Optionee's rights and
interests under this Agreement and in and to the Option(s) may not be sold,
pledged, hypothecated, assigned, encumbered, gifted or otherwise transferred in
any manner, either voluntarily or involuntarily by operation of law, except by
will or the laws of descent or distribution subject to the provisions of section
8(e) of the Plan.
8. NO ENLARGEMENT OF EMPLOYEE RIGHTS. Nothing in this Agreement
shall be construed to confer upon the Optionee any right to continued employment
with the Company, or to restrict in any way the right of the company to
terminate his employment.
9. RELEASE. Optionee for himself or herself and on behalf of any
present or former spouse and any other person claiming by or through any of them
hereby releases, discharges and forever acquits the Company and each of its
present or former officers, directors, shareholders, agents, accountants,
attorneys and employees from any and all demands, debts, liabilities, duties,
causes of action or any other claims of any kind or character, whether known or
unknown, suspected or unsuspected, which now exists or which may be alleged to
now exist or which has existed or may be alleged to have existed, arising out of
Optionee's employment by the Company. Optionee agrees and expressly intends
that the release set forth in this Section 9 shall include a release of unknown
or unsuspected claims. Optionee expressly acknowledges that unknown or
unsuspected claims may exist which, if know or suspected by Optionee, might have
materially affected this Agreement between the parties. However, as a material
inducement for the Company's promises as set forth herein, Optionee offers and
intends to release all such unknown or unsuspected claims, In this regard,
Optionee acknowledges that he or she is aware of the provisions of civil Code
Section 1542 and, being fully advised by counsel, knowingly waives the benefit
of such provisions. The provisions of civil
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<PAGE>
Code Section 1542 which are being waived by Optionee are 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.
10. WITHHOLDING OF TAXES. Optionee authorizes the Company to
withhold, in accordance with any applicable law, from any compensation payable
to him any taxes required to be withheld by federal, state or local law as a
result of the grant of the Option(s) or the issuance of stock pursuant to the
exercise of such Option(s).
11. LAWS APPLICABLE TO CONSTRUCTION. This Agreement shall be
construed and enforced in accordance with the internal substantive laws of the
State of California without reference to conflicts of law principles.
12. AGREEMENT BINDING ON SUCCESSORS. The terms of this Agreement
shall be binding upon the executors, administrators, heirs, successors,
transferees and assignees of the Optionee.
13. COSTS OF LITIGATION. In any action at law or in equity to
enforce any of the provisions or rights under this Agreement or the Plan, the
unsuccessful party to such litigation, as determined by the court in a final
judgement or decree, shall pay the successful party or parties all costs,
expenses and reasonable attorneys' fees incurred by the successful party or
parties (including without limitation costs, expenses and fees on any appeals),
and if the successful party recovers judgement in any such action or proceeding
such costs, expenses and attorneys' fees shall be included as part of the
judgement.
14 NECESSARY ACTS. The Optionee agrees to perform all acts and
execute and deliver any documents that may be reasonably necessary to carry out
the provisions of this Agreement, including but not limited to all acts and
documents related to compliance with federal and/or state securities laws.
15. COUNTERPARTS. For convenience, this Agreement may be executed in
any number of identical counterparts, each of which shall be deemed a complete
original in itself and may be introduced in evidence or used for any other
purposes without the production of any other counterparts.
16. INVALID PROVISIONS. In the event that any provision of this
Agreement is found to be invalid or otherwise
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<PAGE>
unenforceable under any applicable law, such invalidity or unenforceability
shall not be construed as rendering any other provisions contained herein
invalid or unenforceable, and all such other provisions shall be given full
force and effect to the same extent as though the invalid and unenforceable
provision was not contained herein.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement effective as of the date first written above.
PEREGRINE SYSTEMS, INC. OPTIONEE
--------------------
Signature
- -------------------- --------------------
James W. Butler, Printed Name
President
--------------------
Street Address
- --------------------
Deborah S. Mings, --------------------
Secretary City and State
--------------------
Social Security Number
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<PAGE>
By his or her signature below, the spouse of the Optionee, if such
Optionee be legally married as of the date of his execution of this Agreement,
acknowledges that he or she has read this Agreement and the Plan and is familiar
with the terms and provisions thereof, and agrees to be bound by all the terms
and conditions of said Agreement and said Plan.
-----------------------
Spouse's signature
-----------------------
Printed Name
Dated:
-----------------
By his or her signature below, the Optionee represents that he or she
is not legally married as of the date of execution of this Agreement.
-----------------------
Optionee's Signature
Dated:
-----------------
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<PAGE>
PEREGRINE SYSTEMS, INC.
EMPLOYEE STOCK BUY-SELL AGREEMENT
FORM DATE: 11/29/90
<PAGE>
EMPLOYEE STOCK BUY-SELL AGREEMENT
This Employee Stock Buy-Sell Agreement ("Agreement") is entered
into as of ______________, 19 _____ by and between Peregrine Systems, Inc., a
California corporation, ("Company") and ____________________ ("Employee").
I
RIGHT OF FIRST REFUSAL
1.01 COMPANY ELECTION TO PURCHASE. Employee (hereinafter referred
to as "Transferor") shall not sell, assign or transfer any capital stock of the
Company (the "Shares"), or any interest therein, however acquired, to any
person, firm or corporation without the written consent of the Company unless
the Transferor shall have first offered to sell such Shares as hereinafter
provided.
1.02 OFFER BY TRANSFEROR. Should Transferor desire to transfer
Shares, the Transferor shall give written notice to the Company of his or her
intention to transfer such Shares (hereinafter referred to as "Transferor's
Notice") and shall specify therein the name and address of the transferee, the
relationship of the transferee to the Transferor, the terms of such transfer and
the number of Shares to be transferred (hereinafter referred to as "Tendered
Shares"), The Transferor's Notice shall be accompanied by an offer to sell to
the Company all of the Tendered Shares (hereinafter referred to as the "Offer"),
and shall specify a date for the closing of the purchase by the Company which
shall not be less than forty-five (45) nor more than sixty (60) days after the
date of the giving of such Transferor's Notice and Offer. The Offer shall be
made on the same terms as to the proposed transferee; provided, however, that
the purchase price must be a bona fide purchase price determined as a result of
arms-length negotiation, and the time for payment of the purchase price shall be
as provided in Section 3.02, below.
1.03 ACCEPTANCE OF OFFER. Within thirty (30) days after the
receipt of the Transferor's Notice and offer, the Company may, at its option,
elect to purchase all of the Tendered Shares, The Company shall exercise its
election to so purchase by giving notice thereof to the Transferor.
1.04 FAILURE TO PURCHASE ALL TENDERED SHARES. If the Company
does not elect to purchase all of the Tendered
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Shares, then none of the Tendered Shares shall be purchased by the Company, and
this Agreement shall terminate.
II
PURCHASE UPON TERMINATION OF EMPLOYMENT
2.01 COMPANY ELECTION TO PURCHASE. If at any time Employee shall
cease to be employed by the Company for any reason, whether voluntarily or
involuntarily, with cause or without cause, and if at such time Employee holds
5,000 or fewer Shares, the Company shall have the right to purchase all, but not
less than all, of the capital stock of the Company Employee may then own,
however such Shares were acquired, including without limitation through the
exercise of stock options, award of stock bonuses, or the purchase of capital
stock of the Company, at a purchase price determined in accordance with the
provisions of Section 2.02.
2.02 DETERMINATION OF PURCHASE PRICE.
(a) The per Share purchase price of Employee's Shares shall be
determined by the Board of Directors and the price stated in the notice pursuant
to Section 2.03, unless the Employee files written notice of objection (the
"Arbitration Notice") with the Company within 10 days (i) specifying the price
which the Employee contends represents the fair value of his Shares of the
Company's Common Stock, and (ii) naming an arbitrator with experience in the
valuation of Shares of privately-held computer software companies.
(b) If the Employee gives the Arbitration Notice pursuant to Section
2,02(a), the Company shall within 10 days appoint a second arbitrator with
experience in the valuation of Shares of privately-held computer software
companies and the two arbitrators shall select a third arbitrator. The
arbitrators shall determine the purchase price of the Employees Shares of the
Company's Common Stock, which shall be the fair value per Share of Employee's
Shares of the Company's Common Stock, pursuant to the rules of the American
Arbitration Association and acting by majority vote. The decision of the
arbitrators shall be final, binding and unappealable by either the Employee or
the Company and both Employee and the Company consent to entry of judgement
based on the arbitrator's decision. The cost of arbitration shall be borne
solely by the Employee unless in the arbitrators judgement it should be borne by
the Company.
2.03 NOTICE AND ELECTION TO PURCHASE FORMER EMPLOYEE SHARES. No
later than forty-five (45) days after the
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<PAGE>
Termination date, the company shall give Employee notice of the Company's
election or non-election to purchase all of Employee's Shares. if the Company
elects to purchase Employee's Shares, the closing for the transfer shall occur
at the offices of the Company no later than the sixtieth (60th) day after the
Termination Date.
2.04 FAILURE TO PURCHASE ALL EMPLOYEE SHARES. If the Company does not
elect to purchase all of Employee's Shares, then none of Employee's Shares shall
be purchased by the Company, and this Agreement shall terminate.
III
CLOSING PROCEDURES
3.01 DELIVERY OF SHARES. At the closing, as determined under Section
1 or 2, Employee shall deliver the certificate or certificates representing the
Shares to be purchased by the Company, The Share certificate or certificates
shall be duly endorsed for transfer to the Company. Delivery of the Shares to
the Company shall constitute Employee's representation and warranty to the
Company that the Shares are delivered free and clear of all claims,
encumbrances, or other rights or interests of third parties, including without
limitation community property rights of Employee's spouse or former spouses, and
that the Company shall obtain good and marketable title to the Shares upon
delivery of the Shares to the Company.
3.02 PAYMENT OF PURCHASE PRICE. If the purchase is made pursuant to
Section 1 and unless the parties agree otherwise, the purchase price shall be
paid over a five-year period in equal monthly installments payable on the 1st
day of each month beginning with the first calendar month following the Closing,
In addition, interest of 10% will be paid on the unpaid balance, compounded
monthly. If the purchase is made pursuant to Section 2, the purchase price
shall be paid in full upon delivery of the share certificates.
IV
TERMINATION
4.01 TERMINATION OF ENTIRE AGREEMENT. This Agreement shall terminate:
(i) Upon the mutual agreement of all the parties; or
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<PAGE>
(ii) Upon the completion of any merger, if the Company is
not the surviving entity or if the Company is the surviving entity but as a
result of the merger becomes a subsidiary of another company, or the sale of
substantially all of the assets or stock of the Company; or
(iii) If the Company does not elect to purchase Employee's
Shares in accordance with the provisions of Article 1; or
(iv) Upon the effectiveness of any registration statement
covering Shares of the Company's Common Stock filed pursuant to the
Securities Act of 1933, as amended.
4.02 TERMINATION AS TO PARTICULAR SHARES. Upon the closing of any
public offering of capital stock of the Company, the provisions of this
Agreement shall terminate as to any Shares of capital stock of the company which
may be sold by Employee in any such public offering, and any person acquiring
any Shares which were subject to this Agreement through any public offering
shall acquire the Shares free and clear of any provisions or restrictions
contained in this Agreement.
V
GENERAL PROVISIONS
5.01 NOTICES. All notices, demands, requests, consents, approvals or
other communications (collectively "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may personally served or may be deposited in the United States mail,
registered or certified, return receipt requested, postage prepaid, addressed as
follows:
To Company: Peregrine Systems, Inc.
1959 Palomar Oaks Way
Carlsbad, CA 92009
To Employee: ___________________
___________________
___________________
or such other address as such party shall have specified most recently by
written notice. Notice shall be deemed given on the date of service if
personally served. Notice mailed as provided
- 4 -
<PAGE>
herein shall be deemed given on the third business day following the date so
mailed.
5.02 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute but one and the same instrument.
5.03 GOVERNING LAW. This Agreement shall be governed by, interpreted
under, and construed and enforced in accordance with the laws of the State of
California. In the event a judicial proceeding is necessary, the sole forum for
resolving disputes arising under or relating to this Agreement shall be the
Municipal and Superior Courts for the County of San Diego, California, and all
related appellate courts and the parties hereby consent to the jurisdiction of
such courts and that venue shall be in San Diego County, California.
5.04 ENTIRE AGREEMENT. The terms of this Agreement are intended by
the parties as a final expression of their agreement with respect to such terms
as are included in Agreement and may not be contradicted by evidence of any
prior or contemporaneous agreement. The parties further intend that this
Agreement constituted the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
5.05 MODIFICATION AND AMENDMENTS. This Agreement may not be modified,
changed or supplemented, nor may any obligations hereunder be waived or
extensions of time for performance granted, except by written instrument signed
by the party to be charged or by its agent duly authorized in writing or as
otherwise expressly permitted herein.
5.06 WAIVERS AND EXTENSIONS. No waiver of any breach of any agreement
or provision herein contained shall be deemed a waiver of any preceding or
succeeding breach thereof or of any other agreement or provision herein
contained. No extension of time for performance of any obligations or acts
shall be deemed an extension of the time for performance of any other
obligations or acts.
5.07 ATTORNEYS' FEES. Subject to section 1.02 regarding arbitration,
should any party institute any action or proceeding to enforce this Agreement or
any provision hereof, or for damages by reason of any alleged breach of this
Agreement or of any provision hereof, or for a declaration of rights hereunder,
the prevailing party in any such action or proceeding shall be entitled to
receive from the other party all costs and
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<PAGE>
expenses, including reasonable attorneys, fees, incurred by the prevailing party
in connection with such action or proceeding.
5.08 TITLES AND HEADINGS. Titles and headings of sections of this
Agreement are for convenience of reference only and shall not affect the
construction of any provision of this Agreement.
5.09 EXHIBITS. Each of the Exhibits referred to herein and attached
hereto is an integral part Of this Agreement and is incorporated herein by this
reference.
5.10 ASSIGNMENTS. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other parties. Any assignment of rights or
delegation of duties or obligations hereunder made without the written consent
of the other parties hereto shall be void and be of no effect Notwithstanding
the foregoing, the company may, without obtaining the consent of the other
parties, assign this Agreement and the rights, duties, and obligations of the
Company hereunder to any person or entity controlling, under common control
with, or controlled by the Company.
5.11 SUCCESSION AND ASSIGNS. This Agreement and the provisions hereof
shall be binding upon each of the parties, their successors and assigns.
5.12 PARTIAL INVALIDITY. If any provision of this Agreement is found
to be invalid by any court, the invalidity of such provision shall not affect
the validity of the remaining provisions hereof.
5.13 SPOUSAL CONSENTS. Concurrently with the execution of this
Agreement, Employee has delivered to the Company a spousal consent in the form
of Exhibit I attached hereto executed by Employee's spouse.
5.14 LEGEND ON SHARE CERTIFICATES. Each Share certificate
representing Shares held by Employee shall have endorsed on its face the
following words:
The Shares represented by this certificate are restricted by the
provisions of an Employee Stock Buy-Sell Agreement dated as of
___________, 19_____, a copy of which may be inspected at the
principal office of the Company, and all of the provisions of
which are incorporated herein.
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<PAGE>
A copy of this Agreement shall be delivered to the Secretary, and shall be shown
by the Secretary to any person making inquiry about in
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year reflected below.
"COMPANY" "EMPLOYEE"
PEREGRINE SYSTEMS, INC.,
a California corporation
_____________
_____________
(Printed Name)
__________________________
James W. Butler, President
____________________________
Deborah S. Mings, Secretary
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<PAGE>
SPOUSAL CONSENT TO AGREEMENT
I acknowledge that I have read that certain Employee stock
Buy-Sell Agreement dated as of ___________, 19 ______("Agreement") and that I
know its contents. I am aware that by its provisions my spouse agrees to sell
all Shares of the Company, including my community interest in them, on the
conditions specified in the Agreement, I hereby consent to the sale, approve of
the provisions of the Agreement, and agree that I will bequeath the shares or
any of them or any interest in them by my will to my spouse if I predecease my
spouse. I direct that the residuary clause in my will shall not be deemed to
apply to my community interest in the Shares.
Dated: ______________________, 19 _______
_____________________
(Signature)
_____________________
(Printed Name)
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<PAGE>
PEREGRINE SYSTEMS, INC.
1991 NONQUALIFIED STOCK OPTION PLAN
APRIL 1, 1991
<PAGE>
PEREGRINE SYSTEMS, INC.
CONTENTS
Heading Page
------- ----
1. PURPOSE 1
2. DEFINITIONS 1
3. ADMINISTRATION 2
4. ELIGIBILITY 3
5. NUMBER OF SHARES 4
6. OPTION PRICE 4
7. TERM OF PLAN. 4
8. EXERCISE OF OPTIONS 4
9. AUTHORIZATION TO ISSUE OPTIONS AND SHAREHOLDER
APPROVAL 6
10. STOCK OPTION AGREEMENT 7
11. STOCK BUY-SELL AGREEMENT 7
12. AMENDMENT OR TERMINATION OF THE PLAN 7
13. OPTIONS NOT TRANSFERABLE 7
14. RESTRICTIONS ON ISSUANCE OF SHARES 8
15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION 8
16. REPRESENTATIONS AND WARRANTIES 8
17. NO ENLARGEMENT OF EMPLOYEE RIGHTS 8
18. PRIVILEGES OF STOCK OWNERSHIP 9
19. LEGENDS ON OPTIONS AND STOCK CERTIFICATES 9
20. AVAILABILITY OF PLAN 9
21. APPLICABLE LAW 10
<PAGE>
PEREGRINE SYSTEMS, INC.
1991 NONQUALIFIED STOCK OPTION PLAN
1. PURPOSE. The purpose of this Peregrine Systems, Inc. 1991
Nonqualified Stock option Plan (the "Plan") is to permit Peregrine Systems,
Inc., a California corporation (the "Company"), and its Parent Corporation or
Subsidiary Corporation(s), if any, to retain the best available persons for
positions of substantial responsibility and to provide additional incentives for
the accomplishment of key company objectives. The Plan is intended to
accomplish this purpose by allowing the Company to grant options to purchase
shares of the Company's common stock. It is intended that all options granted
under this Plan are nonqualified options and shall not qualify as incentive
stock options ("Incentive Stock options") within the meaning of Section 422A(b)
of the Internal Revenue Code of 1986, as amended.
2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Committee" shall mean the Stock Option Plan Committee,
which is appointed by the Board.
(c) "Company" shall mean Peregrine Systems, Inc., a California
corporation.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "Option" shall mean a right to purchase stock, granted
pursuant to the Plan.
(f) "Optionee" shall mean an employee of or consultant to the
Company, or of any Subsidiary of the company, to whom an Option is granted under
the Plan.
(g) "Option Price" shall mean the purchase price for Stock under
an Option, as determined in Section 6, below.
(h) "Plan" shall mean this Peregrine Systems, Inc, 1991
Nonqualified Stock Option Plan.
(i) "Stock" shall mean the common stock of the Company.
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<PAGE>
(j) "Subsidiary" shall corporation of the company, as defined in
Sections 425(f) and 425(g) of the Code.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board or by the
committee as appointed by the Board (For purpose of this Plan document, the term
"Board" shall mean the Committee to the extent that the Board's powers have been
delegated to the Committee.)
(b) The Board shall have sole authorize in its absolute
discretion to (i) determine which employees of or consultants to Company
shall receive Options; (ii) subject to the express provisions of this Plan,
to determine the time when Options shall be granted, the terms and conditions
of Options other than those terms and conditions fixed under this Plan, and
the number of shares which may be issued upon exercise of the options. The
Board shall adopt by resolution such rules and regulations as may be required
to carry out the purposes of the Plan and shall have authority to do
everything necessary or appropriate to administer the Plan. All decisions,
determinations, and interpretations of the Board shall be final and binding
on all Optionees. Administration of the Plan with respect to members of the
Committee shall not be delegated, but shall at all times remain vested in the
Board. The Board may from time to time remove members from, or add members
to, the Committee, and vacancies on the Committee shall be filled by the
Board. Furthermore, the Board at any time by resolution may abolish the
Committee and revest in the Board the administration of the Plan.
(c) With respect to Options granted to a key employee or
consultant who is also a member of the Board, the Board shall take on by a vote
sufficient without counting the vote of such of the Board, although such member
of the Board may be counted in determining the presence of a quorum at a meeting
of the Board which authorizes the granting of Options to such member of the
Board.
(d) The Committee, if appointed pursuant to this Section 4,
shall report to the Board the name of employees or consultants granted Options,
the number of shares covered by each Option a the terms and conditions of each
such Option.
4. ELIGIBILITY.
(a) Options under this Plan may be granted to employees of or
consultants to the Company. The determination as to whether an employee or
consultant is eligible to receive Options hereunder shall be made by the Board
in its sole discretion (except that grants of options to any member of the Board
shall be made by a majority vote of disinterested directors), and the decision
of the Board shall be binding and final. For purposes of the Plan, the term
"consultant" shall mean any person, including an advisor, who is engaged by the
Company or any parent or subsidiary of the Company to render services and is
compensated for such services, and any member of the Company's Board of
Directors.
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<PAGE>
5. NUMBER OF SHARES. The maximum aggregate number of shares which
may be optioned and sold under this Plan is Five Hundred Thousand (500,000)
shares of authorized but unissued Stock of the Company, In the event that
Options granted under this Plan shall terminate or expire without being
exercised, in whole or in part, the shares subject to such unexercised Options
shall again become available for the granting of Options under this Plan.
6. OPTION PRICE. The Board shall in its sole discretion determine
the Option Price for shares of Stock to be issued under this Plan. The fair
market value of shares of Stock for all purposes of this Plan shall be
determined by the Board in tits sole discretion, exercised in good faith.
7. TERM OF PLAN. The Plan shall be effective as of April 1, 1991,
and shall continue in effect until April 1, 1991 2001 unless terminated earlier,
No Option may be granted hereunder after April 1, 2001.
8. EXERCISE OF OPTIONS. Subject to the limitations set forth herein
and/or any applicable Stock Option Agreement entered into hereunder, options
granted under this Plan shall be exercisable in accordance with the following
rules:
(a) GENERAL. Subject to the other provisions of this Section 8,
options shall vest and become exercisable at such times and in such installments
as the Board shall provide in an individual stock option agreement to be entered
by the Company and each Optionee, Notwithstanding the foregoing, the Board may
in its own discretion, accelerate the time at which an Option or installment
thereof may be exercised. For purposes of this Plan, any vested installment of
an option granted hereunder shall be referred to as an "Accrued Installment."
(b) TERMINATION OF OPTIONS. All installments of an Option shall
expire and terminate on such date as the Board shall determine, but in no event
later than ten (10) years from the date such Option was granted ("Option
Termination Date"), Unless provided otherwise in this Section 8 or in the
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<PAGE>
Stock Option Agreement pursuant to which an option is granted, an Option may be
exercised when Accrued Installments accrue as provided in such Stock Option
Agreement and at any time thereafter until, and including, the day before the
Option Termination Date,
(c) SALE OR REORGANIZATION.
(i) Upon the dissolution or liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company goes out of existence or becomes a
subsidiary of another corporation, or upon a sale of substantially all the
property or more than eighty percent (80%) of the then outstanding stock of the
Company (other than a reorganization, merger, consolidation, sale or similar
transaction effected solely for the purpose of reincorporating the Company in
another jurisdiction), an Option shall become immediately vested and exercisable
with respect to the full number of shares subject to that Option during the
period commencing as of me date an agreement providing for such transaction is
executed and ending as of the earlier of:
(A) The applicable expiration date for such Option as
provided for in the Stock Option Agreement; or
(B) The date on which the disposition of assets or
stock contemplated by any such agreement is consummated.
(ii) Upon the consummation of any transaction specified in
Section 8(c)(i) above, this Plan and any unexercised Options issued hereunder
(or any unexercised portion thereof) shall terminate and cease to be effective,
unless provision is made in connection with such transaction for assumption of
such Options previously granted or the substitution for such Options of new
options covering the securities of a successor corporation or an affiliate
thereof, with appropriate adjustments as to the number and kind of securities
and prices.
(d) TERMINATION OF EMPLOYMENT OR CONSULTANCY OTHER THAN OR
DISABILITY. In the event that the employment or consultancy of an Optionee
Company is terminated for any reason other than death or permanent and total
disability, Indents under the Option which have not accrued as of the
termination date shall expire and become unexercisable as of the termination
date. All Accrued Installments as of the termination date shall remain
exercisable for a period not to exceed thirty (30) days following the
termination date; PROVIDED, HOWEVER, that the Board of Directors may in its
discretion extend the period of exercisability of the Option beyond a
termination of such Optionee's employment or consultancy until a date not later
than the Option Termination Date.
(e) DEATH OR DISABILITY OF OPTIONEE WHILE EMPLOYED. In the
event that the employment of an Optionee with the Company is terminated by
reason of death or permanent and
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<PAGE>
total disability, any unexercised Accrued Installments of Options granted
hereunder to such Optionee shall expire and become unexerciseable as of the
earlier of
(i) The applicable Options Termination Date; or
(ii) The first anniversary of termination of employment or
consultancy of such Optionee by reason of his death or permanent and total
disability. Any such Accrued Installments of a deceased Optionee may be
exercised prior to their expiration only by the person or persons to whom the
Optionee's Option rights pass by will or by laws of descent and distribution.
Any installments under such a deceased or disabled Optionee's Option that have
not accrued as of the date of his termination of employment or consultancy due
to death or permanent and total disability shall expire and become
unexerciseable as of said termination date. For purpose of this Plan, the term
"permanent and total disability" shall be defined under Internal Revenue Code
Section 105(d)(4).
(f) EXERCISE OF OPTIONS. An Option may be exercised in
accordance with this Section 8 as to all or any portion of the shares covered by
an Accrued Installment of the option from time to time during the applicable
option period, except that an Option shall not be exercisable with respect to
fractions of a share.
(g) PAYMENT. The entire Option Price shall be paid in cash at
the time the Option is exercised; provided, however, that an Optionee may elect
to pay for all or some of his option shares with shares of Stock of the Company
previously acquired and owned at the time of exercise by the Optionee, subject
to all restrictions and limitations of applicable law An Optionee's right to use
Company shares to exercise an option is expressly conditioned upon his making
representations and warranties satisfactory to the Company regarding his title
to the shares used to exercise such Option. The equivalent dollar value of the
shares used to effect the purchase shall be the fair market value of the shares
as determined by the Board. As a condition to the exercise of an option, the
Board may in its sole discretion, require the Optionee to pay, in addition to
the purchase price of the shares covered by the option, an amount equal to any
federal, state and local taxes that may be required to be withheld in connection
with the exercise of such Option.
9. AUTHORIZATION TO ISSUE OPTIONS AND SHAREHOLDER APPROVAL. Options
granted under the Plan shall be conditioned upon the Company satisfying
requirements imposed by any regulatory authority. The grant of Options under
the Plan
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<PAGE>
also is conditioned on approval of the Plan by the stockholders of the Company
as required by applicable law and/or the Company's Articles of Incorporation or
Bylaws, and no Option shall be granted hereunder unless and until the Plan has
been so approved.
10. STOCK OPTION AGREEMENT. The terms and conditions of Options
granted under the Plan shall be evidenced by a Stock Option Agreement executed
by the Company and the person to whom the Option is granted. Each Stock Option
Agreement shall incorporate this Plan by reference and shall include such
provisions as are determined to be necessary or appropriate by the Board.
11. STOCK BUY-SELL AGREEMENT. As a condition to the granting of any
Option hereunder and the subsequent exercise of any such option, the Board may
require the Optionee to enter into a stock restriction agreement with the
Company for the purpose of limiting the sale or other transfer of ownership of
Stock acquired by the Optionee.
12. AMENDMENT OR TERMINATION OF THE PLAN.
(a) The Board may amend, suspend and/or terminate the Plan at
any time; provided, however, that except as provided in Section 16 below, the
Board shall not amend the Plan in the following respects without shareholder
approval:
(i) To increase the maximum number of shares subject to
the Plan;
(ii) To change the designation or class of persons eligible
to receive options under the Plan;
(iii) To extend the term of the Plan or the maximum option
exercise period; or
(iv) To decrease the minimum price at which shares may be
optioned under the Plan,
(b) No amendment, suspension or termination of the Plan
shall adversely affect options granted on or prior to the date hereof, as
evidenced by the execution of a stock option agreement by both the Company and
the Optionee without the consent of such Optionee.
13. OPTIONS NOT TRANSFERABLE. Options granted under this Plan may
not be sold, pledged, hypothecated, assigned, encumbered, gifted or otherwise
transferred or alienated in any manner, either voluntarily or involuntarily by
operation of law, other than by will or the laws of descent or distribution, and
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may be exercised during the lifetime of an Optionee only by such Optionee.
14. RESTRICTIONS ON ISSUANCE OF SHARES. The Company, during the term
of this Plan, will use its best efforts to seek to obtain from the appropriate
regulatory agencies any requisite authorization in order to issue and sell such
number of shares of its Stock as shall be sufficient to satisfy the requirements
of the Plan, The inability of the Company to obtain from any such regulatory
agency having jurisdiction thereof the authorization deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any shares of its
stock hereunder shall relieve the Company of any liability in respect of the
non-issuance or sale of such stock as to which such requisite authorization
shall not have been obtained.
15. (a) ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. If the
outstanding shares of Stock of the Company are increased, decreased, changed
into or exchanged for a different number of kind of shares of the Company
through reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split or any other increase or decrease in such
shares effected without receipt of consideration by the Company, upon proper
authorization of the Board an appropriate and proportionate adjustment shall be
made in the number or kind of shares, and the per-share option price thereof,
which may be issued in the aggregate and to individual Optionees under this Plan
upon exercise of Options granted under the Plan; provided, however, that no such
adjustment need be made if, upon the advice of counsel, the Board determines
that such adjustments may result in the receipt of federally taxable income to
holders of Options granted hereunder or the holders of Stock or other classes of
the Company's securities.
(b) Merger Sale of Assets, or Stock Transfer. In the event of
(i) a merger or consolidation of the Company with or into another corporation
resulting in the outstanding voting securities of the Company immediately prior
thereto representing (either by remaining or by being converted into voting
securities of the surviving entity) less than fifty percent,(50%) of the total
voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation;
(ii) the sale of all or substantially all of the assets of the Company; or (iii)
the sale or other transfer by John Moores and any stockholder affiliated (within
the meaning of the Securities Act) with Mr. Moores, in a single transaction or a
series of related transactions, of shares of Common Stock constituting more than
fifty percent (50%) of the then outstanding Common Stock of the Company to any
person or entity not affiliated with Mr. Moores or the Company, 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. Notwithstanding the provisions of clause (iii) above, any such
sale or other transfer by Mr. Moores or any stockholder affiliated with Mr.
Moores of shares of Common Stock through a registered public offering of
securities under the Securities Act, or in compliance with the requirements of
paragraphs (c), (d), (e), and (f) of Rule 144 under the Securities Act, shall
not cause the Option to become fully vested and exercisable. If an Option
becomes fully vested and exercisable in the event of a merger or consolidation,
or sale of assets, or sale or transfer of Common Stock by Mr. Moores as
provided above, the Administrator shall notify the Optionee in writing or
electronically that the Option shall be fully vested and exercisable.
16. REPRESENTATIONS AND WARRANTIES. As a condition to the granting
and the exercise of any portion of an option, the Company may require the person
receiving or exercising such Option to make any representation and/or warranty
to the Company as may, in the judgment of counsel to the company, be required
under any applicable law or regulation, including but not limited to a
representation and warranty that the Option and/or shares are being acquired
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 under the Securities Act of 1933 or any other applicable law,
regulation, or rule of any governmental agency,
17. NO ENLARGEMENT OF EMPLOYEE OR CONSULTANT RIGHTS. This Plan is
purely voluntary on the part of the Company and while the Company hopes to
continue the Plan indefinitely the continuance
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<PAGE>
of the Plan shall not be deemed to constitute a contract between the Company and
any employee or consultant, or to be consideration for or a condition of
employment or consultancy of any employee. Nothing contained in the Plan shall
be deemed to give any employee or consultant right to be retained in the employ
of the Company or to interfere with the right of the Company to discharge or
retire any employee or consultant thereof at any time. No employee or
consultant shall have any right to or interest in options authorized hereunder
prior to the grant of such an Option to such employee or consultant and upon
such grant he shall have only such rights and interests as are expressly
provided herein, subject, however, to all applicable provisions of the Company's
Articles of Incorporation and Bylaws, as the same may be amended from time to
time.
18. PRIVILEGES STOCK OWNERSHIP. No person entitled to exercise any
Option granted under the Plan shall have any of the rights or privileges of a
stockholder of the Company in respect of any shares of Stock issuable upon
exercise of such shares shall have been issued. No adjustments shall be made
for dividends or other rights for which the record date is prior to the date of
issuance of such certificate, except as provided in Section 15.
19. LEGENDS ON OPTIONS AND STOCK CERTIFICATES Unless an appropriate
registration statement is filed pursuant to the Federal Securities Act of 1933,
as amended with respect to the shares of Stock issuable under this Plan, each
certificate representing such Stock shall be endorsed with the following legend
or its equivalent:
Neither the Option pursuant to which the shares represented by
this certificate are issued nor said shares have been registered
under the Federal Securities Act of 1933, as amended ("Act"),
Transfer or sale of such securities or any interest therein is
unlawful except after registration, or pursuant to an exemption
from the registration requirements, as provided in the Act and
the regulations thereunder and except as otherwise provided in
Peregrine system, Inc.'s Nonqualified Stock option Plan.
In addition to the foregoing legend, each Stock option Agreement and each
certificate representing shares of Stock acquired upon exercise of an Option
shall be endorsed with all legends, if any, required by applicable state
securities laws to be placed on the Stock Option Agreement and/or the
certificate.
20. AVAILABILITY OF PLAN. A copy of this Plan shall be delivered to
the secretary of the Company and shall be
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shown by the Secretary to any eligible person making reasonable inquiry
concerning the Plan.
21. APPLICABLE LAW. This Plan shall be governed by and construed in
accordance with the internal substantive laws of the State of California,
without reference to conflicts of law principles.
IN WITNESS WHEREOF, pursuant to the due authorization and
adoption of this Plan by the Board on March 19, 1991, the Company has caused
this Plan to be duly executed by its duly authorized officers, effective as of
the date of such Board adoption.
PEREGRINE SYSTEMS, INC.
By: /s/ James W. Butler
James W. Butler,
President
By: /s/ Deborah S. Mings
Deborah S. Mings,
Secretary
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<PAGE>
PEREGRINE SYSTEMS, INC.
STOCK OPTION AGREEMENT
1991 NONQUALIFIED STOCK OPTION PLAN
<PAGE>
PEREGRINE SYSTEMS, INC.
STOCK OPTION AGREEMENT
This AGREEMENT is made effective as of the _________ day of
______, 19____ ("Option Grant Date"), by and between PEREGRINE SYSTEMS, INC., a
California corporation, ("Company) and ("Optionee").
RECITALS
WHEREAS, the Board of Directors of the Company has established the
Peregrine Systems, Inc. 1991 Nonqualified Stock option Plan ("Plan") effective
as of April 1. 1991.
WHEREAS, pursuant to the provisions of said Plan, the Board of
Directors of the Company, by action duly taken on __________, 19______, granted
to the Optionee an option or options ("Option(s)") to purchase shares of the
common stock of the Company ("Common Stock") on the terms and conditions set
forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein and other good and valuable consideration, the
parties hereto agree as follows:
1. THE OPTION(s), The Optionee at the optionee's option and on
the terms and conditions set forth herein, may purchase all or any part of an
aggregate of __________shares of common Stock at the price per share set forth
in Section 2 below ("Option Price").
2. OPTION PRICE AND EXERCISE DATES. The option(s) shall be
exercisable at the option Price as to the specified number of shares ("Optioned
Shares") on and after the "Start" dates and on or before the "Terminate" dates
set forth below:
Option Exercise Dates
Number of Shares Price Start Terminate
- ---------------- -------- ----------- ------------
- ---------------- -------- ----------- ------------
- ---------------- -------- ----------- ------------
- ---------------- -------- ----------- ------------
- ---------------- -------- ----------- ------------
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Optionee acknowledges that he understands he has no right whatsoever to exercise
the Option(s) granted hereunder with respect to any Optioned Shares covered by
any installment except as provided above, Optionee further understands that the
Option(s) granted hereunder shall expire and become unexerciseable as provided
in Section 3(c) below.
3. GOVERNING PLAN. This Agreement hereby incorporates by reference
the Plan and all of the terms and conditions of the Plan as the same may be
amended from time to time hereafter in accordance with the terms thereof, but no
such subsequent amendment shall adversely affect the Optionee's rights under
this Agreement and the Plan except as may be required by applicable law.
Optionee expressly acknowledges and agrees that the provisions of this Agreement
are subject to the Plan; the terms of this Agreement shall in no manner limit or
modify the controlling provisions of the Plan; and in case of any conflict
between the provisions of the Plan and this Agreement, the provisions of the
Plan shall be controlling and binding upon the parties hereto. The Optionee
also hereby expressly acknowledges, represents and agrees as follows:
(a) Acknowledges receipt of a copy of the Plan, a copy of which
is attached hereto and by reference incorporated herein, and represents that
Optionee is familiar with the terms and provisions of said Plan, and hereby
accepts this Agreement subject to all the terms and provisions of said Plan.
(b) Agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board of Directors (or the Committee, if so
authorized) upon any questions arising under the Plan.
(c) Acknowledges that Optionee is familiar with Section 8 of the
Plan regarding the terms and conditions of the Option(s) and represents that
Optionee understands that said Option(s) must be exercised on or before the
earliest of the following dates, whichever is applicable: (i) the "Terminate"
date noted above in Section 2; (ii) the day prior to the day the option shall
expire, as provided in Section 8(b) of the Plan; (iii) the date on which a
transaction specified under Section s(c) of the Plan is consummated; (iv) the
date which is not more than three (3) months following the Optionee's
termination of employment for any reason other than death or total and permanent
disability, as provided under Section 8(d) of the Plan; or (v) the date that is
one year following the Optionee's termination of employment by reason of his
death, or the date that is one year following his termination of employment by
reason of total and permanent disability, whichever is applicable, as provided
in Section 8(e) of the Plan.
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(d) Acknowledges and understands that Optionee shall pay the
entire option Price in cash or shares of the Company's common Stock at the time
the Option(s) are exercised, as permitted by Section 8(h) of the Plan; that use
of Common Stock to pay the exercise price of an Option may have significant
adverse tax consequences for Optionee; and that Optionee should consult with a
competent tax advisor prior to utilizing Common Stock of the Company to exercise
an Option.
(e) Acknowledges and understands that the Option(s) granted
hereunder to optionee supersede any and all other options, or promise(s) to
grant options, that may have been previously granted or made at any prior time
to Optionee by the Company, and that any and all other option plans of the
Company, and any unexercised options existing pursuant to those plans,
terminated on the date that the Plan was adopted.
4. EXERCISE.
(a) In order to exercise an Option, the Optionee shall deliver a
written notice of exercise to the Company at its principal business office,
which notice shall specify the number of shares to be purchased and shall be
accompanied by payment in cash or check made payable to the order of the Company
in the full amount of the option Price of the shares to be purchased.
(b) In lieu of paying the total purchase price by cash or check,
the Optionee shall have the right to pay all or any portion of the total
purchase price with shares of Common Stock of the Company held by the Optionee.
The amount of the purchase price deemed paid in this manner shall be the fair
market value as of the date of exercise of the shares surrendered, as determined
by the Board of Directors of the company in its sole discretion, exercised in
good faith. If the optionee elects to pay all or any portion of the total
purchase price in this manner, he shall accompany his notice of exercise with
the stock certificates he desires to surrender, duly endorsed for transfer to
the Company.
5. STOCK BUY-SELL AGREEMENT. As a condition to the exercise of any
portion of an Option, the Board may require the optionee to enter into a Stock
Buy-Sell Agreement with the company in the form that is in effect at the time of
the exercise.
6. REPRESENTATIONS AND WARRANTIES. Optionee represents and warrants
that Optionee is acquiring this option for his own account and not with any
distribution of this option or the shares of Common Stock which may be acquired
upon exercise
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of the Option. As a condition to the exercise of any portion of an Option, the
Company may require the person exercising such Option to make any representation
and/or warranty to the company as may, in the judgment of counsel to the
company, be required under any applicable law or regulation, including but not
limited to a representation and warranty that the shares are being acquired 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 under the Securities Act of 1933 or any other applicable law regulation
or rule of any governmental agency.
7. OPTIONS NOT TRANSFERABLE. The Option(s) may be exercised during
the lifetime of the Optionee only by the Optionee, The Optionee's rights and
interests under this Agreement and in and to the Option(s) may not be sold,
pledged, hypothecated, assigned, encumbered, gifted or otherwise transferred in
any manner, either voluntarily or involuntarily by operation of law, except by
will or the laws of descent or distribution subject to the provisions of Section
8(e) of the Plan.
8. NO ENLARGEMENT OF EMPLOYEE RIGHTS. Nothing in this Agreement
shall be construed to confer upon the Optionee any right to continued employment
with the Company, or to restrict in any way the right of the Company to
terminate his employment.
9. RELEASE. Optionee for himself or herself and on behalf of any
present or former spouse and any other person claiming by or through any of them
hereby releases, discharges and forever acquits the Company and each of its
present or former officers, directors, shareholders, agents, accountants,
attorneys and employees from any and all demands, debts, liabilities, duties,
causes of action or any other claims of any kind or character, whether known or
unknown, suspected or unsuspected, which now exists or which may be alleged to
now exist or which has existed or may be alleged to have existed, arising out of
optionee's employment by the Company, Optionee agrees and expressly intends that
the release set forth in this Section 9 shall include a release of unknown or
unsuspected claims optionee expressly acknowledges that unknown or unsuspected
claims may exist which, if know or suspected by Optionee, might have materially
affected this Agreement between the parties. However, as a material inducement
for the Company's promises as set forth herein, Optionee offers and intends to
release all such unknown or unsuspected claims In this regard, Optionee
acknowledges that he or she is aware of the provisions of Civil Code Section
1542 and, being fully advised by counsel, knowingly waives the benefit of such
provisions. The provisions of Civil
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<PAGE>
Code Section 1542 which are being waived by Optionee are 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.
10. WITHHOLDING OF TAXES. Optionee authorizes the Company to
withhold, in accordance with any applicable law, from any compensation payable
to him any taxes required to be withheld by federal, state or local law as a
result of the grant of the Option(s) or the issuance of stock pursuant to the
exercise of such Option(s).
11. LAWS APPLICABLE TO CONSTRUCTION. This Agreement shall be
construed and enforced in accordance with the internal substantive laws of the
State of California without reference to conflicts of law principles.
12. AGREEMENT BINDING ON SUCCESSORS. The terms of this
Agreement shall be binding upon the executors, administrators, heirs,
successors, transferees and assignees of the Optionee.
13. COSTS OF LITIGATION. In any action at law or in equity to
enforce any of the provisions or rights under this Agreement or the Plan, the
unsuccessful party to such litigation, as determined by the court in a final
judgement or decree, shall pay the successful party or parties all costs,
expenses and reasonable attorneys' fees incurred by the successful party or
parties (including without limitation costs, expenses and fees on any appeals),
and if the successful party recovers judgement in any such action or proceeding
such costs, expenses and attorneys' fees shall be included as part of the
judgement.
14. NECESSARY ACTS. The Optionee agrees to perform all acts and
execute and deliver any documents that may be reasonably necessary to carry out
the provisions of this Agreement, including but not limited to all acts and
documents related to compliance with federal and/or state securities laws.
15. COUNTERPARTS. For convenience, this Agreement may be
executed in any number of identical counterparts, each of which shall be deemed
a complete original in itself and may be introduced in evidence or used for any
other purposes without the production of any other counterparts.
16. INVALID PROVISIONS. In the event that any provision of this
Agreement is found to be invalid or otherwise
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<PAGE>
unenforceable under any applicable law, such invalidity or unenforceability
shall not be construed as rendering any other provisions contained herein
invalid or unenforceable, and all such other provisions shall be given full
force and effect to the same extent as though the invalid and unenforceable
provision was not contained herein.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement effective as of the date first written above.
PEREGRINE SYSTEMS, INC. OPTIONEE
- -------------------------- ---------------------------------------
James W. Butler, Signature
President
---------------------------------------
Printed Name
---------------------------------------
- -------------------------- Street Address
Nicholas J. Brox,
Secretary
---------------------------------------
City and State
---------------------------------------
Social Security Number
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<PAGE>
By his or her signature below, the spouse of the Optionee, if such
Optionee be legally married as of the date of his execution of this Agreement,
acknowledges that he or she has read this Agreement and the Plan and is familiar
with the terms and provisions thereof, and agrees to be bound by all the terms
and conditions of said Agreement and said Plan.
---------------------------------------
Spouse's Signature
---------------------------------------
Printed Name
Dated:
------------------------
By his or her signature below, the optionee represents that he or she
is not legally married as of the date of execution of this Agreement.
---------------------------------------
Optionee's Signature
Dated:
------------------------
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<PAGE>
PEREGRINE SYSTEMS, INC.
EMPLOYEE STOCK BUY-SELL AGREEMENT
<PAGE>
EMPLOYEE STOCK BUY-SELL AGREEMENT
This Employee Stock Buy-Sell Agreement ("Agreement") is entered into
as of __________, 19____ by and between Peregrine Systems, Inc., a California
corporation, ("Company") and ____________________("Employee").
I
RIGHT OF FIRST REFUSAL
1.01 COMPANY ELECTION TO PURCHASE. Employee (hereinafter
referred to as "Transferor") shall not sell, assign or transfer any capital
stock of the Company (the "Shares"), or any interest therein, however acquired,
to any person, firm or corporation without the written consent of the Company
unless the Transferor shall have first offered to sell such Shares as
hereinafter provided.
1.02 OFFER BY TRANSFEROR. Should Transferor desire to transfer
Shares, the Transferor shall give written notice to the Company of his or her
intention to transfer such Shares (hereinafter referred to as "Transferor's
Notice") and shall specify therein the name and address of the transferee, the
relationship of the transferee to the Transferor, the terms of such transfer and
the number of Shares to be transferred (hereinafter referred to as "Tendered
Shares"), The Transferor's Notice shall be accompanied by an offer to sell to
the Company all of the Tendered Shares (hereinafter referred to as the "Offer"),
and shall specify a date for the closing of the purchase by the Company which
shall not be less than forty-five (45) nor more than sixty (60) days after the
date of the giving of such Transferor's Notice and Offer, The Offer shall be
made on the same terms as to the proposed transferee; provided, however, that
the purchase price must be a bona fide purchase price determined as a result of
arms-length negotiation, and the time for payment of the purchase price shall be
as provided in Section 3.02, below.
1.03 ACCEPTANCE OF OFFER. Within thirty (30) days after the
receipt of the Transferor's Notice and offer, the company may, at its option,
elect to purchase all of the Tendered Shares, The Company shall exercise its
election to so purchase by giving notice thereof to the Transferor.
1.04 FAILURE TO PURCHASE ALL TENDERED SHARES. If the Company
does not elect to purchase all of the Tendered Shares, then none of the Tendered
Shares shall be purchased by the Company, and this Agreement shall terminate.
1
<PAGE>
II
PURCHASE UPON TERMINATION OF EMPLOYMENT
2.01 COMPANY ELECTION TO PURCHASE. If at any time Employee shall
cease to be employed by the Company for any reason, whether voluntarily or
involuntarily, with cause or without cause, and if at such time Employee holds
5,000 or fewer Shares, the company shall have the right to purchase all, but not
less than all, of the capital stock of the Company Employee may then own,
however such Shares were acquired, including without limitation through the
exercise of stock options, award of stock bonuses, or the purchase of capital
stock of the Company, at a purchase price determined in accordance with the
provisions of Section 2.02.
2.02 DETERMINATION OF PURCHASE PRICE.
(a) The per Share purchase price of Employee's Shares shall be
determined by the Board of Directors and the price stated in the notice pursuant
to Section 2.03, unless the Employee files written notice of objection (the
"Arbitration Notice") with the Company within 10 days (i) specifying the price
which the Employee contends represents the fair value of his Shares of the
Company's Common Stock, and (ii) naming an arbitrator with experience in the
valuation of Shares of privately-held computer software companies.
(b) If the Employee gives the Arbitration Notice pursuant to Section
2.02(a), the Company shall within 10 days appoint a second arbitrator with
experience in the valuation of Shares of privately-held computer software
companies and the two arbitrators shall select a third arbitrator, The
arbitrators shall determine the purchase price of the Employee's Shares of the
Company's Common Stock, which shall be the fair value per Share of Employee's
Shares of the Company's Common Stock, pursuant to the rules of the American
Arbitration Association and acting by majority vote, The decision of the
arbitrators shall be final, binding and unappealable by either the Employee or
the Company and both Employee and the Company consent to entry of judgement
based on the arbitrator's decision. The cost of arbitration shall be borne
solely by the Employee unless in the arbitrators judgement it should be borne by
the Company.
2.03 NOTICE AND ELECTION TO PURCHASE FORMER EMPLOYEE SHARES. No
later than forty-five (45) days after the Termination date, the Company shall
give Employee notice of the Company's election or non-election to purchase all
of Employee's Shares. If the Company elects to purchase Employee's Shares, the
closing for the transfer shall occur at the offices of the
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<PAGE>
Company no later than the sixtieth (60th) day after the Termination Date.
2.04 FAILURE TO PURCHASE ALL EMPLOYEE SHARES. If the Company
does not elect to purchase all of Employee's Shares, then none of Employee's
Shares shall be purchased by the Company, and this Agreement shall terminate.
III
CLOSING PROCEDURES
3.01 DELIVERY OF SHARES. At the closing, as determined under
Section 1 or 2. Employee shall deliver the certificate or certificates
representing the Shares to be purchased by the Company, The Share certificate or
certificates shall be duly endorsed for transfer to the Company, Delivery of the
Shares to the Company shall constitute Employee's representation and warranty to
the Company that the Shares are delivered free and clear of all claims,
encumbrances, or other rights or interests of third parties, including without
limitation community property rights of Employee's spouse or former spouses, and
that the Company shall obtain good and marketable title to the Shares upon
delivery of the Shares to the Company.
3.02 PAYMENT OF PURCHASE PRICE. If the purchase is made pursuant
to Section 1 and unless the parties agree otherwise the purchase price shall be
paid over a five-year period in equal monthly installments payable on the first
day of each month beginning with the first calendar month following the closing,
In addition, interest of 10% will be paid on the unpaid balance, compounded
monthly. If the purchase is made pursuant to Section 2, the purchase price
shall be paid in full upon delivery of the share certificates.
IV
TERMINATION
4.01 TERMINATION OF ENTIRE AGREEMENT. This Agreement shall
terminate:
(i) Upon the mutual agreement of all the parties; or
(ii) Upon the completion of any merger, if the Company is
not the surviving entity or if the Company is the surviving entity but
as a result of the merger becomes subsidiary of another company, or
the
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<PAGE>
sale of substantially all of the assets or stock of the Company; or
(iii) If the company does not elect to purchase Employee's
Shares in accordance with the provisions of Article I; or
(iv) Upon the effectiveness of any registration statement
covering Shares of the Company's Common Stock filed pursuant to the
Securities Act of 1933, as amended.
4.02 TERMINATION AS TO PARTICULAR SHARES. Upon the closing of
any public offering of capital stock of the Company, the provisions of this
Agreement shall terminate as to any Shares of capital stock of the Company which
may be sold by Employee in any such public offering, and any person acquiring
any Shares which were subject to this Agreement through any public offering
shall acquire the Shares free and clear of any provisions or restrictions
contained in this Agreement.
V
GENERAL PROVISIONS
5.01 NOTICES. All notices, demands, requests, consents,
approvals or other communications (collectively "Notices") required or permitted
to be given hereunder or which are given with respect to this Agreement shall be
in writing and may personally served or may be deposited in the United States
mail, registered or certified, return receipt requested, postage prepaid,
addressed as follows:
To Company: Peregrine Systems, Inc.
1959 Palomar Oaks Way
Carlsbad, CA 92009
To Employee:
-----------------------------
-----------------------------
-----------------------------
or such other address as such party shall have specified most recently by
written notice. Notice shall be deemed given on the date of service if
personally served. Notice mailed as provided herein shall be deemed given on
the third business day following the date so mailed.
5.02 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an
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original, but all of which taken together shall constitute but one and the same
instrument.
5.03 GOVERNING LAW. This Agreement shall be governed by,
interpreted under, and construed and enforced in accordance with the laws of the
State of California. In the event a judicial proceeding is necessary, the sole
forum for resolving disputes arising under or relating to this Agreement shall
be the Municipal and superior Courts for the County of San Diego, California,
and all related appellate courts and the parties hereby consent to the
jurisdiction of such courts, and that venue shall be in San Diego County,
California.
5.04 ENTIRE AGREEMENT. The terms of this Agreement are intended
by the parties as a final expression of their agreement with respect to such
terms as are included in Agreement and may not be contradicted by evidence of
any prior or contemporaneous agreement. The parties further intend that this
Agreement constituted the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
5.05 MODIFICATION AND AMENDMENTS. This Agreement may not be
modified, changed or supplemented, nor may any obligations hereunder be waived
or extensions of time for performance granted, except by written instrument
signed by the party to be charged or by its agent duly authorized in writing or
as otherwise expressly permitted herein.
5.O6 WAIVERS AND EXTENSIONS. No waiver of any breach of any
agreement or provision herein contained shall be deemed a waiver of any
preceding or succeeding breach thereof or of any other agreement or provision
herein contained. No extension of time for performance of any obligations or
acts shall be deemed an extension of the time for performance of any other
obligations or acts.
5.07 ATTORNEYS' FEES. Subject to Section 1.02 regarding
arbitration, should any party institute any action or proceeding to enforce this
Agreement or any provision hereof, or for damages by reason of any alleged
breach of this Agreement or of any provision hereof, or for a declaration of
rights hereunder, the prevailing party in any such action or proceeding shall be
entitled to receive from the other party all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party in connection with
such action or proceeding.
5.08 TITLES AND HEADINGS. Titles and headings of sections of
this Agreement are for convenience of reference
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<PAGE>
only and shall not affect the construction of any provision of this Agreement.
5.09 EXHIBITS. Each of the Exhibits referred to herein and
attached hereto is an integral part of this Agreement and is incorporated herein
by this reference.
5.10 ASSIGNMENTS. This Agreement and the rights, duties, and
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other parties. Any assignment of rights or
delegation of duties or obligations hereunder made without the written consent
of the other parties hereto shall be void and be of no effect. Notwithstanding
the foregoing, the Company may, without obtaining the consent of the other
parties, assign this Agreement and the rights, duties, and obligations of the
Company hereunder to any person or entity controlling, under common control
with, or controlled by the Company.
5.11 SUCCESSORS AND ASSIGNS. This Agreement and the provisions
hereof shall be binding upon each of the parties, their successors and assigns.
5.12 PARTIAL INVALIDITY. If any provision of this Agreement is
found to be invalid by any court, the invalidity of such provision shall not
affect the validity of the remaining provisions hereof.
5.13 SPOUSAL CONSENTS. Concurrently with the execution of this
Agreement.-Employee has delivered to the company a spousal consent in the form
of Exhibit 1 attached hereto executed by Employee's spouse.
5.14 LEGEND ON SHARE CERTIFICATES, Each Share certificate
representing Shares held by Employee shall have endorsed on its face the
following words:
The Shares represented by this certificate are restricted by the
provisions of an Employee Stock Buy-Sell Agreement dated as of
_____________, 19___, a copy of which may be inspected at the
principal office of the Company, and all of the provisions of which
are incorporated herein.
A copy Of this Agreement shall be delivered to the Secretary, and shall be shown
by the Secretary to any person making inquiry about it
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year reflected below.
"COMPANY" "EMPLOYEE"
PEREGRINE SYSTEMS, INC.,
a California corporation ---------------------------------------
---------------------------------------
(Printed Name)
- ---------------------------------
James W. Butler, President
- ---------------------------------
Nicholas J. Brox, Secretary
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<PAGE>
SPOUSAL CONSENT TO AGREEMENT
I acknowledge that I have read that certain Employee Stock
Buy-Sell Agreement dated as of ______________, 19_____ ("Agreement") and that I
know its contents. I am aware that by its provisions my spouse agrees to sell
all Shares of the company, including my community interest in them, on the
conditions specified in the Agreement. I hereby consent to the sale, approve of
the provisions of the Agreement, and agree that I will bequeath the Shares or
any of them or any interest in them by my will to my spouse if I predecease my
spouse. I direct that the residuary clause in my will shall not be deemed to
apply to my community interest in the Shares.
Dated: , 19
------------------ -----
---------------------------------------
(Signature)
---------------------------------------
(Printed Name)
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PEREGRINE SYSTEMS, INC.
1994 STOCK OPTION PLAN
(AS AMENDED THROUGH FEBRUARY 6, 1997)
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "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 appointed by the Board of Directors
in accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means Peregrine Systems, Inc., a Delaware corporation.
(h) "CONSULTANT" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services. The term
Consultant shall not include directors who are not compensated for their
services or are paid only a director's fee by the Company.
<PAGE>
(i) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the
employment or consulting relationship with the Company or any Parent or
Subsidiary is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of: (i) any leave
of absence approved by the Company, including sick leave, military leave, or any
other personal leave; provided, however, that for purposes of Incentive Stock
Options, no such leave may exceed ninety (90) days, unless reemployment upon the
expiration of such leave is guaranteed by contract (including certain Company
policies) or statute; provided, further, that on the ninety-first (91st) day of
any such leave (where reemployment is not guaranteed by contract or statute) the
Optionee's Incentive Stock Option shall cease to be treated as an Incentive
Stock Option and will be treated for tax purposes as a Nonstatutory Stock
Option; or (ii) transfers between locations of the Company or between the
Company, its Parent, its Subsidiaries or its successor.
(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. The payment
of a director's fee by the Company shall not 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 National
Market System 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, its Fair Market Value
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
or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
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(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "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.
(q) "OPTION" means a stock option granted pursuant to the Plan.
(r) "OPTIONED STOCK" means the Common Stock subject to an Option.
(s) "OPTIONEE" means an Employee or Consultant who receives an
Option.
(t) "PARENT" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(u) "PLAN" means this 1994 Stock Option Plan, as amended.
(v) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 11 below.
(w) "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 11 of
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 3,148,000 shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be
administered by different Committees with respect to different Optionees.
(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
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<PAGE>
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, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan;
(ii) to select the Consultants and Employees to whom Options
may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to modify or amend each Option, including the
discretionary authority to extend the post-termination exercisability period of
Options longer than is otherwise provided for in the Plan;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. 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 of the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9 instead of Common Stock;
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<PAGE>
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;
(ix) 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;
(x) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan; and
(xi) to prescribe, amend, and rescind rules and regulations
relating to the Plan, including rules and regulations relating to subplans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares underlying Incentive Stock Options are exercisable for the
first time by any Optionee during any calendar year (under all plans of the
Company or any Parent or Subsidiary) in excess of $100,000, such excess shall be
treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in
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<PAGE>
any way with his or her right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without cause.
(e) LIMITATIONS.
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 450,000 Shares.
(ii) The foregoing limitation shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 11(a).
(iii) If an Option is canceled (other than in connection with a
transaction described in Section 11), the canceled Option will be counted
against the limit set forth in Section 5(e)(i). For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
6. TERM OF PLAN. The Plan became effective upon its adoption by the
Board of Directors. It shall continue in effect for a term of ten (10) years
from such date, unless sooner terminated under Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option the term shall be no more than ten (10) years from the date of grant
thereof. However, in the case of an Incentive Stock Option granted to an
Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
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<PAGE>
(B) granted to any Employee other than an Employee
described in the preceding paragraph, 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. However, 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) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option have been owned by the Optionee for more
than six months on the date of surrender and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan; (6) such other consideration and method of payment for the issuance of
Shares to the extent permitted by Applicable Laws, or (7) any combination of the
foregoing methods of payment. In making its determination as to the type of
consideration to accept, the Board shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan. All Options granted hereunder shall be exercisable at the rate of at
least 20% per year over five years from the date the option is granted. An
Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under the Plan. Until the
issuance (as evidenced by the appropriate entry on the books of the Company or
of a duly
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authorized transfer agent of the Company) of such Shares, no right to vote or
receive dividends or any other rights as a shareholder shall exist with respect
to the Optioned Stock, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such Shares promptly upon exercise of the
Option. No adjustment will be made for a dividend or other right for which the
record date is prior to the date the Shares are issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the
event that an Optionee's Continuous Status as an Employee or Consultant
terminates (but not in the event of a change of status from Employee to
Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the ninety-first (91st)
day following such change of status) or from Consultant to Employee) other than
upon the Optionee's death or disability, the Optionee may exercise his or her
Option, within three (3) months of the date of termination, and only to the
extent that the Optionee was entitled to exercise it at the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Notice of Grant). If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the Shares covered by the
unexercisable 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. In the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her Disability, Optionee may, but only within six (6) months from the date of
such termination (and in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise the Option to the
extent otherwise entitled to exercise it at the date of such termination. To
the extent that Optionee is not entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death,
the Optionee's estate or a person who acquired the right to exercise the
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Option by bequest or inheritance does not exercise the Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(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.
10. NON-TRANSFERABILITY OF OPTIONS. Unless determined otherwise, by the
Administrator, Options 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.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(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 Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
(c) MERGER, SALE OF ASSETS, OR STOCK TRANSFER. In the event of (i) a
merger or consolidation of the Company with or into another corporation
resulting in the outstanding voting securities of the Company immediately prior
thereto representing (either by remaining or by being converted into voting
securities of the surviving entity) less than fifty percent (50%) of
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the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; (ii) the sale of all or substantially all of the assets of the
Company; or (iii) the sale or other transfer by John Moores and any stockholder
affiliated (within the meaning of the Securities Act) with Mr. Moores, in a
single transaction or a series of related transactions, of shares of Common
Stock constituting more than fifty percent (50%) of the then outstanding Common
Stock of the Company to any person or entity not affiliated with Mr. Moores or
the Company, 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. Notwithstanding the provisions of
clause (iii) above, any such sale or other transfer by Mr. Moores or any
stockholder affiliated with Mr. Moores of shares of Common Stock through a
registered public offering of securities under the Securities Act, or in
compliance with the requirements of paragraphs (c), (d), (e), and (f) of Rule
144 under the Securities Act, shall not cause the Option to become fully vested
and exercisable. If an Option becomes fully vested and exercisable in the event
of a merger or consolidation, sale of assets, or sale or transfer of Common
Stock by Mr. Moores as provided above, the Administrator shall notify the
Optionee in writing or electronically that the Option shall be fully vested and
exercisable.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Applicable Laws, the Company
shall obtain shareholder approval of any Plan amendment in such a manner and to
such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company. 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.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such
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Shares pursuant thereto shall comply with Applicable Laws 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 relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
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PEREGRINE SYSTEMS, INC.
1995 STOCK OPTION PLAN FOR FRENCH EMPLOYEES
1. PURPOSES OF THE PLAN. The purposes of this 1995 Stock Option Plan for
French Employees are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to French Employees, and
- to promote the success of the Company's business and the business
of its French subsidiary.
This Plan is a sub-plan created under and pursuant to the Peregrine
Systems, Inc. 1994 Stock Option Plan, which has been approved by the
shareholders of Peregrine Systems, Inc., and which provides that French
employees may benefit under this Plan. Options shall be granted under the Plan
at the discretion of the Administrator and as reflected in terms of written
option agreements, and are intended to qualify for preferred treatment under
French tax laws. Unless otherwise defined herein, the terms defined in the 1994
Stock Option Plan shall have the same defined meanings in this Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock option plans under French corporate, securities, and tax
laws.
(b) "DISABILITY" means total and permanent disability, as defined
under Applicable Laws.
(c) "EMPLOYEE" means any person employed by Subsidiary in a salaried
position, who does not own more than 10% of the voting power of all classes of
stock of the Company, or any Parent or Subsidiary, and who is a resident of the
Republic of France.
(d) "FAIR MARKET VALUE" means, as of any date, the dollar value of
Common Stock determined as follows:
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(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 Small Cap 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 and 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, its Fair Market Value
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; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(e) "OPTION" means a stock option granted pursuant to the Plan which
is intended to qualify for preferred tax treatment under applicable French tax
laws.
(f) "OPTION AGREEMENT" means a written 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.
(g) "OPTION PRICE" means the per share price for exercising an
Option, determined in accordance with subsection 9(a) of the Plan.
(h) "OPTIONED STOCK" means the Common Stock subject to an Option.
(i) "OPTIONEE" means a person eligible to participate in the Plan
pursuant to Section 5 and who holds an outstanding Option.
(j) "PLAN" means this Peregrine Systems, Inc. 1995 Stock Option Plan
for French Employees.
(k) "SUBSIDIARY" means any participating subsidiary of the Company
located in the Republic of France.
(l) "U.S. PLAN" means the Peregrine Systems, Inc. 1994 Stock Option
Plan, as amended.
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 that number of Shares of Common Stock which is currently
available for issuance under the U.S.
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Plan. However, at no time shall the total number of Options outstanding which
may be exercised for newly issued Shares of Common Stock exceed that number
equal to one-third of the Company's voting stock, whether preferred stock of the
Company or Common Stock. The Shares may be authorized, but unissued, or
reacquired Common Stock. If any Optioned Stock is to consist of reacquired
Shares, such Optioned Stock must be purchased by the Company prior to the date
of grant of the corresponding Option and must be reserved and set aside for such
purpose.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant under the Plan (unless the Plan has
terminated).
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board or a
committee appointed by the Board.
(b) RULE 16b-3 LIMITATIONS. Notwithstanding the provisions of
Subsection (a) of this Section 4, in the event that Rule 16b-3 promulgated under
the Exchange Act, or any successor provision ("Rule 16b-3") provides specific
requirements for the administrators of plans of this type, and Rule 16b-3 or
such successor provision is applicable to the Plan, the Plan shall be
administered only by such a body and in such a manner as shall comply with the
applicable requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no
discretion concerning decisions regarding the Plan shall be afforded to any
committee or person that is not "disinterested" as that term is used in
Rule 16b-3.
(c) 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 of the Common Stock, in
accordance with Section 2(c) of the Plan;
(ii) to select the Employees to whom Options may be granted
hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
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(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. Such terms and
conditions may 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;
(vii) to construe and interpret the terms of the Plan;
(viii) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(ix) to modify or amend each Option (subject to Section 14(c)
of the Plan);
(x) to authorize any person to execute on behalf of the
Company or Subsidiary any instrument required to effect the grant of an Option
previously granted by the Administrator;
(xi) to determine the terms and restrictions applicable to
Options; and
(xii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(d) 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.
(e) REPORTING TO THE SHAREHOLDERS' MEETING. In its annual proxy
statement to the shareholders, the Board shall inform the shareholders as to the
number and price of the Options granted hereunder, and as to the Shares
subscribed upon exercise of such Options.
5. ELIGIBILITY. Options may be granted only to Employees; provided,
however, that the PRESIDENT DIRECTEUR GENERAL, THE DIRECTEUR GENERAL and other
directors who are also Employees of a participating Subsidiary may be granted
Options. An individual who has been granted an Option may, if otherwise
eligible, be granted additional Options.
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<PAGE>
6. LIMITATIONS. Neither the Plan nor any Option shall confer upon any
Optionee any right with respect to continuing the Optionee's employment
relationship with the Company.
7. TERM OF PLAN. The Plan shall become effective as of the date of its
adoption by the Board. It shall continue in effect until the termination of
the U.S. Plan or the date five years from the date of adoption of the U.S.
Plan, whichever is sooner, unless terminated earlier under Section 14 of the
Plan.
8. TERM OF OPTION. The term of each Option shall be as stated in the
Option Agreement; provided, however, that subject to Section 10(d) hereof,
the maximum term of an Option shall not exceed nine and one-half (91/2) years
from the date of grant of the Option.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) OPTION PRICE. The Option Price for the Shares to be issued
pursuant to exercise of an Option shall be determined by the Administrator upon
the date of grant of the Option and stated in the Option Agreement, but in no
event shall be lower than ninety-five percent (95%) of the Fair Market Value on
the date the Option is granted. This Option Price cannot be modified while the
Option is outstanding.
(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. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. Such consideration may consist of:
(i) cash or check (denominated in U.S. Dollars);
(ii) wire transfer (denominated in U.S. Dollars);
(iii) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and a broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
an amount of the sale or loan proceeds required to pay the exercise price; or
(iv) any combination of the foregoing methods of payment.
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<PAGE>
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.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when:
(i) the Company receives written notice of exercise (in
accordance with the Option Agreement and in the form attached hereto as Exhibit
A) from the person entitled to exercise the Option, and full payment for the
Shares with respect to which the Option is exercised;
(ii) the Subsidiary receives a written subscription agreement
to the Shares (in accordance with the Option Agreement and in the form attached
hereto as Exhibit B) from the person entitled to exercise the Option.
Full payment may consist of any consideration and method of
payment authorized by the Administrator and permitted by the Option Agreement
and the Plan, and shall be deemed to be definitively made upon receipt of the
payment by the Subsidiary. 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 stock certificate evidencing such Shares is issued (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), 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 to
the Optionee (or cause to be issued) a stock certificate evidencing such Shares
promptly after the Option is exercised and after full payment, as indicated
above, is received by the Company. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is 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 EMPLOYMENT RELATIONSHIP. In the event that an
Optionee's Continuous Status as an Employee terminates (other than upon the
Optionee's death or Disability), the Optionee may exercise his or her Option,
but only within thirty (30) days
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(or such other period of time not exceeding three (3) months as is determined by
the Administrator), and only to the extent that the Optionee was entitled to
exercise it at 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).
If, at the date of termination, the Optionee is not entitled to exercise his or
her entire Option, the Shares covered by the unexercisable 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. In the event that an Optionee's
Continuous Status as an Employee terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option at any time within six
(6) months from the date of such termination, but only to the extent that the
Optionee was entitled to exercise it at the date of such termination (but in no
event later than the expiration of the term of such Option as set forth in the
Option Agreement). If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the Shares covered by the unexercisable
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. In the event of the death of an Optionee
while an Employee, the Option may be exercised at any time within six (6) months
following the date of death by the Optionee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to the
extent that the Optionee was entitled to exercise the Option at the date of
death. If, at the time of death, the Optionee was not entitled to exercise his
or her entire Option, the Shares covered by the unexercisable portion of the
Option shall revert to the Plan. If, after death, the Optionee's estate or a
person who acquired the right to exercise the Option by bequest or inheritance
does not exercise the Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall immediately revert to the
Plan.
11. NON-TRANSFERABILITY OF OPTIONS. 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.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER, ASSET
SALE OR CHANGE OF CONTROL.
(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
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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 Administrator, 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 the
Optionee at least fifteen (15) days prior to such proposed action. To the
extent it has not been previously exercised, the Option or Stock Purchase Right
shall 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
shall be substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation. In the event that the successor corporation does not
agree to assume the Option or to substitute an equivalent option or right, the
Option shall terminate as of the date of the closing of the merger or sale of
assets. For the purposes of this paragraph, the Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase, 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 was not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation and the
participant, 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.
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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 Administrator 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. Such shareholder approval, if required, shall be obtained
in such a manner and to such a degree as is required by the 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 a
representative of the Administrator.
15. CONDITIONS UPON ISSUANCE OF SHARES.
(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, including, without
limitation, the requirements of any stock exchange or quotation system upon
which the Shares may then be listed or quoted, 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 under Applicable Laws.
16. LIABILITY OF COMPANY.
(a) 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.
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<PAGE>
(b) GRANTS EXCEEDING ALLOTTED SHARES. If the Optioned Stock covered
by an Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional shareholder approval, such Option shall
be void with respect to such excess Optioned Stock, unless shareholder approval
of an amendment sufficiently increasing the number of Shares subject to the Plan
is timely obtained in accordance with Section 14(b) of the Plan. In the event
more than one Option is granted which exceeds, as of the date of grant, the
number of Shares which may be issued under the Plan without additional
shareholder approval, such Options shall be void as set forth in the preceding
sentence on a pro rata basis.
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.
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PEREGRINE SYSTEMS, INC.
1994 STOCK 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:
Date of Grant: ----------------------------
Vesting Commencement Date: ----------------------------
Exercise Price per Share: ----------------------------
Total Number of Shares Granted: ----------------------------
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 total number of Shares
subject to the Option shall vest twelve months after the Vesting Commencement
Date, and 6.25% of the total number of Shares subject to the Option shall vest
each quarter thereafter.
TERMINATION PERIOD: This Option may be exercised for 90 days after termination
of Optionee's Continuous Status as an Employee or Consultant, or such longer
period as may be applicable upon death or disability of Optionee as provided in
the Plan, but in no event later than the Term/Expiration Date as provided above.
<PAGE>
II. AGREEMENT
1. GRANT OF OPTION. Peregrine Systems, Inc., a Delaware corporation (the
"Company"), hereby grants to the individual named in the Notice of Stock Option
Grant (the "Notice of Grant"), hereafter the Optionee, an option (the "Option")
to purchase the total number of shares of Common Stock (the "Shares") set forth
in the Notice of Grant, at the exercise price per share set forth in the Notice
of Grant (the "Exercise Price") subject to the terms, definitions and provisions
of the 1994 Stock Option Plan (the "Plan") adopted by the Company, which is
incorporated herein by reference. Unless otherwise defined herein, the terms
defined in the Plan shall have the same defined meanings in this Option.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. However, if this Option is intended to be
an Incentive Stock Option, to the extent that it exceeds the $ 100,000 rule of
Code Section 422(d), it shall be treated as a Nonstatutory Stock Option ("NSO").
2. EXERCISE OF OPTION. This Option shall be exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and with
the provisions of Section 9 of the Plan. This Option may not be exercised for a
fraction of a share.
This Option shall be exercisable by written notice (in the form attached as
Exhibit A) which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised, and such other
representations and agreements as to the holder's investment intent with respect
to such shares of Common Stock as may be required by the Company pursuant to the
provisions of the Plan. Such written notice shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment of the Exercise
Price. This Option shall be deemed to be exercised upon receipt by the Company
of such written notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with Applicable Laws. Assuming
such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
3. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
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(iii) surrender of other shares of Common Stock of the Company which
(A) in the case of Shares acquired pursuant to the exercise of a Company
option, have been owned by the Optionee for more than six (6) months on the
date of surrender, and (B) have a Fair Market Value on the date of surrender
equal to the Exercise Price of the Shares as to which the Option is being
exercised; or
(iv) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan.
4. RESTRICTIONS ON EXERCISE. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company,
or if the issuance of such Shares upon such exercise or the method of payment
of consideration for such Shares would constitute a violation of Applicable
Laws. As a condition to the exercise of this Option, the Company may require
Optionee to make any representation and warranty to the Company as may be
required by any applicable law or regulation.
5. 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
him. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
6. 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.
7. TAX CONSEQUENCES. Set forth below is a brief summary as of the date
of this Option of some of the federal and local tax consequences of exercise
of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF
THE SHARES.
(i) EXERCISE OF ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability or local income tax liability
upon the exercise of the Option, although the excess, if any, of the Fair
Market Value of the Shares on the date of exercise over the Exercise Price
will be treated as an adjustment to the alternative minimum tax for federal
tax purposes and may subject the Optionee to the alternative minimum tax in
the year of exercise.
(ii) EXERCISE OF NONSTATUTORY STOCK OPTION. There may be a regular
federal income tax liability and local income tax liability upon the exercise
of a Nonstatutory Stock Option. 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 Shares on the date of
exercise over the Exercise Price. If Optionee is an Employee, the Company
will be
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required to withhold from Optionee's compensation or collect from Optionee
and pay to the applicable taxing authorities an amount equal to a percentage
of this compensation income at the time of exercise.
(iii) DISPOSITION OF SHARES. In the case of an NSO, if Shares are
held for at least one year, any gain realized on disposition of the Shares
will be treated as long-term capital gain for federal and local income tax
purposes. In the case of an ISO, if Shares transferred pursuant to the
Option are held for at least one year after exercise and are disposed of at
least two years after the Date of Grant, any gain realized on disposition of
the Shares will also be treated as long-term capital gain for federal and
local income tax purposes. If Shares purchased under an ISO are disposed of
within such one-year period or within two years after the Date of Grant, any
gain realized on such disposition will be treated as compensation income
(taxable at ordinary income rates) to the extent of the difference between
the Exercise Price and the lesser of (1) the Fair Market Value of the Shares
on the date of exercise, or (2) the sale price of the Shares.
(iv) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
Option granted to Optionee herein is an ISO, and if Optionee sells or
otherwise disposes of any of the Shares acquired pursuant to the ISO on or
before the later of (1) the date two years after the Date of Grant, or (2)
the date one year after the date of exercise, the Optionee shall immediately
notify the Company in writing of such disposition. Optionee agrees that
Optionee may be subject to income tax withholding by the Company on the
compensation income recognized by the Optionee.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS NOTICE, OR THE STOCK OPTION AGREEMENT, NOR IN THE COMPANY'S
STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON
OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY
THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME,
WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Stock Option Agreement and
Plan and represents that he or she is familiar with the terms and provisions
thereof, and hereby accepts this Option subject to all of the terms and
provisions thereof. Optionee has reviewed the Plan and this Option in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option and fully understands all provisions of the Option.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any
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questions arising under the Plan or this Option. Optionee further agrees to
notify the Company upon any change in the residence address indicated below.
- ------------------------------ PEREGRINE SYSTEMS, INC.
Print Name of Optionee a Delaware corporation
- ------------------------------ ------------------------------
Signature of Optionee Alan H. Hunt, President/CEO
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<PAGE>
EXHIBIT A
1994 STOCK PLAN
EXERCISE NOTICE
Peregrine Systems, Inc.
12670 High Bluff Drive
San Diego, CA 92130
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, __________, 19__. the
undersigned ("OPTIONEE") hereby elects to exercise Optionee's option to purchase
____________ shares of the Common Stock (the "Shares") of Peregrine Systems,
Inc. (the "Company") under and pursuant to the 1994 Stock Option Plan (the
"Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated
___________, 19__ (the "Option Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
3. RIGHTS AS SHAREHOLDER. Until issuance of the Shares (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) the Shares promptly after the Option is exercised. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date of such issuance, except as provided in Section 11 of the Plan.
4. TAX CONSULTATION. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
<PAGE>
6. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
7. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by and
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
8. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
9. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.
10. ENTIRE AGREEMENT. The Plan and Notice of Grant/Option Agreement are
incorporated herein by reference. This Agreement, the Plan, and the Option
Agreement constitute the entire agreement of the parties and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and is governed by California law except
for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: PEREGRINE SYSTEMS, INC.
By:
- ------------------------------ ---------------------------
(Name of Optionee)
Title:
- ------------------------------ ------------------------
(Signature)
ADDRESS: ADDRESS:
- ------------------------------ 12670 High Bluff Drive
- ------------------------------ San Diego, California 92130
<PAGE>
PEREGRINE SYSTEMS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
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 Peregrine Systems, Inc., a Delaware
corporation, and any Designated Subsidiary of the Company.
(e) "COMPENSATION" shall mean all base straight time gross earnings
and commissions, 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 and 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.
(i) "EXERCISE DATE" shall mean the last day of each Offering Period.
(j) "FAIR MARKET VALUE" shall mean, as of any date, the value of
Common Stock determined as follows:
<PAGE>
(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.
(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) "HOLDING PERIOD" shall mean that period of time beginning on an
Exercise Date on which shares are purchased by participants under the Plan and
ending twelve (12) calendar months thereafter.
(l) "OFFERING PERIOD" shall mean a period of three (3) 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 terminating on the
last Trading Day in the period ending the following July 31, or commencing on
the first Trading Day on or after August 1 and terminating on the last
Trading Day in the period ending the following October 31, or commencing on
the first Trading Day on or after November 1 and terminating on the last
Trading Day in the period ending the following January 31, or commencing on
the first Trading Day on or after February 1 and terminating on the last
Trading Day in the period ending the following April 30; 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
terminate on the last Trading Day on or before July 31, 1997. The
duration of Offering Periods may be changed pursuant to Section 4 of this
Plan.
(m) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
(n) "PLAN" shall mean this Employee Stock Purchase Plan.
(o) "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.
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<PAGE>
(p) "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.
(q) "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.
(r) "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 and who is not an Officer on such 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
accrue 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
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after May 1, August 1, November 1 and February 1 of each year, or
on such other date as the Board shall determine, and continuing thereafter
until terminated in accordance with Section 21 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 shall
terminate on the last Trading Day on or before July 31, 1997. The Board
shall have the power to change the duration of Offering Periods (including
the commencement dates thereof) with respect to future offerings without
stockholder 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.
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.
-3-
<PAGE>
(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 11 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 11 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 11 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 an
Offering Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 11 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, 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.
-4-
<PAGE>
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 the Exercise Date of 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 Offering Period more than
25,000 shares (subject to any adjustment pursuant to Section 20), and provided
further that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 13 hereof. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 11
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 11 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
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 11 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. HOLDING PERIOD. Shares purchased by a participant shall be held in
the participant's account under the Plan during the Holding Period. In the
event of a sale of all or substantially all of the Company's assets, or a merger
of the Company with or into another corporation, the Holding Period shall lapse.
10. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall credit each participant's
account under the Plan with the shares purchased upon exercise of his or her
option. As promptly as practicable after expiration of the Holding Period, the
Company shall, in its discretion, either (a) arrange for the delivery to each
participant of a certificate representing the shares purchased upon exercise of
his or her option, or (b) credit the shares purchased to an account in the
participant's name with a brokerage firm selected by the Company to hold the
shares in street name.
11. 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
-5-
<PAGE>
shall be automatically terminated, and no further payroll deductions for the
purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not 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.
12. 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 16 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.
13. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
14. 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 two hundred fifty
thousand (250,000) shares, subject to adjustment upon changes in
capitalization of the Company as provided in Section 20 hereof. 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.
15. 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
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<PAGE>
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
16. 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.
17. 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 16 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 11 hereof.
18. 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.
19. 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.
20. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION,
MERGER OR ASSET SALE.
-7-
<PAGE>
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase per Offering 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 Period 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, the Offering Period then in progress shall be
shortened by setting a new Exercise Date (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 11 hereof.
21. 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 20 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 stockholders. Except as provided in Section 20
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 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 stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be
-8-
<PAGE>
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.
22. 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.
23. 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.
24. 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
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 21 hereof.
-9-
<PAGE>
EXHIBIT A
PEREGRINE SYSTEMS, INC.
1997 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
Peregrine Systems, Inc. 1997 Employee Stock Purchase Plan (the "Employee
Stock Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription 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 0 to 15%) 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. I further understand that shares of Common Stock purchased for me
under the Employee Stock Purchase Plan upon exercise of my option are
subject to the Holding Period described in Section 9 of the Employee Stock
Purchase Plan.
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 stockholder 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), 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 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 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 holding period, 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)
_________________________ __________________________________________________
Relationship
__________________________________________________
(Address)
Employee's Social
Security Number: _________________________________________________
Employee's Address: _________________________________________________
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<PAGE>
_________________________________________________
_________________________________________________
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>
EXHIBIT B
PEREGRINE SYSTEMS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Peregrine
Systems, Inc. 1997 Employee Stock Purchase Plan which began on ___________
19____ (the "Enrollment Date") 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 understands further
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>
PEREGRINE SYSTEMS, INC.
1997 DIRECTOR OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1997 Director Option
Plan are to attract and retain the best available personnel for service as
Outside Directors (as defined herein) of the Company, to provide additional
incentive to the Outside Directors of the Company to serve as Directors, and
to encourage their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" means the Common Stock of the Company.
(d) "COMPANY" means Peregrine Systems, Inc., a Delaware corporation.
(e) "DIRECTOR" means a member of the Board.
(f) "EMPLOYEE" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(g) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(h) "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;
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(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 date of determination, as reported in THE
WALL STREET JOURNAL or such other source as the Board deems reliable, or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(i) "INSIDE DIRECTOR" means a Director who is an Employee.
(j) "OPTION" means a stock option granted pursuant to the Plan.
(k) "OPTIONED STOCK" means the Common Stock subject to an Option.
(l) "OPTIONEE" means a Director who holds an Option.
(m) "OUTSIDE DIRECTOR" means a Director who is not an Employee.
(n) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(o) "PLAN" means this 1996 Director Option Plan.
(p) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(q) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 150,000 Shares of Common Stock (the "Pool"). The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. ADMINISTRATION AND GRANTS OF OPTIONS UNDER THE PLAN.
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(a) PROCEDURE FOR GRANTS. All grants of Options to Outside Directors
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 25,000 Shares (the "First Option") on the date on which
such person first becomes an Outside Director, whether through election by the
shareholders of the Company or appointment by the Board to fill a vacancy;
provided, however, that a Director who was an Inside Director immediately prior
to becoming an Outside Director shall not receive a First Option; provided
further, however, that no Director who is an Outside Director on the effective
date of this Plan shall be granted a First Option.
(iii) Each Outside Director shall be automatically granted an
Option to purchase 5,000 Shares (a "Subsequent Option") on the day following
each Annual Meeting of the Company's Shareholders commencing with the 1998
Annual Meeting of the Company's Shareholders; provided that he or she is then
an Outside Director and if, as of such date, he or she shall have served on
the Board for at least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10)
years.
(B) the First Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the First Option. In the
event that the date of grant of the First Option is not a trading day, the
exercise price per Share shall be the Fair Market Value on the next trading day
immediately following the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option
shall become exercisable as to twenty-five percent (25%) of the Shares
subject to the First Option on the first anniversary of its date of grant,
and as to six and one-quarter percent (6 1/4%) on the last day of each
consecutive three-month period thereafter, provided that the Optionee
continues to serve as a Director on such dates.
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(vi) The terms of a Subsequent Option granted hereunder shall
be as follows:
(A) the term of the Subsequent Option shall be ten
(10) years.
(B) the Subsequent Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the Subsequent Option. In
the event that the date of grant of the Subsequent Option is not a trading day,
the exercise price per Share shall be the Fair Market Value on the next trading
day immediately following the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent
Option shall become exercisable as to twenty-five percent (25%) of the Shares
subject to the Subsequent Option on the first anniversary of its date of
grant, and as to six and one-quarter percent (6 1/4%) on the last day of each
consecutive three-month period thereafter, provided that the Optionee
continues to serve as a Director on such dates.
(vii) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the Board or the shareholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. ELIGIBILITY. Options may be granted only to Outside Directors;
PROVIDED, HOWEVER, no Outside Director shall be granted an Option hereunder if
(A) he or she is directly or indirectly the beneficial owner of three
percent (3%) or more of the Company's outstanding Common Stock, or (B) he or she
is an affiliate of any person or group of persons or entity or group of entities
who individually or in the aggregate are directly or indirectly the beneficial
owner(s) of three percent (3%) or more of the Company's outstanding Common
Stock. All Options shall be automatically granted in accordance with the terms
set forth in Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
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7. FORM OF CONSIDERATION. The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) 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 (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
8. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times as are set forth in
Section 4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the
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Optionee does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. In the event Optionee's status as a
Director terminates as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but
only within twelve (12) months following the date of such termination, and only
to the extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option
on the date of termination, or if he or she does not exercise such Option (to
the extent otherwise so entitled) within the time specified herein, the Option
shall terminate.
(d) DEATH OF OPTIONEE. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. NON-TRANSFERABILITY OF OPTIONS. 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.
10. 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 covered by each outstanding
Option, the number of Shares 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 covered by each such outstanding Option, and the number of
Shares issuable pursuant to the automatic grant provisions of Section 4 hereof
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares 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 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." 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
subject to an Option.
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(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall 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, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the
Option or equivalent option shall continue to be exercisable as provided in
Section 4 hereof for so long as the Optionee serves as a Director or a director
of the Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with Sections 8(a) through (d)
above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option 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).
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.
11. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
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(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, 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 relevant provisions of law.
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.
14. 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.
15. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law and any stock exchange rules.
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PEREGRINE SYSTEMS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is effective as of
_______________, 1997, by and between Peregrine Systems, Inc., a Delaware
corporation (the "Company"), and ________________ (the "Indemnitee").
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not be
willing to continue to serve in such capacities without additional protection;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, 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 directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in view of the considerations set forth above, the Company desires
that Indemnitee shall be indemnified by the Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below.
1. CERTAIN DEFINITIONS.
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(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more than 50% of the total
voting power represented by the Company's then outstanding Voting Securities,
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least two
thirds (2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation other than a merger or consolidation
which would result in the Voting Securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least 80% of the total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one transaction or a series of related
transactions) all or substantially all of the Company's assets.
(b) "Claim" shall mean any threatened, pending or completed action,
suit, proceeding or alternative dispute resolution mechanism, or any hearing,
inquiry or investigation that Indemnitee in good faith believes might lead to
the institution of any such action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other.
(c) References to the "Company" shall include, in addition to
Peregrine Systems, Inc., any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger to which Peregrine
Systems, Inc. (or any of its wholly owned subsidiaries) is a party which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees, agents or fiduciaries, so that if
Indemnitee is or was a director, officer, employee, agent or fiduciary of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, 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.
(d) "Expenses" shall mean any and all expenses (including attorneys'
fees and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, to be a witness in or to participate in, any
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry
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or investigation), judgments, fines, penalties and amounts paid in settlement
(if such settlement is approved in advance by the Company, which approval shall
not be unreasonably withheld) of any Claim regarding any Indemnifiable Event and
any federal, state, local or foreign taxes imposed on the Indemnitee as a result
of the actual or deemed receipt of any payments under this Agreement.
(e) "Expense Advance" shall mean an advance payment of Expenses to
Indemnitee pursuant to Section 3(a).
(f) "Indemnifiable Event" shall mean any event or occurrence related
to the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was serving
at the request of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action or inaction on the part of Indemnitee
while serving in such capacity.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(c) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees under similar
indemnity agreements).
(h) 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, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its 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.
(i) "Reviewing Party" shall mean any appropriate person or body
consisting of a member or members of the Company's Board of Directors or any
other person or body appointed by the Board of Directors who is not a party to
the particular Claim for which Indemnitee is seeking indemnification, or
Independent Legal Counsel.
(j) "Voting Securities" shall mean any securities of the Company that
vote generally in the election of directors.
2. INDEMNIFICATION.
(a) INDEMNIFICATION OF EXPENSES. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any Claim by
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reason of (or arising in part out of) any Indemnifiable Event against Expenses,
including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses. Such payment of Expenses shall
be made by the Company as soon as practicable but in any event no later than
five (5) business days after written demand by Indemnitee therefor is presented
to the Company.
(b) REVIEWING PARTY. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 2(a) shall be subject to the condition
that the Reviewing Party shall not have determined (in a written opinion, in any
case in which the Independent Legal Counsel referred to in Section 2(c) hereof
is involved) that Indemnitee would not be permitted to be indemnified under
applicable law, and (ii) the obligation of the Company to make an Expense
Advance shall be subject to the condition that, if, when and to the extent that
the Reviewing Party determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be reimbursed
by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid; PROVIDED, HOWEVER, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee should be indemnified under applicable
law, any determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to
which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expense Advance shall
be unsecured and no interest shall be charged thereon. If there has not been a
Change in Control, the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), the
Reviewing Party shall be the Independent Legal Counsel. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by the Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
(c) CHANGE IN CONTROL. The Company agrees that if there is a Change
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), then with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel, if desired by Indemnitee, shall be selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld). Such counsel, among other things, shall render its written opinion
to the Company and Indemnitee as to whether and to what extent Indemnitee would
be permitted to be indemnified under applicable law and the Company agrees to
abide by such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify
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fully such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto. Notwithstanding any other provision of this
Agreement, the Company shall not be required to pay Expenses of more than one
Independent Legal Counsel in connection with all matters concerning a single
Indemnitee, and such Independent Legal Counsel shall be the Independent Legal
Counsel for any or all other Indemnitees unless (i) the Company otherwise
determines or (ii) any Indemnitee shall provide a written statement setting
forth in detail a reasonable objection to such Independent Legal Counsel
representing other Indemnitees.
(d) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim regarding any Indemnifiable Event, Indemnitee shall be indemnified against
all Expenses incurred by Indemnitee in connection therewith.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all Expenses
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
(5) business days after written demand by Indemnitee therefor to the Company.
Expenses incurred in defending any proceeding may be advanced by the Company
prior to the final disposition of the proceeding upon receipt of an undertaking
by or on behalf of Indemnitee to repay the Expenses incurred, if it shall be
determined ultimately that Indemnitee is not entitled to be indemnified.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to Indemnitee's 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 Chief
Executive Officer 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). 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) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of NOLO
CONTENDERE, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be
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indemnified under applicable law, shall be a defense to Indemnitee's claim or
create a presumption that Indemnitee has not met any particular standard of
conduct or did not have any particular belief.
(d) NOTICE TO INSURERS. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 3(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim 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 Claim in
accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim the Company, if
appropriate, shall be entitled to assume the defense of such Claim with counsel
approved by Indemnitee (not to be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election so to do. 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 Claim; provided that, (i) Indemnitee shall have the right to
employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense
and (ii) if (A) the employment of separate 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
continue to retain such counsel to defend such Claim, then the fees and expenses
of Indemnitee's separate counsel shall be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. 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, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. 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, employee, agent or fiduciary, such change, 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 except as set forth in Section 9(a) hereof.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any other agreement, any
vote of stockholders or disinterested directors, the General Corporation Law of
the State of Delaware, or otherwise. The indemnification provided under this
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Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though Indemnitee may have ceased
to serve in such capacity.
5. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, bylaw or otherwise) of the amounts otherwise indemnifiable
hereunder.
6. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
7. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries 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.
8. LIABILITY INSURANCE. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided 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; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
9. EXCEPTIONS. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for acts,
omissions or transactions from which Indemnitee may not be relieved of liability
under applicable law.
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
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<PAGE>
(c) 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.
(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. 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.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless as a part of such action a court
of competent jurisdiction over such action 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 to enforce or interpret any of the terms of
this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee in defense of such action (including costs and expenses incurred with
respect
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to Indemnitee's counterclaims and cross-claims made in such action), and shall
be entitled to the advancement of Expenses with respect to such action, unless
as a part of such action a court having jurisdiction over such action 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 signed for by the party addressed, on the date of such
delivery, 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 commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. SEVERABILITY. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. CHOICE OF LAW. This Agreement shall be governed by and its provisions
construed and enforced in accordance with the laws of the State of Delaware as
applied to contracts between Delaware residents entered into and to be performed
entirely within the State of Delaware.
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 to be 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,
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commitments, understandings and agreements relating to the subject matter hereof
between the parties hereto.
21. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
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IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
"COMPANY" PEREGRINE SYSTEMS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
"INDEMNITEE"
----------------------------------------
Address:
-------------------------------
-------------------------------
-------------------------------
[SIGNATURE PAGE TO PEREGRINE SYSTEMS, INC. INDEMNIFICATION AGREEMENT]
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<PAGE>
LOAN AGREEMENT
by and between
PEREGRINE SYSTEMS, INC.
AND
NATIONSBANK OF TEXAS, N.A.
Dated: November 13, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . 7
1.3 Other Terms. . . . . . . . . . . . . . . . . . . . . . . . . 8
1.4 References . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.5 Sections . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.6 Number and Gender. . . . . . . . . . . . . . . . . . . . . . 8
1.7 Incorporation of Exhibits. . . . . . . . . . . . . . . . . . 8
1.8 Certain Other Matters of Construction. . . . . . . . . . . . 8
SECTION 2 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1 to Initial Advance by Lender . . . . . . . . . . . . . . . . 9
2.2 Conditions Precedent to Future Advances. . . . . . . . . . . 11
SECTION 3 THE COMMITMENT . . . . . . . . . . . . . . . . . . . . . . . 11
3.1 Term Loan. . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Additional Payments. . . . . . . . . . . . . . . . . . . . . 13
3.5 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.6 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.7 Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . 13
3.8 Borrowing Procedure for Revolving Note and
Advancing Term Note. . . . . . . . . . . . . . . . . . . . . 13
3.9 Assignment of Accounts . . . . . . . . . . . . . . . . . . . 14
3.10 Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.11 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 15
4.1 Representations and Warranties of Borrower . . . . . . . . . 15
SECTION 5 AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . 19
5.1 Covenants of Borrower. . . . . . . . . . . . . . . . . . . . 19
SECTION 6 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 24
6.1 Negative Covenants of Borrower . . . . . . . . . . . . . . . 24
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SECTION 7 EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . 27
7.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . 27
SECTION 8 RIGHTS AND REMEDIES OF LENDER. . . . . . . . . . . . . . . . 30
8.1 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . 30
8.2 Additional Rights. . . . . . . . . . . . . . . . . . . . . . 30
8.3 Termination of Obligations . . . . . . . . . . . . . . . . . 30
SECTION 9 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 30
9.1 Replacement of Prior Loan Agreement. . . . . . . . . . . . . 30
9.2 Other Advances . . . . . . . . . . . . . . . . . . . . . . . 30
9.3 No Duty or Special Relationship. . . . . . . . . . . . . . . 31
9.4 Other Remedies Not Required. . . . . . . . . . . . . . . . . 31
9.5 NO CONTROL BY LENDER . . . . . . . . . . . . . . . . . . . . 31
9.6 No Partnership . . . . . . . . . . . . . . . . . . . . . . . 31
9.7 Past Due Payments. . . . . . . . . . . . . . . . . . . . . . 31
9.8 Representations and Warranties . . . . . . . . . . . . . . . 32
9.9 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.10 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . 32
9.11 Inconsistencies and Conflicts. . . . . . . . . . . . . . . . 32
9.12 Renewal of Indebtedness. . . . . . . . . . . . . . . . . . . 32
9.13 No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.14 APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . 33
9.15 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.16 Future Advances. . . . . . . . . . . . . . . . . . . . . . . 33
9.17 Severability . . . . . . . . . . . . . . . . . . . . . . . . 33
9.18 Lender's Discretion. . . . . . . . . . . . . . . . . . . . . 33
9.19 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 33
9.20 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 34
9.21 Controlling Agreement. . . . . . . . . . . . . . . . . . . . 34
9.22 Business Loans . . . . . . . . . . . . . . . . . . . . . . . 34
9.23 ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . 34
EXHIBITS
Exhibit A - Form of Borrowing Base and Compliance Certificate
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LOAN AGREEMENT
THIS LOAN AGREEMENT (this "AGREEMENT") is made and entered into this
13th day of November, 1995, by and between PEREGRINE SYSTEMS, INC., a Delaware
corporation ("BORROWER"), and NATIONSBANK OF TEXAS, N.A., a national banking
association ("LENDER").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements herein
contained, Lender and Borrower agree as follows:
SECTION 1
DEFINITIONS
1.1 DEFINITIONS. In addition to the defined terms set forth
elsewhere herein, the following terms shall have the meanings set forth below:
"ACCOUNTS", "CHATTEL PAPER", "EQUIPMENT", "FIXTURES", "GENERAL
INTANGIBLES", "INSTRUMENTS", and "INVENTORY" shall have the same
respective meanings as are assigned these terms under the Uniform
Commercial Code, as adopted in Texas.
"AFFILIATE" shall mean (a) a corporation the majority of whose
outstanding shares are owned (individually or collectively) by (i)
Borrower, (ii) any Person identified in this paragraph, (iii) any
Subsidiary of Borrower or any Person identified in this paragraph,
(iv) the parent corporation of Borrower, or (v) any Subsidiary of
Borrower's parent corporation, (b) any joint venture in which Borrower
or any Person identified in this paragraph is a joint venturer, (c)
any general or limited partnership in which Borrower or any Person
identified in this paragraph is a general partner, (d) any shareholder
who owns more than ten percent (10%) of the outstanding common stock
of Borrower or any other Person identified in this Paragraph, (e) any
employee, officer, or director of Borrower or any other Person
identified in this Paragraph, and (f) any blood relation of any living
Person identified in this Paragraph.
"AVAILABLE COMMITMENT" shall mean an amount equal to
(a) $4,000,000.00, MINUS (b) an amount equal to the sum of (i) the
outstanding balance of the Revolving Note, plus (ii) the aggregate
face amount of all outstanding Letters of Credit.
"BORROWER" and "LENDER" shall mean the parties identified above.
"BORROWING BASE" shall mean an amount equal to 80% of the sum of the
Eligible Accounts.
<PAGE>
"BORROWING BASE AND COMPLIANCE CERTIFICATE" shall mean that certain
report in the form of Exhibit "A" attached hereto and made a part
hereof for all purposes.
"BUSINESS ACCOUNTS" shall mean any and all Accounts and accounts
receivable of Borrower or XVT reasonably acceptable to Lender and
arising in the ordinary course of Borrower's or XVT's business from
(a) the sale of any goods by Borrower or XVT, (b) the furnishing of
any labor by Borrower or XVT, (c) the performance of services by
Borrower or XVT, or (d) any other transactions giving rise to any
indebtedness or liabilities owing to Borrower or XVT on open account,
save and except (i) any Account of Borrower or XVT from any Affiliate
and any other intercompany billings; (ii) any Account of a third party
received by Borrower or XVT from such third party in exchange for an
Account of Borrower or XVT (as applicable); (iii) any Account not
arising in the ordinary course of Borrower's or XVT's business; (iv)
the Accounts with any account debtor whose principal place of business
is not in the United States of America; (v) any Account which arises
from a sale which is an installment sale or lease or is otherwise a
sale on an extended payment basis; (vi) any Account which is not
otherwise a bona fide, valid, and legally enforceable obligation of
the parties thereto or the account debtor in respect thereof and does
not arise from the actual sale and delivery of goods or the rendition
of services in the ordinary course of business to such parties or
account debtors; (vii) any Account which all consents, licenses,
approvals, or authorizations of, or registrations or declarations
with, any Governmental Authority required to be obtained, effected, or
given in connection with the execution, delivery, and performance
thereof by each party obligated thereunder have not been duly
obtained, effected, or given, are not in full force and effect, or
subjects the scope of such Account to any materially adverse
limitation, either specific or general in nature; (viii) any Account
which Borrower or XVT or (to the best knowledge of Borrower or XVT, as
applicable) any other party to such Account is in default or is likely
to become in default in the performance or observance of any of the
terms thereof; (ix) any Account against which any defense, offset,
counterclaim, or claim has been asserted, alleged, or otherwise
available to the account debtor, and not resolved, or any Account
which is a "contra" Account; (x) any Account which is subject to any
mortgage, lien, security interest, or similar adverse rights or
interests whatsoever other than a security interest in favor of
Lender; (xi) any Account, or portion thereof, which constitutes
progress billings, retainages, or deferred payments under a contract
not fully performed; (xii) any Account which constitutes, in whole or
in part, interest or finance charges on outstanding balances; (xiii)
any Account with respect to which a return, repossession, rejection,
cancellation, or repudiation shall have occurred or have been
threatened; (xiv) any Account which is subject to any trial terms,
sales-or-return terms, consignment terms, guaranteed sales performance
or minimum sales warranties or representations, C.O.D. terms, cash
terms, or similar terms or conditions; (xv) any Account subject, in
whole or in part, to any "bill and hold" or similar arrangement
pursuant to which the invoice is delivered prior to the actual
delivery of the sold or leased goods or the performance of the
services; (xvi)
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any Account in which the account debtor is the United States of America or
any department, agency, or instrumentality thereof, unless Borrower,
assigns its right to payment of such Account to Lender, in form and
substance satisfactory to Lender, and so as to comply with all Requirements
of Law; (xvii) any Account owed by an account debtor who or which has
account balances with Borrower or XVT equalling or exceeding fifty percent
(50%) of such account debtor's total accounts receivable due to Borrower or
XVT, as applicable, which are unpaid after 90 days or more from invoice
date; (xviii) any Account of which Borrower or XVT has made any agreement
with the account debtor for any deduction therefrom, to the extent of the
deduction, except for discounts or allowances which are made in the
ordinary course of business for prompt payment and which discounts or
allowances are reflected in the calculation of the face value of each
invoice related to such Account; and (xix) any Account which Borrower or
XVT has made an agreement with the account debtor to extend the time of
payment of such specific Account ((i) through (xix) are reflected in the
Borrowing Base and Compliance Certificate as "NON-BUSINESS ACCOUNTS").
"BUSINESS DAY" shall mean a day, other than Saturday or Sunday, when
Lender is open for conducting all of its normal business activities.
"DEBT" shall mean (a) all items of indebtedness or liability (other
than the debt of an Affiliate, capital, surplus, deferred credits and
reserves, as such) which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a
balance sheet as of the date as of which indebtedness is to be
determined, (b) indebtedness or other liabilities secured by any
mortgage, security agreement, pledge, or lien existing on or
encumbering property owned by Borrower, whether or not the
indebtedness or other liabilities secured thereby shall have been
assumed by Borrower, and (c) all indebtedness of any Person (i) which
Borrower has directly or indirectly guaranteed, endorsed (otherwise
than for collection or deposit in the ordinary course of business),
discounted with recourse, agreed (contingently or otherwise) to
purchase or repurchase or otherwise acquire, (ii) in respect of which
Borrower has agreed to supply or advance funds (whether by way of
loan, purchase of securities or capital contribution, through a
commitment to pay for property or services regardless of the
nondelivery of such property or the nonfurnishing of such services or
otherwise), or (iii) in respect of which Borrower has otherwise become
directly or indirectly liable, contingently or otherwise, whether now
existing or hereafter arising.
"DEFAULT" shall mean any of the events specified in Section 7 of this
Agreement, whether or not any requirement for the giving of notice or
lapse of time or other condition precedent has been satisfied.
"ELIGIBLE ACCOUNTS" shall mean, at a particular date, Business
Accounts owing by account debtors of Borrower and XVT, which are not
outstanding 90 days or more past the date of the related invoice.
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"ENVIRONMENTAL COMPLAINT" shall mean any written or oral complaint,
order, directive, claim, citation, notice of environmental report or
investigation, or other notice by any Governmental Authority or any
other Person with respect to (a) air emissions, (b) spills, releases,
or discharges to soils, any improvements located thereon, surface
water, groundwater, or the sewer, septic, waste treatment, storage, or
disposal systems servicing any Property of Borrower, (c) solid or
liquid waste disposal, (d) the use, generation, storage,
transportation, or disposal of any Hazardous Substance, or (e) other
environmental, health, or safety matters affecting any Property of
Borrower or the business conducted thereon.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, from time to time, and the rules and regulations
promulgated thereunder and the interpretations thereof.
"EVENT OF DEFAULT" shall mean any of the events specified in Section 7
of this Agreement, provided that any applicable requirements
specifically provided for in Section 7 for notice, lapse of time, or
otherwise have been satisfied.
"FINANCIAL STATEMENTS" shall mean the financial statements of Borrower
and Guarantors, which have been delivered to Lender as a condition
precedent to Lender's obligations under and pursuant to this
Agreement.
"GAAP" shall mean generally accepted accounting principles established
by the Financial Accounting Standards Board or the American Institute
of Certified Public Accountants and in effect in the United States
from time to time, applied on a basis consistent with that of the
preceding fiscal year of Borrower, reflecting only such changes in
accounting principles or practice with which the independent public
accountants of Borrower concur.
"GOVERNMENTAL AUTHORITY" shall mean any nation, country, commonwealth,
territory, government, state, county, parish, municipality, agency, or
other political subdivision and any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of or
pertaining to government, including, without limitation, any state
agencies and Persons responsible in whole or in part for environmental
matters in the states in which Borrower is located or otherwise
conducting its business activities and the United States Environmental
Protection Agency.
"GUARANTORS" shall mean, collectively, John J. Moores and XVT.
"GUARANTIES" shall mean, collectively, those certain Guaranties of
even date herewith, executed by Guarantors, guaranteeing, among other
things, the Notes, all as more particularly provided for therein.
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"HAZARDOUS SUBSTANCES" shall mean flammables, explosives, radon,
radioactive materials, hazardous wastes, asbestos, urea formaldehyde
foam insulation, or any material containing asbestos, polychlorinated
biphenyls (PCBs), toxic substances or related materials, petroleum,
petroleum products, methane, associated oil or natural gas
exploration, production, and development wastes, or any "hazardous
substances," "hazardous materials," "hazardous wastes," "toxic
substances," or related materials, as defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, the Superfund Amendments and Reauthorization Act, as amended,
the Hazardous Materials Transportation Act, as amended, the Resource
Conservation and Recovery Act, as amended, the Toxic Substances
Control Act, as amended, or any other law or regulation now or
hereafter enacted or promulgated by any Governmental Authority.
"INTELLECTUAL PROPERTY" shall mean patents, patent applications,
trademarks, tradenames, copyrights, technology, know-how, and
processes.
"LETTERS OF CREDIT" shall mean those certain letters of credit,
standby letters of credit, and banker's acceptances issued by Lender
for the account of Borrower in accordance with the terms and
provisions of Section 3.3 of this Agreement.
"LOAN DOCUMENTS" shall mean this Agreement, the Notes, the Guaranties,
the Security Instruments, and such other instruments, documents, and
agreements evidencing, securing, or pertaining to the loans which have
heretofore been or hereafter are from time to time executed and
delivered to Lender by Borrower, or any other party pursuant to this
Agreement.
"MATERIAL ADVERSE CHANGE" shall mean any act, circumstance, or event
(including, without limitation, any announcement of action) which (a)
causes an Event of Default, (b) otherwise could reasonably be expected
to be material and adverse to the financial condition or operations of
Borrower or any Guarantor, or (c) in any manner could reasonably be
expected to materially and adversely affect the validity or
enforceability of any Loan Document.
"MAXIMUM RATE" shall mean, on any day, the highest nonusurious rate of
interest (if any) permitted by applicable law on such day. For
purposes of TEX. REV. CIV. STAT. ANN., Art. 5069-1.04, as it may from
time to time be amended, the Maximum Rate shall be the "indicated rate
ceiling" referred to in and determined under Art. 5069-1.04(a)(1) from
time to time in effect; provided, however, that to the extent
permitted by applicable law, Lender reserves the right to change, from
time to time by further notice and disclosure to Borrower, the ceiling
on which the Maximum Rate is based under Art. 5069-1.04; and provided
further, that the "highest nonusurious rate of interest permitted by
applicable law" for purposes of this Agreement shall not be limited to
the applicable rate ceiling under Art. 5069-1.04 if federal laws or
other state laws now or hereafter in effect and applicable to
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this Agreement (and the interest contracted for, charged and collected
hereunder) shall permit a higher rate of interest.
"NOTES" shall mean the Revolving Note, the Term Note, and any other
note heretofore or hereafter executed and delivered by Borrower to
Lender, together with all renewals, increases, replacements,
extensions, and rearrangements of any of the foregoing, as may be
entered into from time to time by Borrower and Lender.
"OBLIGATIONS" shall mean all indebtedness, obligations, and
liabilities of Borrower to Lender of every nature and description, now
or hereafter existing or arising, whether such indebtedness is direct
or indirect, primary or secondary, fixed or contingent or arises out
of or is evidenced by a promissory note, deed of trust, security
agreement, open account, overdraft, endorsement, surety agreement,
guaranty, or otherwise, including, without limitation, all such
obligations, liabilities, and indebtedness of Borrower to Lender under
or in connection with the Loan Documents. Obligations shall include
all renewals, extensions and rearrangements of any of the above
described obligations and indebtedness.
"OSHA" shall mean the Occupational Safety and Health Act and all rules
and regulations from time to time promulgated thereunder and all
amendments thereof and thereto.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated
organization, government or any agency or political subdivision
thereof, or any other form of entity.
"PLAN" shall mean an employee benefit plan of the Borrower subject to
ERISA.
"PRIOR LOAN AGREEMENTS" shall mean, collectively, (a) the Letter
Agreement dated August 31, 1994, by and between Borrower and Lender,
(b) any and all other heretofore executed agreements purporting to
govern the loan transactions between Borrower and Lender, and (c) all
amendments, whether written or oral, to any of the foregoing.
"PROPERTY" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
"RELEASE OF HAZARDOUS SUBSTANCES" shall mean any emission, spill,
release, leak, disposal, or discharge, except in accordance with a
valid permit, license, certificate, or approval of the relevant
Governmental Authority, of any Hazardous Substance into or upon (a)
the air, (b) soils or any improvements located thereon, (c) surface
water or groundwater, or (d) the sewer or septic system, or the waste
treatment, storage, or disposal system servicing any Property of any
Borrower.
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"REPORTABLE EVENT" shall mean a reportable event as defined by ERISA.
"REQUIREMENT OF LAW" shall mean, as to any Person, the certificate or
articles of incorporation and by-laws or other organizational or
governing documents of such Person, and any applicable law, treaty,
ordinance, order, judgment, rule, decree, regulation, or determination
of an arbitrator, court, or other Governmental Authority, including,
without limitation, rules, decrees, judgments, regulations, orders,
and requirements for permits, licenses, registrations, approvals, or
authorizations (and any authoritative interpretation of any of the
foregoing), in each case as such now exist or may be hereafter amended
and are applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
"REVOLVING NOTE" shall mean that certain promissory note of Borrower,
of even date herewith, in the maximum amount of $4,000,000.00, payable
to the order of Lender, and any and all renewals, extensions,
modifications, replacements, substitutions, increases, and
rearrangements thereof.
"SECURITY AGREEMENT" shall mean the Security Agreement, of even date
herewith, between Borrower and Lender, covering, among other things,
Borrower's Accounts, General Intangibles, Inventory, Fixtures, and
Equipment.
"SECURITY INSTRUMENTS" shall mean the Security Agreement, XVT Security
Agreement, and any and all other heretofore and hereafter existing
security and other agreements which create or grant a lien or security
interest as security for any of the Notes or other Obligations.
"SUBSIDIARY" shall mean, as to any Person, a corporation of which
shares of stock having ordinary voting power (other than stock having
such power only by reason of the happening of a contingency) to elect
a majority of the board of directors or other managers of such
corporation are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by such Person.
"TERM NOTE" shall mean the promissory note, of even date herewith, in
the original principal amount of $2,200,000.00, executed by Borrower
and made payable to the order of Lender, and any and all renewals,
rearrangements, replacements, substitutions, extensions, increases,
and modifications thereof.
"TERMINATION DATE" shall mean the earlier to occur of (a) November 13,
1996, or (b) an Event of Default.
"XVT" shall mean XVT Software, Inc., a Delaware corporation.
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"XVT SECURITY AGREEMENT" shall mean the Security Agreement, of even
date herewith, between XVT and Lender, covering, among other things,
XVT's Accounts, General Intangibles, Inventory, Fixtures, and
Equipment.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP consistent with such
principles. In the event that changes in GAAP shall be mandated by the
Financial Accounting Standards Board and/or the American Institute of Certified
Public Accountants or any similar accounting body of comparable standing, or
shall be recommended by Borrower's certified public accountants, to the extent
that such changes would modify such accounting terms or the interpretation or
computation thereof as contemplated by this Agreement at the time of execution
hereof, then in such event, such changes shall be followed in defining such
accounting terms only after Lender and Borrower amend this Agreement to reflect
the original intent of such terms in light of such changes, and such terms shall
continue to be applied and interpreted without such change until such agreement.
1.3 OTHER TERMS. All other terms contained in this Agreement shall
have, when the context so indicates, the meanings provided for in the Uniform
Commercial Code, as adopted in Texas, to the extent the same are used or defined
therein.
1.4 REFERENCES. References in this Agreement to Section or Exhibit
numbers shall be to Sections and Exhibits of this Agreement, unless expressly
stated to the contrary. References in this Agreement to "hereby," "herein,"
"hereinabove," "hereinafter," "hereinbelow," "hereof," and "hereunder" shall be
to this Agreement in its entirety and not only to the particular Section or
Exhibit in which such reference appears.
1.5 SECTIONS. This Agreement, for convenience only, has been divided
into Sections; and it is understood that the rights and other legal relations of
the parties hereto shall be determined from this instrument as an entirety and
without regard to the aforesaid division into Sections and without regard to
headings prefixed to such Sections.
1.6 NUMBER AND GENDER. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Definitions
of terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative.
1.7 INCORPORATION OF EXHIBITS. The Exhibits attached to this
Agreement are incorporated herein and shall be considered a part of this
Agreement for all purposes.
1.8 CERTAIN OTHER MATTERS OF CONSTRUCTION. All references to
statutes and related regulations shall include any amendments of same and any
successor statutes and regulations. All references to any instruments or
agreements, including, without limitation, references to any of
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the Loan Documents, shall include any and all modifications or amendments
thereto and any and all extensions or renewals thereof.
SECTION 2
CONDITIONS
2.1 CONDITIONS TO INITIAL ADVANCE BY LENDER. The obligation of
Lender to make its initial advance under this Agreement is subject to the full,
complete, and timely satisfaction of each of the following conditions precedent
as of the date hereof:
(a) Lender shall have received each of the following and found
them each to be satisfactory:
(i) each of the Loan Documents, in properly executed form;
(ii) a commitment fee in the amount of $11,000.00, as
independent consideration for Lender's agreement to make
the loan evidenced by the Term Note;
(iii) as required by Lender, landlord's waivers, on forms
acceptable to Lender, from each of the landlords of
locations of Borrower at which Borrower's Equipment or
Inventory is located;
(iv) reimbursement from Borrower for all reasonable legal fees
and other reasonable fees and expenses incurred by Lender
in connection with the negotiation, preparation, and
execution of this Agreement and all other documents and
agreements required by Lender in connection with this
Agreement;
(v) the certificates of incorporation, articles of
incorporation, and bylaws of Borrower and XVT, together
with any and all modifications thereof as of the date
hereof;
(vi) all Certificates of Authority, Certificates of Good
Standing, Certificates of Existence, borrowing
resolutions (with secretary's certificate), Secretary's
Certificates of Incumbency, and all other documents
required by Lender to evidence Borrower and its
representatives are empowered and duly authorized
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to enter into the agreements evidenced by the Loan
Documents;
(vii) all Certificates of Authority, Certificates of Good
Standing, Certificates of Existence, guaranty resolutions
(with secretary's certificate), Secretary's Certificates
of Incumbency, and all other documents required by Lender
to evidence XVT and its representatives are empowered and
duly authorized to enter into the agreements evidenced by
the Loan Documents;
(viii) all of the financial statements and other information
related thereto required by Lender in connection with
Borrower's application for the loans described in this
Agreement (including, without limitation, signed, current
financial statements of Guarantors, on a form acceptable
to Lenders);
(ix) results of a search of the UCC records in such States as
are required by Lender, from a source acceptable to
Lender, reflecting no liens or security interests against
any property of Borrower and XVT as to which perfection
of a lien or security interest is accomplished by the
filing of a financing statement in favor of Lender;
(x) Borrowing Base and Compliance Certificate dated as of the
date of this Agreement; and
(xi) a request for advance dated as of the date of this
Agreement;
(b) No Material Adverse Change shall have occurred;
(c) The representations and warranties contained in Section 4
shall, except as affected by the transactions contemplated by this
Agreement, be true and unbreached;
(d) No Default or no Event of Default shall have occurred and be
continuing;
(e) All other applicable requirements of this Agreement and the
other Loan Documents shall have been fully and completely satisfied;
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(f) All legal matters incident to the consummation of the
transactions contemplated under this Agreement shall be satisfactory
to Messrs. Jackson & Walker, L.L.P., special counsel for Lender; and
(g) As security for the payment of the Notes and the performance
of the Obligations, Lender shall have received, in addition to the
items set forth elsewhere in this Section, all other instruments
reasonably required by Lender to give Lender a first and prior
perfected lien and security interest in and to the collateral covered
by the Loan Documents (including, without limitation, any and all
landlord's waivers and UCC-3 Termination Statements required by
Lender).
2.2 CONDITIONS PRECEDENT TO FUTURE ADVANCES. The obligation of
Lender under this Agreement to make any advances under the Revolving Note after
the date of this Agreement, in accordance with the terms and provisions of
Section 3 of this Agreement, are subject to the full and complete satisfaction
of each of the following conditions precedent as of the date of such advance or
payment:
(a) The representations and warranties set forth in Section 4 of
this Agreement shall be true and correct as of the date of the making
of such advance or payment with the effect as though the
representation or warranty had been made on this date;
(b) No Default or Event of Default shall have occurred and be
continuing, or will result from, the making of such advance; and
(c) All conditions set forth in Section 2.1 shall be then fully
and completely satisfied (including, without limitation, any condition
precedent waived in whole or in part in connection with the initial
advance or any other prior advance), and all terms and provisions of
Section 3 of this Agreement shall then be fully and completely
satisfied.
SECTION 3
THE COMMITMENT
3.1 TERM LOAN. Subject to the full, complete, and timely
satisfaction by Borrower of each of the conditions precedent described in
Section 2.1, and relying on the representations and warranties of Borrower
hereinafter set forth, Lender agrees to make a term loan to Borrower, in the
amount of $2,200,000.00, which term loan shall be evidenced by the issuance,
execution, and delivery of the Term Note.
3.2 REVOLVING LOAN. Subject to the full, complete, and timely
satisfaction of each of the terms and conditions of Section 2 of this Agreement
and as elsewhere set forth herein, and relying on the representations and
warranties of Borrower hereinafter set forth, Lender agrees
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to make available to Borrower a revolving line of credit pursuant to which
Borrower may borrow, repay, and reborrow under the terms of this Agreement on or
after the date hereof and prior to the Termination Date, amounts not exceeding
at any one time outstanding an aggregate principal amount equal to the lesser of
(i) an amount equal to $4,000,000.00, minus the aggregate face amount of all
outstanding Letters of Credit, or (ii) the Borrowing Base, which revolving loan
shall be evidenced by the issuance, execution, and delivery of the Revolving
Note.
3.3 LETTERS OF CREDIT. Provided that no Default or Event of Default
has occurred and is then existing, at the written request of Borrower, Lender
shall issue irrevocable commercial or standby letters of credit or banker's
acceptances (collectively referred to herein as the "LETTERS OF CREDIT"), up to
an amount equal to $1,000,000.00 in the aggregate face amount of all Letters of
Credit at any one time outstanding, for the benefit of such Person requested by
Borrower and for the account of Borrower; provided that Borrower first fully and
completely satisfies each of the following conditions:
(i) the sum of the outstanding aggregate face amount of all
outstanding Letters of Credit (including the amount of the requested
Letter of Credit), plus the outstanding, advanced balance of the
Revolving Note shall not exceed $4,000,000.00;
(ii) Borrower shall have paid to Lender, in cash, a fee for the
issuance of the requested Letter of Credit equal to the greater of (x)
2% per annum, calculated (on an annualized basis) on the face amount
of the requested Letter of Credit from the date of the requested
Letter of Credit through the stated expiration date of the Letter of
Credit, or (y) $350.00;
(iii) the term of each requested Letter of Credit shall not
exceed 365 days, provided that in no event shall the expiration date
of the requested Letter of Credit be later than six calendar months
after the Termination Date; and
(iv) Borrower shall have executed and delivered to Lender a
letter of credit application (or such similar agreement relating to
banker's acceptances) and all other documents required by Lender in
connection with the issuance of the Letter of Credit, each of which
shall be in form and substance satisfactory to Lender in its sole
discretion.
Without limiting any of the foregoing, if, in any case, Borrower does not
provide Lender with funds in the amount and on the date necessary to settle
Lender's obligation under any draft drawn under any Letter of Credit (or payment
under a banker's acceptance), Lender shall make, and Borrower shall accept, an
advance by Lender to Borrower under the Revolving Note and this Agreement as of
the day and time such drafts are paid by Lender and in the amount of the drafts
so paid. All advances made on the Revolving Note prior to the Termination Date,
pursuant to this Section, shall accrue interest and be payable in accordance
with and pursuant to the terms of the Revolving Note. If the time for payment
of the Revolving Note is not renewed and extended on
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the Termination Date (it being agreed that nothing herein shall constitute an
offer or commitment by Lender to renew and extend the Revolving Note), any
advance under the Revolving Note on or after the Termination Date, pursuant to
this Section, notwithstanding any term or provision in the Revolving Note or
this Agreement to the contrary, is payable in full (all outstanding principal
and unpaid and accrued interest) on demand, which demand shall be deemed to have
been made upon any funding thereof, and shall bear interest from the date of
funding at the lesser of (x) Lender's prime rate of interest as set forth in the
Revolving Note plus 5% per annum or (y) the Maximum Rate. Nothing herein shall
constitute an offer or commitment by Lender to extend the time for payment of
the Revolving Note. In case of any conflict between the terms of any letter of
credit application (or such similar agreement relating to banker's acceptances)
with respect to any Letter of Credit and the terms hereof, the terms of this
Agreement shall control, except to the extent the letter of credit application
(or such similar agreement relating to banker's acceptances) states that certain
specified provisions thereof control, in which case those specified provisions
of the letter of credit application (or such similar agreement relating to
banker's acceptances) shall control.
3.4 ADDITIONAL PAYMENTS. If, at any time, and for any reason, the
sum of the outstanding principal balance under the Revolving Note exceeds the
lesser of (a) $4,000,000.00, minus the aggregate face amount of all outstanding
Letters of Credit, or (b) the Borrowing Base, Borrower shall pay on demand by
Lender the amount of such excess to Lender for application towards reduction of
the outstanding balance of the Revolving Note.
3.5 PAYMENTS. All payments made by Borrower under this Agreement,
the Notes, and the other Loan Documents shall be in federal or other immediately
available funds, not later than 2:00 p.m., Houston time, on the date that such
payment is required to be made, and at the downtown banking quarters of Lender
located at 700 Louisiana, Houston, Harris County, Texas. If the date for any
payment due under the Loan Documents falls on a day which is not a Business Day,
such payment date shall be deemed to have fallen on the next following Business
Day.
3.6 PURPOSE. This Agreement is delivered (a) to provide Borrower
with a revolving loan to support Borrower's working capital needs, and (b) to
provide Borrower with a term loan to finance its purchase of leasehold
improvements, furniture, and equipment.
3.7 BORROWING BASE. The Borrowing Base shall be determined on the
basis of the most recently supplied information by Borrower in the Borrowing
Base and Compliance Certificate. In the event that, at any time after receiving
the Borrowing Base and Compliance Certificate, Lender determines from the
Borrowing Base and Compliance Certificate and such other information available
to Lender, that the actual Borrowing Base is different from the Borrowing Base
shown by Borrower on the Borrowing Base and Compliance Certificate, Lender shall
notify Borrower of its determination and the Borrowing Base so communicated to
Borrower shall become effective upon such notification and shall remain in
effect until the next subsequent determination of the Borrowing Base. Unless
and until such a notification is communicated by Lender to Borrower, the
Borrowing Base determined by Borrower in the Borrowing Base and Compliance
Certificate shall be the effective Borrowing Base.
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3.8 BORROWING PROCEDURE FOR REVOLVING NOTE AND ADVANCING TERM NOTE.
Subject to the terms and provisions of this Agreement, Borrower shall give
Lender notice, in a form acceptable to Lender, of each request for an advance
under the Revolving Note. Each such notice shall be received by Lender not
later than 2:00 p.m., Houston, Texas time, on the date of the requested advance.
Further, each such notice shall specify: (a) the aggregate principal amount of
such proposed advance (which, notwithstanding anything herein or any other Loan
Document to the contrary, shall not be in any single instance less than an
aggregate amount of $10,000.00); and (b) the proposed date of the advance (which
shall be on a Business Day). Lender, at its option, may accept telephonic
requests for advances, provided that such acceptance shall not constitute a
waiver of the Lender's right to delivery of a written notice in connection with
subsequent advances and further provided that all such telephonic requests are
immediately confirmed by Borrower in writing, whether by facsimile or otherwise.
Not later than 2:00 p.m., Texas time, on the date specified for each advance
hereunder, subject to the terms and conditions of this Agreement (including,
without limitation, that no Event of Default has occurred and is then existing
and that no representation or warranty set forth in this Agreement is then false
or untrue), Lender will make such advances available to Borrower by depositing
the same, in immediately available funds, in an account of Borrower (designated
by the Borrower) maintained with Lender at the principal office of Lender in
Houston, Texas, or by such other means as is acceptable to Lender and Borrower.
3.9 ASSIGNMENT OF ACCOUNTS. As security for the payment and/or
performance of the Obligations, Borrower hereby transfers, assigns and pledges
to Lender and/or grants to Lender a security interest in all funds of Borrower
now or hereafter or from time to time on deposit with Lender, with such interest
of Lender to be retransferred, reassigned, and/or released by Lender, as the
case may be, at the expense of Borrower upon payment in full and/or complete
performance by Borrower of all Obligations. All remedies as secured party or
assignee of such funds shall be exercisable by Lender upon the occurrence and
during the continuance of any Event of Default, regardless of whether the
exercise of any such remedy would result in any penalty or loss of interest or
profit with respect to any withdrawal of funds deposited in a time deposit
account prior to the maturity thereof. Furthermore, Borrower hereby grants to
Lender the right, exercisable at such time as any Obligation shall mature,
whether by acceleration of maturity or otherwise, of offset or banker's lien
against all funds of Borrower now or hereafter or from time to time on deposit
with Lender, regardless of whether the exercise of any such remedy would result
in any penalty or loss of interest or profit with respect to any withdrawal of
funds deposited in a time deposit account prior to the maturity thereof. Unless
an Event of Default shall have occurred and shall be continuing, Borrower shall
have the unfettered right to use any of such funds as Borrower deems appropriate
in the operation of Borrower's business.
3.10 PREPAYMENT. Except as may be otherwise provided for in the
Notes, the Notes may be prepaid in whole or in part, without premium or penalty.
3.11 FEES. In addition to interest at the rate as provided for in the
Revolving Note, to compensate the Lender for maintaining funds available for the
Revolving Note, Borrower shall pay to Lender, in immediately available funds
beginning February 1, 1996, and continuing on the same day of each successive
third calendar month thereafter, a fee in the amount of one-
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quarter (.25%) per annum, calculated on the basis of a year of 360 days and
actual days elapsed (including the first day but excluding the last day), on the
average daily amount of the Available Commitment during the immediately
preceding three month period.
SECTION 4
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower represents
and warrants to Lender (which representations and warranties are made in
addition to the warranties and representations made in the Security Instruments
and will survive the delivery of this Agreement) that:
(a) Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and has
full power and authority to consummate the transactions contemplated
in this Agreement. Borrower has the corporate power to own its
properties and carry on its business as it is now being conducted, and
is duly authorized to do business and is in good standing in the State
of Delaware and in every other jurisdiction where qualification is
necessary. Borrower is duly authorized and empowered to create,
issue, execute, and deliver the Loan Documents, and all action on its
part requisite for the due creation, issuance, and delivery of the
Loan Documents has been duly and effectively taken. The Loan
Documents do not violate any provision of Borrower's corporate charter
or bylaws, or any contract, agreement, law or regulation to which
Borrower is subject, and do not require the consent or approval of any
Governmental Authority;
(b) Except as previously disclosed by Borrower to Lender in
writing, Borrower is not in default in the performance, observance, or
fulfillment of any of the obligations, covenants, or conditions
contained in any agreement or instrument to which it is a party, or in
default under or in violation of any law, order, regulation or demand
of any Governmental Authority, which default or violation might have
consequences which would materially and adversely affect the business
or properties of Borrower;
(c) The Financial Statements of Borrower and Guarantors are
complete and correct, have been prepared in accordance with GAAP, and
fully and accurately reflect the financial condition and results of
the operations of Borrower and Guarantors as of the date and for the
period stated. No Material Adverse Change has occurred in the
condition, financial or otherwise, of Borrower or any Guarantor since
the date of the Financial Statements;
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(d) Except as otherwise permitted pursuant to the terms of this
Agreement, Borrower has not made investments in, advances to, or
guaranties of the obligations of any Person, except as disclosed by
the Financial Statements;
(e) Except for liabilities as previously disclosed to Lender in
the Financial Statements and other liabilities incurred since that
date in the normal course of business, Borrower does not have any
liabilities, direct or contingent. There is no litigation,
administrative proceeding, investigation, or other action of any
nature pending or, to the knowledge of Borrower, threatened against
Borrower before any court or administrative agency which involves the
possibility of any judgment or liability which is likely to materially
and adversely affect the business or the assets of Borrower or the
right of Borrower to carry on business as now conducted. To the best
of Borrower's knowledge and belief, no unusual or unduly burdensome
restriction, restraint or hazard exists by contract, law, governmental
regulation or otherwise relative to the business or assets of
Borrower;
(f) Except as disclosed by Borrower to Lender in writing, to the
best of Borrower's knowledge and belief, Borrower and XVT each have
good and indefeasible title to their respective assets pledged by each
of them pursuant to the Security Instruments, free and clear of all
security interests, liens, and encumbrances, except for (i) liens or
security interests on such assets previously disclosed to and approved
by Lender in writing; and (ii) restrictions, rights, easements, and
minor irregularities in title which do not materially (x) interfere
with the occupation of Borrower or XVT and the use and enjoyment by
Borrower and XVT and of such assets in the normal course of Borrower's
and XVT's respective businesses as presently conducted or (y) impair
the value thereof for such business;
(g) Except as disclosed by Borrower to Lender in writing,
Borrower has filed all tax returns required to be filed and has paid
all taxes shown thereon to be due, including interest and penalties,
or due pursuant to any assessment received by Borrower, except such
taxes, if any, under contest in good faith and for which adequate
reserves have been provided. The charges, accruals and reserves on
the books of Borrower for any taxes or other governmental charges are,
in the opinion of Borrower, adequate. Borrower has paid all franchise
and other taxes which are now due;
(h) To the best of Borrower's knowledge and belief, no
Reportable Event has occurred with respect to any Plan. Borrower has
not incurred any material accumulated unfunded deficiency within the
meaning of ERISA, nor has Borrower incurred any material liability to
the Pension
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Benefit Guaranty Corporation established under ERISA (or any successor
thereto under ERISA) in connection with any Plan;
(i) The principal place of business and chief executive office
of Borrower and the place where Borrower keeps its books and records
is the address of Borrower set forth in Section 9.9 of this Agreement;
(j) Borrower is not an "investment company" within the meaning
of the Investment Company Act of 1940, as amended;
(k) All of Borrower's Accounts and accounts receivables are
billed from and made payable in the State of California, and all of
XVT's Accounts and accounts receivables are billed from and made
payable in the State of Colorado. Except as disclosed to Lender in
writing, all of Borrower's Equipment and Inventory is located in
California, and all of XVT's Equipment and Inventory is located in
Colorado;
(l) Borrower is not engaged principally, or as one of its
important activities, in the business of extending or obtaining
credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations G, U, or X of the Board of Governors of the
Federal Reserve System). No part of the proceeds of any extension of
credit under this Agreement will be used to purchase or carry any such
margin stock or to extend credit to others for the purpose of
purchasing or carrying any such margin stock. No transaction
contemplated by the Loan Documents is in violation of any regulations
promulgated by the Board of Governors of the Federal Reserve System,
including, without limitation, Regulations G, T, U, or X;
(m) Except as otherwise disclosed by Borrower to Lender, to the
best of Borrower's knowledge and belief, Borrower, Guarantors, and
their respective Properties, business operations, and leaseholds are
in compliance in all material respects with, the provisions of all
Requirements of Law applicable to Borrower, Guarantors, their
Properties, or the conduct of their respective businesses. Each of
Borrower and Guarantors possesses, and are in good standing with
respect thereto, all governmental consents, licenses, approvals,
certificates, inspections, registrations, permits, and other
authorizations necessary to enable them to carry on their respective
businesses in all material respects as now conducted; all such
governmental consents, licenses, approvals, certificates, inspections,
registrations, permits, and other authorizations are in full force and
effect; and Borrower has no reason to believe that it or the
Guarantors will be unable to obtain the renewal of any such
governmental consents, licenses, approvals, certificates, inspections,
registrations, permits, and other authorizations;
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(n) No information, exhibit, or report prepared by or at the
direction or with the supervision of Borrower and furnished to Lender
in connection with the negotiation and preparation of this Agreement
or any Loan Document contains any material misstatements of fact or
omits a material fact necessary to make the statements contained
therein not misleading as of the date made or deemed made. There is
no fact which Borrower has failed to disclose to Lender in writing
which materially affects adversely or, so far as Borrower can now
foresee, will materially affect adversely the business, prospects,
profits, or condition (financial or otherwise) of Borrower or the
ability of Borrower to perform this Agreement;
(o) Except as otherwise disclosed to Lender prior to the date
hereof, as of the date hereof, Borrower has no Subsidiaries and
Borrower is not a partner or participant in any partnership or joint
venture;
(p) Borrower is now and, after giving effect to initial advances
to be made hereunder, and no Guarantor, after giving effect to the
delivery of its or his respective Guaranty, at all times will be,
solvent and will be adequately capitalized to pay their respective
debts as they become due;
(q) Neither XVT nor Borrower is a party to any collective
bargaining agreement, and to the best of Borrower's knowledge and
belief, there are no material grievances, disputes, or controversies
with any union or any other organization of any of their respective
employees, or threats of strikes, work stoppages, or any asserted
pending demands for collective bargaining by any union or
organization;
(r) Borrower and XVT each own or is licensed to use all
Intellectual Property necessary to conduct all business material to
their respective condition (financial or otherwise), business, or
operations as such businesses are currently conducted. To the best of
Borrower's knowledge and belief, no claim has been asserted or is
pending by any Person with the respect to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any such Intellectual Property; and Borrower knows of
no valid basis for any such claim. To the best of Borrower's
knowledge and belief, the use of such Intellectual Property by
Borrower and XVT does not infringe on the rights of any Person.
Except as disclosed by Borrower to Lender in writing, no Intellectual
Property or other property of Borrower has been registered (or is
otherwise patented, copyrighted, licensed, or trademarked), or is
subject to any patent, copyright, license, or trademark, under and
with respect to any federal laws or any other Requirement of Law;
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(s) As of the date hereof, no event has occurred and no
condition exists which would, upon the execution and delivery of this
Agreement or Borrower's performance hereunder, constitute a Default or
an Event of Default;
(t) There exists no actual or threatened termination,
cancellation, or limitation of, or any modification or change in, the
business relationship between Borrower or XVT with any customer or any
group of customers whose purchases individually or in the aggregate
are material to the business of Borrower or XVT, or with any material
supplier, and, to the knowledge of Borrower or XVT, there exists no
present condition or state of facts or circumstances which would
materially affect adversely Borrower or XVT or prevent Borrower or XVT
from conducting such business after the consummation of the
transaction contemplated by this Agreement in substantially the same
manner in which it has heretofore been conducted;
(u) Except in compliance with all applicable Requirements of
Law, no Hazardous Substances have been generated, transported, and/or
disposed of by Borrower or XVT, at a site which was, at the time of
such generation, transportation and/or disposal, or has since become,
a Superfund Site. For purposes of this subsection, "SUPERFUND SITE"
shall mean those sites listed on the Environmental Protection Agency
National Priority List and eligible for remedial action or any
comparable state registries or list in any state of the United States;
(v) Except in accordance with all Requirements of Law or the
terms of a valid permit, license, certificate, or approval of the
Governmental Authority, no Release of Hazardous Substances has been
made by Borrower, from, affecting, or related to any Property of
Borrower, any Property leased by Borrower, or any property on which
Borrower is conducting any of its respective business operations;
(w) No Environmental Complaint has been received by Borrower;
and
(x) Each request for advance under the Notes by Borrower to
Lender pursuant to this Agreement or any of the other Loan Documents
constitutes (i) an automatic representation and warranty by Borrower
to Lender that there does not then exist any Default or Event of
Default and (ii) a reaffirmation as of the date of said request that
all of the representations and warranties of Borrower contained in
this Agreement and the other Loan Documents are true in all material
respects except for any changes in the nature of Borrower's business
or operations that would render the information contained in any
exhibit attached hereto either
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inaccurate or incomplete, so long as Lender has consented to such changes
in writing or such changes are expressly permitted by this Agreement.
SECTION 5
AFFIRMATIVE COVENANTS
5.1 COVENANTS OF BORROWER. In addition to the covenants and
agreements of Borrower made elsewhere in this Agreement, Borrower covenants and
agrees, unless Lender shall otherwise consent in writing, that Borrower shall:
(a) Do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence, rights, and
franchises; and at all times maintain, preserve and protect its assets
used or useful in the conduct of its business, keep the same in good
repair, working order and condition, and make, or cause to be made,
all needful or proper repairs, replacements and improvements thereto
so that Borrower's business may be properly and advantageously
conducted at all times;
(b) (i) Comply with all applicable statutes, government
regulations, and other Requirements of Law; (ii) remain licensed with
all applicable state and federal regulatory and other agencies; (iii)
pay and discharge promptly all taxes, assessments and governmental
charges or levies imposed on it, the collateral described in any
Security Instrument or any part thereof, its income and profits, and
any of its property, real, personal or mixed, or any part thereof,
before the same shall be in default; and (iv) pay all lawful claims
for labor, materials, supplies, or other claims, which, if unpaid,
might become a valid lien or charge upon such property or any part
thereof;
(c) Promptly furnish to Lender such information regarding the
business affairs, financial condition, assets, liabilities,
operations, and transactions of Borrower and Guarantors as Lender may
reasonably request, and, without limiting the foregoing, furnish to
Lender the following:
(i) As soon as available, and in any event within 30 days from
the end of each fiscal quarter of Borrower, a financial
statement, prepared by Borrower, on a form acceptable to
Lender, signed by a duly authorized officer of Borrower,
showing the financial condition of Borrower, at the end of
such fiscal quarter and the results of operations during
such fiscal quarter, which financial statement shall
include, but shall not be limited to, a balance sheet,
income
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statement, and such other matters as Lender may reasonably
request;
(ii) Unless the quarterly financial statement described in
subsection (i) is a combined statement of Borrower and XVT,
as soon as available, and in any event within 30 days from
the end of each fiscal quarter of XVT, a financial
statement, prepared by XVT, on a form acceptable to Lender,
signed by a duly authorized officer of XVT, showing the
financial condition of XVT, at the end of such fiscal
quarter and the results of operations during such fiscal
quarter, which financial statement shall include, but shall
not be limited to, a balance sheet, income statement, and
such other matters as Lender may reasonably request;
(iii) As soon as available, and in any event within 30 days from
the end of each calendar month, a Borrowing Base and
Compliance Certificate for such month, signed and certified
by a duly authorized officer of Borrower;
(iv) Within 30 days from the end of each calendar month, a
listing and an aging, dated as of the end of such calendar
month, signed and certified by a duly authorized officer of
Borrower, of the Accounts and accounts receivable of
Borrower and XVT through the end of the preceding month,
which separates and shows such Accounts as current (1-30
days aged), 30 days or more but less than 60 days aged, 60
days or more but less than 90 days aged, 90 days or more
aged, and such other information as Lender may reasonably
request;
(v) As soon as available, and in any event within 90 days from
the end of Borrower's fiscal year, an audited financial
statement, showing the financial condition of Borrower, on a
combined and consolidating basis, at the close of its fiscal
year and the results of operation during such fiscal year,
which financial statement shall be materially complete and
correct and shall include, but shall not be limited to, an
operating statement, a balance sheet, a reconciliation of
equity amounts, a source and application of funds report,
and such other matters as Lender may request; and
(vi) As soon as available, and in any event by September 30 of
each calendar year, a signed, and unaudited financial
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statement for John J. Moores, in form satisfactory to
Lender, which shall include, without limitation, a current
(v) an asset and liability report, (w) a source of cash
report, (x) listing of contingent liabilities, (y) an amount
and sources of spending report, and (z) such other matters
as Lender may reasonably request.
(d) Prior to moving any Inventory or Equipment, for any
purpose other than the sale thereof, into any location, other than a
location in which Borrower has heretofore disclosed in writing to
Lender, Borrower shall (i) promptly inform Lender of such move, (ii)
execute and deliver appropriate financing statements necessary to
perfect the security interest granted in the Security Agreement in the
particular state in which the Inventory or Equipment is to be located,
and (iii) cause the landlord, tenant, and/or subtenant at the
particular location to execute and deliver to Lender a lien waiver, in
form and substance satisfactory to Lender;
(e) Permit Lender, or any of its duly authorized
representatives and/or agents, from time to time during Borrower's
business hours, but with at least 24 hours prior notice, and at
Borrower's sole cost and expense, to enter upon any premises of
Borrower (but in no event not more than four times in any calendar
year) for the purpose (i) of examining the property, books, and
records of Borrower and making copies of any such books and records
and (ii) of conducting an audit of Borrower's Accounts; provided that,
in the course of any such examination, Lender or its representatives
and agent shall not materially interfere with Borrower's normal and
customary business operations. Notwithstanding the foregoing, after
the occurrence of an Event of Default, Lender may enter upon the
premises of Borrower, for the purposes expressed above, without
limitation, and at Borrower's sole cost and expense;
(f) Promptly cure any defects in the execution and delivery
of the Loan Documents and immediately execute and deliver to Lender
all such other and further instruments as may be reasonably required
by Lender from time to time in order to satisfy or comply with the
covenants and agreements of Borrower made in this Agreement;
(g) Promptly reimburse Lender upon request for all
reasonable amounts expended, advanced, or incurred by Lender as are
reasonably necessary (i) to satisfy any obligation of Borrower under
this Agreement, (ii) to protect the assets or business of Borrower,
(iii) to collect the Notes, or any other amounts advanced under this
Agreement or otherwise on behalf of Borrower, or (iv) to enforce the
rights of Lender under the Loan Documents, which amounts will include,
without limitation, all reasonable court costs, attorneys' fees, and
fees of auditors, accountants, and
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investigators incurred by Lender in connection with any such matters,
together with interest at the Maximum Rate on each such amount from 30 days
after the date of notification to Borrower that the same was expended,
advanced or incurred by Lender until the date it is repaid to Lender;
(h) Continue to maintain insurance with respect to its assets
and business against such liabilities, casualties, risks, and
contingencies (including, without limitation, insurance for business
interruption and for worker's compensation or an acceptable
alternative plan) in such types and amounts as is normal and customary
for carrying on Borrower's business. On the date hereof, at the close
of Borrower's fiscal year, and at any other time Lender may request,
Borrower will furnish Lender a summary of such insurance and, if
requested, will furnish Lender copies of the applicable policies. The
proceeds of any such policies insuring physical loss or damage shall
be used by Borrower either to repair the damaged property, replace
lost property, or prepay the outstanding balances of the Notes (such
payment to be applied in reverse order of maturities);
(i) Prior to the time any property described in or covered by
any Security Instrument is copyrighted, licensed, patented, or
trademarked by Borrower or any Affiliate, pursuant to any duly filed
registration or otherwise, or is subjected to any registered
copyright, license, patent, or trademark by Borrower or any Affiliate,
notify Lender thereof and take (or cause to be taken) all actions
necessary to preserve the perfection and first priority of Lender's
security interest in and to such property;
(j) Qualify as a foreign corporation in all other jurisdictions
wherein the property now or hereafter owned by Borrower or the
business now or hereafter transacted by Borrower makes such
qualifications necessary;
(k) Furnish to Lender (i) as soon as possible, and in any event
within 30 days after Borrower or a duly appointed administrator of a
Plan knows or has reason to know that any Reportable Event with
respect to any Plan has occurred, a statement of the chief financial
officer of Borrower setting forth details as to such Reportable Event
and the action which Borrower proposes to take with respect thereto,
together with a copy of the notice of such Reportable Event given to
the Pension Benefit Guaranty Corporation or a statement that said
notice will be filed with the annual report to the United States
Department of Labor with respect to such Plan, if such filing has been
authorized, and (ii) promptly after receipt thereof, a copy of any
notice Borrower may receive from the United States Department of
Labor, the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any Reportable Event;
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(l) In addition to, and without in any way limiting, the other
requirements in this Agreement provide certain notices to Lender,
deliver to Lender, promptly upon any officer of Borrower having
knowledge of the occurrence of any of the following events or
circumstances, a written statement with respect thereto, signed by the
chief financial officer of Borrower, or other authorized
representative of Borrower designated from time to time pursuant to
written designation by Borrower delivered to Lender, advising Lender
of the occurrence of such event or circumstance and the steps, if any,
being taken by Borrower or any Guarantor with respect thereto:
(i) any Default or Event of Default;
(ii) any litigation or proceeding involving Borrower or any
Guarantor as a defendant or in which any property of
Borrower or any Guarantor is subject, directly or
indirectly, to a claim;
(iii) any Reportable Event or imminently expected Reportable
Event with respect to any Plan;
(iv) at least 60 days prior thereto, of Borrower's opening of
any new office or place of business or Borrower's closing
of any existing office or place of business;
(v) any labor dispute to which Borrower or XVT may become a
party, any strikes or walkouts relating to any of its
plants or other facilities, and the expiration of any
labor contract to which any of them is a party or by
which they are bound, in each case where the same could
reasonably be expected to cause a Material Adverse
Change;
(vi) any change in the number, nature, and holder of more than
25% of the outstanding stock of Borrower or XVT; and
(vii) any other event or occasion which could reasonably be
expected to cause a Material Adverse Change; and
(m) Maintain any system for creating backup data on computer
hardware, software or firmware, such as Accounts and customer lists,
and deliver and pledge to Lender such tapes or discs with respect
thereto as may be required by Lender.
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SECTION 6
NEGATIVE COVENANTS
6.1 NEGATIVE COVENANTS OF BORROWER. So long as Borrower may borrow
additional advances hereunder and in accordance with the terms and provisions of
this Agreement and until payment in full of the Notes and performance of all
other Obligations of Borrower hereunder, Borrower covenants and agrees, unless
Lender shall otherwise consent in writing, that Borrower will not, either
directly or indirectly:
(a) Incur, create, assume, or permit to exist any Debt, on a
consolidated basis, except:
(i) the Obligations;
(ii) all existing loans and borrowings by Borrower as reflected
in the Financial Statements;
(iii) liabilities, direct or contingent, of Borrower to the extent
that such liabilities existed on the date of this Agreement
and continue to exist and are reflected in the Financial
Statements or which have been disclosed to and approved by
Lender in writing prior to the date of this Agreement,
together with additional liabilities of up to $250,000.00,
in the aggregate, in each fiscal year of Borrower;
(iv) endorsements of negotiable instruments for collection or
deposit in the ordinary course of business;
(v) obligations from time to time incurred in the ordinary
course of business, other than for borrowed money; and
(vi) taxes, assessments, or other government charges which are
not yet due or which are being contested in good faith by
appropriate action promptly initiated and diligently
conducted if a reserve shall have been made therefor as
required by GAAP;
(b) Make or permit to remain outstanding any loans or
advances to or investments in any Person, including, without
limitation to any Affiliate, except that the foregoing restrictions
shall not apply to the following:
(i) loans, advances, or investments the material details of
which have been set forth in the Financial Statements, or
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which have been otherwise disclosed to and approved by
Lender in writing prior to the date of this Agreement;
(ii) loans, advances, or investments to XVT, and loans, advances,
or investments up to $250,000.00 in the aggregate in any
fiscal year of Borrower to each other Subsidiary of Borrower
(i.e., up to $250,000.00 per such Subsidiary);
(iii) certificates of deposit of banks or savings and loan
associations insured by an agency of the United States; and
(iv) securities issued and/or guaranteed by the United States of
America, the State of Texas, any other state of the United
States, or any agency, unit, instrumentality or subdivision
thereof;
(c) Consolidate with or merge into any other corporation;
(d) (i) Create, incur, assume, or permit to exist, or allow
any joint venture or partnership of which Borrower is a partner or
venturer to create, incur, assume, or permit to exist any mortgage,
pledge, security interest, lien, or encumbrance on any of their
respective assets, including, without limitation, any accounts and
accounts receivables (now owned or hereafter acquired), except as
specifically disclosed in the Financial Statements, (ii) acquire or
agree to acquire assets under any conditional sale agreement or title
retention contract, or (iii) sell and leaseback any assets, except
that the foregoing restrictions shall not apply to:
(1) liens for taxes, assessments and other
governmental charges not yet due;
(2) liens of vendors, carriers, warehousemen,
landlords, mechanics, laborers, and materialmen
arising by law in the ordinary course of business
for sums not yet due or being contested in good
faith if reserve shall have been made therefor as
required by GAAP;
(3) Purchase money liens up to $250,000.00, in the
aggregate in any fiscal year of Borrower, but only
to the extent such liens secure Debt permitted
under Section 6.1(a);
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(4) pledges or deposits in connection with or to
secure worker's compensation, unemployment
insurance, pensions or other employee benefits;
(5) mortgages, pledges, security interests, liens,
encumbrances, landlord's liens, or title retention
contracts existing as of the date of this
Agreement and disclosed to and approved by Lender
in writing before the date hereof;
(6) liens and/or security interests required by this
Agreement; and
(7) landlord's liens consented to by Lender;
(e) Permit any material change in the senior management or
ownership of Borrower;
(f) Sell, lease, transfer, convey, or otherwise dispose
(except in the ordinary course of business) of all or any material
part of its assets;
(g) Change the general character of business as conducted
as of the date hereof or engage in any type of business not reasonably
related to its business as presently and normally conducted;
(h) Materially change accounting practices, methods, or
standards or the reporting format for any information furnished Lender
under the terms and provisions of this Agreement, which accounting
practices shall conform with GAAP throughout the term of this
Agreement;
(i) Permit the proceeds of the Notes to be used for any
purpose other than the purposes set forth in Section 3.6 of this
Agreement;
(j) Enter into any transaction with an Affiliate,
including, without limitation, the purchase, sale, or exchange of
property of Borrower or the rendering of any service, unless the
transaction is in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to Borrower than would be obtained
in a comparable arm's length transaction with a Person not an
Affiliate;
(k) Enter into any transaction which materially and
adversely affects or may materially and adversely affect any of the
collateral securing the Obligations or Borrower's ability to repay the
Obligations or permit or agree to any material extension, compromise,
or settlement or make any
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material change or modification of any kind or nature with respect to any
Account, including any of the terms relating thereto, other than discounts
and allowances in the ordinary course of business;
(l) Use any corporate name (other than its own) or any
fictitious name, tradestyle, or "d/b/a";
(m) Own, purchase, or acquire (or enter into any contract
to purchase or acquire) any "margin security" as defined by any
regulation of the Federal Reserve Board as now in effect or as the
same may hereafter be in effect unless, prior to any such purchase or
acquisition or entering into any such contract, Lender shall have
received an opinion of counsel satisfactory to the effect that such
purchase or acquisition will not cause this Agreement to violate
Regulations G, T, U or X or any other regulation of the Federal
Reserve Board then in effect;
(n) Change its fiscal year without first notifying Lender;
or
(o) File or consent to the filing of any consolidated
income tax return with any Person other than a Subsidiary.
SECTION 7
EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT. Each of the following shall constitute an
Event of Default under this Agreement:
(a) The failure to pay when due any fee or payment under this
Agreement, the Notes, any of the other Obligations, or any of the
other Loan Documents;
(b) A default or event of default by Borrower or any Guarantor
in the due observance or performance of any of their respective
obligations under this Agreement and the other Loan Documents (other
than a payment default which is governed by Section 7.1(a) and any
other Event of Default specifically enumerated in this Section 7.1),
which is not cured within 30 days after notice thereof is provided by
Borrower to Lender;
(c) Any representation or warranty made by Borrower or any
Guarantor in any of the Loan Documents proves to have been untrue in
any material respect or any representation, statement (including
Financial Statements), certificate or data furnished or made to the
Lender as an inducement for Lender agreeing to enter in to this
Agreement, or in accordance with the terms of this Agreement, proves
to have been untrue
28
<PAGE>
in any material respect as of the date the facts therein set forth were
stated or certified;
(d) A default by Borrower or any Guarantor (whether as principal
or guarantor or other surety) in the payment or performance of any
bond, debenture, note or other evidence of indebtedness, or under any
credit agreement, loan agreement, indenture, promissory note, or
similar agreement or instrument executed in connection with any of the
foregoing, and as a result thereof, the holder of the indebtedness or
other obligation, has accelerated the time for payment of the
indebtedness or other obligation or has otherwise commenced collection
proceedings with respect thereto;
(e) Borrower or any Guarantor shall (i) apply for or consent to
the appointment of a receiver, trustee or liquidator of it or all or a
substantial part of its assets, (ii) file a voluntary petition
commencing a bankruptcy or other insolvency proceeding, (iii) make a
general assignment for the benefit of creditors, (iv) be unable, or
admit in writing its inability, to pay its debts generally as they
become due, or (v) file an answer admitting the material allegations
of a petition filed against it in a bankruptcy or other insolvency
proceeding;
(f) An order, judgment, or decree shall be entered against
Borrower or any Guarantor, by any court of competent jurisdiction or
by any other duly authorized authority, on the petition of a creditor
or otherwise, granting relief in a bankruptcy or other insolvency
proceeding or approving a petition seeking reorganization or an
arrangement of its debts or appointing a receiver, trustee,
conservator, custodian or liquidator of it or all or any substantial
part of its assets and such order, judgment or decree shall not be
dismissed or stayed within 90 days;
(g) The levy against any significant portion of the property of
Borrower or any Guarantor, or any execution, garnishment, attachment,
sequestration, or other writ or similar proceeding which is not
permanently dismissed or discharged within 90 days after the levy;
(h) A final and non-appealable order, judgment or decree, which
is uninsured in an amount in excess of $250,000.00, shall be entered
against Borrower, and such order, judgment or decree shall not be
paid, dismissed, or stayed within 90 days;
(i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Internal
Revenue Code) involving any Plan; any "accumulated funding deficiency"
(as defined in Section 302 of ERISA), whether or not waived, shall
exist with respect to any Plan for which an excise tax is due or would
be due in the
29
<PAGE>
absence of a waiver; a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall
be appointed, to administer or to terminate, any Single Employer Plan,
which Reportable Event or commencement of proceedings or appointment of a
trustee is, in the reasonable opinion of the Lender, likely to result in
the termination of such Plan for purposes of Title IV of ERISA; any Single
Employer Plan shall terminate for purposes of Title IV of ERISA; the
Borrower, or any Affiliate shall incur, or in the reasonable opinion of the
Lender, be likely to incur any liability in connection with a withdrawal
from, or the insolvency or reorganization of, a multiemployer plan; or any
other event or condition shall occur or exist with respect to a Plan and
the result of such events or conditions referred to in this subsection (j)
could subject the Borrower, or any Affiliate to any tax (other than an
excise tax under Section 4980 of the Internal Revenue Code), penalty or
other liabilities which taken in the aggregate would have an adverse effect
on Borrower and any such circumstance shall exist for in excess of 90 days;
(j) Cessation of a substantial part of the business of Borrower
or XVT for a period which significantly affects Borrower's or XVT's
capacity to continue each of their particular businesses, on a
profitable basis; or Borrower or XVT shall suffer the loss or
revocation of any license or permit now held or hereafter acquired by
Borrower or XVT which is necessary to continue the lawful operation of
each of their particular business; or Borrower or XVT shall be
enjoined, restrained, or in any way prevented by court, governmental,
or administrative order from conducting all or any material part of
each of their respective business affairs;
(k) Borrower, any Guarantor, or any Affiliate shall challenge or
contest in any action, suit, or proceeding the validity or
enforceability of this Agreement or any of the other Loan Documents,
the legality or enforceability of any of the Obligations or the
perfection or priority of any lien or security interests granted to
Lender;
(l) Borrower, any Guarantor, or any Affiliate shall be
criminally indicted or convicted under any law that could lead to a
forfeiture of any material portion of the property of Borrower, any
Affiliate, or any Guarantor;
(m) Borrower or XVT shall fail to comply in any material respect
with any order, decree, ruling, or plan issued by the Environmental
Protection Agency or any other Governmental Authority relating to the
Property of Borrower or XVT or otherwise, and which order, decree,
ruling, or plan is not reversed or Borrower's obligations with respect
thereto are not otherwise discharged within 90 days after the entry
thereof;
30
<PAGE>
(n) Borrower or any Guarantor shall have (i) concealed, removed,
or diverted, or permitted to be concealed, removed, or diverted, any
part of its property, with intent to hinder, delay or defraud its
creditors or any of them; (ii) made or suffered a transfer of any of
its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or (iii) shall have suffered or permitted,
while insolvent, any creditor to obtain a lien upon any of their
respective property through legal proceedings or otherwise which is
not vacated within 90 days from the date thereof; and
(o) The liens and/or security interests granted in any Security
Instrument shall not constitute a first and prior lien and/or security
interest upon the collateral described therein, except as otherwise
disclosed to and agreed by Lender in writing.
SECTION 8
RIGHTS AND REMEDIES OF LENDER
8.1 ACCELERATION. Upon the occurrence and continuance of any Event
of Default, Lender, at its option and without any notice of intent to
accelerate, notice of acceleration, or other notice or demand, may declare the
entire principal amounts of the Notes then outstanding and the interest accrued
thereon immediately due and payable, and the said entire principal, interest and
all other amounts owing thereunder shall thereupon become immediately due and
payable without presentment, demand, protest, notice of protest or other notice
of default or dishonor of any kind, all of which are hereby expressly waived by
Borrower.
8.2 ADDITIONAL RIGHTS. Upon the occurrence and continuance of any
Event of Default, Lender shall have, in addition to the rights and remedies
given it in the Loan Documents, all of the rights and remedies allowed by
applicable ordinances, statutes, rules, regulations, orders, injunctions, writs
or decrees of any governmental or political subdivision or agency thereof, or
any court or similar entity established by any such subdivision or agency.
8.3 TERMINATION OF OBLIGATIONS. Upon the occurrence and continuance
of any Default, any obligation of Lender under this Agreement shall immediately
and automatically cease and terminate unless and until Lender shall reinstate
the same in writing, which reinstatement shall be required if the Default or
Event of Default is cured in a timely manner and in a manner satisfactory to
Lender.
SECTION 9
MISCELLANEOUS
9.1 REPLACEMENT OF PRIOR LOAN AGREEMENT. Borrower and Lender agree
and acknowledge that this Agreement shall restate, modify, and fully replace the
Prior Loan
31
<PAGE>
Agreements and that the terms and provisions of this Agreement shall govern and
control the relationship between Borrower and Lender, except that Borrower
agrees that the representations and warranties made by Borrower in the Prior
Loan Agreements were true and correct as of the date of the Prior Loan
Agreements.
9.2 OTHER ADVANCES. Borrower and Lender acknowledge and agree that
in the future, Borrower may apply for and Lender may agree to fund additional
loans to Borrower. Borrower and Lender agree that all existing and hereafter
created loans and other advances from Lender, or any of its predecessors or
successors in interest, to Borrower, whether or not such loans are particularly
described in this Agreement, as may be amended from time to time, shall
constitute Obligations for purposes of this Agreement and shall be subject to
the terms, provisions, covenants, and agreements set forth in this Agreement.
9.3 NO DUTY OR SPECIAL RELATIONSHIP. Borrower acknowledges that
Lender has no duty to Borrower with respect to the loan transactions set forth
in this Agreement except as expressly provided for in this Agreement and the
other Loan Documents, and acknowledge that no fiduciary, trust, or other special
relationship exists between Lender and Borrower.
9.4 OTHER REMEDIES NOT REQUIRED. Borrower may be required to pay the
Notes in full without the assistance of any other party, or any collateral or
security for the Notes. Lender shall not be required to mitigate damages, file
suit, or take any action to foreclose, proceed against or exhaust any collateral
or security in order to enforce payment of the Notes.
9.5 NO CONTROL BY LENDER. BORROWER AGREES AND ACKNOWLEDGES THAT ALL
OF THE COVENANTS AND AGREEMENTS PROVIDED FOR AND MADE BY BORROWER IN THIS
AGREEMENT AND IN THE OTHER LOAN DOCUMENTS ARE THE RESULT OF EXTENSIVE AND ARMS-
LENGTH NEGOTIATIONS BETWEEN BORROWER AND LENDER. LENDER'S RIGHTS AND REMEDIES
PROVIDED FOR IN THIS AGREEMENT AND IN THE OTHER LOAN DOCUMENTS ARE INTENDED TO
PROVIDE LENDER WITH A RIGHT TO OVERSEE BORROWER'S ACTIVITIES AS THEY RELATE TO
THE LOAN TRANSACTIONS PROVIDED FOR IN THIS AGREEMENT, WHICH RIGHT IS BASED ON
LENDER'S VESTED INTEREST IN BORROWER'S ABILITY TO PAY THE NOTES AND PERFORM THE
OTHER OBLIGATIONS. NONE OF THE COVENANTS OR OTHER PROVISIONS CONTAINED IN THIS
AGREEMENT SHALL, OR SHALL BE DEEMED TO, GIVE LENDER THE RIGHT OR POWER TO
EXERCISE CONTROL OVER, OR OTHERWISE IMPAIR, THE DAY-TO-DAY AFFAIRS, OPERATIONS,
AND MANAGEMENT OF BORROWER; PROVIDED THAT IF LENDER BECOMES THE OWNER OF ANY
STOCK OF ANY ENTITY, WHICH ENTITY OWNS AN INTEREST IN BORROWER, WHETHER THROUGH
FORECLOSURE OR OTHERWISE, LENDER THEREAFTER SHALL BE ENTITLED TO EXERCISE SUCH
LEGAL RIGHTS AS IT MAY HAVE BY BEING A SHAREHOLDER OF SUCH ENTITY.
9.6 NO PARTNERSHIP. Nothing herein is intended, nor shall it be
deemed or construed as, to create a partnership, joint venture, or common
interest in profits or income
32
<PAGE>
between Borrower and Lender, or to make Lender in any way responsible for the
debts or losses of Borrower or with respect to the collateral described in the
Security Instruments. Borrower and Lender disclaim any sharing of liabilities,
losses, costs or expenses.
9.7 PAST DUE PAYMENTS. All past due principal and interest on the
Notes and any other Obligations shall bear interest at lesser of the Maximum
Rate, or a rate equal to five percent (5%) above the prime rate of interest as
announced by Lender.
9.8 REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Borrower herein, and all covenants and agreements made by Borrower
herein made before the effective date of this Agreement, shall survive such
date.
9.9 NOTICE. All notices, demands, requests, and communications
permitted or required under this Agreement shall be in writing, may be
personally served or sent by telex (confirmed by telephone), telecopier
(confirmed by telephone), U.S. mail or any express mail service, and shall be
effective upon receipt, such receipt being deemed to occur 48 hours after its
deposit in the U.S. mail, postage prepaid or 24 hours after its transmission by
telex, telecopier or express mail service, as the case may be, addressed to the
individuals and addresses indicated below:
(a) If to Borrower:
Peregrine Systems, Inc.
12670 High Bluff Drive
San Diego, California 92130
(b) If to Lender:
NationsBank of Texas, N.A.
P. O. Box 2518
Houston, Texas 77299-2518
Attention: Jan Chism Wright
Vice President
Any party may, by proper written notice to the other party, change the
individuals or addresses to which such notices shall thereafter be sent.
9.10 BINDING EFFECT. All covenants and agreements of Borrower under
this Agreement shall bind the respective successors and assigns of Borrower and
shall inure to the benefit of Lender and its successors and assigns. The rights
of Borrower under this Agreement are not assignable.
9.11 INCONSISTENCIES AND CONFLICTS. To the extent any irreconcilable
conflicts or inconsistencies exist between the terms of this Agreement and any
of the other Loan Documents, the terms of this Agreement shall govern and
control.
33
<PAGE>
9.12 RENEWAL OF INDEBTEDNESS. All provisions of this Agreement
relating to the Notes shall apply with equal force and effect to each and all
promissory notes hereafter executed which in whole or in part represent a
renewal, extension or rearrangement of any part of the indebtedness originally
represented by the Notes, or either of them, provided that nothing herein shall
constitute a commitment or offer by Lender to such a renewal, extension or
rearrangement.
9.13 NO WAIVER. No course of dealing on the part of Lender, its
officers or employees, nor any failure or delay by Lender with respect to
exercising any of its rights, remedies, powers or privileges under the Loan
Documents shall operate as a waiver thereof. No indulgence by Lender, or waiver
of compliance with any of the terms, covenants, or provisions of the Loan
Documents, shall be construed as a waiver of Lender's right to subsequently
require strict performance by Borrower and any other Person of the Loan
Documents. The rights and remedies of Lender under the Loan Documents shall be
cumulative and the exercise or partial exercise of any such rights or remedies
shall not preclude the exercise of any other rights or remedies.
9.14 APPLICABLE LAW. EXCEPT AS OTHERWISE PROVIDED IN THE LOAN
DOCUMENTS, THE LOAN DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER, AND
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY, THE LAWS OF THE STATE OF
TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA APPLICABLE TO TRANSACTIONS
WITHIN THE STATE OF TEXAS.
9.15 AMENDMENT. Neither this Agreement nor any provision hereof may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought.
9.16 FUTURE ADVANCES. No advance under the Notes shall constitute a
waiver of any of the conditions of Lender's obligation to make further advances
nor, in the event Borrower is unable to satisfy any such condition, shall any
such waiver have the effect of precluding Lender from thereafter declaring such
inability to be a Default.
9.17 SEVERABILITY. In the event any provision contained in any of the
Loan Documents shall, for any reason, be held invalid, illegal or unenforceable
in any respect, such provision shall be severed from the applicable Loan
Document, and such invalidity, illegality or unenforceability shall not affect
any other provision of the applicable Loan Document.
9.18 LENDER'S DISCRETION. All matters hereunder that require Lender's
discretion, (including, without limitation, whether Borrower has satisfied any
condition precedent), Lender shall use its sole and reasonable discretion,
except as otherwise provided for herein. Further, Lender may in its sole
discretion waive any of its rights with respect to a particular Event of
Default.
9.19 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein embody the entire agreement with respect to the respective rights,
obligations, and liabilities of
34
<PAGE>
the Parties and supersedes all prior agreements and understandings, if any,
relating to the subject matter hereof. Any conflicts or inconsistencies between
the terms and provisions of this Agreement and the terms and provisions of any
of the other Loan Documents shall be governed and controlled by this Agreement.
This Agreement may be amended only by an instrument in writing executed by the
party to be bound thereby, and may be supplemented only by documents delivered
in accordance with the express terms hereof. THIS AGREEMENT REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO ORAL AGREEMENTS BETWEEN THE PARTIES.
9.20 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, and it shall not be necessary that any one counterparts be
executed by all of the parties hereto. Each fully or partially executed
counterpart shall be deemed an original, but all such counterparts taken
together shall constitute but one and the same instrument.
9.21 CONTROLLING AGREEMENT. Borrower and Lender intend to conform
strictly to the applicable usury laws. All agreements between Lender and
Borrower (or any other party liable with respect to any indebtedness under this
Agreement and the other Loan Documents) are hereby limited by the provisions of
this Section which shall override and control all such agreements, whether now
existing or hereafter arising and whether written or oral. In no way, nor in
any event or contingency (including but not limited to prepayment, default,
demand for payment, or acceleration of the maturity of any obligation), shall
the interest contracted for, charged, or received under the Notes or otherwise
exceed the Maximum Rate. If, from any possible construction of any document,
interest would otherwise be payable to Lender in excess of the Maximum Rate, any
such construction shall be subject to the provisions of this section and such
document shall be automatically reformed and the interest payable to Lender
shall be automatically reduced to the Maximum Rate, without the necessity of
execution of any amendment or new document. If Lender shall ever receive
anything of value which is characterized as interest under applicable law and
which would apart from this provision be in excess of the Maximum Rate, an
amount equal to the amount which would have been excessive interest shall at the
option of Lender, be refunded to Borrower or applied to the reduction of the
principal amount owing hereunder in the inverse order of its maturity and not to
the payment of interest. The right to accelerate maturity of the Notes or any
other indebtedness does not include the right to accelerate any interest which
has not otherwise accrued on the date of such acceleration, and Lender does not
intend to charge or receive any unearned interest in the event of acceleration.
All interest paid or agreed to be paid to Lender shall, to the extend permitted
by applicable law, be amortized, prorated, allocated and spread throughout the
full stated term (including any renewal or extension) of such indebtedness so
that the amount of interest on account of such indebtedness does not exceed the
Maximum Rate.
9.22 BUSINESS LOANS. Borrower warrants and represents to Lender, and
to all other holders of any debt evidenced by the Notes, that the loan evidenced
by the Notes are and shall be for business, commercial, investment or other
similar purpose and not primarily for personal, family, household or
agricultural use.
35
<PAGE>
9.23 ARBITRATION. (a) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM
BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW). THE RULES OF PRACTICE AND PROCEDURE FOR
THE ARBITRATION OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION
SERVICES, INC. (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE
EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO
THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING,
TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT
APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(b) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
THE BORROWER'S DOMICILE AT THE TIME OF THIS AGREEMENT'S EXECUTION AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE
OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL
ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
(c) RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED
TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A
WAIVER BY LENDER OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF LENDER HERETO
(A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B)
TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF, WRIT OR POSSESSION OR THE APPOINTMENT OF A RECEIVER. LENDER
MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH
PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT. NEITHER THIS
EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION
FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER
OF
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<PAGE>
THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE
THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
PEREGRINE SYSTEMS, INC.
By: /s/ David A. Farley
-------------------------------------
Name: David A. Farley
-----------------------------------
Title: Chief Financial Officer
-----------------------------------
BORROWER
NATIONSBANK OF TEXAS, N.A.
By: /s/ Jan Chism Wright
-------------------------------------
Jan Chism Wright,
Vice President
LENDER
37
<PAGE>
EXHIBIT "A"
FORM OF BORROWING BASE AND COMPLIANCE CERTIFICATE
This certificate dated as of _____________, 19__, is prepared pursuant
to Section 5.1(c)(iii) of that certain Loan Agreement dated November ___, 1995
(the "LOAN AGREEMENT"), between Peregrine Systems, Inc., a Delaware corporation
("COMPANY"), and NationsBank of Texas, N.A. ("BANK"). Unless otherwise defined
in this certificate, capitalized terms shall have the meaning given to them in
the Loan Agreement.
The Company hereby certifies (a) that no Event of Default has occurred
or is continuing, (b) all of the representations and warranties made by the
Company in the Loan Agreement are true and correct in all material respects on
the date of this certificate as if made on this date, and (c) that as of
_________________, 19___, the following amounts and calculations were true and
correct:
I. BORROWING BASE
A. Borrower
1. Total Accounts of Borrower $
------------
MINUS
2. Total Non-Business $
------------
Accounts of Borrower
EQUALS
3. Total Business Accounts $
------------
of Borrower
LESS
4. Total Business Accounts of
Borrower more than 90 days
aged from invoice date $
------------
EQUALS
5. Total Eligible Accounts $
------------
of Borrower X .80
------------
$
------------
B. XVT
A-i
<PAGE>
1. Total Accounts of XVT $
------------
MINUS
2. Total Non-Business $
------------
Accounts of XVT
EQUALS
3. Total Business Accounts $
------------
of XVT
LESS
4. Total Business Accounts of
XVT more than 90 days
aged from invoice date $
------------
EQUALS
5. Total Eligible Accounts $
------------
of XVT X .80
------------
$
------------
C. Borrowing Base (sum of A.5 and B.5) $ (not to exceed
------------ $4,000,000.00)
MINUS
D. Outstanding Letters of Credit $
------------
MINUS
E. The outstanding unpaid advances
under Revolving Note $
------------
EQUALS
F. Excess (Deficit) $
------------
I HEREBY CERTIFY THAT THE FOREGOING REPRESENTATIONS AND STATEMENTS ARE
TRUE AND CORRECT AS OF THE DATE HEREOF.
PEREGRINE SYSTEMS, INC.
By:
--------------------------------------------
A-ii
<PAGE>
Printed Name:
------------------------------------
Title:
-------------------------------------------
A-iii
<PAGE>
FIRST AMENDMENT TO LOAN AGREEMENT
This First Amendment to Loan Agreement (this "FIRST AMENDMENT") is
made and entered into effective as of the 11th day of July, 1996, by and between
PEREGRINE SYSTEMS, INC., a Delaware corporation ("BORROWER"), and NATIONSBANK OF
TEXAS, N.A., a national banking association ("LENDER"), with offices in Houston,
Texas.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Loan Agreement dated November 13,
1995 (the "LOAN AGREEMENT"), Lender agreed to make certain loans to Borrower
upon the terms and conditions therein contained; and
WHEREAS, the parties hereto desire to modify and amend certain terms
and provisions of the Loan Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower and Lender agree as
follows:
1. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is modified as
follows:
1.1 The following definitions set forth in Section 1 of the Loan
Agreement are deleted in their entirety and the following are substituted in
place thereof:
"AVAILABLE COMMITMENT" shall mean an amount equal to
$4,500,000.00 MINUS the aggregate face amount of all outstanding
Letters of Credit, MINUS the sum of the outstanding, advanced balance
of the Revolving Note at such time.
"REVOLVING NOTE" shall mean the Promissory Note dated July
11, 1996, in the maximum amount of $4,500,000.00, executed by
Borrower, payable to the order of Lender, and any and all renewals,
extensions, increases, modifications, replacements, restatements, and
rearrangements thereof.
1.2 Section 3.2 of the Loan Agreement is deleted in its entirety and
the following is substituted in place thereof:
Subject to the full, complete, and timely satisfaction of each of
the terms and conditions of Section 2 of this Agreement and as
elsewhere set forth herein, and relying on the representations and
warranties of Borrower hereinafter set forth, Lender agrees to make
available to Borrower a revolving line of credit pursuant to which
Borrower may borrow, repay, and
<PAGE>
reborrow under the terms of this Agreement on or after the date
hereof and prior to the Termination Date, amounts not exceeding at
any one time outstanding an aggregate principal amount equal to the
lesser of (i) an amount equal to $4,500,000.00, minus the aggregate
face amount of all outstanding Letters of Credit, or (ii) the
Borrowing Base, which revolving loan shall be evidenced by the
issuance, execution, and delivery of the Revolving Note.
1.3 Section 3.3 of the Loan Agreement is deleted in its entirety and
the following is substituted in place thereof:
Provided that no Default or Event of Default has occurred and is
then existing, at the written request of Borrower, Lender shall issue
irrevocable commercial or standby letters of credit or banker's
acceptances (collectively referred to herein as the "LETTERS OF
CREDIT"), up to an amount equal to $1,000,000.00 in the aggregate face
amount of all Letters of Credit at any one time outstanding, for the
benefit of such Person requested by Borrower and for the account of
Borrower; provided that Borrower first fully and completely satisfies
each of the following conditions:
(i) the sum of the outstanding aggregate face amount
of all outstanding Letters of Credit (including the amount
of the requested Letter of Credit), plus the outstanding,
advanced balance of the Revolving Note shall not exceed
$4,500,000.00;
(ii) Borrower shall have paid to Lender, in cash, a
fee for the issuance of the requested Letter of Credit equal
to the greater of (x) 2% per annum, calculated (on an
annualized basis) on the face amount of the requested Letter
of Credit from the date of the requested Letter of Credit
through the stated expiration date of the Letter of Credit,
or (y) $350.00;
(iii) the term of each requested Letter of Credit
shall not exceed 365 days, provided that in no event shall
the expiration date of the requested Letter of Credit be
later than six calendar months after the Termination Date;
and
(iv) Borrower shall have executed and delivered to
Lender a letter of credit application (or such similar
agreement relating to banker's acceptances) and all other
documents required by Lender in connection with the issuance
of the Letter of Credit, each of which shall be in form and
substance satisfactory to Lender in its sole discretion.
2
<PAGE>
Without limiting any of the foregoing, if, in any case, Borrower does not
provide Lender with funds in the amount and on the date necessary to settle
Lender's obligation under any draft drawn under any Letter of Credit (or payment
under a banker's acceptance), Lender shall make, and Borrower shall accept, an
advance by Lender to Borrower under the Revolving Note and this Agreement as of
the day and time such drafts are paid by Lender and in the amount of the drafts
so paid. All advances made on the Revolving Note prior to the Termination Date,
pursuant to this Section, shall accrue interest and be payable in accordance
with and pursuant to the terms of the Revolving Note. If the time for payment
of the Revolving Note is not renewed and extended on the Termination Date (it
being agreed that nothing herein shall constitute an offer or commitment by
Lender to renew and extend the Revolving Note), any advance under the Revolving
Note on or after the Termination Date, pursuant to this Section, notwithstanding
any term or provision in the Revolving Note or this Agreement to the contrary,
is payable in full (all outstanding principal and unpaid and accrued interest)
on demand, which demand shall be deemed to have been made upon any funding
thereof, and shall bear interest from the date of funding at the lesser of (x)
Lender's prime rate of interest as set forth in the Revolving Note plus 5% per
annum or (y) the Maximum Rate. Nothing herein shall constitute an offer or
commitment by Lender to extend the time for payment of the Revolving Note. In
case of any conflict between the terms of any letter of credit application (or
such similar agreement relating to banker's acceptances) with respect to any
Letter of Credit and the terms hereof, the terms of this Agreement shall
control, except to the extent the letter of credit application (or such similar
agreement relating to banker's acceptances) states that certain specified
provisions thereof control, in which case those specified provisions of the
letter of credit application (or such similar agreement relating to banker's
acceptances) shall control.
1.4 Section 3.4 of the Loan Agreement is deleted in its entirety and
the following is substituted in place thereof:
If, at any time, and for any reason, the sum of the outstanding
principal balance under the Revolving Note exceeds the lesser of (a)
$4,500,000.00, minus the aggregate face amount of all outstanding
Letters of Credit, or (b) the Borrowing Base, Borrower shall pay on
demand by Lender the amount of such excess to Lender for application
towards reduction of the outstanding balance of the Revolving Note.
1.5 Exhibit "A" of the Loan Agreement is deleted in its entirety and
the Exhibit A attached to this First Amendment is substituted in place thereof.
2. DEFINED TERMS. Words and terms used herein which are defined in the
Loan Agreement are used herein as defined therein, except as specifically
modified by the terms of this First Amendment. Terms used in this First
Amendment which are not defined in the Loan Agreement are used therein as herein
defined.
3
<PAGE>
3. LIEN CONTINUATION. The liens granted in the Security Instruments
executed by Borrower are hereby ratified and confirmed as continuing to secure
the payment of the Notes (as provided for therein). Nothing herein shall in any
manner diminish, impair, or extinguish the indebtedness evidenced by the Notes
or the liens securing the indebtedness evidenced by the Notes. The liens
granted in the Security Instruments executed by Borrower are not waived.
Borrower ratifies and acknowledges the Security Instruments executed by Borrower
as valid, subsisting, and enforceable and agrees that the indebtedness evidenced
by the Notes is just, due, owing, and unpaid, as stated herein, and is subject
to no offsets, deductions, credits, charges, or claims of whatsoever kind or
character, and further agrees that all offsets, credits, charges, and claims of
whatsoever kind or character are fully settled and satisfied.
4. REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by Borrower in Section 4 of the Loan Agreement are true and correct as of
the date of this First Amendment.
5. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THE LOAN
AGREEMENT (AS HEREBY AMENDED) OR ANY RELATED AGREEMENTS OR INSTRUMENTS,
INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE
DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE TERMS OF THE
ARBITRATION PROVISION SET FORTH IN THE LOAN AGREEMENT.
6. NO CONTROL BY LENDER. BORROWER AGREES AND ACKNOWLEDGES THAT ALL OF
THE COVENANTS AND AGREEMENTS PROVIDED FOR AND MADE BY BORROWER IN THIS FIRST
AMENDMENT, THE LOAN AGREEMENT, AND IN THE OTHER LOAN DOCUMENTS ARE THE RESULT OF
EXTENSIVE AND ARMS-LENGTH NEGOTIATIONS BETWEEN BORROWER AND LENDER. LENDER'S
RIGHTS AND REMEDIES PROVIDED FOR IN THE LOAN AGREEMENT AND IN THE OTHER LOAN
DOCUMENTS ARE INTENDED TO PROVIDE LENDER WITH A RIGHT TO OVERSEE BORROWER'S
ACTIVITIES AS THEY RELATE TO THE LOAN TRANSACTIONS PROVIDED FOR IN THE LOAN
AGREEMENT, WHICH RIGHT IS BASED ON LENDER'S VESTED INTEREST IN BORROWER'S
ABILITY TO PAY THE NOTES AND PERFORM THE OTHER OBLIGATIONS. NONE OF THE
COVENANTS OR OTHER PROVISIONS CONTAINED IN THE LOAN AGREEMENT SHALL, OR SHALL BE
DEEMED TO, GIVE LENDER THE RIGHT OR POWER TO EXERCISE CONTROL OVER, OR OTHERWISE
IMPAIR, THE DAY-TO-DAY AFFAIRS, OPERATIONS, AND MANAGEMENT OF BORROWER; PROVIDED
THAT IF LENDER BECOMES THE OWNER OF ANY STOCK OF ANY ENTITY, WHICH ENTITY OWNS
AN INTEREST IN BORROWER, WHETHER THROUGH FORECLOSURE OR OTHERWISE, LENDER
THEREAFTER SHALL BE ENTITLED TO EXERCISE SUCH LEGAL RIGHTS AS IT MAY HAVE BY
BEING A SHAREHOLDER OF SUCH ENTITY.
7. MISCELLANEOUS.
4
<PAGE>
7.1 PRESERVATION OF THE LOAN AGREEMENT. Except as specifically
amended and modified by the terms of this First Amendment, all of the terms,
provisions, covenants, warranties, and agreements contained in the Loan
Agreement shall remain in full force and effect.
7.2 COUNTERPARTS. This First Amendment may be executed in two or
more counterparts, and it shall not be necessary that any one of the
counterparts be executed by all of the parties hereto. Each fully or partially
executed counterpart shall be deemed an original, but all such counterparts
taken together shall constitute but one and the same instrument.
7.3 NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER WRITTEN
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties have executed this First Amendment as of
the date first above written.
PEREGRINE SYSTEMS, INC.
By: /s/ David A. Farley
--------------------------
Printed Name: David A. Farley
----------------
Title: Chief Financial Officer
-----------------------
NATIONSBANK OF TEXAS, N.A.
By: /s/ Raul Anaya
---------------------------
Raul Anaya, Vice President
5
<PAGE>
EXHIBIT "A"
FORM OF BORROWING BASE AND COMPLIANCE CERTIFICATE
This certificate dated as of _____________, 19__, is prepared pursuant
to Section 5.1(c)(iii) of that certain Loan Agreement dated November ___, 1995
(as amended from time to time, the "LOAN AGREEMENT"), between Peregrine Systems,
Inc., a Delaware corporation ("COMPANY"), and NationsBank of Texas, N.A.
("BANK"). Unless otherwise defined in this certificate, capitalized terms shall
have the meaning given to them in the Loan Agreement.
The Company hereby certifies (a) that no Event of Default has occurred
or is continuing, (b) all of the representations and warranties made by the
Company in the Loan Agreement are true and correct in all material respects on
the date of this certificate as if made on this date, and (c) that as of
_________________, 19___, the following amounts and calculations were true and
correct:
I. BORROWING BASE
A. Borrower
1. Total Accounts of Borrower $
------------
MINUS
2. Total Non-Business $
------------
Accounts of Borrower
EQUALS
3. Total Business Accounts $
------------
of Borrower
LESS
4. Total Business Accounts of
Borrower more than 90 days
aged from invoice date $
------------
EQUALS
5. Total Eligible Accounts $
------------
of Borrower X .80
------------
$
------------
A-i
<PAGE>
B. XVT
1. Total Accounts of XVT $
------------
MINUS
2. Total Non-Business $
------------
Accounts of XVT
EQUALS
3. Total Business Accounts $
------------
of XVT
LESS
4. Total Business Accounts of
XVT more than 90 days
aged from invoice date $
------------
EQUALS
5. Total Eligible Accounts $
------------
of XVT X .80
------------
$
------------
C. Borrowing Base (sum of A.5 and B.5) $
------------
(not to exceed $4,500,000.00)
MINUS
D. Outstanding Letters of Credit $
------------
MINUS
E. The outstanding unpaid advances
under Revolving Note $
------------
EQUALS
F. Excess (Deficit) $
------------
A-ii
<PAGE>
I HEREBY CERTIFY THAT THE FOREGOING REPRESENTATIONS AND STATEMENTS ARE
TRUE AND CORRECT AS OF THE DATE HEREOF.
PEREGRINE SYSTEMS, INC.
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
A-iii
<PAGE>
SECOND AMENDMENT TO LOAN AGREEMENT
This Second Amendment to Loan Agreement (this "SECOND AMENDMENT") is
made and entered into effective as of the ____ day of September, 1996, by and
between PEREGRINE SYSTEMS, INC., a Delaware corporation ("BORROWER"), and
NATIONSBANK OF TEXAS, N.A., a national banking association ("LENDER"), with
offices in Houston, Texas.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Loan Agreement dated November 13,
1995 (as heretofore amended, the "LOAN AGREEMENT"), Lender agreed to make
certain loans to Borrower upon the terms and conditions therein contained; and
WHEREAS, pursuant to a First Amendment to Loan Agreement dated as of
July 11, 1996, Borrower and Lender have modified and amended the terms and
provisions of the Loan Agreement; and
WHEREAS, the parties hereto desire to further modify and amend certain
terms and provisions of the Loan Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower and Lender agree as
follows:
1. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is modified as
follows:
1.1 All references in the Loan Agreement to XVT and to the XVT
Security Agreement are deleted in their entirety.
1.2 Exhibit "A" of the Loan Agreement is deleted in its entirety and
the Exhibit A attached to this Second Amendment is substituted in place thereof.
2. RELEASE OF XVT SOFTWARE. At the request of Borrower, Lender has and
does hereby release and discharge (a) all obligations and liabilities of XVT
Software, Inc. under the Guaranty Agreement dated November 13, 1995, and (b) all
security interests and liens granted by XVT Software, Inc. in the Security
Agreement dated November 13, 1995; it being the intent of Lender and Borrower
that XVT Software, Inc. and its assets shall no longer be obligated or otherwise
secure the loan transactions set forth in the Loan Agreement. At the request of
Borrower, Lender shall, at Borrower's cost and expense, execute all UCC-3
Termination Statements required by Borrower in connection with the foregoing.
<PAGE>
3. DEFINED TERMS. Words and terms used herein which are defined in the
Loan Agreement are used herein as defined therein, except as specifically
modified by the terms of this Second Amendment. Terms used in this Second
Amendment which are not defined in the Loan Agreement are used therein as herein
defined.
4. LIEN CONTINUATION. The liens granted in the Security Instruments
executed by Borrower are hereby ratified and confirmed as continuing to secure
the payment of the Notes (as provided for therein). Nothing herein shall in any
manner diminish, impair, or extinguish the indebtedness evidenced by the Notes
or the liens securing the indebtedness evidenced by the Notes. The liens
granted in the Security Instruments executed by Borrower are not waived.
Borrower ratifies and acknowledges the Security Instruments executed by Borrower
as valid, subsisting, and enforceable and agrees that the indebtedness evidenced
by the Notes is just, due, owing, and unpaid, as stated herein, and is subject
to no offsets, deductions, credits, charges, or claims of whatsoever kind or
character, and further agrees that all offsets, credits, charges, and claims of
whatsoever kind or character are fully settled and satisfied.
5. REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by Borrower in Section 4 of the Loan Agreement (as hereby amended) are true
and correct as of the date of this Second Amendment.
6. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THE LOAN
AGREEMENT (AS HEREBY AMENDED) OR ANY RELATED AGREEMENTS OR INSTRUMENTS,
INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE
DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE TERMS OF THE
ARBITRATION PROVISION SET FORTH IN THE LOAN AGREEMENT.
7. NO CONTROL BY LENDER. BORROWER AGREES AND ACKNOWLEDGES THAT ALL OF
THE COVENANTS AND AGREEMENTS PROVIDED FOR AND MADE BY BORROWER IN THIS SECOND
AMENDMENT, THE LOAN AGREEMENT, AND IN THE OTHER LOAN DOCUMENTS ARE THE RESULT OF
EXTENSIVE AND ARMS-LENGTH NEGOTIATIONS BETWEEN BORROWER AND LENDER. LENDER'S
RIGHTS AND REMEDIES PROVIDED FOR IN THE LOAN AGREEMENT AND IN THE OTHER LOAN
DOCUMENTS ARE INTENDED TO PROVIDE LENDER WITH A RIGHT TO OVERSEE BORROWER'S
ACTIVITIES AS THEY RELATE TO THE LOAN TRANSACTIONS PROVIDED FOR IN THE LOAN
AGREEMENT, WHICH RIGHT IS BASED ON LENDER'S VESTED INTEREST IN BORROWER'S
ABILITY TO PAY THE NOTES AND PERFORM THE OTHER OBLIGATIONS. NONE OF THE
COVENANTS OR OTHER PROVISIONS CONTAINED IN THE LOAN AGREEMENT SHALL, OR SHALL BE
DEEMED TO, GIVE LENDER THE RIGHT OR POWER TO EXERCISE CONTROL OVER, OR OTHERWISE
IMPAIR, THE DAY-TO-DAY AFFAIRS, OPERATIONS, AND MANAGEMENT OF BORROWER; PROVIDED
THAT IF LENDER BECOMES THE OWNER OF ANY STOCK OF ANY ENTITY, WHICH ENTITY OWNS
2
<PAGE>
AN INTEREST IN BORROWER, WHETHER THROUGH FORECLOSURE OR OTHERWISE, LENDER
THEREAFTER SHALL BE ENTITLED TO EXERCISE SUCH LEGAL RIGHTS AS IT MAY HAVE BY
BEING A SHAREHOLDER OF SUCH ENTITY.
8. MISCELLANEOUS.
8.1 PRESERVATION OF THE LOAN AGREEMENT. Except as specifically
amended and modified by the terms of this Second Amendment, all of the terms,
provisions, covenants, warranties, and agreements contained in the Loan
Agreement shall remain in full force and effect.
8.2 COUNTERPARTS. This Second Amendment may be executed in two or
more counterparts, and it shall not be necessary that any one of the
counterparts be executed by all of the parties hereto. Each fully or partially
executed counterpart shall be deemed an original, but all such counterparts
taken together shall constitute but one and the same instrument.
8.3 NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER WRITTEN
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties have executed this Second Amendment as of
the date first above written.
PEREGRINE SYSTEMS, INC.
By: /s/ Alan Hunt
--------------------------
Printed Name: Alan Hunt
--------------------
Title:
NATIONSBANK OF TEXAS, N.A.
By: /s/ Raul Anaya
------------------------------
Raul Anaya, Vice President
3
<PAGE>
EXHIBIT "A"
FORM OF BORROWING BASE AND COMPLIANCE CERTIFICATE
This certificate dated as of _____________, 19__, is prepared
pursuant to Section 5.1(c)(iii) of that certain Loan Agreement dated
November ___, 1995 (as amended from time to time, the "LOAN AGREEMENT"), between
Peregrine Systems, Inc., a Delaware corporation ("COMPANY"), and NationsBank of
Texas, N.A. ("BANK"). Unless otherwise defined in this certificate, capitalized
terms shall have the meaning given to them in the Loan Agreement.
The Company hereby certifies (a) that no Event of Default has
occurred or is continuing, (b) all of the representations and warranties made by
the Company in the Loan Agreement are true and correct in all material respects
on the date of this certificate as if made on this date, and (c) that as of
_________________, 19___, the following amounts and calculations were true and
correct:
I. BORROWING BASE
A. Borrower
1. Total Accounts of Borrower $____________
MINUS
2. Total Non-Business $____________
Accounts of Borrower
EQUALS
3. Total Business Accounts $____________
of Borrower
LESS
4. Total Business Accounts of
Borrower more than 90 days
aged from invoice date $____________
EQUALS
5. Total Eligible Accounts $____________
of Borrower x .80
-------------
EQUALS
A-i
<PAGE>
C. Borrowing Base $____________
(not to exceed $4,500,000.00)
MINUS
D. Outstanding Letters of Credit $____________
MINUS
E. The outstanding unpaid advances
under Revolving Note $____________
EQUALS
F. Excess (Deficit) $____________
I HEREBY CERTIFY THAT THE FOREGOING REPRESENTATIONS AND STATEMENTS
ARE TRUE AND CORRECT AS OF THE DATE HEREOF.
PEREGRINE SYSTEMS, INC.
By: By:
--------------------------------
Printed Name:
----------------------
Title:
-----------------------------
A-ii
<PAGE>
THIRD AMENDMENT TO LOAN AGREEMENT
This Third Amendment to Loan Agreement (this "THIRD AMENDMENT") is
made and entered into effective as of the 13th day of November, 1996, by and
between PEREGRINE SYSTEMS, INC., a Delaware corporation ("BORROWER"), and
NATIONSBANK OF TEXAS, N.A., a national banking association ("LENDER"), with
offices in Houston, Texas.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Loan Agreement dated November 13,
1995 (as heretofore amended, the "LOAN AGREEMENT"), Lender agreed to make
certain loans to Borrower upon the terms and conditions therein contained; and
WHEREAS, pursuant to a First Amendment to Loan Agreement dated as of
July 11, 1996, and Second Amendment to Loan Agreement dated as of September 9,
1996, Borrower and Lender have modified and amended the terms and provisions of
the Loan Agreement; and
WHEREAS, the parties hereto desire to further modify and amend certain
terms and provisions of the Loan Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower and Lender agree as
follows:
1. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is modified as
follows:
1.1 The definition of "Termination Date" in Section 1 of the Loan
Agreement is deleted in its entirety and the following is substituted in
place thereof:
"Termination Date" shall mean the earlier to occur of (a)
December 16, 1996, or (b) an Event of Default.
2. DEFINED TERMS. Words and terms used herein which are defined in the
Loan Agreement are used herein as defined therein, except as specifically
modified by the terms of this Third Amendment. Terms used in this Third
Amendment which are not defined in the Loan Agreement are used therein as herein
defined.
3. LIEN CONTINUATION. The liens granted in the Security Instruments
executed by Borrower are hereby ratified and confirmed as continuing to
secure the payment of the Notes (as provided for therein). Nothing herein
shall in any manner diminish, impair, or extinguish the indebtedness
evidenced by the Notes or the liens securing the indebtedness evidenced by
the Notes. The liens granted in the Security Instruments
<PAGE>
executed by Borrower are not waived. Borrower ratifies and acknowledges the
Security Instruments executed by Borrower as valid, subsisting, and
enforceable and agrees that the indebtedness evidenced by the Notes is just,
due, owing, and unpaid, as stated herein, and is subject to no offsets,
deductions, credits, charges, or claims of whatsoever kind or character, and
further agrees that all offsets, credits, charges, and claims of whatsoever
kind or character are fully settled and satisfied.
4. REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by Borrower in Section 4 of the Loan Agreement (as hereby amended) are true
and correct as of the date of this Third Amendment.
5. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THE LOAN
AGREEMENT (AS HEREBY AMENDED) OR ANY RELATED AGREEMENTS OR INSTRUMENTS,
INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE
DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE TERMS OF THE
ARBITRATION PROVISION SET FORTH IN THE LOAN AGREEMENT.
6. NO CONTROL BY LENDER. BORROWER AGREES AND ACKNOWLEDGES THAT ALL OF
THE COVENANTS AND AGREEMENTS PROVIDED FOR AND MADE BY BORROWER IN THIS THIRD
AMENDMENT, THE LOAN AGREEMENT, AND IN THE OTHER LOAN DOCUMENTS ARE THE RESULT OF
EXTENSIVE AND ARMS-LENGTH NEGOTIATIONS BETWEEN BORROWER AND LENDER. LENDER'S
RIGHTS AND REMEDIES PROVIDED FOR IN THE LOAN AGREEMENT AND IN THE OTHER LOAN
DOCUMENTS ARE INTENDED TO PROVIDE LENDER WITH A RIGHT TO OVERSEE BORROWER'S
ACTIVITIES AS THEY RELATE TO THE LOAN TRANSACTIONS PROVIDED FOR IN THE LOAN
AGREEMENT, WHICH RIGHT IS BASED ON LENDER'S VESTED INTEREST IN BORROWER'S
ABILITY TO PAY THE NOTES AND PERFORM THE OTHER OBLIGATIONS. NONE OF THE
COVENANTS OR OTHER PROVISIONS CONTAINED IN THE LOAN AGREEMENT SHALL, OR SHALL BE
DEEMED TO, GIVE LENDER THE RIGHT OR POWER TO EXERCISE CONTROL OVER, OR OTHERWISE
IMPAIR, THE DAY-TO-DAY AFFAIRS, OPERATIONS, AND MANAGEMENT OF BORROWER; PROVIDED
THAT IF LENDER BECOMES THE OWNER OF ANY STOCK OF ANY ENTITY, WHICH ENTITY OWNS
AN INTEREST IN BORROWER, WHETHER THROUGH FORECLOSURE OR OTHERWISE, LENDER
THEREAFTER SHALL BE ENTITLED TO EXERCISE SUCH LEGAL RIGHTS AS IT MAY HAVE BY
BEING A SHAREHOLDER OF SUCH ENTITY.
7. MISCELLANEOUS.
7.1 PRESERVATION OF THE LOAN AGREEMENT. Except as specifically
amended and modified by the terms of this Third Amendment, all of the terms,
provisions, covenants,
2
<PAGE>
warranties, and agreements contained in the Loan Agreement shall remain in
full force and effect.
7.2 COUNTERPARTS. This Third Amendment may be executed in two or
more counterparts, and it shall not be necessary that any one of the
counterparts be executed by all of the parties hereto. Each fully or
partially executed counterpart shall be deemed an original, but all such
counterparts taken together shall constitute but one and the same instrument.
7.3 NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER WRITTEN
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties have executed this Third Amendment as of
the date first above written.
PEREGRINE SYSTEMS, INC.
By: /s/ David A. Farley
-------------------------------
Printed Name: David A. Farley
---------------------
Title: Chief Financial Officer
----------------------------
NATIONSBANK OF TEXAS, N.A.
By: /s/ Raul Anaya
------------------------------
Raul Anaya, Vice President
3
<PAGE>
FOURTH AMENDMENT TO LOAN AGREEMENT
This Fourth Amendment to Loan Agreement (this "FOURTH AMENDMENT") is
made and entered into effective as of the 16th day of December, 1996, by and
between PEREGRINE SYSTEMS, INC., a Delaware corporation ("BORROWER"), and
NATIONSBANK OF TEXAS, N.A., a national banking association ("LENDER"), with
offices in Houston, Texas.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Loan Agreement dated November 13,
1995 (as heretofore amended, the "LOAN AGREEMENT"), Lender agreed to make
certain loans to Borrower upon the terms and conditions therein contained; and
WHEREAS, pursuant to a First Amendment to Loan Agreement dated as of
July 11, 1996, a Second Amendment to Loan Agreement dated as of September 9,
1996, and a Third Amendment to Loan Agreement dated as of November 13, 1996,
Borrower and Lender have modified and amended the terms and provisions of the
Loan Agreement; and
WHEREAS, the parties hereto desire to further modify and amend certain
terms and provisions of the Loan Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower and Lender agree as
follows:
1. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is modified as
follows:
1.1 The definitions assigned to the following terms in Section
1 of the Loan Agreement are deleted in their entirety and the following are
substituted in place thereof:
"AVAILABLE COMMITMENT" shall mean an amount equal to
$4,500,000.00, MINUS the outstanding, advanced balance of
the Revolving Note, MINUS the aggregate face amount of all
outstanding Letters of Credit, MINUS the Credit Card
Reserve.
"REVOLVING NOTE" shall mean the Promissory Note dated
December 16, 1996, in the maximum amount of $4,500,000.00,
executed by Borrower, payable to the order of Lender, and
any and all renewals, extensions, increases, modifications,
replacements, restatements, and rearrangements thereof.
<PAGE>
"TERM NOTE" shall mean the Promissory Note dated December 16, 1996, in
the original principal amount of $1,759,987.96, executed by Borrower,
payable to the order of Lender, and all renewals, extensions,
increases, modifications, replacements, restatements and
rearrangements thereof.
"TERMINATION DATE" shall mean the earlier to occur of (a)
November 30, 1997, or (b) an Event of Default.
1.2 The following term and the definition assigned to it are added
to and made a part of Section 1 of the Loan Agreement:
"CREDIT CARD RESERVE" shall mean a portion of the
availability of the revolving loan evidenced by the
Revolving Note, in an amount of $50,000.00.
1.3 All references to the term, "BORROWING BASE" in the Loan
Agreement are deleted in their entirety.
1.4 Section 1.4 of the Loan Agreement is deleted in its
entirety and the following is substituted in place thereof:
(a) Subject to the full, complete, and timely
satisfaction of each of the terms and conditions of Section
2 of this Agreement and as elsewhere set forth herein, and
relying on the representations and warranties of Borrower
hereinafter set forth, Lender agrees to make available to
Borrower a revolving line of credit pursuant to which
Borrower may borrow, repay, and reborrow under the terms of
this Agreement on or after the date hereof and prior to the
Termination Date, amounts not exceeding at any one time
outstanding an aggregate principal amount equal to
$4,500,000.00, minus the aggregate face amount of all
outstanding Letters of Credit, minus the Credit Card
Reserve, which revolving loan shall be evidenced by the
issuance, execution, and delivery of the Revolving Note.
(b) Borrower authorizes and directs Lender to make
advances on the Revolving Note, for and on behalf of
Borrower, from the Credit Card Reserve, to pay amounts due
under and with respect to Borrower's credit card
indebtedness for which the reserve was created and which
have not been paid when due.
2
<PAGE>
1.5 Section 3.4 of the Loan Agreement is deleted in its
entirety and the following is substituted in place thereof:
If, at any time, and for any reason, the sum of the
outstanding principal balance under the Revolving Note
exceeds an amount equal to $4,500,000.00, MINUS the
aggregate face amount of all outstanding Letters of Credit,
MINUS the Credit Card Reserve, Borrower shall pay on demand
by Lender the amount of such excess to Lender for
application towards reduction of the outstanding balance of
the Revolving Note.
1.6 Section 5.1(c) of the Loan Agreement is deleted in its
entirety and the following is substituted in place thereof:
(c) Promptly furnish to Lender such information
regarding the business affairs, financial condition, assets,
liabilities, operations, and transactions of Borrower and
Guarantor as Lender may reasonably request, and, without
limiting the foregoing, furnish to Lender the following:
(i) As soon as available, and
in any event within 30 days from the
end of each fiscal quarter of
Borrower, a financial statement,
prepared by Borrower, on a form
acceptable to Lender, signed by a
duly authorized officer of Borrower,
showing the financial condition of
Borrower, at the end of such fiscal
quarter and the results of operations
during such fiscal quarter, which
financial statement shall include,
but shall not be limited to, a
balance sheet, income statement, and
such other matters as Lender may
reasonably request;
(ii) Within 30 days from the end of
each fiscal quarter of Borrower, a
listing and an aging, dated as of the
end of such calendar month, signed
and certified by a duly authorized
officer of Borrower, of the Accounts
and accounts receivable of Borrower
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<PAGE>
through the end of the preceding
quarter, which separates and shows
such Accounts as current (1-30 days
aged), 30 days or more but less than
60 days aged, 60 days or more but
less than 90 days aged, 90 days or
more aged, and such other information
as Lender may reasonably request;
(iii) As soon as available, and in
any event within 120 days from the
end of Borrower's fiscal year, an
audited financial statement, showing
the financial condition of Borrower,
on a combined and consolidating
basis, at the close of its fiscal
year and the results of operation
during such fiscal year, which
financial statement shall be
materially complete and correct and
shall include, but shall not be
limited to, an operating statement, a
balance sheet, a reconciliation of
equity amounts, a source and
application of funds report, and such
other matters as Lender may request;
and
(iv) As soon as available, and
in any event by September 30 of each
calendar year, a signed, and
unaudited financial statement for
John J. Moores, in form satisfactory
to Lender, which shall include,
without limitation, a current (v) an
asset and liability report, (w) a
source of cash report, (x) listing of
contingent liabilities, (y) an amount
and sources of spending report, and
(z) such other matters as Lender may
reasonably request.
1.7 Exhibit "A" to the Loan Agreement is deleted in its
entirety.
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2. DEFINED TERMS. Words and terms used herein which are defined in
the Loan Agreement are used herein as defined therein, except as specifically
modified by the terms of this Fourth Amendment. Terms used in this Fourth
Amendment which are not defined in the Loan Agreement are used therein as herein
defined.
3. LIEN CONTINUATION. The liens granted in the Security Instruments
executed by Borrower are hereby ratified and confirmed as continuing to secure
the payment of the Notes (as provided for therein). Nothing herein shall in any
manner diminish, impair, or extinguish the indebtedness evidenced by the Notes
or the liens securing the indebtedness evidenced by the Notes. The liens
granted in the Security Instruments executed by Borrower are not waived.
Borrower ratifies and acknowledges the Security Instruments executed by Borrower
as valid, subsisting, and enforceable and agrees that the indebtedness evidenced
by the Notes is just, due, owing, and unpaid, as stated herein, and is subject
to no offsets, deductions, credits, charges, or claims of whatsoever kind or
character, and further agrees that all offsets, credits, charges, and claims of
whatsoever kind or character are fully settled and satisfied.
4. REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Borrower in Section 4 of the Loan Agreement (as hereby
amended) are true and correct as of the date of this Fourth Amendment.
5. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THE LOAN AGREEMENT (AS HEREBY AMENDED) OR ANY RELATED AGREEMENTS OR INSTRUMENTS,
INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE
DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE TERMS OF THE
ARBITRATION PROVISION SET FORTH IN THE LOAN AGREEMENT.
6. NO CONTROL BY LENDER. BORROWER AGREES AND ACKNOWLEDGES THAT ALL
OF THE COVENANTS AND AGREEMENTS PROVIDED FOR AND MADE BY BORROWER IN THIS FOURTH
AMENDMENT, THE LOAN AGREEMENT, AND IN THE OTHER LOAN DOCUMENTS ARE THE RESULT OF
EXTENSIVE AND ARMS-LENGTH NEGOTIATIONS BETWEEN BORROWER AND LENDER. LENDER'S
RIGHTS AND REMEDIES PROVIDED FOR IN THE LOAN AGREEMENT AND IN THE OTHER LOAN
DOCUMENTS ARE INTENDED TO PROVIDE LENDER WITH A RIGHT TO OVERSEE BORROWER'S
ACTIVITIES AS THEY RELATE TO THE LOAN TRANSACTIONS PROVIDED FOR IN THE LOAN
AGREEMENT, WHICH RIGHT IS BASED ON LENDER'S VESTED INTEREST IN BORROWER'S
ABILITY TO PAY THE NOTES AND PERFORM THE OTHER OBLIGATIONS. NONE OF THE
COVENANTS OR OTHER PROVISIONS CONTAINED IN THE LOAN AGREEMENT SHALL, OR SHALL BE
DEEMED TO, GIVE LENDER THE RIGHT OR POWER TO EXERCISE CONTROL OVER, OR OTHERWISE
IMPAIR, THE DAY-TO-DAY AFFAIRS, OPERATIONS, AND MANAGEMENT OF BORROWER; PROVIDED
THAT IF LENDER BECOMES THE OWNER OF ANY STOCK OF ANY ENTITY, WHICH ENTITY OWNS
AN
5
<PAGE>
INTEREST IN BORROWER, WHETHER THROUGH FORECLOSURE OR OTHERWISE, LENDER
THEREAFTER SHALL BE ENTITLED TO EXERCISE SUCH LEGAL RIGHTS AS IT MAY HAVE BY
BEING A SHAREHOLDER OF SUCH ENTITY.
7. MISCELLANEOUS.
7.1 PRESERVATION OF THE LOAN AGREEMENT. Except as specifically
amended and modified by the terms of this Fourth Amendment, all of the terms,
provisions, covenants, warranties, and agreements contained in the Loan
Agreement shall remain in full force and effect.
7.2 COUNTERPARTS. This Fourth Amendment may be executed in two
or more counterparts, and it shall not be necessary that any one of the
counterparts be executed by all of the parties hereto. Each fully or partially
executed counterpart shall be deemed an original, but all such counterparts
taken together shall constitute but one and the same instrument.
7.3 NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER
WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties have executed this Fourth Amendment as of
the date first above written.
PEREGRINE SYSTEMS, INC.
By: /s/ David A. Farley
-------------------------
Printed Name: David A. Farley
Title: Chief Financial Officer
NATIONSBANK OF TEXAS, N.A.
By: /s/ Raul Anaya
Raul Anaya, Vice President
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<PAGE>
SUBLEASE BY AND BETWEEN PEREGRINE SYSTEMS, INC. AND JMI, INC.
This sublease is entered into this _____ day of _____________, 1996, by and
between PEREGRINE SYSTEMS, INC., A DELAWARE CORPORATION (the "Sublessor") and
JMI, INC., A TEXAS CORPORATION (the "Sublessee").
1. Premises.
Sublessor leases to Sublessee and Sublessee hires from Sublessor those
certain premises (the "Premises") cross-hatched on Exhibit A, together with
appurtenances, situated in the City of SAN DIEGO, County of SAN DIEGO,
State of California and further described as follows: 13,310 SQUARE FEET
OF OFFICE SPACE LOCATED ON THE ENTIRE SECOND FLOOR OF 12680 HIGH BLUFF DR.
2. Nature of the Sublease.
Sublessee hereby acknowledges that the Premises are being leased by
Sublessor pursuant to the lease attached hereto as Exhibit B (the "Master
Lease") between Sublessor, as lessee, and WCB II MORE LIMITED PARTNERSHIP,
as lessor (the "Master Lessor").
a. This Sublease is subject to all of the terms and conditions of the
Master Lease and Sublessee shall assume and perform all of the
obligations of Sublessor as lessee under the Master Lease, to the
extent the terms and conditions are applicable to the Premises.
Sublessee shall not commit or permit to be committed on the premises
any act or omission which violates any term or condition of the Master
Lease.
b. All of the terms and conditions of the Master Lease are incorporated
herein, as terms and conditions of the Sublease (with each reference
therein to lessor or landlord deemed to be a reference to Sublessor
and each reference therein to lessee or tenant deemed to be a
reference to Sublessee), and the terms of this Sublease agreement,
including such incorporated terms, shall constitute all of the terms
and conditions of this Sublease.
3. Term.
a. The term of this Sublease shall be for the period commencing on
JUNE 1, 1996 (the "Commencement Date") and ending on
OCTOBER 31, 2003, unless sooner terminated in accordance with the
terms of this Sublease.
b. In the event the Sublessor is unable to deliver possession of the
Premises on the Commencement Date, Sublessor shall not be liable for
any damage caused thereby, nor shall this sublease be void or
voidable, but Sublessee shall not be liable for rent until such time
as Sublessor offers to deliver possession of the Premises to
Sublessee; provided, however, that if the delay in the delivery of
possession exceeds sixty (60) days, then Sublessee, at its option, to
be exercised in writing within ten (10) days after the end of said
sixty-day period, may terminate this Sublease. In no event shall the
term of this Sublease be extended by any such delay in delivery of
possession.
c. In the event of a change of control of ownership of Sublessor,
Sublessee shall have the right, but not the obligation to terminate
this Sublease on sixty days written notice to Sublessor, PROVIDED
Sublessee exercises such right within six months of such change of
control.
4. Rent.
On or before the first day of each calendar month of the term of this
Sublease, Sublessee shall pay to Sublessor in advance as rent for the
Premises and without deduction, offset, prior notice, or demand,
<PAGE>
the sum of SIXTEEN THOUSAND SIX HUNDRED THIRTY-SEVEN AND 50/100 dollars
($16,637.50). If, because of the date on which rent liability commences or
terminates, Sublessee is liable for less than a full month's rent, then
rent and other monthly payments due under this Sublease shall be prorated
based upon the fraction of the month for which Sublessee is liable for
rent. The base rent shall increase on each anniversary of the commencement
of the lease by $.05 per square foot per month.
5. Security Deposit.
Concurrently with Sublessee's execution of this Sublease, Sublessee shall
deposit with Sublessor the sum of SIXTEEN THOUSAND SIX HUNDRED THIRTY-SEVEN
AND 50/100 dollars ($16,637.50) to be held by Sublessor as a security
deposit for the full and faithful performance of all of the terms,
covenants, and conditions of this Sublease. If Sublessee defaults with
respect to any provision hereof, Sublessor may at its election apply or
retain all or any part of such deposit for the payment of any amount due
under this Sublease or any amount which Sublessor may spend or become
obligated to spend by reason of Sublessee's default. Sublessor shall not
be required to maintain this security deposit separate from its general
funds, and Sublessee shall not be entitled to interest thereon. If
Sublessee fully and faithfully performs every provision of this Sublease to
be performed by it, the security deposit, or any balance thereof, shall be
returned to Sublessee (or, at Sublessor's option, to the last assignee of
Sublessee's interest hereunder) at the expiration of the term of this
Sublease and after Sublessee has vacated the Premises.
6. Use.
Sublessee shall use the Premises for GENERAL OFFICE SPACE and for no other
purpose without the prior written consent of Sublessor. The business of
Sublessee shall be established and conducted throughout the term of this
Sublease in a first-class manner. Sublessee shall not use or permit the
Premises to be used for the conduct of any offensive, noisy, or dangerous
trade, business, manufacture, or occupation, nor shall the Premises be used
to conduct an auction sale. Sublessee shall not do or allow anything to be
done upon the Premises which will cause structural injury to the Premises
or the building containing the Premises. The Premises shall not be
overloaded and no machinery, apparatus, or other appliance shall be used or
operated in or upon the Premises which will in any manner injure, vibrate,
or shake the Premises or the building containing the Premises. No use
shall be made of the Premises which will in any way impair the efficient
operation of the sprinkler system (if any) within the building containing
the Premises. Sublessee shall not leave the Premises unoccupied or vacant
during the term of this Sublease. No musical instrument or noise-making
device of any sort shall be operated or allowed upon the Premises for the
purpose of attracting trade or otherwise. Sublessee shall not use or
permit the use of the Premises or any part thereof for any purpose which
would increase the existing rate of insurance or cause a cancellation of
any insurance policy covering the Premises or the building containing the
Premises. If any act of Sublessee or any use of the Premises causes,
directly or indirectly, any increase in the insurance expense of Sublessor,
said additional expense shall be paid by Sublessee to Sublessor upon
demand. No such payment by Sublessee shall limit Sublessor in the exercise
of any other right or remedy it may have, or constitute a waiver of
Sublessor's right to require Sublessee to discontinue such act or use.
7. Kitchen and Fitness Facilities.
To the extent Sublessor continues to maintain a kitchen facility at 12680
High Bluff Drive, Sublessee's employees shall be allowed access and use, on
an "as available" basis, but otherwise to the same extent as Sublessor's
employees. To the extent Sublessor continues to maintain a fitness facility
at 12680 High Bluff Drive, Sublessee's employees shall be allowed access
and use, on an "as available" basis, but otherwise to the same extent as
Sublessor's employees, PROVIDED each such employee of Sublessee who desires
access to and use of the fitness facility shall execute a form evidencing
waiver of liability of Sublessor; the content of such form shall be
determined from time to time by Sublessor.
<PAGE>
8. Parking Spaces.
To the extent Sublessor is allowed any reserved parking spaces by Master
Lessor, pursuant to the Master Lease or otherwise, Sublessor agrees to set
aside as reserved parking for Sublessee two such spaces and designate them
in the same manner as Sublessor's own reserved spaces, except that should
Sublessee so desire, and to the extent such designation includes
Sublessor's name, Sublessee may request and Sublessor shall include
Sublessee's name in place of Sublessor's name in such designation.
9. Notice.
All notices or demands of any kind required or desired to be given by
Sublessor or Sublessee hereunder shall be in writing and shall be deemed
delivered forty-eight (48) hours after depositing the notice or demand in
the United States mail, certified or registered, postage prepaid, addressed
to the Sublessor, Sublessee, or Master Lessor, at the address set forth for
him or it in the signature portion of this Sublease.
10. Address for Payments.
All rent and other payments due under this Sublease shall be paid by
Sublessee to Sublessor at the address for Sublessor provided in the
signature of this Sublease.
SUBLESSOR: Peregrine Systems, Inc. SUBLESSEE: JMI, Inc.
By: /s/ David Farley By: /s/ Charles E. Noell
-------------------------------- --------------------------------
Title: Title:
----------------------------- -----------------------------
ADDRESS: ADDRESS:
12670 High Bluff Drive 12680 High Bluff Drive
San Diego, California 92130 San Diego, CA 92130
ATTACHMENTS:
- - Exhibit A - Drawing of building marked with cross-hatch to show Premises
- - Exhibit B - Master Lease [See Exhibit-10.11 to Registrant's Form S-1]
CONSENT
The undersigned, lessor under the Master Lease, hereby consents to the
subletting of the Premises described in Exhibit A on the terms and conditions
contained in the foregoing Sublease. The consent shall apply only to this
Sublease and shall not be deemed to be a consent to any other sublease.
DATED: MASTER LESSOR: WCB II MORE LIMITED PARTNERSHIP,
---------------------- a Delaware limited partnership
By:
-------------------------------------------
Stuart J. Simon, Senior Vice President
ARES Realty Capital, Inc.,
Authorized Signatory
<PAGE>
LEASE
THIS LEASE is entered into by and between Landlord and Tenant effective as of
this 26th day of October, 1994.
SECTION I. TERMS AND DEFINITIONS
The following terms as used herein shall have the meanings as set forth below:
A. "Landlord" means THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, a New York
corporation, and its successors and assigns.
B. "Tenant" means PEREGRINE SYSTEMS, INC., a Delaware corporation.
C. "Building" means Building "A" of the Project, in which the Premises are
located, which Building has approximately 69,022 square feet of Rentable
Area and is located at 12670 High Bluff Drive in the City of San Diego,
California.
D. "Project" means Del Mar Corporate Plaza located at 12670 and 12680 High
Bluff Drive in the City of San Diego, California in which Project the
Building is located as shown on the site plan attached hereto as EXHIBIT A.
E. "Premises" means the entire Building consisting of approximately
Sixty-Nine Thousand Twenty-Two (69,022) square feet of Rentable Area, as
more particularly shown on EXHIBIT B attached hereto and incorporated
herein by this reference.
F. "Term" means the eight (8) year and two (2) month period commencing on the
Lease Commencement Date and expiring on the Expiration Date. SEE ADDENDUM
SECTION XXXV.A.
G. "Lease Commencement Date" means the first to occur of February 1, 1995 or
the date on which Landlord tenders delivery of possession of the Premises
to Tenant; provided, however, that if the Lease Commencement Date specified
in this subsection occurs prior to Substantial Completion (as defined in
Section III.B. below) or is amended pursuant to Section III.C. below,
Landlord and Tenant shall execute and attach hereto as a new EXHIBIT F an
Amendment of Lease Commencement Date in the form of EXHIBIT F hereto, which
shall specify such amended Lease Commencement Date and, if applicable, an
amended Expiration Date.
H. "Expiration Date" means March 31, 2003 unless amended as provided in an
Amendment of Lease Commencement Date executed as provided above.
I. "Monthly Rental" means the amounts specified in Section IV. below and in
the Rent Schedule attached hereto as EXHIBIT D and incorporated herein.
J. "Rentable Area" is defined in EXHIBIT D attached hereto.
K. "Security Deposit" means Eighty-Three Thousand Five Hundred Sixteen and
62/100ths Dollars ($83,516.62). See Addendum Section XXXV.G.
L. "Permitted Use" means general office and computer-related research.
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M. "Broker" means Business Real Estate Brokerage Company.
N. "Landlord's Address for Notice" means 333 South Anita Drive, Suite 800,
Orange, California 92668, Attn: Real Estate Vice President.
O. "Tenant's Address for Notice" means 12670 High Bluff Drive, San Diego,
California.
P. "Tenant's Proportionate Share" for Tenant's reimbursement of Common
Operating Costs and other expenses to be pro-rated hereunder means 100%
which is the quotient obtained by dividing the total number of square feet
of Rentable Area in the Building into the total number of square feet of
Rentable Area within the Premises.
SECTION II. PROPERTY LEASED
A. PREMISES
Upon and subject to the terms, covenants and conditions hereinafter set
forth, Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Premises; reserving to Landlord, however, (a) the use of the
exterior walls, roof, return air plenum and the area under the Premises
floor and (b) the rights to make structural (building) modifications and
the right to install, maintain, use, repair and replace pipes, ducts,
conduits, and wires to serve or serving other tenant premises in the
Building through the Premises in locations which will not materially
interfere with Tenant's use thereof.
B. COMMON AREAS
Subject to the terms, covenants and conditions of this Lease, Tenant shall
have the right, for the benefit of Tenant and its employees, suppliers,
shippers, customers and invitees, to the non-exclusive use of all of the
Common Areas as hereinafter defined.
C. MINOR VARIATIONS IN AREA
Subject to the provisions of EXHIBIT D, the Rentable Area of the Premises
contained in Section I. is agreed to be the Rentable Area of the Premises
regardless of minor variations resulting from construction of the Building
and/or tenant improvements.
SECTION III. COMMENCEMENT OF TERM AND POSSESSION OF PREMISES
A. LEASE COMMENCEMENT DATE SEE ADDENDUM SECTION XXXV.A.
The Term of the Lease shall commence on the Lease Commencement Date (as
extended only pursuant to Section III.C. below, in applicable), and shall
continue, subject to earlier termination as provided herein, until the
Expiration Date (as extended only pursuant to subsection C. below).
B. COMPLETION OF TENANT IMPROVEMENTS AND POSSESSION OF PREMISES
Upon execution of this Lease by the parties, Landlord shall proceed to
complete the tenant improvements in the Premises described as "Landlord's
Work" in the "Construction Work Letter" attached hereto and incorporated
herein as Exhibit C. At the time such work has been substantially completed
in accordance with the Construction Work Letter, i.e., a certificate of
occupancy (or its equivalent) for the Premises has been issued, all
utilities (i.e., water, electrical and gas) to the Premises are hooked-up
and available for use and Landlord has tendered possession of the Premises
to Tenant ("Substantial Completion"), Landlord shall notify Tenant thereof
and Tenant shall take possession of the Premises on the Lease Commencement
Date. In the event permission
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<PAGE>
is given to Tenant to enter or occupy all or a portion of the Premises
prior to the Lease Commencement Date, such occupancy shall be subject to
all of the terms and conditions of this Lease. Tenant shall complete all
tenant improvements described as "Tenant's Work" in Exhibit C hereto on or
before the Lease Commencement Date. Any professional fees or reasonable
costs and expenses incurred by Landlord in reviewing plans and
specifications for Tenant's Work shall be paid to Landlord by Tenant upon
demand as additional rent. All tenant improvements constructed in the
Premises, whether by Landlord or by (or on behalf of) Tenant and whether at
Landlord's or Tenant's expense, shall become part of the Premises and shall
be and remain the property of Landlord unless Landlord specifically agrees
otherwise in writing.
C. EXTENSION OF LEASE COMMENCEMENT DATE
If the Premises are not ready for occupancy by Tenant on the original Lease
Commencement Date specified in Section I. due to one or more delays caused
by Landlord or caused by matters beyond the control of Landlord, this Lease
and the obligations of Landlord and Tenant hereunder shall nevertheless
continue in full force and effect. However, in such event Landlord and
Tenant shall agree on an amendment of the original Lease Commencement Date
and the Expiration Date to reflect such delay or delays and shall, in each
instance, execute and attach hereto an amendment in the form of that
attached as EXHIBIT F, hereto stating such amended Lease Commencement Date
and an amended Expiration Date and no rental shall be payable by Tenant
hereunder until the amended Lease Commencement Date. In the event that the
Lease Commencement Date fails to occur within sixty (60) days of the Lease
Commencement Date specified in Section I. above (which sixty (60) day
period shall be extended one day for each day of delay caused by Tenant or
force majeure (as defined in Section XXXIII.K. below)), then Tenant's
obligation to pay Monthly Rental shall be delayed one day for each day
after expiration of such sixty (60) day period (as so, extended) and prior
to the actual Lease Commencement Date. For example, if the Lease
Commencement Date occurs May 2, 1995 a delay of ninety (90) days). solely
as a result of Landlord delay, then Tenant's obligation to pay Monthly
Rental shall commence June 1, 1995, notwithstanding the occurrence of the
Lease Commencement Date. The delay in commencement of the Term and in the
accrual of rent described in the foregoing sentences shall constitute full
settlement of all claims that Tenant might otherwise have by reason of the
Premises not being ready for occupancy on the original Lease Commencement
Date specified in Section I. above.
If the Premises are not ready for occupancy by Tenant on the Lease
Commencement Date due to one or more delays caused by Tenant, or anyone
acting under or for Tenant, Landlord shall have no liability for such delay
and the Lease Commencement Date shall begin as of that date that the Tenant
Improvements would have been substantially completed absent such delays
caused by Tenant and the Expiration Date stated in Section I. shall be
adjusted accordingly (each as extended only because of Landlord's delay
pursuant to this subsection C., if applicable).
D. ACCEPTANCE AND SUITABILITY
Within fifteen (15) days following the date Tenant takes possession of the
Premises, Tenant may provide Landlord with a "punch list" which sets forth
any itemization of any corrective work to be performed by Landlord with
respect to the Landlord's Work as set forth in the Construction Work
Letter; provided, however, that Tenant's obligation to pay Monthly Rental
as provided below shall not be affected thereby. If Tenant fails to submit
such "punch list" to Landlord within such fifteen (15) day period, Tenant
agrees that by taking possession of the Premises it will conclusively be
deemed to have inspected the Premises and found the Premises in
satisfactory condition. Tenant acknowledges that neither Landlord, nor any
agent, employee or servant of Landlord, has made any representation with
respect to the Premises or the Project, or with respect to the suitability
of them for the conduct of Tenant's business, nor has Landlord agreed to
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<PAGE>
undertake any modifications, alterations, or improvements of the Premises
or Project, except as specifically provided in this Lease.
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, LANDLORD HEREBY
DISCLAIMS, AND TENANT WAIVES THE BENEFIT OF, ANY AND ALL IMPLIED
WARRANTIES, INCLUDING IMPLIED WARRANTIES OF HABITABILITY, FITNESS OR
SUITABILITY FOR PURPOSE, OR THAT THE BUILDING OR THE IMPROVEMENTS IN THE
PREMISES HAVE BEEN CONSTRUCTED IN A GOOD AND WORKMANLIKE MANNER. TENANT
EXPRESSLY ACKNOWLEDGES THAT LANDLORD DID NOT CONSTRUCT OR APPROVE THE
QUALITY OF CONSTRUCTION OF THE BUILDING.
/s/ [Initials unreadable]
Tenant's Initials
Notwithstanding the foregoing, Landlord shall be responsible, as to both
performance and payment of costs for work required to (1) construct
Landlord's Work, and deliver the Premises and the Project in compliance
with laws and CC&Rs in effect and applicable thereto as of the Lease
Commencement Date, (2) render the Tenant Improvements constructed by or on
behalf of Landlord (which shall be performed using new materials) in
accordance with the Working Drawings (as defined in EXHIBIT C) in good and
workmanlike manner as of the Lease Commencement Date and (3) render the
Premises, and the electrical, mechanical, HVAC, plumbing, elevator and
other systems serving the Premises in good condition and repair as of the
Lease Commencement Date; provided, however, in no event shall the foregoing
imply any representation, covenant or warranty by Landlord as to the
adequacy of the HVAC system serving the Premises to meet Tenant's
particular demands, as Landlord's agreement herein with respect to Building
systems is simply an agreement that Landlord will be responsible to repair
the same as necessary so that, as of the Lease Commencement Date, they work
as they were originally designed to do, and provided, further, that the
report prepared by an HVAC consultant at the request of Tenant prior to the
execution and delivery hereof shall not be used as the basis for
determining Landlord's compliance herewith for the purposes of the HVAC
system serving the Premises.
SECTION IV. RENT
A. MONTHLY RENTAL
Commencing on the Lease Commencement Date (subject, however, to any
modifications or adjustments specified hereinbelow and/or in the "Rent
Schedule" attached hereto as EXHIBIT D) Tenant shall pay to Landlord during
the Term, rental for the entire Term in the total amount as set forth in
EXHIBIT D payable in monthly installments (the "Monthly Rental") in the
amount set forth in EXHIBIT D, which sum shall be payable by Tenant on or
before the first day of each month, in advance, without further notice, at
the address specified for Landlord in Section I., or such other place as
Landlord shall designate, without any prior demand therefor and without any
abatement, deduction or setoff whatsoever. If the Lease Commencement Date
should occur on a day other than the first day of a calendar month, or the
Expiration Date should occur on a day other than the last day of a calendar
month, then the rental for such fractional month shall be prorated on a
daily basis upon a thirty (30) day calendar month.
B. RENT AND ADDITIONAL RENT
As used in this Lease, the term "rent" shall mean Monthly Rental and
additional rent, and the term "additional rent" shall mean all other
amounts payable by Tenant to Landlord pursuant to this Lease other than
Monthly Rental, including Tenant's
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Proportionate Share of Common Operating Costs. All Monthly Rental and
additional rent shall be paid in lawful money of the United States which
shall be legal tender at the time of payment. Where no other time is
stated herein for payment, payment of any amount payable from Tenant to
Landlord hereunder shall be due, and made, within ten (10) days after
Tenant's receipt of Landlord's invoice or statement therefor.
SECTION V. REIMBURSEMENT OF COMMON EXPENSES
A. DEFINITIONS SEE ADDENDUM SECTION XXXV.B.
(1) "Common Areas" means all areas space, equipment and special services
provided by Landlord for the common or joint use and benefit of the
tenants, their employees, agents, servants, suppliers, customers and
other invitees, including, by way of illustration, but not
limitation, retaining walls, fences, landscaped areas, parks, curbs,
sidewalks, private roads, restrooms, stairways, elevators, lobbies,
hallways, patios, service quarters, parking areas, all common areas
and other areas within the exterior of the Building and in the
Project or as shown on the site plan attached to this Lease as
EXHIBIT A.
(2) "Taxes" shall mean all real property taxes, personal property taxes,
improvement bonds, and other charges and assessments which are levied
or assessed upon or with respect to the Building and Project and the
land on which the Building and Project are located and any
improvements, fixtures and equipment and all other property of
Landlord, real or personal, located in the Building and Project and
used in connection with the operation of the Building and Project and
the land on which the Building and Project are located, including any
increase in such taxes, whether resulting from a reassessment of the
value of the land, the Building or the Project, personal property, or
for any other reason, imposed by any governmental authority, and any
tax which shall be levied or assessed in addition to or in lieu of
such real or personal property taxes and any license fees, commercial
rental tax, or other tax upon Landlord's business of leasing the
Building and the Project, but shall not include any federal or state
income tax, or any franchise, capital stock, estate, inheritance,
succession, transfer and excess profit taxes imposed upon Landlord,
and shall also include any tax consultant fee or other costs incurred
by Landlord to review or contest any tax assessed against the
Premises, Building or Project; provided, however, that for the first
four (4) years of the initial Term (only) increases in real property
taxes resulting solely from a voluntary change in ownership of the
Project which occurs within such four (4) year period shall be
excluded from Common Operating Costs, and provided further that
assessments levied by governmental entities for public improvement
purposes shall be included in Common Operating Costs as if paid by
Landlord over the maximum period allowable without penalty.
(3) "Common Operating Costs" shall mean the aggregate of all costs and
expenses payable by Landlord in connection with the operation and
maintenance of the Premises, Building, Project and Common Areas,
including, but not limited to, (a) the cost of landscaping, repaving,
resurfacing, repairing, replacing, painting, lighting, cleaning,
removing trash, janitorial services, security services and other
similar items; (b) the total cost of compensation and benefits of
personnel to implement the services referenced herein; (c) all Taxes;
(d) the cost of any insurance obtained by Landlord in connection with
the Building and Project, including, but not limited to, the
insurance required to be obtained by Landlord pursuant to this Lease;
(e) the cost of operating, repairing and maintaining life, safety and
access systems, including, without limitation, sprinkler systems; (f)
the cost of monitoring services, if provided by Landlord, including,
without limitation, any monitoring or control devices used by
Landlord in regulating the
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parking areas; (g) the cost of water, electricity, gas and any other
utilities; (h) legal, accounting and consulting fees and expenses;
(i) compensation (including employment taxes and fringe benefits) of
all persons who perform duties connected with the operation,
maintenance and repair of the Premises, Project, Building or Common
Areas; (j) energy allocation, energy use surcharges or environmental
charges (other than charges incurred to investigate Hazardous
Materials on, under or about the Premises, which shall be payable by
Tenant to the extent provided in Section VIII.C. below (only)); (k)
expenditures, costs, fees, assessments and other charges paid by
Landlord in connection with traffic or energy management programs
applicable to the Project in connection with Landlord's compliance
with laws or other governmental requirements; (1) municipal
inspection fees or charges; (m) any other costs or expenses incurred
by Landlord under this Lease which are incurred in prudently
operating the Property and/or in performing Landlord's obligations
under the Lease and which are not otherwise directly reimbursed by
tenants; (n) the amount charged by any management firm contracted by
Landlord to provide any or all of the foregoing services; and (o) any
fees, costs, expenses or dues payable pursuant to the terms of any
covenants, conditions or restrictions or owners' association
pertaining to the Building and/or the Project. The computation of
Common Operating Costs shall be made in accordance with generally
accepted accounting principles.
Notwithstanding the foregoing, the following shall not be included in
Common Operating Costs (or shall be deducted therefrom if included
therein):
(a) Costs incurred by Landlord due to the violation by Landlord or
any other tenant of the terms and conditions of any lease of
space in the Building or the Project;
(b) Costs which Tenant or other tenants or occupants of the
Building or the Project are obligated to pay or which are
reimbursed by insurance or condemnation proceeds or under
warranty;
(c) Subject to (d) below, costs of capital replacements (as
reasonably determined by Landlord) except: (i) to the extent
the same are amortized over the reasonable useful life of the
item as reasonably determined by Landlord and included in
Common Operating Costs as so amortized, or (ii) those designed
to reduce Common Operating Costs but only to the extent of the
reasonably estimated savings to be achieved by Tenant during
the term of this Lease;
(d) Costs of capital repairs or replacements of structural elements
of the Building;
(e) Costs incurred in connection with bringing the Premises,
Building, the Project or the Common Areas into initial
compliance with any covenants, conditions and restrictions for
the Project or with laws in effect and as applicable to the
Building as of the date of this Lease;
(f) Costs of reconstructing, modifying, altering or repairing any
structural portions of the Project due to defective, or latent
defects in, original construction;
(g) Depreciation of or other expense reserves for the Building or
the Project;
(h) Any financing or refinancing costs and expenses secured by real
estate within the Project including, but not limited to,
interest or amortization on debt and rent under any ground or
underlying lease; and
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(i) Any portion of an annual management fee paid to an affiliate of
Landlord in excess of five percent (5%) of such year's gross
rentals.
(4) In the event during all or any portion of any calendar year the
Building is not at least ninety-five percent (95%) rented and
occupied, Landlord shall make an appropriate adjustment to the Common
Operating Costs for such year, employing sound accounting and
management principles, to determine the Common Operating Costs that
would have been paid or incurred by Landlord had the Building been
ninety-five percent (95%) rented and occupied and the amount so
determined shall be deemed to have been the Common Operating Costs
for such year.
(5) Upon Tenant's request therefor, Landlord shall deliver to Tenant a
copy of the tax bills received by Landlord for the Building and, so
long as Tenant is Peregrine Systems, Inc. (unless Tenant is a
"Permitted Transferee" (hereinafter defined), in which case such
Permitted Transferee shall have the right), Tenant shall have the
right, upon timely demand by Tenant, to require Landlord to contest
the real property taxes reflected on such statement with respect to
the Building. Tenant shall pay its pro rata share (based on Tenant's
percentage of Rentable Area in the Building) of the costs and
expenses incurred in contesting taxes pursuant to the foregoing
sentence, which amount shall be additional rent and not included in
Common Operating Costs for the purposes of this Lease.
B. REIMBURSEMENT
Within a reasonable time before the commencement of each calendar year
during the Term, Landlord shall deliver to Tenant a reasonable estimate
of the anticipated Common Operating Costs for the forthcoming calendar
year. Tenant shall pay to Landlord, as additional rental, commencing on
the Lease Commencement Date, and continuing on the first day of each
calendar month thereafter, an amount equal to one-twelfth (1/12th) of the
product obtained by multiplying (1) the remainder of the then estimated
Common Operating Costs less the Base Operating Expense, times (2)
Tenant's Proportionate Share. The estimated monthly charge for Tenant's
Proportionate Share may be adjusted periodically by Landlord during the
calendar year on the basis of Landlord's reasonably anticipated costs.
Any expenditure by Landlord (e.g., resurfacing of parking areas, painting
buildings, refurbishing landscaping or walkways and similar items) during
the year which was not included in determining the estimated Common
Operating Costs, may be billed separately to Tenant according to Tenant's
Proportionate Share.
C. REBATE OR ADDITIONAL CHANGES
Within a reasonable time after the end of each calendar year, Landlord
shall furnish to Tenant a statement showing the total Common Operating
Costs less the Base Operating Expense and Tenant's Proportionate Share of
the Common Operating Costs for the calendar year just ended. In the event
Tenant reasonably disputes any item of Common Operating Costs reflected on
any such statement Tenant may, within thirty (30) days after receipt
thereof, request (in writing) Landlord to provide the reasonable
documentary back-up for such item, which Landlord shall provide to Tenant
as promptly as practicable upon receipt of such request. Tenant shall pay
to Landlord upon demand as additional rent the costs and expenses incurred
by Landlord in responding to such request. In the event that, upon
reviewing the back-up so provided by Landlord, Tenant disagrees with the
amount charged by Landlord to Tenant for any such item, Tenant may so
notify Landlord. If Landlord agrees with the findings of Tenant, then an
appropriate adjustment shall be made. In the event that there is a
disagreement, then Landlord and Tenant shall select an independent auditor,
whose determination shall be binding upon Landlord and
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Tenant. Landlord and Tenant shall share the fees of the independent
auditor, if any, equally.
If the amount of estimated Common Operating Costs less the Base Operating
Expense paid by Tenant for any year during the Term exceeds the actual
Common Operating Costs less the Base Operating Expense for such year.
Landlord shall apply any amounts due to Tenant hereunder to any outstanding
amounts due or amounts next coming due from Tenant to Landlord. If the
estimated Common Operating Costs less the Base Operating Expense for such
year are less than the actual Common Operating Costs less the Base
Operating Expense for such year, then Tenant shall pay to Landlord, within
thirty (30) days of Tenant's receipt of Landlord's statement, as additional
rent, Tenant's Proportionate Share of the amount by which the actual Common
Operating Costs less the Base Operating Expense exceeds the estimated
Common Operating Costs less the Base Operating Expense. In the event the
Term of this Lease expires, or this Lease is otherwise terminated, Landlord
shall compute and prorate the credit or deficiency up to the date the Lease
expired or was terminated and may apply any credit due Tenant to any
outstanding amounts due by Tenant hereunder at that time.
D. CONTROL OF COMMON AREAS
Landlord shall have the sole and exclusive control of the Common Areas, as
well as the right to make changes to the Common Areas. Notwithstanding the
preceding sentence, Landlord is not responsible for any harm or damage to
any of Tenant's officers, agents, or employees as a result of their use of
the Common Areas. Landlord's rights (which shall be exercised in such a
manner so as not to permanently and materially interfere with the use of
the Premises for the Permitted Use or permanently and materially reduce the
parking ratio for the Project below that required to be maintained by
applicable law) shall include, but not be limited to, the right to (a)
restrain the use of the Common Areas by unauthorized persons, (b) utilize
from time to time any portion of the Common Areas for promotional and
related matters, (c) temporarily close any portion of the Common Areas for
repairs, improvements or alterations, (d) change the shape and size of the
Common Areas or change the location of improvements within the Common
Areas, including, without limitation, parking areas, roadways and curb
cuts, and (e) prohibit access to or use of Common Areas that are designated
for the storage of supplies or operation of equipment necessary to operate
the Project or Building. As used in the parenthetical phrase in the
foregoing sentence, the term "permanently" means a material interference
which extends for a period in excess of sixty (60) consecutive days. Such
parenthetical phrase shall not be applied to prevent Landlord from, and
Landlord shall have no liability to Tenant for, performing repairs or
maintenance which are required or permitted to be performed by Landlord
pursuant to this Lease and which are reasonably necessary to maintain the
Project in good condition and repair or to comply with Section XVIII.
and/or XIX. below. Landlord may determine the nature, size and extent of
the Common Areas as well as make changes to the Common Areas from time to
time which, in its opinion, we deemed desirable.
SECTION VI. SECURITY DEPOSIT SEE ADDENDUM SECTION XXXV.G.
Upon execution of this Lease, Tenant shall deposit with Landlord the Security
Deposit defined in Section I. above, which shall be held by Landlord as security
for the performance by Tenant of all terms, covenants and conditions of this
Lease. It is expressly understood and agreed that such deposit is not an
advance rental deposit or a measure of Landlord's damages in case of Tenant's
default. If Tenant defaults with respect to any provision of this Lease,
including, but not limited to, the provisions relating to the payment of rent or
the obligation to repair and maintain the Premises or to perform any other term,
covenant or condition contained herein, Landlord may (but shall not be required
to), without prejudice to any other remedy provided herein or provided by law
and without notice to Tenant, use the Security Deposit, or any portion of it, to
cure the default or to compensate Landlord for all damages sustained by Landlord
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resulting from Tenant's default. Tenant shall pay to Landlord within ten (10)
days after Landlord's demand therefor a sum equivalent to the portion of the
Security Deposit so expended or applied by Landlord as provided in this
paragraph so as to maintain the Security Deposit in the sum initially deposited
with Landlord. Although the Security Deposit shall be deemed the property of
Landlord, if Tenant is not in default at the expiration or termination of this
Lease, Landlord shall return the Security Deposit to Tenant. Landlord shall not
be required to keep the Security Deposit separate from its general funds and
Landlord, not Tenant, shall be entitled to all interest, if any, accruing on any
such deposit. Upon any sale or transfer of its interest in the Building,
Landlord shall transfer the Security Deposit to its successor in interest and
thereupon, Landlord shall be released from any liability or obligation with
respect thereto.
SECTION VII. TENANT'S TAXES
To the extent not covered as a Common Operating Cost, Tenant shall be liable for
any tax (now or hereafter imposed by any governmental entity) applicable to or
measured by or on the rents or any other charges payable by Tenant under this
Lease, including (but not limited to) any gross income tax, gross receipts tax
or excise tax with respect to the receipt of such rent or other charges or the
possession, leasing or operation, use or occupancy of the Premises, but not
including any net income, franchise, capital stock, estate or inheritance taxes.
If any such tax is required to be paid to the governmental taxing entity
directly by Landlord, then Landlord shall pay the amount due and, upon demand,
shall be fully reimbursed by Tenant for such payment.
Tenant shall also be liable for all taxes levied against the leasehold held by
Tenant or against any personal property, leasehold improvements, additions,
alterations and fixtures placed by or for Tenant in, on or about the Premises,
Building and Project or constructed by Landlord for Tenant in the Premises; and
if any such taxes are levied against Landlord or Landlord's property, or if the
assessed value of such property is increased (whether by special assessment or
otherwise) by the inclusion therein of value placed on such leasehold, personal
property, leasehold improvements, additions, alterations and fixtures, and
Landlord pays any such taxes (which Landlord shall have the right to do
regardless of the validity thereof), Tenant, upon demand, shall fully reimburse
Landlord for the taxes so paid by Landlord or for the proportion of such taxes
resulting from such increase in any assessment.
Tenant shall have the right, upon providing Landlord with security adequate in
Landlord's sole but reasonable opinion to prevent the same from becoming a lien
on the Premises, Building or Project, to contest taxes for which Tenant is
responsible pursuant to this Section VII.
SECTION VIII. USE OF PREMISES
A. PERMITTED USES
Tenant may use the premises and Common Areas solely for the Permitted Use
specified in subsection I.M. above, and for no other use. Tenant shall, at
its own cost and expense, obtain any and all licenses and permits necessary
for any such use. Tenant shall not do or permit anything to be done in or
about the Premises, Common Areas, Building or Project which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Project or injure or annoy them or use or allow the Premises to be used for
any unlawful purpose, nor shall Tenant cause, maintain or permit any
nuisance in, on or about the Premises and Common Areas or permit any odors
to emanate from the Premises and intrude upon the Common Areas or the
premises of other tenants. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises, Common Areas, Building or
Project. Tenant shall not do or permit anything to be done in or about the
Premises, Common Areas, Building or Project which may render the insurance
thereon void or increase the insurance risk thereon, without Landlord's
prior written consent in each instance, which will not be unreasonably
withheld but which may be conditioned (without limitation) upon Tenant's
payment of
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any resultant increases in the premium. If an increase in any fire and
extended coverage insurance premiums paid by Landlord for the Building and
Project is caused by Tenant's use and occupancy of the Premises, then
Tenant shall pay as additional rental the amount of such increase to
Landlord.
B. COMPLIANCE WITH LAWS
Tenant shall not use the Premises, Building, Project or Common Areas in any
way (or permit or suffer anything to be done in or about the same) which
will conflict with any, law, statute, ordinance or governmental rule or
regulation or any covenant, condition or restriction (whether or not of
public record) affecting the Premises, Project or Building, now in force or
which may hereafter be enacted or promulgated including, but not limited
to, the provisions of any city or county zoning codes regulating the use
thereof. Tenant shall, at its sole cost and expense, promptly comply with
(a) all laws, statutes, ordinances and governmental rules and regulations,
now in force or which may hereafter be in force, applicable to Tenant or
its use of or business or operations in the Premises,(b) all requirements,
and other covenants, conditions and restrictions, now in force or which may
hereafter be in force, which affect the Premises, and (c) all requirements,
now in force or which may hereafter be in force, of any board of fire
underwriters or other similar body now or hereafter constituted relating to
or affecting the condition, use or occupancy of the Premises, Building or
Project. The judgment of any court of competent jurisdiction or the
admission by Tenant in any action against Tenant, whether Landlord be a
party thereto or not, that Tenant has violated any law, statute, ordinance,
governmental rule or regulation or any requirement, covenant, condition or
restriction shall be conclusive of the fact as between Landlord and Tenant.
Tenant agrees to fully indemnify Landlord against any liability, claims or
damages arising as a result of a breach of the provisions of this
subsection by Tenant, and against all costs, expenses, fines or other
charges arising therefrom, including, without limitation, reasonable
attorneys' fees and related costs incurred by Landlord in connection
therewith, which indemnity shall survive the expiration or earlier
termination of this Lease. Without limiting the generality of the
foregoing, it is expressly understood and agreed that, subject to
performance by Landlord of Landlord's Work described in EXHIBIT C hereto,
and performance by Landlord of its obligations pursuant to the last
unnumbered paragraph of Section III.D. above (any violation of which by
Landlord shall give rise (only) to a claim by Tenant for breach of this
Lease and damages), Tenant is accepting the Premises "AS IS", in its
present state and condition, without any representations or warranties from
Landlord of any kind whatsoever, either express or implied, with respect to
the Premises or the Building, including without limitation the compliance
of the Premises or the Building with The Americans With Disabilities Act
and the rules and regulations promulgated thereunder, as amended from time
to time (the "ADA"). Except as otherwise provided for in EXHIBIT C hereto
and the last unnumbered paragraph of Section III.D. hereof, if Tenant's use
of the Premises or operations therein cause Landlord to incur any
obligation under the ADA, as reasonably determined by Landlord, then Tenant
shall reimburse Landlord for Landlord's costs and expenses in connection
therewith. Notwithstanding the foregoing, Landlord shall be responsible
for compliance of the Common Areas with the ADA (as in effect and
applicable to the Project as of the date hereof), except if and to the
extent that such compliance is required by or relates to Tenant's
operations in the Premises. If Tenant's initial use of the Premises is not
a place of public accommodation" within the meaning of the ADA, then Tenant
may not thereafter change the use of the Premises to cause the Premises to
become a "place of public accommodation" unless such use is consistent with
the Permitted Use and Tenant pays all costs and expenses of compliance of
the Premises, Building and Project with the ADA associated therewith. In
the event that Tenant desires or is required hereby to make Alterations (as
defined in Section XII. below) to the Premises in order to satisfy its
obligations under the ADA, ten all such Alterations shall be subject to any
requirements in the Lease with respect to Alterations of the Premises, and
shall be performed at Tenant's sole cost and expense. Except for
Alterations to the Premises, nothing herein shall give Tenant any right
whatsoever to make any alterations or
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modifications to any portion of the Building or its appurtenant facilities.
Tenant shall be responsible for insuring that the Premises and Tenant's use
thereof and operations therein fully and completely comply with the ADA.
C. HAZARDOUS MATERIALS SEE ADDENDUM SECTION XXXV.C.
Tenant covenants and agrees that it shall not cause or permit any Hazardous
Material (as defined below) to be brought upon, kept, or used in or about
the Premises, Building or Project by Tenant, its agents, employees,
contractors or invitees. The foregoing covenant shall not extend to
substances typically found or used in general office applications so long
as (i) such substances and any equipment which generates such substances
are maintained only in such quantities as are reasonably necessary for
Tenant's operations in the Premises, (ii) such substances are used strictly
in accordance with the manufacturers' instructions therefor, (iii) such
substances are not disposed of in or about the Project in a manner which
would constitute a release or discharge thereof, and (iv) all such
substances and any equipment which generates such substances are removed
from the Project by Tenant upon the expiration or earlier termination of
this Lease. Any use, storage, generation, disposal, release or discharge
by Tenant of Hazardous Materials in or about the Project as is permitted
pursuant to this subsection C. shall be carried out in compliance with all
applicable federal, state and local laws, ordinances, rules and
regulations. Moreover, no hazardous waste resulting from any operations by
Tenant shall be stored or maintained by Tenant in or about the Project for
more than ninety (90) days prior to removal by Tenant. Tenant shall,
annually within thirty (30) days after Tenant's receipt of Landlord's
written request therefor, provide to Landlord a written list identifying
any Hazardous Materials then maintained by Tenant in the Project, the use
of each such Hazardous Material and the approximate quantity of each such
Hazardous Material so maintained by Tenant, together with written
certification by Tenant stating, in substance, that neither Tenant nor any
person for whom Tenant is responsible has released or discharged any
Hazardous Materials in or about the Project.
In the event that Tenant proposes to conduct any use or to operate any
equipment which will or may utilize or generate a Hazardous Material other
than as specified in the first paragraph of this subsection, Tenant shall
first in writing submit such use or equipment to Landlord for approval. No
approval by Landlord shall relieve Tenant of any obligation of Tenant
pursuant to this subsection, including the removal, clean-up and
indemnification obligations imposed upon Tenant by this subsection. Tenant
shall, within five (5) days after receipt thereof, furnish to Landlord
copies of all notices or other communications received by Tenant with
respect to any actual or alleged release or discharge of any Hazardous
Material in or about the Premises or the Project and shall, whether or not
Tenant receives any such notice or communication, notify Landlord in
writing of any discharge or release of Hazardous Material by Tenant or
anyone for whom Tenant is responsible in or about the Premises or the
Project. In the event that Tenant is required to maintain any Hazardous
Materials license or permit in connection with any use conducted by Tenant
or any equipment operated by Tenant in the Premises, copies of each such
license or permit, each renewal or revocation thereof and any communication
relating to suspension, renewal or revocation thereof shall be furnished to
Landlord within five (5) days after receipt thereof by Tenant. Compliance
by Tenant with the two immediately preceding sentences shall not relieve
Tenant of any other obligation of Tenant pursuant to this subsection.
Upon any violation of the foregoing covenants, Tenant shall be obligated,
at Tenant's sole cost, to clean-up and remove from the Project all
Hazardous Materials introduced into the Project by Tenant or any person or
entity for whom Tenant is responsible. Such clean-up and removal shall
include all testing and investigation required by any governmental
authorities having jurisdiction and preparation and implementation of any
remedial action plan required by any governmental authorities having
jurisdiction. All such clean-up and removal activities of Tenant shall, in
each instance, be conducted to
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the satisfaction of Landlord (acting as a responsible owner of real
property in directing the performance of such activities by a third party
responsible for the condition) and all governmental authorities having
jurisdiction. Landlord's right of entry pursuant to Section XI. shall
include the right to enter and inspect the Premises for violations of
Tenant's covenants herein.
Tenant shall indemnify, defend and hold harmless Landlord, its partners,
and its and their successors, assigns, partners, officers, employees,
agents, lenders and attorneys from and against any and all claims,
liabilities, losses, actions, costs and expenses (including attorneys' fees
and costs of defense) incurred by such indemnified persons, or any of them,
as the result of (A) the introduction into or about the Project by Tenant
or anyone for whom Tenant is responsible of any Hazardous Materials, (B)
the usage, storage, maintenance, generation, disposition or disposal by
Tenant or anyone for whom Tenant is responsible of Hazardous Materials in
or about the Project, (C) the discharge or release in or about the Project
by tenant or anyone for whom Tenant is responsible of any Hazardous
Materials, (D) any injury to or death of persons or damage to or
destruction of property resulting from the use, introduction, maintenance,
storage, generation, disposal, disposition, release or discharge by Tenant
or anyone for whom Tenant is responsible of Hazardous Materials in or about
the Project, and (E) any failure of Tenant or anyone for whom Tenant is
responsible to observe the foregoing covenants of this subsection.
Upon any violation of the foregoing covenants, Landlord shall be entitled
to exercise all remedies available to a landlord against a defaulting
tenant, including but not limited to those set forth in Section XX.
Without limiting the generality of the foregoing, Tenant expressly agrees
that upon any such violation Landlord may, at its option, immediately
terminate this Lease. In the event this Lease terminates prior to Tenant's
completion of its clean-up and removal covenant hereunder, Tenant shall,
nevertheless, continue to be responsible to complete the clean-up and
removal and for any damages, including without limitation payment of rental
loss, suffered by Landlord as a result of the clean-up operations and/or
contamination caused by a violation of Tenant's covenants herein. No
action by Landlord hereunder shall impair the obligations of Tenant
pursuant to this subsection.
As used in this subsection, "Hazardous Materials" is used in its broadest
sense and shall include any petroleum based products, pesticides, paints
and solvents, polychlorinated biphenyl, lead, cyanide, DDT, acids, ammonium
compounds and other chemical products and any substance or material defined
or designated as hazardous or toxic, or other similar term, by any federal,
state or local environmental statute, regulation, or ordinance affecting
the Premises, Building or Project presently in effect or that may be
promulgated in the future, as such statutes, regulations and ordinances may
be amended from time to time, including but not limited to the statutes
listed below:
Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sec. 6901
ET SEQ.
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, 42 U.S.C. Sec. 9601 ET SEQ.
Clean Air Act, 42 U.S.C. Sections 7401-7626.
Water Pollution Control Act (Clean Water Act of 1977), 33 U.S.C. Sec.
1251 ET SEQ.
Insecticide, Fungicide, and Rodenticide Act (Pesticide Act of 1987),
7 U.S.C. Sec. 135 ET SEQ.
Toxic Substances Control Act, 15 U.S.C. Sec. 2601 ET SEQ.
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Safe Drinking Water Act, 42 U.S.C. Sec. 300(f)ET SEQ.
National Environmental Policy Act (NEPA) 42 U.S.C. Sec. 4321 ET SEQ.
Refuse Act of 1899, 33 U.S.C. Sec. 407 ET SEQ.
California Health and Safety Code Sec. 25316 ET SEQ.
By its signature to this Lease, Tenant confirms that it has been provided
with a copy of an environmental site assessment of the Project described in
Addendum Section XXXV. C. and that it has conducted its own examination of
the Premises and the Project with respect to Hazardous Materials. Except
as set forth in the Report, to Landlord's actual knowledge (without any
inquiry other than requesting the Report) (i) no Hazardous Material is
present on the Project or the soil, surface water or groundwater thereof,
(ii) no underground storage tanks or asbestos containing building materials
are present on the Project, and (iii) no action, proceeding or claim is
pending or threatened concerning the Project concerning any Hazardous
Material or pursuant to any Environmental Law. On the basis of the
foregoing, Tenant accepts the Premises and Project "AS IS." Notwithstanding
anything to the contrary in this Lease, in the event that Hazardous
Materials are discovered in the Project, the presence of which is not
caused by a breach of the obligations of Tenant set forth in this
subsection C., Landlord shall, at Landlord's sole cost and expense, remove,
remediate, or otherwise deal with such Hazardous Materials if, as and when
required by applicable governmental authorities. In addition, subject to
Section XV. B. below, Landlord agrees to indemnify and hold Tenant harmless
from and against any and all costs of compliance required to be incurred by
Tenant by any governmental authority with jurisdiction and/or any and all
claims, demands, costs and expenses for personal injury and property damage
asserted against Tenant and reduced to judgment against Tenant in a legal
action, including reasonable attorneys' fees incurred therein
(collectively, "Claims"), if and to the extent that the same are judicially
determined or otherwise proved to the reasonable satisfaction of Landlord
to have been caused by the presence (or later effects) in or about the
Project of Hazardous Materials introduced to the Project by Landlord.
Tenant acknowledges that incorporation of any material containing asbestos
into the Premises is absolutely prohibited. Tenant agrees, represents and
warrants that it shall not incorporate or permit or suffer to be
incorporated, knowingly or unknowingly, any material containing asbestos
into the Premises.
D. LANDLORD'S RULES AND REGULATIONS
Tenant shall, and Tenant agrees to cause its agents, servants, employees,
invitees and licensees to, observe and comply fully and faithfully with the
rules and regulations attached hereto as EXHIBIT E or such other non-
discriminatory rules and regulations which may hereafter be adopted by
Landlord (the "Rules") for the care, protection, cleanliness, and operation
of the Premises, Building and Project, and any modifications or additions
to the Rules adopted by Landlord, provided that, Landlord shall give
written notice thereof to Tenant. Landlord shall not be responsible to
Tenant for failure of any other tenant or occupant of the Building or
Project to observe or comply with any of the Rules.
E. TRAFFIC AND ENERGY MANAGEMENT
Landlord and Tenant agree to cooperate and use their best efforts to
participate in governmentally mandated or voluntary traffic management
programs generally applicable to businesses located in the area in which
the Project is situated or to the Project and, initially, shall encourage
and support van and car pooling by employees and shall encourage and
support staggered and flexible working hours for employees to the fullest
extent permitted by the requirements of Tenant's business. Neither this
subsection nor
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any other provision in this Lease, however, is intended to or shall create
any rights or benefits in any other person, firm, company, governmental
entity or the public.
Landlord and Tenant agree to cooperate and use their best efforts to comply
with any and all guidelines or controls imposed upon either Landlord or
Tenant by federal or state governmental organizations or by any energy
conservation association to which Landlord is a party concerning energy
management; provided, however, Tenant shall not be responsible (subject to
Tenant's obligations elsewhere in this Lease) to comply with voluntary
traffic or energy management programs of the type described in this Section
VIII.E. except to the extent required by law.
All costs, fees assessments and other charges paid by Landlord to any
governmental authority or voluntary association in connection with any
program of the types described in this subsection, all costs and fees paid
by Landlord to any governmental authority or third party pursuant to or to
effect such program and all costs associated with administration and
management of such program or compliance therewith, shall be included in
Common Operating Costs. However, any costs, fees, fines or other levies
assessed against Landlord as the result of failure of any tenant to comply
with this subsection shall be reimbursed by such noncomplying tenant to
Landlord as additional rent.
SECTION IX. SERVICE AND UTILITIES
A. STANDARD BUILDING SERVICES AND REIMBURSEMENT BY TENANT
So long as Tenant is not in default hereunder (including any default of a
type described in clauses (4) - (6) of Section XX.A. below), Landlord
agrees to make available to the Premises, during the Building's normal
business hours and days of 7:00 a.m. to 6:00 p.m. Monday through Friday and
8:00 a.m. to 1:00 p.m. Saturday (holidays excepted) such heat and air
conditioning (hereinafter "HVAC"), water and electricity, as may be
required in Landlord's judgment for the comfortable use and occupation of
the Premises for general office purposes and at a level which is usual and
customary in similar office buildings in the area where the Project is
located, all of which shall be subject to the Rules of the Building as well
as any governmental requirements or standards relating to, among other
things, energy conservation. Tenant agrees to pay, as a Common Operating
Cost in accordance with Section V. above, Tenant's Proportionate Share in
excess of the Base Operating Expense of the full cost of all utilities
supplied to the Premises, together with any taxes thereon; provided,
however, if any such service or utilities are separately metered to the
Premises, Tenant shall pay the cost thereof in a timely manner directly to
the utility company providing such service. Tenant's obligations in this
Section regarding utilities include, but are not limited to, initial
connection charges, all charges for gas, water and electricity used on the
Premises, and for all electric light lamps or tubes. If any such utility
or service is not separately metered to the Premises, Tenant shall be
required to pay any increased cost, as additional rent, of any such utility
and service, including without limitation water, electricity and HVAC,
resulting from any use of the Premises at any time other than the schedule
of normal business hours for providing such utilities and services as
reasonably determined by Landlord or any unusual or non-customary use
beyond that which Landlord has agreed to make available as described above,
or resulting from special electrical, cooling and ventilating needs created
in certain areas by telephone equipment, computers and other similar
equipment or uses. If the Building is designed for individual tenant
operation of the HVAC, Tenant agrees to pay the cost of operating the HVAC
at any time other than the schedule of hours for providing the same set
forth above, which cost may include the operation of the HVAC for space
located outside the Premises when such space is serviced concurrently with
the operation of the HVAC for the benefit of the Premises.
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B. LIMITATION ON LANDLORD'S OBLIGATIONS
Landlord shall not be in breach of its obligations under this Section
unless Landlord fails to make any repairs or perform maintenance which it
is obligated to perform hereunder and such failure persists for an
unreasonable time after written notice of a need for such repairs or
maintenance is given to Landlord by Tenant. Landlord agrees to investigate
the necessity of any repair or maintenance alleged to be necessary in such
written notice promptly, and shall commence any repair or maintenance that
Landlord determines is necessary within a reasonable period of time
thereafter. Landlord shall not be liable for and Tenant shall not be
entitled to any abatement or reduction of rent by reason of Landlord's
failure to furnish any of the foregoing when such failure is caused by
accidents, breakage, repairs, strikes, brownouts, blackouts, lockouts or
other labor disturbances or labor disputes of any character, or by any
other cause, similar or dissimilar, beyond the reasonable control of
Landlord, nor shall such failure under such circumstances be construed as a
constructive or actual eviction of Tenant. If, as a result of Landlord's
negligence or willful misconduct, utility service to the Premises continues
interrupted for a period of in excess of three (3) consecutive business
days after written notice thereof is given to Landlord by Tenant (which
three (3) business day period shall be extended by force majeure events
described in Section XXXIII.K. below) and which interruption materially
prohibits the use of the Premises for the Permitted Use, then Monthly
Rental and Tenant's obligation to pay Common Operating Costs shall abate
from and after expiration of such three (3) business day period (as so
extended) until service is restored. Landlord shall not be liable under
any circumstances for loss or injury to property or business, however
occurring, through or in connection with or incidental to Landlord's
failure to furnish any of said service or utilities.
C. EXCESS SERVICE
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 one hundred twenty (120) volts or which consumes more
electricity than is usually furnished or supplied for the Permitted Use of
the Premises, as determined by Landlord. Tenant shall not consume water or
electric current in excess of that usually furnished or supplied for the
use of the Premises (as determined by Landlord), without first procuring
the written consent of Landlord, which Landlord may refuse. The excess
cost (including any penalties for excess usage) for such water and electric
current shall be established by an estimate made by a utility company or
independent engineer hired by Landlord at Tenant's expense and Tenant shall
pay such excess costs each month with the Monthly Rental. All costs and
expenses of modifying existing equipment, cables, lines, etc. or installing
additional equipment, cables, lines, etc. to accommodate such excess usage
or use by Tenant of such apparatus or device shall be borne by Tenant.
D. SECURITY SERVICES
Certain security measures (both by electronic equipment and personnel) may
be provided by Landlord in connection with the Building and Common Areas.
However, Tenant hereby acknowledges that such security is intended to be
only for the benefit of the Landlord in protecting its property from fire,
theft, vandalism and similar perils and while certain incidental benefits
may accrue to the Tenant therefrom, such security is not for the purpose of
protecting either the property of Tenant or the safety of its officers,
employees, servants or invitees. By providing such security, Landlord
assumes no obligation to Tenant and shall have no liability arising
therefrom. If, as a result of Tenant's particular occupancy of the
Premises, Landlord in its sole discretion determines that it is necessary
to provide security or implement additional security measures or devices in
or about the Building or the Common Areas, Tenant shall be required to pay,
as additional rent, the cost or increased cost, as the case may be, of such
security.
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SECTION X. MAINTENANCE AND REPAIRS
A. Landlord's Obligations SEE ADDENDUM SECTION XXXV.D.
Except for special or non-standard systems and equipment installed for
Tenant's exclusive use, Landlord shall keep in good condition and repair,
subject to reimbursement by Tenant as a Common Operating Cost of Tenant's
Proportionate Share of the cost and expense incurred by Landlord in
connection therewith, the foundations, exterior walls, structural
condition of interior bearing walls and roof of the Premises, and the
Building, as well as the parking lots, walkways, driveways, landscaping,
fences, signs, and utility installations of the Project. Landlord shall
not be required to make any repairs that are the obligation of any other
tenant or occupant within the Building or Project or repairs for damage
caused by any negligent or intentional act or omission of Tenant or any
person claiming through or under Tenant or any of Tenant's employees,
suppliers, shippers, customers or invitees, in which event Tenant shall
repair such damage at its sole cost and expense. Tenant hereby waives
and releases its right to make repairs at Landlord's expense under any
law, statute, ordinance, rules and regulations now or hereafter in effect
in any jurisdiction in which the Project is located.
B. TENANT'S OBLIGATIONS SEE ADDENDUM SECTION XXXV.D.
Except as otherwise provided in Sections XVIII and XIX, Tenant shall, at
its sole cost and expense, make all repairs and replacements as and when
Landlord deems reasonably necessary to preserve in good working order and
condition the Premises and every part thereof, including, without
limitation, heating, ventilating and air conditioning systems which
service the Premises, plumbing within the Premises, special or
supplementary heating, ventilating and air conditioning systems
located within the Premises and installed for the exclusive use of the
Premises, electrical and lighting facilities and equipment within the
Premises and all other non-standard utility facilities and systems
exclusively serving the Premises, and all trade fixtures, interior walls,
interior surfaces of exterior walls, ceilings, windows, doors (including
entry doors), cabinets, draperies, window coverings, carpeting and other
floor coverings, plate glass and skylights located within the Premises.
Notwithstanding the foregoing, if the cost of repairing a Building system
in any one instance where the same requires repair exceeds, in Landlord's
sole but reasonable opinion, twenty-five percent (25%) of the cost,
expense and fees of all work required to replace the entire system, then
Landlord will be responsible for the cost of such system repair. Tenant
shall contract for janitorial services in the Premises with the company
providing janitorial services for the other building in the Project.
Tenant shall, at its sole cost and expense, make all repairs to the
Premises, Building and Project which are required, in the reasonable
opinion of Landlord, as a result of any misuse, neglect, negligent or
intentional act or omission committed or permitted by Tenant or by any
subtenant, agent, employee, supplier, shipper, customer, invitee or
servant of Tenant.
C. LANDLORD'S RIGHT TO MAKE REPAIRS
In the event that Tenant fails to maintain the Premises, Building or
Project in good and sanitary order, condition and repair as required by
this Lease, then, following written notification to Tenant and expiration
of the applicable grace period described in Section XX. (except in the case
of an emergency, in which case no prior notification and/or grace period
shall be required), Landlord shall have the right, but not the obligation,
to enter the Premises and to do such acts and expend such funds at the
expense of Tenant as are required to place the Premises, Building and
Project in good, safe and sanitary order, condition and repair. Any amount
so expended by Landlord shall be paid by Tenant promptly upon demand as
additional rent.
D. CONDITION OF PREMISES UPON SURRENDER
Except as otherwise provided in this Lease, Tenant shall, upon the
expiration or earlier termination of the Term, surrender the Premises to
Landlord in the same condition as on the date Tenant took possession, broom
clean, except for reasonable wear and tear,
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damage caused by an event which is insured by property insurance maintained
by Landlord pursuant to Section XIV.B.(1) below (subject to Tenant's
obligations stated in the last sentence of Section X.B.), and condemnation
(subject to Tenant's assignment to Landlord of the right to receive
proceeds of condemnation for any fixtures or other property required to be
surrendered to Landlord under this subsection D.). All appurtenances,
fixtures, improvements, additions and other property attached to or
installed in the Premises whether by Landlord or by or on behalf of Tenant,
and whether at Landlord's expense or Tenant's expense, shall be and remain
the property of Landlord unless Landlord specifically agrees or requires
otherwise in writing (which removal, with respect to Alterations, shall be
subject to Section XII. below). Any furnishings and personal property of
Tenant located in the Premises, whether the property of Tenant or leased by
Tenant (including the fixtures, improvements and other items agreed, in
writing, by Landlord to belong to the Tenant as provided in the preceding
sentence), shall be and remain the property of Tenant and shall be removed
by Tenant at Tenant's sole cost and expense at the expiration of the Term.
Tenant shall promptly repair any damage to the Premises or the Building
resulting from such removal. Any of Tenant's property not removed from the
Premises prior to the expiration of the Term shall, at Landlord's option,
either become the property of Landlord or may be removed by Landlord and
Tenant shall pay to Landlord the cost of such removal within ten (10) days
after delivery of a bill therefor or Landlord, at its option, may deduct
such amount from the Security Deposit. 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, shall be repaired
by Tenant at Tenant's expense.
SECTION XI. ENTRY BY LANDLORD
Landlord reserves and shall at any and all times have the right to enter the
Premises at reasonable times to inspect the same to determine whether Tenant is
complying with its obligations hereunder; to supply any service to be provided
by Landlord hereunder; and to supply janitorial service and any other service to
be provided by Landlord to Tenant hereunder; and, upon reasonable notice to
Tenant, may exhibit the Premises to prospective purchasers, mortgagees or,
within the last twelve (12) months of the Term, prospective tenants; to post
notices of nonresponsibility; and to alter, improve or repair the Premises and
any portion of the Building and Project, without abatement of rent, and may for
that purpose erect scaffolding and other necessary structures that are
reasonably required by the character of the work to be performed by Landlord,
provided that the business of Tenant shall not be interfered with unreasonably.
In the event Landlord desires to enter the Premises with any third party whom
Tenant reasonably identifies as a business competitor of Tenant, Tenant shall
have the right, at Tenant's option, to designate an available representative to
accompany Landlord and such third party within the Premises. For each of the
aforesaid purposes, Landlord shall at all times have and retain a key with which
to unlock all of the doors in, upon and about the Premises, excluding Tenant's
vaults and safes, and Landlord shall have the right to use any and all means
which Landlord may deem proper to open such doors in the event of an emergency.
Any entry to the Premises or portions thereof obtained by Landlord by any of
said means, or otherwise, shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into, or a detainer of, the Premises,
or an eviction, actual or constructive, of Tenant from the Premises, or any
portion thereof.
SECTION XII. ALTERATIONS, ADDITIONS AND TRADE FIXTURES
Tenant shall not make any alterations, additions or improvements to the
Premises, or any part thereof, whether structural or nonstructural (hereafter
"Alterations"), without Landlord's prior written consent which will not be
unreasonably withheld or delayed. Notwithstanding the foregoing, Landlord's
prior consent is not required for any non-structural alterations which do not
affect the Building systems, which are not visible from the exterior of the
Premises, which are consistent with the Tenant Improvements, which do not alter
the floor plan of the Premises
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or the flow of the Building and which cost, in any instance, less than $10,000
(inclusive of all professional, permit and other fees, costs and expenses). In
order to obtain Landlord's preliminary consent, Tenant shall submit such
information as Landlord may require, including without limitation plans and
specifications for the Alterations. Any professional fees or other reasonable
costs and expenses incurred by Landlord in reviewing such plans and
specifications shall be paid to Landlord by Tenant as additional rent upon
demand. After Landlord gives preliminary consent, in order to obtain Landlord's
final consent, which consent may not be unreasonably withheld, Tenant shall then
submit (i) permits, licenses, bonds, and the construction contract, all in
conformance with the plans and specifications preliminarily approved by
Landlord; (ii) evidence of insurance coverage in such types and amounts and from
such insurers as Landlord deems satisfactory; and (iii) such other information
as Landlord deems reasonably necessary. The construction contract shall, at a
minimum, require the general contractor and all subcontractors to obey the rules
and regulations of the Building and Project. All Alterations shall be done in a
good workmanlike manner by qualified and licensed contractors or mechanics, as
approved by Landlord. In no event shall any Alterations affect the structure of
the Building or its exterior appearance. All Alterations made by or for Tenant
(other than Tenant's moveable trade fixtures), shall, unless Landlord expressly
requires or agrees otherwise in writing, immediately become the property of
Landlord, without compensation to Tenant, but Landlord has no obligation to
repair, maintain or insure those Alterations. Carpeting, shelving and cabinetry
are considered improvements of the Premises and not movable trade fixtures,
regardless of how or where affixed. No Alterations will be removed by Tenant
from the Premises either during or at the expiration or earlier termination of
the Term, and they shall be surrendered as a part of the Premises unless
Landlord has required that Tenant remove them. At Landlord's discretion,
Alterations are subject to removal by Tenant and at Tenant's sole cost and
expense except for any Alterations which Landlord agreed in writing, in response
to a request by Tenant made at the time Tenant requested Landlord to consent to
the Alteration, that Tenant would not be required to remove at the end of the
Term. Upon any such removal, Tenant shall repair any damage caused to the
Premises thereby, and shall return the Premises to the condition they were in
prior to installation of such Alterations so removed. Tenant shall indemnify,
defend and keep Landlord free and harmless from and against all liability, loss,
damage, cost, 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. In connection with any Alterations
for which Landlord's consent is required, Landlord may require Tenant to provide
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 such improvements,
to insure Landlord against any liability for mechanic's liens and to insure
completion of the work. Landlord shall have the right at all times to post on
the Premises any notices permitted or required by law, or that Landlord shall
deem proper, for the protection of Landlord, the Premises, the Building and the
Project, and any other party having an interest therein, from mechanics' and
materialmen's liens, and Tenant shall give to Landlord written notice of the
commencement of any construction in or on the Premises at least thirty (30)
business days prior thereto. Prior to the commencement of any such
construction, Landlord shall be furnished certificates of insurance, naming
Landlord as an additional insured, evidencing that each contractor performing
work has insurance acceptable to Landlord, including but not limited to general
liability insurance of not less that One Million Dollars ($1,000,000.00) and
worker's compensation insurance in the statutorily required amount.
SECTION XIII. MECHANIC'S LIENS
Tenant shall keep the Premises, the Building and the Project free from any liens
arising out of any work performed, material furnished or obligation incurred by
or for Tenant or any person or entity claiming through or under Tenant. In the
event that Tenant shall not, within ten (10) days following the imposition of
any such lien, cause the same to be released of record by payment or posting of
a proper bond, Landlord shall have, in addition to all other remedies provided
herein and by law, the right, but not the obligation, to cause such lien to be
released by such means as Landlord deems proper, including payment of the claim
giving rise to such lien. All such sums paid and all expenses incurred by
Landlord in connection therewith shall be due and payable to Landlord by Tenant
on demand.
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SECTION XIV. INSURANCE
A. TENANT
During the Term hereof, Tenant shall keep in full force and effect the
following insurance and shall provide appropriate insurance certificates to
Landlord prior to the Lease Commencement Date and annually thereafter
before the expiration of each policy:
(1) Commercial general liability insurance for the benefit of Tenant and
Landlord as an additional insured, with a limit of not less than Two
Million Dollars ($2,000,000.00)combined single limit per occurrence,
against claims for personal injury liability including, without
limitation, bodily injury, death or property damage liability and
covering (i) the business(es) operated by Tenant and by any subtenant
of Tenant on the Premises, (ii) operations of independent contractors
engaged by Tenant for services or construction on or about the
Premises, and (iii) contractual liability;
(2) Fire, extended coverage, vandalism and malicious mischief insurance,
insuring the personal property, furniture, furnishings and fixtures
belonging to Tenant located on the Premises for not less than one
hundred percent (100%) of the actual replacement value thereof;
(3) Workers' compensation in the amount required by law;
(4) Business interruption or loss of income insurance in amounts
satisfactory to Landlord, with a rental interruption rider assuring
Landlord that the rent due hereunder will be paid for a period of not
less than twelve (12) months if the Premises are destroyed or
rendered inaccessible by a risk insured against by a policy of all
risk insurance; and
(5) Such other insurance as Landlord deems reasonably necessary.
Each insurance policy obtained by Tenant pursuant to this Lease shall
contain a clause that the insurer will provide Landlord with at least
thirty (30) days prior written notice of any material change, non-renewal
or cancellation of the policy, shall be in a form satisfactory to Landlord
and shall be taken out with an insurance company authorized to do business
in the State in which the Project is located and rated not less than Best's
Financial Class X and Best's Policy Holder Rating "A". In addition, any
insurance policy obtained by Tenant shall be written as a primary policy,
and shall not be contributing with or in excess of any coverage which
Landlord may carry, and shall have loss payable clauses satisfactory to
Landlord and in favor of Landlord naming Landlord, and any other party
reasonably designated by Landlord, as an additional insured. The liability
limits of the above described insurance policies shall in no matter limit
the liability of Tenant under the terms of Section XV. below.
Not more frequently than every two (2) years, if, in the reasonable opinion
of Landlord, the amount of liability insurance specified in this Section
XIV. is not adequate, the above-described limits of coverage shall be
adjusted by Landlord, by written notification to Tenant, in order to
maintain the level of insurance protection comparable to the protection
afforded on the date the Term commences. If Tenant fails to maintain and
secure the insurance coverage required under this Section XIV., then
Landlord shall have, in addition to all other remedies provided herein and
by law, the right, but not the obligation, to procure and maintain such
insurance, the cost of which shall be due and payable to Landlord by Tenant
on demand.
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If, on account of the failure of Tenant to comply with the provisions of
this Section, Landlord is deemed a co-insurer by its insurance carrier,
then any loss or damage which Landlord shall sustain by reason thereof
shall be borne by Tenant and shall be immediately paid by Tenant as
additional rent upon receipt of a bill therefor and evidence of such loss.
B. LANDLORD
During the Term hereof, Landlord shall keep in full force and effect the
following insurance
(1) Fire, extended coverage and vandalism and malicious mischief
insurance insuring the Building and Project of which the Premises are
a part, in an amount not less than eighty percent (80%) (or such
greater percentage as may be required by law) of the full replacement
cost thereof; and
(2) Such other insurance as Landlord deems necessary in its sole and
absolute discretion.
All insurance policies shall be issued in the names of Landlord and
Landlord's lender, and any other party reasonably designated by Landlord as
an additional insured, as their interests appear. The insurance policies
shall provide that any proceeds shall be made payable to Landlord, or to
the holders of mortgages or deeds of trust encumbering Landlord's interest
in the Premises, Building and Project, or to any other party reasonably
designated by Landlord as an additional insured, as their interests shall
appear. All insurance premiums for Landlord's insurance shall be included
in Common Operating Costs.
C. WAIVER OF SUBROGATION
Landlord and Tenant each hereby waives any and all rights of recovery
against the other, and against any other tenant or occupant of the Project
who waives such rights as to Tenant and against the officers, employees,
agents, representatives, customers and business visitors of such other
party and of each such other tenant or occupant of the Project, for loss of
or damage to such waiving party or its property or the property of others
under its control, arising from any cause insured against under any policy
of property insurance required to be carried by such waiving party pursuant
to the provisions of this Lease (or any other policy of property insurance
carried by such waiving party in lieu thereof) at the time of such loss or
damage. The foregoing waiver shall be effective whether or not a waiving
party actually obtains and maintains the insurance which such waiving party
is required to obtain and maintain pursuant to this Lease (or any
substitute therefor). Landlord and Tenant shall, upon obtaining the
policies of insurance which they are required to maintain hereunder, give
notice to their respective insurance carrier or carriers that the foregoing
mutual waiver of subrogation is contained in this Lease.
SECTION XV. INDEMNITY AND EXEMPTION
A. INDEMNITY
(1) BY TENANT
Tenant agrees to indemnify, defend and hold Landlord and its
officers, directors, partners and employees entirely harmless from
and against all liabilities, losses, demands, actions, expenses or
claims, including reasonable attorneys' fees and court costs, for
injury to or death of any person or for damages to any property or
for violation of law arising out of or in any manner connected with
(i) the use,
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occupancy or enjoyment of the Premises, Building or Project by Tenant
or Tenant's agents, employees, invitees or contractors (the "Tenant's
Agents") or any work, activity or other things allowed or suffered by
Tenant or Tenant's Agents to be done in or about the Premises,
Building or Project, (ii) any breach or default in the performance of
any obligation of Tenant under this Lease, and (iii) any act or
failure to act, whether negligent or otherwise tortious; by Tenant or
Tenant's Agents in or about the Premises, Building or Project.
(2) BY LANDLORD
Subject to Section XIV.C. above and the first paragraph of XV.B.
below, Landlord hereby agrees to indemnify and hold harmless Tenant
and its officers and directors, from and against any and all losses,
liabilities, demands, actions, expenses, or claims, including
reasonable attorneys' fees and court costs, for injury to or death of
any person or for damages to any property or for violation of law
occurring within the Project or (but only if and to the extent not
covered by the insurance required to be carried by Tenant under this
Lease, regardless of whether Tenant actually maintains the same)
within the Building or Premises, if and to the extent that it is
adjudged by a court of competent jurisdiction, or otherwise proved to
the reasonable satisfaction of Landlord, that the same is caused by
(i) any default by Landlord in the performance of any obligation of
Landlord under this Lease, or (ii) any act or, where Landlord has a
specific duty under this Lease to act, omission constituting gross
negligence or willful misconduct of Landlord, its agents, contractors
or employees.
B. LIMITATION ON LANDLORD'S LIABILITY; RELEASE OF DIRECTORS, OFFICERS AND
PARTNERS OF LANDLORD
Tenant agrees that, in the event Tenant shall have any claim against
Landlord under this Lease arising out of the subject matter of this Lease,
Tenant's sole recourse shall be against the Landlord's interest in the
Building, for the satisfaction of any claim, judgment or decree requiring
the payment of money by Landlord as a result of a breach hereof or
otherwise in connection with this Lease, and no other property or assets of
Landlord, its successors or assigns, shall be subject to the levy,
execution or other enforcement procedure for the satisfaction of any such
claim, judgment, injunction or decree. Tenant further hereby waives any
and all right to assert any claim against or obtain any damages from, for
any reason whatsoever, the directors, officers and partners of Landlord,
including all injuries, damages or losses to Tenant's property, real and
personal, whether known, unknown, foreseen, unforeseen, patent or latent,
which Tenant may have against Landlord or its directors, officers or
partners. Tenant understands and acknowledges the significance and
consequence of such specific waiver.
Landlord shall not be liable or responsible to Tenant for any loss or
damage to any property or person occasioned by theft, fire, act of God,
public enemy, injunction, riot, strike, insurrection, war, court order,
requisition, or order of governmental body or authority, or for any damage
or inconvenience that may arise through repair or alteration of any part of
the Project, the Building or the Premises, or a failure to make any such
repairs, except as expressly provided in this Lease and except to the
extent proceeds of insurance required to be carried by Landlord under this
Lease are available.
SECTION XVI. ASSIGNMENT AND SUBLETTING BY TENANT
A. Tenant shall not, directly or indirectly, voluntarily or by operation of
law, sell, assign, encumber, pledge or otherwise transfer or hypothecate
all or any part of the Premises or Tenant's leasehold estate hereunder
(collectively "Assignment"), or permit the Premises to be occupied by
anyone other than Tenant or sublet the Premises ("Sublease") or any
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portion thereof without Landlord's prior written consent being had and
obtained in each instance, subject to the terms and conditions contained in
this Section.
B. If Tenant desires at any time to enter into an Assignment of this Lease or
a Sublease of the Premises or any portion thereof, Tenant shall request, in
writing, at least fifteen (15) business days prior to the effective date of
the Assignment or Sublease, Landlord's consent to the Assignment or
Sublease, and shall provide Landlord with the following information:
(1) The name of the proposed assignee, subtenant or occupant;
(2) The nature of the proposed assignee's, subtenant's or occupant's
business to be carried on in the Premises;
(3) The terms and provisions of the proposed Assignment or Sublease and a
copy of such documents; and
(4) Such financial information concerning the proposed assignee,
subtenant or occupant which Landlord shall have requested following
its receipt of Tenant's request for consent.
Tenant's notice shall not be deemed to have been served or given until such
time as Tenant has provided Landlord with all information reasonably
requested by Landlord pursuant to this subparagraph B. Tenant shall
immediately notify Landlord of any modification to the proposed terms of
such Assignment or Sublease.
C. Within fifteen (15) business days following receipt of Tenant's request and
complete documentation satisfying the requirements of this paragraph,
Landlord shall notify Tenant in writing of its election either to (a)
consent to the proposed Assignment or Sublease, (b) refuse to consent to
the proposed Assignment or Sublease, or (c) terminate this Lease in full
with respect to an Assignment or terminate in part with respect to a
proposed Sublease which would result in the Sublease by Tenant of fifty
percent (50%) or more of the total Rentable Area then leased by Tenant in
the Project and which is for a term of one-half or more of the remaining
then-current Term and enter into a lease directly with the proposed
assignee or sublessee. If Landlord approves such Assignment or Sublease,
or fails to respond within said fifteen (15) business day period, Tenant
shall be free for a period of one hundred twenty (120) days after the end
of said fifteen (15) business day period to assign its entire interest in
this Lease or to sublet such space to the entity specified in Tenant's
original request upon the terms set forth therein. If Tenant so desires,
Tenant may request Landlord to waive its recapture right for one or more
transactions of the type which would be susceptible to recapture by
Landlord pursuant to the foregoing, to which request Landlord will respond
in writing within ten (10) business days after Tenant's notice to Landlord
requesting such waiver (which notice shall specify that Landlord has
fifteen (15) business days to respond thereto and shall be sent to
Landlord's address for notices specified in Section I. above, with a copy
to H. E. Dan Shasteen, Esq., MONY Law, also at Landlord's address for
notices). Landlord and Tenant agree (by way of example and without
limitation) that Landlord shall be entitled to take into account any fact
or factor which Landlord reasonably deems relevant to such decision,
including but not necessarily limited to the following, all of which are
agreed to be reasonable factors for Landlord's consideration:
(1) The financial strength of the proposed assignee or subtenant (which
must be reasonably acceptable to Landlord).
(2) The experience of the proposed assignee or subtenant with respect to
businesses of the type and size which such assignee or subtenant
proposes to conduct in the Premises.
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(3) The quality and nature of the business and/or services to be
conducted in or from the Premises by the proposed assignee or
subtenant and in any other locations which it has.
(4) Violation of exclusive use rights previously granted by Landlord to
other tenants of the Building or Project.
(5) The quality of the appearance of the Premises resulting from any
remodeling or renovation to be conducted by the proposed assignee or
subtenant, and the compatibility of such quality with that of other
premises in the Building.
(6) Whether the business in the Premises is, and whether the business to
be operated by the proposed assignee or subtenant will be, a "place
of public accommodation."
(7) Whether there then exists any default by Tenant pursuant to this
Lease or any non-payment or non-performance by Tenant under this
Lease which, with the passage of time and/or the giving of notice,
would constitute a default under this Lease.
Moreover, Landlord shall be entitled to be reasonably satisfied that each
and every covenant, condition or obligation imposed upon Tenant by this
Lease and each and every right, remedy or benefit afforded Landlord by this
Lease is not impaired or diminished by such Assignment or Sublease. In no
event may any assignee or subtenant use the Premises for any use other than
the Permitted Use except as expressly approved in writing by Landlord in
advance. Landlord and Tenant acknowledge that the express standards and
provisions set forth in this Lease dealing with Assignment and Sublease,
including those set forth in subsections XVI.D., E. and G. have been freely
negotiated and are reasonable at the date hereof taking into account
Tenant's proposed use of the Premises and the nature and quality of the
Building and Project. No withholding of consent by Landlord for any reason
deemed sufficient by Landlord shall entitle Tenant to terminate this Lease
or to any abatement of rent. Approval of any Assignment of Tenant's
interest shall, whether or not expressly so stated, be conditioned upon
such assignee assuming in writing all obligations of Tenant hereunder by a
written instrument satisfactory to Landlord.
D. If Landlord consents to the Sublease or Assignment within said thirty (30)
day period, Tenant may enter into such Assignment or Sublease of the
Premises or portion thereof, but only upon the terms and conditions set
forth in the notice furnished by Tenant to Landlord pursuant to subsection
B. above; provided, however, that in connection with such Assignment or
Sublease, as a condition to Landlord's consent, Tenant shall pay to
Landlord fifty percent (50%) of the excess, if any, of (i) in the case of
an Assignment, the rental and other payment obligations of the proposed
assignee under the terms of the proposed Assignment over the rental and
other payment obligations of Tenant under the terms of this Lease, or (ii)
in the case of a Sublease, the amount proposed to be paid by the sublessee
over the proportionate amount of rental and other payment obligations
required to be paid by Tenant to Landlord under the terms of this Lease as
applicable to the portion of the Premises so subleased.
E. No consent by Landlord to any Assignment or Sublease by Tenant shall
relieve Tenant of any obligation to be performed by Tenant under this
Lease, whether arising before or after the Assignment or Sublease. The
consent by Landlord to any Assignment or Sublease shall not relieve Tenant
of the obligation to obtain Landlord's express written consent to any other
Assignment or Sublease. Any Assignment or Sublease that is not in
compliance with this Section shall be void and, at the option of Landlord,
shall constitute a material default by Tenant under this Lease. The
acceptance of rent or payment of any other monetary obligation by Landlord
from a proposed assignee or sublessee shall not constitute the consent by
Landlord to such Assignment or Sublease.
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Tenant shall promptly provide to Landlord a copy of the fully executed
Sublease or Assignment.
F. Any sale or other transfer, including transfer by consolidation, merger or
reorganization, of twenty-five percent (25%) or more of the voting stock of
Tenant, if Tenant is a corporation, or any sale or other transfer of
twenty-five percent (25%) or more of the partnership interest in Tenant, if
Tenant is a partnership, shall be an Assignment for purposes of this
Section. As used in this subsection, the term "Tenant" shall also mean any
entity that has guaranteed Tenant's obligation under this Lease, and the
prohibition hereof shall be applicable to any sales or transfers of stock
or partnership interests of said guarantor.
G. Each assignee or other transferee, other than a sublessee or Landlord,
shall assume, as provided in this subsection all obligations of Tenant
under this Lease and shall be and remain liable jointly and severally with
Tenant for the payment of Monthly Rental and all other monetary obligations
hereunder, and for the performance of all the terms, covenants, conditions
and agreements herein contained on Tenant's part to be performed for the
Term; provided, however, that the assignee or other transferee shall be
liable to Landlord for rent only in the amount set forth in the Assignment.
No Assignment shall be binding on Landlord unless the assignee or Tenant
shall deliver to Landlord a counterpart of the Assignment and an instrument
in recordable form that contains a covenant of assumption by the assignee
satisfactory in substance and form to Landlord, consistent with the
requirements of this subsection but the failure or refusal of the assignee
to execute such instrument of assumption shall not release or discharge the
assignee from its liability as set forth above.
H. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C. Section 101 ET SEQ., (the
"Bankruptcy Code"), any and all monies or other consideration payable or
otherwise to be delivered in connection with such assignment shall be paid
or delivered to Landlord, shall be and remain the exclusive property of
Landlord and shall not constitute property of Tenant or of the estate of
Tenant within the meaning of the Bankruptcy Code. Any and all monies or
other considerations constituting Landlord's property under the preceding
sentence not paid or delivered to Landlord shall be held in trust for the
benefit of Landlord and be promptly paid or delivered to Landlord.
I. Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code, shall be deemed, without further act or
deed, to have assumed all of the obligations arising under this Lease on
and after the date of such assignment. Any such assignee shall upon demand
execute and deliver to Landlord an instrument confirming such assumption.
J. Tenant shall pay Landlord's expenses and reasonable attorneys' fees
incurred in processing an Assignment or Sublease, but in no event less than
Five Hundred Dollars ($500.00) for each such proposed transfer to cover the
legal review and processing expenses of Landlord, whether or not Landlord
shall grant its consent to such proposed transfers.
K. All options to extend, renew or expand, if any, contained in this Lease are
personal to Tenant; provided, however, that any Permitted Transferee shall
also have the benefit of and the right to exercise any such options and
rights (including, without limitation, any signage rights granted to Tenant
pursuant to Sections XXVIII. and XXXV.E.). Consent by Landlord to any
assignment or subletting shall not include consent to the assignment or
transfer of any such rights with respect to the Premises or any special
privileges or extra services granted to Tenant by this Lease, or any
addendum or amendment hereto or letter of agreement, unless Tenant's
written request for approval of the proposed transfer specifically requests
Landlord's consent to a transfer of such privileges or services and
Landlord does, in fact, specifically consent thereto in writing. All such
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options, rights, privileges and extra services shall terminate upon such
assignment or subletting unless Landlord specifically grants in writing
such options, rights, privileges and extra services to such assignee or
subtenant. Similarly, any allowance, abatement or monetary concession
provided to Tenant as an inducement to execute this Lease is personal to
Tenant and shall be amortized (on a straight line basis) over the term of
this Lease. Upon any assignment or subletting, the then unamortized
portion thereof shall be paid by Tenant to Landlord in cash on or before
the effective date of such assignment or subletting.
L. Notwithstanding anything to the contrary in this Lease:
(1) Tenant may, without Landlord's prior written consent, without any
participation by Landlord in assignment and subletting proceeds, and
without being subject to Landlord's right to recapture the Premises
or any part thereof, sublet the Premises or assign the Lease to: (i)
a subsidiary, affiliate, division or corporation controlling,
controlled by or under common control with Tenant; (ii) a successor
corporation related to Tenant by merger, consolidation, or
nonbankruptcy reorganization; or (iii) a purchaser of substantially
all of Tenant's assets (collectively, "Permitted Transferees");
provided however, that the net worth of the assignee, sublessee or
successor corporation immediately following such transaction equals
or exceeds the net worth of Tenant as of the date immediately
preceding to such transaction, except in the case of a subletting of
only a portion of the Premises or an assignment of the Lease for less
than all of the then-remaining current Term, in which case the net
worth of the transferee must be reasonably acceptable to Landlord
(which shall not necessarily be construed as any agreement that the
net worth of the transferee need not be at least equal to that of
Tenant immediately prior to the transaction).
(2) A sale or transfer of Tenant's capital stock shall not be deemed an
assignment, subletting, or any other transfer of the Lease or the
Premises; provided however, that the entity created by reason or
resulting from such transfer has a net worth immediately following
such transaction equal to or exceeding the net worth of Tenant as of
the date immediately preceding such transaction.
(3) Any sale or transfer of Tenant's capital stock shall not be deemed an
assignment, subletting, or any other transfer of the Lease or the
Premises only (a) in connection with an initial public offering or
through any public exchange, or (b) so long as John Moores (or any
trust or estate planning device created by or on behalf of John
Moores, the voting stock of which is controlled by John Moores)
continues to control at least fifty-one percent (51 %) of the voting
stock of Tenant.
SECTION XVII. TRANSFER OF LANDLORD'S INTEREST
In the event Landlord shall sell or otherwise convey its title to the Building,
then, so long as any transferee in a voluntary transaction (e.g., other than a
lender foreclosing on a deed of trust or mortgage or accepting a deed in lieu
thereof) assumes the obligations of Landlord under the Lease accruing from and
after the date of the transfer after the effective date of such sale or
conveyance, Landlord shall have no further liability under this Lease to Tenant
except as to matters of liability which have accrued and are unsatisfied as of
the date of sale or conveyance, and Tenant shall seek performance solely from
Landlord's purchaser or successor in title. In connection with such sale or
transfer, Landlord may assign its interest under this Lease without notice to or
consent by Tenant. In such event, Tenant agrees to be bound to any successor
Landlord.
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SECTION XVIII. DAMAGE AND DESTRUCTION
A. MINOR INSURED DAMAGE
In the event the Premises or the Building, or any portion thereof, is
damaged or destroyed by any casualty that is covered by the insurance
maintained by Landlord pursuant to Section XIV. above, then Landlord shall
rebuild, repair and restore the damaged portion thereof, provided that (1)
the amount of insurance proceeds available to Landlord plus (except in the
case of earthquake damage which costs One Hundred Thousand Dollars
($100,000) or more to repair) any "deductible" amounts or coinsurance
payments applicable to such loss (which Landlord agrees to use reasonable
efforts to obtain from any lender or mortgagee to whom such proceeds may
have been assigned absolutely or as collateral for a loan secured by the
Premises or Building) equals or exceeds the cost of such rebuilding,
restoration and repair, (2) such rebuilding, restoration and repair can be
completed within one hundred eighty (180) days after the work commences in
the opinion of a registered architect or engineer appointed by Landlord,
(3) the damage or destruction has occurred more than twelve (12) months
before the expiration of the Term (which, for the purposes of this
sentence, shall include any Additional Term with respect to which Tenant
either (a) had the right to and properly exercised its option pursuant to
Addendum Section XXXV.A.), prior to the occurrence of such damage or
destruction or (b) within ten (10) days after occurrence of such damage or
destruction, Tenant has the right to and does exercise its option pursuant
to Addendum Section XXXV.A.), and (4) such rebuilding, restoration or
repair is then permitted, under applicable governmental laws, rules and
regulations, to be done in such a manner as to return the damaged portion
thereof to substantially its condition immediately prior to the damage or
destruction, including, without limitation, the same net rentable floor
area. To the extent that insurance proceeds must be paid to a mortgagee or
beneficiary under, or must be applied to reduce any indebtedness secured
by, a mortgage or deed of trust encumbering the Premises, Building or
Project, such proceeds, for the purposes of this subsection, shall be
deemed not available to Landlord unless such mortgagee or beneficiary
permits Landlord to use such proceeds for the rebuilding, restoration and
repair of the damaged portion thereof. Notwithstanding the foregoing,
Landlord shall have no obligation to repair any damage to, or to replace
any of, Tenant's personal property, furnishings, trade fixtures, equipment
or other such property or effects of Tenant.
B. MAJOR OR UNINSURED DAMAGE
In the event the Premises or the Building, or any portion thereof, is
damaged or destroyed by any casualty to the extent that Landlord is not
obligated, under subsection A. above, to rebuild, repair or restore the
damaged portion thereof, then Landlord shall, as promptly as practicable
but in any event within sixty (60) days after such damage or destruction,
notify Tenant of its election, at its option, to either, (1) rebuild,
restore and repair the damaged portions thereof, in which case Landlords
notice shall specify the time period within which Landlord estimates such
repairs or restoration can be completed; or (2) terminate this Lease
effective as of the date the damage or destruction occurred. If Landlord
does not give Tenant written notice within sixty (60) days after the damage
or destruction occurs of its election to rebuild or restore and repair the
damaged portions thereof, Landlord shall be deemed to have elected to
terminate this Lease. If Landlord elects or is deemed to have elected to
terminate this Lease, then so long as Tenant is not in default under
Section VIII.C. of this Lease or in monetary default (i.e., in each
case, after expiration or any applicable cure period) under this Lease or
the Other Lease at the time of exercise, Tenant shall have the right
to terminate the Other Lease effective as of the later of the date Tenant
specifies in its notice (which shall in no event be prior to the date
Tenant's notice is given pursuant to this sentence) or the date Tenant
vacates the Other Premises (as defined in Addendum Section XXXV.A. below),
by written notice to Landlord given, if at all, within ten (10) days after
the date of Landlord's notice or deemed election to terminate this Lease.
Notwithstanding the preceding sentence, in the event of damage or
destruction giving rise to Landlord's right to terminate the Lease under
this subsection B., Landlord may, by written notice to Tenant given prior
to expiration of the sixty (60) day period specified herein ("Landlord's
Notice"), require Tenant to advise Landlord, in writing within ten (10)
days after Landlord's Notice, to elect unconditionally either to
terminate, or to waive its right to terminate, the Other Lease if
Landlord elects or is deemed to have elected to terminate this Lease,
which election shall be binding on Tenant and the provisions the
preceding sentence shall, thereafter, not apply. In the event Tenant
fails to make an election strictly within the time and the manner specified
herein, then Tenant shall be conclusively deemed to have waived its right
to terminate the Other Lease. In the event that Landlord's notice specifies
a period of in excess of one-hundred eighty (180) days to complete repairs,
and Landlord elects not to terminate the Lease, then, so long as Tenant is
not then in default under Section VIII.C. of this Lease or in monetary
default hereunder (i.e., in each case, after expiration of any applicable
cure period), Tenant shall have the right, by written notice to Landlord
given within ten (10) days after Landlord's notice described in the first
sentence of this subsection B, is given, to either (i) terminate this
Lease (only) or (ii) terminate this Lease and the Other Lease. If this
Lease is not terminated as a result of damage or destruction, then
Landlord shall repair the balance of the Premises to the condition
existing prior to the damage, if permitted by applicable law.
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C. ABATEMENT OF RENT
There shall be an abatement of rent by reason of damage to or destruction
of the Premises or the Building, or any portion thereof to that extent to
Landlord receives insurance proceeds for loss of rental income attributable
to the Premises, commencing on the date that the damage to or destruction
of the Premises or Building has occurred.
D. WAIVER
Tenant shall have no claim against Landlord for any damage suffered by
Tenant by reason of any such damage, destruction, repair or restoration.
Tenant waives the provisions of Civil Code Sections 1932(2) and 1933(4) and
any present or future laws or case decisions to the same effect. Upon
completion of such repair or restoration, Tenant shall promptly refixture
the Premises substantially to the condition they were in prior to the
casualty and shall reopen for business if closed by the casualty.
SECTION XIX. CONDEMNATION
A. TOTAL OR PARTIAL TAKING
If all or substantially all of the Premises is condemned or taken in any
manner for public or quasi-public use, including but not limited to, a
conveyance or assignment in lieu of the condemnation or taking, this Lease
shall automatically terminate as of the earlier of the date on which actual
physical possession is taken by the condemnor or the date of dispossession
of Tenant as a result of such condemnation or other taking. If less than
all or substantially all of the Premises is so condemned or taken, this
Lease shall automatically terminate only as to the portion of the Premises
so taken as of the earlier of the date on which actual physical possession
is taken by the condemnor or the date of dispossession of Tenant as a
result of such condemnation or taking. If such portion of the Building is
condemned or otherwise taken so as to require, in the opinion of Landlord,
a substantial alteration or reconstruction of the remaining portions
thereof, this Lease may be terminated by Landlord, as of the date on which
actual physical possession is taken by the condemnor or dispossession of
Tenant as a result of such condemnation or taking, by written notice to
Tenant within sixty (60) days following notice to Landlord of the date on
which such physical possession is taken or dispossession will occur.
B. AWARD
Landlord shall be entitled to the entire award in any condemnation
proceeding or other proceeding for taking for public or quasi-public use,
including, without limitation, any award made for the value of the
leasehold estate created by this Lease. No award for any partial or total
taking shall be apportioned, and Tenant hereby assigns to Landlord any
award that may be made in such condemnation or other taking, together with
any and all rights of Tenant now or hereafter arising in or to the same or
any part thereof. Although all damages in the event of any condemnation
are to belong to Landlord whether such damages are awarded as compensation
for diminution in value of the leasehold or to the fee of the Premises,
Tenant shall have the right to claim and recover from the condemnor, but
not from Landlord, such compensation as may be separately awarded or
recoverable by Tenant in Tenant's own right on account of damages to
Tenant's business by reason of the condemnation and for or on account of
any cost or loss to which Tenant might be put in removing Tenant's
merchandise, furniture and other personal property, fixtures, and equipment
or for the interruption of or damage to Tenant's business.
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C. ABATEMENT IN RENT
In the event of a partial condemnation or other taking that does not result
in a termination of this Lease as to the entire Premises pursuant to this
Section the rent and all other charges shall abate in proportion to the
portion of the Premises taken by such condemnation or other taking. If
this Lease is terminated, in whole or in part, pursuant to any of the
provisions of this Section all rentals and other charges payable by Tenant
to Landlord hereunder and attributable to the Premises taken shall be paid
up to the date upon which actual physical possession shall be taken by the
condemnor. Landlord shall be entitled to retain all of the Security
Deposit until such time as this Lease is terminated as to all of the
Premises.
D. TEMPORARY TAKING
If all or any portion of the Premises is condemned or otherwise taken for
public or quasi-public use for a limited period of time, this Lease shall
remain in full force and effect and Tenant shall continue to perform all
terms, conditions and covenants of this Lease; provided, however, the rent
and all other charges payable by Tenant to Landlord hereunder shall abate
during such limited period in proportion to the portion of the Premises
that is rendered untenantable and unusable as a result of such condemnation
or other taking. Landlord shall be entitled to receive the entire award
made in connection with any such temporary condemnation or other taking.
Tenant shall have the right to claim and recover from the condemnor, but
not from Landlord, such compensation as may be separately awarded or
recoverable by Tenant in Tenant's own right on account of damages to
Tenant's business by reason of the condemnation and for or on account of
any cost or loss to which Tenant might be put in removing Tenant's
merchandise, furniture and other personal property, fixtures and equipment
or for the interruption of or damage to Tenant's business.
E. TRANSFER OF LANDLORD'S INTEREST TO CONDEMNOR
Landlord may, without any obligation to Tenant, once the condemning
authority has determined to acquire the same for public use, agree to sell
and/or convey to the condemnor the Premises, the Building, the Project or
any portion thereof, sought by the condemnor, free from this Lease and the
rights of Tenant hereunder, without first requiring that any action or
proceeding be instituted or, if instituted, pursued to a judgment.
SECTION XX. DEFAULT
A. TENANT'S DEFAULT
The failure by Tenant to perform any one or more of the following
obligations shall constitute a default hereunder by Tenant:
(1) If Tenant abandons all or a substantial portion of the Premises;
(2) If Tenant fails to pay any rent or other charges required to be paid
by Tenant under this Lease and such failure continues for three (3)
days after written notice thereof from Landlord to Tenant; 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 Sec. 1161, ET SEQ., as amended;
(3) If Tenant involuntarily transfers Tenant's interest in this Lease or
voluntarily transfers (attempted or actual) its interest in this
Lease, without Landlord's prior written consent;
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(4) 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
sixty (60) 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 the Premises or any of Tenant's
personal property located at the Premises and such jurisdiction,
custody or control remains in force unrelinquished, unstayed or
unterminated for a period of sixty (60) days;
(5) 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 any of Tenant's personal property located at the Premises
(or has the authority to do so) for the purpose of enforcing a lien
against the Premises or Tenant's personal property;
(6) If Tenant shall make any general assignment for the benefit of
creditors or convene a meeting of its creditors or any class thereof
for the purpose of effecting a moratorium upon or composition of its
debts, or any class thereof;
(7) If Tenant fails to discharge any lien placed upon the Premises, the
Building or the Project by Tenant or any person claiming under, by or
through Tenant within ten (10) days of the imposition of such lien;
(8) If Tenant fails to promptly and fully perform any other covenant,
condition or agreement contained in this Lease (other than
subparagraphs (1) through (7) above) and such failure continues for
ten (10) days after written notice thereof from Landlord to Tenant,
or if such failure cannot be completely cured within such ten (10)
day period, then if Tenant fails to commence such cure within such
ten (10) day period and thereafter proceed to completely cure such
failure within sixty (60) days after such written notice;
(9) 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
(1) through (8) above; or
(10) The occurrence of a default under that certain lease of even date
herewith between Landlord, as landlord, and Tenant, as tenant, for
certain other premises located within Building "B" in the Project
consisting of approximately 26,088 square feet.
B. REMEDIES
Upon the occurrence of a default by Tenant that is not cured by Tenant
within any applicable grace period specified above, Landlord shall have the
following rights and remedies in addition to all other rights and remedies
available to Landlord at law or in equity, which shall be cumulative and
non-exclusive:
(1) The right to declare this Lease and the term of this Lease
terminated; re-enter the Premises and the improvements located
thereon, with or without process of law; to eject all parties in
possession thereof therefrom; repossess and enjoy the Premises
together with all said improvements; and to recover from Tenant all
of the following:
(a) The worth at the time of award of the unpaid rent which had
been earned at the time of termination;
(b) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination
until the time of award
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exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided;
(c) 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 rental loss that Tenant proves could be
reasonably avoided; and
(d) 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, any attorneys' fees, broker's commissions or
finder's fees (not only in connection with the reletting of the
Premises, but also that portion of any leasing commission paid
by Landlord in connection with this Lease which is applicable
to that portion of the Term which is unexpired as of the date
on which this Lease is terminated); the then unamortized cost
of any tenant improvements constructed for or on behalf of
Tenant by or at the expense of Landlord or of any moving
allowance or other concession made available to Tenant and/or
paid by Landlord pursuant to this Lease; any costs for repairs,
clean-up, refurbishing, removal (including the repair of any
damage caused by such removal) and storage (or disposal) of
Tenant's personal property, equipment, fixtures, and anything
else that Tenant is required (under this Lease) to remove but
does not remove; any costs for alterations, additions and
renovations; and any other costs and expenses, including
reasonable attorneys' fees and costs, incurred by Landlord in
regaining possession of and reletting (or attempting to relet)
the Premises.
(2) The right to continue this Lease in effect and to enforce all of
Landlord's rights and remedies under this Lease, including the right
to recover rent and any other additional monetary charges as they
become due, for as long as Landlord does not terminate Tenant's right
to possession. Acts of maintenance or preservation, efforts to relet
the Premises or the appointment of a receiver upon Landlord's
initiative to protect its interest under this Lease shall not
constitute a termination of Tenant's right to possession.
(3) The right to have a receiver appointed for Tenant, upon application
by Landlord, to take possession of the Premises and to apply any
rental collected from the Premises and to exercise all other rights
and remedies granted to Landlord pursuant to this subsection.
SECTION XXI. LATE PAYMENTS/INTEREST AND LATE CHARGES
A. INTEREST
Any amount due from Tenant to Landlord which is not paid when due shall
bear interest at the maximum rate permitted by law from the date such
payment is due until paid, except that amounts spent by Landlord on behalf
of Tenant shall bear interest at such rate from the date of disbursement by
Landlord which Tenant agrees is to compensate Landlord for Tenant's use of
Landlord's money after it is due. Payment of such interest shall not
excuse or cure any default by Tenant pursuant to this Lease. Such rate
shall remain in effect after the occurrence of any breach or default
hereunder by Tenant to and until payment of the entire amount due.
B LATE CHARGES
TENANT HEREBY ACKNOWLEDGES THAT IN ADDITION TO LOST INTEREST, THE LATE
PAYMENT BY TENANT TO LANDLORD OF RENT OR ANY OTHER
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SUMS DUE HEREUNDER WILL CAUSE LANDLORD TO INCUR OTHER COSTS NOT
CONTEMPLATED IN THIS LEASE, THE EXACT AMOUNT OF WHICH WILL BE EXTREMELY
DIFFICULT AND IMPRACTICABLE TO ASCERTAIN. SUCH OTHER COSTS INCLUDE, BUT
ARE NOT LIMITED TO, PROCESSING, ADMINISTRATIVE AND ACCOUNTING COSTS, AND
LATE CHARGES WHICH MAY BE IMPOSED UPON LANDLORD BY THE TERMS OF ANY
ENCUMBRANCE COVERING THE PREMISES. ACCORDINGLY, IF ANY INSTALLMENT OF RENT
OR ANY ADDITIONAL RENT OR OTHER SUM DUE FROM TENANT SHALL NOT BE RECEIVED
BY LANDLORD WHEN SUCH AMOUNT SHALL BE DUE (AFTER EXPIRATION OF ANY GRACE
PERIOD GRANTED IN THIS LEASE), TENANT SHALL PAY TO LANDLORD AS ADDITIONAL
RENT HEREUNDER A LATE CHARGE EQUAL TO FIVE PERCENT (5 %) OF SUCH OVERDUE
AMOUNT. THE PARTIES HEREBY AGREE THAT (I) SUCH LATE CHARGE REPRESENTS A
FAIR AND REASONABLE ESTIMATE OF THE COSTS LANDLORD WILL INCUR IN PROCESSING
SUCH DELINQUENT PAYMENT BY TENANT, (II) SUCH LATE CHARGE SHALL BE PAID TO
LANDLORD AS LIQUIDATED DAMAGES FOR EACH DELINQUENT PAYMENT, AND (III) THE
PAYMENT OF THE LATE CHARGE IS TO COMPENSATE LANDLORD FOR THE ADDITIONAL
ADMINISTRATIVE EXPENSE INCURRED BY LANDLORD IN HANDLING AND PROCESSING
DELINQUENT PAYMENTS.
/s/ [Initials Unreadable] /s/ [Initials Unreadable]
Landlord's Initials Tenant's Initials
C. CONSECUTIVE LATE PAYMENT OF RENT
Following each third consecutive late payment of rent which constitutes a
default under clause (2) of subsection A. above, Landlord shall have the
option (i) to require that beginning with the first payment of rent next
due, rent shall no longer be paid in monthly installments but shall be
payable quarterly three (3) months in advance and/or (ii) to require that
Tenant increase the amount, if any, of the Security Deposit by one hundred
percent (100%), which additional Security Deposit shall be retained by
Landlord, and may be applied by Landlord, in the manner provided for
Security Deposits in this Lease.
D. NO WAIVER
Neither assessment nor acceptance of partial payments, interest or late
charges by Landlord shall constitute a waiver of Tenant's default with
respect to such overdue amount, nor prevent Landlord from exercising any of
its other rights and remedies under this Lease. Nothing contained in this
Section shall be deemed to condone, authorize, sanction or grant to Tenant
an option for the late payment of rent, additional rent or other sums due
hereunder, and Tenant shall be deemed in default with regard to any such
payments should the same not be made by the date on which the are due.
SECTION XXII. (INTENTIONALLY DELETED]
SECTION XXIII. HOLDING OVER
Any holding over by Tenant in the possession of the Premises, or any portion
thereof, after the expiration or earlier termination of the Term, with or
without the consent of Landlord, shall be construed to be a tenancy from month
to month and shall, for the first sixty (60) days thereof, be on the same terms
and conditions specified herein. From and after expiration of such sixty (60)
day period, such month-to-month occupancy shall be at one hundred fifty percent
(150%) of the Monthly Rental herein specified for the last month in the Term
(prorated on a monthly basis) unless Landlord shall specify a lesser amount for
rent in its sole discretion, together with an amount estimated by Landlord for
the monthly Common Operating Costs payable under this
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Lease, and shall otherwise be on the terms and conditions herein specified as
far as applicable. Any holding over without Landlord's consent shall constitute
a default by Tenant and shall entitle Landlord to pursue all remedies provided
in this Lease and Tenant shall be liable for any and all direct or consequential
damages or losses of Landlord resulting from Tenant's holding over without
Landlord's consent.
SECTION XXIV. ATTORNEYS' FEES
Tenant shall pay to Landlord all amounts for costs and expenses, reasonable
attorneys' fees and amounts paid to any collection agency or incurred by
Landlord in connection with any breach or default by Tenant under this Lease.
Tenant shall also pay to Landlord all such out-of-pocket amounts, including
reasonable attorneys' fees, incurred by Landlord in responding to any request
made by Tenant (a) to amend or modify this Lease or (b) to prepare any statement
or document in connection with this Lease, including without limitation estoppel
certificates or subordination agreements or the like. Such amounts shall be
payable upon demand. In addition, if any action shall be instituted by either
Landlord or Tenant for the enforcement or interpretation of any of its rights or
remedies in or under this Lease, the prevailing party shall be entitled to
recover from the losing party all costs incurred by the prevailing party in said
action and any appeal therefrom, including reasonable attorneys' fees and court
costs to be fixed by the court therein. In the event Landlord is made a party
to any litigation between Tenant and any third party, then Tenant shall pay all
costs and attorneys' fees incurred by or imposed upon Landlord in connection
with such litigation; provided, however, if Landlord is ultimately held to be
liable, then Landlord shall reimburse Tenant for the cost of any attorneys' fees
paid by Tenant on behalf of Landlord.
SECTION XXV. MORTGAGE PROTECTION/SUBORDINATION
A. SUBORDINATION
The rights of Tenant under this Lease are and shall be, at the option of
Landlord, either subordinate or superior to any mortgage or deed of trust
(including a consolidated mortgagee or deed of trust) constituting a lien
on the Premises, Building or Project, or Landlord's interest therein or any
part thereof, whether such mortgage or deed of trust has heretofore been,
or may hereafter be, placed upon the Premises by Landlord, and to any
ground or master lease if Landlord's title to the Premises or any part
thereof is or shall become a leasehold interest. To further assure the
foregoing subordination or superiority, Tenant shall, upon Landlord's
request, together with the request of any mortgagee under a mortgage or
beneficiary under a deed of trust or ground or master lessor, execute any
instrument (including without limitation an amendment to this Lease that
does not materially and adversely affect Tenant's rights or duties under
this Lease), or instruments intended to subordinate this Lease, or at the
option of Landlord, to make it superior to any mortgage, deed of trust, or
ground or master lease. Notwithstanding any such subordination, Tenant's
right to occupy the Premises pursuant to this Lease shall remain in effect
for the full Term as long as Tenant is not in default hereunder.
Notwithstanding anything to the contrary in this Lease, this Lease shall
not be subject to or subordinate to any ground or underlying lease or to
any lien, mortgage, deed of trust, or security interest now or hereafter
affecting the Premises, nor shall Tenant be required to execute any
documents subordinating this Lease, unless the ground lessor, lender, or
other holder of the interest to which this Lease would or shall be
subordinated executes a recognition and nondisturbance agreement which (i)
provides that this Lease shall not be terminated so long as Tenant is not
in default under this Lease and (ii) recognizes all of Tenant's rights
hereunder, (subject to normal and customary restrictions imposed by lenders
in connection therewith, including without limitation agreement that the
lender will not be required to honor security deposits not delivered to
lender by its borrower or be bound by rental paid more than one month in
advance or by amendments executed without the lender's consent).
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B. ATTORNMENT
Notwithstanding subsection A. above, Tenant agrees (1) to attorn to any
mortgagee of a mortgage or beneficiary of a deed of trust encumbering the
Premises and to any party acquiring title to the Premises by judicial
foreclosure, trustee's sale, or deed in lieu of foreclosure, and to any
ground or master lessor, as the successor to Landlord hereunder, (2) to
execute any attornment agreement reasonably requested by a mortgagee,
beneficiary, ground or master lessor, or party so acquiring title to the
Premises, and (3) that this Lease, subject to the rights under any
outstanding non-disturbance agreement, at the option of such mortgagee,
beneficiary, or ground or master lessor, or other party, shall remain in
force notwithstanding any such judicial foreclosure, trustee's sale, deed
in lieu of foreclosure, or merger of titles. Notwithstanding the
foregoing, neither a mortgagee of a mortgage or beneficiary of a deed of
trust encumbering the Premises, any party acquiring title to the Premises
by judicial foreclosure, trustee sale, or deed in lieu of foreclosure, or
any ground lessor or master lessor, as the successor to Landlord hereunder,
shall be liable or responsible for any breach of a covenant contained in
this Lease that occurred before such party acquired its interest in the
Premises or for any continuing breach thereof until after the successor
Landlord has received the notice and right to cure as provided herein, and
no such party shall be liable or responsible for any security deposits held
by Landlord hereunder which have not been transferred or actually received
by such party, and such party shall not be bound by any payment of rent or
additional rent for more than two (2) months in advance.
C. AMENDMENT
If any lending institution with which Landlord has negotiated or may
negotiate for financing for the Building or Project requires any changes to
this Lease, Tenant shall promptly execute and deliver an amendment to this
Lease prepared by Landlord and embodying such changes, so long as such
changes do not materially increase Tenant's obligations or materially
decrease Tenant's rights hereunder. In the event that Tenant shall fail to
execute and deliver such amendment within twenty (20) days after receipt
thereof by Tenant, such failure shall constitute a default hereunder by
Tenant and shall entitle Landlord to all remedies available to a landlord
against a defaulting tenant pursuant to a written lease, including but not
limited to those remedies set forth in Section XX.
SECTION XXVI. ESTOPPEL CERTIFICATE/FINANCIAL STATEMENTS
A. ESTOPPEL CERTIFICATE
Tenant, at any time and from time to time upon no less than ten (10) days'
prior written notice from Landlord, agrees to execute and deliver to
Landlord a statement in the form provided 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 Landlord
hereunder, or specifying such defaults if they are claimed evidencing the
status of this Lease; (c) acknowledging the amount of the Security Deposit
held by Landlord; and (d) containing such other information regarding this
Lease or Tenant as Landlord reasonably requests. Tenant's failure to
deliver an estoppel certificate within such time shall be conclusive upon
Tenant that (i) this Lease is in full force and effect without modification
except as may be represented by Landlord, (ii) to Tenant's knowledge there
are no uncured defaults in Landlord's performance, (iii) no rent has been
paid in advance except as set forth in this Lease, and (iv) such other
information regarding this Lease and Tenant set forth therein by Landlord
is true and complete.
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B. FURNISHING OF FINANCIAL STATEMENTS
Landlord has reviewed the financial statements, if any, requested of the
Tenant and has relied upon the truth and accuracy thereof with Tenant's
knowledge and representations of the truth and accuracy of such statements
and that said statements accurately and fairly depict the financial
condition of Tenant. Said financial statements are an inducing factor and
consideration for the entering into of this Lease by Landlord with this
particular Tenant. Tenant shall, at any time and from time to time upon
not less than ten (10) days prior written notice from Landlord, furnish
Landlord with its most recent publicly available financial statements, if
Tenant's stock or profit and loss interests is/are publicly traded, and
otherwise with (a) Tenant's most recent audited financial statements,
including a balance sheet and income statement, or a document in which
Tenant states that its books are not independently audited, and (b)
unaudited financial statements, including a balance sheet and income
statement, dated within ninety (90) days of the request from Landlord.
SECTION XXVII. PARKING SEE ADDENDUM SECTION XXXV.E.
Landlord agrees to maintain or cause to be maintained an automobile parking area
and to maintain and operate, or cause to be maintained and operated, said
automobile parking area during the Term of this Lease for the benefit and use of
the customers, service suppliers, other invitees and employees of Tenant.
Whenever the words "automobile parking area" or "parking area" are used in this
Lease, it is intended that the same shall include, whether in a surface parking
area or a parking structure, the automobile parking stalls, driveways, loading
docks, truck areas, service drives, entrances and exits and sidewalks,
landscaped areas, pedestrian passageways in conjunction therewith and other
areas designed for parking. Landlord shall keep said automobile parking area in
a neat, clean and orderly condition, lighted and landscaped, and shall repair
any damage to the facilities thereof, the cost of which shall be included in
Common Operating Costs as defined in Section V., above. Nothing contained
herein shall be deemed to impose liability upon Landlord for personal injury or
theft, for damage to any motor vehicle, or for loss of property from within any
motor vehicle, which is suffered by Tenant or any of its employees, customers,
service suppliers or other invitees in connection with their use of said
automobile parking area. Landlord shall also have the right to establish such
reasonable rules and regulations as may be deemed desirable, at Landlord's sole
discretion, for the proper and efficient operation and maintenance of said
automobile parking area. Such rules and regulations may include, without
limitation, (i) restrictions in the hours during which the automobile parking
area shall be open for use, and (ii) the establishment of charges for parking
therein (on either a reserved or unreserved basis, at Landlord's sole
discretion) by tenants of the Building and Project as well as by their
employees, customers and service suppliers.
Landlord shall at all times during the Term hereof have the sole and exclusive
control of the automobile parking area, and may at any time during the Term
hereof exclude and restrain any person from use or occupancy thereof; excepting,
however, Tenant and employees, customers, service suppliers and other invitees
of Tenant and of other tenants in the Building and Project who make use of said
area in accordance with any rules and regulations established by Landlord from
time to time with respect thereto. Notwithstanding anything to the contrary in
this Section XXVII, Landlord will not knowingly place other tenants in the
Project which Landlord knows, at the time, would, in the aggregate, impair
Tenant's utilization of the parking spaces to be allocated to Tenant based on
square footage. The rights of Tenant and its employees, customers, service
suppliers and invitees referred to in this Section XXVII shall at all times be
subject to (i) the rights of Landlord and other tenants in the Building and
Project to use the same in common with Tenant and its employees, customers,
service suppliers and invitees, (ii) the availability of parking spaces in said
automobile parking area, and (iii) Landlord's right to change the location of
any assigned reserved parking spaces in such instances as shall be determined at
Landlord's sole discretion. Notwithstanding Landlord's exclusive control and
obligations to provide a parking area, Landlord is not responsible or liable for
any damage to any automobiles or persons in the parking area.
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SECTION XXVIII. SIGNS; NAME OF BUILDING
Tenant shall not have the right to place, construct, or maintain on or about the
Premises, Building or Project, or in any interior portions of the Premises that
may be visible from the exterior of the Building or Common Areas, any signs,
names, insignia, trademark, advertising placard, descriptive material or any
other similar item ("Sign") without Landlord's prior written consent, which
consent will not be unreasonably withheld or delayed; provided, however, any
Signs are further subject to the provisions of the covenants, conditions and
restrictions for the Project and to approval of any applicable governmental
authority and/or compliance with applicable governmental requirements. In the
event Landlord consents to Tenant placing a Sign on or about the Premises,
Building or Project, any such Sign shall be subject to Landlord's approval of
the contents, color, size, style and location of such Sign, and shall conform to
any current or future Sign criteria established by Landlord for the Building or
Project. If Landlord enacts a Sign criteria or revises an existing Sign
criteria, after Tenant has erected a Sign to which Landlord has granted its
consent, if Landlord so elects, Tenant agrees, at Landlord's expense, subject to
Landlord's prior approval of the cost thereof, to make the necessary changes to
its Sign in order to conform the Sign to Landlord's Sign criteria, as enacted or
revised, provided that such changes shall be limited to the color, size, style
and location of Tenant's Sign and that Tenant shall not be required to change
the content of its Sign. In the event Landlord consents to Tenant's placement
of a Sign on the Building, Tenant shall, at its sole cost, remove such Sign from
the Building at the end of the Term, restore the Building to the same condition
as before the installation of the Sign, ordinary wear and tear excepted and
remove any discoloration of the Building caused by the presence of such sign.
Landlord reserves the right at any time it deems necessary or appropriate to (a)
place Signs at any location on the Building and Project as it deems necessary
and (b) change the name, address or designation of the Building and Project.
SECTION XXIX. QUIET ENJOYMENT SEE ADDENDUM SECTION XXXV.F
Upon payment by Tenant of the rents herein provided, and upon the observance and
performance of all the covenants, terms and conditions on Tenant's part to be
observed and performed, Tenant shall peaceably and quietly hold and enjoy the
Premises for the Term without hindrance or interruption by Landlord or any other
person or persons lawfully or equitably claiming by, through or under Landlord,
subject, nevertheless, to the terms and conditions of this Lease, and any
mortgage and/or deed of trust to which this Lease is subordinate.
SECTION XXX. BROKER
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 the Broker
identified in Section I.M. 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.
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SECTION XXXI. NOTICES
Any notice, demand, approval, consent, bill, statement or other communication
("Notice") required or desired to be given under this Lease shall be in writing,
shall be directed to Tenant at Tenant's Address for Notice or to Landlord at
Landlord's Address for Notice and shall be personally served or given by
pre-paid Certified U.S. Mail or "overnight" delivery service. In the case of
personal delivery, any Notice shall be deemed to have been given when delivered;
in the case of service by certified mail, any Notice shall be deemed delivered
of the date of receipt, refusal or non-delivery indicated on the return receipt;
and in the case of overnight delivery service, any Notice shall be deemed given
when delivered as evidenced by a receipt. If more than one Tenant is named
under this Lease, service of any Notice upon any one of said Tenants shall be
deemed as service upon all of such Tenants. The parties hereto and their
respective heirs, successors, legal representatives, and assigns may from time
to time change their respective addresses for Notice by giving at least fifteen
(15) days' written notice to the other party, delivered in compliance with this
Section.
SECTION XXXII. NOTICE AND CURE TO LANDLORD AND MORTGAGEE
On any act or omission by Landlord which might give, or which Tenant claims or
intends to claim gives, Tenant the right to damages from Landlord or the right
to terminate this Lease by reason of a constructive or actual eviction from all
or part of the Premises, or otherwise, Tenant shall not sue for damages or
attempt to terminate this Lease until it has given written notice of the act or
omission to Landlord and to the holder(s) of the indebtedness or other
obligations secured by any mortgage or deed of trust affecting the Premises as
identified by Landlord, and a reasonable period of time (which, in the case of
Landlord, shall be thirty (30) days, unless the cure cannot reasonably be
completed within thirty (30) days, in which case Landlord shall commence the
cure within such thirty (30) day period and thereafter diligently prosecute the
same to completion) for remedying the act or omission has elapsed following the
giving of the notice, during which time Landlord and the lienholder(s), or
either of them, their agents or employees, may enter upon the Premises and do
therein whatever is necessary to remedy the act or omission. As used in the
foregoing sentence, a "reasonable period of time" as to a mortgagee or holder of
a deed of trust means as soon as practicable under the circumstances but not
more than sixty (60) days, unless the nature of the act or omission is such that
it cannot reasonably be cured within sixty (60) days, in which case the cure
shall be commenced within such sixty (60) day period and diligently prosecuted
to completion. During the period after the giving of notice and during the
remedying of the act or omission, the Monthly Rental payable by Tenant shall not
be abated and apportioned except to the extent that the Premises are
untenantable.
SECTION XXXIII. GENERAL
A. PARAGRAPH HEADINGS
The paragraph headings used in this Lease are for the purposes of
convenience only. They shall not be construed to limit or to extend the
meaning of any part of this Lease.
B. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS
This Lease contains all agreements of Landlord and Tenant with respect to
any matter mentioned, or dealt with, herein. No prior agreement or
understanding pertaining to any such matter shall be binding upon Landlord.
Any amendments to or modifications of this Lease shall be in writing,
signed by the parties hereto, and neither Landlord nor Tenant shall be
liable for any oral or implied agreements.
LANDLORD HAS NOT MADE, AND TENANT MAY NOT RELY ON, ANY REPRESENTATIONS OR
WARRANTIES, EXPRESSED OR IMPLIED, WITH REGARD TO THE PROJECT THE BUILDING,
THE PREMISES OR OTHERWISE
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OR THE SUITABILITY THEREOF FOR TENANT'S BUSINESS, EXCEPT AS EXPRESSLY
STATED IN THIS LEASE. IN PARTICULAR, LANDLORD HAS NOT AUTHORIZED ANY AGENT
OR BROKER TO MAKE A REPRESENTATION OR WARRANTY INCONSISTENT WITH THE TERMS
OF THIS LEASE AND TENANT MAY NOT RELY ON ANY SUCH INCONSISTENT
REPRESENTATION OR WARRANTY.
C. WAIVER
Any waiver by a party of any breach of any term, covenant, or condition
contained in this Lease shall not be deemed to be a waiver by such party of
such term, covenant, or condition or of any subsequent breach of the same
or of any other term, covenant, or condition contained in this Lease. A
party's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of such party's consent to, or approval of, any
subsequent act by the other party. The acceptance of rent or other sums
payable hereunder by Landlord shall not be a waiver of any preceding breach
by Tenant of any provision hereof, other than failure of Tenant to pay the
particular rent or other sum so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of acceptance of such rent,
or sum equivalent to rent.
D. SHORT FORM OR MEMORANDUM OF LEASE
Tenant agrees, at the request of Landlord, to execute, deliver, and
acknowledge a short form or memorandum of this Lease satisfactory to
counsel for Landlord, and Landlord may, in its sole discretion, record such
short form or memorandum in the county where the Premises are located.
Tenant shall not record this Lease, or a short form or memorandum of this
Lease, without Landlord's prior written consent.
E. TIME OF ESSENCE
Time is of the essence in the performance of each provision of this Lease.
F. EXAMINATION OF LEASE
Submission of this instrument 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.
G. SEVERABILITY
If any term or provision of this Lease or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such term or provision
to persons or circumstances other than those as to which it is held invalid
or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and be enforced to the fullest
extent permitted by law.
H. SURRENDER OF LEASE NOT MERGER
Neither the voluntary or other surrender of the Lease by Tenant nor the
mutual cancellation thereof shall cause a merger of the titles of Landlord
and Tenant, but such surrender or cancellation shall, at the option of
Landlord, either terminate all or any existing subleases or operate as an
assignment to Landlord of any such subleases.
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I. CORPORATE AUTHORITY
If Tenant is a corporation, each individual executing this Lease on behalf
of Tenant represents and warrants (1) that he is duly authorized to execute
and deliver this Lease on behalf of Tenant in accordance with a duly
adopted resolution of the Board of Directors of Tenant in accordance with
the By-laws of Tenant and (2) that this Lease is binding upon and
enforceable by Landlord against Tenant in accordance with its terms. If
Tenant is a corporation, Tenant shall, concurrently with the execution and
delivery of this Lease, deliver to Landlord a certified copy of a
resolution of its Board of Directors authorizing or ratifying the execution
of this Lease.
J. GOVERNING LAW
This Lease and the rights and obligations of the parties hereto shall be
interpreted, construed and enforced in accordance with the local laws of
the State in which the Project is located.
K. FORCE MAJEURE
If the performance by a party of any provision of this Lease is delayed or
prevented by any act of God, strike, lockout, shortage of material or
labor, restriction by any governmental authority, civil riot, flood, and
any other cause not within the control of the party required to perform,
then the period for such performing party's performance of the provision
shall be automatically extended for the same time such performing party is
so delayed or hindered; provided, however, this subsection shall not delay
any period, or increase the time, for payment of rent.
L. USE OF LANGUAGE
Words of gender used in this Lease include any other gender, and words in
the singular include the plural, unless the context otherwise requires.
M. SUCCESSORS
The terms, conditions and covenants contained in the Lease inure to the
benefit of and are binding on, the parties hereto and their respective
successors in interest, assigns and legal representatives, except as
otherwise herein expressly provided. All rights, privileges, immunities
and duties of Landlord under this Lease, including without limitation,
notices required or permitted to be delivered by Landlord to Tenant
hereunder, may, at Landlord's option, be exercised or performed by
Landlord's agent or attorney.
N. NO REDUCTION OF RENTAL
Except as otherwise expressly and unequivocally provided in this Lease,
Tenant shall not for any reason withhold or reduce the amounts payable by
Tenant under this Lease, it being understood that the obligations of
Landlord hereunder are independent of Tenant's obligations. If Landlord is
required by governmental authority to reduce energy consumption or impose a
parking or similar charge with respect to the Premises, Building or
Project, to restrict the hours of operation of, limit access to, or reduce
parking spaces available at the Building, or take other limiting actions,
then Tenant is not entitled to abatement or reduction of rent or to
terminate this Lease.
0. NO PARTNERSHIP
Notwithstanding anything else to the contrary, Landlord is not, and under
no circumstances shall it be considered to be, a partner of Tenant, or
engaged in a joint venture with Tenant.
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P. EXHIBITS
All exhibits attached hereto are made a part hereof and are incorporated
herein by a reference. A complete list of said exhibits is set forth in
the Table of Contents.
Q. INDEMNITIES
The obligations of the indemnifying party under each and every
indemnification and hold harmless provision contained in this Lease shall
survive the expiration or earlier termination of this Lease to and until
the last to occur of (a) the last date permitted by law for the bringing of
any claim or action with respect to which indemnification may be claimed by
the indemnified party against the indemnifying party under such provision
or (b) the date on which any claim or action for which indemnification may
be claimed under such provision is fully and finally resolved and, if
applicable, any compromise thereof or judgment or award thereon is paid in
full by the indemnifying party and the indemnified party is reimbursed by
the indemnifying party for any amounts paid by the indemnified party in
compromise thereof or upon a judgment or award thereon and in defense of
such action or claim, including reasonable attorneys' fees incurred.
Payment shall not be a condition precedent to recovery upon any
indemnification provision contained herein.
R. NONDISCLOSURE OF LEASE TERMS
Landlord and Tenant agree that the terms of this Lease are confidential and
constitute proprietary information of the parties hereto. Disclosure of
the terms hereof could adversely affect the ability of Landlord to
negotiate with other tenants of the Project. Each of the parties hereto
agrees that such party, and its respective partners, officers, directors,
employees, agents and attorneys, shall not disclose the terms and
conditions of this Lease to any other person without the prior written
consent of the other party hereto except pursuant to an order of a court of
competent jurisdiction. Provided, however, that Landlord may
disclose the terms hereof to any lender now or hereafter having a lien on
Landlord's interest in the Project, or any portion thereof, and either
party may disclose the terms hereof to its respective independent
accountants who review its respective financial statements or prepare its
respective tax returns, to any prospective transferee of all or any
portions of their respective interests hereunder (including a prospective
sublessee or assignee of Tenant), to any lender or prospective lender to
such party, to any governmental entity, agency or person to whom disclosure
is required by applicable law, regulation or duty of diligent inquiry and
in connection with any action brought to enforce the terms of this Lease,
on account of the breach or alleged breach hereof or to seek a judicial
determination of the rights and obligations of the parties hereunder.
SECTION XXXIV. EXECUTION
This Lease may be executed in several duplicate counterparts, each of which
shall be deemed an original of this Lease for all purposes.
SECTION XXXV. ADDENDUM
See Addendum attached hereto and incorporated herein by this reference.
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IN WITNESS WHEREOF, the parties have executed this Lease, consisting of the
foregoing provisions, any typed addenda appended hereto and all Exhibits
appended hereto, on the dates indicated below, the later of which shall be
deemed the date of execution of this Lease.
"TENANT" "LANDLORD"
PEREGRINE SYSTEMS, INC., THE MUTUAL LIFE INSURANCE
a Delaware corporation COMPANY OF NEW YORK, a New York
CORPORATION
By: /s/ David Thatcher By: /s/ Charles E. Darcy, Jr.
Name: David Thatcher Name: Charles E. Darcy, Jr.
Title: VP/CFO Title: V.P.
Dated: Oct. 26, 1994
By:
Name:
Title:
Dated: 9/29/94
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ADDENDUM TO LEASE BETWEEN THE MUTUAL LIFE INSURANCE COMPANY
OF NEW YORK, AS LANDLORD, AND PEREGRINE SYSTEMS, INC., AS TENANT,
DATED October 26th, 1994
SECTION XXXV. ADDENDUM
A. OPTION TO EXTEND
Provided that Tenant is not in default hereunder (i.e., after expiration of
any applicable cure period specified in Section XX.A., without cure during
such period, if any) either at the date Tenant's notice of exercise is
given or on the date the Additional Term (as defined below) would otherwise
commence, and provided further that Tenant is entitled to and concurrently
exercises its option to extend the term of the lease between Landlord and
Tenant of even date herewith for certain other premises (the "Other
Premises") within the other building located in the Project (the "Other
Lease"), Tenant shall have the option to extend the Term by one (1)
additional period of five (5) years (the "Additional Term"). The
Additional Term shall commence, if at all, on the day after the Expiration
Date and shall continue through the fifth (5th) anniversary of the
Expiration Date specified in Section I. above (as amended pursuant to
Section III., if applicable), subject to earlier termination as provided
herein.
Such option shall be exercised, if at all, by written notice to Landlord
given at least nine (9) and no more than twelve (12) months prior to the
Expiration Date of the initial Term. If Tenant is entitled to and gives
notice in the manner and within the time set forth in this subsection A.,
then the Term shall be extended by the Additional Term, on all of the
conditions set forth in this Lease for the original Term, except that:
(1) Monthly Rental for the Additional Term and for the additional term of
the Other Lease shall be at the fair market rental value thereof, and
shall be determined concurrently, as follows:
(a) For a period of fifteen (15) days after Tenant's exercise of
the foregoing option with respect to the Additional Term,
Landlord and Tenant shall attempt to agree on the fair market
rental value for the Additional Term of this Lease and the
Other Lease. In determining fair market rental, (i) parking
charges, if any, then imposed or proposed to be imposed for
parking at the Project shall be considered and (ii) Alterations
made to the Premises by Tenant at Tenant's cost shall not be
considered. If Landlord and Tenant are unable to so agree
within such fifteen (15) day period, then each party shall, by
written notice to the other party given within ten (10) days
after expiration of such fifteen (15) day period, select an
appraiser. If either party shall fail to select an appraiser
in such manner and within such time, the single appraiser
actually selected shall perform the appraisal. Tenant shall,
by written notice to each appraiser with a copy to Landlord,
request each appraiser to obtain information from Landlord with
respect to parking charges for the Additional Term, and
Landlord shall promptly provide each appraiser the amount of
any parking charge to be assessed Tenant during the Additional
Term. If each party timely and properly selects an appraiser,
the two appraisers selected by the parties shall determine and
attempt to agree on the fair market rental value for the
Additional Term of this Lease and the Other Lease within thirty
(30) days after their appointment; if they are unable to so
agree and their appraised values differ by more than five
percent (5%) in the aggregate over the Additional Term of this
Lease and/or the Other Lease, the two appraisers shall, by
written notice to Landlord and Tenant, select a third appraiser
within five (5) days after expiration of the thirty (30) day
period within which they were to determine and agree on the
fair market
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rental, which third appraiser shall analyze the fair market
rental for the additional term for each lease with respect to
which such difference in appraisals exists. If they cannot
agree on a third appraiser within such time period, or if both
parties fail to select an appraiser in the manner and within
the time herein provided, either party may have the third (or
sole, if applicable) appraiser appointed by application to the
presiding judge of the San Diego County Superior Court or his
or her designee. If the appraised value of the first two
appraisers are within five percent (5%) in the aggregate over
the Additional Term for either or both this Lease and the Other
Lease, then Landlord shall calculate the average of the two
appraised values as a flat rental rate for the proposed term of
such lease(s), which average shall be the fair market rental
rate for the Additional Term of such lease(s).
(b) The appraisers shall have the MAI designation and a minimum of
ten (10) years experience in the San Diego office market. Each
of the first two appraisers shall analyze the fair market
rental value of the Premises and the premises which are the
subject of the Other Lease and shall give written notice to the
parties of his or her appraisal within thirty (30) days
following his or her appointment or selection, but in no event
later than the commencement of the Additional Term. If a
single appraiser is used, his or her determination shall be the
fair market rental rate. If three appraisers are used, the
third appraiser shall select one of the values determined by
the first two appraisers as the fair market rental rate for any
lease with respect to which the appraisals differ by more than
five percent (5%). The cost of the appraisals shall be shared
equally by Landlord and Tenant.
(2) The provisions of Section III. and EXHIBIT C. of this Lease shall not
apply; and
(3) There shall be no further options to extend the Term.
B. COMMON OPERATING COSTS
The Project consists of the Building and one other building, consisting in
the aggregate of approximately 122,719 square feet of Rentable Area,
together with surface parking, hardscaping and landscaping. Included in
Common Operating Costs for the purposes of this Lease are the Building's
Proportionate Share of "Project Operating Costs", which shall be the
aggregate of all commercially reasonable costs and expenses payable by
Landlord in connection with the operation and maintenance of the Common
Areas of the Project (i.e., those areas of the Project which service both
of the buildings within the Project), including, but not limited to, those
items of costs and expenses set forth in clauses (a) through (o) of Section
V.A.(3) of the Lease. Landlord may allocate one or more items included
within Project Operating Costs between the buildings within the Project
other than strictly pro rata based on their respective Rentable Area if
Landlord determines in its sole but reasonable discretion that it is
appropriate to do so in order to reflect usage of items or services
included in Project Operating Costs.
C. USE OF PREMISES/HAZARDOUS MATERIALS
Landlord has disclosed to Tenant certain information regarding the presence
(or lack thereof) of Hazardous Materials in or about the Project by
delivery to Tenant of a copy of the Phase I Environmental Assessment Report
dated January 19, 1994 prepared by Woodward-Clyde Consultants with respect
to the Project (the "Report"), receipt and review of which Tenant
acknowledges by its execution and delivery of this Lease. To the extent
that the Report indicates the presence of Hazardous Materials which would
require removal, remediation or adoption of an "OEM" plan, Tenant agrees to
cooperate
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fully with Landlord in connection therewith and comply fully with the
provisions of any such plan implemented by Landlord.
D. HVAC
(1) Landlord warrants that, as of the Lease Commencement Date, the HVAC
system servicing the Building and the other building in the Project
(the "System") will be in good condition and repair; provided,
however, Tenant acknowledges and agrees that the foregoing warranty
is not and shall not be construed as any representation, warranty
and/or covenant that such System is adequate for Tenant's needs or
is capable of performing to any particular standard, it being
acknowledged and agreed that Landlord has agreed to make available
to Tenant the Loan described in Addendum Section XXXV.D.(2) of the
Other Lease as Landlord's sole agreement with respect to the
sufficiency of the System. Tenant's recourse for any breach of the
foregoing warranty shall be limited to a claim for damages.
(2) Tenant shall obtain and maintain throughout the Term a maintenance
contract for the System as it pertains to the Building with a
service company, and a scope of services, reasonably acceptable to
Landlord. Tenant shall provide to Landlord a copy of such contract,
which shall require notice to Landlord at least ten (10) days prior
to cancellation or early termination thereof by either party. Prior
to expiration of such contract, Tenant shall provide Landlord with
evidence of renewal or replacement thereof, in each case on terms
approved by Landlord in advance.
(3) Landlord has provided to Tenant a loan to enhance the HVAC system, on
the term and conditions set forth in the Other Lease.
E. PARKING
Parking within the parking area adjacent to the Building (1) is currently
provided at a ratio of 3.6 spaces for every 1,000 square feet leased, (2)
is in common with other tenants of the Project and (3) is free (subject
to applicable governmental requirements and Section V.) for the initial
Term. Access to the parking areas is and will continue to be, subject to
applicable governmental requirements, available twenty-four (24) hours
per day. Landlord will designate, for Tenant's use, up to ten (10) of
such spaces as reserved spaces, but shall have no obligation to monitor
or enforce usage of such spaces by Tenant or other persons. During the
Additional Term, if any, Landlord may charge for the use of parking stalls
so long as it is considered in the appraisal of Monthly Rental performed
pursuant to Section XXXV.A.
F. SIGNAGE
Tenant may, at Tenant's sole cost and expense, erect a sign displaying
the name specified in Section 1.B above (only) on the exterior of the
Building, the exact location, size, material, method of application and
color of which shall be in accordance with any covenants, conditions and
restrictions encumbering the Project and all applicable sign codes or
ordinances and shall be subject to Landlord's and the City of San Diego's
prior written approval. Tenant shall be responsible to remove said sign
at the expiration or earlier termination of the Term, at its sole cost
and expense, and shall repair any damage caused by such removal,
including any discoloration of the Building, in connection therewith,
also at Tenant's sole cost and expense. In no event shall Tenant's name
on any signage visible from the exterior of the Building or Project be
changed without Landlord's prior written consent, which may be withheld
(subject to Section XVI.K) in Landlord's reasonable discretion. Any
change in signage shall be subject to the provisions of the first two
sentences of this Addendum Section XXXV.F. Notwithstanding anything to
the contrary in this Lease, all Permitted Transferees and other assignees
of this Lease or subleasees of the Premises to whom Landlord consents
shall have the rights granted to Tenant pursuant to this subsection to
erect a sign on the exterior of the Building displaying the name of such
assignee or subleasee.
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G. SECURITY DEPOSIT
In lieu of cash in the amount specified in Section I.K. of the Lease,
Tenant shall deliver to Landlord, concurrently with the execution hereof,
an irrevocable letter of credit in the amount of $83,516.62 from an
independent financial institution reasonably acceptable to Landlord in the
form of EXHIBIT G hereto (the "Letter of Credit") as security for Tenant's
obligations pursuant to this Lease. The Letter of Credit shall be renewed
by Tenant on or before its expiration date. If Tenant shall fail to cause
any new and irrevocable Letter of Credit to be issued as required
hereunder, which failure continues for three (3) days after written notice
thereof from Landlord to Tenant, then Landlord shall have the option to
terminate this Lease, and such failure by Tenant shall be deemed an event
of default by Tenant and shall be Subject to all of the provisions of
Section XXI. of the Lease. The Letter of Credit shall permit partial
draws. Landlord may draw upon the Letter of Credit in any circumstance
which would permit Landlord to use the Security Deposit described in
Section VI. of the Lease.
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H. INTERPRETATION
This Addendum is attached to and forms a part of the Lease. In the event
of any inconsistency between the provisions of this Addendum and the
balance of the Lease, the provisions of this Addendum shall control.
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EXHIBIT A
SITE PLAN FOR THE PROJECT
[Graphic Omitted}
<PAGE>
EXHIBIT B - PG. 1
FLOOR PLAN OF THE PREMISES
[Graphic Omitted]
<PAGE>
EXHIBIT B - PG. 2
FLOOR PLAN OF THE PREMISES
[Graphic Omitted]
<PAGE>
EXHIBIT C
WORK LETTER
In connection with the Lease to which this Work Letter is attached and in
consideration of the mutual covenants hereinafter contained, Landlord and Tenant
agree as follows:
1. WORK SCHEDULE
Landlord shall deliver to Tenant, for Tenant's review and approval, a schedule
(the "Work Schedule") setting forth a timetable for the preparation and approval
of all space plans and working drawings and for the planning and completion of
the installation of tenant improvements to be constructed in the Premises (the
"Tenant Improvements"). The Work Schedule shall set forth each of the various
items of work to be done by or approval to be given by Landlord and Tenant in
connection with the completion of the Tenant Improvements. The Work Schedule
shall be submitted to Tenant for its approval and, upon approval by both
Landlord and Tenant, such schedule shall become the basis for completing the
Tenant Improvements. If Tenant shall fail to approve the Work Schedule, as it
may be modified after discussions between Landlord and Tenant, within five (5)
days after the date such Work Schedule is first received by Tenant, then Tenant
shall be deemed to have approved such Work Schedule.
2. SPACE PLANS AND WORKING DRAWINGS
a) SPACE PLANS. Tenant and Landlord have had Howard and Sneed
Architects ("H & S") prepare a space plan for the Premises AND the premises
which are subject of the Other Lease (the "Other Premises") dated June 1,
1994 (the "Space Plans"), which Landlord and Tenant agree shall be the basis
for preparation by Landlord's architect, H & S, of working drawings for the
Tenant Improvements and the tenant improvements for the Other Premises (the
"Other Tenant Improvements"). Tenant acknowledges and agrees that, absent
Landlord's written agreement to the contrary, any deviations from the Space
Plans shall be considered "Non-Building Standard Work" for the purposes of
this EXHIBIT C. Landlord shall reimburse to Tenant the lesser of $15,000.00
or the actual programming fee paid by Tenant to H & S, upon receipt by
Landlord of documentary evidence satisfactory to Landlord as to the amount of
such fee and that the services performed relate to the Space Plans.
b) WORKING DRAWINGS. Based upon the Space Plans, as the same may be
revised by mutual agreement of Landlord and Tenant as to the scope of such
revisions, and after Tenant's written acknowledgement (within three (3) days
after request therefor) of its responsibility for the costs of such revisions
and for the costs of Tenant Improvements and the Other Tenant Improvements in
the aggregate, in excess of $1,050,000.00, Landlord's architect and engineer
shall prepare final working drawings (the "Working Drawings") of the Tenant
Improvements. Landlord shall then submit such Working Drawings to Tenant for
its review, and Tenant shall approve or disapprove any such drawings within
three (3) business days after receipt thereof. If Tenant fails to so notify
Landlord within such three (3) business days, Tenant shall be deemed to have
approved such Working Drawings. If Tenant timely notifies Landlord of any
disapproval of the Working Drawings, Tenant's notice of disapproval shall also
set forth its reason for disapproval and suggested revisions to the Working
Drawings in order to satisfy the concerns of Tenant. Any delay resulting from
Tenant's failure to unconditionally approve the Working Drawings within the
later of thirty (30) days after execution of this Lease or five (5) days after
delivery of the Working Drawings to Tenant shall be Tenant Delay, and shall not
extend the Commencement Date. Landlord shall have no obligation to proceed with
Landlord's Work until Tenant has unconditionally approved the Working Drawings
therefor. The Working Drawings shall include architectural, mechanical and
electrical drawings for Landlord's Work (as defined in Section 5 below).
c) CHANGES IN PLANS. Any changes requested by Tenant in the Space
Plans, or in the Working Drawings or other plans and specifications after
approval thereof by Tenant or
EXHIBIT C, PAGE 1
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submission thereof by Tenant to Landlord, shall (subject to Landlord's agreement
to be responsible for an aggregate of $1,050,000.00 of the costs of the Tenant
Improvements and the Other Tenant Improvements) be prepared at Tenant's sole
cost and expense, and any excess costs resulting from such changes, shall also
be at Tenant's sole cost and expense. Furthermore, Tenant shall be liable for
any resulting delays in completing the Tenant Improvements and the increased
costs in completing the Building Standard Work, if any, resulting from such
delays. Notwithstanding the foregoing, Landlord will not approve any change
orders without Tenant's consent and, if Landlord does so, Landlord will be
responsible for excess costs resulting from any such change order.
(d) NON-BUILDING STANDARD WORK. Tenant may request work (hereinafter
referred to as "Non Building Standard Work") different from or in addition to
the improvements reflected on the Space Plans as described in Section 2(a)
hereof to be performed by Landlord as part of the Tenant Improvements; provided,
however, that all Non-Building Standard Work shall be subject to Landlord's
prior written consent and approval, and shall be of a quality that exceeds or is
commensurate with the quality of materials included in the Space Plans. Any
plans, specifications and Working Drawings required for such Non-Building
Standard Work shall also be prepared by Landlord's architect and engineer but at
Tenant's expense.
(e) LANDLORD'S APPROVAL. All plans, specifications and Working Drawings
for the Premises and all Non-Building Standard Work requested by Tenant are
subject to Landlord's approval.
(f) COMPLIANCE WITH LAW. Tenant's plans and specifications shall not be
in conflict with building codes of the City of San Diego or with insurance
regulations for a fire resistive Class A building. All plans and specifications
shall be in a form satisfactory to appropriate governmental authorities
responsible for issuing permits and licenses required for construction. In the
event any additional work is required by any governmental authority for the
Non-Building Standard Work in order to obtain the issuance of any permit or
license for the construction of the Tenant Improvements, Tenant shall be solely
responsible for the cost of such additional work.
3. BUILDING PERMIT
After approval by Landlord and Tenant of the Working Drawings for the Tenant
Improvements, Landlord shall submit the drawings to the appropriate governmental
body for plan checking and a building permit. Landlord, with Tenant's
cooperation, shall cause to be made any change in the Working Drawings necessary
to obtain the building permit. After final approval of the Working Drawings, no
further changes thereto may be made without the prior written approval of both
Landlord and Tenant, and then only after agreement by Tenant to pay any excess
costs resulting from such changes.
4. PRICE APPROVAL; NON-BUILDING STANDARD WORK AT TENANT'S EXPENSE
(a) COST APPROVAL. Tenant agrees to pay the cost of all work necessary
to complete the Tenant Improvements and the Other Tenant Improvements in
accordance with the Working Drawings in excess of $1,050,000.00, in the
aggregate, together with the cost of any improvements to the "System" in excess
of the proceeds of the "Loan" (as such terms are defined in Section XXXV.D. of
the Lease; herein, the "Excess System Costs"), excluding only (1) architects'
and engineering fees incurred in preparing from the approved Space Plans the
Working Drawings, as initially approved by Landlord and Tenant, (2) costs
resulting from gross negligence or willful misconduct of Landlord or its agents,
employees or contractors in the performance of Landlord's Work, (3) costs
resulting from a breach by Landlord or those engaged by Landlord to perform
Landlord's Work of a contract for the Tenant Improvements or Other Tenant
Improvements, or resulting from defects in construction of Landlord's Work, (4)
costs incurred in performing Landlord's Work which are reimbursed from available
bonding or insurance proceeds, (6) costs to construct alterations or
improvements (i) to the Common Areas which are necessary to obtain permits
required for the lawful occupancy of the Premises by Tenant or (ii) to areas or
portions of the Premises or the improvements therein which are not within the
scope
EXHIBIT C, PAGE 2
<PAGE>
of the Tenant Improvements and which are necessary to correct any violation of
law existing as of the date of execution hereof which would be required to be
corrected whether or not the Landlord's Work was being performed (i.e.,
excluding those which would have been "grandfathered" but for landlord's Work,
and excluding also plan check corrections), and (7) interest and fees charged by
Landlord for financing the construction of Landlord's work. Concurrent with the
plan checking referred to in Section 3 above, Landlord shall prepare and submit
to Tenant bids from subcontractors for all work included in the Tenant
Improvements and Other Tenant Improvements and for the Excess System Costs
required by the approved plans, specifications and Working Drawings, together
with an amount equal to twelve percent (12%) of the total of such bids which
shall be the construction management fee payable to Ares, Inc., an affiliate of
Landlord (collectively the "Bid Amount"). If Tenant approves the Bid Amount, it
shall pay Landlord such costs in advance within five (5) days after Tenant's
approval thereof. If Tenant fails to approve the Bid Amount, or fails to
deliver the excess costs within five (5) days after approving the Bid Amount,
Landlord shall not proceed with the Tenant Improvements, Other Tenant
Improvements or the work pertaining to the Excess System Costs. If Tenant fails
to approve, or disapprove, the Bid Amount, Landlord and Tenant shall thereafter
cooperate to amend the plans and specifications for the Premises as necessary to
obtain Tenant's approval of the cost of the Tenant Improvements, Other Tenant
Improvements and/or the Excess System Costs; provided, however, that the
construction management fee shall not be reduced below twelve percent (12%) of
the total bids provided, further, that Tenant shall pay any costs resulting from
such changes and Tenant shall be liable for the delay in completing the affected
Tenant Improvements and Other Tenant Improvements and Excess System
improvements, if any, resulting from such delay, which delay shall not extend
the Commencement Date or the accrual of rental under the lease.
(b) OVERHEAD COSTS. The cost of the Tenant Improvements, Other Tenant
Improvements and the Excess System Costs paid by Tenant as set forth above shall
include contractor's charges.
5. CONSTRUCTION OF TENANT IMPROVEMENTS
After the Working Drawings for the Tenant Improvements have been approved by
Tenant and Landlord and a building permit has been issued, Landlord shall cause
its construction manager, Ares, Inc., to cause the Tenant Improvements to be
completed in accordance with the approved plans, specifications and Working
Drawings ("Landlord's Work"), subject to "Force Majeure" (as that term is
defined by Section XXXIII.K. of the Lease). Landlord shall require Landlord's
construction manager to obtain competitive bids for each major trade included
within Landlord's Work, where possible, and to enter into subcontracts with
either a stipulated sum or guaranteed maximum price such that the total costs of
the work on which bids are submitted, with the construction management fee, do
not exceed the approved Bid Amount. However, and not withstanding the
foregoing, installation or construction of Non-Building Standard Work and/or
work pertaining to Excess System Costs (and the affected Tenant Improvements or
Other Tenant Improvements) shall not commence until Tenant shall have approved
and paid to Landlord the estimated cost thereof and in accordance with Section 4
above. Subject to the foregoing, landlord shall use its best efforts to secure
completion of the Tenant Improvements on or before the target Lease Commencement
Date set forth in Section I.G. of the Lease. Unless specified to the contrary
herein, all Tenant Improvements shall be included in Landlord's Work.
6. WORK
(a) TENANT IMPROVEMENTS. Subject to Tenant's payment to Landlord of
the excess costs of the Tenant Improvements, Other Tenant Improvements and
Excess System Costs pursuant to Section 4(a) above, the Landlord agrees to
furnish all of the Tenant Improvements and Other Tenant Improvements specified
in the Space Plan and Working Drawings for the Premises.
(b) WARRANTIES. Landlord hereby agrees to assign and transfer to Tenant
the benefit of any and all warranties received by Landlord from its general
contractor for the construction
EXHIBIT C, PAGE 3
<PAGE>
of the Tenant improvements and any and all warranties received from any
suppliers of materials for the Tenant Improvements.
7. COMPLETION AND LEASE COMMENCEMENT DATE
If the Lease Commencement Date of the Lease as determined under Sections I.G.
and III. of the Lease is delayed by any of the following, then the Lease
Commencement Date of the Lease and the payment of rent shall be accelerated by
the number of days of such delay:
(a) Tenant's failure to approve or furnish Working Drawings or failure to
approve or furnish any other amount or item or perform any other obligation in
accordance with and by the dates specified herein or in the Work Schedule.
(b) Delays of any nature within Tenant's control resulting from Tenant's
decision to use any materials, finishes, or installations other than as
designated on the Space Plans.
(c) Tenant's changes in the Space Plans, Working Drawings or other plans
and specifications after the approval thereof by Tenant or submission thereof by
Tenant to Landlord.
(d) Delays in the construction of the Tenant Improvements as a result of
Tenant's failure to approve, written estimates of and pay the excess costs of
the Tenant Improvements, Other Tenant Improvements and/or Excess System Costs in
accordance with Section 4.
8. FURNITURE AND TELEPHONE SYSTEM
Tenant acknowledges and agrees that Tenant is solely responsible, both as to
performance and payment of costs, for "Tenant's Work", which includes obtaining,
delivering and installing in the Premises all necessary or desired furniture,
telephone equipment, telephone cabling (all telephone cabling provided by Tenant
shall be teflon coated), telephone service, business equipment, art work and
other similar items, and that Landlord shall have no responsibility whatsoever
with regard thereto. Tenant further acknowledges and agrees that neither the
Lease Commencement Date of the Lease nor the payment of rent shall be delayed
for any period of time whatsoever due to any delay in the furnishing of the
Premises with such items. Tenant agrees to cause all telephone, computer and
other electronic wires and cables installed within the Premises and within the
common ducts and shafts of the Building to be properly labeled in order that
they may be easily identified and distinguished from other tenants' wires and
cables installed within the Building.
9. FAILURE OF TENANT TO COMPLY
Any failure of Tenant to comply with any of the provisions contained in this
EXHIBIT C, within the times for compliance herein set forth, shall, after
expiration of the applicable cure period set forth in Section XX. of the Lease,
be deemed a default pursuant to the Lease. In addition to the remedies provided
to Landlord in this EXHIBIT C, upon the occurrence of such a default by Tenant,
Landlord shall have all remedies available at law or equity to a landlord
against a defaulting tenant pursuant to a written lease, including but not
limited to those set forth in Section XX. DEFAULT and Section XXIV. ATTORNEYS'
FEES of the Lease.
10. AUTHORIZED APPROVALS
All approvals required pursuant to the terms of this Work Letter or requests for
changes and modifications to the Space Plans, Working Drawings or any other
matter relating to the construction of the Tenant Improvements shall be deemed
given if approved or requested in writing by Tenant's construction
representative, for Tenant, and Landlord's construction representative, for
Landlord.
EXHIBIT C, PAGE 4
<PAGE>
11. DESTRUCTION
If at any time prior to the completion of the Tenant Improvements a casualty
occurs resulting in any damage or destruction of the partially completed Tenant
Improvements or the Premises or Building, the terms and conditions of Section
XVIII. DAMAGE AND DESTRUCTION of the Lease shall govern the rights and
obligations of the parties.
EXHIBIT C, PAGE 5
<PAGE>
EXHIBIT D
RENT SCHEDULE
Monthly Rental Monthly
Rate (Per Sq. Ft. Rental Monthly Rental
Months of Rentable Area) Waiver * Payable
------ ------------------ ---------- ----------------
1-2 $0.91 $62,810.02 $ 0.00
3-14 0.91 0.00 62,810.02
15-26 0.94 0.00 64,880.68
27-38 0.97 0.00 66,951.34
39-50 1.00 0.00 69,022.00
51-62 1.04 0.00 71,782.88
63-74 1.09 0.00 75,233.98
75-86 1.15 0.00 79,375.30
87-98 1.21 0.00 83,516.62
* Landlord hereby conditionally excuses Tenant from the payment of
Monthly Rental during the months and in the amounts designated as
"Monthly Rental Waiver" as specified above, provided that Tenant
shall pay all other charges under this Lease from and after the Lease
Commencement Date and provided further that Tenant shall not be in
material default in its obligations under this Lease. Should Tenant
at any time during the Term be in material default under the Lease
and not cure such default within the cure periods provided in the
Lease, then the total sum of such Monthly Rental so conditionally
excused shall become immediately due and payable by Tenant to
Landlord. If at the date of expiration of the Term, Tenant has not so
defaulted, Landlord shall waive any payment of all such Monthly
Rental so conditionally excused.
The term "Rentable Area" as used in the Lease shall mean:
(1) As to each floor of the Building on which the entire space rentable
to tenants is or will be leased to one tenant (hereinafter referred
to as a "Single Tenant Floor"), Rentable Area shall be the entire
area bounded by the inside surface of the four exterior glass walls
(or the inside surface of the permanent exterior wall(s) where there
is no glass) on such floor, including all areas used for elevator
lobbies, corridors, special stairways, or elevators, restrooms,
mechanical rooms, electrical rooms and telephone closets without
deduction for columns and other structural portions of the Building
or vertical penetrations that are included for the special use of the
tenant of such floor together with a portion of the covered or
enclosed common facilities which constitute a part of the Building
and which are maintained by Landlord for the common benefit of all
tenants of the Building which bears the same proportion to the total
area of such common facilities as the Rentable Area of each Single
Tenant Floor bears to the Rentable Area of the Building (excluding
such common facilities), but excluding the area contained within the
exterior walls of the Building stairs, fire towers, vertical ducts,
elevator shafts, flues, vents, stacks and pipe shafts.
EXHIBIT D
(2) As to each floor of the Building on which space is or will be leased
to more than one tenant, Rentable Area attributable to each such lease
shall be the total of (i) the entire area including within the premises
covered by such lease, being the area bounded by the inside surface of
any exterior glass walls (or the inside surface of the permanent
exterior wall(s) where there is no glass) of the Building bounding such
premises, the exterior of all walls separating such premises from any
public corridors or other public areas on such floor, and the centerline
of all walls separating such premises from other areas leased or to be
leased to other tenants on such floor, (ii) that portion outside the
Premises but within space intended for use or occupancy as premises by
another tenant utilized by Tenant for wiring, ducts, vents or other
requirements of Tenant's operation in the Premises, (iii) that portion
of the covered or enclosed common facilities which constitute a part of
the Building and which are maintained by Landlord for the common benefit
of all tenants of the Building which bears the same proportion to the
total area of such common facilities as the Rentable Area of such
Premises bears to the Rentable Area of the Building (excluding such
common facilities), and (iv) a pro rata portion of any area of the
Building devoted to common features such as elevator lobbies, corridors,
restrooms, mechanical rooms, electrical rooms and telephone closets, but
excluding any area contained within the exterior walls of the Building
for stairs, fire towers, vertical ducts, elevator shafts, flues, vents,
stacks and pipe shafts.
(3) For purposes of establishing the Monthly Rental and Tenant's
Proportionate Share of Common Operating Costs, the Rentable Area of the
Premises is deemed to be as set forth in Section I.E. above., and the
Rentable Area of the Building is deemed to be 69,022 feet.
<PAGE>
EXHIBIT E
RULES AND REGULATIONS
ATTACHED TO AND MADE A PART OF THE LEASE
The following Rules and Regulations shall be in effect at the Building.
Landlord reserves the right to adopt reasonable modifications and additions
hereto. In the case of any conflict between these regulations and the Lease,
the Lease shall be controlling. Landlord shall have the right to waive one or
more rules for the benefit of a particular tenant in Landlord's reasonable
discretion.
1. Except with the prior written consent Landlord, no tenant shall conduct any
retail sales in or from the Premises, or any business other than that
specifically provided for in the Lease. There shall be no solicitation by
Tenant of other tenants or occupants of the Building.
2. Landlord reserves the right to prohibit personal goods and services vendors
from access to the Building except upon such reasonable terms and
conditions, including but not limited to a provision for insurance
coverage, as are related to the safety, care and cleanliness of the
Building, the preservation of good order thereon, and the relief of any
financial or other burden on Landlord occasioned by the presence of such
vendors or the sale by them of personal goods or services to a tenant or
its employees. If reasonably necessary for the accomplishment of these
purposes, Landlord may exclude a particular vendor entirely or limit the
number of vendors who may be present at any one time in the Building. The
term "personal goods or services vendors" means persons who periodically
enter the Building of which the Premises are a part for the purpose of
selling goods or services to a tenant, other than goods or services which
are used by a tenant only for the purpose of conducting its business on the
Premises. "Personal goods or services" include, but are not limited to,
drinking water and other beverages, food, barbering services, and
shoeshining services.
3. The sidewalks, halls, passages, elevators and stairways shall not be
obstructed by any tenant or used by it for any purpose other than for
ingress to and egress from their respective Premises. The halls, passages,
entrances, elevators, stairways, balconies, janitorial closets, and roof
are not for the use of the general public, and Landlord shall in all cases
retain the right to control and prevent access thereto of all persons whose
presence in the judgment of Landlord shall be prejudicial to the safety,
character, reputation and interests of the Building and its tenants,
provided that nothing herein contained shall be construed to prevent such
access to persons with whom Tenant normally deals only for the purpose of
conducting its business on the Premises (such as clients, customers, office
suppliers and equipment vendors, and the like) unless such persons are
engaged in illegal activities. No tenant and no employees of any tenant
shall go upon the roof of the Building without the written consent of
Landlord.
4. The sashes, sash doors, windows, glass lights, and any lights or skylights
that reflect or admit light into the halls or other places of the Building
shall not be covered or obstructed. The toilet rooms, water and wash
closets and other water 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, and the expense of any breakage,
stoppage or damage, resulting from the violation of this rule shall be home
by the tenant who, or whose clerks, agents, employees, or visitors, shall
have caused it.
5. No sign, advertisement or notice visible from the exterior of the Premises
or Building shall be inscribed, painted or affixed by Tenant on any part of
the Building or the Premises without the prior written consent of Landlord.
If Landlord shall have given
EXHIBIT E, Page 1
<PAGE>
such consent at any time, whether before or after the execution of this
Lease, such consent shall in no way operate as a waiver or release of any
of the provisions hereof or of this Lease, and shall be deemed to relate
only to the particular sign, advertisement or notice so consented to by
Landlord and shall not be construed as dispensing with the necessity of
obtaining the specific written consent of Landlord with respect to each and
every such sign, advertisement or notice other than the particular sign,
advertisement or notice, as the case may be, so consented to by Landlord.
6. In order to maintain the outward professional appearance of the Building,
all window coverings to be installed at the Premises shall be subject to
Landlord's prior reasonable approval. If Landlord, by a notice in writing
to Tenant, shall object to any curtain, blind, shade or screen attached to,
or hung in, or used in connection with, any window or door of the Premises,
such use of such curtain, blind, shade or screen shall be forthwith
discontinued by Tenant. No awnings shall be permitted on any part of the
Premises.
7. Tenant shall not do or permit anything to be done in the Premises, or bring
or keep anything therein, which shall in any way increase the rate of fire
insurance on the Building, or on the property kept therein, or obstruct or
interfere with the rights of other tenants, or in any way injure or annoy
them; or conflict with the regulations of the Fire Department or the fire
laws, or with any insurance policy upon the Building, or any part thereof,
or with any rules and ordinances established by the Board of Health or
other governmental authority. Tenant shall not bring into, or permit or
suffer in, the Building or the Project, any weapons or firearms of any
kind.
8. No safes or other objects larger or heavier than the freight elevators of
the Building are limited to carry shall be brought into or installed in the
Premises. Landlord shall have the power to prescribe the weight, method of
installation and position of such safes or other objects. The moving of
safes shall occur only between such hours as may be designated by, and only
upon previous notice to, the manager of the Building, and the persons
employed to move safes in or out of the Building must be acceptable to
Landlord. No freight, furniture or bulky matter of any description shall
be received into the Building or carried into the elevators except during
hours and in a manner approved by Landlord.
9. Landlord shall clean the Premises as provided in the Lease, and except with
the written consent of Landlord, no person or persons other than those
approved by Landlord will be permitted to enter the Building for such
purpose, but Tenant shall not cause unnecessary labor by reason of Tenant's
carelessness and indifference in the preservation of good order and
cleanliness.
10. No tenant shall sweep or throw or permit to be swept or thrown from the
Premises any dirt or other substance into any of the corridors or halls or
elevators, or out of the doors or windows or stairways of the Building, and
Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors and/or
vibrations, or interfere in any way with other tenants or those having
business therein, nor shall any animals, firearms or birds be kept in or
about the Building. The Building has been designated as non-smoking;
smoking or carrying lighted cigars or cigarettes in each and every part of
the Building, including lobbies, elevators or other common areas, is
prohibited.
11. Except for the use of microwave ovens and coffee makers for Tenant's
personal use, no cooking shall be done or permitted by Tenant on the
Premises, nor shall the Building be used for lodging.
EXHIBIT F, Page 2
<PAGE>
12. Tenant shall not use or keep in the Building any kerosene, gasoline, or
inflammable fluid or any other illuminating material, or use any method of
heating other than that supplied by Landlord.
13. If Tenant desires telephone or telegraph connections, Landlord will direct
electricians as to where and how the wires are to be introduced. No boring
or cutting for wires or other otherwise shall be made without directions
from Landlord.
14. Each tenant, upon the termination of its tenancy, shall deliver to Landlord
all the keys of offices, rooms and toilet rooms, and security access
card/keys which shall have been furnished such tenant or which such tenant
shall have had made, and in the event of loss of any keys so furnished,
shall pay Landlord therefor.
15. No Tenant shall lay linoleum or other similar floor covering so that the
same shall be affixed to the floor of the Premises in any manner except by
a paste, or other material which may easily be removed with water, the use
of cement or other similar adhesive materials being expressly prohibited.
The method of affixing any such linoleum or other similar floor covering to
the floor, as well as the method of affixing carpets or rugs to the
Premises shall be subject to reasonable approval by Landlord. The expense
of repairing any damage resulting from a violation of this rule shall be
borne by Tenant by whom, or by those agents, clerks, employees or visitors,
the damage shall have been caused.
16. No furniture, packages or merchandise will be received in the Building or
carried up or down in the elevators, except between such Building hours and
in such elevators as shall be designated by Landlord.
17. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 7:00 a.m. access to the Building or to the halls,
corridors, elevators or stairways in the Building, or to the Premises, may
be refused unless the person seeking access is known to the building
watchman, if any, in charge and has a pass or is properly identified.
Landlord shall in no case be liable for damages for the admission to or
exclusion from the Building of any person whom Landlord has the right to
exclude under Rule 3 above. In case of invasion, mob, riot, public
excitement, or other commotion, Landlord reserves the right but shall not
be obligated to prevent access to the Building during the continuance of
the same by closing the doors or otherwise, for the safety of the tenants
and protection of property in the Building.
18. Tenant shall see that the windows and doors of the Premises are closed and
securely locked before leaving the Building and Tenant shall exercise
extraordinary care and caution that all water faucets or water apparatus
are entirely shut off before Tenant or Tenant's employees leave the
Building, and that all electricity, gas or air shall likewise be carefully
shut off, so as to prevent waste or damage, and for any default or
carelessness Tenant shall make good all injuries sustained by other tenants
or occupants of the Building or Landlord.
19. Tenant shall hot alter any lock or install a new or additional lock or any
bolt on any door of the Premises without prior written consent of Landlord.
If Landlord shall give its consent, Tenant shall in each case furnish
Landlord with a key for any such lock. Landlord shall have the right to
impose a charge for each key issued and for rekeying any lock or bolt on
any door of the Premises.
20. Tenant shall not install equipment, such as but not limited to electronic
tabulating or computer equipment, requiring electrical or air conditioning
service in excess of those to be provided by Landlord under the Lease.
21. No bicycle, or shopping cart, or other vehicle or any animal shall be
brought into the Premises or the halls, corridors, elevators or any part of
the Building by Tenant.
EXHIBIT E, Page 3
<PAGE>
22. Landlord shall have the right to prohibit the use of the name of the
Building or Project or any other publicity by Tenant which in Landlord's
opinion tends to impair the reputation of the Building or Project or their
desirability for other tenants, and upon written notice from Landlord,
Tenant will refrain from or discontinue such publicity.
23. Tenant shall not erect any aerial or antenna on the roof or exterior walls
of the Premises, Building, or Project without the prior written consent of
Landlord.
EXHIBIT E, Page 4
<PAGE>
EXHIBIT F
AMENDMENT OF LEASE COMMENCEMENT DATE
In connection with that certain Lease dated September __, 1994 between The
Mutual Life Insurance Company of New York, as Landlord, and Peregrine Systems,
Inc., as Tenant concerning the Premises located at 12680 High Bluff Drive, San
Diego, California, Landlord and Tenant hereby agree as follows:
1. The Lease Commencement Date stated in Section I. of the Lease is amended to
be ___________,19____ and the Expiration Date stated in Section I. is
amended to be ___________,19___.
2. Landlord has satisfactorily complied with all requirements and conditions
precedent to the commencement of the Term as specified in the Lease.
3. The Premises covered by the Lease and the tenant improvements therein have
been fully completed as required, are in good condition, are ready for
occupancy and have been accepted by Tenant.
4. Tenant has or shall commence paying Monthly Rental pursuant to the Office
Lease on ____________,199___.
Dated effective this ____ day of _________, 19___
"TENANT" "LANDLORD"
PEREGRINE SYSTEMS, INC., a Delaware THE MUTUAL LIFE INSURANCE
corporation COMPANY OF NEW YORK, a New York
corporation
By:
Name: By:
Title:
Name:
Title:
[SAMPLE]
EXHIBIT F
<PAGE>
EXHIBIT G
FORM OF LETTER OF CREDIT
_______________ BANK
P.O. BOX _____, __________, _____________, _____________
CABLE ADDRESS: _________ TELEX NO. ________
SWIFT: ____________
IRREVOCABLE TRANSFERRABLE STANDBY LETTER OF CREDIT NO. __________
Date: _________, 19___
Place of Issue: ____________
Date of Expiration: ________, l9___
Beneficiary:
The Mutual Life Insurance Company
of New York
333 South Anita Drive, Suite 900
Orange, California 92668
Attention: Vice President - Real Estate
Gentlemen:
We hereby establish our irrevocable Letter of Credit No.__________ in your favor
for account of _______ ("Applicant") up to an aggregate amount of
_________________________ Dollars (US$ ________) available by your drafts on us
at sight to be accompanied by Beneficiary's signed statement that it is entitled
to draw hereunder.
This letter of credit is transferrable and Beneficiary may transfer its interest
herein to any transferee of Beneficiary's interest in that certain Lease dated
_______________, 19____, between Beneficiary and Applicant.
Drafts must be presented to ____________________ Bank not later than
_______________, 19___.
The address for presentation of drafts and accompanying documents shall be:
Bank
-------------------------
------------------------------
------------------------------
Attention:
--------------------
This credit is subject to the Uniform Customs and Practice for Documentary
Credits (1983 Revision), International Chamber of Commerce Publication No. 400.
We hereby agree with the drawers, endorsers and bona fide holders of the drafts
under and in compliance with the terms of this credit that these drafts will be
duly honored by the above drawee. All drafts must be marked; "Drawn under
______________________ Bank, Credit No. _____________________."
Very truly yours,
----------------------
Authorized Signature
EXHIBIT H
<PAGE>
FIRST AMENDMENT TO LEASES
This First Amendment to Leases (the "Amendment") is dated as of this-day of
August, 1995, by and between THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, a
New York corporation ("Landlord"), and PEREGRINE SYSTEMS, INC., a Delaware
corporation ("Tenant'), with respect to the following:
RECITALS
A. Landlord is the landlord and Tenant is the tenant pursuant to those
certain written leases dated to be effective as of October 26, 1994, by and
between Landlord, as landlord, and Tenant, as tenant. One of the Leases (the
"Building A Lease") covers Building "A" of Del Mar Corporate Plaza (the
"Project"), which building is located at 12670 High Bluff Drive, San Diego,
California and consists of approximately 69,022 square feet of rentable area,
and the other lease (the "Building B Lease") covers a portion of Building "B" of
the Project, consisting of the first and second floors, containing approximately
26,088 square feet of rentable area of Building B which is located at 12680 High
Bluff Drive. The Building A Lease and the Building B Lease are sometimes
referred to herein collectively as the "Leases."
B. Pursuant to this Amendment, Landlord and Tenant desire to confirm
their agreements regarding the cost and estimated date of completion of the
tenant improvements to be constructed by Landlord pursuant to the Leases.
AGREEMENT
NOW, THEREFORE IN CONSIDERATION OF the foregoing recitals, and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. All capitalized terms used and not defined herein but
defined in the Leases shall have the meanings given to such terms in the Leases.
2. BID AMOUNT. Pursuant to the Leases, Tenant agreed to pay the cost of
all work necessary to complete the Tenant Improvements and the Other Tenant
Improvements (collectively, Landlord Work in excess of the sum of $1,050,000.00
(herein, the "Allowance"), together with the Excess System Costs. In connection
therewith, Tenant has the right under the Leases to approve the Bid Amount for
Landlord's Work which has been submitted by Ares, Inc., an affiliate of
Landlord. The initial Bid Amount, which is $1,946,442.00, as reflected on the
Bid Review Worksheet attached hereto as EXHIBIT A, is hereby approved by
Tenant in accordance with Section 4(a) of Exhibit C to the Leases. Landlord and
Tenant acknowledge and agree that the Bid Amount hereby approved does not
include any excluded costs described in clauses (1) through (7) of Section 4(a)
of Exhibit C to the Leases and, accordingly, that Tenant is responsible for all
costs of Landlord's Work in excess of the sum of the Allowance, a portion of
which may be financed by Tenant with the "TI Loan" (as defined below).
Notwithstanding anything to the contrary in the Leases, Tenant shall pay the
Excess System Costs and the costs of Landlord's Work in excess of the Allowance,
which are currently estimated (based on the Bid Amount) to be $696.442.00 in the
aggregate, as provided herein. The costs of the Tenant Improvements shall be
paid and/or other-wise satisfied as follows: (a) Tenant shall pay to Landlord in
cash $396,442.00 concurrently with the execution of this Amendment to reimburse
Landlord for costs incurred by Landlord prior to the date hereof which have been
previously invoiced to Tenant in detail, (b) the TI Loan will be deemed fully
disbursed and shall commence to accrue interest on August 11, 1995 to cover the
next $300,000 of such costs so incurred and paid by Landlord as of the date
hereof; (c) the next $1,250,000 of such costs shall be paid by Landlord by
disbursement of the Allowance described in paragraph 3 below; and (d) the
balance, if any, of such costs (except for costs excluded under clauses (1)
through (7) of Sections 2(c) and 4(a) of Exhibit C to the Lease) shall be paid
by Tenant to Landlord in cash within five (5) days after receipt of Landlord's
invoice therefor accompanied by reasonable back-up documentation, it being
clearly understood that Landlord shall not be required to pay such costs prior
to Tenant's payment to Landlord thereof. Landlord shall provide to Tenant the
benefit of, and shall reduce the Bid Amount by the full amount of, any rebate,
refund, credit, reduced bid or other cost savings applicable to Landlord's Work
included in the Bid Review Worksheet attached hereto as Exhibit Tenant shall
have the right, upon reasonable prior written notice to Landlord, to audit and
review all bills, invoices and other supporting documentation for the Bid
Amount.
3. THE ALLOWANCE. In the Leases, Landlord agreed to contribute
$1,050,000 (the "Allowance," as defined herein) toward the cost of Landlord's
Work. Tenant has requested Landlord to increase the Allowance to $1,250,000,
which Landlord has agreed to do. Accordingly, notwithstanding anything to the
contrary in the Leases, the Allowance is hereby increased to
CONFIDENTIAL
<PAGE>
$1,250,000.00, which amount shall, along with Landlord's willingness to make the
TI Loan, be Landlord's total contribution, in the aggregate, toward Landlord's
Work.
4. THE LOANS.
(a) Landlord and Tenant acknowledge and agree that the Loan described in
Addendum Section XXXV.D. of the Building B Lease (herein, the "HVAC
Loan") shall not be made available by Landlord to Tenant and,
accordingly, that all provisions of the Leases pertaining or
referring to the HVAC Loan are hereby deleted.
(b) In lieu of the HVAC Loan, Tenant has agreed to borrow and Landlord
has agreed to make available to Tenant a loan to be used by Tenant to
finance Excess System Costs and/or costs of the Tenant Improvements
and Other Tenant Improvements in excess of the Allowance, on the
following terms and conditions:
(i) The sum of Three Hundred Thousand and No/ 100ths Dollars
($300,000.00) (the TI Loan") shall be made available by
Landlord to cover Excess System Costs and the costs of
Landlord's Work in excess of the Allowance for which Tenant is
responsible as provided in paragraph 2 above and the following:
(A) Commencing August 11, 1995, the entire principal balance
of the TI Loan (i.e., the sum of $300,000) shall
commence to bear interest at the rate of eight percent
(80%) per year; provided, however, in no event shall the
interest payable on the TI Loan exceed the maximum
amount which Landlord may legally collect under the then
applicable usury law. In the event it is hereafter
determined by a court of competent jurisdiction that the
interest payable or paid by Tenant with respect to the
TI Loan shall exceed the maximum interest which Landlord
may collect under the then applicable usury law, then
(1) any excess amount previously paid by Tenant to
Landlord shall be credited against principal of the TI
Loan, or refunded to Tenant if no portion of the
principal of the TI Loan then remains unpaid and (2)
interest on the TI Loan subsequent to the date of such
determination shall be reduced to the maximum amount
which it is determined that Landlord may collect under
the then applicable usury law. Interest shall accrue on
the TI Loan from and after August 11, 1995. Any
interest accrued on the TI Loan as of the Lease
Commencement Date shall be added to principal as of the
Lease Commencement Date, and shall thereafter bear
interest as if principal.
(B) The TI Loan shall be repaid by Tenant to Landlord in
ninety-eight (98) consecutive monthly installments, and
shall be due and payable in full on the Expiration Date.
Monthly payments shall be due on the first day of each
calendar month in the Term, commencing with the month in
which the Lease Commencement Date occurs (if the Lease
Commencement Date falls on the first day of a month),
and otherwise with the month after the month in which
the Lease Commencement Date occurs. Prior to the date
that the first payment of the TI Loan is due, Landlord
shall calculate the total outstanding principal balance
of the TI Loan and interest accrued thereon (which, as
described in (A) above, shall accrue from and after
August 11, 1995 and shall be added to principal as of
the Lease Commencement Date) through the day before the
first payment is due (collectively, the "Beginning
Balance"), and shall advise Tenant of the amount of the
monthly payments, which shall be an amount sufficient to
amortize the Beginning Balance in full over the Term.
Tenant may also, at any time and from time to time,
prepay all or any part of the TI Loan without penalty.
Any such payment or prepayment shall he applied first to
the payment of accrued and unpaid interest and the
balance to principal.
(C) Notwithstanding the provisions of clause (B) above, the
entire then unpaid balance of the TI Loan and all
accrued and unpaid interest thereon shall be due and
payable in full upon the first to occur of:
(1) Any early termination of one or both of the Leases
pursuant to the provisions of Sections XVIII. XIX.
or XX. of the Leases. Upon any termination of one
or both of the Leases pursuant to any such Section,
Landlord shall have the right to seek recovery
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of such unpaid balance and accrued interest against
any insurance or condemnation proceeds payable to
Tenant, and Tenant hereby assigns its interest in
such proceeds to Landlord up to the full amount of
such proceeds or the then unpaid balance of the TI
Loan and all accrued interest thereon, whichever is
lesser. Exhaustion of such proceeds shall not
limit or defeat Tenant's liability to repay to
Landlord any remaining balance of such TI Loan and
the accrued and unpaid interest thereon; provided,
however, the TI Loan balance shall be reduced by
any proceeds actually recovered by Landlord, which
amount, if previously paid by Tenant to Landlord,
shall be delivered to Tenant.
(2) An Assignment of Tenant's interest in one or both
of the Leases or a Sublease by Tenant of all of the
premises which are the subject of one, or both of
the Leases. Notwithstanding anything to the
contrary herein, Landlord may require repayment (A)
in full of the then entire unpaid balance of the TI
Loan and all accrued and unpaid interest thereon as
a condition to any consent by Landlord to
Assignment under one or both of the Leases, or to a
Sublease of the entire premises which are the
subject of one or both of the Leases, and/or (B) of
that portion of the TI Loan (and the accrued and
unpaid interest thereon) in connection with a
Sublease of a portion of the premises which are the
subject of one or both of the Leases, which portion
is determined by multiplying the outstanding
balance of the TI Loan by a fraction, the numerator
of which is the portion of the premises to be
subleased and the denominator of which is the
Rentable Area of the entire premises; provided,
however, that the provisions of this subclause (B)
shall not apply to a Sublease of a portion of the
premises which are the subject of a Lease to an
entity which is under common control with Tenant.
(3) The occurrence of a default by Tenant under one or
both of the Leases, as defined in Section XX. of
the Leases. Upon the occurrence of such a default.
Landlord may seek to recover the then unpaid
balance of the TI Loan and all accrued and unpaid
interest thereon in any unlawful detainer or other
action instituted by Landlord upon such default.
Such balance shall be deemed due and payable in
full upon the occurrence of such default and may be
recovered in such action as if additional rent
whether or not included in any notice given by
Landlord to Tenant prior to or as a condition to
the institution of such action.
(D) Failure of Tenant to pay any amount due pursuant to
clause (B) above when due, which failure continues for
three (3) days after written notice thereof from
Landlord to Tenant (which notice shall be in lieu of,
and not in addition to, any notice required under
California Code of Civil Procedure Sec. 1161, ET SEQ.,
as amended), shall be deemed a default pursuant to the
Leases to the same extent as if such amount were
additional rent due pursuant to the Leases. In such
event, such unpaid amount (but not the accrued and
unpaid interest thereon) shall bear interest at the rate
provided for in Section XXI. A. of the Leases from the
date such payment was due and not paid until payment of
such amount in full and, upon the declaration by
Landlord of a default pursuant to Section XX.A.(2) of
one or both of the Leases, the entire then unpaid
balance of the TI Loan and all accrued and unpaid
interest thereon shall automatically be due and payable
in full and the unpaid principal balance shall bear
interest at the rate provided in Section XXI.A. of the
Leases from the date of acceleration until payment in
full. Upon the occurrence of any such default and
acceleration pursuant to this clause (D), Landlord shall
be entitled to all remedies against a defaulting tenant
pursuant to a written lease, including but not limited
to those provided in Section XX.B. of the Leases.
(E) The early termination of one or both of the Leases
pursuant to Section XVIII., XIX. or XX. thereof shall
not defeat or diminish the obligation
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of Tenant to repay to Landlord the TI Loan and all
accrued and unpaid interest thereon.
(ii) Landlord may credit against the proceeds of the TI Loan any and
all costs in excess of the Allowance which are not paid to
Landlord as and when the same are due, which are incurred by
Landlord in connection with the design and/or performance of
improvements to or enhancements of the System and/or Landlord's
Work, including without limitation any construction management
fee payable by Landlord (whether to an affiliate of Landlord or
otherwise) in connection therewith.
(c) It is clearly understood and agreed that the TI Loan shall be
available only for initial Landlord's Work performed prior to the
Lease Commencement Date.
5. WORK SCHEDULE. The four-page progress schedule attached hereto as
EXHIBIT B is hereby agreed by Landlord and Tenant to be the "Work Schedule"
defined in Section I of Exhibit C to the Leases, and is hereby approved by
Landlord and Tenant. In connection with such approval, Tenant agrees to
reasonably cooperate with Landlord and Landlord's architect, engineers,
construction manager and contractor to ensure timely completion of Landlord's
Work in accordance with its obligations under the Leases.
6. CHANGES BY TENANT. Any changes requested by Tenant in the Space
Plans, Working Drawings or otherwise pursuant to Exhibit C to the Lease shall,
notwithstanding Section 10 of Exhibit C to the Lease, be made in writing by
David Thatcher or another officer of Tenant designated by written notice to
Landlord. Landlord will not accept or consider any proposed changes to the
Tenant Improvements requested by any other agent of Tenant, including without
limitation by Tenant's architect and/or coordinator. Landlord shall not be
required to proceed with the performance of Landlord's Work affected by any such
proposed change by any agent of Tenant other than David Thatcher or such other
officer as Tenant may designate in writing and any resulting delay shall
constitute Tenant delay. Landlord's agents for the purpose of approving changes
in the Space Plans, Working Drawings, or otherwise pursuant to Exhibit C of the
Lease are Stuart Simon, John Monahan or such other person as Landlord may
designate in writing.
7. LEASE COMMENCEMENT DATE. Subject to Section III.C. of the Leases,
the Lease Commencement Date of the Leases is hereby revised to be the first to
occur of tender of delivery of the premises which are the subject of the Leases
to Tenant or September 1, 1995, and the Expiration Date of the Leases as hereby
revised to be the expiration of the ninety-eighth (98th) full calendar month
after the Lease Commencement Date. Notwithstanding any prior verbal or written
communications by Landlord and/or Tenant to the contrary, Landlord and Tenant
hereby acknowledge and agree that there has not occurred, as of the date hereof,
delay by Landlord with respect to Landlord's Work within the meaning of Section
III.C. and/or Exhibit C of the Leases, and hereby waive any and all rights to
claim to the contrary, and further specifically acknowledge that the sixty (60)
day period referred to in Section III.C. of the Leases shall be changed to
thirty (30) days, shall commence, if at all, on September 1, 1995, and shall be
subject to extension as provided in Section III. and for any mutual decision to
perform or proceed with Landlord's Work in such a manner as to cause delay in
the Lease Commencement Date which is confirmed in writing within two (2)
business days of such decision and which is not objected to in writing within
two (2) business days after such written confirmation is given.
8. LEASES IN EFFECT. Landlord and Tenant acknowledge and agree that the
Leases, as hereby amended, remain in full force and effect in accordance with
its terms. To the extent that any provision of this Amendment shall conflict
with the Leases as in effect prior to the date hereof, this Amendment shall
prevail.
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IN WITNESS WHEREOF, the undersigned have executed this Amendment to be
effective as of the day and year first above written.
LANDLORD TENANT
THE MUTUAL LIFE INSURANCE PEREGRINE SYSTEMS, INC, a Delaware
COMPANY OF NEW YORK, a New York corporation
corporation
By: /s/ [Unreadable Officer of Landlord] By: /s/ David Thatcher
Title: [Unreadable] Title: VP Finance/CFO
9\11\95
By:
Title:
5
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EXHIBIT A
[Graphic Omitted}
EXHIBIT A TO AMENDMENT
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EXHIBIT B
[Graphic Omitted}
Exhibit B to Amendment, Page 1
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EXHIBIT B
[Graphic Omitted}
Exhibit B to Amendment, Page 2
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EXHIBIT B
[Graphic Omitted}
Exhibit B to Amendment, Page 3
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EXHIBIT B
[Graphic Omitted}
Exhibit B to Amendment, Page 4
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BY CERTIFIED MAIL
RETURN RECEIPT REQUESTED
- ------------------------
June 14, 1996
Ms. Michelle Voth
Peregrine Systems, Inc.
12670 High Bluff
Del Mar, CA 92130
RE: Corporate Plaza (the "Building")
Dear Ms. Voth:
With reference to your lease of space in the Building, ARES Realty
Capital, Inc., investment manager for The Mutual Life Insurance Company of
New York ("Seller"), would like to advise you that Seller has this day sold,
transferred and assigned the Building and your lease to WCB II MORE Limited
Partnership, a Delaware limited partnership, having an address at 100
Crescent Court, Suite 1000, Dallas, Texas 75201 ("Purchaser").
Please be further advised that any deposit under your lease and the
accrued interest thereon, if any, have been delivered to Purchaser.
ARES, Inc. ("Manager"), which has been managing the Building on
Seller's behalf, will continue to manage the Building on behalf of
Purchaser. From and after the date hereof, all rent checks should be made
payable to Purchaser, and delivered to the following address:
ARES Realty Capital, Inc., as agent for
WCB II MORE, Limited Partnership
19712 MacArthur Blvd., Suite 200
Irvine, CA 92612
<PAGE>
If you have any questions regarding this letter or the operation of
the Building, please contact Sandi Martin, at (714) 622-8860.
Sincerely yours,
SELLER: THE MUTUAL LIFE INSURANCE
COMPANY OF NEW YORK,
a New York Corporation
By: /s/ William M. Powell
--------------------------------
William M. Powell
Senior Vice President
ARES Realty Capital, Inc.
Authorized Signatory
PURCHASER: WBC II MORE LIMITED PARTNERSHIP,
a Delaware limited partnership
By: /s/ Ada Brock
--------------------------------
By:
--------------------------------
Name:
Title:
<PAGE>
[LETTERHEAD]
December 9, 1996
PEREGRINE SYSTEMS, INC.
12670 & 12680 High Bluff Drive
San Diego, CA 92130
RE: DEL MAR COOPERATE PLAZA
12670/12680 HIGH BLUFF
Dear Michelle Voth:
Please be advised that the premises of which you are a tenant at the above
referenced property, and the landlord's interest in your lease, were
purchased on December 12, 1996 by CarrAmerica Realty Corporation, a Maryland
corporation ("Owner"). Any security deposits and Letters of Credit were
transferred to Owner.
Any notices required to be sent pursuant to your lease and any inquiries or
concerns should be directed to:
CarrAmerica Realty Corporation
1700 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: Mr. Joseph Wallace
All future rent payments should also be sent to this address, unless Owner
informs you otherwise.
Sincerely,
WCB II MORE LIMITED PARTNERSHIP,
a Delaware limited partnership
By: WCB II MORE, INC.
a Delaware corporation
General Partner
By: /s/ Brad E. Baker
-----------------------------
Brad E. Baker
Its: Senior Vice President-Southern California
<PAGE>
LEASE
by and between
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK,
as Landlord,
and
PEREGRINE SYSTEMS, INC.
as Tenant
APPROVED AS TO
FORM: /s/ V. Crouday
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TABLE OF CONTENTS
Page
No.
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SECTION I. TERMS AND DEFINITIONS 1
SECTION II. PROPERTY LEASED 2
A. Premises 2
B. Common Areas 2
C. Minor Variations in Area 2
SECTION III. COMMENCEMENT OF TERM AND POSSESSION OF PREMISES 2
A. Lease Commencement Date 2
B. Completion of Tenant Improvements and Possession of Premises 2
C. Extension of Lease Commencement Date 3
D. Acceptance and Suitability 3
SECTION IV. RENT 4
A. Monthly Rental 4
4
B. Rent and Additional Rent 4
SECTION V. REIMBURSEMENT OF COMMON EXPENSES 5
A. Definitions 5
B. Reimbursement 7
C. Rebate or Additional Charges 7
D. Control of Common Areas 8
SECTION VI. SECURITY DEPOSIT 8
SECTION VII. TENANT'S TAXES 9
SECTION VIII. USE OF PREMISES 9
A. Permitted Uses 9
B. Compliance with Laws 9
C. Hazardous Materials 10
D. Landlord's Rules and Regulations 13
E. Traffic and Energy Management 13
SECTION IX. SERVICE AND UTILITIES 14
A. Standard Building Services and Reimbursement by Tenant 14
B. Limitation on Landlord's Obligations 14
C. Excess Service 15
D. Security Services 15
SECTION X. MAINTENANCE AND REPAIRS 15
A. Landlord's Obligations 15
B. Tenant's Obligations 16
C. Landlord's Right to Make Repairs 16
D. Condition of Premises Upon Surrender 16
SECTION XI. ENTRY BY LANDLORD 17
SECTION XII. ALTERATIONS, ADDITIONS AND TRADE FIXTURES 17
SECTION XIII. MECHANIC'S LIENS 18
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No.
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SECTION XIV. INSURANCE 19
A. Tenant 19
B. Landlord 20
C. Waiver of Subrogation 20
SECTION XV. INDEMNITY AND EXEMPTION 20
A. Indemnity 20
B. Limitation on Landlord's Liability; Release of Directors,
Officers and Partners of Landlord 21
SECTION XVI. ASSIGNMENT AND SUBLETTING BY TENANT 21
SECTION XVII. TRANSFER OF LANDLORD'S INTEREST 25
SECTION XVIII. DAMAGE AND DESTRUCTION 26
A. Minor Insured Damage 26
B. Major or Uninsured Damage 26
C. Abatement of Rent 27
D. Waiver 27
SECTION XIX. CONDEMNATION 27
A. Total or Partial Taking 27
B. Award 28
C. Abatement in Rent 28
D. Temporary Taking 28
E. Transfer of Landlord's Interest to Condemnor 28
SECTION XX. DEFAULT 29
A. Tenant's Default 29
B. Remedies 30
SECTION XXI. LATE PAYMENTS/INTEREST AND LATE CHARGES 31
A. Interest 31
B. Late Charges 31
C. Consecutive Late Payment of Rent 31
D. No Waiver 31
SECTION XXII. [INTENTIONALLY DELETED] 32
SECTION XXIII. HOLDING OVER 32
SECTION XXIV. ATTORNEYS' FEES 32
SECTION XXV. MORTGAGE PROTECTION/SUBORDINATION 32
A. Subordination 32
B. Attornment 33
SECTION XXVI. ESTOPPEL CERTIFICATE/FINANCIAL STATEMENTS 34
A. Estoppel Certificate 34
B. Furnishing of Financial Statements 34
SECTION XXVII. PARKING 34
SECTION XXVIII. SIGNS; NAME OF BUILDING 35
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Page
No.
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SECTION XXIX. QUIET ENJOYMENT 35
SECTION XXX. BROKER 36
SECTION XXXI. NOTICES 36
SECTION XXXII. NOTICE AND CURE TO LANDLORD AND MORTGAGEE 36
SECTION XXXIII. GENERAL 37
A. Paragraph Headings 37
B. Incorporation of Prior Agreements; Amendments 37
C. Waiver 37
D. Short Form or Memorandum of Lease 37
E. Time of Essence 37
F. Examination of Lease 37
G. Severability 38
H. Surrender of Lease Not Merger 38
I. Corporate Authority 38
J. Governing Law 38
K. Force Majeure 38
L. Use of Language 38
M. Successors 38
N. No Reduction of Rental 39
0. No Partnership 39
P. Exhibits 39
Q. Indemnities 39
R. Nondisclosure of Lease Terms 39
SECTION XXXIV. EXECUTION 40
SECTION XXXV. ADDENDUM 41
EXHIBIT A SITE PLAN FOR THE PROJECT
EXHIBIT B FLOOR PLAN OF THE PREMISES
EXHIBIT C CONSTRUCTION WORK LETTER
EXHIBIT D RENT SCHEDULE
EXHIBIT E RULES AND REGULATIONS
EXHIBIT F AMENDMENT OF LEASE COMMENCEMENT DATE
EXHIBIT G JANITORIAL SERVICES
EXHIBIT H FORM OF LETTER OF CREDIT
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LEASE
THIS LEASE is entered into by and between Landlord and Tenant effective as of
this 26th day of October, 1994.
SECTION I. TERMS AND DEFINITIONS
The following terms as used herein shall have the meanings as set forth below:
A. "Landlord" means THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, a New York
corporation, and its successors and assigns.
B. "Tenant" means PEREGRINE SYSTEMS, INC., a Delaware corporation.
C. "Building" means Building "B" of the Project, in which the Premises are
located, which Building has approximately 53,697 square feet of Rentable
Area and is located at 12680 High Bluff Drive in the City of San Diego,
California.
D. "Project" means Del Mar Corporate Plaza located at 12670 and 12680 High
Bluff Drive in the City of San Diego, California in which Project the
Building is located as shown on the site plan attached hereto as EXHIBIT A.
E. "Premises" means suite(s) 100 & 200 located on the first and second floors
of the Building and consisting of approximately Twenty-Six Thousand Eighty-
Eight (26,088) square feet of Rentable Area, as more particularly shown on
EXHIBIT B attached hereto and incorporated herein by this reference.
F. "Term" means the eight (8) year and two (2) month period commencing on the
Lease Commencement Date and expiring on the Expiration Date. SEE ADDENDUM
SECTION XXXV.A.
G. "Lease Commencement Date" means the first to occur of February 1, 1995 or
the date on which Landlord tenders delivery of possession of the Premises
to Tenant; provided, however, that if the Lease Commencement Date specified
in this subsection occurs prior to Substantial Completion (as defined in
Section III.B. below) or is amended pursuant to Section III.C. below,
Landlord and Tenant shall execute and attach hereto as a new EXHIBIT F an
Amendment of Lease Commencement Date in the form of EXHIBIT F hereto, which
shall specify such amended Lease Commencement Date and, if applicable, an
amended Expiration Date.
H. "Expiration Date" means March 31, 2003 unless amended as provided in an
Amendment of Lease Commencement Date executed as provided above.
I. "Monthly Rental" means the amounts specified in Section IV. below and in
the Rent Schedule attached hereto as EXHIBIT D and incorporated herein.
J. "Base Operating Expense" means the amount of Common Operating Costs (as
defined in Section V. below) actually incurred for the period from January
1, 1995 to December 31, 1995 which shall be paid by Landlord and not
Tenant.
K. "Rentable Area" is defined in EXHIBIT D attached hereto.
L. "Security Deposit" means Forty-Four Thousand Six Hundred Ten and 48/100ths
Dollars ($44,610.48).
M. "Permitted Use" means general office and computer-related research.
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N. "Broker" means Business Real Estate Brokerage Company.
0. "Landlord's Address for Notice" means 333 South Anita Drive, Suite 800,
Orange, California 92668, Attn: Real Estate Vice President.
P. "Tenant's Address for Notice" means 12670 High Bluff Drive, San Diego,
California.
Q. "Tenant's Proportionate Share" for Tenant's reimbursement of Common
Operating Costs and other expenses to be pro-rated hereunder means 48.58%
which is the quotient obtained by dividing the total number of square feet
of Rentable Area in the Building into the total number of square feet of
Rentable Area within the Premises.
SECTION II. PROPERTY LEASED
A. PREMISES
Upon and subject to the terms, covenants and conditions hereinafter set
forth, Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Premises; reserving to Landlord, however, (a) the use of the
exterior walls, roof, return air plenum and the area under the Premises
floor and (b) the rights to make structural (building) modifications and
the right to install, maintain, use, repair and replace pipes, ducts,
conduits, and wires to serve or serving other tenant premises in the
Building through the Premises in locations which will not materially
interfere with Tenant's use thereof.
B. COMMON AREAS
Subject to the terms, covenants and conditions of this Lease, Tenant shall
have the right, for the benefit of Tenant and its employees, suppliers,
shippers, customers and invitees, to the non-exclusive use of all of the
Common Areas as hereinafter defined.
C. MINOR VARIATIONS IN AREA
Subject to the provisions of EXHIBIT D, the Rentable Area of the Premises
contained in Section I. is agreed to be the Rentable Area of the Premises
regardless of minor variations resulting from construction of the Building
and/or tenant improvements.
SECTION III. COMMENCEMENT OF TERM AND POSSESSION OF PREMISES
A. LEASE COMMENCEMENT DATE SEE ADDENDUM SECTION XXXV.A.
The Term of the Lease shall commence on the Lease Commencement Date (as
extended only pursuant to Section III.C. below, in applicable), and shall
continue, subject to earlier termination as provided herein, until the
Expiration Date (as extended only pursuant to subsection C. below).
B. COMPLETION OF TENANT IMPROVEMENTS AND POSSESSION OF PREMISES
Upon execution of this Lease by the parties, Landlord shall proceed to
complete the tenant improvements in the Premises described as "Landlord's
Work" in the "Construction Work Letter" attached hereto and incorporated
herein as Exhibit C. At the time such work has been substantially completed
in accordance with the Construction Work Letter, i.e., a certificate of
occupancy (or its equivalent) for the Premises has been issued, all
utilities (i.e., water, electrical and gas) to the Premises are hooked-up
and available for use and Landlord has tendered possession of the Premises
to Tenant ("Substantial Completion"), Landlord shall notify Tenant thereof
and Tenant shall take possession of the Premises on the Lease Commencement
Date. In the event permission
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is given to Tenant to enter or occupy all or a portion of the Premises
prior to the Lease Commencement Date, such occupancy shall be subject to
all of the terms and conditions of this Lease. Tenant shall complete all
tenant improvements described as "Tenant's Work" in Exhibit C hereto on or
before the Lease Commencement Date. Any professional fees or reasonable
costs and expenses incurred by Landlord in reviewing plans and
specifications for Tenant's Work shall be paid to Landlord by Tenant upon
demand as additional rent. All tenant improvements constructed in the
Premises, whether by Landlord or by (or on behalf of) Tenant and whether at
Landlord's or Tenant's expense, shall become part of the Premises and shall
be and remain the property of Landlord unless Landlord specifically agrees
otherwise in writing.
C. EXTENSION OF LEASE COMMENCEMENT DATE
If the Premises are not ready for occupancy by Tenant on the original Lease
Commencement Date specified in Section I. due to one or more delays caused
by Landlord or caused by matters beyond the control of Landlord, this Lease
and the obligations of Landlord and Tenant hereunder shall nevertheless
continue in full force and effect. However, in such event Landlord and
Tenant shall agree on an amendment of the original Lease Commencement Date
and the Expiration Date to reflect such delay or delays and shall, in each
instance, execute and attach hereto an amendment in the form of that
attached as EXHIBIT F, hereto stating such amended Lease Commencement Date
and an amended Expiration Date and no rental shall be payable by Tenant
hereunder until the amended Lease Commencement Date. In the event that the
Lease Commencement Date fails to occur within sixty (60) days of the Lease
Commencement Date specified in Section I. above (which sixty (60) day
period shall be extended one day for each day of delay caused by Tenant or
force majeure (as defined in Section XXXIII.K. below)), then Tenant's
obligation to pay Monthly Rental shall be delayed one day for each day
after expiration of such sixty (60) day period (as so, extended) and prior
to the actual Lease Commencement Date. For example, if the Lease
Commencement Date occurs May 2, 1995 a delay of ninety (90) days). solely
as a result of Landlord delay, then Tenant's obligation to pay Monthly
Rental shall commence June 1, 1995, notwithstanding the occurrence of the
Lease Commencement Date. The delay in commencement of the Term and in the
accrual of rent described in the foregoing sentences shall constitute full
settlement of all claims that Tenant might otherwise have by reason of the
Premises not being ready for occupancy on the original Lease Commencement
Date specified in Section I. above.
If the Premises are not ready for occupancy by Tenant on the Lease
Commencement Date due to one or more delays caused by Tenant, or anyone
acting under or for Tenant, Landlord shall have no liability for such delay
and the Lease Commencement Date shall begin as of that date that the Tenant
Improvements would have been substantially completed absent such delays
caused by Tenant and the Expiration Date stated in Section I. shall be
adjusted accordingly (each as extended only because of Landlord's delay
pursuant to this subsection C., if applicable).
D. ACCEPTANCE AND SUITABILITY
Within fifteen (15) days following the date Tenant takes possession of the
Premises, Tenant may provide Landlord with a "punch list" which sets forth
any itemization of any corrective work to be performed by Landlord with
respect to the Landlord's Work as set forth in the Construction Work
Letter; provided, however, that Tenant's obligation to pay Monthly Rental
as provided below shall not be affected thereby. If Tenant fails to submit
such "punch list" to Landlord within such fifteen (15) day period, Tenant
agrees that by taking possession of the Premises it will conclusively be
deemed to have inspected the Premises and found the Premises in
satisfactory condition. Tenant acknowledges that neither Landlord, nor any
agent, employee or servant of Landlord, has made any representation with
respect to the Premises or the Project, or with respect to the suitability
of them for the conduct of Tenant's business, nor has Landlord agreed to
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undertake any modifications, alterations, or improvements of the Premises
or Project, except as specifically provided in this Lease.
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, LANDLORD HEREBY
DISCLAIMS, AND TENANT WAIVES THE BENEFIT OF, ANY AND ALL IMPLIED
WARRANTIES, INCLUDING IMPLIED WARRANTIES OF HABITABILITY, FITNESS OR
SUITABILITY FOR PURPOSE, OR THAT THE BUILDING OR THE IMPROVEMENTS IN THE
PREMISES HAVE BEEN CONSTRUCTED IN A GOOD AND WORKMANLIKE MANNER. TENANT
EXPRESSLY ACKNOWLEDGES THAT LANDLORD DID NOT CONSTRUCT OR APPROVE THE
QUALITY OF CONSTRUCTION OF THE BUILDING.
/s/ [Initials unreadable]
Tenant's Initials
Notwithstanding the foregoing, Landlord shall be responsible, as to both
performance and payment of costs for work required to (1) construct
Landlord's Work, and deliver the Premises and the Project in compliance
with laws and CC&Rs in effect and applicable thereto as of the Lease
Commencement Date, (2) render the Tenant Improvements constructed by or on
behalf of Landlord (which shall be performed using new materials) in
accordance with the Working Drawings (as defined in EXHIBIT C) in good and
workmanlike manner as of the Lease Commencement Date and (3) render the
Premises, and the electrical, mechanical, HVAC, plumbing, elevator and
other systems serving the Premises in good condition and repair as of the
Lease Commencement Date; provided, however, in no event shall the foregoing
imply any representation, covenant or warranty by Landlord as to the
adequacy of the HVAC system serving the Premises to meet Tenant's
particular demands, as Landlord's agreement herein with respect to Building
systems is simply an agreement that Landlord will be responsible to repair
the same as necessary so that, as of the Lease Commencement Date, they work
as they were originally designed to do, and provided, further, that the
report prepared by an HVAC consultant at the request of Tenant prior to the
execution and delivery hereof shall not be used as the basis for
determining Landlord's compliance herewith for the purposes of the HVAC
system serving the Premises.
SECTION IV. RENT
A. MONTHLY RENTAL
Commencing on the Lease Commencement Date (subject, however, to any
modifications or adjustments specified hereinbelow and/or in the "Rent
Schedule" attached hereto as EXHIBIT D) Tenant shall pay to Landlord during
the Term, rental for the entire Term in the total amount as set forth in
EXHIBIT D payable in monthly installments (the "Monthly Rental") in the
amount set forth in EXHIBIT D, which sum shall be payable by Tenant on or
before the first day of each month, in advance, without further notice, at
the address specified for Landlord in Section I., or such other place as
Landlord shall designate, without any prior demand therefor and without any
abatement, deduction or setoff whatsoever. If the Lease Commencement Date
should occur on a day other than the first day of a calendar month, or the
Expiration Date should occur on a day other than the last day of a calendar
month, then the rental for such fractional month shall be prorated on a
daily basis upon a thirty (30) day calendar month.
B. RENT AND ADDITIONAL RENT
As used in this Lease, the term "rent" shall mean Monthly Rental and
additional rent, and the term "additional rent" shall mean all other
amounts payable by Tenant to Landlord pursuant to this Lease other than
Monthly Rental, including Tenant's
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Proportionate Share of Common Operating Costs in excess of the Base
Operating Expense. All Monthly Rental and additional rent shall be paid in
lawful money of the United States which shall be legal tender at the time
of payment. Where no other time is stated herein for payment, payment of
any amount payable from Tenant to Landlord hereunder shall be due, and
made, within ten (10) days after Tenant's receipt of Landlord's invoice or
statement therefor.
SECTION V. REIMBURSEMENT OF COMMON EXPENSES
A. DEFINITIONS SEE ADDENDUM SECTION XXXV.B.
(1) "Common Areas" means all areas space, equipment and special services
provided by Landlord for the common or joint use and benefit of the
tenants, their employees, agents, servants, suppliers, customers and
other invitees, including, by way of illustration, but not
limitation, retaining walls, fences, landscaped areas, parks, curbs,
sidewalks, private roads, restrooms, stairways, elevators, lobbies,
hallways, patios, service quarters, parking areas, all common areas
and other areas within the exterior of the Building and in the
Project or as shown on the site plan attached to this Lease as
EXHIBIT A.
(2) "Taxes" shall mean all real property taxes, personal property taxes,
improvement bonds, and other charges and assessments which are levied
or assessed upon or with respect to the Building and Project and the
land on which the Building and Project are located and any
improvements, fixtures and equipment and all other property of
Landlord, real or personal, located in the Building and Project and
used in connection with the operation of the Building and Project and
the land on which the Building and Project are located, including any
increase in such taxes, whether resulting from a reassessment of the
value of the land, the Building or the Project, personal property, or
for any other reason, imposed by any governmental authority, and any
tax which shall be levied or assessed in addition to or in lieu of
such real or personal property taxes and any license fees, commercial
rental tax, or other tax upon Landlord's business of leasing the
Building and the Project, but shall not include any federal or state
income tax, or any franchise, capital stock, estate, inheritance,
succession, transfer and excess profit taxes imposed upon Landlord,
and shall also include any tax consultant fee or other costs incurred
by Landlord to review or contest any tax assessed against the
Premises, Building or Project; provided, however, that for the first
four (4) years of the initial Term (only) increases in real property
taxes resulting solely from a voluntary change in ownership of the
Project which occurs within such four (4) year period shall be
excluded from Common Operating Costs, and provided further that
assessments levied by governmental entities for public improvement
purposes shall be included in Common Operating Costs as if paid by
Landlord over the maximum period allowable without penalty.
(3) "Common Operating Costs" shall mean the aggregate of all costs and
expenses payable by Landlord in connection with the operation and
maintenance of the Premises, Building, Project and Common Areas,
including, but not limited to, (a) the cost of landscaping, repaving,
resurfacing, repairing, replacing, painting, lighting, cleaning,
removing trash, janitorial services, security services and other
similar items; (b) the total cost of compensation and benefits of
personnel to implement the services referenced herein; (c) all Taxes;
(d) the cost of any insurance obtained by Landlord in connection with
the Building and Project, including, but not limited to, the
insurance required to be obtained by Landlord pursuant to this Lease;
(e) the cost of operating, repairing and maintaining life, safety and
access systems, including, without limitation, sprinkler systems; (f)
the cost of monitoring services, if provided by Landlord, including,
without limitation, any monitoring or control devices used by
Landlord in regulating the
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parking areas; (g) the cost of water, electricity, gas and any other
utilities; (h) legal, accounting and consulting fees and expenses;
(i) compensation (including employment taxes and fringe benefits) of
all persons who perform duties connected with the operation,
maintenance and repair of the Premises, Project, Building or Common
Areas; (j) energy allocation, energy use surcharges or environmental
charges (other than charges incurred to investigate Hazardous
Materials on, under or about the Premises, which shall be payable by
Tenant to the extent provided in Section VIII.C. below (only)); (k)
expenditures, costs, fees, assessments and other charges paid by
Landlord in connection with traffic or energy management programs
applicable to the Project in connection with Landlord's compliance
with laws or other governmental requirements; (1) municipal
inspection fees or charges; (m) any other costs or expenses incurred
by Landlord under this Lease which are incurred in prudently
operating the Property and/or in performing Landlord's obligations
under the Lease and which are not otherwise directly reimbursed by
tenants; (n) the amount charged by any management firm contracted by
Landlord to provide any or all of the foregoing services; and (o) any
fees, costs, expenses or dues payable pursuant to the terms of any
covenants, conditions or restrictions or owners' association
pertaining to the Building and/or the Project. The computation of
Common Operating Costs shall be made in accordance with generally
accepted accounting principles.
Notwithstanding the foregoing, the following shall not be included in
Common Operating Costs (or shall be deducted therefrom if included
therein):
(a) Costs incurred by Landlord due to the violation by Landlord or
any other tenant of the terms and conditions of any lease of
space in the Building or the Project;
(b) Costs which Tenant or other tenants or occupants of the
Building or the Project are obligated to pay or which are
reimbursed by insurance or condemnation proceeds or under
warranty;
(c) Subject to (d) below, costs of capital replacements (as
reasonably determined by Landlord) except: (i) to the extent
the same are amortized over the reasonable useful life of the
item as reasonably determined by Landlord and included in
Common Operating Costs as so amortized, or (ii) those designed
to reduce Common Operating Costs but only to the extent of the
reasonably estimated savings to be achieved by Tenant during
the term of this Lease;
(d) Costs of capital repairs or replacements of structural elements
of the Building;
(e) Costs incurred in connection with bringing the Premises,
Building, the Project or the Common Areas into initial
compliance with any covenants, conditions and restrictions for
the Project or with laws in effect and as applicable to the
Building as of the date of this Lease;
(f) Costs of reconstructing, modifying, altering or repairing any
structural portions of the Project due to defective, or latent
defects in, original construction;
(g) Depreciation of or other expense reserves for the Building or
the Project;
(h) Any financing or refinancing costs and expenses secured by real
estate within the Project including, but not limited to,
interest or amortization on debt and rent under any ground or
underlying lease; and
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(i) Any portion of an annual management fee paid to an affiliate of
Landlord in excess of five percent (5%) of such year's gross
rentals.
(4) In the event during all or any portion of any calendar year the
Building is not at least ninety-five percent (95%) rented and
occupied, Landlord shall make an appropriate adjustment to the Common
Operating Costs for such year, employing sound accounting and
management principles, to determine the Common Operating Costs that
would have been paid or incurred by Landlord had the Building been
ninety-five percent (95%) rented and occupied and the amount so
determined shall be deemed to have been the Common Operating Costs
for such year.
(5) Upon Tenant's request therefor, Landlord shall deliver to Tenant a
copy of the tax bills received by Landlord for the Building and, so
long as Tenant is Peregrine Systems, Inc. (unless Tenant is a
"Permitted Transferee" (hereinafter defined), in which case such
Permitted Transferee shall have the right), Tenant shall have the
right, upon timely demand by Tenant, to require Landlord to contest
the real property taxes reflected on such statement with respect to
the Building. Tenant shall pay its pro rata share (based on Tenant's
percentage of Rentable Area in the Building) of the costs and
expenses incurred in contesting taxes pursuant to the foregoing
sentence, which amount shall be additional rent and not included in
Common Operating Costs for the purposes of this Lease.
B. REIMBURSEMENT
Within a reasonable time before the commencement of each calendar year
during the Term, Landlord shall deliver to Tenant a reasonable estimate of
the anticipated Common Operating Costs for the forthcoming calendar year.
Tenant shall pay to Landlord, as additional rental, commencing on the Lease
Commencement Date, and continuing on the first day of each calendar month
thereafter, an amount equal to one-twelfth (1/12th) of the product obtained
by multiplying (1) the remainder of the then estimated Common Operating
Costs less the Base Operating Expense, times (2) Tenant's Proportionate
Share of the Common Operating Costs; provided, however, that such amount
shall not be less than zero dollars ($O). The estimated monthly charge for
Tenant's Proportionate Share may be adjusted periodically by Landlord
during the calendar year on the basis of Landlord's reasonably anticipated
costs. Any expenditure by Landlord (e.g., resurfacing of parking areas,
painting buildings, refurbishing landscaping or walkways and similar items)
during the year which was not included in determining the estimated Common
Operating Costs, may be billed separately to Tenant according to Tenant's
Proportionate Share.
C. REBATE OR ADDITIONAL CHANGES
Within a reasonable time after the end of each calendar year, Landlord
shall furnish to Tenant a statement showing the total Common Operating
Costs less the Base Operating Expense and Tenant's Proportionate Share of
the Common Operating Costs for the calendar year just ended. In the event
Tenant reasonably disputes any item of Common Operating Costs reflected on
any such statement Tenant may, within thirty (30) days after receipt
thereof, request (in writing) Landlord to provide the reasonable
documentary back-up for such item, which Landlord shall provide to Tenant
as promptly as practicable upon receipt of such request. Tenant shall pay
to Landlord upon demand as additional rent the costs and expenses incurred
by Landlord in responding to such request. In the event that, upon
reviewing the back-up so provided by Landlord, Tenant disagrees with the
amount charged by Landlord to Tenant for any such item, Tenant may so
notify Landlord. If Landlord agrees with the findings of Tenant, then an
appropriate adjustment shall be made. In the event that there is a
disagreement, then Landlord and Tenant shall select an independent auditor,
whose determination shall be binding upon Landlord and
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Tenant. Landlord and Tenant shall share the fees of the independent
auditor, if any, equally.
If the amount of estimated Common Operating Costs less the Base Operating
Expense paid by Tenant for any year during the Term exceeds the actual
Common Operating Costs less the Base Operating Expense for such year.
Landlord shall apply any amounts due to Tenant hereunder to any outstanding
amounts due or amounts next coming due from Tenant to Landlord. If the
estimated Common Operating Costs less the Base Operating Expense for such
year are less than the actual Common Operating Costs less the Base
Operating Expense for such year, then Tenant shall pay to Landlord, within
thirty (30) days of Tenant's receipt of Landlord's statement, as additional
rent, Tenant's Proportionate Share of the amount by which the actual Common
Operating Costs less the Base Operating Expense exceeds the estimated
Common Operating Costs less the Base Operating Expense. In the event the
Term of this Lease expires, or this Lease is otherwise terminated, Landlord
shall compute and prorate the credit or deficiency up to the date the Lease
expired or was terminated and may apply any credit due Tenant to any
outstanding amounts due by Tenant hereunder at that time.
D. CONTROL OF COMMON AREAS
Landlord shall have the sole and exclusive control of the Common Areas, as
well as the right to make changes to the Common Areas. Notwithstanding the
preceding sentence, Landlord is not responsible for any harm or damage to
any of Tenant's officers, agents, or employees as a result of their use of
the Common Areas. Landlord's rights (which shall be exercised in such a
manner so as not to permanently and materially interfere with the use of
the Premises for the Permitted Use or permanently and materially reduce the
parking ratio for the Project below that required to be maintained by
applicable law) shall include, but not be limited to, the right to (a)
restrain the use of the Common Areas by unauthorized persons, (b) utilize
from time to time any portion of the Common Areas for promotional and
related matters, (c) temporarily close any portion of the Common Areas for
repairs, improvements or alterations, (d) change the shape and size of the
Common Areas or change the location of improvements within the Common
Areas, including, without limitation, parking areas, roadways and curb
cuts, and (e) prohibit access to or use of Common Areas that are designated
for the storage of supplies or operation of equipment necessary to operate
the Project or Building. As used in the parenthetical phrase in the
foregoing sentence, the term "permanently" means a material interference
which extends for a period in excess of sixty (60) consecutive days. Such
parenthetical phrase shall not be applied to prevent Landlord from, and
Landlord shall have no liability to Tenant for, performing repairs or
maintenance which are required or permitted to be performed by Landlord
pursuant to this Lease and which are reasonably necessary to maintain the
Project in good condition and repair or to comply with Section XVIII.
and/or XIX. below. Landlord may determine the nature, size and extent of
the Common Areas as well as make changes to the Common Areas from time to
time which, in its opinion, we deemed desirable.
SECTION VI. SECURITY DEPOSIT SEE ADDENDUM SECTION XXXV.G.
Upon execution of this Lease, Tenant shall deposit with Landlord the Security
Deposit defined in Section I. above, which shall be held by Landlord as security
for the performance by Tenant of all terms, covenants and conditions of this
Lease. It is expressly understood and agreed that such deposit is not an
advance rental deposit or a measure of Landlord's damages in case of Tenant's
default. If Tenant defaults with respect to any provision of this Lease,
including, but not limited to, the provisions relating to the payment of rent or
the obligation to repair and maintain the Premises or to perform any other term,
covenant or condition contained herein, Landlord may (but shall not be required
to), without prejudice to any other remedy provided herein or provided by law
and without notice to Tenant, use the Security Deposit, or any portion of it, to
cure the default or to compensate Landlord for all damages sustained by Landlord
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resulting from Tenant's default. Tenant shall pay to Landlord within ten (10)
days after Landlord's demand therefor a sum equivalent to the portion of the
Security Deposit so expended or applied by Landlord as provided in this
paragraph so as to maintain the Security Deposit in the sum initially deposited
with Landlord. Although the Security Deposit shall be deemed the property of
Landlord, if Tenant is not in default at the expiration or termination of this
Lease, Landlord shall return the Security Deposit to Tenant. Landlord shall not
be required to keep the Security Deposit separate from its general funds and
Landlord, not Tenant, shall be entitled to all interest, if any, accruing on any
such deposit. Upon any sale or transfer of its interest in the Building,
Landlord shall transfer the Security Deposit to its successor in interest and
thereupon, Landlord shall be released from any liability or obligation with
respect thereto.
SECTION VII. TENANT'S TAXES
To the extent not covered as a Common Operating Cost, Tenant shall be liable for
any tax (now or hereafter imposed by any governmental entity) applicable to or
measured by or on the rents or any other charges payable by Tenant under this
Lease, including (but not limited to) any gross income tax, gross receipts tax
or excise tax with respect to the receipt of such rent or other charges or the
possession, leasing or operation, use or occupancy of the Premises, but not
including any net income, franchise, capital stock, estate or inheritance taxes.
If any such tax is required to be paid to the governmental taxing entity
directly by Landlord, then Landlord shall pay the amount due and, upon demand,
shall be fully reimbursed by Tenant for such payment.
Tenant shall also be liable for all taxes levied against the leasehold held by
Tenant or against any personal property, leasehold improvements, additions,
alterations and fixtures placed by or for Tenant in, on or about the Premises,
Building and Project or constructed by Landlord for Tenant in the Premises; and
if any such taxes are levied against Landlord or Landlord's property, or if the
assessed value of such property is increased (whether by special assessment or
otherwise) by the inclusion therein of value placed on such leasehold, personal
property, leasehold improvements, additions, alterations and fixtures, and
Landlord pays any such taxes (which Landlord shall have the right to do
regardless of the validity thereof), Tenant, upon demand, shall fully reimburse
Landlord for the taxes so paid by Landlord or for the proportion of such taxes
resulting from such increase in any assessment.
Tenant shall have the right, upon providing Landlord with security adequate in
Landlord's sole but reasonable opinion to prevent the same from becoming a lien
on the Premises, Building or Project, to contest taxes for which Tenant is
responsible pursuant to this Section VII.
SECTION VIII. USE OF PREMISES
A. PERMITTED USES
Tenant may use the premises and Common Areas solely for the Permitted Use
specified in subsection I.M. above, and for no other use. Tenant shall, at
its own cost and expense, obtain any and all licenses and permits necessary
for any such use. Tenant shall not do or permit anything to be done in or
about the Premises, Common Areas, Building or Project which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Project or injure or annoy them or use or allow the Premises to be used for
any unlawful purpose, nor shall Tenant cause, maintain or permit any
nuisance in, on or about the Premises and Common Areas or permit any odors
to emanate from the Premises and intrude upon the Common Areas or the
premises of other tenants. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises, Common Areas, Building or
Project. Tenant shall not do or permit anything to be done in or about the
Premises, Common Areas, Building or Project which may render the insurance
thereon void or increase the insurance risk thereon, without Landlord's
prior written consent in each instance, which will not be unreasonably
withheld but which may be conditioned (without limitation) upon Tenant's
payment of
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any resultant increases in the premium. If an increase in any fire and
extended coverage insurance premiums paid by Landlord for the Building and
Project is caused by Tenant's use and occupancy of the Premises, then
Tenant shall pay as additional rental the amount of such increase to
Landlord.
B. COMPLIANCE WITH LAWS
Tenant shall not use the Premises, Building, Project or Common Areas in any
way (or permit or suffer anything to be done in or about the same) which
will conflict with any, law, statute, ordinance or governmental rule or
regulation or any covenant, condition or restriction (whether or not of
public record) affecting the Premises, Project or Building, now in force or
which may hereafter be enacted or promulgated including, but not limited
to, the provisions of any city or county zoning codes regulating the use
thereof. Tenant shall, at its sole cost and expense, promptly comply with
(a) all laws, statutes, ordinances and governmental rules and regulations,
now in force or which may hereafter be in force, applicable to Tenant or
its use of or business or operations in the Premises,(b) all requirements,
and other covenants, conditions and restrictions, now in force or which may
hereafter be in force, which affect the Premises, and (c) all requirements,
now in force or which may hereafter be in force, of any board of fire
underwriters or other similar body now or hereafter constituted relating to
or affecting the condition, use or occupancy of the Premises, Building or
Project. The judgment of any court of competent jurisdiction or the
admission by Tenant in any action against Tenant, whether Landlord be a
party thereto or not, that Tenant has violated any law, statute, ordinance,
governmental rule or regulation or any requirement, covenant, condition or
restriction shall be conclusive of the fact as between Landlord and Tenant.
Tenant agrees to fully indemnify Landlord against any liability, claims or
damages arising as a result of a breach of the provisions of this
subsection by Tenant, and against all costs, expenses, fines or other
charges arising therefrom, including, without limitation, reasonable
attorneys' fees and related costs incurred by Landlord in connection
therewith, which indemnity shall survive the expiration or earlier
termination of this Lease. Without limiting the generality of the
foregoing, it is expressly understood and agreed that, subject to
performance by Landlord of Landlord's Work described in EXHIBIT C hereto,
and performance by Landlord of its obligations pursuant to the last
unnumbered paragraph of Section III.D. above (any violation of which by
Landlord shall give rise (only) to a claim by Tenant for breach of this
Lease and damages), Tenant is accepting the Premises "AS IS", in its
present state and condition, without any representations or warranties from
Landlord of any kind whatsoever, either express or implied, with respect to
the Premises or the Building, including without limitation the compliance
of the Premises or the Building with The Americans With Disabilities Act
and the rules and regulations promulgated thereunder, as amended from time
to time (the "ADA"). Except as otherwise provided for in EXHIBIT C hereto
and the last unnumbered paragraph of Section III.D. hereof, if Tenant's use
of the Premises or operations therein cause Landlord to incur any
obligation under the ADA, as reasonably determined by Landlord, then Tenant
shall reimburse Landlord for Landlord's costs and expenses in connection
therewith. Notwithstanding the foregoing, Landlord shall be responsible
for compliance of the Common Areas with the ADA (as in effect and
applicable to the Project as of the date hereof), except if and to the
extent that such compliance is required by or relates to Tenant's
operations in the Premises. If Tenant's initial use of the Premises is not
a place of public accommodation" within the meaning of the ADA, then Tenant
may not thereafter change the use of the Premises to cause the Premises to
become a "place of public accommodation" unless such use is consistent with
the Permitted Use and Tenant pays all costs and expenses of compliance of
the Premises, Building and Project with the ADA associated therewith. In
the event that Tenant desires or is required hereby to make Alterations (as
defined in Section XII. below) to the Premises in order to satisfy its
obligations under the ADA, ten all such Alterations shall be subject to any
requirements in the Lease with respect to Alterations of the Premises, and
shall be performed at Tenant's sole cost and expense. Except for
Alterations to the Premises, nothing herein shall give Tenant any right
whatsoever to make any alterations or
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modifications to any portion of the Building or its appurtenant facilities.
Tenant shall be responsible for insuring that the Premises and Tenant's use
thereof and operations therein fully and completely comply with the ADA.
C. HAZARDOUS MATERIALS SEE ADDENDUM SECTION XXXV.C.
Tenant covenants and agrees that it shall not cause or permit any Hazardous
Material (as defined below) to be brought upon, kept, or used in or about
the Premises, Building or Project by Tenant, its agents, employees,
contractors or invitees. The foregoing covenant shall not extend to
substances typically found or used in general office applications so long
as (i) such substances and any equipment which generates such substances
are maintained only in such quantities as are reasonably necessary for
Tenant's operations in the Premises, (ii) such substances are used strictly
in accordance with the manufacturers' instructions therefor, (iii) such
substances are not disposed of in or about the Project in a manner which
would constitute a release or discharge thereof, and (iv) all such
substances and any equipment which generates such substances are removed
from the Project by Tenant upon the expiration or earlier termination of
this Lease. Any use, storage, generation, disposal, release or discharge
by Tenant of Hazardous Materials in or about the Project as is permitted
pursuant to this subsection C. shall be carried out in compliance with all
applicable federal, state and local laws, ordinances, rules and
regulations. Moreover, no hazardous waste resulting from any operations by
Tenant shall be stored or maintained by Tenant in or about the Project for
more than ninety (90) days prior to removal by Tenant. Tenant shall,
annually within thirty (30) days after Tenant's receipt of Landlord's
written request therefor, provide to Landlord a written list identifying
any Hazardous Materials then maintained by Tenant in the Project, the use
of each such Hazardous Material and the approximate quantity of each such
Hazardous Material so maintained by Tenant, together with written
certification by Tenant stating, in substance, that neither Tenant nor any
person for whom Tenant is responsible has released or discharged any
Hazardous Materials in or about the Project.
In the event that Tenant proposes to conduct any use or to operate any
equipment which will or may utilize or generate a Hazardous Material other
than as specified in the first paragraph of this subsection, Tenant shall
first in writing submit such use or equipment to Landlord for approval. No
approval by Landlord shall relieve Tenant of any obligation of Tenant
pursuant to this subsection, including the removal, clean-up and
indemnification obligations imposed upon Tenant by this subsection. Tenant
shall, within five (5) days after receipt thereof, furnish to Landlord
copies of all notices or other communications received by Tenant with
respect to any actual or alleged release or discharge of any Hazardous
Material in or about the Premises or the Project and shall, whether or not
Tenant receives any such notice or communication, notify Landlord in
writing of any discharge or release of Hazardous Material by Tenant or
anyone for whom Tenant is responsible in or about the Premises or the
Project. In the event that Tenant is required to maintain any Hazardous
Materials license or permit in connection with any use conducted by Tenant
or any equipment operated by Tenant in the Premises, copies of each such
license or permit, each renewal or revocation thereof and any communication
relating to suspension, renewal or revocation thereof shall be furnished to
Landlord within five (5) days after receipt thereof by Tenant. Compliance
by Tenant with the two immediately preceding sentences shall not relieve
Tenant of any other obligation of Tenant pursuant to this subsection.
Upon any violation of the foregoing covenants, Tenant shall be obligated,
at Tenant's sole cost, to clean-up and remove from the Project all
Hazardous Materials introduced into the Project by Tenant or any person or
entity for whom Tenant is responsible. Such clean-up and removal shall
include all testing and investigation required by any governmental
authorities having jurisdiction and preparation and implementation of any
remedial action plan required by any governmental authorities having
jurisdiction. All such clean-up and removal activities of Tenant shall, in
each instance, be conducted to
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the satisfaction of Landlord (acting as a responsible owner of real
property in directing the performance of such activities by a third party
responsible for the condition) and all governmental authorities having
jurisdiction. Landlord's right of entry pursuant to Section XI. shall
include the right to enter and inspect the Premises for violations of
Tenant's covenants herein.
Tenant shall indemnify, defend and hold harmless Landlord, its partners,
and its and their successors, assigns, partners, officers, employees,
agents, lenders and attorneys from and against any and all claims,
liabilities, losses, actions, costs and expenses (including attorneys' fees
and costs of defense) incurred by such indemnified persons, or any of them,
as the result of (A) the introduction into or about the Project by Tenant
or anyone for whom Tenant is responsible of any Hazardous Materials, (B)
the usage, storage, maintenance, generation, disposition or disposal by
Tenant or anyone for whom Tenant is responsible of Hazardous Materials in
or about the Project, (C) the discharge or release in or about the Project
by tenant or anyone for whom Tenant is responsible of any Hazardous
Materials, (D) any injury to or death of persons or damage to or
destruction of property resulting from the use, introduction, maintenance,
storage, generation, disposal, disposition, release or discharge by Tenant
or anyone for whom Tenant is responsible of Hazardous Materials in or about
the Project, and (E) any failure of Tenant or anyone for whom Tenant is
responsible to observe the foregoing covenants of this subsection.
Upon any violation of the foregoing covenants, Landlord shall be entitled
to exercise all remedies available to a landlord against a defaulting
tenant, including but not limited to those set forth in Section XX.
Without limiting the generality of the foregoing, Tenant expressly agrees
that upon any such violation Landlord may, at its option, immediately
terminate this Lease. In the event this Lease terminates prior to Tenant's
completion of its clean-up and removal covenant hereunder, Tenant shall,
nevertheless, continue to be responsible to complete the clean-up and
removal and for any damages, including without limitation payment of rental
loss, suffered by Landlord as a result of the clean-up operations and/or
contamination caused by a violation of Tenant's covenants herein. No
action by Landlord hereunder shall impair the obligations of Tenant
pursuant to this subsection.
As used in this subsection, "Hazardous Materials" is used in its broadest
sense and shall include any petroleum based products, pesticides, paints
and solvents, polychlorinated biphenyl, lead, cyanide, DDT, acids, ammonium
compounds and other chemical products and any substance or material defined
or designated as hazardous or toxic, or other similar term, by any federal,
state or local environmental statute, regulation, or ordinance affecting
the Premises, Building or Project presently in effect or that may be
promulgated in the future, as such statutes, regulations and ordinances may
be amended from time to time, including but not limited to the statutes
listed below:
Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sec. 6901
ET SEQ.
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, 42 U.S.C. Sec. 9601 ET SEQ.
Clean Air Act, 42 U.S.C. Sections 7401-7626.
Water Pollution Control Act (Clean Water Act of 1977), 33 U.S.C. Sec.
1251 ET SEQ.
Insecticide, Fungicide, and Rodenticide Act (Pesticide Act of 1987),
7 U.S.C. Sec. 135 ET SEQ.
Toxic Substances Control Act, 15 U.S.C. Sec. 2601 ET SEQ.
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Safe Drinking Water Act, 42 U.S.C. Sec. 300(f)ET SEQ.
National Environmental Policy Act (NEPA) 42 U.S.C. Sec. 4321 ET SEQ.
Refuse Act of 1899, 33 U.S.C. Sec. 407 ET SEQ.
California Health and Safety Code Sec. 25316 ET SEQ.
By its signature to this Lease, Tenant confirms that it has been provided
with a copy of an environmental site assessment of the Project described in
Addendum Section XXXV. C. and that it has conducted its own examination of
the Premises and the Project with respect to Hazardous Materials. Except
as set forth in the Report, to Landlord's actual knowledge (without any
inquiry other than requesting the Report) (i) no Hazardous Material is
present on the Project or the soil, surface water or groundwater thereof,
(ii) no underground storage tanks or asbestos containing building materials
are present on the Project, and (iii) no action, proceeding or claim is
pending or threatened concerning the Project concerning any Hazardous
Material or pursuant to any Environmental Law. On the basis of the
foregoing, Tenant accepts the Premises and Project "AS IS." Notwithstanding
anything to the contrary in this Lease, in the event that Hazardous
Materials are discovered in the Project, the presence of which is not
caused by a breach of the obligations of Tenant set forth in this
subsection C., Landlord shall, at Landlord's sole cost and expense, remove,
remediate, or otherwise deal with such Hazardous Materials if, as and when
required by applicable governmental authorities. In addition, subject to
Section XV. B. below, Landlord agrees to indemnify and hold Tenant harmless
from and against any and all costs of compliance required to be incurred by
Tenant by any governmental authority with jurisdiction and/or any and all
claims, demands, costs and expenses for personal injury and property damage
asserted against Tenant and reduced to judgment against Tenant in a legal
action, including reasonable attorneys' fees incurred therein
(collectively, "Claims"), if and to the extent that the same are judicially
determined or otherwise proved to the reasonable satisfaction of Landlord
to have been caused by the presence (or later effects) in or about the
Project of Hazardous Materials introduced to the Project by Landlord.
Tenant acknowledges that incorporation of any material containing asbestos
into the Premises is absolutely prohibited. Tenant agrees, represents and
warrants that it shall not incorporate or permit or suffer to be
incorporated, knowingly or unknowingly, any material containing asbestos
into the Premises.
D. LANDLORD'S RULES AND REGULATIONS
Tenant shall, and Tenant agrees to cause its agents, servants, employees,
invitees and licensees to, observe and comply fully and faithfully with the
rules and regulations attached hereto as EXHIBIT E or such other non-
discriminatory rules and regulations which may hereafter be adopted by
Landlord (the "Rules") for the care, protection, cleanliness, and operation
of the Premises, Building and Project, and any modifications or additions
to the Rules adopted by Landlord, provided that, Landlord shall give
written notice thereof to Tenant. Landlord shall not be responsible to
Tenant for failure of any other tenant or occupant of the Building or
Project to observe or comply with any of the Rules.
E. TRAFFIC AND ENERGY MANAGEMENT
Landlord and Tenant agree to cooperate and use their best efforts to
participate in governmentally mandated or voluntary traffic management
programs generally applicable to businesses located in the area in which
the Project is situated or to the Project and, initially, shall encourage
and support van and car pooling by employees and shall encourage and
support staggered and flexible working hours for employees to the fullest
extent permitted by the requirements of Tenant's business. Neither this
subsection nor
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any other provision in this Lease, however, is intended to or shall create
any rights or benefits in any other person, firm, company, governmental
entity or the public.
Landlord and Tenant agree to cooperate and use their best efforts to comply
with any and all guidelines or controls imposed upon either Landlord or
Tenant by federal or state governmental organizations or by any energy
conservation association to which Landlord is a party concerning energy
management; provided, however, Tenant shall not be responsible (subject to
Tenant's obligations elsewhere in this Lease) to comply with voluntary
traffic or energy management programs of the type described in this Section
VIII.E. except to the extent required by law.
All costs, fees assessments and other charges paid by Landlord to any
governmental authority or voluntary association in connection with any
program of the types described in this subsection, all costs and fees paid
by Landlord to any governmental authority or third party pursuant to or to
effect such program and all costs associated with administration and
management of such program or compliance therewith, shall be included in
Common Operating Costs. However, any costs, fees, fines or other levies
assessed against Landlord as the result of failure of any tenant to comply
with this subsection shall be reimbursed by such noncomplying tenant to
Landlord as additional rent.
SECTION IX. SERVICE AND UTILITIES
A. STANDARD BUILDING SERVICES AND REIMBURSEMENT BY TENANT
So long as Tenant is not in default hereunder (including any default of a
type described in clauses (4) - (6) of Section XX.A. below), Landlord
agrees to make available to the Premises, during the Building's normal
business hours and days of 7:00 a.m. to 6:00 p.m. Monday through Friday and
8:00 a.m. to 1:00 p.m. Saturday (holidays excepted) such heat and air
conditioning (hereinafter "HVAC"), water and electricity, as may be
required in Landlord's judgment for the comfortable use and occupation of
the Premises for general office purposes and at a level which is usual and
customary in similar office buildings in the area where the Project is
located, all of which shall be subject to the Rules of the Building as well
as any governmental requirements or standards relating to, among other
things, energy conservation. Tenant agrees to pay, as a Common Operating
Cost in accordance with Section V. above, Tenant's Proportionate Share in
excess of the Base Operating Expense of the full cost of all utilities
supplied to the Premises, together with any taxes thereon; provided,
however, if any such service or utilities are separately metered to the
Premises, Tenant shall pay the cost thereof in a timely manner directly to
the utility company providing such service. Tenant's obligations in this
Section regarding utilities include, but are not limited to, initial
connection charges, all charges for gas, water and electricity used on the
Premises, and for all electric light lamps or tubes. If any such utility
or service is not separately metered to the Premises, Tenant shall be
required to pay any increased cost, as additional rent, of any such utility
and service, including without limitation water, electricity and HVAC,
resulting from any use of the Premises at any time other than the schedule
of normal business hours for providing such utilities and services as
reasonably determined by Landlord or any unusual or non-customary use
beyond that which Landlord has agreed to make available as described above,
or resulting from special electrical, cooling and ventilating needs created
in certain areas by telephone equipment, computers and other similar
equipment or uses. If the Building is designed for individual tenant
operation of the HVAC, Tenant agrees to pay the cost of operating the HVAC
at any time other than the schedule of hours for providing the same set
forth above, which cost may include the operation of the HVAC for space
located outside the Premises when such space is serviced concurrently with
the operation of the HVAC for the benefit of the Premises.
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B. LIMITATION ON LANDLORD'S OBLIGATIONS
Landlord shall not be in breach of its obligations under this Section
unless Landlord fails to make any repairs or perform maintenance which it
is obligated to perform hereunder and such failure persists for an
unreasonable time after written notice of a need for such repairs or
maintenance is given to Landlord by Tenant. Landlord agrees to investigate
the necessity of any repair or maintenance alleged to be necessary in such
written notice promptly, and shall commence any repair or maintenance that
Landlord determines is necessary within a reasonable period of time
thereafter. Landlord shall not be liable for and Tenant shall not be
entitled to any abatement or reduction of rent by reason of Landlord's
failure to furnish any of the foregoing when such failure is caused by
accidents, breakage, repairs, strikes, brownouts, blackouts, lockouts or
other labor disturbances or labor disputes of any character, or by any
other cause, similar or dissimilar, beyond the reasonable control of
Landlord, nor shall such failure under such circumstances be construed as a
constructive or actual eviction of Tenant. If, as a result of Landlord's
negligence or willful misconduct, utility service to the Premises continues
interrupted for a period of in excess of three (3) consecutive business
days after written notice thereof is given to Landlord by Tenant (which
three (3) business day period shall be extended by force majeure events
described in Section XXXIII.K. below) and which interruption materially
prohibits the use of the Premises for the Permitted Use, then Monthly
Rental and Tenant's obligation to pay Common Operating Costs shall abate
from and after expiration of such three (3) business day period (as so
extended) until service is restored. Landlord shall not be liable under
any circumstances for loss or injury to property or business, however
occurring, through or in connection with or incidental to Landlord's
failure to furnish any of said service or utilities.
C. EXCESS SERVICE
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 one hundred twenty (120) volts or which consumes more
electricity than is usually furnished or supplied for the Permitted Use of
the Premises, as determined by Landlord. Tenant shall not consume water or
electric current in excess of that usually furnished or supplied for the
use of the Premises (as determined by Landlord), without first procuring
the written consent of Landlord, which Landlord may refuse. The excess
cost (including any penalties for excess usage) for such water and electric
current shall be established by an estimate made by a utility company or
independent engineer hired by Landlord at Tenant's expense and Tenant shall
pay such excess costs each month with the Monthly Rental. All costs and
expenses of modifying existing equipment, cables, lines, etc. or installing
additional equipment, cables, lines, etc. to accommodate such excess usage
or use by Tenant of such apparatus or device shall be borne by Tenant.
D. SECURITY SERVICES
Certain security measures (both by electronic equipment and personnel) may
be provided by Landlord in connection with the Building and Common Areas.
However, Tenant hereby acknowledges that such security is intended to be
only for the benefit of the Landlord in protecting its property from fire,
theft, vandalism and similar perils and while certain incidental benefits
may accrue to the Tenant therefrom, such security is not for the purpose of
protecting either the property of Tenant or the safety of its officers,
employees, servants or invitees. By providing such security, Landlord
assumes no obligation to Tenant and shall have no liability arising
therefrom. If, as a result of Tenant's particular occupancy of the
Premises, Landlord in its sole discretion determines that it is necessary
to provide security or implement additional security measures or devices in
or about the Building or the Common Areas, Tenant shall be required to pay,
as additional rent, the cost or increased cost, as the case may be, of such
security.
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SECTION X. MAINTENANCE AND REPAIRS
A. Landlord's Obligations SEE ADDENDUM SECTION XXXV.D.
Except for special or non-standard systems and equipment installed for
Tenant's exclusive use, Landlord shall keep in good condition and repair,
at Landlord's initial cost and expense subject to reimbursement by Tenant
of Tenant's Proportionate Share of such cost and expense in excess, in the
aggregate with all other Common Operating Costs, of the Base Operating
Expense, heating, ventilating and air conditioning and plumbing systems if
and to the extent that they service the Premises as well as other premises
within the Building, the foundations, exterior walls, structural condition
of interior bearing walls and roof of the Premises, interior walls,
interior surfaces of exterior walls, ceilings, windows, doors, cabinets,
draperies, electrical and lighting facilities within the Premises, window
coverings, carpeting and other floor coverings, plate glass and skylights
located within the Premises and the Building, as well as the parking lots,
walkways, driveways, landscaping, fences, signs, and utility installations
of the Project. Janitorial services to the Premises shall initially be
provided as described in EXHIBIT G, which specifications are subject to
change from time to time in the reasonable discretion of Landlord.
Landlord shall not be required to make any repairs that are the obligation
of any other tenant or occupant within the Building or Project or repairs
for damage caused by any negligent or intentional act or omission of Tenant
or any person claiming through or under Tenant or any of Tenant's
employees, suppliers, shippers, customers or invitees, in which event
Tenant shall repair such damage at its sole cost and expense. Tenant
hereby waives and releases its right to make repairs at Landlord's expense
under any law, statute, ordinance, rules and regulations now or hereafter
in effect in any jurisdiction in which the Project is located.
B. TENANT'S OBLIGATIONS
Tenant shall, at its sole cost and expense, make all repairs and
replacements as and when Landlord deems reasonably necessary to preserve in
good working order and condition any special or supplementary heating,
ventilating and air conditioning systems located within the Premises and
installed for the exclusive use of the Premises and all other non-standard
utility facilities and systems exclusively serving the Premises, and all of
Tenant's trade fixtures located within the Premises. Tenant shall not
commit or permit any waste in or about the Premises, the Building or the
Project. Tenant shall, at its sole cost and expense, make all repairs to
the Premises, Building and Project which are required, in the reasonable
opinion of Landlord, as a result of any misuse, neglect, negligent or
intentional act or omission committed or permitted by Tenant or by any
subtenant, agent, employee, supplier, shipper, customer, invitee or servant
of Tenant.
C. LANDLORD'S RIGHT TO MAKE REPAIRS
In the event that Tenant fails to maintain the Premises, Building or
Project in good and sanitary order, condition and repair as required by
this Lease, then, following written notification to Tenant and expiration
of the applicable grace period described in Section XX. (except in the case
of an emergency, in which case no prior notification and/or grace period
shall be required), Landlord shall have the right, but not the obligation,
to enter the Premises and to do such acts and expend such funds at the
expense of Tenant as are required to place the Premises, Building and
Project in good, safe and sanitary order, condition and repair. Any amount
so expended by Landlord shall be paid by Tenant promptly upon demand as
additional rent.
D. CONDITION OF PREMISES UPON SURRENDER
Except as otherwise provided in this Lease, Tenant shall, upon the
expiration or earlier termination of the Term, surrender the Premises to
Landlord in the same condition as on the date Tenant took possession, broom
clean, except for reasonable wear and tear,
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damage caused by an event which is insured by property insurance maintained
by Landlord pursuant to Section XIV.B.(1) below (subject to Tenant's
obligations stated in the last sentence of Section X.B.), and condemnation
(subject to Tenant's assignment to Landlord of the right to receive
proceeds of condemnation for any fixtures or other property required to be
surrendered to Landlord under this subsection D.). All appurtenances,
fixtures, improvements, additions and other property attached to or
installed in the Premises whether by Landlord or by or on behalf of Tenant,
and whether at Landlord's expense or Tenant's expense, shall be and remain
the property of Landlord unless Landlord specifically agrees or requires
otherwise in writing (which removal, with respect to Alterations, shall be
subject to Section XII. below). Any furnishings and personal property of
Tenant located in the Premises, whether the property of Tenant or leased by
Tenant (including the fixtures, improvements and other items agreed, in
writing, by Landlord to belong to the Tenant as provided in the preceding
sentence), shall be and remain the property of Tenant and shall be removed
by Tenant at Tenant's sole cost and expense at the expiration of the Term.
Tenant shall promptly repair any damage to the Premises or the Building
resulting from such removal. Any of Tenant's property not removed from the
Premises prior to the expiration of the Term shall, at Landlord's option,
either become the property of Landlord or may be removed by Landlord and
Tenant shall pay to Landlord the cost of such removal within ten (10) days
after delivery of a bill therefor or Landlord, at its option, may deduct
such amount from the Security Deposit. 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, shall be repaired
by Tenant at Tenant's expense.
SECTION XI. ENTRY BY LANDLORD
Landlord reserves and shall at any and all times have the right to enter the
Premises at reasonable times to inspect the same to determine whether Tenant is
complying with its obligations hereunder; to supply any service to be provided
by Landlord hereunder; and to supply janitorial service and any other service to
be provided by Landlord to Tenant hereunder; and, upon reasonable notice to
Tenant, may exhibit the Premises to prospective purchasers, mortgagees or,
within the last twelve (12) months of the Term, prospective tenants; to post
notices of nonresponsibility; and to alter, improve or repair the Premises and
any portion of the Building and Project, without abatement of rent, and may for
that purpose erect scaffolding and other necessary structures that are
reasonably required by the character of the work to be performed by Landlord,
provided that the business of Tenant shall not be interfered with unreasonably.
In the event Landlord desires to enter the Premises with any third party whom
Tenant reasonably identifies as a business competitor of Tenant, Tenant shall
have the right, at Tenant's option, to designate an available representative to
accompany Landlord and such third party within the Premises. For each of the
aforesaid purposes, Landlord shall at all times have and retain a key with which
to unlock all of the doors in, upon and about the Premises, excluding Tenant's
vaults and safes, and Landlord shall have the right to use any and all means
which Landlord may deem proper to open such doors in the event of an emergency.
Any entry to the Premises or portions thereof obtained by Landlord by any of
said means, or otherwise, shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into, or a detainer of, the Premises,
or an eviction, actual or constructive, of Tenant from the Premises, or any
portion thereof.
SECTION XII. ALTERATIONS, ADDITIONS AND TRADE FIXTURES
Tenant shall not make any alterations, additions or improvements to the
Premises, or any part thereof, whether structural or nonstructural (hereafter
"Alterations"), without Landlord's prior written consent which will not be
unreasonably withheld or delayed. Notwithstanding the foregoing, Landlord's
prior consent is not required for any non-structural alterations which do not
affect the Building systems, which are not visible from the exterior of the
Premises, which are consistent with the Tenant Improvements, which do not alter
the floor plan of the Premises
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or the flow of the Building and which cost, in any instance, less than $10,000
(inclusive of all professional, permit and other fees, costs and expenses). In
order to obtain Landlord's preliminary consent, Tenant shall submit such
information as Landlord may require, including without limitation plans and
specifications for the Alterations. Any professional fees or other reasonable
costs and expenses incurred by Landlord in reviewing such plans and
specifications shall be paid to Landlord by Tenant as additional rent upon
demand. After Landlord gives preliminary consent, in order to obtain Landlord's
final consent, which consent may not be unreasonably withheld, Tenant shall then
submit (i) permits, licenses, bonds, and the construction contract, all in
conformance with the plans and specifications preliminarily approved by
Landlord; (ii) evidence of insurance coverage in such types and amounts and from
such insurers as Landlord deems satisfactory; and (iii) such other information
as Landlord deems reasonably necessary. The construction contract shall, at a
minimum, require the general contractor and all subcontractors to obey the rules
and regulations of the Building and Project. All Alterations shall be done in a
good workmanlike manner by qualified and licensed contractors or mechanics, as
approved by Landlord. In no event shall any Alterations affect the structure of
the Building or its exterior appearance. All Alterations made by or for Tenant
(other than Tenant's moveable trade fixtures), shall, unless Landlord expressly
requires or agrees otherwise in writing, immediately become the property of
Landlord, without compensation to Tenant, but Landlord has no obligation to
repair, maintain or insure those Alterations. Carpeting, shelving and cabinetry
are considered improvements of the Premises and not movable trade fixtures,
regardless of how or where affixed. No Alterations will be removed by Tenant
from the Premises either during or at the expiration or earlier termination of
the Term, and they shall be surrendered as a part of the Premises unless
Landlord has required that Tenant remove them. At Landlord's discretion,
Alterations are subject to removal by Tenant and at Tenant's sole cost and
expense except for any Alterations which Landlord agreed in writing, in response
to a request by Tenant made at the time Tenant requested Landlord to consent to
the Alteration, that Tenant would not be required to remove at the end of the
Term. Upon any such removal, Tenant shall repair any damage caused to the
Premises thereby, and shall return the Premises to the condition they were in
prior to installation of such Alterations so removed. Tenant shall indemnify,
defend and keep Landlord free and harmless from and against all liability, loss,
damage, cost, 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. In connection with any Alterations
for which Landlord's consent is required, Landlord may require Tenant to provide
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 such improvements,
to insure Landlord against any liability for mechanic's liens and to insure
completion of the work. Landlord shall have the right at all times to post on
the Premises any notices permitted or required by law, or that Landlord shall
deem proper, for the protection of Landlord, the Premises, the Building and the
Project, and any other party having an interest therein, from mechanics' and
materialmen's liens, and Tenant shall give to Landlord written notice of the
commencement of any construction in or on the Premises at least thirty (30)
business days prior thereto. Prior to the commencement of any such
construction, Landlord shall be furnished certificates of insurance, naming
Landlord as an additional insured, evidencing that each contractor performing
work has insurance acceptable to Landlord, including but not limited to general
liability insurance of not less that One Million Dollars ($1,000,000.00) and
worker's compensation insurance in the statutorily required amount.
SECTION XIII. MECHANIC'S LIENS
Tenant shall keep the Premises, the Building and the Project free from any liens
arising out of any work performed, material furnished or obligation incurred by
or for Tenant or any person or entity claiming through or under Tenant. In the
event that Tenant shall not, within ten (10) days following the imposition of
any such lien, cause the same to be released of record by payment or posting of
a proper bond, Landlord shall have, in addition to all other remedies provided
herein and by law, the right, but not the obligation, to cause such lien to be
released by such means as Landlord deems proper, including payment of the claim
giving rise to such lien. All such sums paid and all expenses incurred by
Landlord in connection therewith shall be due and payable to Landlord by Tenant
on demand.
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SECTION XIV. INSURANCE
A. TENANT
During the Term hereof, Tenant shall keep in full force and effect the
following insurance and shall provide appropriate insurance certificates to
Landlord prior to the Lease Commencement Date and annually thereafter
before the expiration of each policy:
(1) Commercial general liability insurance for the benefit of Tenant and
Landlord as an additional insured, with a limit of not less than Two
Million Dollars ($2,000,000.00)combined single limit per occurrence,
against claims for personal injury liability including, without
limitation, bodily injury, death or property damage liability and
covering (i) the business(es) operated by Tenant and by any subtenant
of Tenant on the Premises, (ii) operations of independent contractors
engaged by Tenant for services or construction on or about the
Premises, and (iii) contractual liability;
(2) Fire, extended coverage, vandalism and malicious mischief insurance,
insuring the personal property, furniture, furnishings and fixtures
belonging to Tenant located on the Premises for not less than one
hundred percent (100%) of the actual replacement value thereof;
(3) Workers' compensation in the amount required by law;
(4) Business interruption or loss of income insurance in amounts
satisfactory to Landlord, with a rental interruption rider assuring
Landlord that the rent due hereunder will be paid for a period of not
less than twelve (12) months if the Premises are destroyed or
rendered inaccessible by a risk insured against by a policy of all
risk insurance; and
(5) Such other insurance as Landlord deems reasonably necessary.
Each insurance policy obtained by Tenant pursuant to this Lease shall
contain a clause that the insurer will provide Landlord with at least
thirty (30) days prior written notice of any material change, non-renewal
or cancellation of the policy, shall be in a form satisfactory to Landlord
and shall be taken out with an insurance company authorized to do business
in the State in which the Project is located and rated not less than Best's
Financial Class X and Best's Policy Holder Rating "A". In addition, any
insurance policy obtained by Tenant shall be written as a primary policy,
and shall not be contributing with or in excess of any coverage which
Landlord may carry, and shall have loss payable clauses satisfactory to
Landlord and in favor of Landlord naming Landlord, and any other party
reasonably designated by Landlord, as an additional insured. The liability
limits of the above described insurance policies shall in no matter limit
the liability of Tenant under the terms of Section XV. below.
Not more frequently than every two (2) years, if, in the reasonable opinion
of Landlord, the amount of liability insurance specified in this Section
XIV. is not adequate, the above-described limits of coverage shall be
adjusted by Landlord, by written notification to Tenant, in order to
maintain the level of insurance protection comparable to the protection
afforded on the date the Term commences. If Tenant fails to maintain and
secure the insurance coverage required under this Section XIV., then
Landlord shall have, in addition to all other remedies provided herein and
by law, the right, but not the obligation, to procure and maintain such
insurance, the cost of which shall be due and payable to Landlord by Tenant
on demand.
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If, on account of the failure of Tenant to comply with the provisions of
this Section, Landlord is deemed a co-insurer by its insurance carrier,
then any loss or damage which Landlord shall sustain by reason thereof
shall be borne by Tenant and shall be immediately paid by Tenant as
additional rent upon receipt of a bill therefor and evidence of such loss.
B. LANDLORD
During the Term hereof, Landlord shall keep in full force and effect the
following insurance
(1) Fire, extended coverage and vandalism and malicious mischief
insurance insuring the Building and Project of which the Premises are
a part, in an amount not less than eighty percent (80%) (or such
greater percentage as may be required by law) of the full replacement
cost thereof; and
(2) Such other insurance as Landlord deems necessary in its sole and
absolute discretion.
All insurance policies shall be issued in the names of Landlord and
Landlord's lender, and any other party reasonably designated by Landlord as
an additional insured, as their interests appear. The insurance policies
shall provide that any proceeds shall be made payable to Landlord, or to
the holders of mortgages or deeds of trust encumbering Landlord's interest
in the Premises, Building and Project, or to any other party reasonably
designated by Landlord as an additional insured, as their interests shall
appear. All insurance premiums for Landlord's insurance shall be included
in Common Operating Costs.
C. WAIVER OF SUBROGATION
Landlord and Tenant each hereby waives any and all rights of recovery
against the other, and against any other tenant or occupant of the Project
who waives such rights as to Tenant and against the officers, employees,
agents, representatives, customers and business visitors of such other
party and of each such other tenant or occupant of the Project, for loss of
or damage to such waiving party or its property or the property of others
under its control, arising from any cause insured against under any policy
of property insurance required to be carried by such waiving party pursuant
to the provisions of this Lease (or any other policy of property insurance
carried by such waiving party in lieu thereof) at the time of such loss or
damage. The foregoing waiver shall be effective whether or not a waiving
party actually obtains and maintains the insurance which such waiving party
is required to obtain and maintain pursuant to this Lease (or any
substitute therefor). Landlord and Tenant shall, upon obtaining the
policies of insurance which they are required to maintain hereunder, give
notice to their respective insurance carrier or carriers that the foregoing
mutual waiver of subrogation is contained in this Lease.
SECTION XV. INDEMNITY AND EXEMPTION
A. INDEMNITY
(1) BY TENANT
Tenant agrees to indemnify, defend and hold Landlord and its
officers, directors, partners and employees entirely harmless from
and against all liabilities, losses, demands, actions, expenses or
claims, including reasonable attorneys' fees and court costs, for
injury to or death of any person or for damages to any property or
for violation of law arising out of or in any manner connected with
(i) the use,
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occupancy or enjoyment of the Premises, Building or Project by Tenant
or Tenant's agents, employees, invitees or contractors (the "Tenant's
Agents") or any work, activity or other things allowed or suffered by
Tenant or Tenant's Agents to be done in or about the Premises,
Building or Project, (ii) any breach or default in the performance of
any obligation of Tenant under this Lease, and (iii) any act or
failure to act, whether negligent or otherwise tortious; by Tenant or
Tenant's Agents in or about the Premises, Building or Project.
(2) BY LANDLORD
Subject to Section XIV.C. above and the first paragraph of XV.B.
below, Landlord hereby agrees to indemnify and hold harmless Tenant
and its officers and directors, from and against any and all losses,
liabilities, demands, actions, expenses, or claims, including
reasonable attorneys' fees and court costs, for injury to or death of
any person or for damages to any property or for violation of law
occurring within the Project or (but only if and to the extent not
covered by the insurance required to be carried by Tenant under this
Lease, regardless of whether Tenant actually maintains the same)
within the Building or Premises, if and to the extent that it is
adjudged by a court of competent jurisdiction, or otherwise proved to
the reasonable satisfaction of Landlord, that the same is caused by
(i) any default by Landlord in the performance of any obligation of
Landlord under this Lease, or (ii) any act or, where Landlord has a
specific duty under this Lease to act, omission constituting gross
negligence or willful misconduct of Landlord, its agents, contractors
or employees.
B. LIMITATION ON LANDLORD'S LIABILITY; RELEASE OF DIRECTORS, OFFICERS AND
PARTNERS OF LANDLORD
Tenant agrees that, in the event Tenant shall have any claim against
Landlord under this Lease arising out of the subject matter of this Lease,
Tenant's sole recourse shall be against the Landlord's interest in the
Building, for the satisfaction of any claim, judgment or decree requiring
the payment of money by Landlord as a result of a breach hereof or
otherwise in connection with this Lease, and no other property or assets of
Landlord, its successors or assigns, shall be subject to the levy,
execution or other enforcement procedure for the satisfaction of any such
claim, judgment, injunction or decree. Tenant further hereby waives any
and all right to assert any claim against or obtain any damages from, for
any reason whatsoever, the directors, officers and partners of Landlord,
including all injuries, damages or losses to Tenant's property, real and
personal, whether known, unknown, foreseen, unforeseen, patent or latent,
which Tenant may have against Landlord or its directors, officers or
partners. Tenant understands and acknowledges the significance and
consequence of such specific waiver.
Landlord shall not be liable or responsible to Tenant for any loss or
damage to any property or person occasioned by theft, fire, act of God,
public enemy, injunction, riot, strike, insurrection, war, court order,
requisition, or order of governmental body or authority, or for any damage
or inconvenience that may arise through repair or alteration of any part of
the Project, the Building or the Premises, or a failure to make any such
repairs, except as expressly provided in this Lease and except to the
extent proceeds of insurance required to be carried by Landlord under this
Lease are available.
SECTION XVI. ASSIGNMENT AND SUBLETTING BY TENANT
A. Tenant shall not, directly or indirectly, voluntarily or by operation of
law, sell, assign, encumber, pledge or otherwise transfer or hypothecate
all or any part of the Premises or Tenant's leasehold estate hereunder
(collectively "Assignment"), or permit the Premises to be occupied by
anyone other than Tenant or sublet the Premises ("Sublease") or any
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portion thereof without Landlord's prior written consent being had and
obtained in each instance, subject to the terms and conditions contained in
this Section.
B. If Tenant desires at any time to enter into an Assignment of this Lease or
a Sublease of the Premises or any portion thereof, Tenant shall request, in
writing, at least fifteen (15) business days prior to the effective date of
the Assignment or Sublease, Landlord's consent to the Assignment or
Sublease, and shall provide Landlord with the following information:
(1) The name of the proposed assignee, subtenant or occupant;
(2) The nature of the proposed assignee's, subtenant's or occupant's
business to be carried on in the Premises;
(3) The terms and provisions of the proposed Assignment or Sublease and a
copy of such documents; and
(4) Such financial information concerning the proposed assignee,
subtenant or occupant which Landlord shall have requested following
its receipt of Tenant's request for consent.
Tenant's notice shall not be deemed to have been served or given until such
time as Tenant has provided Landlord with all information reasonably
requested by Landlord pursuant to this subparagraph B. Tenant shall
immediately notify Landlord of any modification to the proposed terms of
such Assignment or Sublease.
C. Within fifteen (15) business days following receipt of Tenant's request and
complete documentation satisfying the requirements of this paragraph,
Landlord shall notify Tenant in writing of its election either to (a)
consent to the proposed Assignment or Sublease, (b) refuse to consent to
the proposed Assignment or Sublease, or (c) terminate this Lease in full
with respect to an Assignment or terminate in part with respect to a
proposed Sublease which would result in the Sublease by Tenant of fifty
percent (50%) or more of the total Rentable Area then leased by Tenant in
the Project and which is for a term of one-half or more of the remaining
then-current Term and enter into a lease directly with the proposed
assignee or sublessee. If Landlord approves such Assignment or Sublease,
or fails to respond within said fifteen (15) business day period, Tenant
shall be free for a period of one hundred twenty (120) days after the end
of said fifteen (15) business day period to assign its entire interest in
this Lease or to sublet such space to the entity specified in Tenant's
original request upon the terms set forth therein. If Tenant so desires,
Tenant may request Landlord to waive its recapture right for one or more
transactions of the type which would be susceptible to recapture by
Landlord pursuant to the foregoing, to which request Landlord will respond
in writing within ten (10) business days after Tenant's notice to Landlord
requesting such waiver (which notice shall specify that Landlord has
fifteen (15) business days to respond thereto and shall be sent to
Landlord's address for notices specified in Section I. above, with a copy
to H. E. Dan Shasteen, Esq., MONY Law, also at Landlord's address for
notices). Landlord and Tenant agree (by way of example and without
limitation) that Landlord shall be entitled to take into account any fact
or factor which Landlord reasonably deems relevant to such decision,
including but not necessarily limited to the following, all of which are
agreed to be reasonable factors for Landlord's consideration:
(1) The financial strength of the proposed assignee or subtenant (which
must be reasonably acceptable to Landlord).
(2) The experience of the proposed assignee or subtenant with respect to
businesses of the type and size which such assignee or subtenant
proposes to conduct in the Premises.
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(3) The quality and nature of the business and/or services to be
conducted in or from the Premises by the proposed assignee or
subtenant and in any other locations which it has.
(4) Violation of exclusive use rights previously granted by Landlord to
other tenants of the Building or Project.
(5) The quality of the appearance of the Premises resulting from any
remodeling or renovation to be conducted by the proposed assignee or
subtenant, and the compatibility of such quality with that of other
premises in the Building.
(6) Whether the business in the Premises is, and whether the business to
be operated by the proposed assignee or subtenant will be, a "place
of public accommodation."
(7) Whether there then exists any default by Tenant pursuant to this
Lease or any non-payment or non-performance by Tenant under this
Lease which, with the passage of time and/or the giving of notice,
would constitute a default under this Lease.
Moreover, Landlord shall be entitled to be reasonably satisfied that each
and every covenant, condition or obligation imposed upon Tenant by this
Lease and each and every right, remedy or benefit afforded Landlord by this
Lease is not impaired or diminished by such Assignment or Sublease. In no
event may any assignee or subtenant use the Premises for any use other than
the Permitted Use except as expressly approved in writing by Landlord in
advance. Landlord and Tenant acknowledge that the express standards and
provisions set forth in this Lease dealing with Assignment and Sublease,
including those set forth in subsections XVI.D., E. and G. have been freely
negotiated and are reasonable at the date hereof taking into account
Tenant's proposed use of the Premises and the nature and quality of the
Building and Project. No withholding of consent by Landlord for any reason
deemed sufficient by Landlord shall entitle Tenant to terminate this Lease
or to any abatement of rent. Approval of any Assignment of Tenant's
interest shall, whether or not expressly so stated, be conditioned upon
such assignee assuming in writing all obligations of Tenant hereunder by a
written instrument satisfactory to Landlord.
D. If Landlord consents to the Sublease or Assignment within said thirty (30)
day period, Tenant may enter into such Assignment or Sublease of the
Premises or portion thereof, but only upon the terms and conditions set
forth in the notice furnished by Tenant to Landlord pursuant to subsection
B. above; provided, however, that in connection with such Assignment or
Sublease, as a condition to Landlord's consent, Tenant shall pay to
Landlord fifty percent (50%) of the excess, if any, of (i) in the case of
an Assignment, the rental and other payment obligations of the proposed
assignee under the terms of the proposed Assignment over the rental and
other payment obligations of Tenant under the terms of this Lease, or (ii)
in the case of a Sublease, the amount proposed to be paid by the sublessee
over the proportionate amount of rental and other payment obligations
required to be paid by Tenant to Landlord under the terms of this Lease as
applicable to the portion of the Premises so subleased.
E. No consent by Landlord to any Assignment or Sublease by Tenant shall
relieve Tenant of any obligation to be performed by Tenant under this
Lease, whether arising before or after the Assignment or Sublease. The
consent by Landlord to any Assignment or Sublease shall not relieve Tenant
of the obligation to obtain Landlord's express written consent to any other
Assignment or Sublease. Any Assignment or Sublease that is not in
compliance with this Section shall be void and, at the option of Landlord,
shall constitute a material default by Tenant under this Lease. The
acceptance of rent or payment of any other monetary obligation by Landlord
from a proposed assignee or sublessee shall not constitute the consent by
Landlord to such Assignment or Sublease.
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Tenant shall promptly provide to Landlord a copy of the fully executed
Sublease or Assignment.
F. Any sale or other transfer, including transfer by consolidation, merger or
reorganization, of twenty-five percent (25%) or more of the voting stock of
Tenant, if Tenant is a corporation, or any sale or other transfer of
twenty-five percent (25%) or more of the partnership interest in Tenant, if
Tenant is a partnership, shall be an Assignment for purposes of this
Section. As used in this subsection, the term "Tenant" shall also mean any
entity that has guaranteed Tenant's obligation under this Lease, and the
prohibition hereof shall be applicable to any sales or transfers of stock
or partnership interests of said guarantor.
G. Each assignee or other transferee, other than a sublessee or Landlord,
shall assume, as provided in this subsection all obligations of Tenant
under this Lease and shall be and remain liable jointly and severally with
Tenant for the payment of Monthly Rental and all other monetary obligations
hereunder, and for the performance of all the terms, covenants, conditions
and agreements herein contained on Tenant's part to be performed for the
Term; provided, however, that the assignee or other transferee shall be
liable to Landlord for rent only in the amount set forth in the Assignment.
No Assignment shall be binding on Landlord unless the assignee or Tenant
shall deliver to Landlord a counterpart of the Assignment and an instrument
in recordable form that contains a covenant of assumption by the assignee
satisfactory in substance and form to Landlord, consistent with the
requirements of this subsection but the failure or refusal of the assignee
to execute such instrument of assumption shall not release or discharge the
assignee from its liability as set forth above.
H. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C. Section 101 ET SEQ., (the
"Bankruptcy Code"), any and all monies or other consideration payable or
otherwise to be delivered in connection with such assignment shall be paid
or delivered to Landlord, shall be and remain the exclusive property of
Landlord and shall not constitute property of Tenant or of the estate of
Tenant within the meaning of the Bankruptcy Code. Any and all monies or
other considerations constituting Landlord's property under the preceding
sentence not paid or delivered to Landlord shall be held in trust for the
benefit of Landlord and be promptly paid or delivered to Landlord.
I. Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code, shall be deemed, without further act or
deed, to have assumed all of the obligations arising under this Lease on
and after the date of such assignment. Any such assignee shall upon demand
execute and deliver to Landlord an instrument confirming such assumption.
J. Tenant shall pay Landlord's expenses and reasonable attorneys' fees
incurred in processing an Assignment or Sublease, but in no event less than
Five Hundred Dollars ($500.00) for each such proposed transfer to cover the
legal review and processing expenses of Landlord, whether or not Landlord
shall grant its consent to such proposed transfers.
K. All options to extend, renew or expand, if any, contained in this Lease are
personal to Tenant; provided, however, that any Permitted Transferee shall
also have the benefit of and the right to exercise any such options and
rights (including, without limitation, any signage rights granted to Tenant
pursuant to Sections XXVIII. and XXXV.E.). Consent by Landlord to any
assignment or subletting shall not include consent to the assignment or
transfer of any such rights with respect to the Premises or any special
privileges or extra services granted to Tenant by this Lease, or any
addendum or amendment hereto or letter of agreement, unless Tenant's
written request for approval of the proposed transfer specifically requests
Landlord's consent to a transfer of such privileges or services and
Landlord does, in fact, specifically consent thereto in writing. All such
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options, rights, privileges and extra services shall terminate upon such
assignment or subletting unless Landlord specifically grants in writing
such options, rights, privileges and extra services to such assignee or
subtenant. Similarly, any allowance, abatement or monetary concession
provided to Tenant as an inducement to execute this Lease is personal to
Tenant and shall be amortized (on a straight line basis) over the term of
this Lease. Upon any assignment or subletting, the then unamortized
portion thereof shall be paid by Tenant to Landlord in cash on or before
the effective date of such assignment or subletting.
L. Notwithstanding anything to the contrary in this Lease:
(1) Tenant may, without Landlord's prior written consent, without any
participation by Landlord in assignment and subletting proceeds, and
without being subject to Landlord's right to recapture the Premises
or any part thereof, sublet the Premises or assign the Lease to: (i)
a subsidiary, affiliate, division or corporation controlling,
controlled by or under common control with Tenant; (ii) a successor
corporation related to Tenant by merger, consolidation, or
nonbankruptcy reorganization; or (iii) a purchaser of substantially
all of Tenant's assets (collectively, "Permitted Transferees");
provided however, that the net worth of the assignee, sublessee or
successor corporation immediately following such transaction equals
or exceeds the net worth of Tenant as of the date immediately
preceding to such transaction, except in the case of a subletting of
only a portion of the Premises or an assignment of the Lease for less
than all of the then-remaining current Term, in which case the net
worth of the transferee must be reasonably acceptable to Landlord
(which shall not necessarily be construed as any agreement that the
net worth of the transferee need not be at least equal to that of
Tenant immediately prior to the transaction).
(2) A sale or transfer of Tenant's capital stock shall not be deemed an
assignment, subletting, or any other transfer of the Lease or the
Premises; provided however, that the entity created by reason or
resulting from such transfer has a net worth immediately following
such transaction equal to or exceeding the net worth of Tenant as of
the date immediately preceding such transaction.
(3) Any sale or transfer of Tenant's capital stock shall not be deemed an
assignment, subletting, or any other transfer of the Lease or the
Premises only (a) in connection with an initial public offering or
through any public exchange, or (b) so long as John Moores (or any
trust or estate planning device created by or on behalf of John
Moores, the voting stock of which is controlled by John Moores)
continues to control at least fifty-one percent (51 %) of the voting
stock of Tenant.
SECTION XVII. TRANSFER OF LANDLORD'S INTEREST
In the event Landlord shall sell or otherwise convey its title to the Building,
then, so long as any transferee in a voluntary transaction (e.g., other than a
lender foreclosing on a deed of trust or mortgage or accepting a deed in lieu
thereof) assumes the obligations of Landlord under the Lease accruing from and
after the date of the transfer after the effective date of such sale or
conveyance, Landlord shall have no further liability under this Lease to Tenant
except as to matters of liability which have accrued and are unsatisfied as of
the date of sale or conveyance, and Tenant shall seek performance solely from
Landlord's purchaser or successor in title. In connection with such sale or
transfer, Landlord may assign its interest under this Lease without notice to or
consent by Tenant. In such event, Tenant agrees to be bound to any successor
Landlord.
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SECTION XVIII. DAMAGE AND DESTRUCTION
A. MINOR INSURED DAMAGE
In the event the Premises or the Building, or any portion thereof, is
damaged or destroyed by any casualty that is covered by the insurance
maintained by Landlord pursuant to Section XIV. above, then Landlord shall
rebuild, repair and restore the damaged portion thereof, provided that (1)
the amount of insurance proceeds available to Landlord plus (except in the
case of earthquake damage which costs One Hundred Thousand Dollars
($100,000) or more to repair) any "deductible" amounts or coinsurance
payments applicable to such loss (which Landlord agrees to use reasonable
efforts to obtain from any lender or mortgagee to whom such proceeds may
have been assigned absolutely or as collateral for a loan secured by the
Premises or Building) equals or exceeds the cost of such rebuilding,
restoration and repair, (2) such rebuilding, restoration and repair can be
completed within one hundred eighty (180) days after the work commences in
the opinion of a registered architect or engineer appointed by Landlord,
(3) the damage or destruction has occurred more than twelve (12) months
before the expiration of the Term (which, for the purposes of this
sentence, shall include any Additional Term with respect to which Tenant
either (a) had the right to and properly exercised its option pursuant to
Addendum Section XXXV.A.), prior to the occurrence of such damage or
destruction or (b) within ten (10) days after occurrence of such damage or
destruction, Tenant has the right to and does exercise its option pursuant
to Addendum Section XXXV.A.), and (4) such rebuilding, restoration or
repair is then permitted, under applicable governmental laws, rules and
regulations, to be done in such a manner as to return the damaged portion
thereof to substantially its condition immediately prior to the damage or
destruction, including, without limitation, the same net rentable floor
area. To the extent that insurance proceeds must be paid to a mortgagee or
beneficiary under, or must be applied to reduce any indebtedness secured
by, a mortgage or deed of trust encumbering the Premises, Building or
Project, such proceeds, for the purposes of this subsection, shall be
deemed not available to Landlord unless such mortgagee or beneficiary
permits Landlord to use such proceeds for the rebuilding, restoration and
repair of the damaged portion thereof. Notwithstanding the foregoing,
Landlord shall have no obligation to repair any damage to, or to replace
any of, Tenant's personal property, furnishings, trade fixtures, equipment
or other such property or effects of Tenant.
B. MAJOR OR UNINSURED DAMAGE
In the event the Premises or the Building, or any portion thereof, is
damaged or destroyed by any casualty to the extent that Landlord is not
obligated, under subsection A. above, to rebuild, repair or restore the
damaged portion thereof, then Landlord shall, as promptly as practicable
but in any event within sixty (60) days after such damage or destruction,
notify Tenant of its election, at its option, to either, (1) rebuild,
restore and repair the damaged portions thereof, in which case Landlords
notice shall specify the time period within which Landlord estimates such
repairs or restoration can be completed; or (2) terminate this Lease
effective as of the date the damage or destruction occurred. If Landlord
does not give Tenant written notice within sixty (60) days after the damage
or destruction occurs of its election to rebuild or restore and repair the
damaged portions thereof, Landlord shall be deemed to have elected to
terminate this Lease. Except as specifically set forth in the Other Lease,
in no event shall Tenant have the right to terminate this Lease in the
event of damage or destruction, except that, in the event that Landlord's
notice specifies a period of in excess of one-hundred eighty (180) days to
complete repairs, and Landlord elects not to terminate the Lease, then, so
long as Tenant is not then in default under Section VIII.C. of this Lease
or in monetary default hereunder (i.e., in each case, after expiration of
any applicable cure period), Tenant shall have the right, by written notice
to Landlord given within ten (10) days after Landlord's notice described in
the first sentence of this subsection B. is given, to terminate this Lease
(only). If this Lease is not terminated as a result of damage or
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destruction, then Landlord shall repair the balance of the Premises to the
condition existing prior to the damage, if permitted by applicable law.
C. ABATEMENT OF RENT
There shall be an abatement of rent by reason of damage to or destruction
of the Premises or the Building, or any portion thereof to that extent to
Landlord receives insurance proceeds for loss of rental income attributable
to the Premises, commencing on the date that the damage to or destruction
of the Premises or Building has occurred.
D. WAIVER
Tenant shall have no claim against Landlord for any damage suffered by
Tenant by reason of any such damage, destruction, repair or restoration.
Tenant waives the provisions of Civil Code Sections 1932(2) and 1933(4) and
any present or future laws or case decisions to the same effect. Upon
completion of such repair or restoration, Tenant shall promptly refixture
the Premises substantially to the condition they were in prior to the
casualty and shall reopen for business if closed by the casualty.
SECTION XIX. CONDEMNATION
A. TOTAL OR PARTIAL TAKING
If all or substantially all of the Premises is condemned or taken in any
manner for public or quasi-public use, including but not limited to, a
conveyance or assignment in lieu of the condemnation or taking, this Lease
shall automatically terminate as of the earlier of the date on which actual
physical possession is taken by the condemnor or the date of dispossession
of Tenant as a result of such condemnation or other taking. If less than
all or substantially all of the Premises is so condemned or taken, this
Lease shall automatically terminate only as to the portion of the Premises
so taken as of the earlier of the date on which actual physical possession
is taken by the condemnor or the date of dispossession of Tenant as a
result of such condemnation or taking. If such portion of the Building is
condemned or otherwise taken so as to require, in the opinion of Landlord,
a substantial alteration or reconstruction of the remaining portions
thereof, this Lease may be terminated by Landlord, as of the date on which
actual physical possession is taken by the condemnor or dispossession of
Tenant as a result of such condemnation or taking, by written notice to
Tenant within sixty (60) days following notice to Landlord of the date on
which such physical possession is taken or dispossession will occur.
B. AWARD
Landlord shall be entitled to the entire award in any condemnation
proceeding or other proceeding for taking for public or quasi-public use,
including, without limitation, any award made for the value of the
leasehold estate created by this Lease. No award for any partial or total
taking shall be apportioned, and Tenant hereby assigns to Landlord any
award that may be made in such condemnation or other taking, together with
any and all rights of Tenant now or hereafter arising in or to the same or
any part thereof. Although all damages in the event of any condemnation
are to belong to Landlord whether such damages are awarded as compensation
for diminution in value of the leasehold or to the fee of the Premises,
Tenant shall have the right to claim and recover from the condemnor, but
not from Landlord, such compensation as may be separately awarded or
recoverable by Tenant in Tenant's own right on account of damages to
Tenant's business by reason of the condemnation and for or on account of
any cost or loss to which Tenant might be put in removing Tenant's
merchandise, furniture and other personal property, fixtures, and equipment
or for the interruption of or damage to Tenant's business.
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C. ABATEMENT IN RENT
In the event of a partial condemnation or other taking that does not result
in a termination of this Lease as to the entire Premises pursuant to this
Section the rent and all other charges shall abate in proportion to the
portion of the Premises taken by such condemnation or other taking. If
this Lease is terminated, in whole or in part, pursuant to any of the
provisions of this Section all rentals and other charges payable by Tenant
to Landlord hereunder and attributable to the Premises taken shall be paid
up to the date upon which actual physical possession shall be taken by the
condemnor. Landlord shall be entitled to retain all of the Security
Deposit until such time as this Lease is terminated as to all of the
Premises.
D. TEMPORARY TAKING
If all or any portion of the Premises is condemned or otherwise taken for
public or quasi-public use for a limited period of time, this Lease shall
remain in full force and effect and Tenant shall continue to perform all
terms, conditions and covenants of this Lease; provided, however, the rent
and all other charges payable by Tenant to Landlord hereunder shall abate
during such limited period in proportion to the portion of the Premises
that is rendered untenantable and unusable as a result of such condemnation
or other taking. Landlord shall be entitled to receive the entire award
made in connection with any such temporary condemnation or other taking.
Tenant shall have the right to claim and recover from the condemnor, but
not from Landlord, such compensation as may be separately awarded or
recoverable by Tenant in Tenant's own right on account of damages to
Tenant's business by reason of the condemnation and for or on account of
any cost or loss to which Tenant might be put in removing Tenant's
merchandise, furniture and other personal property, fixtures and equipment
or for the interruption of or damage to Tenant's business.
E. TRANSFER OF LANDLORD'S INTEREST TO CONDEMNOR
Landlord may, without any obligation to Tenant, once the condemning
authority has determined to acquire the same for public use, agree to sell
and/or convey to the condemnor the Premises, the Building, the Project or
any portion thereof, sought by the condemnor, free from this Lease and the
rights of Tenant hereunder, without first requiring that any action or
proceeding be instituted or, if instituted, pursued to a judgment.
SECTION XX. DEFAULT
A. TENANT'S DEFAULT
The failure by Tenant to perform any one or more of the following
obligations shall constitute a default hereunder by Tenant:
(1) If Tenant abandons all or a substantial portion of the Premises;
(2) If Tenant fails to pay any rent or other charges required to be paid
by Tenant under this Lease and such failure continues for three (3)
days after written notice thereof from Landlord to Tenant; 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 Sec. 1161, ET SEQ., as amended;
(3) If Tenant involuntarily transfers Tenant's interest in this Lease or
voluntarily transfers (attempted or actual) its interest in this
Lease, without Landlord's prior written consent;
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(4) 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
sixty (60) 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 the Premises or any of Tenant's
personal property located at the Premises and such jurisdiction,
custody or control remains in force unrelinquished, unstayed or
unterminated for a period of sixty (60) days;
(5) 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 any of Tenant's personal property located at the Premises
(or has the authority to do so) for the purpose of enforcing a lien
against the Premises or Tenant's personal property;
(6) If Tenant shall make any general assignment for the benefit of
creditors or convene a meeting of its creditors or any class thereof
for the purpose of effecting a moratorium upon or composition of its
debts, or any class thereof;
(7) If Tenant fails to discharge any lien placed upon the Premises, the
Building or the Project by Tenant or any person claiming under, by or
through Tenant within ten (10) days of the imposition of such lien;
(8) If Tenant fails to promptly and fully perform any other covenant,
condition or agreement contained in this Lease (other than
subparagraphs (1) through (7) above) and such failure continues for
ten (10) days after written notice thereof from Landlord to Tenant,
or if such failure cannot be completely cured within such ten (10)
day period, then if Tenant fails to commence such cure within such
ten (10) day period and thereafter proceed to completely cure such
failure within sixty (60) days after such written notice;
(9) 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
(1) through (8) above; or
(10) The occurrence of a default under that certain lease of even date
herewith between Landlord, as landlord, and Tenant, as tenant, for
certain other premises located within Building "A" in the Project
consisting of approximately 69,022 square feet.
B. REMEDIES
Upon the occurrence of a default by Tenant that is not cured by Tenant
within any applicable grace period specified above, Landlord shall have the
following rights and remedies in addition to all other rights and remedies
available to Landlord at law or in equity, which shall be cumulative and
non-exclusive:
(1) The right to declare this Lease and the term of this Lease
terminated; re-enter the Premises and the improvements located
thereon, with or without process of law; to eject all parties in
possession thereof therefrom; repossess and enjoy the Premises
together with all said improvements; and to recover from Tenant all
of the following:
(a) The worth at the time of award of the unpaid rent which had
been earned at the time of termination;
(b) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination
until the time of award
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exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided;
(c) 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 rental loss that Tenant proves could be
reasonably avoided; and
(d) 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, any attorneys' fees, broker's commissions or
finder's fees (not only in connection with the reletting of the
Premises, but also that portion of any leasing commission paid
by Landlord in connection with this Lease which is applicable
to that portion of the Term which is unexpired as of the date
on which this Lease is terminated); the then unamortized cost
of any tenant improvements constructed for or on behalf of
Tenant by or at the expense of Landlord or of any moving
allowance or other concession made available to Tenant and/or
paid by Landlord pursuant to this Lease; any costs for repairs,
clean-up, refurbishing, removal (including the repair of any
damage caused by such removal) and storage (or disposal) of
Tenant's personal property, equipment, fixtures, and anything
else that Tenant is required (under this Lease) to remove but
does not remove; any costs for alterations, additions and
renovations; and any other costs and expenses, including
reasonable attorneys' fees and costs, incurred by Landlord in
regaining possession of and reletting (or attempting to relet)
the Premises.
(2) The right to continue this Lease in effect and to enforce all of
Landlord's rights and remedies under this Lease, including the right
to recover rent and any other additional monetary charges as they
become due, for as long as Landlord does not terminate Tenant's right
to possession. Acts of maintenance or preservation, efforts to relet
the Premises or the appointment of a receiver upon Landlord's
initiative to protect its interest under this Lease shall not
constitute a termination of Tenant's right to possession.
(3) The right to have a receiver appointed for Tenant, upon application
by Landlord, to take possession of the Premises and to apply any
rental collected from the Premises and to exercise all other rights
and remedies granted to Landlord pursuant to this subsection.
SECTION XXI. LATE PAYMENTS/INTEREST AND LATE CHARGES
A. INTEREST
Any amount due from Tenant to Landlord which is not paid when due shall
bear interest at the maximum rate permitted by law from the date such
payment is due until paid, except that amounts spent by Landlord on behalf
of Tenant shall bear interest at such rate from the date of disbursement by
Landlord which Tenant agrees is to compensate Landlord for Tenant's use of
Landlord's money after it is due. Payment of such interest shall not
excuse or cure any default by Tenant pursuant to this Lease. Such rate
shall remain in effect after the occurrence of any breach or default
hereunder by Tenant to and until payment of the entire amount due.
B LATE CHARGES
TENANT HEREBY ACKNOWLEDGES THAT IN ADDITION TO LOST INTEREST, THE LATE
PAYMENT BY TENANT TO LANDLORD OF RENT OR ANY OTHER
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SUMS DUE HEREUNDER WILL CAUSE LANDLORD TO INCUR OTHER COSTS NOT
CONTEMPLATED IN THIS LEASE, THE EXACT AMOUNT OF WHICH WILL BE EXTREMELY
DIFFICULT AND IMPRACTICABLE TO ASCERTAIN. SUCH OTHER COSTS INCLUDE, BUT
ARE NOT LIMITED TO, PROCESSING, ADMINISTRATIVE AND ACCOUNTING COSTS, AND
LATE CHARGES WHICH MAY BE IMPOSED UPON LANDLORD BY THE TERMS OF ANY
ENCUMBRANCE COVERING THE PREMISES. ACCORDINGLY, IF ANY INSTALLMENT OF RENT
OR ANY ADDITIONAL RENT OR OTHER SUM DUE FROM TENANT SHALL NOT BE RECEIVED
BY LANDLORD WHEN SUCH AMOUNT SHALL BE DUE (AFTER EXPIRATION OF ANY GRACE
PERIOD GRANTED IN THIS LEASE), TENANT SHALL PAY TO LANDLORD AS ADDITIONAL
RENT HEREUNDER A LATE CHARGE EQUAL TO FIVE PERCENT (5 %) OF SUCH OVERDUE
AMOUNT. THE PARTIES HEREBY AGREE THAT (I) SUCH LATE CHARGE REPRESENTS A
FAIR AND REASONABLE ESTIMATE OF THE COSTS LANDLORD WILL INCUR IN PROCESSING
SUCH DELINQUENT PAYMENT BY TENANT, (II) SUCH LATE CHARGE SHALL BE PAID TO
LANDLORD AS LIQUIDATED DAMAGES FOR EACH DELINQUENT PAYMENT, AND (III) THE
PAYMENT OF THE LATE CHARGE IS TO COMPENSATE LANDLORD FOR THE ADDITIONAL
ADMINISTRATIVE EXPENSE INCURRED BY LANDLORD IN HANDLING AND PROCESSING
DELINQUENT PAYMENTS.
/s/ [Initials Unreadable] /s/ [Initials Unreadable]
Landlord's Initials Tenant's Initials
C. CONSECUTIVE LATE PAYMENT OF RENT
Following each third consecutive late payment of rent which constitutes a
default under clause (2) of subsection A. above, Landlord shall have the
option (i) to require that beginning with the first payment of rent next
due, rent shall no longer be paid in monthly installments but shall be
payable quarterly three (3) months in advance and/or (ii) to require that
Tenant increase the amount, if any, of the Security Deposit by one hundred
percent (100%), which additional Security Deposit shall be retained by
Landlord, and may be applied by Landlord, in the manner provided for
Security Deposits in this Lease.
D. NO WAIVER
Neither assessment nor acceptance of partial payments, interest or late
charges by Landlord shall constitute a waiver of Tenant's default with
respect to such overdue amount, nor prevent Landlord from exercising any of
its other rights and remedies under this Lease. Nothing contained in this
Section shall be deemed to condone, authorize, sanction or grant to Tenant
an option for the late payment of rent, additional rent or other sums due
hereunder, and Tenant shall be deemed in default with regard to any such
payments should the same not be made by the date on which the are due.
SECTION XXII. (INTENTIONALLY DELETED]
SECTION XXIII. HOLDING OVER
Any holding over by Tenant in the possession of the Premises, or any portion
thereof, after the expiration or earlier termination of the Term, with or
without the consent of Landlord, shall be construed to be a tenancy from month
to month and shall, for the first sixty (60) days thereof, be on the same terms
and conditions specified herein. From and after expiration of such sixty (60)
day period, such month-to-month occupancy shall be at one hundred fifty percent
(150%) of the Monthly Rental herein specified for the last month in the Term
(prorated on a monthly basis) unless Landlord shall specify a lesser amount for
rent in its sole discretion, together with an amount estimated by Landlord for
the monthly Common Operating Costs payable under this
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Lease, and shall otherwise be on the terms and conditions herein specified as
far as applicable. Any holding over without Landlord's consent shall constitute
a default by Tenant and shall entitle Landlord to pursue all remedies provided
in this Lease and Tenant shall be liable for any and all direct or consequential
damages or losses of Landlord resulting from Tenant's holding over without
Landlord's consent.
SECTION XXIV. ATTORNEYS' FEES
Tenant shall pay to Landlord all amounts for costs and expenses, reasonable
attorneys' fees and amounts paid to any collection agency or incurred by
Landlord in connection with any breach or default by Tenant under this Lease.
Tenant shall also pay to Landlord all such out-of-pocket amounts, including
reasonable attorneys' fees, incurred by Landlord in responding to any request
made by Tenant (a) to amend or modify this Lease or (b) to prepare any statement
or document in connection with this Lease, including without limitation estoppel
certificates or subordination agreements or the like. Such amounts shall be
payable upon demand. In addition, if any action shall be instituted by either
Landlord or Tenant for the enforcement or interpretation of any of its rights or
remedies in or under this Lease, the prevailing party shall be entitled to
recover from the losing party all costs incurred by the prevailing party in said
action and any appeal therefrom, including reasonable attorneys' fees and court
costs to be fixed by the court therein. In the event Landlord is made a party
to any litigation between Tenant and any third party, then Tenant shall pay all
costs and attorneys' fees incurred by or imposed upon Landlord in connection
with such litigation; provided, however, if Landlord is ultimately held to be
liable, then Landlord shall reimburse Tenant for the cost of any attorneys' fees
paid by Tenant on behalf of Landlord.
SECTION XXV. MORTGAGE PROTECTION/SUBORDINATION
A. SUBORDINATION
The rights of Tenant under this Lease are and shall be, at the option of
Landlord, either subordinate or superior to any mortgage or deed of trust
(including a consolidated mortgagee or deed of trust) constituting a lien
on the Premises, Building or Project, or Landlord's interest therein or any
part thereof, whether such mortgage or deed of trust has heretofore been,
or may hereafter be, placed upon the Premises by Landlord, and to any
ground or master lease if Landlord's title to the Premises or any part
thereof is or shall become a leasehold interest. To further assure the
foregoing subordination or superiority, Tenant shall, upon Landlord's
request, together with the request of any mortgagee under a mortgage or
beneficiary under a deed of trust or ground or master lessor, execute any
instrument (including without limitation an amendment to this Lease that
does not materially and adversely affect Tenant's rights or duties under
this Lease), or instruments intended to subordinate this Lease, or at the
option of Landlord, to make it superior to any mortgage, deed of trust, or
ground or master lease. Notwithstanding any such subordination, Tenant's
right to occupy the Premises pursuant to this Lease shall remain in effect
for the full Term as long as Tenant is not in default hereunder.
Notwithstanding anything to the contrary in this Lease, this Lease shall
not be subject to or subordinate to any ground or underlying lease or to
any lien, mortgage, deed of trust, or security interest now or hereafter
affecting the Premises, nor shall Tenant be required to execute any
documents subordinating this Lease, unless the ground lessor, lender, or
other holder of the interest to which this Lease would or shall be
subordinated executes a recognition and nondisturbance agreement which (i)
provides that this Lease shall not be terminated so long as Tenant is not
in default under this Lease and (ii) recognizes all of Tenant's rights
hereunder, (subject to normal and customary restrictions imposed by lenders
in connection therewith, including without limitation agreement that the
lender will not be required to honor security deposits not delivered to
lender by its borrower or be bound by rental paid more than one month in
advance or by amendments executed without the lender's consent).
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B. ATTORNMENT
Notwithstanding subsection A. above, Tenant agrees (1) to attorn to any
mortgagee of a mortgage or beneficiary of a deed of trust encumbering the
Premises and to any party acquiring title to the Premises by judicial
foreclosure, trustee's sale, or deed in lieu of foreclosure, and to any
ground or master lessor, as the successor to Landlord hereunder, (2) to
execute any attornment agreement reasonably requested by a mortgagee,
beneficiary, ground or master lessor, or party so acquiring title to the
Premises, and (3) that this Lease, subject to the rights under any
outstanding non-disturbance agreement, at the option of such mortgagee,
beneficiary, or ground or master lessor, or other party, shall remain in
force notwithstanding any such judicial foreclosure, trustee's sale, deed
in lieu of foreclosure, or merger of titles. Notwithstanding the
foregoing, neither a mortgagee of a mortgage or beneficiary of a deed of
trust encumbering the Premises, any party acquiring title to the Premises
by judicial foreclosure, trustee sale, or deed in lieu of foreclosure, or
any ground lessor or master lessor, as the successor to Landlord hereunder,
shall be liable or responsible for any breach of a covenant contained in
this Lease that occurred before such party acquired its interest in the
Premises or for any continuing breach thereof until after the successor
Landlord has received the notice and right to cure as provided herein, and
no such party shall be liable or responsible for any security deposits held
by Landlord hereunder which have not been transferred or actually received
by such party, and such party shall not be bound by any payment of rent or
additional rent for more than two (2) months in advance.
C. AMENDMENT
If any lending institution with which Landlord has negotiated or may
negotiate for financing for the Building or Project requires any changes to
this Lease, Tenant shall promptly execute and deliver an amendment to this
Lease prepared by Landlord and embodying such changes, so long as such
changes do not materially increase Tenant's obligations or materially
decrease Tenant's rights hereunder. In the event that Tenant shall fail to
execute and deliver such amendment within twenty (20) days after receipt
thereof by Tenant, such failure shall constitute a default hereunder by
Tenant and shall entitle Landlord to all remedies available to a landlord
against a defaulting tenant pursuant to a written lease, including but not
limited to those remedies set forth in Section XX.
SECTION XXVI. ESTOPPEL CERTIFICATE/FINANCIAL STATEMENTS
A. ESTOPPEL CERTIFICATE
Tenant, at any time and from time to time upon no less than ten (10) days'
prior written notice from Landlord, agrees to execute and deliver to
Landlord a statement in the form provided 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 Landlord
hereunder, or specifying such defaults if they are claimed evidencing the
status of this Lease; (c) acknowledging the amount of the Security Deposit
held by Landlord; and (d) containing such other information regarding this
Lease or Tenant as Landlord reasonably requests. Tenant's failure to
deliver an estoppel certificate within such time shall be conclusive upon
Tenant that (i) this Lease is in full force and effect without modification
except as may be represented by Landlord, (ii) to Tenant's knowledge there
are no uncured defaults in Landlord's performance, (iii) no rent has been
paid in advance except as set forth in this Lease, and (iv) such other
information regarding this Lease and Tenant set forth therein by Landlord
is true and complete.
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B. FURNISHING OF FINANCIAL STATEMENTS
Landlord has reviewed the financial statements, if any, requested of the
Tenant and has relied upon the truth and accuracy thereof with Tenant's
knowledge and representations of the truth and accuracy of such statements
and that said statements accurately and fairly depict the financial
condition of Tenant. Said financial statements are an inducing factor and
consideration for the entering into of this Lease by Landlord with this
particular Tenant. Tenant shall, at any time and from time to time upon
not less than ten (10) days prior written notice from Landlord, furnish
Landlord with its most recent publicly available financial statements, if
Tenant's stock or profit and loss interests is/are publicly traded, and
otherwise with (a) Tenant's most recent audited financial statements,
including a balance sheet and income statement, or a document in which
Tenant states that its books are not independently audited, and (b)
unaudited financial statements, including a balance sheet and income
statement, dated within ninety (90) days of the request from Landlord.
SECTION XXVII. PARKING SEE ADDENDUM SECTION XXXV.E.
Landlord agrees to maintain or cause to be maintained an automobile parking area
and to maintain and operate, or cause to be maintained and operated, said
automobile parking area during the Term of this Lease for the benefit and use of
the customers, service suppliers, other invitees and employees of Tenant.
Whenever the words "automobile parking area" or "parking area" are used in this
Lease, it is intended that the same shall include, whether in a surface parking
area or a parking structure, the automobile parking stalls, driveways, loading
docks, truck areas, service drives, entrances and exits and sidewalks,
landscaped areas, pedestrian passageways in conjunction therewith and other
areas designed for parking. Landlord shall keep said automobile parking area in
a neat, clean and orderly condition, lighted and landscaped, and shall repair
any damage to the facilities thereof, the cost of which shall be included in
Common Operating Costs as defined in Section V., above. Nothing contained
herein shall be deemed to impose liability upon Landlord for personal injury or
theft, for damage to any motor vehicle, or for loss of property from within any
motor vehicle, which is suffered by Tenant or any of its employees, customers,
service suppliers or other invitees in connection with their use of said
automobile parking area. Landlord shall also have the right to establish such
reasonable rules and regulations as may be deemed desirable, at Landlord's sole
discretion, for the proper and efficient operation and maintenance of said
automobile parking area. Such rules and regulations may include, without
limitation, (i) restrictions in the hours during which the automobile parking
area shall be open for use, and (ii) the establishment of charges for parking
therein (on either a reserved or unreserved basis, at Landlord's sole
discretion) by tenants of the Building and Project as well as by their
employees, customers and service suppliers.
Landlord shall at all times during the Term hereof have the sole and exclusive
control of the automobile parking area, and may at any time during the Term
hereof exclude and restrain any person from use or occupancy thereof; excepting,
however, Tenant and employees, customers, service suppliers and other invitees
of Tenant and of other tenants in the Building and Project who make use of said
area in accordance with any rules and regulations established by Landlord from
time to time with respect thereto. Notwithstanding anything to the contrary in
this Section XXVII, Landlord will not knowingly place other tenants in the
Project which Landlord knows, at the time, would, in the aggregate, impair
Tenant's utilization of the parking spaces to be allocated to Tenant based on
square footage. The rights of Tenant and its employees, customers, service
suppliers and invitees referred to in this Section XXVII shall at all times be
subject to (i) the rights of Landlord and other tenants in the Building and
Project to use the same in common with Tenant and its employees, customers,
service suppliers and invitees, (ii) the availability of parking spaces in said
automobile parking area, and (iii) Landlord's right to change the location of
any assigned reserved parking spaces in such instances as shall be determined at
Landlord's sole discretion. Notwithstanding Landlord's exclusive control and
obligations to provide a parking area, Landlord is not responsible or liable for
any damage to any automobiles or persons in the parking area.
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SECTION XXVIII. SIGNS; NAME OF BUILDING
Tenant shall not have the right to place, construct, or maintain on or about the
Premises, Building or Project, or in any interior portions of the Premises that
may be visible from the exterior of the Building or Common Areas, any signs,
names, insignia, trademark, advertising placard, descriptive material or any
other similar item ("Sign") without Landlord's prior written consent, which
consent will not be unreasonably withheld or delayed; provided, however, any
Signs are further subject to the provisions of the covenants, conditions and
restrictions for the Project and to approval of any applicable governmental
authority and/or compliance with applicable governmental requirements. In the
event Landlord consents to Tenant placing a Sign on or about the Premises,
Building or Project, any such Sign shall be subject to Landlord's approval of
the contents, color, size, style and location of such Sign, and shall conform to
any current or future Sign criteria established by Landlord for the Building or
Project. If Landlord enacts a Sign criteria or revises an existing Sign
criteria, after Tenant has erected a Sign to which Landlord has granted its
consent, if Landlord so elects, Tenant agrees, at Landlord's expense, subject to
Landlord's prior approval of the cost thereof, to make the necessary changes to
its Sign in order to conform the Sign to Landlord's Sign criteria, as enacted or
revised, provided that such changes shall be limited to the color, size, style
and location of Tenant's Sign and that Tenant shall not be required to change
the content of its Sign. In the event Landlord consents to Tenant's placement
of a Sign on the Building, Tenant shall, at its sole cost, remove such Sign from
the Building at the end of the Term, restore the Building to the same condition
as before the installation of the Sign, ordinary wear and tear excepted and
remove any discoloration of the Building caused by the presence of such sign.
Landlord reserves the right at any time it deems necessary or appropriate to (a)
place Signs at any location on the Building and Project as it deems necessary
and (b) change the name, address or designation of the Building and Project.
Notwithstanding anything to the contrary herein, Tenant shall have the right, at
Tenant's sole cost and expense and subject to Landlord's prior approval as
provided herein, to Building standard signage at the entry to the Premises and
to Building standard lobby directory strip signage.
SECTION XXIX. QUIET ENJOYMENT
Upon payment by Tenant of the rents herein provided, and upon the observance and
performance of all the covenants, terms and conditions on Tenant's part to be
observed and performed, Tenant shall peaceably and quietly hold and enjoy the
Premises for the Term without hindrance or interruption by Landlord or any other
person or persons lawfully or equitably claiming by, through or under Landlord,
subject, nevertheless, to the terms and conditions of this Lease, and any
mortgage and/or deed of trust to which this Lease is subordinate.
SECTION XXX. BROKER
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 the Broker
identified in Section I.M. 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.
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SECTION XXXI. NOTICES
Any notice, demand, approval, consent, bill, statement or other communication
("Notice") required or desired to be given under this Lease shall be in writing,
shall be directed to Tenant at Tenant's Address for Notice or to Landlord at
Landlord's Address for Notice and shall be personally served or given by
pre-paid Certified U.S. Mail or "overnight" delivery service. In the case of
personal delivery, any Notice shall be deemed to have been given when delivered;
in the case of service by certified mail, any Notice shall be deemed delivered
of the date of receipt, refusal or non-delivery indicated on the return receipt;
and in the case of overnight delivery service, any Notice shall be deemed given
when delivered as evidenced by a receipt. If more than one Tenant is named
under this Lease, service of any Notice upon any one of said Tenants shall be
deemed as service upon all of such Tenants. The parties hereto and their
respective heirs, successors, legal representatives, and assigns may from time
to time change their respective addresses for Notice by giving at least fifteen
(15) days' written notice to the other party, delivered in compliance with this
Section.
SECTION XXXII. NOTICE AND CURE TO LANDLORD AND MORTGAGEE
On any act or omission by Landlord which might give, or which Tenant claims or
intends to claim gives, Tenant the right to damages from Landlord or the right
to terminate this Lease by reason of a constructive or actual eviction from all
or part of the Premises, or otherwise, Tenant shall not sue for damages or
attempt to terminate this Lease until it has given written notice of the act or
omission to Landlord and to the holder(s) of the indebtedness or other
obligations secured by any mortgage or deed of trust affecting the Premises as
identified by Landlord, and a reasonable period of time (which, in the case of
Landlord, shall be thirty (30) days, unless the cure cannot reasonably be
completed within thirty (30) days, in which case Landlord shall commence the
cure within such thirty (30) day period and thereafter diligently prosecute the
same to completion) for remedying the act or omission has elapsed following the
giving of the notice, during which time Landlord and the lienholder(s), or
either of them, their agents or employees, may enter upon the Premises and do
therein whatever is necessary to remedy the act or omission. As used in the
foregoing sentence, a "reasonable period of time" as to a mortgagee or holder of
a deed of trust means as soon as practicable under the circumstances but not
more than sixty (60) days, unless the nature of the act or omission is such that
it cannot reasonably be cured within sixty (60) days, in which case the cure
shall be commenced within such sixty (60) day period and diligently prosecuted
to completion. During the period after the giving of notice and during the
remedying of the act or omission, the Monthly Rental payable by Tenant shall not
be abated and apportioned except to the extent that the Premises are
untenantable.
SECTION XXXIII. GENERAL
A. PARAGRAPH HEADINGS
The paragraph headings used in this Lease are for the purposes of
convenience only. They shall not be construed to limit or to extend the
meaning of any part of this Lease.
B. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS
This Lease contains all agreements of Landlord and Tenant with respect to
any matter mentioned, or dealt with, herein. No prior agreement or
understanding pertaining to any such matter shall be binding upon Landlord.
Any amendments to or modifications of this Lease shall be in writing,
signed by the parties hereto, and neither Landlord nor Tenant shall be
liable for any oral or implied agreements.
LANDLORD HAS NOT MADE, AND TENANT MAY NOT RELY ON, ANY REPRESENTATIONS OR
WARRANTIES, EXPRESSED OR IMPLIED, WITH REGARD TO THE PROJECT THE BUILDING,
THE PREMISES OR OTHERWISE
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OR THE SUITABILITY THEREOF FOR TENANT'S BUSINESS, EXCEPT AS EXPRESSLY
STATED IN THIS LEASE. IN PARTICULAR, LANDLORD HAS NOT AUTHORIZED ANY AGENT
OR BROKER TO MAKE A REPRESENTATION OR WARRANTY INCONSISTENT WITH THE TERMS
OF THIS LEASE AND TENANT MAY NOT RELY ON ANY SUCH INCONSISTENT
REPRESENTATION OR WARRANTY.
C. WAIVER
Any waiver by a party of any breach of any term, covenant, or condition
contained in this Lease shall not be deemed to be a waiver by such party of
such term, covenant, or condition or of any subsequent breach of the same
or of any other term, covenant, or condition contained in this Lease. A
party's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of such party's consent to, or approval of, any
subsequent act by the other party. The acceptance of rent or other sums
payable hereunder by Landlord shall not be a waiver of any preceding breach
by Tenant of any provision hereof, other than failure of Tenant to pay the
particular rent or other sum so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of acceptance of such rent,
or sum equivalent to rent.
D. SHORT FORM OR MEMORANDUM OF LEASE
Tenant agrees, at the request of Landlord, to execute, deliver, and
acknowledge a short form or memorandum of this Lease satisfactory to
counsel for Landlord, and Landlord may, in its sole discretion, record such
short form or memorandum in the county where the Premises are located.
Tenant shall not record this Lease, or a short form or memorandum of this
Lease, without Landlord's prior written consent.
E. TIME OF ESSENCE
Time is of the essence in the performance of each provision of this Lease.
F. EXAMINATION OF LEASE
Submission of this instrument 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.
G. SEVERABILITY
If any term or provision of this Lease or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such term or provision
to persons or circumstances other than those as to which it is held invalid
or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and be enforced to the fullest
extent permitted by law.
H. SURRENDER OF LEASE NOT MERGER
Neither the voluntary or other surrender of the Lease by Tenant nor the
mutual cancellation thereof shall cause a merger of the titles of Landlord
and Tenant, but such surrender or cancellation shall, at the option of
Landlord, either terminate all or any existing subleases or operate as an
assignment to Landlord of any such subleases.
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I. CORPORATE AUTHORITY
If Tenant is a corporation, each individual executing this Lease on behalf
of Tenant represents and warrants (1) that he is duly authorized to execute
and deliver this Lease on behalf of Tenant in accordance with a duly
adopted resolution of the Board of Directors of Tenant in accordance with
the By-laws of Tenant and (2) that this Lease is binding upon and
enforceable by Landlord against Tenant in accordance with its terms. If
Tenant is a corporation, Tenant shall, concurrently with the execution and
delivery of this Lease, deliver to Landlord a certified copy of a
resolution of its Board of Directors authorizing or ratifying the execution
of this Lease.
J. GOVERNING LAW
This Lease and the rights and obligations of the parties hereto shall be
interpreted, construed and enforced in accordance with the local laws of
the State in which the Project is located.
K. FORCE MAJEURE
If the performance by a party of any provision of this Lease is delayed or
prevented by any act of God, strike, lockout, shortage of material or
labor, restriction by any governmental authority, civil riot, flood, and
any other cause not within the control of the party required to perform,
then the period for such performing party's performance of the provision
shall be automatically extended for the same time such performing party is
so delayed or hindered; provided, however, this subsection shall not delay
any period, or increase the time, for payment of rent.
L. USE OF LANGUAGE
Words of gender used in this Lease include any other gender, and words in
the singular include the plural, unless the context otherwise requires.
M. SUCCESSORS
The terms, conditions and covenants contained in the Lease inure to the
benefit of and are binding on, the parties hereto and their respective
successors in interest, assigns and legal representatives, except as
otherwise herein expressly provided. All rights, privileges, immunities
and duties of Landlord under this Lease, including without limitation,
notices required or permitted to be delivered by Landlord to Tenant
hereunder, may, at Landlord's option, be exercised or performed by
Landlord's agent or attorney.
N. NO REDUCTION OF RENTAL
Except as otherwise expressly and unequivocally provided in this Lease,
Tenant shall not for any reason withhold or reduce the amounts payable by
Tenant under this Lease, it being understood that the obligations of
Landlord hereunder are independent of Tenant's obligations. If Landlord is
required by governmental authority to reduce energy consumption or impose a
parking or similar charge with respect to the Premises, Building or
Project, to restrict the hours of operation of, limit access to, or reduce
parking spaces available at the Building, or take other limiting actions,
then Tenant is not entitled to abatement or reduction of rent or to
terminate this Lease.
0. NO PARTNERSHIP
Notwithstanding anything else to the contrary, Landlord is not, and under
no circumstances shall it be considered to be, a partner of Tenant, or
engaged in a joint venture with Tenant.
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P. EXHIBITS
All exhibits attached hereto are made a part hereof and are incorporated
herein by a reference. A complete list of said exhibits is set forth in
the Table of Contents.
Q. INDEMNITIES
The obligations of the indemnifying party under each and every
indemnification and hold harmless provision contained in this Lease shall
survive the expiration or earlier termination of this Lease to and until
the last to occur of (a) the last date permitted by law for the bringing of
any claim or action with respect to which indemnification may be claimed by
the indemnified party against the indemnifying party under such provision
or (b) the date on which any claim or action for which indemnification may
be claimed under such provision is fully and finally resolved and, if
applicable, any compromise thereof or judgment or award thereon is paid in
full by the indemnifying party and the indemnified party is reimbursed by
the indemnifying party for any amounts paid by the indemnified party in
compromise thereof or upon a judgment or award thereon and in defense of
such action or claim, including reasonable attorneys' fees incurred.
Payment shall not be a condition precedent to recovery upon any
indemnification provision contained herein.
R. NONDISCLOSURE OF LEASE TERMS
Landlord and Tenant agree that the terms of this Lease are confidential and
constitute proprietary information of the parties hereto. Disclosure of
the terms hereof could adversely affect the ability of Landlord to
negotiate with other tenants of the Project. Each of the parties hereto
agrees that such party, and its respective partners, officers, directors,
employees, agents and attorneys, shall not disclose the terms and
conditions of this Lease to any other person without the prior written
consent of the other party hereto except pursuant to an order of a court of
competent jurisdiction. Provided, however, that Landlord may
disclose the terms hereof to any lender now or hereafter having a lien on
Landlord's interest in the Project, or any portion thereof, and either
party may disclose the terms hereof to its respective independent
accountants who review its respective financial statements or prepare its
respective tax returns, to any prospective transferee of all or any
portions of their respective interests hereunder (including a prospective
sublessee or assignee of Tenant), to any lender or prospective lender to
such party, to any governmental entity, agency or person to whom disclosure
is required by applicable law, regulation or duty of diligent inquiry and
in connection with any action brought to enforce the terms of this Lease,
on account of the breach or alleged breach hereof or to seek a judicial
determination of the rights and obligations of the parties hereunder.
SECTION XXXIV. EXECUTION
This Lease may be executed in several duplicate counterparts, each of which
shall be deemed an original of this Lease for all purposes.
SECTION XXXV. ADDENDUM
See Addendum attached hereto and incorporated herein by this reference.
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IN WITNESS WHEREOF, the parties have executed this Lease, consisting of the
foregoing provisions, any typed addenda appended hereto and all Exhibits
appended hereto, on the dates indicated below, the later of which shall be
deemed the date of execution of this Lease.
"TENANT" "LANDLORD"
PEREGRINE SYSTEMS, INC., THE MUTUAL LIFE INSURANCE
a Delaware corporation COMPANY OF NEW YORK, a New York
CORPORATION
By: /s/ David Thatcher By: /s/ Charles E. Darcy, Jr.
Name: David Thatcher Name: Charles E. Darcy, Jr.
Title: VP/CFO Title: V.P.
Dated: Oct. 26, 1996
By:
Name:
Title:
Dated: 9/29/94
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ADDENDUM TO LEASE BETWEEN THE MUTUAL LIFE INSURANCE COMPANY
OF NEW YORK, AS LANDLORD, AND PEREGRINE SYSTEMS, INC., AS TENANT,
DATED October 26th, 1994
SECTION XXXV. ADDENDUM
A. OPTION TO EXTEND
Provided that Tenant is not in default hereunder (i.e., after expiration of
any applicable cure period specified in Section XX.A., without cure during
such period, if any) either at the date Tenant's notice of exercise is
given or on the date the Additional Term (as defined below) would otherwise
commence, and provided further that Tenant is entitled to and concurrently
exercises its option to extend the term of the lease between Landlord and
Tenant of even date herewith for certain other premises (the "Other
Premises") within the other building located in the Project (the "Other
Lease"), Tenant shall have the option to extend the Term by one (1)
additional period of five (5) years (the "Additional Term"). The
Additional Term shall commence, if at all, on the day after the Expiration
Date and shall continue through the fifth (5th) anniversary of the
Expiration Date specified in Section I. above (as amended pursuant to
Section III., if applicable), subject to earlier termination as provided
herein.
Such option shall be exercised, if at all, by written notice to Landlord
given at least nine (9) and no more than twelve (12) months prior to the
Expiration Date of the initial Term. If Tenant is entitled to and gives
notice in the manner and within the time set forth in this subsection A.,
then the Term shall be extended by the Additional Term, on all of the
conditions set forth in this Lease for the original Term, except that:
(1) Monthly Rental for the Additional Term and for the additional term of
the Other Lease shall be at the fair market rental value thereof, and
shall be determined concurrently, as follows:
(a) For a period of fifteen (15) days after Tenant's exercise of
the foregoing option with respect to the Additional Term,
Landlord and Tenant shall attempt to agree on the fair market
rental value for the Additional Term of this Lease and the
Other Lease. In determining fair market rental, (i) parking
charges, if any, then imposed or proposed to be imposed for
parking at the Project shall be considered and (ii) Alterations
made to the Premises by Tenant at Tenant's cost shall not be
considered. If Landlord and Tenant are unable to so agree
within such fifteen (15) day period, then each party shall, by
written notice to the other party given within ten (10) days
after expiration of such fifteen (15) day period, select an
appraiser. If either party shall fail to select an appraiser
in such manner and within such time, the single appraiser
actually selected shall perform the appraisal. Tenant shall,
by written notice to each appraiser with a copy to Landlord,
request each appraiser to obtain information from Landlord with
respect to parking charges for the Additional Term, and
Landlord shall promptly provide each appraiser the amount of
any parking charge to be assessed Tenant during the Additional
Term. If each party timely and properly selects an appraiser,
the two appraisers selected by the parties shall determine and
attempt to agree on the fair market rental value for the
Additional Term of this Lease and the Other Lease within thirty
(30) days after their appointment; if they are unable to so
agree and their appraised values differ by more than five
percent (5%) in the aggregate over the Additional Term of this
Lease and/or the Other Lease, the two appraisers shall, by
written notice to Landlord and Tenant, select a third appraiser
within five (5) days after expiration of the thirty (30) day
period within which they were to determine and agree on the
fair market
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rental, which third appraiser shall analyze the fair market
rental for the additional term for each lease with respect to
which such difference in appraisals exists. If they cannot
agree on a third appraiser within such time period, or if both
parties fail to select an appraiser in the manner and within
the time herein provided, either party may have the third (or
sole, if applicable) appraiser appointed by application to the
presiding judge of the San Diego County Superior Court or his
or her designee. If the appraised value of the first two
appraisers are within five percent (5%) in the aggregate over
the Additional Term for either or both this Lease and the Other
Lease, then Landlord shall calculate the average of the two
appraised values as a flat rental rate for the proposed term of
such lease(s), which average shall be the fair market rental
rate for the Additional Term of such lease(s).
(b) The appraisers shall have the MAI designation and a minimum of
ten (10) years experience in the San Diego office market. Each
of the first two appraisers shall analyze the fair market
rental value of the Premises and the premises which are the
subject of the Other Lease and shall give written notice to the
parties of his or her appraisal within thirty (30) days
following his or her appointment or selection, but in no event
later than the commencement of the Additional Term. If a
single appraiser is used, his or her determination shall be the
fair market rental rate. If three appraisers are used, the
third appraiser shall select one of the values determined by
the first two appraisers as the fair market rental rate for any
lease with respect to which the appraisals differ by more than
five percent (5%). The cost of the appraisals shall be shared
equally by Landlord and Tenant.
(2) The provisions of Section III. and EXHIBIT C. of this Lease shall not
apply; and
(3) There shall be no further options to extend the Term.
B. COMMON OPERATING COSTS
The Project consists of the Building and one other building, consisting in
the aggregate of approximately 122,719 square feet of Rentable Area,
together with surface parking, hardscaping and landscaping. Included in
Common Operating Costs for the purposes of this Lease are the Building's
Proportionate Share of "Project Operating Costs", which shall be the
aggregate of all commercially reasonable costs and expenses payable by
Landlord in connection with the operation and maintenance of the Common
Areas of the Project (i.e., those areas of the Project which service both
of the buildings within the Project), including, but not limited to, those
items of costs and expenses set forth in clauses (a) through (o) of Section
V.A.(3) of the Lease. Landlord may allocate one or more items included
within Project Operating Costs between the buildings within the Project
other than strictly pro rata based on their respective Rentable Area if
Landlord determines in its sole but reasonable discretion that it is
appropriate to do so in order to reflect usage of items or services
included in Project Operating Costs.
C. USE OF PREMISES/HAZARDOUS MATERIALS
Landlord has disclosed to Tenant certain information regarding the presence
(or lack thereof) of Hazardous Materials in or about the Project by
delivery to Tenant of a copy of the Phase I Environmental Assessment Report
dated January 19, 1994 prepared by Woodward-Clyde Consultants with respect
to the Project (the "Report"), receipt and review of which Tenant
acknowledges by its execution and delivery of this Lease. To the extent
that the Report indicates the presence of Hazardous Materials which would
require removal, remediation or adoption of an "OEM" plan, Tenant agrees to
cooperate
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fully with Landlord in connection therewith and comply fully with the
provisions of any such plan implemented by Landlord.
D. HVAC
(1) Landlord warrants that, as of the Lease Commencement Date, the HVAC
system servicing the Building and the other building in the Project
(the "System") will be in good condition and repair; provided,
however, Tenant acknowledges and agrees that the foregoing warranty
is not and shall not be construed as any representation, warranty
and/or covenant that such System is adequate for Tenant's needs or is
capable of performing to any particular standard, it being
acknowledged and agreed that Landlord has agreed to make available to
Tenant the Loan described in part (2) below on the terms and
conditions set forth therein as Landlord's sole agreement with
respect to the sufficiency of the System. Tenant's recourse for any
breach of the foregoing warranty shall be limited to a claim for
damages. Any work desired to be performed with the proceeds of the
Loan shall be performed by or at the direction of Landlord, in
accordance with Working Drawings and specifications approved by
Tenant in accordance with EXHIBIT C., and shall be subject to
Landlord's prior written approval. Landlord may credit against the
proceeds of the Loan any and all costs incurred by Landlord in
connection with the design and/or performance of improvements to or
enhancements of the System, including without limitation any
construction management fee payable by Landlord (whether to an
affiliate of Landlord or otherwise) in connection therewith.
(2) Upon Tenant's written request therefor, made prior to approval by
Landlord and Tenant of the Working Drawings (as defined in EXHIBIT C
hereto), Landlord shall make available to upgrade the System the
lesser of One Hundred Thousand and No/100ths Dollars ($100,000.00) or
the costs of permanent improvements to the System made in accordance
with plans approved by Landlord and Tenant (the "Loan"). The terms
and conditions on which Landlord has agreed to make the Loan are as
follows:
(a) The Loan shall bear interest at the rate of eight percent (8%)
per year, and interest shall be calculated separately for each
disbursement from the date of the disbursement. In no event,
however, shall the interest payable on the Loan exceed the
maximum amount which Landlord may legally collect under the
then applicable usury law. In the event it is hereafter
determined by a court of competent jurisdiction that the
interest payable or paid by Tenant with respect to the Loan
shall exceed the maximum interest which Landlord may collect
under the then applicable usury law, then (i) any excess amount
previously paid by Tenant to Landlord shall be credited against
principal of the Loan, or refunded to Tenant if no portion of
the principal of the Loan then remains unpaid and (ii) interest
on the Loan subsequent to the date of such determination shall
be reduced to the maximum amount which it is determined that
Landlord may collect under the then applicable usury law.
(b) The Loan shall be repaid by Tenant to Landlord in sixty (60)
equal consecutive monthly installments, commencing on the first
day of the month after the month in which the Lease
Commencement Date occurs. Once the amount of the Loan is
finally determined, Landlord shall give notice to Tenant of the
amount disbursed by Landlord on account of the Loan and the
monthly installments due to Landlord under this clause (2).
Tenant may also, at any time and from time to time, prepay all
or any part of the Loan without penalty. Any such payment or
prepayment shall be applied first to the payment of accrued and
unpaid interest and the balance to principal.
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(c) Notwithstanding the provisions of subsection (b), the entire
then unpaid balance of the Loan and all accrued and unpaid
interest thereon shall be due and payable in full upon the
first to occur of:
(i) Any early termination of this Lease pursuant to the
provisions of Sections XVIII., XIX. or XX. of the Lease,
or any earlier termination of the Other Lease pursuant
to the provisions of Sections XVIII., XIX. or XX.
thereof. Upon any termination of this Lease or the
Other Lease pursuant to any such Section, Landlord shall
have the right to seek recovery of such unpaid balance
and accrued interest against any insurance or
condemnation proceeds payable to Tenant, and Tenant
hereby assigns its interest in such proceeds to Landlord
up to the full amount of such proceeds or the then
unpaid balance of the Loan and all accrued interest
thereon, whichever is lesser. Exhaustion of such
proceeds shall not limit or defeat Tenant's liability to
repay to Landlord any remaining balance of such Loan and
the accrued and unpaid interest thereon; provided,
however, the Loan balance shall be reduced by any
proceeds actually recovered by Landlord, which amount,
if previously paid by Tenant to Landlord, shall be
delivered to Tenant.
(ii) An Assignment of Tenant's interest in this Lease or the
Other Lease or a Sublease of all or any portion of the
Premises or the premises which are the subject of the
Other Lease by Tenant. Notwithstanding anything to the
contrary herein, Landlord may require repayment in full
of the then entire unpaid balance of the Loan and all
accrued and unpaid interest thereon as a condition to
any consent by Landlord to an Assignment or Sublease
under this Lease and/or the Other Lease.
(iii) The occurrence of a default by Tenant, as defined in
Section XX. of the Lease. Upon the occurrence of such a
default, Landlord may seek to recover the then unpaid
balance of the Loan and all accrued and unpaid interest
thereon in any unlawful detainer or other action
instituted by Landlord upon such default. Such
balance shall be deemed due and payable in full upon the
occurrence of such default and may be recovered in such
action as if additional rent whether or not included in
any notice given by Landlord to Tenant prior to or as a
condition to the institution of such action.
(d) Failure of Tenant to pay any amount due pursuant to subsection
(b) above when due, which failure continues for three (3) days
after written notice thereof from Landlord to Tenant (which
notice shall be in lieu of, and not in addition to, any notice
required under California Code of Civil Procedure Sec. 1161, ET
SEQ., as amended), shall be deemed a default pursuant to this
Lease and the Other Lease to the same extent as if such amount
were additional rent due pursuant to this Lease or the Other
Lease, as the case may be. In such event, such unpaid amount
(but not the accrued and unpaid interest thereon) shall bear
interest at the rate provided for in Section XXI.A. of the
Lease and/or the Other Lease from the date such payment was due
and not paid until payment of such amount in full and, upon the
declaration by Landlord of a default pursuant to Section
XX.A.(2) of the Lease and/or the Other Lease, the entire then
unpaid balance of the Loan and all accrued and unpaid interest
thereon shall automatically be due and payable in full and the
unpaid principal balance shall bear interest at the rate
provided in Section XXI.A. from the
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date of acceleration until payment in full. Upon the
occurrence of any such default and acceleration pursuant to
this subsection (d), Landlord shall be entitled to all remedies
against a defaulting tenant pursuant to a written lease,
including but not limited to those provided in Section XX.B. of
the Lease and/or the Other Lease.
(e) The early termination or this Lease or the Other Lease pursuant
to Section XVIII., XIX. or XX. thereof shall not defeat or
diminish the obligation of Tenant to repay to Landlord the Loan
and all accrued and unpaid interest thereon.
(3) Tenant shall obtain and maintain throughout the Term a maintenance
contract for the System as it pertains to the Building with a service
company, and a scope of services, reasonably acceptable to Landlord.
Tenant shall provide to Landlord a copy of such contract, which shall
require notice to Landlord at least ten (10) days prior to
cancellation or early termination thereof by either party. Prior to
expiration Of Such contract, Tenant shall provide Landlord with
evidence of renewal or replacement thereof, in each case on terms
approved by Landlord in advance.
(4) Excess HVAC is available for a per hour rate with a two hour minimum,
which rate and minimum are subject to change from time to time.
E. PARKING
Parking within the parking area adjacent to the Building (1) is currently
provided at a ratio of 3.6 spaces for every 1,000 square feet leased, (2)
is in common with other tenants of the Project and (3) is free (subject to
applicable governmental requirements and Section V.) for the initial Term.
Access to the parking areas is and will continue to be, subject to
applicable governmental requirements, available twenty-four (24) hours per
day. Landlord has provided Tenant with certain reserve parking on the
terms and conditions specified in the Other Lease.
F. SECURITY DEPOSIT
In lieu of cash in the amount specified in Section I.K. of the Lease,
Tenant shall deliver to Landlord, concurrently with the execution hereof,
an irrevocable letter of credit in the amount of $44,610.48 from an
independent financial institution reasonably acceptable to Landlord in the
form of EXHIBIT H hereto (the "Letter of Credit") as security for Tenant's
obligations pursuant to this Lease. The Letter of Credit shall be renewed
by Tenant on or before its expiration date. If Tenant shall fail to cause
any new and irrevocable Letter of Credit to be issued as required
hereunder, which failure continues for three (3) days after written notice
thereof from Landlord to Tenant, then Landlord shall have the option to
terminate this Lease, and such failure by Tenant shall be deemed an event
of default by Tenant and shall be Subject to all of the provisions of
Section XXI. of the Lease. The Letter of Credit shall permit partial
draws. Landlord may draw upon the Letter of Credit in any circumstance
which would permit Landlord to use the Security Deposit described in
Section VI. of the Lease.
G. RIGHT OF FIRST REFUSAL
Tenant shall have the right of first refusal during the first year of the
initial Term (only) to lease any space located on the third and fourth
floors of the Building (collectively, the "First Refusal Space") on the
terms set forth in this subsection G. In the event that a third party
accepts a proposal from Landlord to lease the First Refusal Space or any
portion thereof, or Landlord receives a bona fide offer therefor which
Landlord desires to accept, Landlord shall give Tenant written notice
thereof. Provided Tenant is not in default under this Lease at the time of
exercise or at the time such First Refusal Space
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or portion thereof would otherwise be added to the Premises, Tenant shall
have the right to add to the Premises the First Refusal Space or portion
thereof specified in Landlord's notice on the Commencement Date specified
in Landlord's notice and otherwise at the rental rates and on the other
terms set forth in this Lease with respect to the Premises, except that in
no event shall Landlord be responsible to contribute toward tenant
improvements therefor more than $8.00 per square foot of Rentable Area. If
Tenant desires to exercise the foregoing right, it shall do so, if at all,
by written notice to Landlord given within five (5) business days after the
date of Landlord's notice. If Tenant is not entitled to exercise the right
provided for herein, or is entitled but fails to exercise the same within
the time and in the manner set forth herein, such right shall lapse and
thereafter not be exercisable by Tenant as to the First Refusal Space or
portion thereof so offered, and Landlord shall be free to lease the space
so offered to any third party, whether on the terms specified in Landlord's
notice or on any other terms which are acceptable to Landlord, and Tenant's
rights with respect to the First Refusal Space or portion thereof so
offered shall lapse and shall thereafter not be exercisable by Tenant.
In the event Tenant is entitled to and exercises the foregoing right of
first refusal, then the portion of the First Refusal Space (including all)
identified in Landlord's notice shall be added to the Premises on the terms
and conditions specified above.
H. INTERPRETATION
This Addendum is attached to and forms a part of' the Lease. In the event
of any inconsistency between the provisions of this Addendum and the
balance of the Lease, the provisions of this Addendum shall control.
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EXHIBIT A
SITE PLAN FOR THE PROJECT
[Graphic Omitted}
<PAGE>
EXHIBIT B - PG. 1
FLOOR PLAN OF THE PREMISES
[Graphic Omitted]
<PAGE>
EXHIBIT B - PG. 2
FLOOR PLAN OF THE PREMISES
[Graphic Omitted]
<PAGE>
EXHIBIT C
WORK LETTER
In connection with the Lease to which this Work Letter is attached and in
consideration of the mutual covenants hereinafter contained, Landlord and Tenant
agree as follows:
1. WORK SCHEDULE
Landlord shall deliver to Tenant, for Tenant's review and approval, a schedule
(the "Work Schedule") setting forth a timetable for the preparation and approval
of all space plans and working drawings and for the planning and completion of
the installation of tenant improvements to be constructed in the Premises (the
"Tenant Improvements"). The Work Schedule shall set forth each of the various
items of work to be done by or approval to be given by Landlord and Tenant in
connection with the completion of the Tenant Improvements. The Work Schedule
shall be submitted to Tenant for its approval and, upon approval by both
Landlord and Tenant, such schedule shall become the basis for completing the
Tenant Improvements. If Tenant shall fail to approve the Work Schedule, as it
may be modified after discussions between Landlord and Tenant, within five (5)
days after the date such Work Schedule is first received by Tenant, then Tenant
shall be deemed to have approved such Work Schedule.
2. SPACE PLANS AND WORKING DRAWINGS
a) SPACE PLANS. Tenant and Landlord have had Howard and Sneed
Architects ("H & S") prepare a space plan for the Premises AND the premises
which are subject of the Other Lease (the "Other Premises") dated June 1,
1994 (the "Space Plans"), which Landlord and Tenant agree shall be the basis
for preparation by Landlord's architect, H & S, of working drawings for the
Tenant Improvements and the tenant improvements for the Other Premises (the
"Other Tenant Improvements"). Tenant acknowledges and agrees that, absent
Landlord's written agreement to the contrary, any deviations from the Space
Plans shall be considered "Non-Building Standard Work" for the purposes of
this EXHIBIT C. Landlord shall reimburse to Tenant the lesser of $15,000.00
or the actual programming fee paid by Tenant to H & S, upon receipt by
Landlord of documentary evidence satisfactory to Landlord as to the amount of
such fee and that the services performed relate to the Space Plans.
b) WORKING DRAWINGS. Based upon the Space Plans, as the same may be
revised by mutual agreement of Landlord and Tenant as to the scope of such
revisions, and after Tenant's written acknowledgement (within three (3) days
after request therefor) of its responsibility for the costs of such revisions
and for the costs of Tenant Improvements and the Other Tenant Improvements in
the aggregate, in excess of $1,050,000.00, Landlord's architect and engineer
shall prepare final working drawings (the "Working Drawings") of the Tenant
Improvements. Landlord shall then submit such Working Drawings to Tenant for
its review, and Tenant shall approve or disapprove any such drawings within
three (3) business days after receipt thereof. If Tenant fails to so notify
Landlord within such three (3) business days, Tenant shall be deemed to have
approved such Working Drawings. If Tenant timely notifies Landlord of any
disapproval of the Working Drawings, Tenant's notice of disapproval shall also
set forth its reason for disapproval and suggested revisions to the Working
Drawings in order to satisfy the concerns of Tenant. Any delay resulting from
Tenant's failure to unconditionally approve the Working Drawings within the
later of thirty (30) days after execution of this Lease or five (5) days after
delivery of the Working Drawings to Tenant shall be Tenant Delay, and shall not
extend the Commencement Date. Landlord shall have no obligation to proceed with
Landlord's Work until Tenant has unconditionally approved the Working Drawings
therefor. The Working Drawings shall include architectural, mechanical and
electrical drawings for Landlord's Work (as defined in Section 5 below).
c) CHANGES IN PLANS. Any changes requested by Tenant in the Space
Plans, or in the Working Drawings or other plans and specifications after
approval thereof by Tenant or
EXHIBIT C, Page 1
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submission thereof by Tenant to Landlord, shall (subject to Landlord's agreement
to be responsible for an aggregate of $1,050,000.00 of the costs of the Tenant
Improvements and the Other Tenant Improvements) be prepared at Tenant's sole
cost and expense, and any excess costs resulting from such changes, shall also
be at Tenant's sole cost and expense. Furthermore, Tenant shall be liable for
any resulting delays in completing the Tenant Improvements and the increased
costs in completing the Building Standard Work, if any, resulting from such
delays. Notwithstanding the foregoing, Landlord will not approve any change
orders without Tenant's consent and, if Landlord does so, Landlord will be
responsible for excess costs resulting from any such change order.
(d) NON-BUILDING STANDARD WORK. Tenant may request work (hereinafter
referred to as "Non Building Standard Work") different from or in addition to
the improvements reflected on the Space Plans as described in Section 2(a)
hereof to be performed by Landlord as part of the Tenant Improvements; provided,
however, that all Non-Building Standard Work shall be subject to Landlord's
prior written consent and approval, and shall be of a quality that exceeds or is
commensurate with the quality of materials included in the Space Plans. Any
plans, specifications and Working Drawings required for such Non-Building
Standard Work shall also be prepared by Landlord's architect and engineer but at
Tenant's expense.
(e) LANDLORD'S APPROVAL. All plans, specifications and Working Drawings
for the Premises and all Non-Building Standard Work requested by Tenant are
subject to Landlord's approval.
(f) COMPLIANCE WITH LAW. Tenant's plans and specifications shall not be
in conflict with building codes of the City of San Diego or with insurance
regulations for a fire resistive Class A building. All plans and specifications
shall be in a form satisfactory to appropriate governmental authorities
responsible for issuing permits and licenses required for construction. In the
event any additional work is required by any governmental authority for the
Non-Building Standard Work in order to obtain the issuance of any permit or
license for the construction of the Tenant Improvements, Tenant shall be solely
responsible for the cost of such additional work.
3. BUILDING PERMIT
After approval by Landlord and Tenant of the Working Drawings for the Tenant
Improvements, Landlord shall submit the drawings to the appropriate governmental
body for plan checking and a building permit. Landlord, with Tenant's
cooperation, shall cause to be made any change in the Working Drawings necessary
to obtain the building permit. After final approval of the Working Drawings, no
further changes thereto may be made without the prior written approval of both
Landlord and Tenant, and then only after agreement by Tenant to pay any excess
costs resulting from such changes.
4. PRICE APPROVAL; NON-BUILDING STANDARD WORK AT TENANT'S EXPENSE
(a) COST APPROVAL. Tenant agrees to pay the cost of all work necessary
to complete the Tenant Improvements and the Other Tenant Improvements in
accordance with the Working Drawings in excess of $1,050,000.00, in the
aggregate, together with the cost of any improvements to the "System" in excess
of the proceeds of the "Loan" (as such terms are defined in Section XXXV.D. of
the Lease; herein, the "Excess System Costs"), excluding only (1) architects'
and engineering fees incurred in preparing from the approved Space Plans the
Working Drawings, as initially approved by Landlord and Tenant, (2) costs
resulting from gross negligence or willful misconduct of Landlord or its agents,
employees or contractors in the performance of Landlord's Work, (3) costs
resulting from a breach by Landlord or those engaged by Landlord to perform
Landlord's Work of a contract for the Tenant Improvements or Other Tenant
Improvements, or resulting from defects in construction of Landlord's Work, (4)
costs incurred in performing Landlord's Work which are reimbursed from available
bonding or insurance proceeds, (6) costs to construct alterations or
improvements (i) to the Common Areas which are necessary to obtain permits
required for the lawful occupancy of the Premises by Tenant or (ii) to areas or
portions of the Premises or the improvements therein which are not within the
scope
EXHIBIT C, Page 2
<PAGE>
of the Tenant Improvements and which are necessary to correct any violation of
law existing as of the date of execution hereof which would be required to be
corrected whether or not the Landlord's Work was being performed (i.e.,
excluding those which would have been "grandfathered" but for landlord's Work,
and excluding also plan check corrections), and (7) interest and fees charged by
Landlord for financing the construction of Landlord's work. Concurrent with the
plan checking referred to in Section 3 above, Landlord shall prepare and submit
to Tenant bids from subcontractors for all work included in the Tenant
Improvements and Other Tenant Improvements and for the Excess System Costs
required by the approved plans, specifications and Working Drawings, together
with an amount equal to twelve percent (12%) of the total of such bids which
shall be the construction management fee payable to Ares, Inc., an affiliate of
Landlord (collectively the "Bid Amount"). If Tenant approves the Bid Amount, it
shall pay Landlord such costs in advance within five (5) days after Tenant's
approval thereof. If Tenant fails to approve the Bid Amount, or fails to
deliver the excess costs within five (5) days after approving the Bid Amount,
Landlord shall not proceed with the Tenant Improvements, Other Tenant
Improvements or the work pertaining to the Excess System Costs. If Tenant fails
to approve, or disapprove, the Bid Amount, Landlord and Tenant shall thereafter
cooperate to amend the plans and specifications for the Premises as necessary to
obtain Tenant's approval of the cost of the Tenant Improvements, Other Tenant
Improvements and/or the Excess System Costs; provided, however, that the
construction management fee shall not be reduced below twelve percent (12%) of
the total bids provided, further, that Tenant shall pay any costs resulting from
such changes and Tenant shall be liable for the delay in completing the affected
Tenant Improvements and Other Tenant Improvements and Excess System
improvements, if any, resulting from such delay, which delay shall not extend
the Commencement Date or the accrual of rental under the lease.
(b) OVERHEAD COSTS. The cost of the Tenant Improvements, Other Tenant
Improvements and the Excess System Costs paid by Tenant as set forth above shall
include contractor's charges.
5. CONSTRUCTION OF TENANT IMPROVEMENTS
After the Working Drawings for the Tenant Improvements have been approved by
Tenant and Landlord and a building permit has been issued, Landlord shall cause
its construction manager, Ares, Inc., to cause the Tenant Improvements to be
completed in accordance with the approved plans, specifications and Working
Drawings ("Landlord's Work"), subject to "Force Majeure" (as that term is
defined by Section XXXIII.K. of the Lease). Landlord shall require Landlord's
construction manager to obtain competitive bids for each major trade included
within Landlord's Work, where possible, and to enter into subcontracts with
either a stipulated sum or guaranteed maximum price such that the total costs of
the work on which bids are submitted, with the construction management fee, do
not exceed the approved Bid Amount. However, and not withstanding the
foregoing, installation or construction of Non-Building Standard Work and/or
work pertaining to Excess System Costs (and the affected Tenant Improvements or
Other Tenant Improvements) shall not commence until Tenant shall have approved
and paid to Landlord the estimated cost thereof and in accordance with Section 4
above. Subject to the foregoing, landlord shall use its best efforts to secure
completion of the Tenant Improvements on or before the target Lease Commencement
Date set forth in Section I.G. of the Lease. Unless specified to the contrary
herein, all Tenant Improvements shall be included in Landlord's Work.
6. WORK
(a) TENANT IMPROVEMENTS. Subject to Tenant's payment to Landlord of
the excess costs of the Tenant Improvements, Other Tenant Improvements and
Excess System Costs pursuant to Section 4(a) above, the Landlord agrees to
furnish all of the Tenant Improvements and Other Tenant Improvements specified
in the Space Plan and Working Drawings for the Premises.
(b) WARRANTIES. Landlord hereby agrees to assign and transfer to Tenant
the benefit of any and all warranties received by Landlord from its general
contractor for the construction
EXHIBIT C, Page 3
<PAGE>
of the Tenant improvements and any and all warranties received from any
suppliers of materials for the Tenant Improvements.
7. COMPLETION AND LEASE COMMENCEMENT DATE
If the Lease Commencement Date of the Lease as determined under Sections I.G.
and III. of the Lease is delayed by any of the following, then the Lease
Commencement Date of the Lease and the payment of rent shall be accelerated by
the number of days of such delay:
(a) Tenant's failure to approve or furnish Working Drawings or failure to
approve or furnish any other amount or item or perform any other obligation in
accordance with and by the dates specified herein or in the Work Schedule.
(b) Delays of any nature within Tenant's control resulting from Tenant's
decision to use any materials, finishes, or installations other than as
designated on the Space Plans.
(c) Tenant's changes in the Space Plans, Working Drawings or other plans
and specifications after the approval thereof by Tenant or submission thereof by
Tenant to Landlord.
(d) Delays in the construction of the Tenant Improvements as a result of
Tenant's failure to approve, written estimates of and pay the excess costs of
the Tenant Improvements, Other Tenant Improvements and/or Excess System Costs in
accordance with Section 4.
8. FURNITURE AND TELEPHONE SYSTEM
Tenant acknowledges and agrees that Tenant is solely responsible, both as to
performance and payment of costs, for "Tenant's Work", which includes obtaining,
delivering and installing in the Premises all necessary or desired furniture,
telephone equipment, telephone cabling (all telephone cabling provided by Tenant
shall be teflon coated), telephone service, business equipment, art work and
other similar items, and that Landlord shall have no responsibility whatsoever
with regard thereto. Tenant further acknowledges and agrees that neither the
Lease Commencement Date of the Lease nor the payment of rent shall be delayed
for any period of time whatsoever due to any delay in the furnishing of the
Premises with such items. Tenant agrees to cause all telephone, computer and
other electronic wires and cables installed within the Premises and within the
common ducts and shafts of the Building to be properly labeled in order that
they may be easily identified and distinguished from other tenants' wires and
cables installed within the Building.
9. FAILURE OF TENANT TO COMPLY
Any failure of Tenant to comply with any of the provisions contained in this
EXHIBIT C, within the times for compliance herein set forth, shall, after
expiration of the applicable cure period set forth in Section XX. of the Lease,
be deemed a default pursuant to the Lease. In addition to the remedies provided
to Landlord in this EXHIBIT C, upon the occurrence of such a default by Tenant,
Landlord shall have all remedies available at law or equity to a landlord
against a defaulting tenant pursuant to a written lease, including but not
limited to those set forth in Section XX. DEFAULT and Section XXIV. ATTORNEYS'
FEES of the Lease.
10. AUTHORIZED APPROVALS
All approvals required pursuant to the terms of this Work Letter or requests for
changes and modifications to the Space Plans, Working Drawings or any other
matter relating to the construction of the Tenant Improvements shall be deemed
given if approved or requested in writing by Tenant's construction
representative, for Tenant, and Landlord's construction representative, for
Landlord.
EXHIBIT C, Page 4
<PAGE>
11. DESTRUCTION
If at any time prior to the completion of the Tenant Improvements a casualty
occurs resulting in any damage or destruction of the partially completed Tenant
Improvements or the Premises or Building, the terms and conditions of Section
XVIII. DAMAGE AND DESTRUCTION of the Lease shall govern the rights and
obligations of the parties.
EXHIBIT C, Page 5
<PAGE>
EXHIBIT D
RENT SCHEDULE
Monthly Rental Monthly
Rate (Per Sq. Ft. Rental Monthly Rental
Months of Rentable Area) Waiver * Payable
------ ------------------ --------- ----------------
1-2 $1.41 $36,784.08 $ 0.00
3-14 1.41 0.00 36,784.08
15-26 1.44 0.00 37,566.72
27-38 1.47 0.00 38,349.36
39-50 1.50 0.00 39,132.00
51-62 1.54 0.00 40,175.52
63-74 1.59 0.00 41,479.92
75-86 1.65 0.00 43,045.20
87-98 1.71 0.00 44,610.48
* Landlord hereby conditionally excuses Tenant from the payment of
Monthly Rental during the months and in the amounts designated as
"Monthly Rental Waiver" as specified above, provided that Tenant
shall pay all other charges under this Lease from and after the Lease
Commencement Date and provided further that Tenant shall not be in
material default in its obligations under this Lease. Should Tenant
at any time during the Term be in material default under the Lease
and not cure such default within the cure periods provided in the
Lease, then the total sum of such Monthly Rental so conditionally
excused shall become immediately due and payable by Tenant to
Landlord. If at the date of expiration of the Term, Tenant has not so
defaulted, Landlord shall waive any payment of all such Monthly
Rental so conditionally excused.
The term "Rentable Area" as used in the Lease shall mean:
(1) As to each floor of the Building on which the entire space rentable
to tenants is or will be leased to one tenant (hereinafter referred
to as a "Single Tenant Floor"), Rentable Area shall be the entire
area bounded by the inside surface of the four exterior glass walls
(or the inside surface of the permanent exterior wall(s) where there
is no glass) on such floor, including all areas used for elevator
lobbies, corridors, special stairways, or elevators, restrooms,
mechanical rooms, electrical rooms and telephone closets without
deduction for columns and other structural portions of the Building
or vertical penetrations that are included for the special use of the
tenant of such floor together with a portion of the covered or
enclosed common facilities which constitute a part of the Building
and which are maintained by Landlord for the common benefit of all
tenants of the Building which bears the same proportion to the total
area of such common facilities as the Rentable Area of each Single
Tenant Floor bears to the Rentable Area of the Building (excluding
such common facilities), but excluding the area contained within the
exterior walls of the Building stairs, fire towers, vertical ducts,
elevator shafts, flues, vents, stacks and pipe shafts.
EXHIBIT D
<PAGE>
EXHIBIT E
RULES AND REGULATIONS
ATTACHED TO AND MADE A PART OF THE LEASE
The following Rules and Regulations shall be in effect at the Building.
Landlord reserves the right to adopt reasonable modifications and additions
hereto. In the case of any conflict between these regulations and the Lease,
the Lease shall be controlling. Landlord shall have the right to waive one or
more rules for the benefit of a particular tenant in Landlord's reasonable
discretion.
1. Except with the prior written consent Landlord, no tenant shall conduct any
retail sales in or from the Premises, or any business other than that
specifically provided for in the Lease. There shall be no solicitation by
Tenant of other tenants or occupants of the Building.
2. Landlord reserves the right to prohibit personal goods and services vendors
from access to the Building except upon such reasonable terms and
conditions, including but not limited to a provision for insurance
coverage, as are related to the safety, care and cleanliness of the
Building, the preservation of good order thereon, and the relief of any
financial or other burden on Landlord occasioned by the presence of such
vendors or the sale by them of personal goods or services to a tenant or
its employees. If reasonably necessary for the accomplishment of these
purposes, Landlord may exclude a particular vendor entirely or limit the
number of vendors who may be present at any one time in the Building. The
term "personal goods or services vendors" means persons who periodically
enter the Building of which the Premises are a part for the purpose of
selling goods or services to a tenant, other than goods or services which
are used by a tenant only for the purpose of conducting its business on the
Premises. "Personal goods or services" include, but are not limited to,
drinking water and other beverages, food, barbering services, and
shoeshining services.
3. The sidewalks, halls, passages, elevators and stairways shall not be
obstructed by any tenant or used by it for any purpose other than for
ingress to and egress from their respective Premises. The halls, passages,
entrances, elevators, stairways, balconies, janitorial closets, and roof
are not for the use of the general public, and Landlord shall in all cases
retain the right to control and prevent access thereto of all persons whose
presence in the judgment of Landlord shall be prejudicial to the safety,
character, reputation and interests of the Building and its tenants,
provided that nothing herein contained shall be construed to prevent such
access to persons with whom Tenant normally deals only for the purpose of
conducting its business on the Premises (such as clients, customers, office
suppliers and equipment vendors, and the like) unless such persons are
engaged in illegal activities. No tenant and no employees of any tenant
shall go upon the roof of the Building without the written consent of
Landlord.
4. The sashes, sash doors, windows, glass lights, and any lights or skylights
that reflect or admit light into the halls or other places of the Building
shall not be covered or obstructed. The toilet rooms, water and wash
closets and other water 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, and the expense of any breakage,
stoppage or damage, resulting from the violation of this rule shall be home
by the tenant who, or whose clerks, agents, employees, or visitors, shall
have caused it.
5. No sign, advertisement or notice visible from the exterior of the Premises
or Building shall be inscribed, painted or affixed by Tenant on any part of
the Building or the Premises without the prior written consent of Landlord.
If Landlord shall have given
EXHIBIT E, Page 1
<PAGE>
such consent at any time, whether before or after the execution of this
Lease, such consent shall in no way operate as a waiver or release of any
of the provisions hereof or of this Lease, and shall be deemed to relate
only to the particular sign, advertisement or notice so consented to by
Landlord and shall not be construed as dispensing with the necessity of
obtaining the specific written consent of Landlord with respect to each and
every such sign, advertisement or notice other than the particular sign,
advertisement or notice, as the case may be, so consented to by Landlord.
6. In order to maintain the outward professional appearance of the Building,
all window coverings to be installed at the Premises shall be subject to
Landlord's prior reasonable approval. If Landlord, by a notice in writing
to Tenant, shall object to any curtain, blind, shade or screen attached to,
or hung in, or used in connection with, any window or door of the Premises,
such use of such curtain, blind, shade or screen shall be forthwith
discontinued by Tenant. No awnings shall be permitted on any part of the
Premises.
7. Tenant shall not do or permit anything to be done in the Premises, or bring
or keep anything therein, which shall in any way increase the rate of fire
insurance on the Building, or on the property kept therein, or obstruct or
interfere with the rights of other tenants, or in any way injure or annoy
them; or conflict with the regulations of the Fire Department or the fire
laws, or with any insurance policy upon the Building, or any part thereof,
or with any rules and ordinances established by the Board of Health or
other governmental authority. Tenant shall not bring into, or permit or
suffer in, the Building or the Project, any weapons or firearms of any
kind.
8. No safes or other objects larger or heavier than the freight elevators of
the Building are limited to carry shall be brought into or installed in the
Premises. Landlord shall have the power to prescribe the weight, method of
installation and position of such safes or other objects. The moving of
safes shall occur only between such hours as may be designated by, and only
upon previous notice to, the manager of the Building, and the persons
employed to move safes in or out of the Building must be acceptable to
Landlord. No freight, furniture or bulky matter of any description shall
be received into the Building or carried into the elevators except during
hours and in a manner approved by Landlord.
9. Landlord shall clean the Premises as provided in the Lease, and except with
the written consent of Landlord, no person or persons other than those
approved by Landlord will be permitted to enter the Building for such
purpose, but Tenant shall not cause unnecessary labor by reason of Tenant's
carelessness and indifference in the preservation of good order and
cleanliness.
10. No tenant shall sweep or throw or permit to be swept or thrown from the
Premises any dirt or other substance into any of the corridors or halls or
elevators, or out of the doors or windows or stairways of the Building, and
Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors and/or
vibrations, or interfere in any way with other tenants or those having
business therein, nor shall any animals, firearms or birds be kept in or
about the Building. The Building has been designated as non-smoking;
smoking or carrying lighted cigars or cigarettes in each and every part of
the Building, including lobbies, elevators or other common areas, is
prohibited.
11. Except for the use of microwave ovens and coffee makers for Tenant's
personal use, no cooking shall be done or permitted by Tenant on the
Premises, nor shall the Building be used for lodging.
EXHIBIT F, Page 2
<PAGE>
12. Tenant shall not use or keep in the Building any kerosene, gasoline, or
inflammable fluid or any other illuminating material, or use any method of
heating other than that supplied by Landlord.
13. If Tenant desires telephone or telegraph connections, Landlord will direct
electricians as to where and how the wires are to be introduced. No boring
or cutting for wires or other otherwise shall be made without directions
from Landlord.
14. Each tenant, upon the termination of its tenancy, shall deliver to Landlord
all the keys of offices, rooms and toilet rooms, and security access
card/keys which shall have been furnished such tenant or which such tenant
shall have had made, and in the event of loss of any keys so furnished,
shall pay Landlord therefor.
15. No Tenant shall lay linoleum or other similar floor covering so that the
same shall be affixed to the floor of the Premises in any manner except by
a paste, or other material which may easily be removed with water, the use
of cement or other similar adhesive materials being expressly prohibited.
The method of affixing any such linoleum or other similar floor covering to
the floor, as well as the method of affixing carpets or rugs to the
Premises shall be subject to reasonable approval by Landlord. The expense
of repairing any damage resulting from a violation of this rule shall be
borne by Tenant by whom, or by those agents, clerks, employees or visitors,
the damage shall have been caused.
16. No furniture, packages or merchandise will be received in the Building or
carried up or down in the elevators, except between such Building hours and
in such elevators as shall be designated by Landlord.
17. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 7:00 a.m. access to the Building or to the halls,
corridors, elevators or stairways in the Building, or to the Premises, may
be refused unless the person seeking access is known to the building
watchman, if any, in charge and has a pass or is properly identified.
Landlord shall in no case be liable for damages for the admission to or
exclusion from the Building of any person whom Landlord has the right to
exclude under Rule 3 above. In case of invasion, mob, riot, public
excitement, or other commotion, Landlord reserves the right but shall not
be obligated to prevent access to the Building during the continuance of
the same by closing the doors or otherwise, for the safety of the tenants
and protection of property in the Building.
18. Tenant shall see that the windows and doors of the Premises are closed and
securely locked before leaving the Building and Tenant shall exercise
extraordinary care and caution that all water faucets or water apparatus
are entirely shut off before Tenant or Tenant's employees leave the
Building, and that all electricity, gas or air shall likewise be carefully
shut off, so as to prevent waste or damage, and for any default or
carelessness Tenant shall make good all injuries sustained by other tenants
or occupants of the Building or Landlord.
19. Tenant shall hot alter any lock or install a new or additional lock or any
bolt on any door of the Premises without prior written consent of Landlord.
If Landlord shall give its consent, Tenant shall in each case furnish
Landlord with a key for any such lock. Landlord shall have the right to
impose a charge for each key issued and for rekeying any lock or bolt on
any door of the Premises.
20. Tenant shall not install equipment, such as but not limited to electronic
tabulating or computer equipment, requiring electrical or air conditioning
service in excess of those to be provided by Landlord under the Lease.
21. No bicycle, or shopping cart, or other vehicle or any animal shall be
brought into the Premises or the halls, corridors, elevators or any part of
the Building by Tenant.
EXHIBIT E, Page 3
<PAGE>
22. Landlord shall have the right to prohibit the use of the name of the
Building or Project or any other publicity by Tenant which in Landlord's
opinion tends to impair the reputation of the Building or Project or their
desirability for other tenants, and upon written notice from Landlord,
Tenant will refrain from or discontinue such publicity.
23. Tenant shall not erect any aerial or antenna on the roof or exterior walls
of the Premises, Building, or Project without the prior written consent of
Landlord.
EXHIBIT E, Page 4
<PAGE>
EXHIBIT F
AMENDMENT OF LEASE COMMENCEMENT DATE
In connection with that certain Lease dated September __, 1994 between The
Mutual Life Insurance Company of New York, as Landlord, and Peregrine Systems,
Inc., as Tenant concerning the Premises located at 12680 High Bluff Drive, San
Diego, California, Landlord and Tenant hereby agree as follows:
1. The Lease Commencement Date stated in Section I. of the Lease is amended to
be ___________,19____ and the Expiration Date stated in Section I. is
amended to be ___________,19___.
2. Landlord has satisfactorily complied with all requirements and conditions
precedent to the commencement of the Term as specified in the Lease.
3. The Premises covered by the Lease and the tenant improvements therein have
been fully completed as required, are in good condition, are ready for
occupancy and have been accepted by Tenant.
4. Tenant has or shall commence paying Monthly Rental pursuant to the Office
Lease on ____________,199___.
Dated effective this ____ day of _________, 19___
"TENANT" "LANDLORD"
PEREGRINE SYSTEMS, INC., a Delaware THE MUTUAL LIFE INSURANCE
corporation COMPANY OF NEW YORK, a New York
corporation
By:
Name: By:
Title:
Name:
Title:
[SAMPLE]
EXHIBIT F
<PAGE>
EXHIBIT G
JANITORIAL SERVICES
OFFICE AREAS
Janitorial personnel will report to building management any breakage of Tenant's
or Building property regardless of its nature. It will be the responsibility of
the Janitorial Services contractor to enforce this. Landlord shall be
responsible for the cost of all cleaning materials and for the cost of supplies
for restocking, including without limitation all restroom supplies, all of which
costs shall be included in Common Operating Costs.
DAILY
1. Empty all waste containers and remove to designated disposal areas.
Replace liners as necessary.
2. Thoroughly vacuum all carpeted areas.
3. Dust and wipe clean exposed areas on desks, counter tops, filing cabinets,
office furniture, telephones, window ledges, and other horizontal surfaces
with chemically treated cloths. Light feather dusting on areas that have
items or paper work left on desk.
4. Spot clean both sides of glass doors, sidelights and all interior glass.
5. Sweep and/or spot damp mop all floors.
6. Remove spots and fingerprints on walls around doors, and by light switches.
Polish door hardware.
7. Shut and lock all doors during the cleaning operation. Secure all suite
doors and turn off lights when leaving.
8. Remove all foreign matter from the floors (e.g., gum and tar).
9. Empty all ash trays and damp wipe clean.
WEEKLY
1. Dust low ledges and up seven feet on high ledges, window sills and levelor
blinds.
MONTHLY
1. Vacuum upholstered furniture.
2. Spot clean carpets.
3. Dust levelor blinds and vertical cloth blinds.
4. Mop, clean and buff hard surface floors. Scrub and wax all tile floors.
5. Clean all baseboards.
6. Wipe down both sides of suite entrance doors.
7. Pick up chair pads, vacuum carpet thoroughly and/or wet mop and buff floor.
EXHIBIT G, Page 1
<PAGE>
QUARTERLY
1. Strip and refinish tile floors. (Monthly, if needed.)
2. Window cleaning (exterior and interior).
TWICE PER YEAR
1. Clean all air supply and return grilles.
LIGHT FIXTURES
1. Dust all light fixtures lenses, as necessary.
RESTROOMS
DAILY
1. Remove all waste to disposal area.
2. Wet mop ceramic tile floor with disinfectant solution, remove all stains.
3. Clean wash basins and counter tops to remove soil, stains and soap film
with a non-abrasive cleaner.
4. Clean and dry polish faucets, soap dispensers, napkin machines, napkin
disposal units, towel and tissue dispensers and waste receptacles with a
non-abrasive cleaner.
5. Restock handsoap, towels, tissue and sanitary products. Check soap
dispensers for clogging and proper operation.
6. Wash and polish mirrors and vanity shelves.
7. Wash all surfaces of stools and urinals with disinfectant solution as well
as both surfaces of stool seats.
8. Damp wipe low ledges, sills and stall partitions.
9. Spot clean all walls, tile and vinyl.
10. Dust and spot clean both sides of doors.
11. Report any equipment malfunctions to building management.
MONTHLY
1. Wash stall partitioning with disinfectant solution.
2. Wash air supply and return grilles.
3. Machine scrub ceramic tile floors.
4. Thoroughly spot clean all tile walls and ceilings - on call, as needed.
5. Clean all light fixtures - on call - as needed.
EXHIBIT G, Page 2
<PAGE>
ENTRANCE LOBBY, CORRIDORS, AND PUBLIC AREAS
DAILY
1. Sweep and spot clean lobby floors.
2. Vacuum and spot clean carpets where applicable.
3. Vacuum entry vestibules and walk off mats.
4. Clean directory board glass as necessary and dust frame.
5. Clean and polish drinking fountains using a non-abrasive polish.
6. Empty, strain sand, replenish when required and clean cigarette urns.
7. Clean lobby door frames sidelights, frames and polish with non-abrasive
product. Spot clean both sides of all glass.
8. Clean and polish entry door thresholds.
9. Clean elevator call buttons.
10. Properly treat granite floor in lobby area.
11. Dust corridor and stairwell doors and frames, base along corridors and
remove all finger smudges from doors and door frames.
WEEKLY
1. Clean window sills.
MONTHLY
1. Clean Base, removing scuff marks.
2. Clean air supply and return grilles.
TWICE PER YEAR
1. Dust corridor and lobby walls, full height.
2. Wash exit lights.
ELEVATORS
DAILY
1. Wash and dry polish both sides of doors to remove dust, hand prints, and
stains, using non-abrasive cleaner.
2. Vacuum and spot clean carpet.
3. Dust ceiling panels and high ledges.
4. Vacuum elevator door tracks.
EXHIBIT G, Page 3
<PAGE>
5. Damp wipe and dry polish control panel.
6. Elevator door tracks cleaned and polished.
WEEKLY
1. Shampoo floor coverings, as necessary.
STAIRWELLS AND LANDINGS
Daily
1. Sweep and vacuum stairs and landings.
2. Dust handrails and ledges.
EXHIBIT G, Page 4
<PAGE>
EXHIBIT H
FORM OF LETTER OF CREDIT
_______________ BANK
P.O. BOX _____, __________, _____________, _____________
CABLE ADDRESS: _________ TELEX NO. ________
SWIFT: ____________
IRREVOCABLE TRANSFERRABLE STANDBY LETTER OF CREDIT NO. __________
Date: _________, 19___
Place of Issue: ____________
Date of Expiration: ________, l9___
Beneficiary:
The Mutual Life Insurance Company
of New York
333 South Anita Drive, Suite 900
Orange, California 92668
Attention: Vice President - Real Estate
Gentlemen:
We hereby establish our irrevocable Letter of Credit No.__________ in your favor
for account of _______ ("Applicant") up to an aggregate amount of
_________________________ Dollars (US$ ________) available by your drafts on us
at sight to be accompanied by Beneficiary's signed statement that it is entitled
to draw hereunder.
This letter of credit is transferrable and Beneficiary may transfer its interest
herein to any transferee of Beneficiary's interest in that certain Lease dated
_______________, 19____, between Beneficiary and Applicant.
Drafts must be presented to ____________________ Bank not later than
_______________, 19___.
The address for presentation of drafts and accompanying documents shall be:
Bank
-------------------------
------------------------------
------------------------------
Attention:
--------------------
This credit is subject to the Uniform Customs and Practice for Documentary
Credits (1983 Revision), International Chamber of Commerce Publication No. 400.
We hereby agree with the drawers, endorsers and bona fide holders of the drafts
under and in compliance with the terms of this credit that these drafts will be
duly honored by the above drawee. All drafts must be marked; "Drawn under
______________________ Bank, Credit No. _____________________."
Very truly yours,
----------------------
Authorized Signature
EXHIBIT H
<PAGE>
FIRST AMENDMENT TO LEASES
This First Amendment to Leases (the "Amendment") is dated as of this-day of
August, 1995, by and between THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, a
New York corporation ("Landlord"), and PEREGRINE SYSTEMS, INC., a Delaware
corporation ("Tenant'), with respect to the following:
RECITALS
A. Landlord is the landlord and Tenant is the tenant pursuant to those
certain written leases dated to be effective as of October 26, 1994, by and
between Landlord, as landlord, and Tenant, as tenant. One of the Leases (the
"Building A Lease") covers Building "A" of Del Mar Corporate Plaza (the
"Project"), which building is located at 12670 High Bluff Drive, San Diego,
California and consists of approximately 69,022 square feet of rentable area,
and the other lease (the "Building B Lease") covers a portion of Building "B" of
the Project, consisting of the first and second floors, containing approximately
26,088 square feet of rentable area of Building B which is located at 12680 High
Bluff Drive. The Building A Lease and the Building B Lease are sometimes
referred to herein collectively as the "Leases."
B. Pursuant to this Amendment, Landlord and Tenant desire to confirm
their agreements regarding the cost and estimated date of completion of the
tenant improvements to be constructed by Landlord pursuant to the Leases.
AGREEMENT
NOW, THEREFORE IN CONSIDERATION OF the foregoing recitals, and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. All capitalized terms used and not defined herein but
defined in the Leases shall have the meanings given to such terms in the Leases.
2. BID AMOUNT. Pursuant to the Leases, Tenant agreed to pay the cost of
all work necessary to complete the Tenant Improvements and the Other Tenant
Improvements (collectively, Landlord Work in excess of the sum of $1,050,000.00
(herein, the "Allowance"), together with the Excess System Costs. In connection
therewith, Tenant has the right under the Leases to approve the Bid Amount for
Landlord's Work which has been submitted by Ares, Inc., an affiliate of
Landlord. The initial Bid Amount, which is $1,946,442.00, as reflected on the
Bid Review Worksheet attached hereto as EXHIBIT A, is hereby approved by
Tenant in accordance with Section 4(a) of Exhibit C to the Leases. Landlord and
Tenant acknowledge and agree that the Bid Amount hereby approved does not
include any excluded costs described in clauses (1) through (7) of Section 4(a)
of Exhibit C to the Leases and, accordingly, that Tenant is responsible for all
costs of Landlord's Work in excess of the sum of the Allowance, a portion of
which may be financed by Tenant with the "TI Loan" (as defined below).
Notwithstanding anything to the contrary in the Leases, Tenant shall pay the
Excess System Costs and the costs of Landlord's Work in excess of the Allowance,
which are currently estimated (based on the Bid Amount) to be $696.442.00 in the
aggregate, as provided herein. The costs of the Tenant Improvements shall be
paid and/or other-wise satisfied as follows: (a) Tenant shall pay to Landlord in
cash $396,442.00 concurrently with the execution of this Amendment to reimburse
Landlord for costs incurred by Landlord prior to the date hereof which have been
previously invoiced to Tenant in detail, (b) the TI Loan will be deemed fully
disbursed and shall commence to accrue interest on August 11, 1995 to cover the
next $300,000 of such costs so incurred and paid by Landlord as of the date
hereof; (c) the next $1,250,000 of such costs shall be paid by Landlord by
disbursement of the Allowance described in paragraph 3 below; and (d) the
balance, if any, of such costs (except for costs excluded under clauses (1)
through (7) of Sections 2(c) and 4(a) of Exhibit C to the Lease) shall be paid
by Tenant to Landlord in cash within five (5) days after receipt of Landlord's
invoice therefor accompanied by reasonable back-up documentation, it being
clearly understood that Landlord shall not be required to pay such costs prior
to Tenant's payment to Landlord thereof. Landlord shall provide to Tenant the
benefit of, and shall reduce the Bid Amount by the full amount of, any rebate,
refund, credit, reduced bid or other cost savings applicable to Landlord's Work
included in the Bid Review Worksheet attached hereto as Exhibit Tenant shall
have the right, upon reasonable prior written notice to Landlord, to audit and
review all bills, invoices and other supporting documentation for the Bid
Amount.
3. THE ALLOWANCE. In the Leases, Landlord agreed to contribute
$1,050,000 (the "Allowance," as defined herein) toward the cost of Landlord's
Work. Tenant has requested Landlord to increase the Allowance to $1,250,000,
which Landlord has agreed to do. Accordingly, notwithstanding anything to the
contrary in the Leases, the Allowance is hereby increased to
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$1,250,000.00, which amount shall, along with Landlord's willingness to make the
TI Loan, be Landlord's total contribution, in the aggregate, toward Landlord's
Work.
4. THE LOANS.
(a) Landlord and Tenant acknowledge and agree that the Loan described in
Addendum Section XXXV.D. of the Building B Lease (herein, the "HVAC
Loan") shall not be made available by Landlord to Tenant and,
accordingly, that all provisions of the Leases pertaining or
referring to the HVAC Loan are hereby deleted.
(b) In lieu of the HVAC Loan, Tenant has agreed to borrow and Landlord
has agreed to make available to Tenant a loan to be used by Tenant to
finance Excess System Costs and/or costs of the Tenant Improvements
and Other Tenant Improvements in excess of the Allowance, on the
following terms and conditions:
(i) The sum of Three Hundred Thousand and No/ 100ths Dollars
($300,000.00) (the TI Loan") shall be made available by
Landlord to cover Excess System Costs and the costs of
Landlord's Work in excess of the Allowance for which Tenant is
responsible as provided in paragraph 2 above and the following:
(A) Commencing August 11, 1995, the entire principal balance
of the TI Loan (i.e., the sum of $300,000) shall
commence to bear interest at the rate of eight percent
(80%) per year; provided, however, in no event shall the
interest payable on the TI Loan exceed the maximum
amount which Landlord may legally collect under the then
applicable usury law. In the event it is hereafter
determined by a court of competent jurisdiction that the
interest payable or paid by Tenant with respect to the
TI Loan shall exceed the maximum interest which Landlord
may collect under the then applicable usury law, then
(1) any excess amount previously paid by Tenant to
Landlord shall be credited against principal of the TI
Loan, or refunded to Tenant if no portion of the
principal of the TI Loan then remains unpaid and (2)
interest on the TI Loan subsequent to the date of such
determination shall be reduced to the maximum amount
which it is determined that Landlord may collect under
the then applicable usury law. Interest shall accrue on
the TI Loan from and after August 11, 1995. Any
interest accrued on the TI Loan as of the Lease
Commencement Date shall be added to principal as of the
Lease Commencement Date, and shall thereafter bear
interest as if principal.
(B) The TI Loan shall be repaid by Tenant to Landlord in
ninety-eight (98) consecutive monthly installments, and
shall be due and payable in full on the Expiration Date.
Monthly payments shall be due on the first day of each
calendar month in the Term, commencing with the month in
which the Lease Commencement Date occurs (if the Lease
Commencement Date falls on the first day of a month),
and otherwise with the month after the month in which
the Lease Commencement Date occurs. Prior to the date
that the first payment of the TI Loan is due, Landlord
shall calculate the total outstanding principal balance
of the TI Loan and interest accrued thereon (which, as
described in (A) above, shall accrue from and after
August 11, 1995 and shall be added to principal as of
the Lease Commencement Date) through the day before the
first payment is due (collectively, the "Beginning
Balance"), and shall advise Tenant of the amount of the
monthly payments, which shall be an amount sufficient to
amortize the Beginning Balance in full over the Term.
Tenant may also, at any time and from time to time,
prepay all or any part of the TI Loan without penalty.
Any such payment or prepayment shall he applied first to
the payment of accrued and unpaid interest and the
balance to principal.
(C) Notwithstanding the provisions of clause (B) above, the
entire then unpaid balance of the TI Loan and all
accrued and unpaid interest thereon shall be due and
payable in full upon the first to occur of:
(1) Any early termination of one or both of the Leases
pursuant to the provisions of Sections XVIII. XIX.
or XX. of the Leases. Upon any termination of one
or both of the Leases pursuant to any such Section,
Landlord shall have the right to seek recovery
2
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of such unpaid balance and accrued interest against
any insurance or condemnation proceeds payable to
Tenant, and Tenant hereby assigns its interest in
such proceeds to Landlord up to the full amount of
such proceeds or the then unpaid balance of the TI
Loan and all accrued interest thereon, whichever is
lesser. Exhaustion of such proceeds shall not
limit or defeat Tenant's liability to repay to
Landlord any remaining balance of such TI Loan and
the accrued and unpaid interest thereon; provided,
however, the TI Loan balance shall be reduced by
any proceeds actually recovered by Landlord, which
amount, if previously paid by Tenant to Landlord,
shall be delivered to Tenant.
(2) An Assignment of Tenant's interest in one or both
of the Leases or a Sublease by Tenant of all of the
premises which are the subject of one, or both of
the Leases. Notwithstanding anything to the
contrary herein, Landlord may require repayment (A)
in full of the then entire unpaid balance of the TI
Loan and all accrued and unpaid interest thereon as
a condition to any consent by Landlord to
Assignment under one or both of the Leases, or to a
Sublease of the entire premises which are the
subject of one or both of the Leases, and/or (B) of
that portion of the TI Loan (and the accrued and
unpaid interest thereon) in connection with a
Sublease of a portion of the premises which are the
subject of one or both of the Leases, which portion
is determined by multiplying the outstanding
balance of the TI Loan by a fraction, the numerator
of which is the portion of the premises to be
subleased and the denominator of which is the
Rentable Area of the entire premises; provided,
however, that the provisions of this subclause (B)
shall not apply to a Sublease of a portion of the
premises which are the subject of a Lease to an
entity which is under common control with Tenant.
(3) The occurrence of a default by Tenant under one or
both of the Leases, as defined in Section XX. of
the Leases. Upon the occurrence of such a default.
Landlord may seek to recover the then unpaid
balance of the TI Loan and all accrued and unpaid
interest thereon in any unlawful detainer or other
action instituted by Landlord upon such default.
Such balance shall be deemed due and payable in
full upon the occurrence of such default and may be
recovered in such action as if additional rent
whether or not included in any notice given by
Landlord to Tenant prior to or as a condition to
the institution of such action.
(D) Failure of Tenant to pay any amount due pursuant to
clause (B) above when due, which failure continues for
three (3) days after written notice thereof from
Landlord to Tenant (which notice shall be in lieu of,
and not in addition to, any notice required under
California Code of Civil Procedure Sec. 1161, ET SEQ.,
as amended), shall be deemed a default pursuant to the
Leases to the same extent as if such amount were
additional rent due pursuant to the Leases. In such
event, such unpaid amount (but not the accrued and
unpaid interest thereon) shall bear interest at the rate
provided for in Section XXI. A. of the Leases from the
date such payment was due and not paid until payment of
such amount in full and, upon the declaration by
Landlord of a default pursuant to Section XX.A.(2) of
one or both of the Leases, the entire then unpaid
balance of the TI Loan and all accrued and unpaid
interest thereon shall automatically be due and payable
in full and the unpaid principal balance shall bear
interest at the rate provided in Section XXI.A. of the
Leases from the date of acceleration until payment in
full. Upon the occurrence of any such default and
acceleration pursuant to this clause (D), Landlord shall
be entitled to all remedies against a defaulting tenant
pursuant to a written lease, including but not limited
to those provided in Section XX.B. of the Leases.
(E) The early termination of one or both of the Leases
pursuant to Section XVIII., XIX. or XX. thereof shall
not defeat or diminish the obligation
3
CONFIDENTIAL
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of Tenant to repay to Landlord the TI Loan and all
accrued and unpaid interest thereon.
(ii) Landlord may credit against the proceeds of the TI Loan any and
all costs in excess of the Allowance which are not paid to
Landlord as and when the same are due, which are incurred by
Landlord in connection with the design and/or performance of
improvements to or enhancements of the System and/or Landlord's
Work, including without limitation any construction management
fee payable by Landlord (whether to an affiliate of Landlord or
otherwise) in connection therewith.
(c) It is clearly understood and agreed that the TI Loan shall be
available only for initial Landlord's Work performed prior to the
Lease Commencement Date.
5. WORK SCHEDULE. The four-page progress schedule attached hereto as
EXHIBIT B is hereby agreed by Landlord and Tenant to be the "Work Schedule"
defined in Section I of Exhibit C to the Leases, and is hereby approved by
Landlord and Tenant. In connection with such approval, Tenant agrees to
reasonably cooperate with Landlord and Landlord's architect, engineers,
construction manager and contractor to ensure timely completion of Landlord's
Work in accordance with its obligations under the Leases.
6. CHANGES BY TENANT. Any changes requested by Tenant in the Space
Plans, Working Drawings or otherwise pursuant to Exhibit C to the Lease shall,
notwithstanding Section 10 of Exhibit C to the Lease, be made in writing by
David Thatcher or another officer of Tenant designated by written notice to
Landlord. Landlord will not accept or consider any proposed changes to the
Tenant Improvements requested by any other agent of Tenant, including without
limitation by Tenant's architect and/or coordinator. Landlord shall not be
required to proceed with the performance of Landlord's Work affected by any such
proposed change by any agent of Tenant other than David Thatcher or such other
officer as Tenant may designate in writing and any resulting delay shall
constitute Tenant delay. Landlord's agents for the purpose of approving changes
in the Space Plans, Working Drawings, or otherwise pursuant to Exhibit C of the
Lease are Stuart Simon, John Monahan or such other person as Landlord may
designate in writing.
7. LEASE COMMENCEMENT DATE. Subject to Section III.C. of the Leases,
the Lease Commencement Date of the Leases is hereby revised to be the first to
occur of tender of delivery of the premises which are the subject of the Leases
to Tenant or September 1, 1995, and the Expiration Date of the Leases as hereby
revised to be the expiration of the ninety-eighth (98th) full calendar month
after the Lease Commencement Date. Notwithstanding any prior verbal or written
communications by Landlord and/or Tenant to the contrary, Landlord and Tenant
hereby acknowledge and agree that there has not occurred, as of the date hereof,
delay by Landlord with respect to Landlord's Work within the meaning of Section
III.C. and/or Exhibit C of the Leases, and hereby waive any and all rights to
claim to the contrary, and further specifically acknowledge that the sixty (60)
day period referred to in Section III.C. of the Leases shall be changed to
thirty (30) days, shall commence, if at all, on September 1, 1995, and shall be
subject to extension as provided in Section III. and for any mutual decision to
perform or proceed with Landlord's Work in such a manner as to cause delay in
the Lease Commencement Date which is confirmed in writing within two (2)
business days of such decision and which is not objected to in writing within
two (2) business days after such written confirmation is given.
8. LEASES IN EFFECT. Landlord and Tenant acknowledge and agree that the
Leases, as hereby amended, remain in full force and effect in accordance with
its terms. To the extent that any provision of this Amendment shall conflict
with the Leases as in effect prior to the date hereof, this Amendment shall
prevail.
4
CONFIDENTIAL
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment to be
effective as of the day and year first above written.
LANDLORD TENANT
THE MUTUAL LIFE INSURANCE PEREGRINE SYSTEMS, INC, a Delaware
COMPANY OF NEW YORK, a New York corporation
corporation
By: /s/ [Unreadable Officer of Landlord] By: /s/ David Thatcher
Title: [Unreadable] Title: VP Finance/CFO
9\11\95
By:
Title:
5
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EXHIBIT A
[Graphic Omitted}
Exhibit A to Amendment
CONFIDENTIAL
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EXHIBIT B
[Graphic Omitted}
Exhibit B to Amendment, Page 1
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EXHIBIT B
[Graphic Omitted}
Exhibit B to Amendment, Page 2
CONFIDENTIAL
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EXHIBIT B
[Graphic Omitted}
Exhibit B to Amendment, Page 3
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EXHIBIT B
[Graphic Omitted}
Exhibit B to Amendment, Page 4
CONFIDENTIAL
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[LETTERHEAD]
December 9, 1996
PEREGRINE SYSTEMS, INC.
12670 & 12680 High Bluff Drive
San Diego, CA 92130
RE: DEL MAR COOPERATE PLAZA
12670/12680 HIGH BLUFF
Dear Michelle Voth:
Please be advised that the premises of which you are a tenant at the above
referenced property, and the landlord's interest in your lease, were
purchased on December 12, 1996 by CarrAmerica Realty Corporation, a Maryland
corporation ("Owner"). Any security deposits and Letters of Credit were
transferred to Owner.
Any notices required to be sent pursuant to your lease and any inquiries or
concerns should be directed to:
CarrAmerica Realty Corporation
1700 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: Mr. Joseph Wallace
All future rent payments should also be sent to this address, unless Owner
informs you otherwise.
Sincerely,
WCB II MORE LIMITED PARTNERSHIP,
a Delaware limited partnership
By: WCB II MORE, INC.
a Delaware corporation
General Partner
By: /s/ Brad E. Baker
-----------------------------
Brad E. Baker
Its: Senior Vice President-Southern California
<PAGE>
SEVERANCE SETTLEMENT AGREEMENT
AND RELEASE OF CLAIMS
THIS SEVERANCE SETTLEMENT AGREEMENT AND RELEASE OF CLAIMS ("Agreement)
is made and entered into between and among JAMES W. BUTLER ("Butler") and
PEREGRINE SYSTEMS, INC. ("PEREGRINE").
RECITALS
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A. Butler was an employee and a Director of PEREGRINE until his
resignation on October 23, 1995, from all such positions and from any and all
other positions he may have held with PEREGRINE and any of its foreign or
domestic affiliates or subsidiaries.
B. PEREGRINE and Butler are parties to an Option Agreement dated
December 7, 1990 pursuant to which Butler was granted the right to acquire
100,000 shares of PEREGRINE's Common Stock (the "First Option Agreement"); an
Option Agreement dated December 7, 1990 pursuant to which Butler was granted
the right to acquire 50,000 shares of Common Stock (the "Second Option"); an
Option Agreement dated March 19, 1991 pursuant to which Butler was granted an
option to purchase 50,000 shares of Common Stock (the "Third Option"); and an
Option Agreement dated December 2, 1991 pursuant to which Butler was granted
an option to purchase 100,000 shares of Common Stock (the "Fourth Option").
The First Option, Second Option, Third Option, and the Fourth Option are
referred to collectively herein as the "Butler Options". The number of
shares issuable upon exercise and the exercise price of each of the Butler
Options was subsequently adjusted in connection with PEREGRINE's
reincorporation into the State of Delaware such that 150,000 shares of Common
Stock are now subject to issuance upon exercise of the First Option at an
exercise price of $ 1.01 per share, 75,000 shares of Common Stock are now
subject to issuance upon exercise of the Second Option at an exercise price
of $1.01 per share, 75,000 shares are now subject to issuance upon exercise
of the Third Option at an exercise price of $2.67 per share, and 150,000
shares are now subject to issuance upon exercise of the Fourth Option at an
exercise price of $2.67 per share.
C. In connection with his resignation, Butler and PEREGRINE have
discussed certain terms and conditions relating to the termination of the
employment relationship and the commencement of a consulting relationship.
D. It is the intent of the parties in entering this Agreement to set
forth all agreements between the parties and resolve all pending matters
between the parties.
<PAGE>
NOW, THEREFORE, in consideration of the promises and mutual agreements
hereinafter set forth, it is hereby agreed by and among the parties as
follows:
I. Compensation to Butler.
----------------------
1.1 $120,000 Advance. Butler has previously been advanced by PEREGRINE
----------------
the sum of $120,000 to facilitate his possible relocation in connection with
certain business affairs of the Skunkware Division. In addition, PEREGRINE
has "grossed up" such $120,000 sum by an amount sufficient to permit the
$120,000 sum to be received by Butler without reduction for federal and state
income taxes. Upon execution hereof, Butler's obligation to repay such
advance shall be canceled and of no further force and effect.
1.2 Butler Options. Notwithstanding any provision of the Butler
--------------
Agreements to the contrary, Butler and PEREGRINE agree that as of October 23,
1995, all vesting of each of the Butler Options ceased. Section 2 of the
Butler Options are hereby amended such that the First Option shall be
exercisable for 150,000 shares at an exercise price of $1.01 per share; the
Second Option shall be exercisable for 75,000 shares at an exercise price of
$1.01 per share; the Third Option shall be exercisable for 75,000 shares at
an exercise price of $2.67 per share; and the Fourth Option shall be
exercisable for 112,500 shares at an exercise price of $2.67 per share.
Section 2 of the Butler Options are further amended such that they shall
remain exercisable until the first to occur of (i) October 23, 2000; or (ii)
breach by Butler of his obligations under this Agreement, including
specifically, but without limitation, his obligations under Section 1.3.6
hereof
1.3 Consulting Agreement.
--------------------
1.3.1 Butler agrees to act as a consultant to PEREGRINE and shall
provide such advice and assistance to PEREGRINE as the Chairman of the Board
shall reasonably request. Such advice and assistance shall include without
limitation cooperation in responding to requests for testimony, documentation
or other information and analysis relating to any litigation now pending,
threatened, or in the future arising against PEREGRINE and relating to
actions or events occurring during Butler's tenure as an employee, director
or officer of PEREGRINE.
1.3.2 The term of such consultancy shall commence on the date
hereof and shall continue for a period of one year.
1.3.3 PEREGRINE agrees to pay Butler, on the fifth (5th) day of
each month during the consultancy term, the gross sum of Ten Thousand Dollars
($10,000).
1.3.4 Butler will not accrue any vacation benefits or participate
in any benefit plans as a result of this consulting arrangement.
1.3.5 PEREGRINE shall be under no obligation to provide Butler with
an office or secretarial assistance during the term of his consultancy. <PAGE>
<PAGE>
1.3.6 Butler acknowledges that in the course of his prior employment
with PEREGRINE, and during the term of his consultancy, he has become and
will continue to be familiar with PEREGRINE's trade secrets and with other
confidential information concerning PEREGRINE and is affiliates and
subsidiaries. Therefore, Butler agrees that, during the initial one year
term of his consultancy and any renewal term, and for one (1) year
thereafter, he shall not, directly or indirectly, or through another entity,
undertake any conduct, or induce or attempt to induce any other person or
entity to undertake any conduct, not in the best interest of PEREGRINE.
PEREGRINE reserves the right to determine, at the sole discretion of its
Board of Directors as comprised at the time of such determination, whether
the conduct at issue is in the best interest of PEREGRINE. A breach of the
obligations in this Section 1.3.6 by Butler shall cause immediate termination
of the Butler Options.
1.4 Butler House.
------------
1.4.1 Butler and his wife have executed and notarized a quitclaim
deed in the form attached hereto as Exhibit A, and pursuant thereto quitclaim
their entire right, title and interest in and to the residential property
located at 17138 Calle Serena, in Rancho Santa Fe, California (the
"Property"), in full satisfaction of a loan in the amount of $454,331.67
(plus accrued interest), previously advanced by PEREGRINE to Butler in
connection with Butler's purchase of the Property. Butler acknowledges that
he will have and be responsible for taxable income in connection with such
quitclaim action.
1.4.2 PEREGRINE shall assume and take such action as may be
necessary to put into its name thecurrent mortgage on the Property owed to
Chase Manhattan Bank; until such action has been completed, PEREGRINE agrees
to deposit in Butler's account at Wells Fargo Bank not later than the first
day of each month, the amount of the monthly mortgage payment, and Butler
agrees to leave in place instructions to Wells Fargo Bank to provide for
automatic transfer of such amount to the mortgagor. Butler acknowledges that
PEREGRINE has already reimbursed Butler for mortgage payments of $33,114.44
which were due and paid for by Butler on or after September 1, 1995.
1.4.3 The parties acknowledge that the Property is currently listed
for sale. Until the first to occur of (i) the Property being sold, or (ii)
December 31, 1995, Butler may live in the house on the Property on a
cost-free month-to-month tenancy, provided, that notwithstanding anything to
the contrary in the attached Lease, Butler shall vacate the property on 30
days notice, shall return all office furniture which is in the house at the
direction of Peregrine, and shall leave the house in a clean and satisfactory
condition. "Cost-free" as used herein, shall mean free of rent and shall
further mean that PEREGRINE shall pay for all insurance, property taxes,
utilities, repairs and other home operating expenses during his tenancy.
Butler acknowledges that he will have and be responsible for taxable income
in connection with such cost-free tenancy.
<PAGE>
II. General Release of Claims.
-------------------------
2.1 Nothing contained in this Section 2 shall release or diminish
Butler's obligations set forth in Section I of this Agreement.
2.2 Butler, for himself, his wife, and for his heirs, assigns,
executors, affiliates, successors and each of them hereby acknowledges full
and complete satisfaction of and releases and forever discharges PEREGRINE,
its subsidiary corporations, affiliates, and any and all of its past or
present owners, officers, directors, agents, shareholders, employees,
attorneys, heirs, assigns, executors, administrators and successors
(hereinafter collectively referred to as "PEREGRINE") from any and all
claims, demands, actions, causes of action, in law or in equity, suits,
liabilities, demands, losses, costs or expenses known or unknown, suspected
or unsuspected, of any kind or nature that Butler now has or may have against
PEREGRINE related to any occurrences, affairs and transactions between them
to the date of this Agreement, including costs, expenses and attorneys' fees.
This full and complete release includes, but is not limited to, claims
relating to Butler's employment with PEREGRINE. Butler reserves, and by this
sentence expressly excepts from this release, Butler's right to seek
indemnification from PEREGRINE against expenses, judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding initiated by a third-party against Butler for Butler's
authorized conduct within the scope of his employment, including acts of
omission and commission, during his employment by PEREGRINE.
2.3 Butler acknowledges that he is aware of and is familiar with the
provisions of Section 1542 of the California Civil Code which 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.
Butler hereby waives and relinquishes all rights and benefits which he
may have under Section 1542 of the California Civil Code, or the law of any
other state or jurisdiction, or common law principle, to the same or similar
effect.
2.4 Butler acknowledges that he may discover facts or law different
from, or in addition to, the facts or law that he knows or believes to be
true with respect to the claims released in this Agreement and agrees,
nonetheless, that this Agreement and the releases contained in it shall be
and remain effective in all respects notwithstanding such different or
additional facts or the discovery of them.
2.5 Butler declares and represents that he is executing this Agreement
with full advice from his legal counsel, and that he intends that this
Agreement shall be complete
<PAGE>
subject to any claim of mistake, and that the release herein expresses a full
and complete release and, regardless of the adequacy or inadequacy of the
consideration, be intends the release herein to be final and complete.
Butler and PEREGRINE execute this release with the full knowledge that this
release covers all possible claims, except as provided in Section 2.1 above,
and the right to enforce the provisions of this Agreement as set forth herein.
2.6 Butler irrevocably and absolutely agrees that he will not prosecute
nor allow to be prosecuted on his behalf, in any administrative agency,
whether federal, state or local, or in any court, whether federal, state or
local, any claim or demand of any type related to the matters released in
this Agreement, it being his intention that with the execution of this
Agreement, PEREGRINE (as defined above) will be absolutely, unconditionally
and forever discharged of and from all obligations related in any way to the
matters discharged herein, subject only to the exception in Section 2.1 above.
III. General Provisions.
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3.1 Butler further agrees that he shall not directly or indirectly
disclose or use any trade secrets or other confidential or proprietary
information of PEREGRINE which came into, or will come into, Butler's
possession during his employment and/or consulting relationship with
PEREGRINE; provided, that confidential information shall not include any
information known generally to the public, generally known to the industry or
in the public domain.
3.2 Butler and PEREGRINE agree that the terms and conditions of this
Agreement, and events which have lead to the parties entering into this
Agreement, shall remain confidential. The parties will make every effort to
avoid disclosure, directly or indirectly, of any of the terms, conditions,
facts or allegations, to any other person or entity. It is understood that
the parties may, if necessary, disclose information concerning this Agreement
and settlement or its terms, to their attorneys and accountants and/or as
required by law. Such disclosure shall not be a violation of this Agreement.
3.3 Butler agrees that he will not voluntarily participate in, be an
expert witness in, be a party, or otherwise voluntarily involve himself in
any other litigation against PEREGRINE, its related corporations, divisions,
partners, officers, employees (past or present), agents, shareholders,
representatives, heirs, assigns, executives, administrators and successors,
or any of them. Butler further agrees that he will not voluntarily assist in
any manner whatsoever any other party or litigant, in any action, against
PEREGRINE, its related corporations, divisions, partners, officers, employees
(past or present), agents, representatives, shareholders, heirs, assigns,
executives, administrators and successors, or any of them. Butler agrees to
cooperate with and to assist PEREGRINE in the event any claims are made
against PEREGRINE where his assistance would be of value to PEREGRINE.
3.4 This Agreement has been reviewed by the parties hereto and their
respective attorneys, and the parties have had a full opportunity to
negotiate the contents hereof The parties hereto expressly waive any common
law or statutory rule of construction that ambiguity
<PAGE>
shall be construed against the drafter of this Agreement, and acknowledge
that both parties contributed equally to the drafting of this Agreement.
3.5 The parties agree that this Agreement constitutes a compromise of,
and full accord and satisfaction of, doubtful and disputed claims and shall
not be treated as an admission of liability by anyone, at any time, for any
purpose.
3.6 All parties to this Agreement agree that they will bear their own
attorneys' fees, costs and all other expenses.
3.7 In any action at law or equity between the parties seeking
enforcement of any of the terms and provisions of this Agreement, the
prevailing party in such action shall be awarded, in addition to damages or
other relief, his or its reasonable costs and expenses, including but not
limited to, taxable costs and reasonable attorneys' fees. Such recovery shall
also include out-of-pocket expenses and attorneys' fees on appeal, if any.
The court shall determine the prevailing party pursuant to California Civil
Code Section 1717.
3.8 Should any court of competent jurisdiction determine that any term
or provision of this Agreement is unenforceable, such term or provision shall
be deemed to be deleted as though it had never been a put of this Agreement,
and the validity, legality and enforceability of the remaining terms and
provisions shall not be in my way affected or imperiled thereby.
3.9 Any and all notices and other communications that are required or
permitted to be given pursuant to this Agreement shall be in writing and
shall be deemed to have been duly given if hand-delivered or if mailed,
postage prepaid, by registered or certified return receipt mail, to the
respective parties as follows:
If to Butler:
James W. Butler
Post Office Box 9975
Rancho Santa Fe, CA 92067
If to PEREGRINE:
Peregrine Systems
12670 High Bluff Drive
San Diego, CA 92130
Attn: President
or to such other address or the attention of such other person as any such
party may direct by written notice delivered to the other party pursuant to
the provisions of this Section and shall be effective upon receipt.
<PAGE>
3.10 No waiver by any party hereto of any breach of this Agreement by
any other party shall operate or be construed as a waiver of any other or
subsequent breach. No waiver by any party hereto of any breach of this
Agreement by any other party hereto shall be effective unless it is in
writing and signed by the party claimed to have waived such breach.
3.11 This Agreement may be amended only by a written instrument executed
by all parties hereto.
3.12 Subject to the exception set forth in Section 2.1 above (which have
no application to this paragraph), this Agreement is intended by the parties
to release and discharge any and all claims of Butler, including any possible
claims arising under the Age Discrimination in Employment Act, 29 U.S.C.
Section 621, et seq. It is the intent of the parties that this Agreement satisfy
------
the requirements of the Older Workers Benefit Protection Act, 29 U.S.C.
Section 626(f). The following general provisions, along with the other
provisions of this Agreement are agreed to for this purpose.
3.12.1 Butler acknowledges and agrees that he has read and he
understands the terms of this Agreement;
3.12.2 Butler acknowledges that he has been given a full
opportunity to consult with his lawyer with respect to the laws referenced in
this Agreement, and that Butler has obtained and considered such legal
counsel as he deems necessary, such that Butler is entering into this
Agreement freely, knowingly, and voluntarily.
3.12.3 Butler acknowledges that he has been given at least
twenty-one (21) days in which to consider whether or not to enter into this
Agreement; and
3.12.4 This Agreement shall not become effective or enforceable
until seven (7) days after Butler signs this Agreement.
3.12.5 This Agreement may be executed in counterparts by the
parties in order in expedite the execution of same.
3.13 In order to expedite the execution of this Agreement, the parties
agree that facsimile signatures are an acceptable means of expressing their
agreement to the terms and conditions of this Agreement and for all purposes
facsimile signatures shall have the same effect as original signatures. Any
party providing a facsimile signature further agrees, however, that within five
(5) days of execution of the Agreement, that party will provide their signature
on an original signature page to the other parties by overnight commercial
delivery service.
3.14 This Agreement shall be construed in accordance with the laws of the
State of California.
<PAGE>
3.15 The agreements and releases contained in this Agreement bind and
inure to the benefit of the principals, agents, representatives, heirs,
successors and assigns of Butler and PEREGRINE.
3.16 This Agreement contains the entire agreement and understanding
concerning the subject matter herein and supersedes and replaces any prior
negotiations or agreements between the parties hereto, or any of them whether
written or oral, except as expressly provided herein. Each of the parties
acknowledges that neither party nor any agent or attorney of either party has
made any promise, representation or warranty, express or implied, not
contained in this Agreement to induce the other party to execute this
Agreement in reliance upon any such promise, representation or warranty not
contained herein.
3.17 All parties agree to cooperate fully and to execute any and all
supplementary documents and to take all additional actions that may be
necessary or appropriate to give full force to the basic terms and intent of
this Agreement and which are not inconsistent with its terms.
DATED: 12/13/95 /s/ James W. Butler
James W. Butler
DATED: 12/13/95 PEREGRINE SYSTEMS, INC.
By: /s/ Alan Hunt
Its: Chief Executive Officer
<PAGE>
XVT SOFTWARE INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
XVT Software Inc., a Delaware corporation (the "Company"), hereby grants
on this 18th day of January, 1995, to BILL HOLSTEN (the "Optionee"), an
option to purchase a maximum of 4,000 shares of its common stock, $.0005 par
value (the "Common Stock"), at the price of $3.20 per share, on the following
terms and conditions:
1. GRANT AS NON-QUALIFIED OPTION; OTHER OPTIONS. This option shall be
treated for federal income tax purposes as a Non-Qualified Option (rather
than an incentive stock option), and the Board of Directors will take
appropriate action, if necessary, to achieve this result. This option is in
addition to any other options which may hereafter be granted to the Optionee
by the Company, but a duplicate original of this instrument shall not effect
the grant of another option.
2. VESTING OF OPTION IF BUSINESS RELATIONSHIP CONTINUES. If the
Optionee has continued to serve the Company, its parent (if any) and any
present or future subsidiaries (each a "Related Corporation") in the capacity
of an employee, officer, director or consultant (such service is described
herein as maintaining or being involved in a "Business Relationship" with the
Company) on the following dates, the Optionee may exercise this option for
the number of shares of Common Stock set opposite the applicable date:
Less than one year from the date hereof 0 shares
One year but less than two years from the
additional date thereof 1,000 shares
Two years but less than an additional
three years from the date hereof 1,000 shares
Three years but less than an additional
four years from the date hereof 1,000 shares
Four years but less than an additional
five years from the date hereof 1,000 shares
The foregoing rights are cumulative and, while the Optionee continues to
maintain a Business Relationship with the Company, may be exercised on or
before the date which is 10 years minus one day, from the date this option is
granted. All of the foregoing rights are subject to Sections 3, 4 and 16 as
appropriate, if the Optionee ceases to maintain a Business Relationship with
the Company, dies, becomes disabled or undergoes dissolution while involved
in a Business Relationship with the Company or is terminated for cause.
3. TERMINATION OF BUSINESS RELATIONSHIP. If the Optionee ceases to
maintain a Business Relationship with the Company, other than by reason of
death or disability as defined in
<PAGE>
Section 4, or for Cause as defined in Section 16 no further installments of
this option shall become exercisable and this option shall terminate after
the passage of sixty (60) days from the date the Business Relationship
ceases, but in no event later than the scheduled expiration date. In such a
case, the Optionee's only rights hereunder shall be those which are properly
exercised before the termination of this option.
4. DEATH; DISABILITY; DISSOLUTION.
(a) If the Optionee is a natural person who dies while involved in a
Business Relationship with the Company, this option may be exercised, to
the extent of the number of shares with respect to which the Optionee could
have exercised it on the date of his death, by his estate, personal
representative or beneficiary to whom this option has been assigned
pursuant to Section 9, at any time within 180 days after the date of death,
but not later than the scheduled expiration date. At the expiration of
such 180-day period or the scheduled expiration date, whichever is the
earlier, this option shall terminate and the only rights hereunder shall be
those as to which the option was properly exercised before such
termination.
(b) If the Optionee is a natural person whose Business Relationship
with the Company is terminated by reason of his disability, this option may
be exercised, to the extent of the number of shares with respect to which
the Optionee could have exercised it on the date the Business Relationship
was terminated, at any time within 180 days after the date of such
termination, but not later than the scheduled expiration date. At the
expiration of such 180-day period or the scheduled expiration date,
whichever is the earlier, this option shall terminate and the only rights
hereunder shall be those as to which the option was properly exercised
before such termination. For the purposes of this Agreement, the term
"disability" shall mean "permanent and total disability" as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, or a
successor statute. If the Optionee is a corporation, partnership, trust or
other entity that is dissolved, liquidated, becomes insolvent or enters
into a merger or acquisition with respect to which such Optionee is not the
surviving entity at the time when such entity is involved in a Business
Relationship with the Company, this Option shall immediately terminate as
of the date of such event, and the only rights hereunder shall be those as
to which this option was properly exercised before such dissolution or
other event
5. PARTIAL EXERCISE. Exercise of this option may be made in part at
any time and from time to time within the limits set forth in Section 2,
except that this option may not be exercised for a fraction of a share unless
such exercise is with respect to the final installment of stock subject to
this option and a fractional share must be issued to permit the Optionee to
exercise completely such final installment, in which case, the Optionee shall
receive from the Company cash in lieu of any fractional share. Any
fractional share with respect to which an installment of this option cannot
be exercised because of the limitation contained in the preceding sentence
shall remain subject to this option and shall be available for later purchase
by the Optionee in accordance with the terms hereof.
-2-
<PAGE>
6. PAYMENT OF PRICE. The option price is payable in United States
dollars and may be paid in cash or by check, or any combination of the
foregoing, equal in amount to the option price.
7. AGREEMENT TO PURCHASE FOR INVESTMENT. By acceptance of this
option, the Optionee agrees that a purchase of shares under this option will
not be made with a view to their distribution, as that term is used in the
Securities Act of 1933, as amended (the "Act"), unless in the opinion of
counsel to the Company such distribution is in compliance with or exempt from
the registration and prospectus requirements of the Act, and the Optionee
agrees to sign a certificate to such effect at the time of exercising this
option and agrees that the certificate for the shares so purchased may be
inscribed with a legend to ensure compliance with the Act.
8. METHOD OF EXERCISING OPTION. Subject to the terms and conditions
of this Agreement, this option may be exercised by written notice to the
Company, at the principal executive office of the Company, or to such
transfer agent as the Company shall designate. Such notice shall state the
election to exercise this option and the number of shares in respect of which
it is being exercised and shall be signed by the person or persons so
exercising this option. Such notice shall be accompanied by payment of the
full purchase price of such shares, and the Company shall deliver a
certificate or certificates representing such shares as soon as practicable
after the notice shall be received. The certificate or certificates for the
shares as to which this option shall have been so exercised shall be
registered in the name of the person or persons so exercising this option
(or, if this option shall be exercised by the Optionee and if the Optionee
shall so request in the notice exercising this option, shall be registered in
the name of the Optionee and another person jointly, with right of
survivorship) and shall be delivered as provided above to or upon the written
order of the person or persons exercising this option. In the event this
option shall be exercised, pursuant to Section 4 hereof, by any person or
persons other than the Optionee, such notice shall be accompanied by
appropriate proof, as reasonably determined by the Board of Directors, of the
right of such person or persons to exercise this option. All shares that
shall be purchased upon the exercise of this option as provided herein shall
be fully paid and nonassessable.
9. OPTION NOT TRANSFERABLE. This option is not transferable or
assignable except by will or by the laws of descent and distribution. During
the Optionee's lifetime, this option shall be exercisable only by the
Optionee.
10. NO OBLIGATION TO EXERCISE OPTION. The grant and acceptance of this
option imposes no obligation on the Optionee to exercise it.
11. NO OBLIGATION TO CONTINUE BUSINESS RELATIONSHIP. This Agreement
imposes no obligation on the Company or any Related Corporation to continue
to maintain a Business Relationship with the Optionee.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. The Optionee shall have
no rights as a stockholder with respect to shares subject to this Agreement
until a stock certificate therefor has been issued to the Optionee and is
fully paid for. Except as is expressly provided in this Agreement with
respect to certain changes in the capitalization of the Company, no
adjustment shall be made
-3-
<PAGE>
for dividends or similar rights for which the record date is prior to the
date such stock certificate is issued.
13. ADJUSTMENTS. Upon the occurrence of any of the following events,
the Optionee's rights with respect to this option shall be adjusted as
hereinafter provided:
(a) STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of this options shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or stock dividend.
(b) CONSOLIDATION AND MERGERS. If the Company is to be consolidated
with or acquired by another entity, in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"),
the Board of Directors of the Company shall either (i) make appropriate
provision for the continuation of this option by substituting on an
equitable basis for the shares then subject to this option the
consideration payable with respect to the outstanding shares of Common
Stock in connection with the Acquisition; or (ii) upon written notice to
the Optionee, provide that this option must be exercised, to the extent
then exercisable, within a specified number of days of the date of such
notice, at the end of which period this option shall terminate; or (iii)
terminate this option in exchange for cash payment equal to the excess of
the fair market value of the shares subject to this option (to the extent
then exercisable) over the exercise price hereof.
(c) RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph (b) above) pursuant to which securities of the
Company or of another corporation are issued with respect to the
outstanding shares of Common Stock, the Optionee upon exercising this
option shall be entitled to receive for the purchase price paid upon such
exercise the securities he/she would have received if he/she had exercised
this option prior to such recapitalization or reorganization.
(d) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company this option will terminate
immediately prior to the consummation of such proposed action or at such
other time and subject to such other conditions as shall be determined by
the Board of Directors of the Company.
(e) ISSUANCE OF SECURITIES. 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 subject to this option. No adjustment shall be made for
dividends paid in cash or in property other than securities of the Company.
-4-
<PAGE>
(f) ADJUSTMENTS. The Board of Directors of the Company shall
determine the specific adjustments to be made under this Section 13 and its
determination shall be conclusive.
14. WITHHOLDING TAXES. The Optionee hereby agrees that the Company may
withhold from the Optionee's wages or other remuneration the appropriate
amount of federal, state and local taxes attributable to the Optionee's
exercise of any installment of this option. At the Company's discretion, the
amount required to be withheld may be withheld in cash from such wages or
other remuneration, or in kind from the Common Stock otherwise deliverable to
the Optionee on exercise of this option. The Optionee further agrees that,
if the Company does not withhold an amount from the Optionee's wages or other
remuneration sufficient to satisfy the Company's withholding obligation, the
Optionee will reimburse the Company on demand, in cash, for the amount under
withheld.
15. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT: If the Optionee desires to sell all or any
part of the shares acquired under this option (including any securities
received in respect thereof pursuant to any stock dividend, stock split,
reclassification, reorganization, recapitalization and the like), and an
offeror (the "Offeror") has made an offer therefor, which offer the
Optionee desires to accept, the Optionee shall: (i) obtain in writing an
irrevocable and unconditional bona fide offer (the "Bona Fide Offer") for
the purchase thereof from the Offeror; and (ii) give written notice (the
"Option Notice") to the Company setting forth his or her desire to sell
such shares, which Option Notice shall be accompanied by a photocopy of the
original executed Bona Fide Offer and shall set forth at least the name and
address of the Offeror and the price and terms of the Bona Fide Offer.
Upon receipt of the Option Notice, the Company shall have an assignable
option to purchase any or all of such shares (the "Option Shares")
specified in the Option Notice, such option to be exercisable by giving,
within 30 days after receipt of the Option Notice, a written counter-notice
to the Optionee. If the Company elects to purchase any or all of such
Option Shares, it shall be obligated to purchase, and the Optionee shall be
obligated to sell to the Company, such Option Shares at the price and terms
indicated in the Bona Fide Offer within 60 days from the date of receipt by
the Company of the Option Notice.
(b) SALE OF OPTION SHARES TO OFFEROR: The Optionee may, for 60 days
after the expiration of the 30-day period during which the Company may give
the aforesaid counter-notice, sell, pursuant to the terms of the bona Fide
Offer, any or all of such Option Shares not purchased or agreed to be
purchased by the Company; PROVIDED, HOWEVER, that the Optionee shall not
sell such Option Shares to the Offeror if the Offeror is a competitor of
the Company and the Company gives written notice to the Optionee within 30
days of its receipt of the Option Notice, stating that the Optionee shall
not sell his Option Shares to the Offeror, and PROVIDED, FURTHER, that
prior to the sale of such Option Shares to the Offeror, the Offeror shall
execute an agreement with the Company pursuant to which the Offeror agrees
to be subject to the restrictions set forth in this Section 15. If any or
all of such Option Shares are not sold
-5-
<PAGE>
pursuant to a bona Fide Offer within the time permitted above, the unsold
Option Shares shall remain subject to the terms of this Section 15.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE: If there shall be
any change in the Common Stock of the Company due to any stock dividend,
stock split, reclassification, merger, consolidation, reorganization,
recapitalization, exchange of shares or similar changes in capital
structure, the restrictions contained in this Section 15 shall apply with
equal force to additional and/or substitute securities, if any, received by
the Optionee in exchange for, or by virtue of his or her ownership of,
Option Shares.
(d) FAILURE TO DELIVER OPTION SHARES: In the event the Optionee
fails or refuses to deliver on a timely basis duly endorsed certificates
representing Option Shares to be sold to the Company pursuant to this
Section 15, the Company shall have the right to deposit the purchase price
for the Option Shares in a special account with any bank or trust company
in the State of Colorado, giving notice of such deposit to the Optionee,
whereupon such Option Shares shall be deemed to have been purchased by the
Company. All such moneys shall be held by the bank or trust company for
the benefit of the Optionee. All moneys deposited with the bank or trust
company remaining unclaimed for two (2) years after the date of deposit
shall be repaid by the bank or trust company to the Company on demand, and
the Optionee shall thereafter look only to the Company, for payment. The
Company may place a legend on any stock certificate delivered to the
Optionee reflecting the restrictions on transfer provided- in this Section
15.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The first
refusal rights of the Company set forth above shall remain in effect until
such time, if ever, as a distribution to the public is made of shares of
the Company's Common Stock for an aggregate public offering price of at
least $8,000,000 or more pursuant to a registration statement filed under
the Act or a successor statute, at which time the first refusal rights of
the Company set forth herein will automatically expire.
16. NO EXERCISE OF OPTION IF BUSINESS RELATIONSHIP TERMINATED FOR
CAUSE. If the Business Relationship of the Optionee is terminated for "Cause"
(as hereinafter defined) pursuant to this Section 16, this option shall
terminate at the time of such termination of the Business Relationship and
shall thereafter not be exercisable to any extent whatsoever. "Cause" is
conduct involving one or more of the following: (i) the substantial and
continuing failure of the Optionee to render services to the Company in
accordance with the terms or requirements of the Business Relationship; (ii)
a determination in good faith by two-thirds of the members of the Board of
Directors that the Optionee has inadequately performed the requirements of
its Business Relationship; (iii) disloyalty, gross negligence, willful
misconduct, dishonesty or breach of fiduciary duty to the Company; (iv) the
commission of an act of embezzlement or fraud; (v) deliberate disregard of
the rules or policies of the Company which results in loss, damage or injury
to the Company, whether directly or indirectly; (vi) the unauthorized
disclosure of any trade secret or confidential information of the Company; or
(vii) the commission of an act which constitutes unfair competition with the
Company or which induces any customer of the Company to break a contract
-6-
<PAGE>
with the Company. For the purposes of this Section 16, termination of the
Business Relationship shall be deemed to occur when the Optionee receives
notice that its Business Relationship is terminated pursuant to this Section
16.
17. COMPANY'S RIGHT OF REPURCHASE.
(a) RIGHTS OF REPURCHASE. If any of the events specified in Section
17(b) below occur, then: (i) with respect to shares acquired upon exercise
of this option prior to the occurrence of such event, within 60 days after
the Company receives actual knowledge of the event, and (ii) with respect
to shares acquired upon exercise of this option after the occurrence of
such event, within 60 days following the later of the date of such exercise
or the date the Company receives actual knowledge of such event, (in either
case, the "Repurchase Period"), the Company shall have the option, but not
the obligation, to repurchase all, but not a portion of, the shares from
the Optionee, or his or her legal representatives, as the case may be (the
"Repurchase Option"). The Repurchase Option shall be exercised by the
Company by giving the Optionee, or his or her legal representative, written
notice of its intention to exercise the Repurchase Option on or before the
last day of the Repurchase Period, and, together with such notice,
tendering to the Optionee, or legal representative, an amount equal to the
higher of the option price or the fair market value of the shares. The
Company, may, in exercising the Repurchase Option, designate one or more
nominees to purchase the shares either within or without the Company. Upon
timely exercise of the Repurchase Option in the manner provided in this
Section 17(a), the Optionee, or his or her legal representative, shall
deliver to the Company the stock certificate or certificates representing
the shares being repurchased, duly endorsed and free and clear of any and
all liens, charges and encumbrances.
If shares are not purchased under the Repurchase Option, the Optionee
and his or her successor in interest, if any, will hold any such shares in
possession subject to all of the provisions of this Agreement.
(b) COMPANY'S RIGHT TO EXERCISE REPURCHASE OPTION: The Company shall
have the Repurchase Option in the event that any of the following events
shall occur: (i) the termination of the Optionee's Business Relationship
with the Company or any Related Corporation, voluntarily or involuntarily,
for any reason whatsoever, including death or permanent disability, prior
to the time this option shall be fully vested as provided in Section 2
hereof, (ii) the receivership, bankruptcy or other creditor's proceeding
regarding the Optionee or the taking of any of Optionees shares acquired
upon exercise of this option by legal process, such as a levy of execution;
(iii) distribution of shares held by the Optionee to his or her spouse as
such spouse's joint or community interest pursuant to a decree of
dissolution, operation of law, divorce, property settlement agreement or
for any other reason, except as may be otherwise permitted by the Company;
or (iv) the termination of the Optionee's Business Relationship by the
Company for Cause (as defined in Section 16 hereof).
-7-
<PAGE>
(c) DETERMINATION OF FAIR MARKET VALUE: The fair market value of the
shares subject to this option shall be, for purposes of this Section 17, an
amount per share determined on the basis of the price at which shares of
the Common Stock could reasonably be expected to be sold in an arms-length
transaction, for cash, other than on an installment basis, to a person not
employed by, controlled by, in control of or under common control with the
Company. Fair market value shall be determined by the Board of Directors,
giving due consideration to recent grants of incentive stock options for
shares of the Common Stock, if any; recent transactions involving shares of
the Common Stock, if any; earnings of the Company to the date of such
determination; projected earnings of the Company; the effect of the
transfer restrictions to which the shares are subject under law and this
Agreement; the presence or absence of a public market for the Common Stock
and such other matters as the Board of Directors deems pertinent. The
determination by the Board of Directors of the fair market value shall be
conclusive and binding. The fair market value of the shares shall be
determined as of the day on which the event (as specified in Section 17(b)
above) occurs.
18. ACCELERATION AND VESTING OF OPTION FOR BUSINESS COMBINATIONS. If the
Company is to be involved in an Acquisition, then this option shall, immediately
prior to the consummation of such Acquisition, become fully vested and
immediately exercisable by the Optionee.
19. LOCK-UP AGREEMENT. The Optionee agrees that the Optionee will not,
for a period of at least 120 days following the effective date of the
Company's initial distribution of securities in an underwritten public
offering to the general public pursuant to a registration statement filed
with the Securities and Exchange Commission, directly or indirectly, sell,
offer to sell or otherwise dispose of the Company's securities other than any
securities which are included in such initial public offering.
20. GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Delaware, without giving effect
to the principles of the conflicts of laws thereof.
IN WITNESS WHEREOF the Company and the Optionee have caused this
instrument to be executed as of the date first above written.
/s/ Bill Holsten
- ---------------------------------- XVT Software Inc.
Optionee signature
Bill Holsten By: /s/ Alan H. Hunt
- ---------------------------------- ------------------------------------
Name
4843 Briar Ridge CT Title: CEO
- ---------------------------------- ----------------------------------
Street Address
-8-
<PAGE>
Boulder, CO 80301
- ----------------------------------
City, State Zip
October 3, 1996
Mr. Bill Holsten
4843 Riding Ridge Road
San Diego, CA 92130
Re: Accelerated XVT Stock option grants
Dear Bill:
As a result of the closing of the Agreement of Purchase and Sale of Assets by
and between XVT Software Inc. and Copper Lake Investors, LLC, your option
agreements with XVT (now exercisable for Peregrine Systems, Inc. stock
pursuant to the terms of the Agreement and Plan of Merger of November 30,
1995 by and among Peregrine Systems, Inc., XVT Acquisition Corp., and XVT
Software Inc.) have accelerated vesting in accordance with the terms of your
option agreement(s). In accordance with your option agreement, you have a
right to exercise options as follows:
GRANT DATE SHARES
---------- ------
January 18, 1995 471
Your grant and subsequent conversion to Peregrine Systems stock may have
resulted in partial shares which, should you exercise your options, will be
paid in cash. These options are exercisable at a price of $8.48 per share.
Should you have any further question, please do not hesitate to contact me.
Very truly yours,
/s/ Rick T. Nelson
Richard T. Nelson
-9-
<PAGE>
XVT SOFTWARE INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
XVT Software Inc., a Delaware corporation (the "Company"), hereby grants
on this 18th day of January, 1995, to Christopher Cole (the "Optionee"), an
option to purchase a maximum of 12,000 shares of its common stock, $.0005 par
value (the "Common Stock"), at the price of $3.20 per share, on the following
terms and conditions:
1. GRANT AS NON-QUALIFIED OPTION; OTHER OPTIONS. This option shall be
treated for federal income tax purposes as a Non-Qualified Option (rather
than an incentive stock option), and the Board of Directors will take
appropriate action, if necessary, to achieve this result. This option is in
addition to any other options which may hereafter be granted to the Optionee
by the Company, but a duplicate original of this instrument shall not effect
the grant of another option.
2. VESTING OF OPTION IF BUSINESS RELATIONSHIP CONTINUES. If the
Optionee has continued to serve the Company, its parent (if any) and any
present or future subsidiaries (each a "Related Corporation") in the capacity
of an employee, officer, director or consultant (such service is described
herein as maintaining or being involved in a "Business Relationship" with the
Company) on the following dates, the Optionee may exercise this option for
the number of shares of Common Stock set opposite the applicable date:
Less than one year from the date hereof 0 shares
One year but less than two years from the
additional date thereof 3,000 shares
Two years but less than an additional
three years from the date hereof 3,000 shares
Three years but less than an additional
four years from the date hereof 3,000 shares
Four years but less than an additional
five years from the date hereof 3,000 shares
The foregoing rights are cumulative and, while the Optionee continues to
maintain a Business Relationship with the Company, may be exercised on or
before the date which is 10 years minus one day, from the date this option is
granted. All of the foregoing rights are subject to Sections 3, 4 and 16 as
appropriate, if the Optionee ceases to maintain a Business Relationship with
the Company, dies, becomes disabled or undergoes dissolution while involved
in a Business Relationship with the Company or is terminated for cause.
3. TERMINATION OF BUSINESS RELATIONSHIP. If the Optionee ceases to
maintain a Business Relationship with the Company, other than by reason of death
or disability as defined in
<PAGE>
Section 4, or for Cause as defined in Section 16 no further installments of
this option shall become exercisable and this option shall terminate after
the passage of sixty (60) days from the date the Business Relationship
ceases, but in no event later than the scheduled expiration date. In such a
case, the Optionee's only rights hereunder shall be those which are properly
exercised before the termination of this option.
4. DEATH; DISABILITY; DISSOLUTION.
(a) If the Optionee is a natural person who dies while involved in a
Business Relationship with the Company, this option may be exercised, to
the extent of the number of shares with respect to which the Optionee
could have exercised it on the date of his death, by his estate,
personal representative or beneficiary to whom this option has been
assigned pursuant to Section 9, at any time within 180 days after the
date of death, but not later than the scheduled expiration date. At the
expiration of such 180-day period or the scheduled expiration date,
whichever is the earlier, this option shall terminate and the only
rights hereunder shall be those as to which the option was properly
exercised before such termination.
(b) If the Optionee is a natural person whose Business Relationship
with the Company is terminated by reason of his disability, this option
may be exercised, to the extent of the number of shares with respect to
which the Optionee could have exercised it on the date the Business
Relationship was terminated, at any time within 180 days after the date
of such termination, but not later than the scheduled expiration date.
At the expiration of such 180-day period or the scheduled expiration
date, whichever is the earlier, this option shall terminate and the only
rights hereunder shall be those as to which the option was properly
exercised before such termination. For the purposes of this Agreement,
the term "disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended, or a successor statute. If the Optionee is a corporation,
partnership, trust or other entity that is dissolved, liquidated,
becomes insolvent or enters into a merger or acquisition with respect to
which such Optionee is not the surviving entity at the time when such
entity is involved in a Business Relationship with the Company, this
Option shall immediately terminate as of the date of such event, and the
only rights hereunder shall be those as to which this option was
properly exercised before such dissolution or other event
5. PARTIAL EXERCISE. Exercise of this option may be made in part at any
time and from time to time within the limits set forth in Section 2, except that
this option may not be exercised for a fraction of a share unless such exercise
is with respect to the final installment of stock subject to this option and a
fractional share must be issued to permit the Optionee to exercise completely
such final installment, in which case, the Optionee shall receive from the
Company cash in lieu of any fractional share. Any fractional share with respect
to which an installment of this option cannot be exercised because of the
limitation contained in the preceding sentence shall remain subject to this
option and shall be available for later purchase by the Optionee in accordance
with the terms hereof.
-2-
<PAGE>
6. PAYMENT OF PRICE. The option price is payable in United States
dollars and may be paid in cash or by check, or any combination of the
foregoing, equal in amount to the option price.
7. AGREEMENT TO PURCHASE FOR INVESTMENT. By acceptance of this
option, the Optionee agrees that a purchase of shares under this option will
not be made with a view to their distribution, as that term is used in the
Securities Act of 1933, as amended (the "Act"), unless in the opinion of
counsel to the Company such distribution is in compliance with or exempt from
the registration and prospectus requirements of the Act, and the Optionee
agrees to sign a certificate to such effect at the time of exercising this
option and agrees that the certificate for the shares so purchased may be
inscribed with a legend to ensure compliance with the Act.
8. METHOD OF EXERCISING OPTION. Subject to the terms and conditions
of this Agreement, this option may be exercised by written notice to the
Company, at the principal executive office of the Company, or to such
transfer agent as the Company shall designate. Such notice shall state the
election to exercise this option and the number of shares in respect of which
it is being exercised and shall be signed by the person or persons so
exercising this option. Such notice shall be accompanied by payment of the
full purchase price of such shares, and the Company shall deliver a
certificate or certificates representing such shares as soon as practicable
after the notice shall be received. The certificate or certificates for the
shares as to which this option shall have been so exercised shall be
registered in the name of the person or persons so exercising this option
(or, if this option shall be exercised by the Optionee and if the Optionee
shall so request in the notice exercising this option, shall be registered in
the name of the Optionee and another person jointly, with right of
survivorship) and shall be delivered as provided above to or upon the written
order of the person or persons exercising this option. In the event this
option shall be exercised, pursuant to Section 4 hereof, by any person or
persons other than the Optionee, such notice shall be accompanied by
appropriate proof, as reasonably determined by the Board of Directors, of the
right of such person or persons to exercise this option. All shares that
shall be purchased upon the exercise of this option as provided herein shall
be fully paid and nonassessable.
9. OPTION NOT TRANSFERABLE. This option is not transferable or
assignable except by will or by the laws of descent and distribution. During
the Optionee's lifetime, this option shall be exercisable only by the
Optionee.
10. NO OBLIGATION TO EXERCISE OPTION. The grant and acceptance of this
option imposes no obligation on the Optionee to exercise it.
11. NO OBLIGATION TO CONTINUE BUSINESS RELATIONSHIP. This Agreement
imposes no obligation on the Company or any Related Corporation to continue
to maintain a Business Relationship with the Optionee.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. The Optionee shall have
no rights as a stockholder with respect to shares subject to this Agreement
until a stock certificate therefor has been issued to the Optionee and is
fully paid for. Except as is expressly provided in this Agreement with
respect to certain changes in the capitalization of the Company, no
adjustment shall be made
-3-
<PAGE>
for dividends or similar rights for which the record date is prior to the
date such stock certificate is issued.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, the
Optionee's rights with respect to this option shall be adjusted as hereinafter
provided:
(a) STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of this options shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or stock dividend.
(b) CONSOLIDATION AND MERGERS. If the Company is to be consolidated
with or acquired by another entity, in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"),
the Board of Directors of the Company shall either (i) make appropriate
provision for the continuation of this option by substituting on an
equitable basis for the shares then subject to this option the
consideration payable with respect to the outstanding shares of Common
Stock in connection with the Acquisition; or (ii) upon written notice to
the Optionee, provide that this option must be exercised, to the extent
then exercisable, within a specified number of days of the date of such
notice, at the end of which period this option shall terminate; or (iii)
terminate this option in exchange for cash payment equal to the excess of
the fair market value of the shares subject to this option (to the extent
then exercisable) over the exercise price hereof.
(c) RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph (b) above) pursuant to which securities of the
Company or of another corporation are issued with respect to the
outstanding shares of Common Stock, the Optionee upon exercising this
option shall be entitled to receive for the purchase price paid upon such
exercise the securities he/she would have received if he/she had exercised
this option prior to such recapitalization or reorganization.
(d) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company this option will terminate
immediately prior to the consummation of such proposed action or at such
other time and subject to such other conditions as shall be determined by
the Board of Directors of the Company.
(e) ISSUANCE OF SECURITIES. 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 subject to this option. No adjustment shall be made for
dividends paid in cash or in property other than securities of the Company.
-4-
<PAGE>
(f) ADJUSTMENTS. The Board of Directors of the Company shall
determine the specific adjustments to be made under this Section 13 and its
determination shall be conclusive.
14. WITHHOLDING TAXES. The Optionee hereby agrees that the Company may
withhold from the Optionee's wages or other remuneration the appropriate
amount of federal, state and local taxes attributable to the Optionee's
exercise of any installment of this option. At the Company's discretion, the
amount required to be withheld may be withheld in cash from such wages or
other remuneration, or in kind from the Common Stock otherwise deliverable to
the Optionee on exercise of this option. The Optionee further agrees that,
if the Company does not withhold an amount from the Optionee's wages or other
remuneration sufficient to satisfy the Company's withholding obligation, the
Optionee will reimburse the Company on demand, in cash, for the amount under
withheld.
15. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT: If the Optionee desires to sell all or any
part of the shares acquired under this option (including any securities
received in respect thereof pursuant to any stock dividend, stock split,
reclassification, reorganization, recapitalization and the like), and an
offeror (the "Offeror") has made an offer therefor, which offer the
Optionee desires to accept, the Optionee shall: (i) obtain in writing an
irrevocable and unconditional bona fide offer (the "Bona Fide Offer") for
the purchase thereof from the Offeror; and (ii) give written notice (the
"Option Notice") to the Company setting forth his or her desire to sell
such shares, which Option Notice shall be accompanied by a photocopy of the
original executed Bona Fide Offer and shall set forth at least the name and
address of the Offeror and the price and terms of the Bona Fide Offer.
Upon receipt of the Option Notice, the Company shall have an assignable
option to purchase any or all of such shares (the "Option Shares")
specified in the Option Notice, such option to be exercisable by giving,
within 30 days after receipt of the Option Notice, a written counter-notice
to the Optionee. If the Company elects to purchase any or all of such
Option Shares, it shall be obligated to purchase, and the Optionee shall be
obligated to sell to the Company, such Option Shares at the price and terms
indicated in the Bona Fide Offer within 60 days from the date of receipt by
the Company of the Option Notice.
(b) SALE OF OPTION SHARES TO OFFEROR: The Optionee may, for 60 days
after the expiration of the 30-day period during which the Company may give
the aforesaid counter-notice, sell, pursuant to the terms of the bona Fide
Offer, any or all of such Option Shares not purchased or agreed to be
purchased by the Company; PROVIDED, HOWEVER, that the Optionee shall not
sell such Option Shares to the Offeror if the Offeror is a competitor of
the Company and the Company gives written notice to the Optionee within 30
days of its receipt of the Option Notice, stating that the Optionee shall
not sell his Option Shares to the Offeror, and PROVIDED, FURTHER, that
prior to the sale of such Option Shares to the Offeror, the Offeror shall
execute an agreement with the Company pursuant to which the Offeror agrees
to be subject to the restrictions set forth in this Section 15. If any or
all of such Option Shares are not sold
-5-
<PAGE>
pursuant to a bona Fide Offer within the time permitted above, the
unsold Option Shares shall remain subject to the terms of this Section
15.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE: If there shall be
any change in the Common Stock of the Company due to any stock dividend,
stock split, reclassification, merger, consolidation, reorganization,
recapitalization, exchange of shares or similar changes in capital
structure, the restrictions contained in this Section 15 shall apply with
equal force to additional and/or substitute securities, if any, received by
the Optionee in exchange for, or by virtue of his or her ownership of,
Option Shares.
(d) FAILURE TO DELIVER OPTION SHARES: In the event the Optionee
fails or refuses to deliver on a timely basis duly endorsed certificates
representing Option Shares to be sold to the Company pursuant to this
Section 15, the Company shall have the right to deposit the purchase price
for the Option Shares in a special account with any bank or trust company
in the State of Colorado, giving notice of such deposit to the Optionee,
whereupon such Option Shares shall be deemed to have been purchased by the
Company. All such moneys shall be held by the bank or trust company for
the benefit of the Optionee. All moneys deposited with the bank or trust
company remaining unclaimed for two (2) years after the date of deposit
shall be repaid by the bank or trust company to the Company on demand, and
the Optionee shall thereafter look only to the Company, for payment. The
Company may place a legend on any stock certificate delivered to the
Optionee reflecting the restrictions on transfer provided- in this Section
15.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The first
refusal rights of the Company set forth above shall remain in effect until
such time, if ever, as a distribution to the public is made of shares of
the Company's Common Stock for an aggregate public offering price of at
least $8,000,000 or more pursuant to a registration statement filed under
the Act or a successor statute, at which time the first refusal rights of
the Company set forth herein will automatically expire.
16. NO EXERCISE OF OPTION IF BUSINESS RELATIONSHIP TERMINATED FOR
CAUSE. If the Business Relationship of the Optionee is terminated for "Cause"
(as hereinafter defined) pursuant to this Section 16, this option shall
terminate at the time of such termination of the Business Relationship and
shall thereafter not be exercisable to any extent whatsoever. "Cause" is
conduct involving one or more of the following: (i) the substantial and
continuing failure of the Optionee to render services to the Company in
accordance with the terms or requirements of the Business Relationship; (ii)
a determination in good faith by two-thirds of the members of the Board of
Directors that the Optionee has inadequately performed the requirements of
its Business Relationship; (iii) disloyalty, gross negligence, willful
misconduct, dishonesty or breach of fiduciary duty to the Company; (iv) the
commission of an act of embezzlement or fraud; (v) deliberate disregard of
the rules or policies of the Company which results in loss, damage or injury
to the Company, whether directly or indirectly; (vi) the unauthorized
disclosure of any trade secret or confidential information of the Company; or
(vii) the commission of an act which constitutes unfair competition with the
Company or which induces any customer of the Company to break a contract
-6-
<PAGE>
with the Company. For the purposes of this Section 16, termination of the
Business Relationship shall be deemed to occur when the Optionee receives
notice that its Business Relationship is terminated pursuant to this Section
16.
17. COMPANY'S RIGHT OF REPURCHASE.
(a) RIGHTS OF REPURCHASE. If any of the events specified in Section
17(b) below occur, then: (i) with respect to shares acquired upon exercise
of this option prior to the occurrence of such event, within 60 days after
the Company receives actual knowledge of the event, and (ii) with respect
to shares acquired upon exercise of this option after the occurrence of
such event, within 60 days following the later of the date of such exercise
or the date the Company receives actual knowledge of such event, (in either
case, the "Repurchase Period"), the Company shall have the option, but not
the obligation, to repurchase all, but not a portion of, the shares from
the Optionee, or his or her legal representatives, as the case may be (the
"Repurchase Option"). The Repurchase Option shall be exercised by the
Company by giving the Optionee, or his or her legal representative, written
notice of its intention to exercise the Repurchase Option on or before the
last day of the Repurchase Period, and, together with such notice,
tendering to the Optionee, or legal representative, an amount equal to the
higher of the option price or the fair market value of the shares. The
Company, may, in exercising the Repurchase Option, designate one or more
nominees to purchase the shares either within or without the Company. Upon
timely exercise of the Repurchase Option in the manner provided in this
Section 17(a), the Optionee, or his or her legal representative, shall
deliver to the Company the stock certificate or certificates representing
the shares being repurchased, duly endorsed and free and clear of any and
all liens, charges and encumbrances.
If shares are not purchased under the Repurchase Option, the Optionee
and his or her successor in interest, if any, will hold any such shares in
possession subject to all of the provisions of this Agreement.
(b) COMPANY'S RIGHT TO EXERCISE REPURCHASE OPTION: The Company shall
have the Repurchase Option in the event that any of the following events
shall occur: (i) the termination of the Optionee's Business Relationship
with the Company or any Related Corporation, voluntarily or involuntarily,
for any reason whatsoever, including death or permanent disability, prior
to the time this option shall be fully vested as provided in Section 2
hereof, (ii) the receivership, bankruptcy or other creditor's proceeding
regarding the Optionee or the taking of any of Optionees shares acquired
upon exercise of this option by legal process, such as a levy of execution;
(iii) distribution of shares held by the Optionee to his or her spouse as
such spouse's joint or community interest pursuant to a decree of
dissolution, operation of law, divorce, property settlement agreement or
for any other reason, except as may be otherwise permitted by the Company;
or (iv) the termination of the Optionee's Business Relationship by the
Company for Cause (as defined in Section 16 hereof).
-7-
<PAGE>
(c) DETERMINATION OF FAIR MARKET VALUE: The fair market value of the
shares subject to this option shall be, for purposes of this Section 17, an
amount per share determined on the basis of the price at which shares of
the Common Stock could reasonably be expected to be sold in an arms-length
transaction, for cash, other than on an installment basis, to a person not
employed by, controlled by, in control of or under common control with the
Company. Fair market value shall be determined by the Board of Directors,
giving due consideration to recent grants of incentive stock options for
shares of the Common Stock, if any; recent transactions involving shares of
the Common Stock, if any; earnings of the Company to the date of such
determination; projected earnings of the Company; the effect of the
transfer restrictions to which the shares are subject under law and this
Agreement; the presence or absence of a public market for the Common Stock
and such other matters as the Board of Directors deems pertinent. The
determination by the Board of Directors of the fair market value shall be
conclusive and binding. The fair market value of the shares shall be
determined as of the day on which the event (as specified in Section 17(b)
above) occurs.
18. ACCELERATION AND VESTING OF OPTION FOR BUSINESS COMBINATIONS. If
the Company is to be involved in an Acquisition, then this option shall,
immediately prior to the consummation of such Acquisition, become fully
vested and immediately exercisable by the Optionee.
19. LOCK-UP AGREEMENT. The Optionee agrees that the Optionee will not,
for a period of at least 120 days following the effective date of the
Company's initial distribution of securities in an underwritten public
offering to the general public pursuant to a registration statement filed
with the Securities and Exchange Commission, directly or indirectly, sell,
offer to sell or otherwise dispose of the Company's securities other than any
securities which are included in such initial public offering.
20. GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Delaware, without giving effect
to the principles of the conflicts of laws thereof.
IN WITNESS WHEREOF the Company and the Optionee have caused this
instrument to be executed as of the date first above written.
/s/ Christopher Cole XVT Software Inc.
- ---------------------------
Optionee signature
Christopher Cole By: /s/ Alan H. Hunt
- --------------------------- -------------------------
Name
Title: CEO
- --------------------------- -----------------------
Street Address
-8-
<PAGE>
Date:
- --------------------------- ------------------------
City, State Zip
October 3, 1996
Mr. Christopher A. Cole
610 Newport Center Drive, Suite 1196
Newport Beach, CA 92660
Re: Accelerated XVT Stock option grants
Dear Christopher:
As result of the closing of the Agreement of Purchase and Sale of Assets by
and between XVT Software Inc. and Copper Lake Investors, LLC, your option
agreements with XVT (now exercisable for Peregrine Systems, Inc. stock
pursuant to the terms of the Agreement and Plan of Merger of November 30,
1995 by and among Peregrine Systems, Inc., XVT Acquisition Corp., and XVT
Software Inc.) have accelerated vesting in accordance with the terms of your
option agreement(s). In accordance with your option agreement, you have a
right to exercise options as follows:
GRANT DATE SHARES
---------- ------
January 18, 1995 1,413
Your grant and subsequent conversion to Peregrine Systems stock may have
resulted in partial shares which, should you exercise your options, will be
paid in cash. These options are exercisable at a price of $8.48 per share.
Should you have any further questions, please do not hesitate to contact me.
Very truly yours,
/s/ Rick T. Nelson
Richard T. Nelson
RTN/km
<PAGE>
PEREGRINE SYSTEMS, INC.
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT is effective as of November 1, 1995 between Peregrine
Systems, Inc., a Delaware corporation (the "Company"), and Alan H. Hunt (the
"Employee").
WHEREAS, the Employee's participation is considered by the Company to be
important for the Company's growth; and
WHEREAS, in connection with Employee's employment, the Company is willing
to grant to the Employee and the Employee desires to accept shares of Common
Stock according to the terms and conditions contained herein.
THEREFORE, the parties agree as follows:
GRANT OF STOCK. The Company hereby agrees to grant to the Employee and
the Employee hereby agrees to accept an aggregate of 200,000 shares of the
Company's Common Stock (the "Shares") subject to the following restrictions:
Subject to the provisions of paragraph 4, the Shares shall be prohibited
from transfer (which shall include any offer, sale, contract of sale, option to
purchase, short sale or other disposition or distribution) except when the
transfer prohibition lapses as a result of (i) the attainment of targeted
earnings per share ("EPS Target"), but then such lapses shall be limited to the
extent set forth in the table below; (ii) a Change of Control as defined in the
Company's 1994 Stock Option Plan ("Change of Control"); or (iii) October 31,
2006. The Change of Control and October 31, 2006 lapses shall be for all Shares
subject to transfer prohibition at the time. The transfer prohibition under
this Section 2 shall exclude any transfers by will or under the laws of descent.
a) Lapsing resulting from attainment of EPS growth shall be according to
the following table:
Year Ending EPS Target Shares Lapsing
----------- ---------- --------------
3/31/97 [ 33,000
3/31/98 33,000
3/31/99 * 33,000
3/31/00 33,000
3/31/01 33,000
3/31/02 ] 35,000
---------------
200,000
---------------
---------------
b) EPS shall be calculated on a fully diluted earnings per share basis
calculated in accordance with generally accepted accounting principles except
that earnings shall not include interest expense attributable to notes payable,
income or loss from extraordinary items, income or loss from discontinued
operations, and cumulative effects of a change in accounting principles.
* Confidential treatment has been requested with respect to certain portions
of this exhibit pursuant to a request for confidential treatment filed with
the Securities and Exchange Commission. Omitted portions have been filed
separately with the Commission.
<PAGE>
c) With respect to each EPS Target, a missed target for any particular
year may be cured by attaining the EPS Target for the following year; the
attainment of EPS Targets for any succeeding year thereafter shall not cure the
original missed EPS Target, which shall lapse pursuant to Section 2, clause (i)
and clause (ii) above.
a) If, before October 31, 2006, Employee's employment with the Company
terminates, other than because of employee's death or permanent disability,
Employee shall forfeit any Shares with respect to which the prohibition of
transfer has not theretofore lapsed pursuant to paragraph 2; provided that the
Company's Board of Directors may, in its sole discretion, grant such additional
lapsing of such prohibition as it may determine.
b) If, before October 31, 2006, Employee's employment with the Company is
terminated because of Employee's death or permanent disability, the prohibition
of transfer shall continue to lapse in accordance with paragraph 2 as if
Employee's employment had not so terminated.
RIGHT OF FIRST REFUSAL.
The Company is hereby granted the right of first refusal (the "First
Refusal Right"), exercisable in connection with any proposed sale or other
transfer of the Shares as to which the transfer prohibition set forth in Section
2 above shall have lapsed. For purposes of this Section 5, the term "transfer"
shall include any assignment, pledge, encumbrance, or other disposition for the
value of the Shares intended to be made by the Employee.
In the event the Employee desires to accept a bona fide third-party
offer for any or all of the Shares (the shares subject to such offer to be
hereinafter called, solely for the purpose of this Section 5, the "Target
Shares"), such offer may be accepted only in accordance with the provisions
of this Section 5, and only after the Employee has promptly (i) delivered to
the Secretary of the Company written notice (the "Disposition Notice") of the
offer and the basic terms and conditions thereof, including the proposed
purchase price and (ii) provided satisfactory proof that the disposition of
the Target Shares to the third-party offeror would not be in contravention of
the provisions set forth in this Agreement, and, that such third-party
offeror (including any parent company, subsidiary, division, joint venture,
or other affiliate thereof) is not engaged in any business or activity
(including any announced business or activity) which directly or indirectly
competes with the products or services of the Company, as the Company shall
determine in its reasonable discretion.
The Company (or its assignees) shall, for a period of thirty (30) days
following receipt of the Disposition Notice, have the right to repurchase not
less than all of the Target Shares specified in the Disposition Notice upon
substantially the same terms and conditions specified therein. Such right shall
be exercisable by written notice (the "Exercise Notice") delivered to Employee
prior to the expiration of the thirty (30) day exercise period. If such right
is exercised with respect to all the Target Shares specified in the Disposition
Notice, then the Company (or its assignees) shall effect the repurchase of the
Target Shares, including payment of the purchase price, not more than five (5)
business after the delivery of the Exercise Notice; and at such time the
Employee shall deliver to the Company the certificates representing the Target
Shares to be repurchased, each certificate to be properly endorsed for transfer.
The Target Shares so purchased shall thereupon be canceled and cease to be
issued and outstanding shares of the Company's Common Stock.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the Company
(or it assignees) shall have the right to pay the purchase price in the form of
cash equal in amount to the value of such property. If the Employee and the
Company (or its assignees) cannot agree on such cash value within ten (10) days
after the Company's receipt of the Disposition Notice, the valuation shall be
made by an appraiser of recognized standing selected by the Employee and the
Company (or its assignees), or, if they cannot agree on an appraiser within
twenty (20) days after the Company's receipt of the Disposition Notice, each
shall select an appraiser of recognized standing and the two appraisers shall
designate a third appraiser of recognized standing, whose appraisal shall be
determinative of such value. The cost of such appraisal shall be shared equally
by the Employee and the Company. The closing shall then be held on the later of
(i) the fifth business day following delivery of the Exercise Notice or (ii) the
15th day after such cash valuation shall have been made.
<PAGE>
In the event the Exercise Notice is not given to Employee within
thirty (30) days following the date of the Company's receipt of the Disposition
Notice, Employee shall have a period of thirty (30) days thereafter, in which to
sell or otherwise dispose of the Target Shares upon terms and conditions
(including the purchase price) no more favorable to the third-party Employee
than those specified in the Disposition Notice; provided, however, that any such
sale or disposition must not be effected in contravention of the provisions of
this Agreement. In the event Employee does not sell or otherwise dispose of the
Target Shares within the specified thirty (30) day period, the Company's First
Refusal Right shall continue to be applicable to any subsequent disposition of
the Target Shares by Employee until such right lapses in accordance with Section
5(g).
In the event of any stock dividend, stock split, recapitalization or
other transaction affecting the Company's outstanding Common Stock as a class
effected without receipt of consideration, then any new, substituted or
additional securities or other property which is by reason of such transaction
distributed with respect to the Target Shares shall be immediately subject to
the Company's First Refusal Right hereunder.
The First Refusal Right under this Section 5 shall lapse and cease to
have effect upon the earliest to occur of (i) the first date on which shares of
the Company's Common Stock are held of record by more than five hundred (500)
persons, (ii) a determination is made by the Company's Board of Directors that a
public market exists for the outstanding shares of the Company's Common Stock or
(iii) a firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act, covering the offer and sale of
the Company's Common Stock in the aggregate amount of at least $7,500,000.
However, the market stand-off provisions of Section 8 shall continue to remain
in full force and effect following the lapse of the First Refusal Right
hereunder.
INVESTMENT REPRESENTATIONS. In connection with the purchase of the Shares,
the Employee represents to the Company the following:
The Employee is purchasing these securities for investment for the
Employee's own account only and not with a view to, or for resale in connection
with, any "distribution" thereof within the meaning of the Securities Act of
1933, as amended (the "Securities Act").
The Employee understands that the securities have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of the
Employee's investment intent as expressed herein. In this connection, the
Employee understands that, in view of the Securities and Exchange Commission
("Commission"), the statutory basis for such exemption may not be present if the
Employee's representations meant that the Employee's present intention was to
hold these securities for a minimum capital gains period under the tax statutes,
for a deferred sales, for a market rise, for a sale if the market does not rise,
or for a year or any other fixed period in the future.
The Employee further acknowledges and understands that the securities
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. The
Employee further acknowledges and understands that the Company is under no
obligation to register the securities. The Employee understands that the
certificate evidencing the securities will be imprinted with a legend which
prohibits the transfer of the securities unless they are registered or such
registration is not required in the opinion of counsel satisfactory to the
Company.
THE EMPLOYEE FURTHER ACKNOWLEDGES AND UNDERSTANDS THAT THE ISSUANCE OF
THE SHARES HEREUNDER SATISFIES IN FULL ALL OF THE COMPANY'S OBLIGATIONS TO ISSUE
SHARES TO THE EMPLOYEE TO DATE.
STOCK CERTIFICATE LEGENDS. The share certificate evidencing the Shares
issued hereunder shall be endorsed with the following legends.
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. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED
<PAGE>
THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
THE SHARES REPRESENTED HEREBY ARE SUBJECT TO A RESTRICTION ON TRANSFER
AND A RIGHT OF FIRST REFUSAL ("RIGHT OF FIRST REFUSAL") BY THE COMPANY PURSUANT
TO THE PROVISIONS OF AN AGREEMENT BETWEEN THE COMPANY AND THE HOLDER OF SUCH
SHARES, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH
THE TERMS OF SUCH RIGHT OF FIRST REFUSAL.
Any legend required by any applicable state securities laws.
MARKET STAND-OFF AGREEMENT. The Employee hereby agrees, if so requested by
the managing underwriters in such offering, that, without the prior written
consent of such managing underwriters, the Employee will not offer, sell,
contract to sell, grant any option to purchase, make any short sale, or
otherwise dispose of or make a distribution of any capital stock of the Company
held by or on behalf of the Employee or beneficially owned by the Employee in
accordance with the rules and regulations of the Securities and Exchange
Commission for a period of up to 180 days after the date of the final prospectus
relating to the Company's initial public offering.
ADJUSTMENT FOR STOCK SPLIT. All references to the number of Shares,
purchase price of Shares, and any earnings per share targets in this Agreement
shall be appropriately adjusted to reflect any stock split, stock dividend, or
similar change in the Shares which may be made by the Company after date of this
Agreement.
TAX CONSEQUENCES. The Employee has reviewed with the Employee's own tax
advisors the federal, state, local, and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Employee is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Employee understands that the Employee
(and not the Company) shall be responsible for the Employee's own tax liability
that may arise as a result of this investment or the transactions contemplated
by this Agreement.
GENERAL PROVISIONS.
This Agreement shall be governed by the laws of the State of
California. This Agreement represents the entire agreement between the parties
with respect to the purchase of Common Stock by the Employee and may only be
modified or amended in writing signed by both parties.
Any notice, demand, or request required or permitted to be given by
either the Company or the Employee pursuant to the terms of this Agreement shall
be in writing and shall be deemed given when delivered personally or deposited
in the U.S. mail, First Class with postage prepaid, and addressed to the parties
at the addresses of the parties set forth at the end of this Agreement or such
other address as a party may request by notifying the other in writing.
The rights and benefits of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Employee
under this Agreement may only be assigned with the prior written consent of the
Company.
Either party's failure to enforce any provision or provisions of this
Agreement shall not in any way be construed as a waiver of any such provision or
provisions, nor prevent that party thereafter from enforcing each and every
other provision of this Agreement. The rights granted both parties herein are
cumulative and shall not constitute a waiver of either party's right to assert
all other legal remedies available to it under the circumstances.
The Employee agrees upon request to execute any further documents or
instruments necessary or desirable to carry out the purposes or intent of this
Agreement.
<PAGE>
EMPLOYEE ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREUNDER DO NOT CONSTITUTE AN EXPRESS OR IMPLIED
PROMISE OF CONTINUED ENGAGEMENT AS A CONSULTANT OR EMPLOYEE FOR ANY PERIOD OR AT
ALL, AND SHALL NOT INTERFERE WITH EMPLOYEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE EMPLOYEE'S CONSULTING RELATIONSHIP OR EMPLOYMENT WITH THE COMPANY AT
ANY TIME, WITH OR WITHOUT CAUSE.
Employee has reviewed this Agreement in its entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Agreement
and fully understands all provisions of this Agreement.
This Agreement may be executed in any number of counterparts, each of
which shall be an original and all of which together shall constitute one
instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first set forth above.
PEREGRINE SYSTEMS, INC.: EMPLOYEE:
A Delaware corporation
By: /s/ David Farley /s/ Alan H. Hunt
--------------------------- ------------------------------
Alan H. Hunt
Title: Chief Financial Officer
------------------------ ------------------------------
Address
12670 High Bluff Drive
San Diego, CA 92130 ------------------------------
<PAGE>
PEREGRINE SYSTEMS, INC.
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT is effective as of November 1, 1995 between Peregrine
Systems, Inc., a Delaware corporation (the "Company"), and David A. Farley
(the "Employee").
WHEREAS, the Employee's participation is considered by the Company to be
important for the Company's growth; and
WHEREAS, in connection with Employee's employment, the Company is willing
to grant to the Employee and the Employee desires to accept shares of Common
Stock according to the terms and conditions contained herein.
THEREFORE, the parties agree as follows:
GRANT OF STOCK. The Company hereby agrees to grant to the Employee and
the Employee hereby agrees to accept an aggregate of 100,000 shares of the
Company's Common Stock (the "Shares") subject to the following restrictions:
Subject to the provisions of paragraph 4, the Shares shall be prohibited
from transfer (which shall include any offer, sale, contract of sale, option to
purchase, short sale or other disposition or distribution) except when the
transfer prohibition lapses as a result of (i) the attainment of targeted
earnings per share ("EPS Target"), but then such lapses shall be limited to the
extent set forth in the table below; (ii) a Change of Control as defined in the
Company's 1994 Stock Option Plan ("Change of Control"); or (iii) October 31,
2006. The Change of Control and October 31, 2006 lapses shall be for all Shares
subject to transfer prohibition at the time. The transfer prohibition under
this Section 2 shall exclude any transfers by will or under the laws of descent.
a) Lapsing resulting from attainment of EPS growth shall be according to
the following table:
Year Ending EPS Target Shares Lapsing
----------- ---------- --------------
3/31/97 [ 16,500
3/31/98 16,500
3/31/99 * 16,500
3/31/00 16,500
3/31/01 16,500
3/31/02 ] 17,500
---------------
100,000
---------------
---------------
b) EPS shall be calculated on a fully diluted earnings per share basis
calculated in accordance with generally accepted accounting principles except
that earnings shall not include interest expense attributable to notes payable,
income or loss from extraordinary items, income or loss from discontinued
operations, and cumulative effects of a change in accounting principles.
* Confidential treatment has been requested with respect to certain portions
of this exhibit pursuant to a request for confidential treatment filed with
the Securities and Exchange Commission. Omitted portions have been filed
separately with the Commission.
<PAGE>
c) With respect to each EPS Target, a missed target for any particular
year may be cured by attaining the EPS Target for the following year; the
attainment of EPS Targets for any succeeding year thereafter shall not cure the
original missed EPS Target, which shall lapse pursuant to Section 2, clause (i)
and clause (ii) above.
a) If, before October 31, 2006, Employee's employment with the Company
terminates, other than because of employee's death or permanent disability,
Employee shall forfeit any Shares with respect to which the prohibition of
transfer has not theretofore lapsed pursuant to paragraph 2; provided that the
Company's Board of Directors may, in its sole discretion, grant such additional
lapsing of such prohibition as it may determine.
b) If, before October 31, 2006, Employee's employment with the Company is
terminated because of Employee's death or permanent disability, the prohibition
of transfer shall continue to lapse in accordance with paragraph 2 as if
Employee's employment had not so terminated.
RIGHT OF FIRST REFUSAL.
The Company is hereby granted the right of first refusal (the "First
Refusal Right"), exercisable in connection with any proposed sale or other
transfer of the Shares as to which the transfer prohibition set forth in Section
2 above shall have lapsed. For purposes of this Section 5, the term "transfer"
shall include any assignment, pledge, encumbrance, or other disposition for the
value of the Shares intended to be made by the Employee.
In the event the Employee desires to accept a bona fide third-party
offer for any or all of the Shares (the shares subject to such offer to be
hereinafter called, solely for the purpose of this Section 5, the "Target
Shares"), such offer may be accepted only in accordance with the provisions
of this Section 5, and only after the Employee has promptly (i) delivered to
the Secretary of the Company written notice (the "Disposition Notice") of the
offer and the basic terms and conditions thereof, including the proposed
purchase price and (ii) provided satisfactory proof that the disposition of
the Target Shares to the third-party offeror would not be in contravention of
the provisions set forth in this Agreement, and, that such third-party
offeror (including any parent company, subsidiary, division, joint venture,
or other affiliate thereof) is not engaged in any business or activity
(including any announced business or activity) which directly or indirectly
competes with the products or services of the Company, as the Company shall
determine in its reasonable discretion.
The Company (or its assignees) shall, for a period of thirty (30) days
following receipt of the Disposition Notice, have the right to repurchase not
less than all of the Target Shares specified in the Disposition Notice upon
substantially the same terms and conditions specified therein. Such right shall
be exercisable by written notice (the "Exercise Notice") delivered to Employee
prior to the expiration of the thirty (30) day exercise period. If such right
is exercised with respect to all the Target Shares specified in the Disposition
Notice, then the Company (or its assignees) shall effect the repurchase of the
Target Shares, including payment of the purchase price, not more than five (5)
business after the delivery of the Exercise Notice; and at such time the
Employee shall deliver to the Company the certificates representing the Target
Shares to be repurchased, each certificate to be properly endorsed for transfer.
The Target Shares so purchased shall thereupon be canceled and cease to be
issued and outstanding shares of the Company's Common Stock.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the Company
(or it assignees) shall have the right to pay the purchase price in the form of
cash equal in amount to the value of such property. If the Employee and the
Company (or its assignees) cannot agree on such cash value within ten (10) days
after the Company's receipt of the Disposition Notice, the valuation shall be
made by an appraiser of recognized standing selected by the Employee and the
Company (or its assignees), or, if they cannot agree on an appraiser within
twenty (20) days after the Company's receipt of the Disposition Notice, each
shall select an appraiser of recognized standing and the two appraisers shall
designate a third appraiser of recognized standing, whose appraisal shall be
determinative of such value. The cost of such appraisal shall be shared equally
by the Employee and the Company. The closing shall then be held on the later of
(i) the fifth business day following delivery of the Exercise Notice or (ii) the
15th day after such cash valuation shall have been made.
<PAGE>
In the event the Exercise Notice is not given to Employee within
thirty (30) days following the date of the Company's receipt of the Disposition
Notice, Employee shall have a period of thirty (30) days thereafter, in which to
sell or otherwise dispose of the Target Shares upon terms and conditions
(including the purchase price) no more favorable to the third-party Employee
than those specified in the Disposition Notice; provided, however, that any such
sale or disposition must not be effected in contravention of the provisions of
this Agreement. In the event Employee does not sell or otherwise dispose of the
Target Shares within the specified thirty (30) day period, the Company's First
Refusal Right shall continue to be applicable to any subsequent disposition of
the Target Shares by Employee until such right lapses in accordance with Section
5(g).
In the event of any stock dividend, stock split, recapitalization or
other transaction affecting the Company's outstanding Common Stock as a class
effected without receipt of consideration, then any new, substituted or
additional securities or other property which is by reason of such transaction
distributed with respect to the Target Shares shall be immediately subject to
the Company's First Refusal Right hereunder.
The First Refusal Right under this Section 5 shall lapse and cease to
have effect upon the earliest to occur of (i) the first date on which shares of
the Company's Common Stock are held of record by more than five hundred (500)
persons, (ii) a determination is made by the Company's Board of Directors that a
public market exists for the outstanding shares of the Company's Common Stock or
(iii) a firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act, covering the offer and sale of
the Company's Common Stock in the aggregate amount of at least $7,500,000.
However, the market stand-off provisions of Section 8 shall continue to remain
in full force and effect following the lapse of the First Refusal Right
hereunder.
INVESTMENT REPRESENTATIONS. In connection with the purchase of the Shares,
the Employee represents to the Company the following:
The Employee is purchasing these securities for investment for the
Employee's own account only and not with a view to, or for resale in connection
with, any "distribution" thereof within the meaning of the Securities Act of
1933, as amended (the "Securities Act").
The Employee understands that the securities have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of the
Employee's investment intent as expressed herein. In this connection, the
Employee understands that, in view of the Securities and Exchange Commission
("Commission"), the statutory basis for such exemption may not be present if the
Employee's representations meant that the Employee's present intention was to
hold these securities for a minimum capital gains period under the tax statutes,
for a deferred sales, for a market rise, for a sale if the market does not rise,
or for a year or any other fixed period in the future.
The Employee further acknowledges and understands that the securities
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. The
Employee further acknowledges and understands that the Company is under no
obligation to register the securities. The Employee understands that the
certificate evidencing the securities will be imprinted with a legend which
prohibits the transfer of the securities unless they are registered or such
registration is not required in the opinion of counsel satisfactory to the
Company.
THE EMPLOYEE FURTHER ACKNOWLEDGES AND UNDERSTANDS THAT THE ISSUANCE OF
THE SHARES HEREUNDER SATISFIES IN FULL ALL OF THE COMPANY'S OBLIGATIONS TO ISSUE
SHARES TO THE EMPLOYEE TO DATE.
STOCK CERTIFICATE LEGENDS. The share certificate evidencing the Shares
issued hereunder shall be endorsed with the following legends.
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. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED
<PAGE>
THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
THE SHARES REPRESENTED HEREBY ARE SUBJECT TO A RESTRICTION ON TRANSFER
AND A RIGHT OF FIRST REFUSAL ("RIGHT OF FIRST REFUSAL") BY THE COMPANY PURSUANT
TO THE PROVISIONS OF AN AGREEMENT BETWEEN THE COMPANY AND THE HOLDER OF SUCH
SHARES, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH
THE TERMS OF SUCH RIGHT OF FIRST REFUSAL.
Any legend required by any applicable state securities laws.
MARKET STAND-OFF AGREEMENT. The Employee hereby agrees, if so requested by
the managing underwriters in such offering, that, without the prior written
consent of such managing underwriters, the Employee will not offer, sell,
contract to sell, grant any option to purchase, make any short sale, or
otherwise dispose of or make a distribution of any capital stock of the Company
held by or on behalf of the Employee or beneficially owned by the Employee in
accordance with the rules and regulations of the Securities and Exchange
Commission for a period of up to 180 days after the date of the final prospectus
relating to the Company's initial public offering.
ADJUSTMENT FOR STOCK SPLIT. All references to the number of Shares,
purchase price of Shares, and any earnings per share targets in this Agreement
shall be appropriately adjusted to reflect any stock split, stock dividend, or
similar change in the Shares which may be made by the Company after date of this
Agreement.
TAX CONSEQUENCES. The Employee has reviewed with the Employee's own tax
advisors the federal, state, local, and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Employee is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Employee understands that the Employee
(and not the Company) shall be responsible for the Employee's own tax liability
that may arise as a result of this investment or the transactions contemplated
by this Agreement.
GENERAL PROVISIONS.
This Agreement shall be governed by the laws of the State of
California. This Agreement represents the entire agreement between the parties
with respect to the purchase of Common Stock by the Employee and may only be
modified or amended in writing signed by both parties.
Any notice, demand, or request required or permitted to be given by
either the Company or the Employee pursuant to the terms of this Agreement shall
be in writing and shall be deemed given when delivered personally or deposited
in the U.S. mail, First Class with postage prepaid, and addressed to the parties
at the addresses of the parties set forth at the end of this Agreement or such
other address as a party may request by notifying the other in writing.
The rights and benefits of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Employee
under this Agreement may only be assigned with the prior written consent of the
Company.
Either party's failure to enforce any provision or provisions of this
Agreement shall not in any way be construed as a waiver of any such provision or
provisions, nor prevent that party thereafter from enforcing each and every
other provision of this Agreement. The rights granted both parties herein are
cumulative and shall not constitute a waiver of either party's right to assert
all other legal remedies available to it under the circumstances.
The Employee agrees upon request to execute any further documents or
instruments necessary or desirable to carry out the purposes or intent of this
Agreement.
<PAGE>
EMPLOYEE ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREUNDER DO NOT CONSTITUTE AN EXPRESS OR IMPLIED
PROMISE OF CONTINUED ENGAGEMENT AS A CONSULTANT OR EMPLOYEE FOR ANY PERIOD OR AT
ALL, AND SHALL NOT INTERFERE WITH EMPLOYEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE EMPLOYEE'S CONSULTING RELATIONSHIP OR EMPLOYMENT WITH THE COMPANY AT
ANY TIME, WITH OR WITHOUT CAUSE.
Employee has reviewed this Agreement in its entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Agreement
and fully understands all provisions of this Agreement.
This Agreement may be executed in any number of counterparts, each of
which shall be an original and all of which together shall constitute one
instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first set forth above.
PEREGRINE SYSTEMS, INC.: EMPLOYEE:
A Delaware corporation
By: /s/ Alan H. Hunt /s/ David Farley
--------------------------- ------------------------------
David A. Farley
Title: President & CEO
------------------------ ------------------------------
Address
12670 High Bluff Drive
San Diego, CA 92130 ------------------------------
<PAGE>
PEREGRINE SYSTEMS, INC.
AMENDED STOCK OPTION AGREEMENT
This AGREEMENT is made effective as of the 7th day of
December, 1990 ("Option Grant Date"), by and between PEREGRINE SYSTEMS, INC.,
a California corporation, ("Company") and Christopher Cole ("Optionee").
RECITALS
WHEREAS, the Board of Directors of the Company has established the
Peregrine Systems, Inc. Nonqualified Stock Option Plan ("Plan") effective as of
November 29, 1990; and
WHEREAS, pursuant to the provisions of said Plan, the Board of
Directors of the Company, by action duly taken on December 7, 1990 , granted
to the Optionee an option or options ("0ption(s)") to purchase shares of the
common stock of the Company ("Common Stock") on the terms and conditions set
forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein and other good and valuable consideration, the
parties hereto agree as follows:
1. THE OPTION(s). The Optionee at the optionee's option and on
the terms and conditions set forth herein, may purchase all or any part of an
aggregate of 56,250 shares of common Stock (as adjusted for the three-for-two
and 2-for-one stock splits effected in connection with the Company's
reincorporation in Delaware and on in February 1997, respectively) at the
price per share set forth in Section 2 below ("Option Price").
2. OPTION PRICE AND EXERCISE DATES. The Option(s) shall be
exercisable at the option Price as to the specified number of shares ("Optioned
Shares") on and after the "Start" dates and on or before the "Terminate" dates
set forth below:
Option Exercise Dates
Number of Shares Price Start Terminate
- ---------------- ----- ---------- ---------
14,062.50 $0.51 7/1/91 12/7/2000
- ---------------- ----- ---------- ---------
14,062.50 $0.51 7/1/92 12/7/2000
- ---------------- ----- ---------- ---------
14,062.50 $0.51 7/1/93 12/7/2000
- ---------------- ----- ---------- ---------
14,062.50 $0.51 7/1/94 12/7/2000
- ---------------- ----- ---------- ---------
- 1 -
<PAGE>
Optionee acknowledges that he understands he has no right whatsoever to exercise
the Option(s) granted hereunder with respect to any Optioned Shares covered by
any installment except as provided above. Optionee further understands that the
Option(s) granted hereunder shall expire and become unexercisable as provided in
Section 3(c) below.
3. GOVERNING PLAN. This Agreement hereby incorporates by
reference the Plan and all of the terms and conditions of the Plan as the same
may be amended from time to time hereafter in accordance with the terms thereof,
but no such subsequent amendment shall adversely affect the Optionee's rights
under this Agreement and the Plan except as may be required by applicable law.
Optionee expressly acknowledges and agrees that the provisions of this Agreement
are subject to the Plan; the terms of this Agreement shall in no manner limit or
modify the controlling provisions Of the Plan; and in case of any conflict
between the provisions of the Plan and this Agreement, the provisions of the
Plan shall be controlling and binding upon the parties hereto. The Optionee
also hereby expressly acknowledges, represents and agrees as follows:
(a) Acknowledges receipt of a copy of the Plan, a copy of which
is attached hereto and by reference incorporated herein, and represents that
Optionee is familiar with the terms and provisions of said Plan, and hereby
accepts this Agreement subject to all the terms and provisions of said Plan.
(b) Agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board of Directors (or the Committee, if so
authorized) upon any questions arising under the Plan.
(c) Acknowledges that Optionee is familiar with Section 8 of the
Plan regarding the terms and conditions of the Option(s) and represents that
Optionee understands that said Option(s) must be exercised an or before the
earliest of the following dates, whichever is applicable: (i) the "Terminate"
date noted above in Section 2; (ii) the day prior to the day the Option shall
expire, as provided in Section 8(b) of the Plan; (iii) the date on which a
transaction specified under Section 8(c) of the Plan is consummated.
-2-
<PAGE>
(d) Acknowledges and understands that Optionee shall pay the
entire option Price in cash or shares of the Company's Common Stock at the time
the Option(s) are exercised, as permitted by Section 8(h) of the Plan; that use
Of Common Stock to pay the exercise price of an Option may have significant
adverse tax consequences for Optionee; and that Optionee should consult with a
competent tax advisor prior to utilizing common Stock of the Company to exercise
an Option.
(e) Acknowledges and understands that the Option(s) granted
hereunder to optionee supersede any and all other options, or promise(s) to
grant options, that may have been previously granted or made at any prior time
to Optionee by the Company, and that any and all other option plans of the
Company, and any unexercised options existing pursuant to those plans,
terminated on the date that the Plan was adopted.
4. EXERCISE.
(a) In order to exercise an Option, the Optionee shall deliver a
written notice of exercise to the Company at its principal business office,
which notice shall specify the number of shares to be purchased and shall be
accompanied by payment in cash or check made payable to the order of the Company
in the full amount of the Option Price of the shares to be purchased.
(b) In lieu of paying the total purchase price by cash or check,
the Optionee shall have the right to pay all or any portion of the total
purchase price with shares of common Stock of the Company held by the Optionee.
The amount of the purchase price deemed paid in this manner shall be the fair
market value as of the date of exercise of the shares surrendered, as determined
by the Board of Directors of the Company in its sole discretion, exercised in
good faith. If the Optionee elects to pay all or any portion of the total
purchase price in this manner, he shall accompany his notice of exercise with
the stock certificates he desires to surrender, duly endorsed for transfer to
the Company.
5. STOCK BUY-SELL AGREEMENT. As a condition to the exercise of any
portion of an Option, the Board may require the Optionee to enter into a Stock
Buy-Sell Agreement with the company in the form that is in effect at the time of
the exercise.
6. REPRESENTATION AND WARRANTIES. Optionee represents and warrants
that optionee is acquiring this Option for his own account and not with any
distribution of this Option or the shares of Common Stock which may be acquired
upon exercise
- 3 -
<PAGE>
of the Option. As a condition to the exercise of any portion of an Option, the
Company may require the person exercising such Option to make any representation
and/or warranty to the Company as may, in the judgment of counsel to the
Company, be required under any applicable law or regulation, including but not
limited to a representation and warranty that the shares are being acquired 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 under the Securities Act of 1933 or any other applicable law,
regulation or rule of any governmental agency.
7. OPTIONS NOT TRANSFERABLE. The Option(s) may be exercised during
the lifetime of the Optionee only by the Optionee. The Optionee's rights and
interests under this Agreement and in and to the Option(s) may not be sold,
pledged, hypothecated, assigned, encumbered, gifted or otherwise transferred in
any manner, either voluntarily or involuntarily by operation of law, except by
will or the laws of descent or distribution subject to the provisions of section
8(e) of the Plan.
8. NO ENLARGEMENT OF EMPLOYEE RIGHTS. Nothing in this Agreement
shall be construed to confer upon the Optionee any right to continued employment
with the Company, or to restrict in any way the right of the company to
terminate his employment.
9. RELEASE. Optionee for himself or herself and on behalf of any
present or former spouse and any other person claiming by or through any of them
hereby releases, discharges and forever acquits the Company and each of its
present or former officers, directors, shareholders, agents, accountants,
attorneys and employees from any and all demands, debts, liabilities, duties,
causes of action or any other claims of any kind or character, whether known or
unknown, suspected or unsuspected, which now exists or which may be alleged to
now exist or which has existed or may be alleged to have existed, arising out of
Optionee's employment by the Company. Optionee agrees and expressly intends
that the release set forth in this Section 9 shall include a release of unknown
or unsuspected claims. Optionee expressly acknowledges that unknown or
unsuspected claims may exist which, if know or suspected by Optionee, might have
materially affected this Agreement between the parties. However, as a material
inducement for the Company's promises as set forth herein, Optionee offers and
intends to release all such unknown or unsuspected claims, In this regard,
Optionee acknowledges that he or she is aware of the provisions of civil Code
Section 1542 and, being fully advised by counsel, knowingly waives the benefit
of such provisions. The provisions of civil
- 4 -
<PAGE>
Code Section 1542 which are being waived by Optionee are 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.
10. WITHHOLDING OF TAXES. Optionee authorizes the Company to
withhold, in accordance with any applicable law, from any compensation payable
to him any taxes required to be withheld by federal, state or local law as a
result of the grant of the Option(s) or the issuance of stock pursuant to the
exercise of such Option(s).
11. LAWS APPLICABLE TO CONSTRUCTION. This Agreement shall be
construed and enforced in accordance with the internal substantive laws of the
State of California without reference to conflicts of law principles.
12. AGREEMENT BINDING ON SUCCESSORS. The terms of this Agreement
shall be binding upon the executors, administrators, heirs, successors,
transferees and assignees of the Optionee.
13. COSTS OF LITIGATION. In any action at law or in equity to
enforce any of the provisions or rights under this Agreement or the Plan, the
unsuccessful party to such litigation, as determined by the court in a final
judgement or decree, shall pay the successful party or parties all costs,
expenses and reasonable attorneys' fees incurred by the successful party or
parties (including without limitation costs, expenses and fees on any appeals),
and if the successful party recovers judgement in any such action or proceeding
such costs, expenses and attorneys' fees shall be included as part of the
judgement.
14 NECESSARY ACTS. The Optionee agrees to perform all acts and
execute and deliver any documents that may be reasonably necessary to carry out
the provisions of this Agreement, including but not limited to all acts and
documents related to compliance with federal and/or state securities laws.
15. COUNTERPARTS. For convenience, this Agreement may be executed in
any number of identical counterparts, each of which shall be deemed a complete
original in itself and may be introduced in evidence or used for any other
purposes without the production of any other counterparts.
16. INVALID PROVISIONS. In the event that any provision of this
Agreement is found to be invalid or otherwise
- 5 -
<PAGE>
unenforceable under any applicable law, such invalidity or unenforceability
shall not be construed as rendering any other provisions contained herein
invalid or unenforceable, and all such other provisions shall be given full
force and effect to the same extent as though the invalid and unenforceable
provision was not contained herein.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement effective as of the date first written above.
PEREGRINE SYSTEMS, INC. OPTIONEE
/s/ Chris Cole
--------------------
Signature
/s/ James W. Butler Christopher Cole
- -------------------- --------------------
James W. Butler, Printed Name
President
P.O. Box 9545
--------------------
/s/ Deborah S. Mings Street Address
- --------------------
Deborah S. Mings, Newport Beach, CA 92658-9545
Secretary --------------------
City and State
###-##-####
--------------------
Social Security Number
- 6 -
<PAGE>
By his or her signature below, the spouse of the Optionee, if such
Optionee be legally married as of the date of his execution of this Agreement,
acknowledges that he or she has read this Agreement and the Plan and is familiar
with the terms and provisions thereof, and agrees to be bound by all the terms
and conditions of said Agreement and said Plan.
/s/ Joan M. Cole
-----------------------
Spouse's signature
Joan M. Cole
-----------------------
Printed Name
Dated: 12/2/91
-----------------
By his or her signature below, the Optionee represents that he or she
is not legally married as of the date of execution of this Agreement.
-----------------------
Optionee's Signature
Dated:
-----------------
- 7 -
<PAGE>
PEREGRINE SYSTEMS, INC.
1995 STOCK OPTION PLAN FOR FRENCH EMPLOYEES
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the 1995 Stock Option
Plan for French Employees 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 Stock Option Agreement,
as follows:
Date of Grant
------------------------------
Vesting Commencement Date
------------------------------
Exercise Price per Share $
------------------------------
Total Number of Shares Granted
------------------------------
Total Exercise Price $
------------------------------
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 SHALL VEST ON THE DATE TWELVE (12) MONTHS
FROM THE VESTING COMMENCEMENT DATE, AND ONE FORTY-EIGHTH (1/48) OF THE SHARES
SHALL VEST EACH MONTH THEREAFTER.]
TERMINATION PERIOD:
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<PAGE>
This Option may be exercised for thirty (30) days after termination of
employment relationship, or such longer period as may be applicable upon death
or Disability of Optionee as provided in the Plan.
II. AGREEMENT
1. GRANT OF OPTION. The Board 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 a 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.
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. In the event of
Optionee's death, Disability or other termination of Optionee's employment
relationship, the exercisability of the Option is governed by the applicable
provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This Option is exercisable by delivery of an
exercise notice to the Company, 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"), by delivery of a subscription agreement to the Subsidiary, in the form
attached as Exhibit B (the "Subscription Agreement") and such other
representations and agreements as may be required by the Company or the
Subsidiary pursuant to the provisions of the Plan. Until the stock certificate
evidencing such Shares is issued (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company), 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 to the Optionee (or cause to be issued) such
stock certificate promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 of the
Plan. The Exercise Notice and Subscription Agreement shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Subsidiary. The Exercise Notice and Subscription Agreement 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
Subsidiary of such fully
-2-
<PAGE>
executed Exercise Notice and Subscription Agreement accompanied by such
aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares are then
listed. Assuming such compliance, for income tax purposes the Exercised Shares
shall be considered transferred to the Optionee on the date the Option is
exercised with respect to such Exercised Shares.
3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash or check (denominated in U.S. Dollars);
(b) wire transfer (denominated (in U.S. Dollars);
(c) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and a broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of an
amount of the sale or loan proceeds required to pay the exercise price.
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.
OPTIONEE ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE
COMPANY'S STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL
CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT BY THE
COMPANY OR THE SUBSIDIARY.
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
-3-
<PAGE>
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: PEREGRINE SYSTEMS, INC.
By:
- ----------------------------------- --------------------------------
Signature
Title:
- ----------------------------------- -----------------------------
Print Name
-4-
<PAGE>
EXHIBIT A
PEREGRINE SYSTEMS, INC.
1995 STOCK OPTION PLAN FOR FRENCH EMPLOYEES
EXERCISE NOTICE
Peregrine Systems, Inc.
[address]
Attention: General Secretary
1. EXERCISE OF OPTION. Effective as of today, ___________, 199__, the
undersigned ("Optionee") hereby elects to purchase _________ shares (the
"Shares") of the Common Stock of Peregrine Systems, Inc. (the "Company") under
and pursuant to the 1995 Stock Option Plan for French Employees (the "Plan") and
the Stock Option Agreement dated ___________ (the "Option Agreement"). The
purchase price for the Shares shall be $__________, as required by the Option
Agreement.
2. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the
full purchase price for the Shares.
3. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee 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 stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), 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.
5. TAX CONSULTATION. Optionee represents that Optionee has consulted
with any tax consultants Optionee deems advisable in connection with the
purchase or disposition of the Shares and that Optionee 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 and supersede in their
entirety all prior undertakings
-1-
<PAGE>
and agreements of the Company and Optionee with respect to the subject matter
hereof, and such agreement is governed by the laws of California and the United
States of America except for that body of laws pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: PEREGRINE SYSTEMS, INC.
By:
- ----------------------------------- --------------------------------
Signature
Its:
- ----------------------------------- -------------------------------
Print Name
ADDRESS:
- --------------------
- --------------------
-2-
<PAGE>
EXHIBIT B
PEREGRINE SYSTEMS, INC.
1995 STOCK OPTION PLAN FOR FRENCH EMPLOYEES
SUBSCRIPTION AGREEMENT
Peregrine Systems, Inc.
[address]
Attention: General Secretary
1. AMOUNT AND TERMS OF THE SUBSCRIPTION
In conformity with the Stock Option Plan reserved to the French
employees (the "Plan"), Options to subscribe to Shares of Common Stock (the
"Shares") of Peregrine Systems, Inc. (the "Company") were granted according to
the Stock Option Agreement dated _________________ (the "Option Agreement").
_______ Shares shall be issued to the benefit of the undersigned (the
"Subscriber") by an increase in capital in accordance with the applicable laws
of the United States of America and the State of California.
The increase in capital shall take place within the limits of the
authorized capital of the Company.
The Shares subscribed to may be paid up by:
(a) cash or check (denominated in U.S. Dollars);
(b) wire transfer (denominated in U.S. Dollars);
(c) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and a broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of an
amount of the sale or loan proceeds required to pay the exercise price.
2. TRANSFER OF THE FUNDS
-1-
<PAGE>
The funds coming from the subscription of Shares under the Plan shall
be paid over to the Subsidiary by the participating Employees. Full payment
shall be deemed to be definitively made upon the date of receipt of the payment
in the bank accounts in France of the Subsidiary.
3. SUBSCRIPTION AGREEMENT
I, the undersigned, Last name
--------------------------------
First name
--------------------------------
Residence
--------------------------------
subscribe to ________ Shares.
Supporting my subscription I shall pay the total amount of the Purchase
Price of the Shares following one or more of the methods described in Section 1
above.
The Subscriber PEREGRINE SYSTEMS, INC.
Signature By
------------------------- --------------------------------
Name Title
------------------------------ -----------------------------
Address
-------------------------
-------------------------
-------------------------
-2-
<PAGE>
PEREGRINE SYSTEMS, INC.
DIRECTOR STOCK OPTION AGREEMENT
Peregrine Systems, Inc., a Delaware corporation (the "Company"), has granted
to ______________________________________ (the "Optionee"), an option to
purchase a total of __________________ (_________) shares of the Company's
Common Stock (the "Optioned Stock"), at the price determined as provided
herein, and in all respects subject to the terms, definitions, and provisions
of the Company's 1997 Director Option Plan (the "Plan") adopted by the
Company, which is incorporated herein by reference. The terms defined in the
Plan shall have the same defined meanings herein.
1. NATURE OF THE OPTION. This Option is a nonstatutory option and is
not intended to qualify for any special tax benefits to the Optionee.
2. EXERCISE PRICE. The exercise price is $_______ for each share of
Common Stock.
3. EXERCISE OF OPTION. This Option shall be exercisable during its
term in accordance with the provisions of Section 8 of the Plan as follows:
(i) RIGHT TO EXERCISE.
(a) This Option shall become exercisable in installments
cumulatively with respect to twenty-five percent (25%) of the Optioned Stock
on the first anniversary of the date of grant, and six and one-quarter
percent (6 1/4%) of the Optioned Stock on the last day of each consecutive
three-month period thereafter, so that one hundred percent (100%) of the
Optioned Stock shall be exercisable four (4) years after the date of
grant. In no event shall any Option be exercisable prior to the date the
shareholders of the Company approve the Plan.
(b) This Option may not be exercised for a fraction of a
share.
(c) In the event of Optionee's death, disability, or other
termination of service as a Director, the exercisability of the Option shall
be governed by Section 8 of the Plan.
(ii) METHOD OF EXERCISE. This Option shall be exercisable by
written notice which shall state the election to exercise the Option and the
number of Shares in respect of which the Option is being exercised. Such
written notice, in the form attached hereto as EXHIBIT A, shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The written notice shall be accompanied by payment
of the exercise price.
-1-
<PAGE>
4. METHOD OF PAYMENT. Payment of the exercise price shall be by any
of the following, or a combination thereof, at the election of the Optionee:
(i) cash;
(ii) check;
(iii) surrender of other shares which (x) 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 (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised; or
(iv) delivery of a properly executed exercise notice together with such
other documentation as the Company and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option,
the Company may require Optionee to make any representation and warranty to
the Company as may be required by any applicable law or regulation.
6. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by the
Optionee. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
7. TERM OF OPTION. This Option may not be exercised more than ten
(10) years from the date of grant of this Option, and may be exercised during
such period only in accordance with the Plan and the terms of this Option.
8. TAXATION UPON EXERCISE OF OPTION. Optionee understands that, upon
exercise of this Option, he or she will recognize income for tax purposes in
an amount equal to the excess of the then Fair Market Value of the Shares
purchased over the exercise price paid for such Shares. Since the Optionee
is subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended, under certain limited circumstances the measurement and timing of
such income (and the commencement of any capital gain holding period) may be
deferred, and the Optionee is advised to contact a tax advisor concerning the
application of Section 83 in general and the availability a Section 83(b)
election in particular in connection with the exercise of the Option. Upon a
resale of such Shares by the Optionee, any difference between the sale price
and the Fair Market Value of the Shares on the
-2-
<PAGE>
date of exercise of the Option, to the extent not included in income as
described above, will be treated as capital gain or loss.
DATE OF GRANT:
----------------
PEREGRINE SYSTEMS, INC.
a Delaware corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the
terms and provisions thereof. Optionee hereby agrees to accept as binding,
conclusive, and final all decisions or interpretations of the Board upon any
questions arising under the Plan.
Dated:
-------------------
-----------------------------------
Optionee
-3-
<PAGE>
EXHIBIT A
DIRECTOR STOCK OPTION EXERCISE NOTICE
Peregrine Systems, Inc.
12670 High Bluff Drive
San Diego, California 92130
Attention: Corporate Secretary
1. EXERCISE OF OPTION. The undersigned ("Optionee") hereby elects to
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of Peregrine Systems, Inc. (the "Company") under and pursuant to
the Company's 1997 Director Option Plan and the Director Option Agreement
dated _______________ (the "Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee
has received, read, and understood the Agreement.
3. FEDERAL RESTRICTIONS ON TRANSFER. Optionee understands that the
Shares must be held indefinitely unless they are registered under the
Securities Act of 1933, as amended (the "1933 Act"), or unless an exemption
from such registration is available, and that the certificate(s) representing
the Shares may bear a legend to that effect. Optionee understands that the
Company is under no obligation to register the Shares and that an exemption
may not be available or may not permit Optionee to transfer Shares in the
amounts or at the times proposed by Optionee.
4. TAX CONSEQUENCES. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding
taxes required to be paid or withheld by the Company.
6. ENTIRE AGREEMENT. The Agreement is incorporated herein by
reference. This Exercise Notice and the Agreement constitute the entire
agreement of the parties and supersede in their entirety all prior
undertakings and agreements of the Company and Optionee with respect to the
subject matter hereof. This Exercise Notice and the Agreement are governed
by California law except for that body of law pertaining to conflict of laws.
-4-
<PAGE>
Submitted by: Accepted by:
OPTIONEE: PEREGRINE SYSTEMS, INC.
By:
- ---------------------------------- -------------------------------
Name:
--------------------------
Title:
-------------------------
Address: Address:
12670 High Bluff Drive
San Diego, California 92130
Dated: Dated:
---------------------------- -----------------------------
-5-
<PAGE>
CONTINUING AND UNCONDITIONAL GUARANTY
1. GUARANTY. For Value Received, and to induce NationsBank of Texas, N.A.
Downtown Houston, 700 Louisiana, Houston, Texas, 77002 (Attn: Commercial)
(herein called "Bank"), to make loans or advances or to extend credit or other
financial accommodations or benefits, with or without security, to or for the
account of Peregrine Systems, Inc., 12670 High Bluff Drive, San Diego, CA 92130
(therein called "Borrower"), the undersigned (herein called the "Guarantor"), if
more than one, then each of them jointly and severally, hereby becomes surety
for an irrevocably and unconditionally guarantees to Bank the full and prompt
payment when due, whether by acceleration or otherwise, of any and all
liabilities (as hereinafter defined) of Borrower to Bank, together with
reasonably attorney's fees, costs and expenses incurred by Bank in enforcing any
and all of such indebtedness. This Guaranty is continuing and unlimited as to
the amount.
Guarantor further unconditionally guarantees the faithful, prompt and complete
compliance by Borrower with all terms, conditions, covenants, agreements and
undertaking of Borrower (herein collectively referred to as the "Obligations")
under all notes and other documents evidencing the Liabilities, as hereinafter
defined, and under all deeds to secure debt, deeds of trust, mortgages, security
agreements and other documents and instruments executed in connection with the
Liabilities or related thereto (as such deeds to secure debt, deeds of trust,
mortgages, security agreements and other documents securing payment of the
Liabilities and all notes and other agreements, documents, and instruments
evidencing or relating to the Liabilities and Obligations being herein
collectively called the "Loan Documents"). The undertakings of Guarantor
hereunder are independent of the Liabilities and Obligations of the Borrower and
a separate action or actions for payment, damages or performance may be brought
or prosecuted against Guarantor, whether or not an action is brought against the
Borrower or to realize upon the security for the Liabilities and/or Obligations
and whether or not Borrower is jointed in any such action or actions, and
whether or not notice is given or demand is made upon the Borrower.
Bank shall not be required to proceed first against Borrower, or any other
person, firm or corporation, whether primarily or secondarily liable, or against
any Collateral held by it, before resorting to Guarantor for payment, and
Guarantor shall not be entitled to assert as a defense to the enforceability of
the Guaranty any defense of Borrower with respect to any Liabilities or
Obligations.
2. PARAGRAPH HEADINGS AND GOVERNING LAW. Guarantor agrees that the paragraph
headings in this Guaranty are for convenience only and that they will not limit
any of the provisions of this Guaranty. Guarantor further agrees that the
Guaranty shall be governed by and construed in accordance with the laws of the
State of Texas and applicable United States federal law. Guarantor further
agrees that this Guaranty shall be deemed to have been made in the State of
Texas at Bank's address indicated herein, and shall be governed by, and
construed in accordance with, the laws of the State of Texas, in the United
States courts located within the State of Texas, and is performable in Houston,
Harris County, Texas.
<PAGE>
3. DEFINITIONS.
A. "Liability" or "Liabilities" as used herein shall include without
limitation, all liabilities, overdrafts, indebtedness, and obligations of
Borrower to Bank, whether direct or indirect, absolute or contingent, joint or
several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, now or
hereafter existing, or held or to be held by the Bank for its own account or as
agent for another or others, whether created directly, indirectly, or acquired
by assignment or otherwise, including but not limited to all extensions or
renewals thereof, and all sums payable under or by virtue thereof, including
without limitation, all amounts of principal and interest, all expenses
(including attorney's fees and costs of collection as specified) incurred in the
collection thereof or the enforcement of rights thereunder or in enforcing this
Guaranty (including without limitation, any liability arising from failure to
comply with state or federal laws, rules and regulations concerning the control
of hazardous wastes or substances at or with respect to any real estate securing
any loan guaranteed hereby), whether arising in the ordinary course of business
or otherwise, and whether held or to be held by Bank for its own account or as
agent for another or others. If Borrower is a partnership, corporation or other
entity the term "Liability" or "Liabilities" as used herein shall include all
Liabilities to Bank of any successor entity or entities.
B. "Guarantor" as used herein shall mean Guarantor or any one or more of
them. Anyone executing this Guaranty shall be bound by the terms hereof without
regard to execution by anyone else. This Guaranty is binding upon Guarantor,
his, their or its executors, administrators, successors or assigns, and shall
inure to the benefit of Bank, its successors, endorsers or assigns.
"Guarantor" as used in this instrument shall be construed as singular or plural
to correspond with the number of persons executing this instrument as Guarantor.
The pronouns used in this Agreement are in the masculine gender and shall be
construed as female or neuter as an occasion may require.
C. "Collateral" means the property subject to a security interest, and
includes accounts and chattel paper which have been sold, including but not
limited to all additions and accessions thereto, all replacements or substitutes
therefor, and all immediate and remote proceeds of the sale or other disposition
thereof.
4. WAIVERS BY GUARANTOR. Guarantor waives notice of acceptance of this
Guaranty, notice of any Liability or Obligations to which it may apply, and
waives presentment, demand for payment, protest, notice of dishonor or
nonpayment of any Liabilities, waiver of notice of intent to accelerate, waiver
of notice of acceleration and notice of any suit or the taking of other action
by Bank against Borrower, Guarantor or any other person and any other notice to
any party liable thereon (including Guarantor) and any applicable statute of
limitations.
Each Guarantor also hereby waives any claim, right or remedy which such
Guarantor may now have or hereafter acquire against the Borrower that arises
hereunder and/or from the performance by any Guarantor hereunder including,
without limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification, or participation in any claim, right
or
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<PAGE>
remedy of the Bank against the Borrower or any security which the Bank now has
or hereafter acquires, whether or not such claim, right or remedy arises in
equity, under contract, by statute, under common law or otherwise.
Guarantor hereby agrees to waive the benefits of any provision of law requiring
that the Bank exhaust any right or remedy, or take any action against the
Borrower, any Guarantor, any other person and/or property including but not
limited to the provisions of the Texas Civil Practice and Remedies Code Section
17.001, Texas Rules of Civil Procedure Rule 31 and the Texas Business and
Commerce Code Section 34.03, as amended, or otherwise.
Bank may at any time and from time to time (whether before or after revocation
or termination of this Guaranty) without notice to Guarantor (except as required
by law), without incurring responsibility to Guarantor, without impairing,
releasing, or otherwise affecting the obligations of Guarantor in whole or in
part, and without the endorsement or execution by Guarantor of any additional
consent, waiver or guaranty: (A) change the manner, place or terms of payment;
(b) change or extend the time of or renew or alter, any Liability or Obligation
or installment thereof, or any security therefor; (c) loan additional monies or
extend additional credit to Borrower, with or without security, thereby creating
new Liabilities or Obligations the payment or performance of which shall be
guaranteed hereunder, and the Guaranty herein made shall apply to the
Liabilities and Obligations as so changed, extended, surrendered, realized upon
or otherwise altered; (d) sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property at any time
pledged or mortgaged to secure the Liabilities or Obligations and any offset
there against; (e) exercise or refrain from exercising any rights against
Borrower or others (including Guarantor) or act or refrain from acting in any
other manner; (f) settle or compromise any Liability or Obligation or any
security therefor and subordinate the payment of all or any part thereof to the
payment of any Liability or Obligation of any other parties primarily or
secondarily liable on any of the Liabilities or Obligations; (g) release or
compromise any liability of Guarantor hereunder or any Liability or Obligation
of any other parties primarily or secondarily liable on any of the Liabilities
or Obligations; or (h) apply any sums from any sources to any Liability without
regard to any Liabilities remaining unpaid.
5. SUBORDINATION. Upon demand of Bank, Guarantor agrees that it will not
demand, take or receive from the Borrower, by set-off or in any other manner,
payment of any liabilities and/or obligations, now and at any time or times
hereafter owing by the Borrower to Guarantor unless and until all the
Liabilities shall have been fully paid, and any security interest, liens or
encumbrances which Guarantor now has and from time to time hereafter may have
upon any of the assets of the Borrower shall be made subordinate, junior and
inferior and postponed in priority, operation and effect to any security
interest of Bank in such assets.
6. WAIVERS BY BANK. No delay on the part of Bank in exercising any of its
options, powers or rights, or any partial or single exercise thereof, shall
constitute a waiver thereof. No waiver of any of its rights hereunder, and no
modification or amendment of this Guaranty, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank and each such
waiver, if any, shall apply only with respect to the specific instance involved,
and shall in no way impair the rights of Bank or the obligations of Guarantor to
Bank in any other respect at any other time.
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<PAGE>
7. TERMINATION. This Guaranty shall continue until written notice of
revocation signed by each respective Guarantor or until written notice of the
death of such Guarantor shall actually have been received by Bank,
notwithstanding change in name, location, composition or structure of, or the
dissolution, termination or increase, decrease or change in personnel, owners or
partners of Borrower, or any one or more of Guarantors, provided, however, that
no notice of revocation or termination hereof shall affect in any manner rights
arising under the Guaranty with respect to Liabilities or Obligations that shall
have been created contracted, assumed or incurred prior to receipt of such
written notice pursuant to any agreement entered into by Bank prior to receipt
of such notice, and the sole effect of such notice of revocation or termination
hereof shall be to exclude from this Guaranty. Liabilities or Obligations
thereafter arising that are unconnected with Liabilities or Obligations
theretofore arising or transactions entered into theretofore.
In the event of the death of a Guarantor, the liabilities of the estate of the
deceased guarantor shall continue in full force and effect as to (i) the
Liabilities existing at the date of death, and any renewals or extensions
thereof, and (ii) loans or advances made to or for the account of Borrower after
the date of death of the deceased Guarantor pursuant to the liabilities of Bank
under a commitment made to Borrower prior to the date of such death. As to all
surviving Guarantors, this Guaranty shall continue in full force and effect
after the death of a Guarantor, not only as to the Liabilities existing at that
time, but also as to Liabilities thereafter incurred by Borrower to Bank.
8. PARTIAL INVALIDITY AND/OR ENFORCEABILITY OF GUARANTY. The unenforceability
or invalidity of any provision of this Guaranty shall not affect the
enforceability or validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document as it may apply to any
person or circumstance shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.
In the event Bank is required to relinquish or return the payments, the
Collateral or the proceeds thereof, in whole or in part, which had been
previously applied to or retained for application against any Liability, by
reason of a proceeding arising under the Bankruptcy Code, or for any other
reason, this Guaranty shall automatically continue to be effective
notwithstanding any previous cancellation or release effected by the Bank.
9. OBLIGATIONS OF GUARANTOR. In the event that Borrower fails to perform any
of the Obligations or pay any of the Liabilities, Guarantor shall upon demand by
Bank, promptly and with due diligence pay all Liabilities and perform and
satisfy for the benefit of the Bank all Obligations.
Guarantor will not become a party to a merger or consolidation with any other
company, except where company is the surviving corporation or entity, and all
covenants under this Guaranty Agreement are assumed by the surviving
corporation. Further, Guarantor may not change the status of or type of entity
that Guarantor is, without the written consent of Bank and all covenants under
this Guaranty Agreement are assumed by the new or surviving entity. Guarantor
further agrees that this Guaranty Agreement shall be binding, legal and
enforceable against Guarantor in the event Borrower changes its name, status or
type of entity.
10. FINANCIAL AND OTHER INFORMATION. Guarantor agrees to furnish to Bank any
and all financial information and any other information regarding Guarantor
and/or Collateral requested in writing by Bank within ten (10) days of the date
of the request. The Guarantor has made an independent investigation of the
financial condition and affairs of the Borrower prior to entering into this
Guaranty, and the Guarantor has made and will continue to make an independent
appraisal of the creditworthiness of the Borrower; and in entering into this
Guaranty the Guarantor has not relied upon any representation of the Bank as to
the financial condition, operation or creditworthiness of the Borrower. The
Guarantor further agrees that the Bank shall have no duty or responsibility now
-4-
<PAGE>
or hereafter to make any investigation or appraisal of the borrower on behalf of
the Guarantor or to provide the Guarantor with any credit or other information
which may come to its attention now or hereafter.
11. NOTICES. All notices required or permitted to be given to Bank herein
shall be sent by registered or certified mail, return receipt requested to the
Bank at the address shown in the preamble to this Agreement. Guarantor agrees
that all notices required or permitted to be given to Guarantor shall be sent by
first class mail, postage prepaid United States mail. The parties agree that
the notice shall be considered received by Guarantor five (5) days after being
placed in the United States mail.
12. EVENTS OF DEFAULT. The following are events of default hereunder: (A) the
failure to pay or perform any Obligation, Liability or indebtedness of Borrower
or Guarantor to Bank, or to any affiliate of Bank, whether under this Guaranty
or any other agreement, note or instrument now or hereafter existing, as and
when due (whether upon demand, at maturity or by acceleration); (b) the failure
to pay or perform any other Obligation, Liability or indebtedness of Borrower or
Guarantor as and when due, whether to Bank or some other party, the collateral
for which constitutes an encumbrance on the Collateral for this Guaranty;
(c) death of any Borrower or Guarantor (if an individual), or a proceeding being
filed or commenced against a Borrower or Guarantor for dissolution or
liquidation, or any Borrower or Guarantor voluntarily or involuntarily
terminating or dissolving or being terminated or dissolved; (d) the insolvency
of, the business failure of, the appointment of a custodian, trustee, liquidator
or receiver for or for any of the property of, or an assignment for the benefit
of creditors by, or the filing of a petition under any bankruptcy, insolvency or
debtor's relief law of for any adjustment or indebtedness, composition or
extension by or against Borrower or Guarantor; (e) any lien or additional
security interest being placed upon any of the Collateral which is security for
this Guaranty; (f) acquisition at any time or from time to time of title to the
whole of or any part of the Collateral which is security for this Guaranty by
any person, partnership, corporation, or other entity; (g) Bank determining that
any representation or warranty made by Borrower or Guarantor to Bank is, or was,
untrue or materially misleading; (h) failure of Borrower or Guarantor to timely
deliver such financial statements, including tax returns, and other statements
of condition or other information as Bank shall request from time to time;
(i) any default under any Loan Documents; (j) entry of a judgment against
Borrower or Guarantor which Bank deems to be of a material nature, in Bank's
sole discretion; (k) the seizure or forfeiture of, or the issuance of any writ
of possession, garnishment or attachment, or any turnover order for any property
of Borrower or Guarantor; (l) Bank reasonably deeming itself insecure for any
reason; (m) the determination by Bank that a material adverse change has
occurred in the financial condition of Borrower or Guarantor; (n) the failure to
comply with any law regulating the operation of Borrower's business;
(o) termination of Guaranty by Guarantor, or (p) the inability of the Borrower
or Guarantor to pay debts as they mature whether owing to Bank or any other
party.
13. REMEDIES. Upon the occurrence of any event of default hereunder, Bank
shall have all of the remedies of a creditor and, to the extent applicable, of a
secured party, under all applicable law, and without limiting the generality of
the foregoing, Bank may, at its option and without notice or demand; (a) declare
any Liability accelerated and due and payable at once; and (b) take possession
of
-5-
<PAGE>
any Collateral wherever located, and sell, resell, assign, transfer and deliver
all or any part of said Collateral of Borrower of Guarantor at any public or
private sale or otherwise dispose of any or all of the Collateral in its then
condition, for cash or on credit or for future delivery, and in connection
therewith Bank may impose reasonable conditions upon any such sale. Bank,
unless prohibited by law the provisions of which cannot be waived, may purchase
all or any part of said Collateral to be sold, free from and discharged of all
trusts, claims, rights or redemption and equities of the Borrower of Guarantor
whatsoever, Guarantor acknowledges and agrees that the sale of any Collateral
through any nationally recognized broker-dealer, investment banker or any other
method common in the securities industry shall be deemed a commercially
reasonable sale under the Uniform Commercial Code or any other equivalent
statute or federal law, and expressly waives notice thereof except as provided
herein; and (c) set-off against any or all liabilities of Guarantor all money
owed by Bank in any capacity by Guarantor whether or not due, and also set-off
against all other liabilities of Borrower or Guarantor to Bank all money owed by
Bank in any capacity to any Borrower or Guarantor, and if exercised by Bank,
Bank shall be deemed to have exercised such right of set-off and to have made a
charge against any such money immediately upon the occurrence of such default
although made or entered on the books subsequent thereto.
14. ATTORNEY FEES, COST AND EXPENSE. Guarantor shall pay all costs of
collection and attorney's fees equal to the greater of (a) ten percent (10%) of
any liability due and unpaid if Bank proceeds to collect such Liability through
the services of an attorney at law, whether through the initiation of legal
proceedings or otherwise, plus reasonable attorney's fees incurred in appellate
proceedings, or (b) reasonable attorney's fees, including reasonable attorney's
fees in connection with any suit, mediation or arbitration proceeding, out of
court payment agreement, trial, appeal, bankruptcy proceedings or otherwise,
incurred or paid by Bank in enforcing the payment of any Liability or enforcing
or preserving any right or interest of Bank hereunder, including the collection,
presentation, sale or delivery of any Collateral from time to time pledged to
Bank, and after deducting such fees, costs and expenses from the proceeds of
sale or collection, Bank may apply any residue to pay any of the Liabilities and
Guarantor shall continue to be liable for any for any deficiency with interest
at the rate specified in any instrument evidencing the Liability or, at the
Bank's option, equal to the highest lawful rate, which shall remain a liability.
15. PRESERVATION OF PROPERTY. Bank shall not be bound to take any steps
necessary to preserve any rights in any of the property of Guarantor pledged to
Bank to secure Guarantor's obligations against prior parties who may be liable
in connection therewith, and Guarantor hereby agrees to take any such steps.
Bank, nevertheless, at any time, may (a) take any action it deems appropriate
for the care or preservation of such property or of any rights of Guarantor or
Bank therein, (b) demand, sue for, collect or receive any money or property at
any time due, payable or receivable on account of or in exchange for any
property of Guarantor, (c) compromise and settle with any person liable on such
property, or (d) extend the time of payment or otherwise change the terms of the
Loan Documents as to any party liable on the Loan Documents, all without notice
to, without incurring responsibility to, and without affecting any of the
obligations or liabilities of Guarantor.
-6-
<PAGE>
16. COLLATERAL. The Bank at all times and from time to time shall have the
right to require Guarantor to deliver to Bank Collateral satisfactory to Bank to
secure Guarantor's undertakings hereunder and/or the liabilities of Guarantor
hereunder.
Bank shall have a properly perfected security interest in all of Guarantor's
funds on deposit with Bank to secure the balance of any liabilities and/or
obligation that Guarantor may now or in the future owe the Bank. Bank is
granted a contractual right of set-off and will not be liable for dishonoring
checks or withdrawals where the exercise of Bank's contractual right of set-off
or security interest results in insufficient funds in Guarantor's account. As
authorized by law, Guarantor grants to Bank this contractual right of set-off
and security interests in all property of Guarantor now or at anytime hereafter
in the possession of Bank, including but not limited to any joint account,
special account, account by the entireties, tenancy in common, and all dividends
and distributions now or hereafter in the possession or control of Bank.
[ ] Check if applicable. In addition to the provisions stated above, Guarantor
hereby pledges, assigns and grants to Bank a security interest in and title to
the Collateral described in the security agreement, deed of trust, deed to
secure debt, mortgage or other Collateral instrument dated _____, 19__, which
Collateral, except for any margin stock (as defined in Regulation U of the Board
of Governors of the Federal Reserve System), shall secure this Guaranty, whether
currently existing or arising in the future. Guarantor agrees to execute such
security agreement, financing agreements and other documents as Bank may
reasonably require or request to obtain and perfect its security interest in
said Collateral.
17. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON OR
ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC.,
(J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIED
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF THE
BORROWER'S DOMICILE, AT THE TIME OF THIS AGREEMENT'S EXECUTION AND ADMINISTERED
BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL
-7-
<PAGE>
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER , THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
(B) RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO
(i) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTE OF LIMITATION OR
REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (ii) BE A WAIVER BY THE
BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C., SEC. 91 OR ANY SUBSTANTIALLY
EQUIVALENT STATE LAW; OR (iii) LIMIT THE RIGHT OF THE BANK HERETO (A) TO
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO
FORECLOSURE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL, OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE
BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN
SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF
ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT. AT BANK'S
OPTION, FORECLOSURE UNDER A DEED OF TRUST OR MORTGAGE MAY BE ACCOMPLISHED BY ANY
OF THE FOLLOWING: THE EXERCISE OF A POWER OF SALE UNDER THE DEED OF TRUST OR
MORTGAGE, OR BY JUDICIAL SALE UNDER THE DEED OF TRUST OR MORTGAGE, OR BY
JUDICIAL FORECLOSURE. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE
INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL, OR
ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
-8-
<PAGE>
18. NOTICE OF FINAL AGREEMENT. THIS WRITTEN CONTINUING AND UNCONDITIONAL
GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Date: November 13, 1995
-------------------------
NationsBank of Texas, N.A.
By: /s/ Jan Chism Wright
---------------------------
Print Name and Title
Jan Chism Wright, Vice President
Witnessed By: Guarantor:
X /s/ John Moores
- ------------------------------------ ----------------------------------------
Print Name (And Title, If Applicable) John Moores
Print Individual's Name
Corporate Guarantor or Partnership:
Head of Corporation, Partnership, etc.
Attest (If Applicable) By:
-------------------------------------
- ------------------------------------ ----------------------------------------
Print Name and Title
[Corporate Seal]
-9-
<PAGE>
Individual Acknowledgment
State of California )
----------------)
)
County of San Diego )
---------------)
This instrument was acknowledged before me on November 14, 1995, 19__, by ___
John Moores .
- -------------------------
Guarantor
/s/ Linda Diane Marshall
---------------------------------------------
Notary Public
in and for the State of California
---------------------
May 15, 1998 Linda Diane Marshall
- ------------------------- ---------------------------------------------
My Commission Expires Print Name of Notary
Corporate Acknowledgment
State of )
---------------------)
)
County of )
--------------------)
This instrument was acknowledged before me on ___________________, 19__, by
__________________________, ____________ of ___________________________________
____________________, a ___________ corporation, on behalf of said corporation.
---------------------------------------------
Notary Public
[SEAL] IN and for the State of
----------------------
- ----------------------------- ---------------------------------------------
My Commission Expires Print Name of Notary
<PAGE>
December 16, 1996
NationsBank of Texas, N.A.
700 Louisiana, 7th Floor
Houston, Texas 77002
Re: Loans from NationsBank of Texas, N.A. to Peregrine Systems, Inc.
Ladies and Gentlemen:
The undersigned has previously executed a Continuing and Unconditional
Guaranty (the "Guaranty") dated November 13, 1995, guaranteeing, among other
things, all debt and other liabilities of every kind which Peregrine Systems,
Inc. ("Borrower") may now or hereafter owe to NationsBank of Texas, N.A.
("Bank"), as provided for in the Guaranty, including, without limitation, all
debt and liabilities of Borrower as referenced in the Loan Agreement (as
amended, the "Loan Agreement") dated November 13, 1995, between Borrower and
Bank. Pursuant to a Fourth Amendment to Loan Agreement of even date herewith
(the "Fourth Amendment"), Borrower and Lender have amended and modified certain
of the terms of the Loan Agreement, and in connection therewith Borrower and
Lender have renewed and extended the revolving loan as evidenced by a Promissory
Note (the "Revolving Note") of even date herewith, in the original principal
amount of $4,500,000.00, executed by Borrower to the order of Lender.
By this letter, the undersigned confirms and acknowledges that the
Guaranty continues in full force and effect to secure all indebtedness and other
liabilities of Borrower to Bank, including, without limitation, the obligations
of Borrower under the Loan Agreement and the Revolving Note, and the undersigned
hereby consents to the execution of the Fourth Amendment and the Revolving Note.
The undersigned represents and warrants to Bank that:
(a) The undersigned is and has been since the date of his
delivery of the Guaranty, solvent. The execution and delivery of the
Guaranty has not caused the undersigned to become insolvent or so
undercapitalized that the undersigned is unable to pay his debts as
they become due;
<PAGE>
NationsBank of Texas, N.A.
December 16, 1996
Page 2
(b) The value to the undersigned of the indirect and direct
benefits received by the undersigned as a result of its execution and
delivery of the Guaranty exceeded, and continues to exceed, the value
of the Guaranty;
(c) All representations and warranties made by the undersigned
in the Guaranty are true and correct as of the date hereof and
Guarantor is in full compliance with all of the terms and covenants in
the Guaranty; and
(d) Except as previously disclosed by the undersigned to Bank in
writing, all creditors of the undersigned existing at the time of the
execution and delivery of the Guaranty have been paid in full.
The undersigned acknowledges that the Guaranty covers, among other
things, all indebtedness created after the date of the Guaranty and that,
pursuant to the Guaranty, the undersigned has waived notice of the creation, or
the extension, renewal, or rearrangement, of the indebtedness evidenced by the
Revolving Note. The execution and delivery of this letter do not impair such
waiver nor entitle the undersigned to any notice of or request for consent to
the creation of additional indebtedness or to any future extensions, renewals,
or rearrangements of existing indebtedness.
THIS LETTER AND THE GUARANTY REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN
THE PARTIES.
Very truly yours,
/s/ John Moores
------------------------------
JOHN J. MOORES
<PAGE>
NationsBank of Texas, N.A.
December 16, 1996
Page 3
ACKNOWLEDGED FOR PURPOSES OF
SECTION 26.02 OF THE TEXAS
BUSINESS AND COMMERCE CODE BY:
NATIONSBANK OF TEXAS, N.A.
By: /s/ Raul Anaya
---------------------------------
Raul Anaya,
Vice President
STATE OF Section
----------------
Section
COUNTY OF Section
---------------
This instrument was acknowledged before me on __________________, 1996
by JOHN J. MOORES.
/s/ Margaret Woodrum
--------------------------------------
Notary Public in and for
the State of Texas
Margaret Woodrum
- ------------------------ ----------------------------------------
My Commission Expires Printed Name of Notary
<PAGE>
PROMISSORY NOTE
$1,759,987.96 Houston, Texas December 16, 1996
FOR VALUE RECEIVED, on the dates, and in the amounts so herein
stipulated, the undersigned, PEREGRINE SYSTEMS, INC., a Delaware corporation
("MAKER") promises to pay to the order of NATIONSBANK OF TEXAS, N.A. ("LENDER")
at its banking quarters in Houston, Harris County, Texas, in coin or currency of
the United States of America, which at the time of payment is legal tender for
the payment of public and private debts, the principal sum of ONE MILLION SEVEN
HUNDRED FIFTY-NINE THOUSAND NINE HUNDRED EIGHTY-SEVEN AND 96/100 DOLLARS
($1,759,987.96), together with accrued interest on the principal amount hereof
remaining unpaid from time to time, computed from the date of advance until
maturity at the hereinafter described interest rates. Maker does hereby agree
to the following terms of this Note:
1. DEFINITIONS. As used in this Note, the following terms shall have the
following definitions:
"ADJUSTED LIBOR" shall mean LIBOR plus the applicable LIBOR Adjustment.
"APPLICATION" shall mean the Rate Designation Notice attached hereto and
made a part hereof as EXHIBIT A.
"BUSINESS DAY" shall mean a day of the year on which national banking
associations are not required or authorized to close in Houston, Texas, and, if
the applicable Business Day relates to any LIBOR Election, continuation of, or
conversion to LIBOR Principal, a day of the year on which Lender is open for
business and commercial banks are open for business in the London interbank
market.
"CONSEQUENTIAL LOSS" shall mean, with respect to Maker's payment of
principal or interest under a LIBOR Principal borrowing or the conversion of a
LIBOR Principal borrowing to a Prime Rate Principal borrowing on a day other
than the last day of the applicable Interest Period, whether voluntary or
involuntary, including, without limitation, due to Maker's selection (subject to
Lender's approval) of an Interest Period that expires after the Maturity Date,
any loss, expense, penalty, or premium reasonably incurred by Lender, including,
without limitation, any interest paid by Lender which accrues on funds borrowed
by Lender to make the LIBOR Principal borrowing and which cannot be prepaid by
Lender until the end of the applicable Interest Period. Each determination of
the amount of such compensation shall be made by Lender in good faith, shall be
conclusive and binding, absent manifest error, and may be computed using any
reasonable and customary averaging and attribution method.
"EVENT OF DEFAULT" shall have the meaning given to such term the Loan
Agreement.
(Continued on Page Two)
<PAGE>
(Continued from Page One)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
"INTEREST PERIOD" means, with respect to any LIBOR Principal, the period of
time designated by Maker in the LIBOR Election relating thereto, subject to the
limitations and provisions set forth in the loan documents. The duration of
each Interest Period for any LIBOR Principal shall be 30, 60, or 90 days;
provided that:
(a) any Interest Period which would otherwise end on a day which
is not a Business Day shall be extended to the next succeeding day
which is a Business Day unless such Business Day falls in another
calendar month in which case such Interest Period shall end on the
preceding Business Day;
(b) any Interest Period which begins on the last Business Day of
a calendar month shall end on the last Business Day of a calendar
month;
(c) any Interest Period which begins on a day for which there is
no numerically corresponding day in the calendar month at the end of
such Interest Period shall end on the last Business Day of such
calendar month; and
(d) the selection of any Interest Period shall be limited to the
availability thereof if Lender determines, in its reasonable
discretion, that Lender is unable through its customary general
procedures to offer LIBOR for such Interest Period.
"LAWS" shall mean all constitutions, treaties, statutes, laws, ordinances,
regulations, orders, writs, injunctions, or decrees of the United States of
America, any state or commonwealth, any municipality, any foreign country, any
territory or possession, or any tribunal, as in effect on the date hereof and as
the same may hereafter be amended, issued, or promulgated from time to time.
"LIBOR" shall mean for the Interest Period applicable thereto, the per
annum rate of interest determined by Lender as the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page
3750 (or any successor page) as the London interbank offered rate for deposits
in dollars at approximately 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period for a term comparable to such Interest
Period. If for any reason such rate is not available, the term "LIBOR" shall
mean, for any Interest Period, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as
the London interbank offered rate for deposits in dollars at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable
(Continued on Page Three)
<PAGE>
(Continued from Page Two)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
to such Interest Period; provided, however, if more than one rate is
specified on the Reuters Screen LIBO Page, the applicable rate shall be
arithmetic mean of all such rates.
"LIBOR ADJUSTMENT" shall mean 1.50%.
"LIBOR ELECTION" shall mean an election pertaining to LIBOR Principal made
pursuant to this Note.
"LIBOR PRINCIPAL" shall mean any principal that is designated as LIBOR
Principal on Lender's records pursuant to one or more effective LIBOR Elections.
"LOAN" shall mean each ADVANCE by Lender to Maker made as described in this
Note.
"LOAN AGREEMENT" shall mean the Loan Agreement dated November 13, 1995,
between Lender and Maker, as amended, modified, supplemented, and restated from
time to time.
"LOAN DOCUMENTS" shall mean this Note, the Loan Agreement, and all other
documents, agreements, and instruments now or hereafter existing, evidencing,
securing, or otherwise relating to the Loan, this Note, and/or any transaction
contemplated by this Note, as any of the foregoing items may be modified or
supplemented from time to time.
"MATURITY DATE" shall mean November 13, 2000.
"MAXIMUM RATE" shall mean, on any day, the highest nonusurious rate of
interest (if any) permitted by applicable law on such day. For purposes of TEX.
REV. CIV. STAT. ANN., Art. 5069-1.04, as it may from time to time be amended,
the Maximum Rate shall be the "indicated rate ceiling" referred to in and
determined under Art. 5069-1.04(a)(1) from time to time in effect; provided,
however, that to the extent permitted by applicable law, Lender reserves the
right to change, from time to time by further notice and disclosure to Maker,
the ceiling on which the Maximum Rate is based under Art. 5069-1.04; and
provided further, that the "highest nonusurious rate of interest permitted by
applicable law" for purposes of this Note shall not be limited to the applicable
rate ceiling under Art. 5069-1.04 if federal laws or other state laws now or
hereafter in effect and applicable to this Note (and the interest contracted
for, charged and collected hereunder) shall permit a higher rate of interest.
"OBLIGATIONS" shall mean (i) the Principal Debt, (ii) all accrued unpaid
interest (at any time and from time to time) on the Principal Debt, and (iii)
all other outstanding (at any
(Continued on Page Four)
<PAGE>
(Continued from Page Three)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
time and from time to time) fees, costs, expenses, charges, and obligations
payable, and all covenants performable, under this Note, including, without
limitation, all accrued unpaid interest on any such other fees, costs,
expenses, charges, or obligations.
"PAST DUE RATE" means the lesser of (a) the rate of five percent (5%) per
annum plus the Prime Rate or (b) the Maximum Rate. When CLAUSE (B) establishes
the Past Due Rate, the Past Due Rate shall automatically fluctuate upward and
downward as and in the amount by which the Maximum Rate per annum fluctuates,
without notice to Maker.
"PRIME RATE" shall mean on any day, the fluctuating rate of interest
established by Lender from time to time, at its discretion, whether or not such
rate shall be otherwise published. The Prime Rate is established by Lender as
an index or base rate and may or may not at any time be the best or lowest rate
charged by Lender on any loan.
"PRIME RATE ADJUSTMENT" shall mean 0%.
"PRIME RATE PRINCIPAL" shall mean all Principal Debt other than LIBOR
Principal.
"PRINCIPAL DEBT" shall mean the aggregate unpaid balance of this Note at
the time in question.
"RESERVE PERCENTAGE" shall mean for any Interest Period, that percentage
which is specified on the first day of such Interest Period by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
average maximum reserve requirement (including, but not limited to, any marginal
reserve requirement) for Lender with respect to liabilities consisting of or
including (among other liabilities) U.S. dollar nonpersonal time deposits in the
United States and with a maturity equal to such Interest Period. Lender
acknowledges that as of the date hereof the Reserve Percentage is zero.
"STATED RATE" shall mean for Prime Rate Principal on any day, a rate per
annum equal to the Prime Rate for that day plus the applicable Prime Rate
Adjustment, PROVIDED, that if on any day the Stated Rate shall exceed the
maximum permitted by application of the Maximum Rate in effect on that day, the
Stated Rate shall be fixed at the maximum permitted by application of the
Maximum Rate on that day and on each day thereafter until the total amount of
interest accrued at the Stated Rate on the unpaid balance of this Note equals
the total amount of interest which would have accrued if there were no
limitation by the Maximum Rate and the Stated Rate had not been so fixed, or
until the earlier payment in full of this Note.
(Continued on Page Five)
<PAGE>
(Continued from Page Four)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
"TELERATE PAGE" means the British Bankers Association LIBOR Rates
(determined at 11:00 a.m. London Time) that are published by Dow Jones Telerate,
Inc.
2. INTEREST.
(a) INTEREST RATE OPTION. The Principal Debt may be (i) Prime Rate
Principal, (ii) LIBOR Principal, or (iii) a combination thereof, as elected by
Maker, subject to the limitations and conditions stated in this Note. Maker may
make a LIBOR Election for (x) a new LIBOR Election, (y) any LIBOR Principal for
which the corresponding Interest Period is expiring, and/or (z) any Prime Rate
Principal, subject in each case to the limitations, conditions, and notice
requirements set forth in this Note. If for any reason an effective LIBOR
Election is not made in accordance with the terms of this Note for any LIBOR
Principal for which the corresponding Interest Period is expiring or for any
conversion of Prime Rate Principal to LIBOR Principal, then the sums in question
will be Prime Rate Principal until an effective LIBOR Election is thereafter
made for such sums, if any. Any attempted LIBOR Election not made in accordance
with the terms of this Note may, at Lender's option, be treated as ineffective.
(b) CONDITIONS TO LIBOR ELECTION. A LIBOR Election shall be
subject to the following conditions precedent:
(i) Lender shall have timely received the LIBOR Election, in
accordance with this Note;
(ii) No Event of Default, or event which with notice, lapse of
time, or both, would constitute an Event of Default, has occurred and
is continuing;
(iii) The Interest Period corresponding to such LIBOR
Election shall commence on a Business Day;
(iv) If any Interest Period corresponding to such LIBOR Election
expires after the Maturity Date, Lender shall not have rejected such
LIBOR Election in accordance with Section 2(f)(iv) of this Note;
(v) The amount of LIBOR Principal subject to the LIBOR Election
shall be $250,000 or more, and for amounts above such minimum, must be
in evenly divisible multiples of $100,000.00;
(vi) The Adjusted LIBOR shall not exceed the Maximum Rate
applicable to the Interest Period relating to such LIBOR Election;
(Continued on Page Six)
<PAGE>
(Continued from Page Five)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
(vii) None of the circumstances referred to in Section 2(h)
or 2(i) of this Note shall apply with respect to the requested LIBOR
Election or the LIBOR Principal relating thereto;
(viii) If at any time prior to the date on which any such
LIBOR Election would otherwise become effective, the interest rate on
any Prime Rate Principal has been reduced from the Stated Rate to the
Maximum Rate pursuant to Section 2(f) of this Note, then the amount of
interest accrued on such Prime Rate Principal shall have equaled the
amount of interest that would have accrued thereon if such reduction
had never occurred (pursuant to the provisions of Section 2(f) of this
Note); and
(ix) The requested LIBOR Election shall not cause more than three
LIBOR Elections by Maker to be simultaneously in effect at any one
time.
(c) NOTICE OF ELECTION. In addition to the requirements of the
Loan Agreement relating to ADVANCES, Maker may make a LIBOR Election by
giving the required notice in accordance with the following requirements of
this Section:
(i) Each LIBOR Election, whether delivered by facsimile or
otherwise, shall be completed by Maker on an Application;
(ii) With respect to continuations of or conversions to LIBOR
Principal, a LIBOR Election must be made prior to 2:00 p.m., Houston,
Texas time, two Business Days prior to the time that the continuation
or conversion is to be made. If Maker should fail to timely deliver
any LIBOR Election, any LIBOR Principal for which an Interest Period
is expiring shall be deemed Prime Rate Principal;
(iii) Each LIBOR Election shall stipulate whether it is for a
continuation or a conversion, and shall stipulate the type and amount
of the continuation or conversion and the Interest Period selected.
If any LIBOR Election fails to stipulate the Interest Period to be
applicable to any LIBOR Principal, then Prime Rate Principal will be
deemed stipulated;
(iv) All LIBOR Elections shall be irrevocable once given. Each
LIBOR Election shall be made either by (A) facsimile (followed by
written notice thereof), or (B) delivery of written notice to Lender;
and
(Continued on Page Eight)
<PAGE>
(Continued from Page Seven)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
(v) Each LIBOR Election shall be executed by an authorized
representative of Maker. Lender shall not incur any liability to
Maker in acting upon any LIBOR Election that Lender in good faith
believes to have been given or executed by an authorized
representative of Maker.
(d) INTEREST ON PRIME RATE PRINCIPAL. Prime Rate Principal from
time to time outstanding that is not past due shall bear interest at a
varying rate per annum equal to the lesser of (i) the Maximum Rate, or (ii)
the Stated Rate, from the date hereof, the date of the conversion into such
Prime Rate Principal until the Maturity Date, or, if earlier, with respect to
any Prime Rate Principal converted into LIBOR Principal in accordance with
the terms of this Note, until the first day of the Interest Period applicable
to any such LIBOR Principal; PROVIDED, that if at any time the rate described
in clause (ii) immediately preceding would exceed the Maximum Rate, then the
rate of interest on Prime Rate Principal from time to time outstanding shall
be limited to the Maximum Rate, but, to the extent permitted by applicable
laws, any subsequent reductions in the Prime Rate shall not reduce the rate
of interest accruing on Prime Rate Principal from time to time outstanding
below the Maximum Rate until the total amount of interest accrued thereon at
the Maximum Rate equals the amount of interest that would have accrued
thereon if the rate of interest on Prime Rate Principal had not been limited
to the Maximum Rate.
(e) INTEREST ON LIBOR PRINCIPAL. The LIBOR Principal from time to
time outstanding that is not past due shall bear interest on the first day of
the Interest Period applicable thereto and every succeeding day until the last
day of such Interest Period at a rate per annum equal to the lesser of (i) the
Maximum Rate, or (ii) the Adjusted LIBOR.
(f) GENERAL PAYMENT AND INTEREST PROVISIONS.
(i) Each payment of principal, interest, and/or other sums due
under this Note or any other loan document shall be made to Lender at
its banking quarters located in Houston, Texas.
(ii) With respect to a conversion of LIBOR Principal into Prime
Rate Principal, interest shall accrue thereon at the rate stipulated
in Section 2(d) of this Note from the last day of the Interest Period
applicable to the LIBOR Principal so converted. Interest shall accrue
on any Prime Rate Principal outstanding from time to time at the rate
stipulated in Section 2(d) of this Note until the Maturity Date.
(iii) With respect to LIBOR Principal that has been continued
in accordance with the terms of this Note, interest shall accrue
thereon at the rate stipulated in Section 2(e) of this Note from the
last day of the Interest
(Continued on Page Nine)
<PAGE>
(Continued from Page Eight)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
Period applicable to such LIBOR Principal prior to such continuation,
until the last day of the Interest Period applicable to such LIBOR
Principal as so continued. With respect to LIBOR Principal converted
from Prime Rate Principal in accordance with the terms of this Note,
interest shall accrue thereon at the rate stipulated in Section 2(e)
of this Note from the first day of the Interest Period applicable thereto
until the last day of such Interest Period.
(iv) Notwithstanding anything to the contrary contained in this
Note, if Maker makes a LIBOR Election with a corresponding Interest
Period that expires after the Maturity Date, Lender shall have the
option, in its sole discretion, to reject such LIBOR Election. If
Lender does not reject such LIBOR Election, and LIBOR Principal is
advanced for an Interest Period that expires after the Maturity Date,
then on the Maturity Date, unless Lender has agreed to an extension of
this Note, such LIBOR Principal and all interest that has accrued with
respect to such LIBOR Principal and any amount necessary to compensate
Lender for any Consequential Loss shall be due and payable. Maker
understands and agrees that Maker's making a LIBOR Election and
Lender's funding of LIBOR Principal with a corresponding Interest
Period that expires after the Maturity Date shall not be interpreted
as an agreement by Lender to extend the Maturity Date or enter
negotiations to extend the Maturity Date.
(v) Unless and until Maker makes an election otherwise hereunder,
the Principal Debt shall be Prime Rate Principal.
(g) PREPAYMENTS.
(i) Maker shall have the right at any time and from time to time
to prepay any Prime Rate Principal in whole or in part. Maker shall
additionally have the right, upon three Business Days' irrevocable
written notice to Lender, to prepay any LIBOR Principal in whole or in
part; provided that, Maker in its notice shall specify the date
proposed for prepayment and the principal amount to be prepaid; and
further provided that, whenever notice of any such prepayment has been
given, the principal amount to be prepaid together with all accrued
interest thereon shall automatically become due and payable at or
before 2:00 p.m., Houston time, on such prepayment date. In addition
to the principal of and accrued interest on any LIBOR Principal being
prepaid (whether voluntary or involuntary), Maker shall pay to Lender,
as a bargained-for fee for such prepayment of LIBOR Principal, and not
as compensation for the use or forbearance or detention of money, an
(Continued on Page Ten)
<PAGE>
(Continued from Page Nine)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
additional amount, if any, as is necessary to compensate Lender for
any Consequential Loss resulting from such prepayment on a day other
than the last day of the applicable Interest Period.
(ii) Subject to any applicable provisions of this Note regarding
payment to Lender by Maker of any Consequential Loss, (A) any
prepayment of Principal Debt shall be applied to the Principal Debt in
the manner and order specified by Maker by written notice to Lender
delivered at least three Business Days prior to the date of the
prepayment to which it relates, and (B) if Maker fails to so notify
Lender, then any prepayment of Principal Debt shall first be applied
to reduce Prime Rate Principal, with any excess then applied to reduce
LIBOR Principal in the manner and order determined by Lender in its
sole discretion.
(h) ILLEGALITY. With respect to any LIBOR Principal outstanding
under this Note, if Lender in good faith determines (which determination shall
be conclusive) that the adoption or modification of any applicable Law, rule, or
regulation, or any interpretation, application, or administration thereof by any
governmental authority, central bank, or comparable agency (or compliance
therewith by Lender) prohibits or restricts or makes impossible (or is asserted
by any governmental authority, central bank, or comparable agency to prohibit or
restrict or make impossible) the maintaining of such LIBOR Principal or the
charging of interest on such LIBOR Principal at the rate stipulated in Section
1(f) of this Note, then or at any time thereafter Lender shall have the right to
comply with such applicable Law, rule, or regulation and require by written
notice to Maker conversion of the affected LIBOR Principal to Prime Rate
Principal, subject to notice as provided herein, to permit compliance with such
applicable Law, rule, or regulation. Such conversion or payment may be made on
the last day of the Interest Period applicable to the affected LIBOR Principal,
or, subject to Section 1(n), on any earlier Business Day (as specified by Maker
by a LIBOR Election, in the case of a conversion). If Lender may not lawfully
continue to maintain, and charge such interest on, the affected LIBOR Principal
until the last day of the Interest Period applicable thereto, then the affected
LIBOR Principal shall be converted to Prime Rate Principal on the date
determined by Lender as specified in a notice from Lender to Maker, subject to
Section 2(m) of this Note.
(i) UNAVAILABILITY OF RATE. If, with respect to any LIBOR
Election, deposits in U.S. dollars (in the applicable amounts) are not being
offered generally to Lender in the relevant market for the applicable
Interest Period, or if Lender determines that the provisions of Section 2(h)
of this Note apply, or if because of any other reason outside of the control
of Lender the Adjusted LIBOR will not adequately and fairly reflect the cost
to Lender of funding or maintaining LIBOR Principal, or if Lender determines
that no adequate or reasonable means exists to ascertain the LIBOR and Lender
gives notice
(Continued on Page Eleven)
<PAGE>
(Continued from Page Ten)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
thereof to Maker, then until Lender notifies Maker that the circumstances
giving rise to such suspension no longer exist, the obligation of Lender to
permit the LIBOR Election shall be suspended. Subject to the provisions of
Section 2(h) of this Note, if applicable, Maker shall convert any affected
LIBOR Principal, on the last day of the applicable Interest Period, to Prime
Rate Principal, subject to notice as provided herein and shall on such last
day pay all accrued and unpaid interest on the LIBOR Principal so converted.
(j) TAXES. Any and all payments made by Maker hereunder or
under any other loan document shall be made free and clear of and without
deduction for any and all present or future taxes, deductions, charges, or
withholdings, and all liabilities with respect thereto, excluding taxes
imposed on Lender's income (all such non-excluded taxes, deductions, charges,
withholdings, and liabilities are hereinafter referred to collectively as
"TAXES"). If Maker shall be required by Law to deduct any Taxes from or in
respect of any sum payable to Lender hereunder or under any other loan
document, (i) the sum payable shall be increased as may be necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 2(j)) Lender receives an amount
equal to the sum it would have received had no such deductions been made, and
(ii) Maker shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable Laws. In
addition, Maker agrees to pay any present or future stamp or documentary
taxes and any other excise or property taxes, charges, or similar levies that
arise from any payment made hereunder or from the execution, delivery, or
registration of, or otherwise with respect to, this Note (such taxes,
charges, or similar levies are hereinafter referred to collectively as "Other
Taxes"). MAKER WILL INDEMNIFY LENDER FOR THE FULL AMOUNT OF TAXES AND OTHER
TAXES, INCLUDING, WITHOUT LIMITATION, ANY TAXES OR OTHER TAXES IMPOSED BY ANY
JURISDICTION ON AMOUNTS PAYABLE UNDER THIS SECTION 2(J) PAID OR INCURRED BY
OR IMPOSED ON LENDER AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST, AND
EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH
TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED. THIS
INDEMNIFICATION SHALL BE MADE WITHIN THIRTY DAYS FROM THE DATE LENDER MAKES
WRITTEN DEMAND THEREFOR. WITHIN THIRTY DAYS AFTER THE DATE OF ANY PAYMENT OF
TAXES OR OTHER TAXES, MAKER WILL FURNISH TO LENDER THE ORIGINAL OR A
CERTIFIED COPY OF A RECEIPT EVIDENCING PAYMENT THEREOF.
(k) YIELD PROTECTION; INCREASED COSTS. If due to either: (i) the
introduction, after the date hereof, of or any change (including, without
limitation, any change by way of imposition or increase of reserve requirements,
but excluding any amounts payable under 2(h) of this Note in or in the
interpretation of any law or regulation, or (y) the compliance by Lender with
any guideline or request, issued after the date hereof, from any
(Continued on Page Twelve)
<PAGE>
(Continued from Page Eleven)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
central bank or other governmental authority (whether or not having the force
of law), there shall be any increase in the cost to Lender of agreeing to
make or making, funding or maintaining any portion of the unpaid principal of
this Note bearing interest at the Adjusted LIBOR (including any Consequential
Loss), unless Maker has designated an alternative office not located in the
United States which does not adversely impact Lender, then Maker shall from
time to time, upon demand by Lender, pay to Lender additional amounts
sufficient to indemnify Lender against such increased cost. A certificate as
to the amount of such increased cost, submitted to Maker by Lender, shall be
conclusive in the absence of manifest error. It shall be assumed, for the
purposes of computing any increased cost relating to the unpaid principal of
this Note bearing interest at the Adjusted LIBOR pursuant to this paragraph,
that (A) the making and maintaining of the entire loan has been by Lender
through the principal office of Lender in London and (B) the funding of the
entire loan by Lender has been made through the London interbank market. If
any conflict should exist between the provisions of this Section 2(k) and the
provisions of Section 9 of this Note, the provisions of Section 9 of this
Note shall control.
(l) REQUIRED RESERVES. Maker shall pay to Lender during the time
that Lender shall be required to maintain reserves with respect to liabilities
or assets consisting of or including Eurocurrency liabilities (as defined in
Regulation D of the Board of Governors of the Federal Reserve System as in
effect from time to time), additional interest from the first day of the
applicable Interest Period until the end of the applicable Interest Period on
such outstanding principal amount at an interest rate per annum equal at all
times during such Interest Period for such outstanding principal amount equal to
the excess of (x) the rate obtained by dividing the LIBOR for such Interest
Period by a percentage equal to 100% minus the Reserve Percentage applicable
during such Interest Period over (y) the LIBOR for such Interest Period. It
shall be assumed for purposes of computing any interest payable pursuant to this
paragraph that (A) the making and maintaining of the entire loan has been by
Lender through the principal office of Lender in London and (B) the funding of
the entire loan by Lender has been made through the London interbank market.
Lender shall not be entitled to collect any additional interest hereunder unless
it shall have given Maker prior written notice that such additional interest
will accrue during the applicable Interest Period.
(m) INDEMNITY. MAKER AGREES TO INDEMNIFY LENDER AGAINST AND HOLD
LENDER HARMLESS FROM ANY LOSS OR EXPENSE WHICH LENDER MAY INCUR OR SUSTAIN AS A
CONSEQUENCE OF ANY UNTIMELY PAYMENT (MANDATORY OR OPTIONAL) OR DEFAULT BY MAKER
IN THE PAYMENT OF ANY PRINCIPAL AMOUNT OF OR INTEREST ON THIS NOTE, IN EACH CASE
INCLUDING ANY INTEREST PAYABLE BY LENDER TO OBTAIN THE FUNDS USED BY IT TO MAKE
OR MAINTAIN ANY LIBOR BORROWING, AND ANY OTHER CONSEQUENTIAL
(Continued on Page Thirteen)
<PAGE>
(Continued from Page Twelve)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
LOSS. A CERTIFICATE AS TO ANY ADDITIONAL AMOUNTS PAYABLE PURSUANT TO THIS
PARAGRAPH SUBMITTED BY LENDER TO MAKER SHALL BE MADE BY LENDER IN GOOD FAITH,
SHALL CONTAIN REASONABLE DETAIL OF LENDER'S CALCULATION, AND SHALL BE
CONCLUSIVE AND BINDING UPON MAKER, ABSENT MANIFEST ERROR. THE INDEMNITY
AGREEMENTS CONTAINED IN THIS NOTE SHALL SURVIVE THE PAYMENT OF THIS NOTE AS
TO ANY AMOUNTS OR OBLIGATIONS ACCRUED HERE UNDER PRIOR TO THE LATER OF
PAYMENT OF THIS NOTE IN FULL OR THE EXPIRATION OF THE LAST INTEREST PERIOD.
3. PAYMENTS OF PRINCIPAL AND INTEREST.
(i) This Note shall be due and payable as follows:
Equal monthly installments of principal in the amount of
$36,667.67 each, plus interest as it accrues on the
outstanding balance of this Note, shall be due and payable
begining on January 1, 1997, and continuing on the first day
of each successive calendar month thereafter until the
Maturity Date, when the entire outstanding principal balance
of this Note and all unpaid accrued interest shall be fully
due an dpayable; for each installment paid, interest shall
be calculated through the date the installment is paid, and
each installment shall be applied first to unpaid and
accrued interest and then to outstanding principal.
(ii) All payments on account of the Note shall be made no later than
2:00 p.m. (Houston, Texas time) on the day when due in lawful money of the
United States and shall be first applied to interest on the unpaid principal
balance and the remainder to principal. All computations of interest shall be
made by Lender on the basis of the number of days elapsed in a year of 360
consecutive days.
4. PAST DUE RATE. Any payment due under the terms of this Note which is
not paid when due in accordance with the terms and provisions of this Note shall
accrue interest from and after the date it is due until paid at the Past Due
Rate, subject to the further terms hereof.
5. LOAN AGREEMENT. This Note is issued pursuant to the Loan Agreement,
and is the Term Note under and as defined in the Loan Agreement. This Note is
secured by, among other things, the security interests granted and created by
the Security Agreement (the "SECURITY AGREEMENT") dated of even date with the
Loan Agreement, executed by
(Continued on Page Fourteen)
<PAGE>
(Continued from Page Thirteen)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
Maker to Lender, as may be amended from time to time, covering, among other
things, accounts receivable, equipment, and other assets of Maker, as more
fully described in the Security Agreement.
6. DEFAULT. Upon the occurrence of an Event of Default, the holder of
this Note shall have the option to declare this Note due and payable in full
without notice, notice of intent to accelerate, notice of acceleration, demand
or presentment, all of which are expressly waived by Maker. The effective date
of such acceleration shall, notwithstanding anything herein to the contrary, be
the Maturity Date for purposes of this Note.
7. WAIVER. All sureties, guarantors and endorsers hereby expressly and
severally waive grace, and all notices (except such notice, if any, provided in
the Loan Agreement), demands, presentments for payment, notice of nonpayment,
notice of intent to accelerate, notice of acceleration, protest and notice of
protest and diligence in collecting.
8. EXPENSES. Upon the occurrence of an Event of Default, and this Note
is placed in the hands of an attorney for collection (whether or not suit is
filed), or if this Note is collected by suit or legal proceedings or through the
probate court or bankruptcy proceedings, Maker agrees to pay an additional
reasonable amount as attorney's fees and expenses of collection.
9. USURY LAWS. It is the intention of the parties hereto to comply
strictly with all applicable usury laws; accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Note, or in any of the
documents securing payment hereof or otherwise relating hereto, in no event
shall this Note or such documents require the payment or permit the collection
of an aggregate amount of interest in excess of the maximum amount permitted by
such laws, including the laws of the State of Texas and the laws of the United
States of America. If any such excess of interest is contracted for, charged or
received under this Note or under the terms of any of the documents securing
payment hereof or otherwise relating hereto, or if the maturity of the
indebtedness evidenced by this Note is accelerated in whole or in part, or if
all or part of the principal or interest of this Note shall be prepaid, so that
under any of such circumstances the amount of interest (including all amounts
payable hereunder or in connection with the loan evidenced hereby which are not
denominated as interest but which constitute interest under the applicable laws)
contracted for, charged or received under this Note shall exceed the maximum
amount of interest permitted by the applicable usury laws, then in any such
event (a) the provisions of this paragraph shall govern and control, (b) neither
the Maker hereof nor any other person or entity now or hereafter liable for the
payment hereof shall be obligated to pay the amount of such interest to the
extent that it is in excess of the maximum amount of interest permitted by the
applicable usury laws, (c) any such excess interest which may have been
(Continued on Page Fifteen)
<PAGE>
(Continued from Page Fourteen)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
collected shall be either applied as a credit against the then unpaid principal
amount hereof or, if this Note shall have been paid in full, refunded to Maker,
and (d) the effective rate of interest shall be automatically reduced to the
maximum lawful contract rate allowed under the applicable usury laws as now or
hereafter construed by the courts having jurisdiction thereof. It is further
agreed that without limitation of the foregoing, all calculations of the rate of
interest contracted for, charged or received under this Note or under such other
documents which are made for the purpose of determining whether such rate
exceeds the maximum lawful contract rate, shall be made, to the extent permitted
by applicable usury laws, by amortizing, prorating, allocating and spreading in
equal parts during the period of the full stated term of the loan evidenced
hereby, all interest at any time contracted for, charged or received from Maker
or otherwise by the holder or holders hereof in connection with such loan.
10. APPLICABLE LAWS. THIS NOTE HAS BEEN EXECUTED AND DELIVERED AND SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS
AND OF THE UNITED STATES OF AMERICA.
11. SEVERABILITY. The parties hereto intend and believe that each
provision in this Note comports with all applicable local, state and federal
laws and judicial decisions. However, if any provision or provisions, or if any
portion of any provision or provisions, in this Note is found by a court of law
to be in violation of any applicable local, state or federal ordinance, statute,
law, administrative or judicial decision, or public policy, and if such court
should declare such portion, provision or provisions of this Note to be illegal,
invalid, unlawful, void or unenforceable as written, then it is the intent of
all parties hereto that such portion, provision or provisions shall be given
force to the fullest possible extent that they are legal, valid and enforceable,
that the remainder of this Note shall be construed as if such illegal, invalid,
unlawful, void or unenforceable portion, provision or provisions were not
contained therein, and that the rights, obligations and interests of Maker and
Lender hereof under the remainder of this Note shall continue in full force and
effect.
12. ARBITRATION. (a) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THIS NOTE, THE LOAN AGREEMENT, OR ANY RELATED AGREEMENTS OR INSTRUMENTS,
INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE
DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT
(OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW). THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND
(Continued on Page Sixteen)
<PAGE>
(Continued from Page Fifteen)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
MEDIATION SERVICES, INC. (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW.
IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT
UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.
MAKER AND LENDER MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS NOTE
APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(b) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE
CITY OF MAKER'S DOMICILE AS OF THE DATE OF THE LOAN AGREEMENT'S EXECUTION AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS
UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE
AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
(c) RESERVATION OF RIGHTS. NOTHING IN THE NOTE OR THE LOAN
AGREEMENT SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS
AGREEMENT; OR (II) BE A WAIVER BY LENDER OF THE PROTECTION AFFORDED TO IT BY
12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT
THE RIGHT OF LENDER HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT
NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OR POSSESSION
OR THE APPOINTMENT OF A RECEIVER. LENDER MAY EXERCISE SUCH SELF HELP RIGHTS,
FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY
REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING
BROUGHT PURSUANT TO THIS NOTE OR THE LOAN AGREEMENT. NEITHER THIS EXERCISE
OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR
FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF
THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
(Continued on Page Seventeen)
<PAGE>
(Continued from Page Fifteen)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
THIS NOTE, THE LOAN AGREEMENT, THE SECURITY AGREEMENT, AND THE OTHER
DOCUMENTS EXECUTED SUBSTANTIALLY CONTEMPORANEOUSLY HEREWITH REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
PEREGRINE SYSTEMS, INC.
By: /s/David A. Farley
----------------------------------
Name: David A. Farley
--------------------------------
Title: Chief Financial Officer
-------------------------------
(Continued on Page Seventeen)
<PAGE>
(Continued from Page (Sixteen)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
ACKNOWLEDGED FOR PURPOSES OF
SECTION 26.02 OF THE TEXAS
BUSINESS AND COMMERCE CODE BY:
NATIONSBANK OF TEXAS, N.A.
By: /s/ Raul Anaya
-------------------------
Raul Anaya,
Vice President
<PAGE>
EXHIBIT A
Date Submitted:_______________
RATE DESIGNATION NOTICE
NationsBank of Texas, N.A.
700 Louisiana
Houston, Texas 77002
APPLICATION
Gentlemen:
Pursuant to the requirements of the Promissory Note dated December 16,
1996, we the undersigned, Peregrine Systems, Inc. ("MAKER"), to NationsBank of
Texas, N.A. (the "NOTE"), Maker hereby makes the following election:
A. [ ] CONVERSION OR CONTINUATION OF OUTSTANDING LOAN ADVANCE
1. Conversion or Continuation Date:____________________________________
2. ADVANCE to be Converted or Continued (existing status):
AMOUNT SUBJECT TO
$____________ [ ] Prime Rate Principal
$____________ [ ] Libor Principal/_____ days
3. Election for Above:
(a) [ ] Prime Rate Principal: Amount $___________
(b) [ ] Libor Principal
Rate Period Amount
----------- ------
[ ] 30 days $___________
[ ] 60 days $___________
[ ] 90 days $___________
A-i
<PAGE>
Maker represents and warrants that the interest option and the
Interest Period selected above comply with all provisions of the Note and that
there exists no Event of Default or any event which, with the passage of time,
the giving of notice or both, would be an Event of Default.
Date:______________
PEREGRINE SYSTEMS, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
<PAGE>
REVOLVING PROMISSORY NOTE
$4,500,000.00 Houston, Texas December 16, 1996
FOR VALUE RECEIVED, on the dates, and in the amounts so herein
stipulated, the undersigned, PEREGRINE SYSTEMS, INC., a Delaware corporation
("MAKER") promises to pay to the order of NATIONSBANK OF TEXAS, N.A. ("LENDER")
at its banking quarters in Houston, Harris County, Texas, in coin or currency of
the United States of America, which at the time of payment is legal tender for
the payment of public and private debts, the principal sum of FOUR MILLION FIVE
HUNDRED THOUSAND AND NO/100 DOLLARS ($4,500,000.00), or so much thereof as may
be then outstanding and advanced in accordance with the terms of the hereafter
defined Loan Agreement, together with accrued interest on the principal amount
hereof remaining unpaid from time to time, computed from the date of advance
until maturity at the hereinafter described interest rates. Maker does hereby
agree to the following terms of this Note:
1. DEFINITIONS. As used in this Note, the following terms shall have the
following definitions:
"ADJUSTED LIBOR" shall mean LIBOR plus the applicable LIBOR Adjustment.
"ADVANCE" shall mean each advance by Lender under this Note.
"APPLICATION" shall mean the Rate Designation Notice attached hereto and
made a part hereof as EXHIBIT A.
"BUSINESS DAY" shall mean a day of the year on which national banking
associations are not required or authorized to close in Houston, Texas, and, if
the applicable Business Day relates to any LIBOR Election, continuation of, or
conversion to LIBOR Principal, a day of the year on which Lender is open for
business and commercial banks are open for business in the London interbank
market.
"CONSEQUENTIAL LOSS" shall mean, with respect to Maker's payment of
principal or interest under a LIBOR Principal borrowing or the conversion of a
LIBOR Principal borrowing to a Prime Rate Principal borrowing on a day other
than the last day of the applicable Interest Period, whether voluntary or
involuntary, including, without limitation, due to Maker's selection (subject to
Lender's approval) of an Interest Period that expires after the Maturity Date,
any loss, expense, penalty, or premium reasonably incurred by Lender, including,
without limitation, any interest paid by Lender which accrues on funds borrowed
by Lender to make the LIBOR Principal borrowing and which cannot be prepaid by
Lender until the end of the applicable Interest Period. Each determination of
the amount of such compensation shall be made by Lender in good faith, shall be
conclusive
(Continued on Page Two)
<PAGE>
(Continued from Page Two)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
and binding, absent manifest error, and may be computed using any
reasonable and customary averaging and attribution method.
"EVENT OF DEFAULT" shall have the meaning given to such term the Loan
Agreement.
"INTEREST PERIOD" means, with respect to any LIBOR Principal, the period of
time designated by Maker in the LIBOR Election relating thereto, subject to the
limitations and provisions set forth in the loan documents. The duration of
each Interest Period for any LIBOR Principal shall be 30, 60, or 90 days;
provided that:
(a) any Interest Period which would otherwise end on a day which
is not a Business Day shall be extended to the next succeeding day
which is a Business Day unless such Business Day falls in another
calendar month in which case such Interest Period shall end on the
preceding Business Day;
(b) any Interest Period which begins on the last Business Day of
a calendar month shall end on the last Business Day of a calendar
month;
(c) any Interest Period which begins on a day for which there is
no numerically corresponding day in the calendar month at the end of
such Interest Period shall end on the last Business Day of such
calendar month; and
(d) the selection of any Interest Period shall be limited to the
availability thereof if Lender determines, in its reasonable
discretion, that Lender is unable through its customary general
procedures to offer LIBOR for such Interest Period.
"LAWS" shall mean all constitutions, treaties, statutes, laws, ordinances,
regulations, orders, writs, injunctions, or decrees of the United States of
America, any state or commonwealth, any municipality, any foreign country, any
territory or possession, or any tribunal, as in effect on the date hereof and as
the same may hereafter be amended, issued, or promulgated from time to time.
"LIBOR" shall mean for the Interest Period applicable thereto, the per
annum rate of interest determined by Lender as the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page
3750 (or any successor page) as the London interbank offered rate for deposits
in dollars at approximately 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period for a term comparable to such Interest
Period. If for any reason such rate is not available, the term "LIBOR" shall
mean, for any Interest Period, the rate per annum (rounded upwards, if
(Continued on Page Four)
<PAGE>
(Continued from Page One)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as
the London interbank offered rate for deposits in dollars at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period; provided, however, if more
than one rate is specified on the Reuters Screen LIBO Page, the applicable rate
shall be arithmetic mean of all such rates.
"LIBOR ADJUSTMENT" shall mean 1.50%.
"LIBOR ELECTION" shall mean an election pertaining to LIBOR Principal made
pursuant to this Note.
"LIBOR PRINCIPAL" shall mean any principal that is designated as LIBOR
Principal on Lender's records pursuant to one or more effective LIBOR Elections.
"LOAN" shall mean each Advance by Lender to Maker made as described in this
Note.
"LOAN AGREEMENT" shall mean the Loan Agreement dated November 13, 1995,
between Lender and Maker, as amended, modified, supplemented, and restated from
time to time.
"LOAN DOCUMENTS" shall mean this Note, the Loan Agreement, and all other
documents, agreements, and instruments now or hereafter existing, evidencing,
securing, or otherwise relating to the Loan, this Note, and/or any transaction
contemplated by this Note, as any of the foregoing items may be modified or
supplemented from time to time.
"MATURITY DATE" shall mean November 30, 1997.
"MAXIMUM RATE" shall mean, on any day, the highest nonusurious rate of
interest (if any) permitted by applicable law on such day. For purposes of TEX.
REV. CIV. STAT. ANN., Art. 5069-1.04, as it may from time to time be amended,
the Maximum Rate shall be the "indicated rate ceiling" referred to in and
determined under Art. 5069-1.04(a)(1) from time to time in effect; provided,
however, that to the extent permitted by applicable law, Lender reserves the
right to change, from time to time by further notice and disclosure to Maker,
the ceiling on which the Maximum Rate is based under Art. 5069-1.04; and
provided further, that the "highest nonusurious rate of interest permitted by
applicable law" for purposes of this Note shall not be limited to the applicable
rate ceiling under Art. 5069-1.04 if federal laws or other state laws now or
hereafter in effect and applicable to this Note (and the interest contracted
for, charged and collected hereunder) shall permit a higher rate of interest.
(Continued on Page Five)
<PAGE>
(Continued from Page Four)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
"OBLIGATIONS" shall mean (i) the Principal Debt, (ii) all accrued unpaid
interest (at any time and from time to time) on the Principal Debt, and (iii)
all other outstanding (at any time and from time to time) fees, costs, expenses,
charges, and obligations payable, and all covenants performable, under this
Note, including, without limitation, all accrued unpaid interest on any such
other fees, costs, expenses, charges, or obligations.
"PAST DUE RATE" means the lesser of (a) the rate of five percent (5%) per
annum plus the Prime Rate or (b) the Maximum Rate. When CLAUSE (B) establishes
the Past Due Rate, the Past Due Rate shall automatically fluctuate upward and
downward as and in the amount by which the Maximum Rate per annum fluctuates,
without notice to Maker.
"PRIME RATE" shall mean on any day, the fluctuating rate of interest
established by Lender from time to time, at its discretion, whether or not such
rate shall be otherwise published. The Prime Rate is established by Lender as
an index or base rate and may or may not at any time be the best or lowest rate
charged by Lender on any loan.
"PRIME RATE ADJUSTMENT" shall mean 0%.
"PRIME RATE PRINCIPAL" shall mean all Principal Debt other than LIBOR
Principal.
"PRINCIPAL DEBT" shall mean the aggregate unpaid balance of this Note at
the time in question.
"RESERVE PERCENTAGE" shall mean for any Interest Period, that percentage
which is specified on the first day of such Interest Period by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
average maximum reserve requirement (including, but not limited to, any marginal
reserve requirement) for Lender with respect to liabilities consisting of or
including (among other liabilities) U.S. dollar nonpersonal time deposits in the
United States and with a maturity equal to such Interest Period. Lender
acknowledges that as of the date hereof the Reserve Percentage is zero.
"STATED RATE" shall mean for Prime Rate Principal on any day, a rate per
annum equal to the Prime Rate for that day plus the applicable Prime Rate
Adjustment, PROVIDED, that if on any day the Stated Rate shall exceed the
maximum permitted by application of the Maximum Rate in effect on that day, the
Stated Rate shall be fixed at the maximum permitted by application of the
Maximum Rate on that day and on each day thereafter until the total amount of
interest accrued at the Stated Rate on the unpaid balance of this Note equals
the total amount of interest which would have accrued if there were no
limitation by the Maximum Rate and the Stated Rate had not been so fixed, or
until the earlier payment in full of this Note.
(Continued on Page Six)
<PAGE>
(Continued from Page Five)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
"TELERATE PAGE" means the British Bankers Association LIBOR Rates
(determined at 11:00 a.m. London Time) that are published by Dow Jones Telerate,
Inc.
2. INTEREST.
(a) INTEREST RATE OPTION. The Principal Debt may be (i) Prime Rate
Principal, (ii) LIBOR Principal, or (iii) a combination thereof, as elected by
Maker, subject to the limitations and conditions stated in this Note. Maker may
make a LIBOR Election for (x) a new LIBOR Election, (y) any LIBOR Principal for
which the corresponding Interest Period is expiring, and/or (z) any Prime Rate
Principal, subject in each case to the limitations, conditions, and notice
requirements set forth in this Note. If for any reason an effective LIBOR
Election is not made in accordance with the terms of this Note for any Advance,
for any LIBOR Principal for which the corresponding Interest Period is expiring,
or for any conversion of Prime Rate Principal to LIBOR Principal, then the sums
in question will be Prime Rate Principal until an effective LIBOR Election is
thereafter made for such sums, if any. Any attempted LIBOR Election not made in
accordance with the terms of this Note may, at Lender's option, be treated as
ineffective.
(b) CONDITIONS TO LIBOR ELECTION. A LIBOR Election shall be subject
to the following conditions precedent:
(i) Lender shall have timely received the LIBOR Election, in
accordance with this Note;
(ii) No Event of Default, or event which with notice, lapse of
time, or both, would constitute an Event of Default, has occurred and
is continuing;
(iii) The Interest Period corresponding to such LIBOR
Election shall commence on a Business Day;
(iv) If any Interest Period corresponding to such LIBOR Election
expires after the Maturity Date, Lender shall not have rejected such
LIBOR Election in accordance with Section 2(f)(iv) of this Note;
(v) The amount of LIBOR Principal subject to the LIBOR Election
shall be $250,000 or more, and for amounts above such minimum, must be
in evenly divisible multiples of $100,000.00;
(vi) The Adjusted LIBOR shall not exceed the Maximum Rate
applicable to the Interest Period relating to such LIBOR Election;
(Continued on Page Seven)
<PAGE>
(Continued from Page Six)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
(vii) None of the circumstances referred to in Section 2(h)
or 2(i) of this Note shall apply with respect to the requested LIBOR
Election or the LIBOR Principal relating thereto;
(viii) If at any time prior to the date on which any such
LIBOR Election would otherwise become effective, the interest rate on
any Prime Rate Principal has been reduced from the Stated Rate to the
Maximum Rate pursuant to Section 2(f) of this Note, then the amount of
interest accrued on such Prime Rate Principal shall have equaled the
amount of interest that would have accrued thereon if such reduction
had never occurred (pursuant to the provisions of Section 2(f) of this
Note); and
(ix) The requested LIBOR Election shall not cause more than three
LIBOR Elections by Maker to be simultaneously in effect at any one
time.
(c) NOTICE OF ELECTION. In addition to the requirements of the Loan
Agreement relating to Advances, Maker may make a LIBOR Election by giving the
required notice in accordance with the following requirements of this Section:
(i) Each LIBOR Election, whether delivered by facsimile or
otherwise, shall be completed by Maker on an Application;
(ii) With respect to Advances of, continuations of, or
conversions to LIBOR Principal, a LIBOR Election must be made prior to
2:00 p.m., Houston, Texas time, two Business Days prior to the time
that the Advance, continuation, or conversion is to be made. If Maker
should fail to timely deliver any LIBOR Election, any LIBOR Principal
for which an Interest Period is expiring shall be deemed Prime Rate
Principal;
(iii) Each LIBOR Election shall stipulate whether it is for
an Advance, a continuation, or a conversion, and shall stipulate the
type and amount of the Advance, continuation, or conversion and the
Interest Period selected. If any LIBOR Election fails to stipulate
the Interest Period to be applicable to any LIBOR Principal, then
Prime Rate Principal will be deemed stipulated;
(iv) All LIBOR Elections shall be irrevocable once given. Each
LIBOR Election shall be made either by (A) facsimile (followed by
written notice thereof), or (B) delivery of written notice to Lender;
and
(Continued on Page Eight)
<PAGE>
(Continued from Page Seven)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
(v) Each LIBOR Election shall be executed by an authorized
representative of Maker. Lender shall not incur any liability to
Maker in acting upon any LIBOR Election that Lender in good faith
believes to have been given or executed by an authorized
representative of Maker.
(d) INTEREST ON PRIME RATE PRINCIPAL. Prime Rate Principal from time
to time outstanding that is not past due shall bear interest at a varying rate
per annum equal to the lesser of (i) the Maximum Rate, or (ii) the Stated Rate,
from the date hereof, the date of any Advance of Prime Rate Principal, or the
date of the conversion into such Prime Rate Principal until the Maturity Date,
or, if earlier, with respect to any Prime Rate Principal converted into LIBOR
Principal in accordance with the terms of this Note, until the first day of the
Interest Period applicable to any such LIBOR Principal; PROVIDED, that if at any
time the rate described in clause (ii) immediately preceding would exceed the
Maximum Rate, then the rate of interest on Prime Rate Principal from time to
time outstanding shall be limited to the Maximum Rate, but, to the extent
permitted by applicable laws, any subsequent reductions in the Prime Rate shall
not reduce the rate of interest accruing on Prime Rate Principal from time to
time outstanding below the Maximum Rate until the total amount of interest
accrued thereon at the Maximum Rate equals the amount of interest that would
have accrued thereon if the rate of interest on Prime Rate Principal had not
been limited to the Maximum Rate.
(e) INTEREST ON LIBOR PRINCIPAL. The LIBOR Principal from time to
time outstanding that is not past due shall bear interest on the first day of
the Interest Period applicable thereto and every succeeding day until the last
day of such Interest Period at a rate per annum equal to the lesser of (i) the
Maximum Rate, or (ii) the Adjusted LIBOR.
(f) GENERAL PAYMENT AND INTEREST PROVISIONS.
(i) Each payment of principal, interest, and/or other sums due
under this Note or any other loan document shall be made to Lender at
its banking quarters located in Houston, Texas.
(ii) With respect to a conversion of LIBOR Principal into Prime
Rate Principal or an Advance of Prime Rate Principal, interest shall
accrue thereon at the rate stipulated in Section 2(d) of this Note
from the last day of the Interest Period applicable to the LIBOR
Principal so converted or, if applicable, from the date of the
Advance. Interest shall accrue on any Prime Rate Principal
outstanding from time to time at the rate stipulated in Section 2(d)
of this Note until the Maturity Date.
(Continued on Page Nine)
<PAGE>
(Continued from Page Eight)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
(iii) With respect to LIBOR Principal that has been continued
in accordance with the terms of this Note or an Advance of LIBOR
Principal, interest shall accrue thereon at the rate stipulated in
Section 2(e) of this Note from the last day of the Interest Period
applicable to such LIBOR Principal prior to such continuation, until
the last day of the Interest Period applicable to such LIBOR Principal
as so continued or, if applicable, from the date of the Advance. With
respect to LIBOR Principal converted from Prime Rate Principal in
accordance with the terms of this Note, interest shall accrue thereon
at the rate stipulated in Section 2(e) of this Note from the first day
of the Interest Period applicable thereto until the last day of such
Interest Period.
(iv) Notwithstanding anything to the contrary contained in this
Note, if Maker makes a LIBOR Election with a corresponding Interest
Period that expires after the Maturity Date, Lender shall have the
option, in its sole discretion, to reject such LIBOR Election. If
Lender does not reject such LIBOR Election, and LIBOR Principal is
advanced for an Interest Period that expires after the Maturity Date,
then on the Maturity Date, unless Lender has agreed to an extension of
this Note, such LIBOR Principal and all interest that has accrued with
respect to such LIBOR Principal and any amount necessary to compensate
Lender for any Consequential Loss shall be due and payable. Maker
understands and agrees that Maker's making a LIBOR Election and
Lender's funding of LIBOR Principal with a corresponding Interest
Period that expires after the Maturity Date shall not be interpreted
as an agreement by Lender to extend the Maturity Date or enter
negotiations to extend the Maturity Date.
(g) PREPAYMENTS.
(i) Maker shall have the right at any time and from time to time
to prepay any Prime Rate Principal in whole or in part. Maker shall
additionally have the right, upon three Business Days' irrevocable
written notice to Lender, to prepay any LIBOR Principal in whole or in
part; provided that, Maker in its notice shall specify the date
proposed for prepayment and the principal amount to be prepaid; and
further provided that, whenever notice of any such prepayment has been
given, the principal amount to be prepaid together with all accrued
interest thereon shall automatically become due and payable at or
before 2:00 p.m., Houston time, on such prepayment date. In addition
to the principal of and accrued interest on any LIBOR Principal being
prepaid (whether voluntary or involuntary), Maker shall pay to Lender,
as a bargained-for fee for such prepayment of LIBOR Principal, and not
as
(Continued on Page Ten)
<PAGE>
(Continued from Page Nine)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
compensation for the use or forbearance or detention of money, an
additional amount, if any, as is necessary to compensate Lender for
any Consequential Loss resulting from such prepayment on a day other
than the last day of the applicable Interest Period.
(ii) Subject to any applicable provisions of this Note regarding
payment to Lender by Maker of any Consequential Loss, (A) any
prepayment of Principal Debt shall be applied to the Principal Debt in
the manner and order specified by Maker by written notice to Lender
delivered at least three Business Days prior to the date of the
prepayment to which it relates, and (B) if Maker fails to so notify
Lender, then any prepayment of Principal Debt shall first be applied
to reduce Prime Rate Principal, with any excess then applied to reduce
LIBOR Principal in the manner and order determined by Lender in its
sole discretion.
(h) ILLEGALITY. With respect to any LIBOR Principal outstanding
under this Note, if Lender in good faith determines (which determination shall
be conclusive) that the adoption or modification of any applicable Law, rule, or
regulation, or any interpretation, application, or administration thereof by any
governmental authority, central bank, or comparable agency (or compliance
therewith by Lender) prohibits or restricts or makes impossible (or is asserted
by any governmental authority, central bank, or comparable agency to prohibit or
restrict or make impossible) the maintaining of such LIBOR Principal or the
charging of interest on such LIBOR Principal at the rate stipulated in Section
1(f) of this Note, then or at any time thereafter Lender shall have the right to
comply with such applicable Law, rule, or regulation and require by written
notice to Maker conversion of the affected LIBOR Principal to Prime Rate
Principal, subject to notice as provided herein, to permit compliance with such
applicable Law, rule, or regulation. Such conversion or payment may be made on
the last day of the Interest Period applicable to the affected LIBOR Principal,
or, subject to Section 1(n), on any earlier Business Day (as specified by Maker
by a LIBOR Election, in the case of a conversion). If Lender may not lawfully
continue to maintain, and charge such interest on, the affected LIBOR Principal
until the last day of the Interest Period applicable thereto, then the affected
LIBOR Principal shall be converted to Prime Rate Principal on the date
determined by Lender as specified in a notice from Lender to Maker, subject to
Section 2(m) of this Note.
(i) UNAVAILABILITY OF RATE. If, with respect to any LIBOR Election,
deposits in U.S. dollars (in the applicable amounts) are not being offered
generally to Lender in the relevant market for the applicable Interest Period,
or if Lender determines that the provisions of Section 2(h) of this Note apply,
or if because of any other reason outside of the control of Lender the Adjusted
LIBOR will not adequately and fairly reflect the cost to Lender of funding or
maintaining LIBOR Principal, or if Lender determines that
(Continued on Page Eleven)
<PAGE>
(Continued from Page Ten)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONSBANK OF TEXAS, N.A.
no adequate or reasonable means exists to ascertain the LIBOR and Lender
gives notice thereof to Maker, then until Lender notifies Maker that the
circumstances giving rise to such suspension no longer exist, the obligation
of Lender to permit the LIBOR Election shall be suspended. Subject to the
provisions of Section 2(h) of this Note, if applicable, Maker shall convert
any affected LIBOR Principal, on the last day of the applicable Interest
Period, to Prime Rate Principal, subject to notice as provided herein and
shall on such last day pay all accrued and unpaid interest on the LIBOR
Principal so converted.
(j) TAXES. Any and all payments made by Maker hereunder or under any
other loan document shall be made free and clear of and without deduction for
any and all present or future taxes, deductions, charges, or withholdings, and
all liabilities with respect thereto, excluding taxes imposed on Lender's income
(all such non-excluded taxes, deductions, charges, withholdings, and liabilities
are hereinafter referred to collectively as "TAXES"). If Maker shall be
required by Law to deduct any Taxes from or in respect of any sum payable to
Lender hereunder or under any other loan document, (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2(j)) Lender receives an amount equal to the sum it would have received had no
such deductions been made, and (ii) Maker shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with applicable
Laws. In addition, Maker agrees to pay any present or future stamp or
documentary taxes and any other excise or property taxes, charges, or similar
levies that arise from any payment made hereunder or from the execution,
delivery, or registration of, or otherwise with respect to, this Note (such
taxes, charges, or similar levies are hereinafter referred to collectively as
"Other Taxes"). MAKER WILL INDEMNIFY LENDER FOR THE FULL AMOUNT OF TAXES AND
OTHER TAXES, INCLUDING, WITHOUT LIMITATION, ANY TAXES OR OTHER TAXES IMPOSED BY
ANY JURISDICTION ON AMOUNTS PAYABLE UNDER THIS SECTION 2(J) PAID OR INCURRED BY
OR IMPOSED ON LENDER AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST, AND
EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES
OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED. THIS INDEMNIFICATION SHALL
BE MADE WITHIN THIRTY DAYS FROM THE DATE LENDER MAKES WRITTEN DEMAND THEREFOR.
WITHIN THIRTY DAYS AFTER THE DATE OF ANY PAYMENT OF TAXES OR OTHER TAXES, MAKER
WILL FURNISH TO LENDER THE ORIGINAL OR A CERTIFIED COPY OF A RECEIPT EVIDENCING
PAYMENT THEREOF.
(k) YIELD PROTECTION; INCREASED COSTS. If due to either: (i) the
introduction, after the date hereof, of or any change (including, without
limitation, any change by way of imposition or increase of reserve requirements,
but excluding any amounts payable under 2(h) of this Note in or in the
interpretation of any law or regulation, or (y) the com-
(Continued on Page Twelve)
<PAGE>
(Continued from Page Eleven)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONS BANK OF TEXAS, N.A.
pliance by Lender with any guideline or request, issued after the date
hereof, from any central bank or other governmental authority (whether or not
having the force of law), there shall be any increase in the cost to Lender
of agreeing to make or making, funding or maintaining any portion of the
unpaid principal of this Note bearing interest at the Adjusted LIBOR
(including any Consequential Loss), unless Maker has designated an
alternative office not located in the United States which does not adversely
impact Lender, then Maker shall from time to time, upon demand by Lender, pay
to Lender additional amounts sufficient to indemnify Lender against such
increased cost. A certificate as to the amount of such increased cost,
submitted to Maker by Lender, shall be conclusive in the absence of manifest
error. It shall be assumed, for the purposes of computing any increased cost
relating to the unpaid principal of this Note bearing interest at the
Adjusted LIBOR pursuant to this paragraph, that (A) the making and
maintaining of the entire loan has been by Lender through the principal
office of Lender in London and (B) the funding of the entire loan by Lender
has been made through the London interbank market. If any conflict should
exist between the provisions of this Section 2(k) and the provisions of
Section 9 of this Note, the provisions of Section 9 of this Note shall
control.
(l) REQUIRED RESERVES. Maker shall pay to Lender during the time
that Lender shall be required to maintain reserves with respect to liabilities
or assets consisting of or including Eurocurrency liabilities (as defined in
Regulation D of the Board of Governors of the Federal Reserve System as in
effect from time to time), additional interest from the first day of the
applicable Interest Period until the end of the applicable Interest Period on
such outstanding principal amount at an interest rate per annum equal at all
times during such Interest Period for such outstanding principal amount equal to
the excess of (x) the rate obtained by dividing the LIBOR for such Interest
Period by a percentage equal to 100% minus the Reserve Percentage applicable
during such Interest Period over (y) the LIBOR for such Interest Period. It
shall be assumed for purposes of computing any interest payable pursuant to this
paragraph that (A) the making and maintaining of the entire loan has been by
Lender through the principal office of Lender in London and (B) the funding of
the entire loan by Lender has been made through the London interbank market.
Lender shall not be entitled to collect any additional interest hereunder unless
it shall have given Maker prior written notice that such additional interest
will accrue during the applicable Interest Period.
(m) INDEMNITY. MAKER AGREES TO INDEMNIFY LENDER AGAINST AND HOLD
LENDER HARMLESS FROM ANY LOSS OR EXPENSE WHICH LENDER MAY INCUR OR SUSTAIN AS A
CONSEQUENCE OF ANY UNTIMELY PAYMENT (MANDATORY OR OPTIONAL) OR DEFAULT BY MAKER
IN THE PAYMENT OF ANY PRINCIPAL AMOUNT OF OR INTEREST ON THIS NOTE, IN EACH CASE
INCLUDING ANY INTEREST PAYABLE BY LENDER TO OBTAIN THE FUNDS USED BY IT TO
(Continued on Page Thirteen)
<PAGE>
(Continued from Page Twelve)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONS BANK OF TEXAS, N.A.
MAKE OR MAINTAIN ANY LIBOR BORROWING, AND ANY OTHER CONSEQUENTIAL LOSS. A
CERTIFICATE AS TO ANY ADDITIONAL AMOUNTS PAYABLE PURSUANT TO THIS PARAGRAPH
SUBMITTED BY LENDER TO MAKER SHALL BE MADE BY LENDER IN GOOD FAITH, SHALL
CONTAIN REASONABLE DETAIL OF LENDER'S CALCULATION, AND SHALL BE CONCLUSIVE
AND BINDING UPON MAKER, ABSENT MANIFEST ERROR. THE INDEMNITY AGREEMENTS
CONTAINED IN THIS NOTE SHALL SURVIVE THE PAYMENT OF THIS NOTE AS TO ANY
AMOUNTS OR OBLIGATIONS ACCRUED HERE UNDER PRIOR TO THE LATER OF PAYMENT OF
THIS NOTE IN FULL OR THE EXPIRATION OF THE LAST INTEREST PERIOD.
3. PAYMENTS OF PRINCIPAL AND INTEREST.
(i) This Note shall be due and payable as follows:
Interest only as it accrues shall be due and payable
beginning on January 1, 1997, and continuing on the first
day of each successive calendar month until the Maturity
Date of this Note, when all outstanding principal and unpaid
and accrued interest shall be fully and finally due and
payable.
(ii) All payments on account of the Note shall be made no later than
2:00 p.m. (Houston, Texas time) on the day when due in lawful money of the
United States and shall be first applied to interest on the unpaid principal
balance and the remainder to principal. All computations of interest shall be
made by Lender on the basis of the number of days elapsed in a year of 360
consecutive days.
(iii) This Note is a revolving note. An amount borrowed may be
repaid and reborrowed to the extent permitted under the Loan Agreement. The
outstanding balance of this Note shall at no time exceed the amount permitted
under the terms of the Loan Agreement.
4. PAST DUE RATE. Any payment due under the terms of this Note which is
not paid when due in accordance with the terms and provisions of this Note shall
accrue interest from and after the date it is due until paid at the Past Due
Rate, subject to the further terms hereof.
5. LOAN AGREEMENT. This Note is issued pursuant to the Loan Agreement,
and is the Revolving Note under and as defined in the Loan Agreement. This Note
is secured by, among other things, the security interests granted and created by
the Security Agreement (the "SECURITY AGREEMENT") dated of even date with the
Loan Agreement,
(Continued on Page Fourteen)
<PAGE>
(Continued from Page Thirteen)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONS BANK OF TEXAS, N.A.
executed by Maker to Lender, as may be amended from time to time, covering,
among other things, accounts receivable, equipment, and other assets of
Maker, as more fully described in the Security Agreement.
6. DEFAULT. Upon the occurrence of an Event of Default, the holder of
this Note shall have the option to declare this Note due and payable in full
without notice, notice of intent to accelerate, notice of acceleration, demand
or presentment, all of which are expressly waived by Maker. The effective date
of such acceleration shall, notwithstanding anything herein to the contrary, be
the Maturity Date for purposes of this Note.
7. WAIVER. All sureties, guarantors and endorsers hereby expressly and
severally waive grace, and all notices (except such notice, if any, provided in
the Loan Agreement), demands, presentments for payment, notice of nonpayment,
notice of intent to accelerate, notice of acceleration, protest and notice of
protest and diligence in collecting.
8. EXPENSES. Upon the occurrence of an Event of Default, and this Note
is placed in the hands of an attorney for collection (whether or not suit is
filed), or if this Note is collected by suit or legal proceedings or through the
probate court or bankruptcy proceedings, Maker agrees to pay an additional
reasonable amount as attorney's fees and expenses of collection.
9. USURY LAWS. It is the intention of the parties hereto to comply
strictly with all applicable usury laws; accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Note, or in any of the
documents securing payment hereof or otherwise relating hereto, in no event
shall this Note or such documents require the payment or permit the collection
of an aggregate amount of interest in excess of the maximum amount permitted by
such laws, including the laws of the State of Texas and the laws of the United
States of America. If any such excess of interest is contracted for, charged or
received under this Note or under the terms of any of the documents securing
payment hereof or otherwise relating hereto, or if the maturity of the
indebtedness evidenced by this Note is accelerated in whole or in part, or if
all or part of the principal or interest of this Note shall be prepaid, so that
under any of such circumstances the amount of interest (including all amounts
payable hereunder or in connection with the loan evidenced hereby which are not
denominated as interest but which constitute interest under the applicable laws)
contracted for, charged or received under this Note shall exceed the maximum
amount of interest permitted by the applicable usury laws, then in any such
event (a) the provisions of this paragraph shall govern and control, (b) neither
the Maker hereof nor any other person or entity now or hereafter liable for the
payment hereof shall be obligated to pay the amount of such interest to the
extent that it is in excess of the maximum amount of interest permitted by the
applicable usury laws, (c) any such excess interest which may have been
(Continued on Page Fifteen)
<PAGE>
(Continued from Page Fourteen)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONS BANK OF TEXAS, N.A.
collected shall be either applied as a credit against the then unpaid principal
amount hereof or, if this Note shall have been paid in full, refunded to Maker,
and (d) the effective rate of interest shall be automatically reduced to the
maximum lawful contract rate allowed under the applicable usury laws as now or
hereafter construed by the courts having jurisdiction thereof. It is further
agreed that without limitation of the foregoing, all calculations of the rate of
interest contracted for, charged or received under this Note or under such other
documents which are made for the purpose of determining whether such rate
exceeds the maximum lawful contract rate, shall be made, to the extent permitted
by applicable usury laws, by amortizing, prorating, allocating and spreading in
equal parts during the period of the full stated term of the loan evidenced
hereby, all interest at any time contracted for, charged or received from Maker
or otherwise by the holder or holders hereof in connection with such loan.
10. APPLICABLE LAWS. THIS NOTE HAS BEEN EXECUTED AND DELIVERED AND SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS
AND OF THE UNITED STATES OF AMERICA.
11. SEVERABILITY. The parties hereto intend and believe that each
provision in this Note comports with all applicable local, state and federal
laws and judicial decisions. However, if any provision or provisions, or if any
portion of any provision or provisions, in this Note is found by a court of law
to be in violation of any applicable local, state or federal ordinance, statute,
law, administrative or judicial decision, or public policy, and if such court
should declare such portion, provision or provisions of this Note to be illegal,
invalid, unlawful, void or unenforceable as written, then it is the intent of
all parties hereto that such portion, provision or provisions shall be given
force to the fullest possible extent that they are legal, valid and enforceable,
that the remainder of this Note shall be construed as if such illegal, invalid,
unlawful, void or unenforceable portion, provision or provisions were not
contained therein, and that the rights, obligations and interests of Maker and
Lender hereof under the remainder of this Note shall continue in full force and
effect.
12. ARBITRATION. (a) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING
TO THIS NOTE, THE LOAN AGREEMENT, OR ANY RELATED AGREEMENTS OR INSTRUMENTS,
INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE
DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW). THE RULES OF PRACTICE
AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF JUDICIAL
ARBITRATION AND
(Continued on Page Sixteen)
<PAGE>
(Continued from Page Fifteen)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONS BANK OF TEXAS, N.A.
MEDIATION SERVICES, INC. (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW.
IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT
UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.
MAKER AND LENDER MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS
NOTE APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(b) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
MAKER'S DOMICILE AS OF THE DATE OF THE LOAN AGREEMENT'S EXECUTION AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE
OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL
ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
(c) RESERVATION OF RIGHTS. NOTHING IN THE NOTE OR THE LOAN AGREEMENT
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE
STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR
(II) BE A WAIVER BY LENDER OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91
OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF LENDER
HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF,
OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO
OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED
TO) INJUNCTIVE RELIEF, WRIT OR POSSESSION OR THE APPOINTMENT OF A RECEIVER.
LENDER MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR
OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE
PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS NOTE OR THE LOAN
AGREEMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR
MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES
SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN
ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
(Continued on Page Seventeen)
<PAGE>
(Continued from Page Sixteen)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONS BANK OF TEXAS, N.A.
THIS NOTE, THE LOAN AGREEMENT, THE SECURITY AGREEMENT, AND THE OTHER
DOCUMENTS EXECUTED SUBSTANTIALLY CONTEMPORANEOUSLY HEREWITH REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
PEREGRINE SYSTEMS, INC.
By: /S/ David A. Farley
--------------------------
Name: David A. Farley
--------------------------
Title: Chief Financial Officer
--------------------------
(Continued on Page Seventeen)
<PAGE>
(Continued from Page Sixteen)
PROMISSORY NOTE MADE PAYABLE BY
PEREGRINE SYSTEMS, INC.
TO NATIONS BANK OF TEXAS, N.A.
ACKNOWLEDGED FOR PURPOSES OF
SECTION 26.02 OF THE TEXAS
BUSINESS AND COMMERCE CODE BY:
NATIONSBANK OF TEXAS, N.A.
By: /s/ Raul Anaya
-------------------
Raul Anaya,
Vice President
<PAGE>
EXHIBIT A
Date Submitted:_______________
RATE DESIGNATION NOTICE
NationsBank of Texas, N.A.
700 Louisiana
Houston, Texas 77002
APPLICATION FOR ADVANCE
Gentlemen:
Pursuant to the requirements of the Promissory Note dated December 16,
1996, we the undersigned, Peregrine Systems, Inc. ("MAKER"), to NationsBank of
Texas, N.A. (the "NOTE"), Maker hereby makes the following election:
A. [ ] APPLICATION FOR NEW LOAN ADVANCE
1. Date Advance Requested: _______________
2. Total Advance Requested: ________________
3. Election(s) for above:
(a) [ ] Prime Rate Principal: Amount $_____________
(b) [ ] Libor Principal
Rate Period Amount
----------- ------
[ ] 30 days $___________
[ ] 60 days $___________
[ ] 90 days $___________
B. [ ] CONVERSION OR CONTINUATION OF OUTSTANDING LOAN ADVANCE
1. Conversion or Continuation Date:
----------------------
A-i
<PAGE>
2. Advance to be Converted or Continued (existing status):
Amount Subject To
------ ----------
$____________ [ ] Prime Rate Principal
$____________ [ ] Libor Principal/_____ days
3. Election for Above:
(a) [ ] Prime Rate Principal: Amount $___________
(b) [ ] Libor Principal
Rate Period Amount
----------- ------
[ ] 30 days $___________
[ ] 60 days $___________
[ ] 90 days $___________
Maker represents and warrants that the interest option and the
Interest Period selected above comply with all provisions of the Note and that
there exists no Event of Default or any event which, with the passage of time,
the giving of notice or both, would be an Event of Default.
Date:______________
PEREGRINE SYSTEMS, INC.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
A-ii
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and entered into as of the 13th day of
November, 1995, by PEREGRINE SYSTEMS, INC., a Delaware corporation ("DEBTOR"),
whose address is 12670 High Bluff Drive, San Diego, California 92130, in favor
of NATIONSBANK OF TEXAS, N.A., a national banking association ("SECURED PARTY"),
whose address is 700 Louisiana, P.O. Box 2518, Houston, Harris County, Texas
77252-2518.
W I T N E S S E T H:
WHEREAS, pursuant to a Loan Agreement (as may be modified and amended
from time to time, the "LOAN AGREEMENT") dated of even date herewith, by and
between Debtor and Secured Party, Debtor has executed (a) a Promissory Note in
the maximum principal amount of $2,200,000.00, and (b) a Revolving Promissory
Note in the maximum principal amount of $4,000,000.00, each dated of even date
herewith and made payable to the order of Secured Party (collectively as each
may be renewed, modified, increased, replaced, substituted, and rearranged, the
"NOTES"); and
WHEREAS, Secured Party has conditioned its funding of the Notes upon,
among other things, the execution and delivery by Debtor of this Security
Agreement, and Debtor has agreed to enter into this Security Agreement.
NOW, THEREFORE, for and in consideration of the premises and the
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Debtor hereby agrees
with Secured Party as follows:
ARTICLE I
GENERAL TERMS
Section 1.1 TERMS DEFINED ABOVE. As used in this Security
Agreement, the terms "LOAN AGREEMENT," "DEBTOR," "SECURED PARTY," and "NOTES"
shall have the respective meanings indicated above.
Section 1.2 CERTAIN DEFINITIONS. As used in this Security
Agreement, the following terms shall have the following meanings unless the
context otherwise requires:
"ACCOUNTS" shall mean all accounts receivable, book debts, notes,
drafts, instruments, documents, acceptances, and other forms of obligations
now owned or hereafter received or acquired by or belonging or owing to the
Debtor (including, without limitation, under any trade names, styles, or
divisions thereof), whether arising from the sale or lease of goods or the
rendition of services or any other transaction (including, without
limitation, any such obligation which might be characterized as an account,
general intangible, other
<PAGE>
than contract rights under contracts containing prohibitions against
assignment of or the granting of a security interest in the rights of a
party thereunder, or chattel paper under the Uniform Commercial Code in
effect in any jurisdiction), and all rights of the Debtor in, to, and under
all purchase orders now owned or hereafter received or acquired by it for
goods or services, and all rights of the Debtor to any goods the sale or
lease of which gave rise to any of the foregoing (including, without
limitation, returned or repossessed goods and rights of unpaid sellers),
and all moneys due or to become due to the Debtor under all contracts for
the sale or lease of goods or the performance of services (whether or not
earned by performance) or in connection with any other transaction, now in
existence or hereafter arising, including, without limitation, all
collateral security and guarantees of any kind given by any Person with
respect to any of the foregoing.
"CHATTEL PAPER" shall mean all chattel paper (as such term is defined
in Section 9-105(a)(2) of the UCC) of Debtor.
"COLLATERAL" shall have the meaning set forth in Section 2.1 hereof.
"DOCUMENTS" shall mean all documents (as such term is defined in
Section 9-105(a)(6) of the UCC) of Debtor.
"EQUIPMENT" shall mean all (a) goods classified as "equipment," in
Section 9.109(2) of the UCC, (b) vehicles, and (c) rolling stock of the
Debtor, now owned or hereafter acquired, together with all accessions,
improvements, attachments, and other additions thereto and substitutes and
replacements therefor, and all tools, parts, and appurtenances now or at
any time hereafter used in connection therewith.
"EVENT OF DEFAULT" shall have the meaning assigned to such term in the
Loan Agreement.
"FIXTURES" shall mean all goods which are "fixtures" under and for
purposes of Section 9.313 of the UCC.
"GENERAL INTANGIBLES" shall mean the right to use (only to the extent
necessary for Secured Party to dispose of the other Collateral as provided
for in this Security Agreement) all general intangibles (as such term is
defined in Section 9-106 of the UCC) of Debtor, including, without
limitation, rights to the payment of money, trademarks, copyrights,
patents, contracts, licenses, and franchises (excluding contracts,
licenses, and franchises which prohibit the assignment or grant of a
security interest by Debtor), limited and general partnership interests and
joint venture interests, federal income tax refunds, trade names,
distributions on certificated securities and uncertificated securities,
computer programs and other computer software, inventions, designs, trade
secrets, goodwill, proprietary rights, customer lists, supplier contracts,
sale orders, correspondence, advertising materials, payments due in
connection with
2
<PAGE>
any requisition, confiscation, condemnation, seizure or forfeiture of any
property, reversionary interests in pension and profit-sharing plans, and
reversionary, beneficial, and residual interests in trusts, credits with
and other claims against any person, together with any collateral for any
of the foregoing and the rights under any security agreement granting a
security interest in such collateral.
"HAZARDOUS MATERIALS" shall mean any substance, materials, or waste
which is or becomes regulated by any governmental authority including, but
not limited to, (i) petroleum; (ii) asbestos; (iii) polychlorinated
biphenyls; (iv) those substances, materials or wastes designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act or
listed pursuant to Section 307 of the Clean Water Act or any amendments or
replacements to these statutes; (v) those substances, materials or wastes
defined as a "hazardous waste" pursuant to Section 1004 of the Resource
Conservation and Recovery Act or any amendments or replacements to that
statute; or (vi) those substances, materials, or wastes defined as a
"hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation and Liability Act, or any amendments
or replacements to that statute.
"INSTRUMENTS" shall mean all instruments (as such term is defined in
Section 9-105(a)(9) of the UCC) of Debtor.
"INVENTORY" shall mean all of Debtor's inventory, whether now owned or
hereafter acquired and wherever located, including but not limited to, all
goods intended for sale or lease by Debtor, or for display or
demonstration; all work in process; all raw materials and other materials
and supplies of every nature and description used or which might be used in
connection with the manufacture, printing, packing, shipping, advertising,
selling, leasing or furnishing of such goods or otherwise used or consumed
in Debtor's business; and all documents evidencing and general intangibles
relating to any of the foregoing.
"INVESTMENT PROPERTY" shall mean investment property (as such term is
defined in Section 9.115 of the UCC) of Debtor.
"RELATED RIGHTS" shall mean all Chattel Paper, Documents and/or
Instruments relating to the Accounts, Fixtures, the Inventory, the
Investment Property, and the General Intangibles and all rights now or
hereafter existing in and to all security agreements, leases, and other
contracts securing or otherwise relating to the Accounts, Fixtures, the
Inventory, the Investment Property, or the General Intangibles or any such
Chattel Papers, Documents, and/or Instruments.
"SECURITY AGREEMENT" shall mean this Security Agreement, as the same
as may be amended, modified, restated, or supplemented from time to time.
"TRANSFER" shall have the meaning set forth in Section 4.1.
3
<PAGE>
"UCC" shall mean the Uniform Commercial Code in effect at any time in
the State of Texas.
Section 1.3 TERMS DEFINED IN UCC. All terms used herein which are
defined in the UCC shall have the same meaning herein unless the context
otherwise requires.
ARTICLE II
SECURITY INTEREST
Section 2.1 GRANT OF SECURITY INTEREST. Debtor hereby pledges,
assigns, conveys, transfers, and grants to Secured Party a security interest in,
general lien upon, and right of set-off against the following described personal
property of Debtor, whether now owned or existing or hereafter acquired or
arising and wherever located (the "COLLATERAL"):
(a) all of Debtor's Accounts, Fixtures, Inventory, Equipment, Chattel
Paper, Documents, Investment Property, and General Intangibles, and all
Related Rights; and
(b) all proceeds, cash proceeds, cash equivalents, products,
replacements, additions and improvements to, substitutions for, and
accessions of any and all property described in Subsection (a) of this
Section 2.1.
Section 2.2 OBLIGATIONS SECURED. The security interest in, general
lien upon, and right of set-off against the Collateral is granted to secure the
performance of all obligations of Debtor whether now existing or hereafter
arising, under or in connection with the Notes (and any amendments,
modifications, restatements, or substitutions thereof) and all other Obligations
(as such term is defined in the Loan Agreement)(collectively, the "SECURED
OBLIGATIONS").
ARTICLE III
REPRESENTATIONS AND WARRANTIES
In order to induce Secured Party to accept this Security Agreement,
Debtor represents and warrants to Secured Party (which representations and
warranties will survive the execution of this Security Agreement) that:
Section 3.1 OWNERSHIP AND LIENS. Except for the security interest
of Secured Party granted in this Security Agreement, Debtor, owns good and
indefeasible title to the Collateral, free and clear of any other liens,
security interest, adverse claims, or options. Debtor has full right, power,
and authority to grant to Secured Party a security interest in the legal and
beneficial title in and to the Collateral in the manner provided herein, free
and clear of any other liens, security interests, adverse claims, and options.
No other lien, security interest, adverse claim, or option has been created by
any Debtor or is known by any Debtor to exist with respect
4
<PAGE>
to any Collateral. Debtor has the right to transfer the legal and beneficial
interest purported to be transferred under this Security Agreement; the
Collateral is not subject to the interest of any third person, except as herein
provided; and Debtor will defend the Collateral and its proceeds against the
claims and demands of all third persons.
Section 3.2 LOCATION OF DEBTOR AND COLLATERAL. Debtor's place of
business is located at the address set forth in the opening paragraph of this
Security Agreement. Currently, Debtor's Equipment and Inventory are located in
California, and all of Debtor's Accounts are billed from and made payable in
California.
Section 3.3 SECURED PARTY'S SECURITY INTEREST. This Security
Agreement creates a valid and binding security interest in the Collateral
securing the Secured Obligations. All filings described in Section 4.6 of
this Security Agreement and other actions necessary to perfect or protect
such security interest in all applicable jurisdictions have been duly taken
or will be taken in due time in accordance with applicable law. No further
or subsequent filing, recording, registration, or other public notice is
necessary in any office or jurisdiction in order to perfect or to continue,
preserve or protect such security interest except for continuation statements.
Section 3.4 HAZARDOUS MATERIALS. Neither Debtor nor, to the best
of Debtor's knowledge, any other party has used, generated, released,
discharged, stored, or disposed of any Hazardous Materials in a concentration in
excess of applicable legal requirements, and Debtor shall not commit or permit
such actions to be taken in the future.
ARTICLE IV
COVENANTS AND AGREEMENTS
Debtor will at all times comply with the covenants contained in this
Article IV from the date hereof and for so long as any part of the Secured
Obligations is outstanding.
Section 4.1 TITLE: PROHIBITED LIENS AND FILINGS. Debtor agrees to
protect the title to the Collateral and to defend the same against all claims
and demands of all persons or entities claiming any interest therein adverse to
Secured Party. Debtor will not pledge, mortgage, encumber, create, or suffer a
lien to exist on any of the Collateral, or sell, assign, lend, rent, lease, or
otherwise transfer or dispose of (collectively called "TRANSFER") any of the
Collateral to or in favor of any person or entity other than Secured Party.
Debtor will not file or execute or permit to be filed or recorded any financing
statement or other security instrument with respect to the Collateral other than
in favor of Secured Party.
Section 4.2 POSSESSION OF COLLATERAL. Secured Party shall be
deemed to have possession of any of the Collateral in transit to it or set apart
for it. Otherwise the Collateral shall remain in Debtor's constructive
possession and control at all times, at Debtor's risk of loss, and shall be kept
at the locations represented in Section 3.2 hereof or as otherwise disclosed to
Secured Party in accordance with the terms of the Loan Agreement.
5
<PAGE>
Section 4.3 FILINGS BY SECURED PARTY. Debtor hereby authorizes
Secured Party to execute and deliver on behalf of Debtor and to file
financing statements, without the signature of Debtor, either in Secured
Party's name or in the name of Debtor and as agent and attorney-in-fact for
Debtor. Upon payment in full of the Secured Obligations, Secured Party will
execute UCC-3 termination statements, terminating the security interest
created under this Security Agreement.
Section 4.4 FILING REPRODUCTIONS. At the option of Secured Party,
a photocopy or other reproduction of this Security Agreement or of a financing
statement covering the Collateral shall be sufficient and may be filed as a
financing statement.
Section 4.5 DELIVERY OF INFORMATION. Debtor will promptly transmit
to Secured Party all information that Debtor may have or receive with respect to
the Collateral which might in any way materially affect the value of the
Collateral or Secured Party's rights or remedies with respect thereto.
Section 4.6 FINANCING STATEMENT FILINGS: NOTIFICATIONS. Debtor
recognizes that financing statements pertaining to the Collateral have been or
will be filed with the office of the Secretary of State of the State of Texas
and in all other jurisdictions necessary to perfect the security interests
granted hereby. Debtor will immediately notify Secured Party of any condition
or event that may change the proper location for the filing of any financing
statements or other public notice or recordings for the purpose of perfecting a
security interest in the Collateral. Without limiting the generality of the
foregoing, Debtor will: (a) notify Secured Party within a reasonable period of
time in advance of any change to a jurisdiction other than as represented in
Section 3.2 hereof, (i) in the location of the Debtor's place of business, (ii)
in the location of the office where Debtor keeps its records concerning the
original of all the Related Rights, or (iii) in the "location" of Debtor within
the meaning of Section 9-103(c) of the UCC: and (b) immediately notify Secured
Party of any change in Debtor's name. In any notice furnished pursuant to this
Section, Debtor will expressly state that the notice is required by this
Security Agreement and contains facts that will or may require additional
filings of financing statements or other notices for the purpose of continuing
perfection of Secured Party's security interest in the Collateral.
Section 4.7 RENEWAL. This Security Agreement is, in part, executed
in renewal and extension of security interests granted and created by, and in
complete restatement, of the Security Agreement dated August 15, 1990, executed
by Debtor in favor of Secured Party.
ARTICLE V
RIGHTS, REMEDIES AND DEFAULT
Section 5.1 RIGHTS AND REMEDIES WITH RESPECT TO COLLATERAL. Upon
the happening and during the continuance of any Event of Default, Secured Party
is hereby fully authorized and empowered (without the necessity of any further
consent or authorization from Debtor) and the right is expressly granted to
Secured Party, and Debtor hereby appoints and
6
<PAGE>
makes Secured Party as Debtor's true and lawful attorney-in-fact and agent for
Debtor and in Debtor's name, place, and stead with full power of substitution,
in Secured Party's name or Debtor's name or otherwise, for Secured Party's use
and benefit, but at Debtor's cost and expense, to exercise, without notice, all
or any of the following powers at any time with respect to all or any of the
Collateral: (a) notify account debtors or the obligers on the Related Rights to
make and deliver payment and/or provide performance directly to Secured Party;
(b) demand, sue for, collect, receive, and give acquittance for any and all
moneys due or to become due by virtue of the Collateral, and otherwise deal with
proceeds; (c) receive, take, endorse, assign and deliver any and all checks,
notes, drafts, documents and other negotiable and non-negotiable instruments and
chattel paper and Related Rights taken or received by Secured Party in
connection therewith; (d) settle, compromise, compound, prosecute or defend any
action or proceeding with respect thereto; (e) deal in or with the Collateral as
fully and effectively as if Secured Party were the absolute owner thereof; and
(f) extend or alter the time or manner of payment or performance of any or all
thereof, grant waivers and make any allowance or other adjustment with reference
thereto; PROVIDED, HOWEVER, Secured Party shall be under no obligation or duty
to exercise any of the powers hereby conferred upon it and shall be without
liability for any act or failure to act in connection with the collection of, or
the preservation of any rights under or the depreciation in value of, any
Collateral. Debtor hereby irrevocably authorizes and directs each person or
entity who shall be a party to or liable for the performance or payment of any
of the Related Rights, upon receipt of written notice from Secured Party to pay
or otherwise perform or accept performance of the obligations under the Related
Rights to, with or for Secured Party directly, and to continue to do so until
otherwise notified by Secured Party. Each such person or entity shall have no
duty to inquire or investigate as to whether an Event of Default shall have
actually occurred or whether this Security Agreement shall have terminated, and
no such person or entity shall be liable to Debtor or its successors or assigns
for acting in reliance on Secured Party's notification as provided in this
Section.
Section 5.2 ADDITIONAL DEFAULT REMEDIES. Without limiting any of
the above powers, to the extent permitted by applicable law, Secured Party
may, upon the happening and during the continuance of any Event of Default,
apply, set-off, collect, sell in one or more sales, lease, or otherwise
Transfer any or all of the Collateral, in its then condition or following any
commercially reasonable preparation or processing, in such order as Secured
Party may elect, and any such sale may be made either at public or private
sale at its place of business or elsewhere, or at any brokers' board or
securities exchange, either for cash or upon credit or for future delivery,
at such price as Secured Party may deem fair, and Secured Party may be the
purchaser of any or all of the Collateral so sold and may hold the same
thereafter in its own right, free from any claim of Debtor or right of
redemption. No such purchase or holding by Secured Party shall be deemed a
retention by Secured Party in satisfaction of the Secured Obligations. All
demands, notices, and advertisements, and the presentment of property at
sale, are hereby waived. If, notwithstanding the foregoing provisions, any
applicable provisions of the UCC or other applicable law requires Secured
Party to give reasonable notice of any such sale or disposition or other
action, and reasonable notice is not defined in such law, Debtor hereby
agrees that five days' prior written notice shall constitute reasonable
notice. Secured Party may require Debtor to assemble the Collateral and make
it available to Secured Party at a place designated by Secured Party which is
reasonable convenient to Secured Party and Debtor. To the extent permitted
by applicable law, any sale hereunder may be conducted by an auctioneer
7
<PAGE>
or any officer or agent of Secured Party. After an Event of Default, Secured
Party shall have the right to take possession of any or all of the Collateral
and to take possession of all books, records, documents, information,
agreements, and other property of Debtor or in Debtor's possession or control
relating to the Collateral, and for such purpose may enter upon any premises
upon which any of the Collateral or any of such books, records, information,
agreements or other property are situated and remove the same therefrom without
any liability for trespass or damages occasioned thereby.
Section 5.3 PROCEEDS. After the happening of any Event of Default,
the proceeds of any sale or other Transfer of the Collateral and all sums
received or collected by Secured Party from or on account of the Collateral
shall be applied by Secured Party in the manner set forth in Section 9.504 of
the UCC (unless otherwise required by any other applicable law). In connection
with the exercise of Secured Party's rights hereunder, Debtor hereby grants to
Secured Party, after the happening of an Event of Default, the right to receive,
change the address for delivery, open, and dispose of mail addressed to Debtor
(to the extent that it relates to the Collateral), and to execute, assign and
endorse negotiable and other instruments, documents or other evidence of
payment, shipment, storage, or Transfer for any form of Collateral on behalf of
and in the name of Debtor.
Section 5.4 DEFICIENCY. Debtor shall remain liable to Secured
Party for any unpaid Secured Obligations, advances, costs, charges, and expenses
incurred by Secured Party in connection herewith, together with interest
thereon, and shall pay the same immediately to Secured Party at Secured Party's
offices.
Section 5.5 SECURED PARTY'S DUTIES. The powers conferred upon
Secured Party by this Security Agreement are solely to protect Secured Party's
interest in the Collateral, and shall not impose any duty upon Secured Party to
exercise any such powers. Secured Party shall be under no duty whatsoever to
make or give any presentment, demand for performance, notice of nonperformance,
protest, notice of protest, notice of dishonor, notice of intent to accelerate,
notice of acceleration, or other notice or demand in connection with any
Collateral or the Secured Obligations, except as specifically provided in this
Security Agreement and the Loan Agreement, or to take any steps necessary to
preserve any rights against prior parties. Secured Party shall not be liable
for failure to collect or realize upon the Collateral, or for any delay in so
doing, nor shall Secured Party be under any duty to take action whatsoever with
regard thereto. Secured Party shall use reasonable care in the custody and
preservation of any Collateral in its possession but need not take any steps to
keep the Collateral identifiable. Secured Party shall have no duty to comply
with any recording, filing or other legal requirements necessary to establish or
maintain the validity, priority or enforceability of, or Secured Party's rights
in, any of the Collateral.
Section 5.6 SECURED PARTY'S ACTIONS. Debtor waives (i) any right
to require Secured Party to proceed against any person or entity, exhaust any
Collateral, or have any person or entity joined with Debtor in any suit arising
out of the Secured Obligations or this Security Agreement or pursue any other
remedy in Secured Party's power; (ii) any and all notice of acceptance of this
Security Agreement or of creation, modification, rearrangement, renewal or
extension for any period of any of the Secured Obligations from time to time;
and (iii) any
8
<PAGE>
defense arising by reason of any disability or other such defense. All
dealings between Debtor and Secured Party, whether or not in connection with
the Secured Obligations, shall conclusively be presumed to have been had or
consummated in reliance upon this Security Agreement. Until all the Secured
Obligations shall have been paid in full, Debtor shall have no right to
subrogation, and Debtor waives any benefit of and any right to participate in
any Collateral or security whatsoever now or hereafter held by Secured Party.
Debtor authorizes Secured Party, without notice or demand and without any
reservation of rights against Debtor and without affecting Debtor's liability
hereunder or on the Secured Obligations, from time to time to (a) take and
hold any other property as collateral, other than the Collateral, as security
for any or all of the Secured Obligations, and exchange, enforce, waive and
release any or all of the Collateral or such other property; (b) apply the
Collateral or such other property and direct the order or manner of sale
thereof as Secured Party, in its discretion, may determine; (c) renew, extend
for any period, accelerate, modify, compromise, settle, or release the
obligation of any person or entity with respect to any or all of the Secured
Obligations or the Collateral; and (d) waive, enforce, modify, amend, or
supplement any of the provisions of this Security Agreement or either of the
Notes.
Section 5.7 TRANSFER OF OBLIGATIONS AND COLLATERAL. Secured Party may
transfer any or all of the Secured Obligations, and upon any such transfer
Secured Party may transfer any or all of the Collateral and shall be fully
discharged thereafter from all liability with respect to the Collateral so
transferred, and the Transferee shall be vested with all rights, powers and
remedies of Secured Party hereunder with respect to Collateral so
transferred. With respect to any Collateral not so transferred, Secured Party
shall retain all rights, powers, and remedies hereby given. Secured Party may
at any time deliver any or all of the Collateral to Debtor whose receipt
shall be a complete and full acquittance for the Collateral so delivered, and
Secured Party shall thereafter be discharged from any liability therefor.
Section 5.8 CUMULATIVE SECURITY. The execution and delivery of this
Security Agreement in no manner shall impair or affect any other security (by
endorsement or otherwise) for the Secured Obligations. No security taken
hereafter as security for the Secured Obligations shall impair in any manner
or affect this Security Agreement. All such present and future additional
security is to be considered as cumulative security.
Section 5.9 CONTINUING AGREEMENT. This is a continuing agreement, and
the grant of a security interest hereunder shall remain in full force and
effect. All the rights of Secured Party hereunder shall continue to exist
until (i) the Secured Obligations are paid in full as the same becomes due
and payable; and (ii) Secured Party, upon request of Debtor, has executed a
written termination statement reassigning to Debtor, without recourse, the
Collateral and all rights conveyed hereby and returning possession of the
Collateral, if applicable, to Debtor. Otherwise this Security Agreement shall
continue irrespective of the fact that the liability of Debtor or any other
person or entity may have ceased, or irrespective of the validity or
enforceability of the Notes or any other note or any other loan document to
which Debtor or any other person or entity may be a party, and
notwithstanding the reorganization or bankruptcy of Debtor or any other
person or entity, or any other event or proceeding affecting Debtor or any
other person or entity.
9
<PAGE>
Section 5.10 RIGHTS UNDER UNIFORM COMMERCIAL CODE. Regardless of
whether the Uniform Commercial Code is in effect in the jurisdiction where such
rights under this Security Agreement are asserted, Secured Party shall have the
rights, powers and remedies of a secured party under the UCC or any similar law
in any other jurisdiction whose laws are applicable. Secured Party may exercise
its right of set-off with respect to the Secured Obligations in the same manner
as if the Secured Obligations were unsecured. Without limitation of the
foregoing, Secured Party may directly offset against the Secured Obligations any
amounts due Debtor under or in connection with the Notes or any other note, or
any future agreement or contract between Debtor and Secured Party.
Section 5.11 EXERCISE OF RIGHTS, ETC. Time shall be of the essence
for the performance of any act under this Security Agreement or the Secured
Obligations by Debtor, but neither Secured Party's acceptance of partial or
delinquent payments nor any forbearance, failure or delay be Secured Party in
exercising any right shall be deemed a waiver of any obligation of Debtor or of
any right of Secured Party or preclude any other or further exercise thereof;
and no single or partial exercise of any right shall preclude any other or
further exercise thereof, or the exercise of any other right.
Section 5.12 REMEDY AND WAIVER. Secured Party may remedy any Event
of Default and may waive any Event of Default without waiving the Event of
Default remedied or waiving any prior or subsequent Event of Default.
Section 5.13 NON-JUDICIAL REMEDIES. To the fullest extent permitted
by law, Secured Party may enforce its rights hereunder without prior judicial
process or judicial hearing, and Debtor expressly waives, renounces, and
knowingly relinquishes any and all legal rights which might otherwise require
Secured Party to enforce its rights by judicial process. In so providing for
non-judicial remedies, Debtor recognizes that such remedies are consistent with
the usage of the trade, are responsive to commercial necessity and are the
result of bargain at arm's length. Nothing herein is intended to prevent
Secured Party or Debtor from resorting to judicial process at either party's
option.
ARTICLE VI
MISCELLANEOUS
Section 6.1 PRESERVATION OF LIABILITY. Neither this Security
Agreement nor the exercise by Secured Party of (or the failure to so exercise)
any right conferred herein or by law shall be construed as relieving any person
or entity liable on the Secured Obligations from liability on the Obligations
and for any deficiency thereon.
Section 6.2 SURVIVAL OF AGREEMENTS. All representations and
warranties of Debtor herein, and all covenants and agreements herein not fully
performed before the effective date of this Security Agreement, shall survive
such date.
10
<PAGE>
Section 6.3 NOTICE. Except as otherwise provided herein, all
notices, demands, requests, and communications permitted or required under this
Agreement shall be delivered in the time and manner as required by the Loan
Agreement.
Section 6.4 AMENDMENT AND WAIVER. This Security Agreement may not
be amended nor may any of its terms be waived except in writing duly signed by
the party against whom enforcement of the amendment or waiver is sought.
Section 6.5 INVALIDITY. If any provision of this Security
Agreement is rendered or declared illegal, invalid, or unenforceable by reason
of any existing or subsequently enacted legislation or by a judicial decision
that has become final, Debtor and Secured Party shall promptly meet and
negotiate substitute provisions for those rendered illegal, invalid, or
unenforceable, but all of the remaining provisions shall remain in full force
and effect.
Section 6.6 SUCCESSORS AND ASSIGNS. The covenants,
representations, warranties, and agreements herein set forth shall be binding
upon Debtor and shall inure to the benefit of Secured Party and its heirs, legal
representatives, successors, and assigns.
Section 6.7 CONFLICTING PROVISIONS. To the extent any
irreconcilable conflicts or inconsistencies exist between the terms of this
Security Agreement and the Loan Agreement, the terms of the Loan Agreement shall
govern and control.
SECTION 6.8 CONSTRUCTION. THIS SECURITY AGREEMENT HAS BEEN MADE IN
AND THE SECURITY INTEREST GRANTED HEREBY IS GRANTED IN, AND EACH SHALL BE
GOVERNED BY THE LAWS OF, THE STATE OF TEXAS (EXCEPT TO THE EXTENT THAT THE LAWS
OF ANY OTHER JURISDICTION GOVERN THE PERFECTION, PRIORITY, OR FORECLOSURE OF THE
SECURITY INTEREST GRANTED HEREBY) AND OF THE UNITED STATES OF AMERICA, AS
APPLICABLE, IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION, VALIDITY,
ENFORCEMENT, AND PERFORMANCE.
SECTION 6.9 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE
ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF
AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER
WRITTEN OR ORAL, RELATING TO THE SUBJECT HEREOF. FURTHERMORE, IN THIS REGARD,
THIS AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE
FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF SUCH
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 6.10 ARBITRATION. ALL CONTROVERSIES, CLAIMS, AND DISPUTES
AMONG THE PARTIES HERETO ARISING UNDER OR IN CONNECTION
11
<PAGE>
WITH THIS SECURITY AGREEMENT SHALL BE SUBJECT TO THE ARBITRATION PROVISION SET
FORTH IN THE LOAN AGREEMENT.
IN WITNESS HEREOF, Debtor and Secured Party have caused this
instrument to be duly executed as of the date first above written.
DEBTOR:
PEREGRINE SYSTEMS, INC.
By: /s/ David Farley
------------------------------------
Name: DAVID A. FARLEY
----------------------------------
Title: CHIEF FINANCIAL OFFICER
---------------------------------
SECURED PARTY:
NATIONSBANK OF TEXAS, N.A.
By: /s/ Jan Chism Wright
------------------------------------
Jan Chism Wright,
Vice President
12
<PAGE>
EXHIBIT 11.1
PEREGRINE SYSTEMS INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
FOR THE YEAR ENDED MARCH 31 DECEMBER 31
--------------------------- ----------------------------
1995 1996 1996
------------ ------------- 1995 -------------
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Income (Loss)..................................... $ 51,000 $ (6,411,000) $ (3,736,000) $ 2,364,000
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Weighted Average Number of Shares and Equivalent
Shares Outstanding
Weighted Average Number of Shares Outstanding......... 10,805,000 11,677,000 11,270,000 12,904,000
Effect of Stock Options and Restricted Stock(1)....... 1,445,000 654,000 654,000 1,534,000
------------ ------------- ------------- -------------
12,250,000 12,331,000 11,924,000 14,438,000
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Net Income (Loss) Per Share........................... $ -- $ (0.52) $ (0.31) $ 0.16
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
- ------------------------
(1) Shares related to options granted within the twelve months preceding, the
company's initial public offering at exercise prices below the initial
public offering price have been retroactively included in the calculation of
net income (loss) per share; whether or not dilutive, as required by the
regulations of the Securities and Exchange Commission.
<PAGE>
List of Subsidiaries
Peregrine Systems, GmbH
Peregrine Systems, Limited
Peregrine Bridge Subsidiary, Inc.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports, and to all references to our Firm, included in or made a part of this
registration statement.
[SIGNATURE]
ARTHUR ANDERSEN LLP
February 6, 1997
San Diego, California
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1997
<PERIOD-START> APR-01-1995 APR-01-1996
<PERIOD-END> MAR-31-1996 DEC-31-1996
<CASH> 473,000 1,271,000
<SECURITIES> 0 0
<RECEIVABLES> 6,385,000 9,981,000
<ALLOWANCES> (130,000) (133,000)
<INVENTORY> 0 0
<CURRENT-ASSETS> (8,153,000) 13,620,000
<PP&E> 8,716,000 9,104,000
<DEPRECIATION> (3,367,000) (4,557,000)
<TOTAL-ASSETS> 13,817,000 19,034,000
<CURRENT-LIABILITIES> 17,595,000 20,920,000
<BONDS> 1,842,000 1,511,000
0 0
0 0
<COMMON> 13,000 13,000
<OTHER-SE> (8,437,000) (6,340,000)
<TOTAL-LIABILITY-AND-EQUITY> 13,817,000 19,034,000
<SALES> 23,766,000 24,527,000
<TOTAL-REVENUES> 23,766,000 24,527,000
<CGS> 3,941,000 3,578,000
<TOTAL-COSTS> 3,941,000 3,578,000
<OTHER-EXPENSES> 24,091,000 18,219,000
<LOSS-PROVISION> 60,000 45,000
<INTEREST-EXPENSE> 389,000 337,000
<INCOME-PRETAX> (4,552,000) 2,730,000
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,552,000) 2,730,000
<DISCONTINUED> (1,859,000) 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,411,000) 2,364,000
<EPS-PRIMARY> (0.52) .16
<EPS-DILUTED> (0.52) .16
</TABLE>
