<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
BEA SYSTEMS, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372-9907 77-0394711
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
385 MOFFETT PARK DRIVE, SUITE 105
SUNNYVALE, CALIFORNIA 94089-1208
(408) 743-4000
(Address and telephone number of principal executive offices and principal place
of business)
----------------
WILLIAM T. COLEMAN III
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
385 MOFFETT PARK DRIVE, SUITE 105
SUNNYVALE, CALIFORNIA 94089-1208
(408) 743-4000
(Name, address and telephone number of agent for service)
----------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL C. PHILLIPS, ESQ. BARRY E. TAYLOR, ESQ.
KEVIN A. FAULKNER, ESQ. ROBERT G. O'CONNOR, ESQ.
CORI M. ALLEN, ESQ. J. RANDALL LEWIS, ESQ.
Morrison & Foerster LLP Wilson Sonsini Goodrich & Rosati
755 Page Mill Road Professional Corporation
Palo Alto, CA 94304-1018 650 Page Mill Road
Palo Alto, CA 94304-1050
</TABLE>
----------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
----------------
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
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $.001 par value $40,250,000 $12,197
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
The Prospectus relating to the shares being registered hereby to be used in
connection with a United States offering (the "U.S. Prospectus") is set forth
following this page. The Prospectus to be used in a concurrent international
offering (the "International Prospectus") will consist of alternate pages set
forth following the U.S. Prospectus and the balance of the pages included in the
U.S. Prospectus for which no alternate is provided. The U.S. Prospectus and the
International Prospectus are identical except that they contain different
outside front cover, inside front cover and outside back cover pages and
different descriptions of the plan of distribution (contained under the caption
"Underwriting" in both the U.S. Prospectus and the International Prospectus).
Alternate pages for the International Prospectus will be filed by amendment and
will be separately designated.
<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 JANUARY 31, 1997
SHARES
[LOGO]
BEA SYSTEMS, INC.
COMMON STOCK
(PAR VALUE $0.001)
------------------
Of the shares of Common Stock offered, shares are being offered
hereby in the United States and shares are being offered in a concurrent
international offering outside the United States. The initial public offering
price and the aggregate underwriting discount per share will be identical for
both offerings. All of the shares of Common Stock offered hereby are being
issued and sold by the Company. See "Underwriting".
Prior to the offerings, 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 $ and $ . For factors to be considered
in determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "BEAS".
------------------
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>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
---------------- ------------- ----------------
<S> <C> <C> <C>
Per Share............................................................ $ $ $
Total(3)............................................................. $ $ $
</TABLE>
- --------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated expenses of $1,700,000 payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional shares at the initial public offering
price per share, less the underwriting discount, solely to cover
over-allotments. Additionally, the Company has granted the International
Underwriters a similar option with respect to an additional shares as
part of the concurrent international offering. If such options are exercised
in full, the total initial public offering price, underwriting discount and
proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting".
------------------
The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York, on or about
, 1997 against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
ALEX. BROWN & SONS INCORPORATED
ROBERTSON, STEPHENS & COMPANY
SOUNDVIEW FINANCIAL GROUP, INC.
------------
The date of this Prospectus is , 1997
<PAGE>
Set forth on the left hand side of the inside front cover page are three
square boxes, side by side, each bearing the inscription "SERVER." Set forth on
top of these squares are twelve other squares of equal size, partially
overlapping each other and connected to the three other boxes by four lines
emanating from each square. Three of the twelve squares bear the inscription
"SERVER." Underneath the graphic is set forth the caption "BEFORE BEA."
Set forth on the right hand side of the inside front cover is an identical
graphic, with the exception of a horizontal rectangular box bearing the caption
"BEA ENTERPRISE TRANSACTION FRAMEWORK" inserted between the lower three squares
and the other twelve squares. The three lower squares are connected to the
rectangular box by three lines, one emanating from each square. The twelve other
squares are connected to the rectangular box by twelve lines, one emanating from
each square. Underneath the graphic is set forth a caption which reads "AFTER
BEA."
Above the two graphics across the length of the page is set forth the
caption "THE BEA ENTERPRISE MIDDLEWARE SOLUTION:." Underneath the two graphics,
across the length of the page is set forth the caption "SIMPLIFYING AND
PROVIDING RELIABILITY TO THE PROCESSING OF COMPLEX BUSINESS TRANSACTIONS." Below
this caption is set forth the following text: "Building, deploying, managing and
expanding distributed mission-critical computer software applications across
large enterprises is an increasingly important business requirement for large
organizations. By coordinating these applications among the many distributed
clients and servers supporting enterprise applications, the BEA Enterprise
Transaction Framework provides an integrated middleware platform that is
scalable, reliable, and flexible."
The Company intends to furnish to its stockholders annual reports containing
audited consolidated financial statements and quarterly reports containing
unaudited consolidated financial information for the first three fiscal quarters
of each fiscal year of the Company.
------------------
IN CONNECTION WITH THE OFFERINGS, 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 STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------
BEA, BEA Builder, BEA Connect, BEA Jolt, BEA Manager, Enterprise Middleware
Solutions and Jolt are trademarks of the Company. The Company has licensed
worldwide rights to TUXEDO, which is a registered trademark of Novell, Inc. in
the United States and other countries. This Prospectus contains other product
names, trade names and trademarks of the Company and of other organizations.
2
<PAGE>
The inside cover gatefold is divided into two equal halves by a horizontal
bar containing the caption "BEA ENTERPRISE TRANSACTION FRAMEWORK." Above the bar
are set forth four clusters of pictures, connected to the dividing bar by four
lines, one emanating from each cluster. The cluster on the left consists of
three identical pictures, partially superimposed, depicting a man working on a
laptop computer. The cluster bears the captions "ELECTRONIC COMMERCE," "INTERNET
BROWSER" and "BEA JOLT." A cloud superimposed by a lightning symbol intersects
the line connecting the cluster to the dividing bar. To the right of this
cluster is set forth a second cluster consisting of two pictures, one of which
depicts a desktop computer and one of which depicts the interior of a warehouse.
This cluster bears the caption "MANUFACTURING," "PC CLIENT" and "BEA TUXEDO." To
the right of this cluster is set forth a third cluster consisting of a picture
of two persons sitting at a desk and talking, and a caption reading "HUMAN
RESOURCES," "PC CLIENT" and "BEA TUXEDO." The cluster on the right contains
three identical, partially superimposed pictures representing a mainframe
computer. The cluster bears the captions "MAINFRAME" and "DATABASES."
Below the dividing bar are set forth five clusters of pictures, connected to
the dividing bar by five lines, one emanating from each cluster. The cluster on
the left consists of three identical, partially superimposed pictures of an
automated check-out counter and a hand sliding a credit card. This cluster bears
the captions "POINT OF SALE" and "PC CLIENT." To the right of this cluster is
set forth a second cluster consisting of a picture of a person working on a
laptop computer and the captions "THIRD PARTY SALES" and "PC CLIENT." To the
right of this cluster is set forth a third cluster depicting a CD superimposed
on a hundred dollar bill, an electronic ticker and a number of documents. The
cluster contains the captions "FINANCE," "PC CLIENT" and "BEA TUXEDO." To the
right of this cluster is set forth a cluster consisting of two pictures, one
depicting a person wearing a head-set and microphone and one depicting a laptop
computer. The cluster contains a caption reading "THIRD PARTY SALES" and "PC
CLIENT." The cluster on the right consists of three identical, partially
superimposed pictures of a computer room containing a number of servers. The
cluster contains the caption "UNIX, NT SERVERS" and "DATABASES."
Set forth in the upper left-hand corner of the gatefold is a caption reading
"LARGE ORGANIZATIONS USE BEA'S MIDDLEWARE AS THE PLATFORM TO RUN THEIR MOST
CRITICAL APPLICATIONS."
In the upper right-hand corner of the gatefold is set forth the following
text: "BEA's products and services are used as the software infrastructure to
support and integrate a company's most important business applications. Using
the BEA Enterprise Transaction Framework as the infrastructure for its
applications, a company provides its business applications with transaction
integrity and security, and integration with widely disparate database, client,
and server technologies. This infrastructure can be used in a wide variety of
distributed computing environments from legacy mainframes to internet clients.
The BEA solution also provides highly scalable technology to handle thousands of
users simultaneously, and integration with packaged software including those
that use BEA's middleware."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE
INFORMATION IN THIS PROSPECTUS (I) REFLECTS THE CONVERSION OF ALL OUTSTANDING
SHARES OF PREFERRED STOCK AND A CONVERTIBLE NOTE INTO SHARES OF COMMON STOCK
EFFECTIVE AUTOMATICALLY UPON THE CLOSING OF THE OFFERINGS AND (II) ASSUMES NO
EXERCISE OF THE U.S. UNDERWRITERS' OR INTERNATIONAL UNDERWRITERS' OVER-ALLOTMENT
OPTIONS. SEE "UNDERWRITING."
THE COMPANY
BEA Systems, Inc. ("BEA" or the "Company") designs, develops, markets and
supports software used by large organizations to enable and support their most
critical business processes. The Company's Enterprise Transaction Framework is
an integrated middleware software platform for developing, deploying and
managing distributed mission-critical computer software applications. The core
of the BEA Enterprise Transaction Framework is BEA TUXEDO, a software engine
that manages transactions and communications for enterprise-wide applications,
enabling organizations to realize the benefits offered by distributed computing
environments while preserving the traditional advantages of mainframe-based
systems. BEA products provide a middleware software infrastructure that supports
thousands of simultaneous users distributed worldwide. In addition to its
software products, BEA provides its customers with complete solutions through a
range of professional services offerings.
BEA's products are marketed and sold worldwide, principally through the
Company's direct sales force and also indirectly through third parties. BEA's
products have been adopted in a wide variety of industries, including banking
and finance, manufacturing, retail, technology, telecommunications and
transportation. For the nine months ended October 31, 1996, BEA sold new product
licenses to over 170 customers, including over 50 new customers. The total
number of customers using products that have been acquired and developed by BEA
is greater than 600 worldwide. These customers include: The AT&T Corp., Bell
Communications Research, Inc., Damark International Inc., Discover Card Trust,
Federal Express Corp., Fidelity Investments, Gap Inc., J.J. Kenney, McKesson
Corp., Motorola Inc., Nippon Telephone & Telegraph, Northwest Airlines Corp.,
U.K. Employment Services, Union Bank of Switzerland and Walgreens Co. In
addition, independent software vendors ("ISVs"), such as PeopleSoft Inc. and
Clarify, Inc., embed BEA TUXEDO into their own product offerings in order to
improve the scalability, portability and interoperability of their products.
Over the past decade, the information systems of many organizations have
been evolving from traditional mainframe systems to distributed computing
environments. This evolution has been driven by the benefits offered by
distributed computing, including lower incremental technology costs, faster
application development and deployment, increased flexibility and improved
access to business information. However, the inherent technical and business
limitations of distributed computing have generally precluded its use for
complex, large-scale, mission-critical applications, such as airline
reservations, credit card processing and customer billing and support systems,
that enable and support fundamental business processes. These shortcomings
include the limited scalability, reliability and interoperability of distributed
computing environments. In addition, it has been difficult to integrate
distributed computing technologies with existing mission-critical applications,
limiting organizations' ability to leverage their substantial investments in
legacy systems and existing personnel and skills.
BEA's products and services enable companies to overcome the limitations of
distributed computing for mission-critical applications. BEA's Enterprise
Transaction Framework, based upon time-tested and market-proven BEA TUXEDO
technology, provides a middleware solution that addresses the scalability,
manageability, platform independence, interoperability, integrity, reliability
and security requirements of complex, large-scale, distributed computing in the
heterogeneous environments present in most major organizations. The BEA solution
allows companies to leverage their substantial
3
<PAGE>
investments in legacy systems, significantly extending the useful lives of
mainframe and programmer assets while exploiting the benefits offered by
distributed computing.
The Company's objective is to establish its middleware solutions as the
industry standard for developing, deploying and managing distributed
mission-critical applications. To this end, BEA intends to enhance its
technological leadership by adding new functionality to its products; expand its
global distribution facilities to complement its direct sales, services,
training and support capabilities; promote the embedding of BEA TUXEDO into the
product offerings of ISVs to accelerate the acceptance of its products; leverage
strategic partnerships to augment the efforts of its direct sales force; and
provide the software and services necessary to conduct safe, reliable
transactions over the Internet.
The Company acquired worldwide exclusive rights to TUXEDO from Novell, Inc.
in February 1996, acquired Information Management Company and Independence
Technologies, Inc., two leading distributors of TUXEDO, in September 1995 and
November 1995, respectively, and acquired a number of other TUXEDO distribution,
sales and support organizations between May 1996 and December 1996. Such
acquisitions are referred to herein as the "Acquisitions." See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Company Background" and Consolidated Financial Statements.
References herein to "BEA" or the "Company" refer to BEA Systems, Inc., its
subsidiaries and predecessor entities acquired in the Acquisitions.
The Company was incorporated in Delaware in January 1995 under the name BEA
Enterprises, Inc. and changed its name to BEA Systems, Inc. in September 1995.
The Company's headquarters are located at 385 Moffett Park Drive, Sunnyvale,
California 94089-1208, and its telephone number is (408) 743-4000.
RISK FACTORS
For a discussion of considerations relevant to an investment in the Common
Stock, see "Risk Factors."
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by the Company.......... shares
Common Stock to be outstanding after the shares(1)
Offerings...................................
Use of proceeds.............................. For repayment of certain borrowings under a
credit line and payment of certain
obligations incurred in connection with the
Acquisitions, and for working capital and
general corporate purposes and possible
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... BEAS
</TABLE>
- --------------
(1) Based on the number of shares of Common Stock outstanding as of October 31,
1996, as calculated on a pro forma basis to give effect to the conversion of
all shares of Preferred Stock and a convertible note upon completion of the
Offerings based on an assumed initial public offering price of $ .
Excludes (i) 6,343,000 shares issuable upon exercise of options outstanding
as of October 31, 1996, having a weighted average exercise price of $0.382
per share, under the Company's 1995 Flexible Stock Incentive Plan and (ii)
917,450 shares issuable upon exercise of options granted from November 1,
1996 to January 15, 1997, (having a weighted average exercise price of $5.35
per share, and (iii) 5,985,800 additional shares authorized for issuance
under the Company's 1995 Flexible Stock Incentive Plan, 1997 Stock Incentive
Plan and 1997 Employee Stock Purchase Plan (collectively, the "Stock
Plans"). See "Management--Stock Plans" and Note 11 of Notes to BEA Systems,
Inc. Consolidated Financial Statements.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
NINE MONTHS
HISTORICAL PRO FORMA ENDED PRO FORMA NINE
YEAR ENDED YEAR ENDED OCTOBER 31, MONTHS ENDED
JANUARY 31, JANUARY 31, ---------------------- OCTOBER 31,
1996(1) 1996(1)(2) 1995(1) 1996 1996(2)
------------ ------------ ----------- --------- ---------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License Revenues.............................. $ 3,569 $ 524 $ 26,855
Service Revenues.............................. 1,564 230 9,494
------------ ------------ ----------- --------- ---------------
Total Revenues.............................. 5,133 $ 33,561 754 36,349 $ 37,366
Total Cost of Revenues(3)....................... 2,704 15,712 487 12,498 13,379
------------ ------------ ----------- --------- ---------------
Gross Margin.................................... 2,429 17,849 267 23,851 23,987
Operating Expenses:
Research and Development...................... 3,244 10,059 531 12,781 12,781
Sales and Marketing........................... 2,572 15,102 973 20,814 21,171
General and Administrative.................... 3,058 6,519 796 9,019 9,084
Write-Off of In-Process Research and
Development................................. 11,194 -- 6,060 62,248 --
------------ ------------ ----------- --------- ---------------
Total Operating Expenses.................... 20,068 31,681 8,360 104,862 43,036
Income (Loss) from Operations................... (17,639) (13,832) (8,093) (81,011) (19,049)
Other Income (Expense).......................... 48 61 5 95 95
Interest Expense................................ 89 6,795 21 4,941 4,951
------------ ------------ ----------- --------- ---------------
Income (Loss) before Income Taxes............... (17,680) (20,566) (8,109) (85,857) (23,905)
Provision for Income Taxes...................... 60 60 -- 300 326
------------ ------------ ----------- --------- ---------------
Net Income (Loss)............................... $ (17,740) $ (20,626) $ (8,109) $ (86,157) $ (24,231)
------------ ------------ ----------- --------- ---------------
------------ ------------ ----------- --------- ---------------
Pro Forma Net Income (Loss) Per Share(4)........ $ (0.58) $ (0.68) $ (1.72) $ (0.48)
------------ ------------ --------- ---------------
------------ ------------ --------- ---------------
Pro Forma Shares Used in Computing Net Income
(Loss) Per Share(4)........................... 30,385 30,385 50,107 50,107
------------ ------------ --------- ---------------
------------ ------------ --------- ---------------
<CAPTION>
OCTOBER 31, 1996
--------------------------
ACTUAL AS ADJUSTED(5)
--------- ---------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and Cash Equivalents....................... $ 1,628 $ 32,478
Working Capital................................. (30,018) 832
Total Assets.................................... 48,463 79,313
Long-Term Obligations (Less Current Portion).... 52,361 47,859
Stockholders' Equity (Deficit).................. (73,715) (25,900)
</TABLE>
- ------------------
(1) Also includes results of operations from incorporation (January 20, 1995)
through January 31, 1995.
(2) Pro forma to give effect to the acquisitions of IMC, ITI, TUXEDO Systems
Group and USL France as if they occurred on February 1, 1995 for the pro
forma as adjusted results for the year ended January 31, 1996, and February
1, 1996 for the pro forma nine months ended October 31, 1996. The pro forma
adjustments include (i) the elimination of revenues and expenses which
occurred between the entities prior to their acquisition by BEA, (ii)
amortization of intangible assets acquired for the full period, (iii) an
increase in interest expense resulting from debt issued to acquire IMC and
TUXEDO Systems Group, (iv) exclusion of material non-recurring charges
relating to write-offs of in-process research and development and an
extraordinary gain resulting from the forgiveness of debt. Additionally, the
pro forma as adjusted results for the year ended January 31, 1996 include
Company management's adjustments to reflect estimated expenses in excess of
direct salaries and benefits for TUXEDO Systems Group. See "Selected
Unaudited Pro Forma Operating Results" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Consolidated
Results of Operations."
(3) Includes expenses attributable to amortization of intangible assets
resulting from prior acquisitions in the amounts of $1.1 million, $ ,
$116,000, $5.3 million and $ million, respectively.
(4) See Note 1 of Notes to BEA Systems, Inc. Consolidated Financial Statements
for an explanation of the method used to determine the number of shares used
in computing net income (loss) per share.
(5) Adjusted to reflect the sale of shares offered by the Company hereby,
based on an assumed initial public offering price of $ per share and the
application of the estimated net proceeds therefrom.
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, INVESTORS
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN EVALUATING AN INVESTMENT
IN THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN OF THE RISK FACTORS SET FORTH
BELOW AND ELSEWHERE IN THIS PROSPECTUS.
LIMITED OPERATING HISTORY; NO ASSURANCE OF PROFITABILITY
The Company was incorporated in January 1995 and, accordingly, has a limited
operating history upon which an evaluation of the Company and its prospects can
be based. Revenues generated by the Company to date have been derived primarily
from sales of BEA TUXEDO, a product to which the Company acquired worldwide
rights in February 1996, and from fees for related services. Since its
inception, the Company has acquired a number of businesses and other products in
addition to BEA TUXEDO. Prior to the consummation of these acquisitions, the
Company had no revenues and limited business activities. Accordingly, the
Company is subject to the risks inherent both in the operation of a new business
enterprise and the integration of a number of previously separate and
independent business operations, and there can be no assurance that the Company
will be able to address these risks successfully. Although the Company has
experienced recent substantial revenue growth, the Company has incurred
significant net losses since its inception, including losses of approximately
$17.7 million and $86.2 million during the fiscal year ended January 31, 1996
and the nine months ended October 31, 1996, respectively. At October 31, 1996,
the Company had an accumulated deficit of approximately $104.5 million. In
addition, in connection with certain acquisitions, the Company recorded
approximately $99 million as intangible assets, approximately $80 million of
which has already been amortized and expensed and approximately $19 million of
which is expected to be amortized and expensed in future periods through the
Company's fiscal year ending January 31, 2001. The amounts of such intangible
assets to be expensed in future periods, which will not be separately reported
but will be included primarily in cost of sales, are expected to be $2.3 million
per fiscal quarter in 1997 and are expected to average $1.3 million per fiscal
quarter in 1998. To the extent the Company makes acquisitions of businesses,
products and technologies in the future, the Company may report additional,
potentially significant, amortization expenses related thereto. There can be no
assurance that the Company will be profitable in any future period, and recent
operating results should not be considered indicative of future financial
performance. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company expects that it will experience significant fluctuations in
future quarterly operating results as a result of many factors, including, among
others: the size and timing of orders; introduction or enhancement of products
by the Company or its competitors; market acceptance of middleware products; the
lengthy sales and implementation cycle for the Company's products and the
potential for significant delays; market acceptance of new products and product
enhancements; technological changes in computer systems and environments; the
structure and timing of future acquisitions of businesses, products and
technologies, if any; increased competition; the ability of the Company to
develop, introduce and market new products on a timely basis; changes in the
Company's or its competitors' pricing policies; customer order deferrals in
anticipation of future new products and product enhancements, if any; the
Company's success in expanding its sales and marketing programs; mix of products
and services sold; mix of distribution channels; ability to meet the service
requirements of its customers; costs associated with acquisitions; loss of key
personnel; fluctuations in foreign currency exchange rates; and general economic
conditions. As a result of all of these factors, the Company believes that
quarterly revenues and operating results are difficult to forecast and
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
6
<PAGE>
Because the Company generally ships software products within a short period
after receipt of an order, it will not at any given time have a material backlog
of unfilled orders, and revenues in any quarter will be substantially dependent
on orders booked and shipped in that quarter. In addition, the Company
historically has recognized, and expects to continue to recognize, a significant
portion of license revenue in the last month of each fiscal quarter. The Company
anticipates that it will derive a substantial portion of its revenues from
increasingly large orders, as customers deploy BEA products throughout their
organizations. Any inability of the Company to generate large orders, or any
delay or loss of such orders in a particular quarter, will materially adversely
affect the Company's revenues and, more significantly on a percentage basis, its
net income or loss in that quarter. The Company's expense levels are based, in
part, on its expectations of future revenues. The Company expects to increase
expense levels in each of the next several quarters, primarily to support
increased sales, services and customer support efforts and research and
development efforts, and to build greater infrastructure in its international
offices, particularly in finance and administration functions. The Company is
generally unable to reduce expenses significantly in the short term to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall of revenues in relation to the Company's expectations or any material
delay of large orders would have a material adverse effect on the Company's
business, operating results and financial condition. Due to all the foregoing
factors, it is likely that in some future quarters the Company's operating
results will not meet the expectations of public stock market analysts and
investors. As a result, the market price of the Company's Common Stock would be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
PRODUCT CONCENTRATION; DEPENDENCE ON GROWTH OF MARKET FOR MIDDLEWARE; NOVELL
RELATIONSHIP
Revenues generated by the Company to date have been derived primarily from
sales of BEA TUXEDO, a product to which the Company acquired worldwide rights in
February 1996, and from fees for related services. These products and services
are expected to continue to account for a substantial majority of the Company's
revenues for the foreseeable future. As a result, factors adversely affecting
the pricing of or demand for BEA TUXEDO, 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 success is dependent in
significant part on the Company's middleware software products achieving market
acceptance by large organizations with substantial legacy mainframe systems. All
of the Company's business is in the market for middleware and related services,
which is still an emerging market that is characterized by continuing
technological developments, evolving industry standards and changing customer
requirements. The Company's future financial performance will depend in large
part on continued growth in the number of companies extending their
mainframe-based, mission-critical applications to an enterprise-wide distributed
computing environment through the use of middleware technology. There can be no
assurance that the market for middleware technology and related services will
continue to grow. If the middleware market fails to grow or grows more slowly
than the Company currently anticipates, or if the Company experiences increased
competition in this market, the Company's business, operating results and
financial condition will be materially adversely affected.
Under the terms of the Company's license agreement with Novell, Inc.
("Novell") for the BEA TUXEDO product (the "Novell Agreement"), the Company is
required to make aggregate annual payments to Novell of $32 million and $33
million during the calendar years 1997 and 1998, respectively, and, to acquire
perpetual rights to TUXEDO, a final payment of $12 million in January 1999. In
connection with the Novell Agreement, Warburg, Pincus Ventures, L.P., the
Company's principal stockholder has guaranteed payment obligations to Novell.
See Note 6 of Notes to BEA Systems, Inc. Consolidated Financial Statements. In
addition, the Novell Agreement requires BEA to employ at least 47 developers
devoted to BEA TUXEDO product development at December 31, 1997 and 62 such
developers at December 31, 1998. There can be no assurance that the Company will
employ the required minimum number of BEA TUXEDO developers. Any failure to make
the required payments or any failure by the Company to achieve minimum
contractual employment levels under the Novell
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Agreement would result in a loss of the Company's rights to BEA TUXEDO, which
would have a material adverse effect on the Company's business, operating
results and financial condition. See "--Substantial Future Capital Needs,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Products."
LENGTHY SALES AND IMPLEMENTATION CYCLE
The Company's products are typically used to integrate applications that are
critical to a customer's business, and the purchase of the Company's products is
often part of a customer's implementation of a distributed computing
environment. In such cases, the sales and implementation of the Company's
middleware software products are included in a larger decision-making process
within a customer's organization which can cause orders of the Company's
products to be delayed or be subject to numerous factors beyond the Company's
control. During the nine months ended October 31, 1996, license fees per
customer for BEA products generally ranged from $95,000 to $1.7 million and
averaged $395,000. The Company expects that licenses for BEA TUXEDO will
increase in size and the implementation of the Company's products will become
more complex as customers use BEA TUXEDO for larger and more sophisticated
installations. For these and other reasons, the sales and implementation cycle
associated with the licensing of the Company's products is very lengthy and is
subject to a number of significant delays over which the Company has little or
no control. Following the signing of a license contract for BEA products, a
customer's implementation consists of a pre-deployment and a deployment phase.
Approximately 10 to 30 percent of the revenues from most customers is realized
during the pre-deployment phase and is usually weighted toward professional
services and training. The remaining portion of revenues is realized during the
deployment stage and predominantly consists of license fees. While the sales and
implementation cycle varies substantially from customer to customer, for initial
sales it has ranged from 18 to 24 months from the initial contact to the
completion of the deployment phase. Any significant or ongoing failure by the
Company to achieve such sales or any delays in the implementation process could
have a material adverse effect on the Company's business, operating results and
financial condition. See "Business--Sales, Marketing and Services."
COMPETITION
The market for middleware software and related services is highly
competitive. The Company's competitors are diverse and offer a variety of
solutions directed at various segments of the middleware software marketplace.
These competitors include database vendors such as Oracle Corporation
("Oracle"), IBM Corporation ("IBM") and others, which offer their own
development tools for use with their proprietary databases, as well as companies
offering and developing middleware software products and related services or
application development tools that compete with products offered by the Company.
In addition, internal development groups within prospective customers'
organizations may develop software and hardware systems that may substitute for
those offered by the Company. A number of the Company's competitors and
potential competitors have longer operating histories, significantly greater
financial, technical, marketing and other resources, greater name recognition
and a larger installed base of customers than the Company.
The Company's principal competitors currently are database vendors that
advocate client/server networks driven by the database server and software tool
vendors that offer development tools designed to enable customers to create
distributed mission-critical applications. Oracle is the primary relational
database vendor offering products that are intended to serve as alternatives to
the Company's enterprise middleware solutions. Currently, the software
development tool vendors typically emphasize the broad versatility of their
toolsets and, in some cases, offer complementary middleware software that
supports these tools and performs messaging and other basic middleware
functions. There can be no assurance that the Company will compete successfully
with database vendors and software tool vendors, or that the products offered by
such vendors will not achieve greater market acceptance than the Company's
products.
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Microsoft has announced that it will provide middleware functionality in
future versions of its Windows NT operating system and has recently announced
the release of a product that includes certain middleware functionality. The
bundling of middleware functionality in Windows NT will require the Company to
compete with Microsoft in the Windows NT marketplace, where Microsoft will have
certain inherent advantages due to its significantly greater financial,
technical, marketing and other resources, greater name recognition, its
substantial installed base and the integration of its enterprise middleware
functionality with Windows NT. If Microsoft successfully incorporates middleware
functionality into Windows NT or separately offers middleware applications, the
Company will need to differentiate its products based on functionality,
interoperability with non-Microsoft platforms, performance and reliability and
establish its products as more effective solutions to customers' needs. There
can be no assurance that the Company will be able to successfully differentiate
its products from those offered by Microsoft, or that Microsoft's entry into the
middleware market will not materially adversely affect the Company's business,
operating results and financial condition.
In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties, thereby increasing the ability of their products to address the
needs of the Company's current and prospective customers. Accordingly, it is
possible that new competitors or alliances among current and new competitors may
emerge and rapidly gain significant market share. Such competition could
materially adversely affect the Company's ability to sell additional licenses
and maintenance and support renewals on terms favorable to the Company. Further,
competitive pressures could require the Company to reduce the price of its
products and related services, which could materially adversely affect the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors, and the failure to do so would have a material adverse
effect upon the Company's business, operating results and financial condition.
See "Business-- Competition."
DEPENDENCE ON KEY PERSONNEL AND NEED TO HIRE ADDITIONAL PERSONNEL
The Company's future performance depends to a significant degree upon the
continued service of its key members of management, as well as marketing, sales,
consulting and product development personnel. The loss of any of William T.
Coleman III, the Company's President, Chairman and Chief Executive Officer,
Edward W. Scott, Jr., the Company's Executive Vice President of Worldwide Field
Operations, or Alfred S. Chuang, the Company's Chief Technical Officer and
Executive Vice President of Product Development, or one or more of the Company's
other key personnel, would have a material adverse effect on the Company's
business, operating results and financial condition. The Company believes its
future success will also depend in large part upon its ability to attract and
retain highly skilled management, marketing, sales, consulting and product
development personnel. Competition for such personnel is intense, and there can
be no assurance that the Company will be able to retain its key employees or
that it will be successful in attracting, assimilating and retaining them in the
future. As the Company seeks to expand its worldwide support organization,
hiring of qualified technical personnel in foreign countries will be difficult
due to the limited number of qualified professionals. Failure to attract,
assimilate and retain key personnel would have a material adverse effect on the
Company's business, operating results and financial condition. In addition, the
Novell Agreement requires the Company to employ a minimum number of research and
development personnel. See "--Product Concentration; Dependence on Growth of
Market for Middleware; Novell Relationship" and "Business--Employees."
EXPANDING DISTRIBUTION CHANNELS AND RELIANCE ON THIRD PARTIES
To date, the Company has sold its products principally through its direct
sales force, as well as through indirect sales channels, such as independent
software vendors ("ISVs"), hardware OEMs, systems integrators, independent
consultants and distributors. The Company's ability to achieve significant
revenue growth in the future will depend in large part on its success in
expanding its direct sales force and in further establishing and maintaining
relationships with distributors, OEMs and ISVs. In
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particular, a significant element of the Company's strategy is to embed its
technology in products offered by the Company's ISV customers. The Company
intends to seek distribution arrangements with other ISVs to embed the Company's
technology in their products and expects that these arrangements will account
for a significant portion of the Company's revenues in future periods.
Although the Company is currently investing, and plans to continue to
invest, significant resources to expand its direct sales force and to develop
relationships with distributors and ISVs, the Company has at times experienced
and continues to experience difficulty in recruiting qualified sales personnel
and in establishing necessary third-party relationships. There can be no
assurance that the Company will be able to successfully expand its direct sales
force or other distribution channels, secure license agreements with additional
ISVs on commercially reasonable terms or at all, or otherwise further develop
its relationships with distributors and ISVs, or that any such expansion or
additional license agreements would result in an increase in revenues. Although
the Company believes that its investments in the expansion of its direct sales
force and in the establishment of other distribution channels through third
parties ultimately will improve the Company's operating results, to the extent
that such investments are made and revenues do not correspondingly increase, the
Company's business, operating results and financial condition will be materially
and adversely affected. See "Business--Sales, Marketing and Services."
INTERNATIONAL OPERATIONS
International revenues accounted for 11% and 31% of total revenues in the
fiscal year ended January 31, 1996 and the nine months ended October 31, 1996,
respectively. The Company believes that its success depends upon continued
expansion of its international operations. As of December 31, 1996, the Company
had sales and service offices in Brisbane, Capetown, Espoo (Finland), Hong Kong,
Johannesburg, London, Munich, Paris, Sao Paulo, Sydney, Toronto, Yokohama and
Zaventem (Belgium). At December 31, 1996, the Company also had 13 resellers in
11 locations outside the United States. The Company's international business
involves a number of risks, including lack of acceptance of localized products;
cultural differences in the conduct of business; longer accounts receivable
payment cycles; greater difficulty in accounts receivable collection;
seasonality due to the slow-down in European business activity during the summer
months; unexpected changes in regulatory requirements; royalties and withholding
taxes that restrict the repatriation of earnings; tariffs and other trade
barriers; difficulty hiring qualified personnel; economic and political
conditions in each country; management of an enterprise spread over various
countries; and the burden of complying with a wide variety of foreign laws. In
addition, the Company has acquired or otherwise established 13 foreign offices
since inception and is seeking to integrate each of these offices into the
Company's overall administrative and financial reporting structure, which is
anticipated to result in the hiring of additional personnel in many of these
international offices. The Company's international sales are generated primarily
through its international sales subsidiaries, and most are currently denominated
in local currency, creating a risk of foreign currency translation gains and
losses. To the extent profit is generated or losses are incurred in foreign
countries, the Company's effective income tax rate may be materially and
adversely affected. In future periods, the Company may determine to increase the
percentage of international sales of its products at prices denominated in U.S.
dollars. In such event, fluctuations in currency exchange rates may render the
price of the Company's products unaffordable or uncompetitive. Such an event
could have a material adverse effect on the Company's business, financial
condition and results of operations. In some markets, localization of the
Company's products is essential to achieve market penetration. The Company may
incur substantial costs and experience delays in localizing its products, and
there can be no assurance that any localized product will generate significant
revenues. There can be no assurance that any of the factors described herein
will not have a material adverse effect on the Company's future international
sales and, consequently, its business, operating results and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business--Sales, Marketing and Services" and Note 12 of
Notes to BEA Systems, Inc. Consolidated Financial Statements.
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PAST AND FUTURE ACQUISITIONS
From its inception in January 1995 through October 1996, the Company has
concluded the acquisition of eight companies, divisions or products. Although
the Company anticipates that the integration of these companies, divisions or
products will not adversely affect the Company's operating results, this
integration will involve the assimilation of conflicting operations and
products, which will divert the attention of the Company's management team and
may have a material adverse effect on the Company's operating results in future
quarters. In addition, in connection with the acquisition of certain companies,
divisions or products, the Company is required to make certain future payments,
including aggregate annual payments to Novell of $32 million and $33 million
during the calendar years 1997 and 1998 and a final payment of $12 million in
January 1999 in connection with the Company's acquisition of TUXEDO. Any failure
to make such payments or otherwise perform the Company's other continuing
obligations relative to these acquisitions would result in the Company's loss of
certain of its rights in the acquired businesses or products and would have a
material adverse effect on the Company's business, operating results and
financial condition. The Company intends to make additional acquisitions in the
future, although there can be no assurance that suitable companies, divisions or
products will be available for acquisition. Such acquisitions entail numerous
risks, including an inability to successfully assimilate acquired operations and
products, diversion of management's attention, difficulties and uncertainties in
transitioning the business relationships from the acquired entity to the Company
and loss of key employees of acquired companies. In addition, future
acquisitions by the Company may result in dilutive issuances of equity
securities, the incurrence of debt, large one-time expenses, and the creation of
goodwill or other intangible assets that could result in significant
amortization expense. These factors could have a material adverse effect on the
Company's business, operating results and financial condition. See "--Product
Concentration; Dependence on Growth of Market for Middleware; Novell
Relationship," "--Substantial Future Capital Needs," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 2 of
Notes to BEA Systems, Inc. Consolidated Financial Statements.
MANAGEMENT OF GROWTH
The Company currently is experiencing a period of rapid and substantial
growth that has placed, and is expected to continue to place, a strain on the
Company's administrative, financial and operational resources. The Company's
revenues have increased from $5.1 million for the year ended January 31, 1996 to
$36.3 million for the nine months ended October 31, 1996, and the number of
Company employees has increased from 120 employees in three offices in the
United States at January 31, 1996 to 371 employees in 22 offices in 12 countries
at October 31, 1996. The Company's ability to manage its staff and growth
effectively will require it to continue to improve its operational, financial
and management controls, reporting systems and procedures, to train, motivate
and manage its employees and, as required, to install new management information
and control systems. In that regard, the Company is currently installing and
implementing a new management information system that is designed to integrate
financial and other reporting among the Company's multiple domestic and foreign
offices. In addition, the Company intends to significantly increase its
administrative staff in its foreign offices, particularly in the area of
finance, and to improve financial reporting and controls for the Company's
international operations. There can be no assurance that the Company will be
able to implement improvements to its management information and control systems
in an efficient or timely manner or that, during the course of this
implementation, deficiencies in existing systems and controls will not be
discovered. If management of the Company is unable to manage growth effectively,
the Company's business, operating results and financial condition will be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SUBSTANTIAL FUTURE CAPITAL NEEDS
The Company will require substantial additional funds to satisfy its payment
obligations to Novell related to its acquisition of TUXEDO. Under the Novell
Agreement, the Company is required to make
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aggregate payments of $32 million and $33 million during the years ended
December 31, 1997 and 1998, respectively, and, to acquire perpetual rights to
TUXEDO, a final payment of $12 million in January 1999. Payment obligations have
been guaranteed by the Company's principal stockholder, Warburg, Pincus Ventures
LLC ("Warburg"). See Note 6 of Notes to BEA Systems, Inc. Consolidated Financial
Statements. As of October 31, 1996, the Company had $1.6 million in cash, cash
equivalents and short-term investments. The Company believes that the net
proceeds of the Offerings, together with its cash, cash equivalents and
short-term investments, the Warburg guaranty, available borrowings under its
lines of credit and cash from operations, will be sufficient to meet its working
capital requirements, including the payment obligations under the Novell
Agreement, through at least January 31, 1998. Thereafter, the Company expects
that it will require substantial additional capital to meet its $33 million and
$12 million payment obligations to Novell in 1998 and January 1999,
respectively. Depending upon the Company's success in achieving continued
revenue growth from sales of BEA TUXEDO and services related thereto, the
Company may require additional equity or debt financing earlier than currently
anticipated in order to fund its working capital and other requirements. There
can be no assurance that additional financing will be available or, if
available, that it will be on terms satisfactory to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS AND PRODUCT ENHANCEMENTS
The market for the Company's products is highly fragmented, competitive with
alternative computing architectures, and characterized by continuing
technological development, evolving industry standards and changing customer
requirements. The introduction of products embodying new technologies, the
emergence of new industry standards or changes in customer requirements could
render the Company's existing products obsolete and unmarketable. As a result,
the Company's success depends upon its ability to enhance existing products,
respond to changing customer requirements, and develop and introduce in a timely
manner new products that keep pace with technological developments and emerging
industry standards. Customer requirements include, but are not limited to,
operability across distributed and changing heterogeneous hardware platforms,
operating systems, relational databases and networks. For example, although BEA
TUXEDO interoperates with applications on over 40 operating platforms, as
certain of the Company's customers start to utilize emerging platforms, it will
be necessary for the Company to further enhance its products to interoperate
with applications on these emerging platforms. There can be no assurance that
the Company's products will adequately address the changing needs of the
marketplace or that the Company will be successful in developing and marketing
enhancements to its existing products or new products incorporating new
technology on a timely basis. Failure to develop and introduce new products, or
enhancements to existing products, in a timely manner in response to changing
market conditions or customer requirements, will materially and adversely affect
the Company's business, operating results and financial condition.
The Company's BEA Jolt product is designed to enable the extension of
enterprise-wide, mission-critical applications to Internet and intranet
environments. Although BEA Jolt has not accounted for a significant portion of
the Company's revenues to date, the Company intends to release enhanced versions
of BEA Jolt with greater functionality during the fiscal year ended January 31,
1998, and the Company's objective is to increase license revenues from the BEA
Jolt product, both in absolute dollars and as a percentage of the Company's
revenues in future periods, although there can be no assurance of such increase.
The success of BEA Jolt depends upon, among other things, the future growth of
the Internet for commercial transactions. There can be no assurance that
communication or commerce over the Internet will become widespread, or that the
Internet will prove to be a viable commercial marketplace. If BEA Jolt fails to
adequately address customer concerns regarding the use of the Internet for
commerce, or if the Internet otherwise does not prove to be a viable commercial
marketplace, the success of the BEA Jolt product will be materially and
adversely affected. In addition, the current version of BEA Jolt operates
through Java-based applets, and the Company anticipates that future versions of
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BEA Jolt will similarly operate through Java. Accordingly, the success of BEA
Jolt depends upon the continued widespread demand for Java-enabled World Wide
Web browsers. See "Business--Products and --Research and Development."
SOFTWARE DEFECTS
Software products as complex as those offered by the Company frequently
contain errors or defects, especially when first introduced or when new versions
or enhancements are released. Despite product testing, the Company's recently
introduced products or any products may contain defects or software errors and,
as a result, the Company may experience delayed or lost revenues during the
period required to correct any defects or errors. Any such defects or errors
could result in adverse customer reactions, negative publicity regarding the
Company and its products, harm to the Company's reputation, or loss of or delay
in market acceptance, or could require expensive product changes, any of which
could have a material adverse effect upon the Company's business, operating
results and financial condition. See "Business--Products and --Research and
Development."
PRODUCT LIABILITY
The Company markets its products to customers for developing, building,
deploying and managing distributed mission-critical computer software
applications. 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 as
a result of existing or future federal, state or local laws or ordinances or
unfavorable judicial decisions. Although the Company has not experienced any
product liability claims to date, the sale and support of its products by the
Company may entail the risk of such claims, which could be substantial in light
of the use of such products in mission-critical applications. A successful
product liability claim brought against the Company could have a material
adverse effect upon the Company's business, operating results and financial
condition.
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISK OF INFRINGEMENT
The Company's success depends upon its proprietary technology. The Company
relies on a combination of copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
its proprietary rights. The Company presently has three issued patents and two
pending patent applications, as well as an exclusive license to one patent and
one pending patent application. No assurance can be given that competitors will
not successfully challenge the validity or scope of the Company's patents and
that such patents will provide a competitive advantage to the Company. As part
of its confidentiality procedures, the Company generally enters into
non-disclosure agreements with its employees, distributors and corporate
partners, and license agreements with respect to its software, documentation and
other proprietary information. Despite these precautions, it may be possible for
a third party to copy or otherwise obtain and use the Company's products or
technology without authorization, or to develop similar technology
independently. In particular, the Company has, in the past, provided certain
hardware OEMs with access to its source code, and any unauthorized publication
or proliferation of this source code could materially adversely affect the
Company's business, operating results and financial condition. Policing
unauthorized use of the Company's products is difficult and, although 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.
Effective protection of intellectual property rights is unavailable or limited
in certain foreign countries. There can be no assurance that the Company's
protection of its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology, duplicate the
Company's products or design around any patents issued to the Company or other
intellectual property rights of the Company.
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The Company is not aware that any of its products infringe the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim such infringement by the Company with respect to current or
future products. The Company expects that software product developers will
increasingly be subject to such claims as the number of products and competitors
in the Company's industry segment grows and the functionality of products in the
industry segment overlaps. Any such claims, with or without merit, could result
in costly litigation that could absorb significant management time, which could
have a material adverse effect on the Company's business, operating results and
financial condition. Such claims might require the Company to enter into royalty
or license agreements. Such royalty or license agreements, if required, may not
be available on terms acceptable to the Company or at all, which could have a
material adverse effect upon the Company's business, operating results and
financial condition. See "Business--Intellectual Property."
NO PRIOR PUBLIC MARKET; DETERMINATION OF PUBLIC OFFERING PRICE; POSSIBLE
VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for shares of the
Common Stock, and there can be no assurance that an active public trading market
will develop following completion of the Offerings or, if developed, that such
market will be sustained. The initial public offering price of the shares of
Common Stock will be determined by negotiation between the Company and
representatives of the Underwriters and will not necessarily reflect the market
price of the Common Stock following this offering. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
The market price for the Common Stock following the Offerings will be
affected by a number of factors, including the announcement of new products or
product enhancements by the Company or its competitors, quarterly variations in
the Company's or its competitors' results of operations, changes in earnings
estimates or recommendations by securities analysts, developments in the
Company's industry, general market conditions and other factors, including
factors unrelated to the operating performance of the Company or its
competitors. In addition, stock prices for many companies in the technology and
emerging growth sectors have experienced wide fluctuations that have often been
unrelated to the operating performance of such companies. Such factors and
fluctuations, as well as general economic, political and market conditions, such
as recessions, may materially adversely affect the market price of the Company's
Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following the Offerings 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 effective date of the Offerings
without the prior written consent of Goldman Sachs. However, Goldman Sachs may,
in its sole discretion and at any time, without notice, release all or any
portion of the securities subject to lock-up agreements. As a result of these
restrictions, based on shares outstanding and options granted as of October 31,
1996, the shares offered hereby will be eligible for sale on the date of
this Prospectus, shares will be eligible for sale 180 days after the date
of this Prospectus and shares will be eligible for sale pursuant to Rule
144 upon the expiration of their respective two-year holding periods. In
addition, the Commission has proposed revisions to Rule 144 and Rule 144(k), the
effect of which would be to shorten the holding period under Rule 144 from two
years to one year and to shorten the holding period under Rule 144(k) from three
years to two years. If enacted, these proposed revisions would increase,
potentially substantially, the number of shares that would be available for sale
in the public market 180 days after the date of this Prospectus. In addition,
the Company intends to register on a registration statement on Form S-8
shares of Common Stock subject to outstanding options or reserved for
issuance under the Company's 1995 Flexible Stock Incentive Plan, 1997 Stock
Incentive Plan and 1997 Employee Stock
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Purchase Plan and shares previously issued pursuant to the 1995 Stock
Plan, which shares will be eligible for sale upon expiration of the lock-up
agreements referred to above, subject to vesting and exercisability
restrictions. Furthermore, upon expiration of the lock-up agreements referred to
above, holders of approximately shares of Common Stock will be entitled to
certain registration rights with respect to such shares. If such holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, the sale of such shares could have a
material adverse effect on the market price for the Company's Common Stock and
could materially adversely affect the Company's ability to raise additional
capital when or if required. See "Shares Eligible for Future Sale."
ANTITAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
The Company's Board of Directors has the authority to issue up to 40,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting and conversion rights, of those
shares without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. In addition, the Board of Directors has the authority to issue
undesignated Preferred Stock and, subject to certain limitations, to determine
the rights, preferences, privileges and restrictions, including voting rights,
of such shares without any further vote or action by the stockholders. The
issuance of Preferred Stock could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company. In addition, the Company is subject to the antitakeover provisions of
Section 203 of the Delaware General Corporation Law, which will prohibit the
Company from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. The application of Section 203
also could have the effect of delaying or preventing a change of control of the
Company. Further, certain provisions of the Company's Certificate of
Incorporation and Bylaws and of Delaware law could delay or make more difficult
a merger, tender offer or proxy contest involving the Company, which could
adversely affect the market price of the Company's Common Stock. See
"Description of Capital Stock--Preferred Stock and --Antitakeover Effects of
Provisions of the Certificate of Incorporation, Bylaws and Delaware Law."
CONTROL BY MANAGEMENT AND CURRENT STOCKHOLDERS
After the Offerings, the Company's officers and directors, and their
affiliates, in the aggregate, will control % of the Company's Common Stock
with full voting rights and will beneficially own % of the Company's Common
Stock. In particular, Warburg will control % of the Company's Common Stock
with full voting rights and will beneficially own % of the Company's Common
Stock. As a result, these stockholders will be able to control all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions. The voting power of Warburg and the
Company's officers and directors under certain circumstances could have the
effect of delaying or preventing a change in control of the Company. See
"Principal Stockholders" and "Description of Capital Stock."
DILUTION
The initial public offering price will be substantially higher than the book
value per share of Common Stock. Investors purchasing shares of Common Stock in
this offering will experience immediate and substantial dilution in net tangible
book value of $ per share. The Company has issued options at prices
significantly below the public offering price. To the extent outstanding options
to purchase shares of Common Stock are exercised, there will be further dilution
in net tangible book value. See "Dilution."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
being offered hereby are estimated to be approximately $30,850,000 ($35,732,500
if the Underwriters' over-allotment options are exercised in full).
The net proceeds of the Offerings are expected to be used for repayment of
amounts borrowed by the Company under its revolving credit line and for the
payment of certain obligations incurred in connection with acquisitions.
Depending upon the level of the Company's borrowings thereunder, up to $10
million will be used to repay the revolving credit line. Approximately $4.5
million will be used to repay the entire amount due at the Offerings under a
note issued by the Company in September 1995 and subsequently increased in the
principal amount of $4.2 million with interest at 8% to the founder of an
operating subsidiary acquired by the Company. The $16.3 million balance of the
net proceeds is expected to be used to make payments toward the $32 million due
to Novell in calendar year 1997. Any remaining proceeds will be added to working
capital and used for general corporate purposes. The Company may also use a
portion of the net proceeds to fund acquisitions of complementary businesses,
products or technologies. Pending such uses, the net proceeds of the Offerings
will be invested in investment grade, interest-bearing instruments.
The Company believes the net proceeds of the Offerings together with its
current cash balances, borrowings available under its lines of credit and cash
flow from operations will be sufficient to meet its working capital
requirements, including the payment obligations related to acquisitions through
at least January 31, 1998. Thereafter, the Company expects that it will require
substantial additional capital to meet payment obligations to Novell of $33
million during the calendar year 1998 and a final payment of $12 million in
January 1999 to acquire perpetual rights to TUXEDO. See "Risk Factors--Past and
Future Acquisitions and --Substantial Future Capital Needs" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, to support the
development of its business and does not anticipate paying cash dividends for
the foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results and
current and anticipated cash needs. In addition, an existing loan agreement
prohibits the Company from paying cash dividends without the lender's consent.
See Note 6 of Notes to BEA Systems, Inc. Consolidated Financial Statements.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
October 31, 1996, (ii) on a pro forma basis to give effect to the conversion
into Common Stock upon completion of the Offerings of all outstanding Preferred
Stock and a convertible note in the principal amount of $ , based on an
assumed initial public offering price of and the filing of the Company's
Amended and Restated Certificate of Incorporation to increase the authorized
shares of Common Stock and to adjust the authorized shares of Preferred Stock
prior to the Closing of the Offerings and (iii) as further adjusted to give
effect to the sale by the Company of shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of per share and
the receipt of estimated net proceeds therefrom. This table should be read in
conjunction with the Consolidated Financial Statements and notes thereto and
"Selected Consolidated Financial Data" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OCTOBER 31, 1996
----------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes Payable and Capital Lease Obligations........................... $ 52,361 $ 52,361 $ 47,859
Series B Redeemable Convertible Preferred Stock, $0.001 par value:
Authorized shares--20,000,000
Issued and outstanding shares--6,060,000 at January 31, 1996 and
16,347,800 at October 31, 1996, respectively, none pro forma; and
as adjusted....................................................... 16,965 -- --
Stockholders' Equity:
Series A Preferred Stock, $.001 par value; 20,000,000 shares
authorized, 17,166,000 shares issued and outstanding, actual;
20,000,000 shares authorized, no shares issued and outstanding,
pro forma and as adjusted......................................... 17 -- --
Common Stock, $.001 par value; 80,000,000 shares authorized,
10,347,750 shares issued and outstanding, actual; 80,000,000
shares authorized, shares issued and outstanding pro
forma; shares authorized, shares issued and
outstanding, as adjusted(1)....................................... 10 47 51
Additional Paid-in Capital............................................ 32,223 49,168 79,924
Notes Receivable from Stockholders.................................... (544) (544) (544)
Cumulative Translation Adjustment..................................... (1) (1) (1)
Deferred Compensation related to Stock Options........................ (906) (906) (906)
Accumulated Deficit................................................... (104,514) (104,514) (104,514)
------------ ------------ ------------
Total Stockholders' Equity (Deficit)................................ (73,715) (56,750) (25,900)
------------ ------------ ------------
Total Capitalization.............................................. $ (4,389) $ (4,389) $ 21,869
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- --------------
(1) Excludes (i) 6,343,000 shares issuable upon exercise of options outstanding
as of October 31, 1996 having a weighted average exercise price of $0.382
per share under the Company's 1995 Flexible Stock Incentive Plan, (ii)
917,450 shares issuable upon exercise of options granted from November 1,
1996 to January 15, 1997, having a weighted average exercise price of $5.35
per share, and (iii) 5,985,800 additional shares authorized for issuance
under the Stock Plans. See "Management--Stock Plans and --Executive
Compensation" and Note 11 of Notes to BEA Systems, Inc. Consolidated
Financial Statements.
17
<PAGE>
DILUTION
At October 31, 1996, the Company's net tangible book value was $ or
approximately $ per share. Pro forma net tangible book value per share
represents the amount of the Company's total assets less net intangibles (less
total liabilities) divided by shares of Common Stock (on a pro forma basis
to give effect to the conversion upon completion of the Offerings of all shares
of Preferred Stock and a convertible note in the principal amount of $
based on an assumed initial public offering price of $ per share)
outstanding at October 31, 1996. Net tangible book value dilution per share
represents the difference between the amount per share paid by purchasers of
shares of Common Stock in the Offerings made hereby and the pro forma net
tangible book value per share of Common Stock immediately after completion of
the Offerings. After giving effect to the sale by the Company of shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $ per share, and the application of the estimated net proceeds
therefrom, the pro forma net tangible book value of the Company as of October
31, 1996 would have been $ or $ per share. This represents an
immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution in net tangible book value of
$ per share to the purchasers of Common Stock in the Offerings, as
illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....... $
Pro forma net tangible book value per share as of
October 31, 1996.................................. $
Increase attributable to new investors..............
---------
Pro forma net tangible book value per share after the
Offerings............................................ $
---------
Dilution per share to new investors................... $
---------
---------
</TABLE>
The following table sets forth, on a pro forma basis as of October 31, 1996,
the differences between the existing stockholders and the purchasers of shares
in the Offerings (at an assumed initial public offering price of $ per
share and before deducting the estimated underwriting discount and offering
expenses) with respect to the number of shares purchased from the Company, the
total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ----------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... % $ % $
New investors(1).........................
--------- ----- ----------- ---------
Total.................................. 100.0% $ 100.0%
----- ---------
----- ---------
</TABLE>
- --------------
The above computations assume no exercise of options after October 31, 1996.
Excludes (i) 6,343,000 shares issuable upon exercise of options outstanding as
of October 31, 1996 having a weighted average exercise price of $0.382 per share
under the Company's 1995 Flexible Stock Incentive Plan, (ii) 917,450 shares
issuable upon exercise of options granted from November 1, 1996 to January 15,
1997, having a weighted average exercise price of $5.35 per share, and (iii)
5,985,800 additional shares authorized for issuance under the Stock Plans. To
the extent that outstanding options are exercised, there will be further
dilution to new investors. See "Capitalization," "Management--Stock Plans and
- --Executive Compensation" and Note 11 of Notes to BEA Systems, Inc. Consolidated
Financial Statements.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company should be
read in conjunction with the consolidated financial statements and the notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere herein. The consolidated statement of
operations data of the Company for the year ended January 31, 1996 and the nine
months ended October 31, 1996, and the consolidated balance sheet data of the
Company at January 31, 1996 and October 31, 1996 are derived from, and qualified
by reference to, the Company's consolidated financial statements which have been
audited by Ernst & Young LLP, independent auditors, included elsewhere in this
Prospectus. The statement of operations data for the nine months ended October
31, 1995 have been derived from, and qualified by reference to, the unaudited
consolidated financial statements included elsewhere in this Prospectus. The
unaudited consolidated financial statements include, in the opinion of
management, all normal recurring adjustments that the Company considers
necessary for a fair presentation of its results of operations for such period.
The unaudited pro forma statement of operations data for the year ended January
31, 1996 and the nine months ended October 31, 1996 has been derived from
audited and unaudited financial data of the Company and companies and a product
it acquired, some of which are included elsewhere in this Prospectus, and gives
unaudited pro forma effect to the Company's acquisition of the acquired
businesses as if such acquisitions occurred at the beginning of the periods
presented. The historical results of operations for the nine months ended
October 31, 1996 are not necessarily indicative of the results that may be
expected for the year ending January 31, 1997 or any future periods.
19
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL
NINE MONTHS
HISTORICAL PRO FORMA ENDED PRO FORMA NINE
YEAR ENDED YEAR ENDED OCTOBER 31, MONTHS ENDED
JANUARY 31, JANUARY 31, -------------------- OCTOBER 31,
1996(1) 1996(1)(2) 1995(1) 1996 1996(2)
------------ ------------ --------- --------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License Revenues.............................. $ 3,569 $ 524 $ 26,855
Service Revenues.............................. 1,564 230 9,494
------------ ------------ --------- --------- ---------------
Total Revenues.............................. 5,133 $ 33,561 754 36,349 $ 37,366
Total Cost of Revenues(3)....................... 2,704 15,712 487 12,498 13,379
------------ ------------ --------- --------- ---------------
Gross Margin.................................... 2,429 17,849 267 23,851 23,987
Operating Expenses:
Research and Development...................... 3,244 10,059 531 12,781 12,781
Sales and Marketing........................... 2,572 15,102 973 20,814 21,171
General and Administrative.................... 3,058 6,519 796 9,019 9,084
Write-Off of In-Process Research and
Development................................. 11,194 -- 6,060 62,248 --
------------ ------------ --------- --------- ---------------
Total Operating Expenses.................... 20,068 31,681 8,360 104,862 43,036
Income (Loss) from Operations................... (17,639) (13,832) (8,093) (81,011) (19,049)
Other Income (Expense).......................... 48 61 5 95 95
Interest Expense................................ 89 6,795 21 4,941 4,951
------------ ------------ --------- --------- ---------------
Income (Loss) before Income Taxes............... (17,680) (20,566) (8,109) (85,857) (23,905)
Provision for Income Taxes...................... 60 60 -- 300 326
------------ ------------ --------- --------- ---------------
Net Income (Loss)............................... $ (17,740) $ (20,626) $ (8,109) $ (86,157) $ (24,231)
------------ ------------ --------- --------- ---------------
------------ ------------ --------- --------- ---------------
Pro Forma Net Income (Loss) Per Share(4)........ $ (0.58) $ (0.68) $ (1.72) $ (0.48)
------------ ------------ --------- ---------------
------------ ------------ --------- ---------------
Pro Forma Shares Used in Computing Net Income
(Loss) Per Share(4)........................... 30,385 30,385 50,107 50,107
------------ ------------ --------- ---------------
------------ ------------ --------- ---------------
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Cash and Cash Equivalents....................... $ 4,549 $ 1,628
Working Capital................................. 2,510 (30,018)
Total Assets.................................... 18,953 48,463
Long-Term Obligations (Less Current Portion).... 4,287 52,361
Stockholders' Equity (Deficit).................. 2,038 (73,715)
</TABLE>
- ------------------
(1) Also includes results of operations from incorporation (January 20, 1995)
through January 31, 1995.
(2) Pro forma to give effect to the acquisitions of IMC, ITI, TUXEDO Systems
Group and USL France as if they occurred on February 1, 1995 for the pro
forma as adjusted results for the year ended January 31, 1996, and February
1, 1996 for the pro forma nine months ended October 31, 1996. The pro forma
adjustments include (i) the elimination of revenues and expenses which
occurred between the entities prior to their acquisition by BEA, (ii)
amortization of intangible assets acquired for the full period, (iii) an
increase in interest expense resulting from debt issued to acquire IMC and
TUXEDO Systems Group, (iv) exclusion of material non-recurring charges
relating to write-offs of in-process research and development and an
extraordinary gain resulting from the forgiveness of debt. Additionally, the
pro forma as adjusted results for the year ended January 31, 1996 include
Company management's adjustments to reflect estimated expenses in excess of
direct salaries and benefits for TUXEDO Systems Group. See "Selected
Unaudited Pro Forma Operating Results" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Consolidated
Results of Operations."
(3) Includes expenses attributable to amortization of intangible assets
resulting from prior acquisitions in the amounts of $1.1 million, $ ,
$116,000, $5.3 million and $ million, respectively.
(4) See Note 1 of Notes to BEA Systems, Inc. Consolidated Financial Statements
for an explanation of the method used to determine the number of shares used
in computing net income (loss) per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING BUT NOT LIMITED TO THOSE DISCUSSED IN "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
COMPANY BACKGROUND
The Company was founded in January 1995 to address the growing need of large
organizations to extend mission-critical applications beyond legacy mainframe
systems to distributed computing environments. To address this problem, the
Company evaluated the growing market for middleware solutions in an effort to
identify a robust, scalable software product that would enable interoperable,
seamless processing of applications between the mainframe and distributed
environments within an organization. The Company identified the TUXEDO product,
all rights to which were owned by Novell, as a middleware infrastructure
solution capable of meeting this need and serving as a standard for extending
the functionality of mainframes to distributed computing environments. To
implement its strategy, the Company first acquired two leading United States
resellers of TUXEDO and then acquired a worldwide exclusive license to TUXEDO
from Novell. Through these and a number of subsequent acquisitions, the Company
has built a worldwide organization that now owns or controls substantially all
of the development, distribution and marketing rights to TUXEDO as well as
several other products that comprise the BEA Enterprise Transaction Framework.
From January 1995 to September 1995, the Company pursued the acquisition of
two leading resellers of Novell's TUXEDO product, which culminated in the
acquisition of Information Management Company ("IMC") in September 1995 and
Independence Technologies, Inc. ("ITI") in November 1995. Both IMC and ITI were
authorized resellers of Novell's TUXEDO product line and had established sales
and support organizations that enabled BEA to provide direct sales and support
throughout all of North America. In September 1995, the Company also acquired TP
Blue from VI Systems, Inc. TP Blue complements BEA TUXEDO in that it enables the
integration of legacy mainframe applications into distributed computing
environments.
In February 1996, BEA acquired exclusive worldwide rights to TUXEDO from
Novell. Novell had originally obtained TUXEDO through its acquisition in 1993 of
UNIX Systems Laboratories from AT&T, which originally developed TUXEDO in its
Bell Labs division. Under the terms of the Novell Agreement, the Company
obtained worldwide exclusive rights to TUXEDO in exchange for a series of fixed
payments totaling $90 million over the original three-year term of the agreement
and was granted an option, exercisable in January 1999, to acquire perpetual
rights to the TUXEDO product line. Under the terms of the Novell Agreement,
Novell retains the right to market TUXEDO in combination with its Netware
product. The Company is obligated to make payments of $32 million and $33
million in calendar years 1997 and 1998, respectively, and will be required to
pay an additional $12 million on exercise of its January 1999 option. For
financial reporting purposes, the purchase price allocation to assets acquired
in the acquisition of TUXEDO has been determined based on the assumed exercise
by the Company of its option in January 1999 to acquire the perpetual worldwide
rights to TUXEDO. As part of the Company's original licensing of TUXEDO, Novell
transferred to the Company approximately 53 employees engaged in the
development, marketing and support of the TUXEDO product line, as well as all of
Novell's rights and obligations under its agreements with worldwide distributors
and resellers for TUXEDO. At October 31, 1996, the Company had a development
staff of 89, which included the original four architects, as well as many of the
original developers, of TUXEDO. See "Risk Factors--Product Concentration;
Dependence on Growth of Market for Middleware; Novell Relationship."
21
<PAGE>
As part of its strategy to rapidly build an international sales and support
organization, BEA further acquired, between May 1996 and December 1996, a number
of sales and support organizations located in France, South Africa, Finland and
Australia. See "Risk Factors--Limited Operating History; No Assurance of
Profitability and --Past and Future Acquisitions."
OVERVIEW
The Company's total revenues consist of license revenues and service
revenues. License revenues are derived primarily from sales of BEA TUXEDO and
accounted for 74% of total revenues in the nine months ended October 31, 1996.
Service revenues are derived primarily from a full range of services
complementing the Company's products, including software maintenance and
support, training and consulting projects, and accounted for 26% of total
revenues in the nine months ended October 31, 1996. Sales of BEA TUXEDO and
related services are expected to continue to account for a substantial majority
of the Company's revenues for the forseeable future. See "Risk Factors--Product
Concentration; Dependence on Growth of Market for Middleware; Novell
Relationship."
Because the Company generally ships software products within a short period
after receipt of an order, it will not at any given time have a material backlog
of unfilled orders, and revenues in any quarter are substantially dependent on
orders booked and shipped in that quarter. In addition, the Company historically
has recognized, and expects to continue to recognize, a significant portion of
license revenues in the last month of each fiscal quarter. The Company
anticipates that it will derive a substantial portion of its revenues from
increasingly large orders, as customers deploy BEA products throughout their
organizations. Any inability of the Company to generate large orders, or any
delay or loss of large orders in a particular quarter, will materially adversely
affect the Company's revenues and, more significantly on a percentage basis, its
net income or loss in that quarter. See "Risk Factors--Potential Fluctuations in
Quarterly Operating Results."
Historically, the Company's revenues have been generated primarily through
its direct sales force. The Company has also developed strategic relationships
with a number of organizations, including hardware manufacturers, packaged
application software developers, systems integrators and independent
consultants, independent software tool vendors and distributors. For their sales
and marketing efforts, these organizations are typically granted a discount from
the Company's standard list price or are paid a commission on sales. Revenues
and operating margins may fluctuate in any period due to the mix of license
revenues derived from sales for which a discount is granted or for which
commissions are paid. See "Risk Factors--Expanding Distribution Channel and
Reliance on Third Parties."
The Company recognizes license revenues in accordance with American
Institute of Certified Public Accountants Statement of Position 91-1, SOFTWARE
REVENUE RECOGNITION. Revenues from software license agreements are recognized at
the time of product shipment, provided there are no vendor obligations remaining
to be fulfilled and collectibility is probable. Typically, the Company's
software licenses do not include significant ongoing vendor obligations.
Therefore, the Company generally recognizes all revenues from software licenses
in the period in which the product is shipped.
Service revenues from customer maintenance fees for ongoing customer support
and product updates are recognized ratably over the maintenance term, which is
typically twelve months. Payments for maintenance fees are generally received in
advance and recognized ratably. Service revenues from training and consulting
are recognized when the services are performed. Revenues from development
agreements are recognized upon achievement of contractual milestones or on a
percentage of completion basis.
International revenues, which the Company defines as revenues derived from
sales outside of North America, accounted for 11% and 31% of total revenues in
the fiscal year ended January 31, 1996 and the nine months ended October 31,
1996, respectively. The Company's international sales are generated
22
<PAGE>
primarily through its international sales subsidiaries and most are currently
denominated in local currency, creating a risk of foreign currency translation
gains and losses. In future periods, the Company may determine to make more
sales of its products in international markets at prices denominated in U.S.
dollars. In such event, fluctuations in currency exchange rates may render the
price of the Company's products unaffordable or uncompetitive. Such an event
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors--International
Operations."
CONSOLIDATED RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total revenues,
historical and pro forma consolidated statement of operations for the periods
indicated:
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PRO FORMA HISTORICAL NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED OCTOBER 31, ENDED
JANUARY 31, JANUARY 31, -------------------------- OCTOBER 31,
1996 1996 1995 1996 1996
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
License Revenues................. 70% 70% 74%
Service Revenues................. 30 30 26
--- --- ------ --- ---
Total Revenues................. 100 100% 100 100 100%
Total Cost of Revenues(1).......... 53 47 64 34 36
--- --- ------ --- ---
Gross Margin....................... 47 53 36 66 64
Operating Expenses:
Research and Development......... 63 30 70 35 34
Sales and Marketing.............. 50 45 129 58 57
General and Administrative....... 60 19 106 25 24
Write-Off of In-Process Research
and Development................ 218 -- 804 171 --
--- --- ------ --- ---
Total Operating Expenses....... 391 94 1,109 289 115
--- --- ------ --- ---
Income (Loss) from Operations...... (344) (41) (1,073) (223) (51)
Other Income (Expense)............. 1 -- 1 -- --
Interest Expense................... 2 20 3 13 13
--- --- ------ --- ---
Income (Loss) before Income Taxes.. (345) (61) (1,075) (236) (64)
Provision for Income Taxes......... 1 -- 1 1 1
--- --- ------ --- ---
Net Income (Loss).................. (346)% (61)% (1,075)% (237)% (65)%
--- --- ------ --- ---
--- --- ------ --- ---
</TABLE>
- --------------
(1) Includes amortization of intangibles of 17%, 3%, 15%, 14% and 14% of total
revenues, respectively, as a result of the Acquisitions.
23
<PAGE>
HISTORICAL CONSOLIDATED RESULTS OF OPERATIONS
NINE MONTHS ENDED OCTOBER 31, 1995 AND 1996
REVENUES
The Company's revenues are derived primarily from fees for software licenses
and to a lesser extent from services. The Company's revenues were $754,000 and
$36.3 million for the nine months ended October 31, 1995 and 1996, respectively.
LICENSE REVENUES. License revenues were $524,000 and $26.9 million for the
nine months ended October 31, 1995 and 1996, respectively, representing 69% and
74% of total revenues in the respective periods. The increase in dollar amount
was primarily due to the Company's inclusion of IMC for a full year of
operations, and its subsequent acquisitions of ITI, TUXEDO, USL Finance, S.A.
(France) ("USL France") and Client Server Technologies OY (Finland) ("CST"), as
well as market acceptance of BEA TUXEDO and related products.
SERVICE REVENUES. Service revenues were $230,000 and $9.5 million for the
nine months ended October 31, 1995 and 1996, respectively, representing 31% and
26% of total revenues in the respective periods. The increase in dollar amount
was primarily due to the Company's inclusion of IMC for a full year of
operations, and its subsequent acquisitions, and to the increase in consulting,
training and maintenance fees associated with the increased sales of the
Company's software licenses. The Company expects that service revenues will
increase as a percentage of total revenues in future periods, as the Company
continues to leverage its existing customer base by providing additional
services to assist customers in enhancing their uses of the Company's products.
COST OF REVENUES
Cost of revenues is comprised of cost of licenses and cost of services.
COST OF LICENSES. Cost of licenses consists primarily of amortization of
intangible assets related to acquisitions and license fees and royalties paid to
third party software providers as well as product media, product duplication and
shipping. Amortization of intangible assets resulted from the acquisition of
IMC, in the nine months ended October 31, 1995 and 1996, as well as to the
acquisitions of ITI, TUXEDO, USL France and CST in the nine months ended October
31, 1996. Amortization of intangible assets totaled $1.1 million in the twelve
months ended January 31, 1996 and is expected to total $8.4 million for the
twelve months ending January 31, 1997, $9.2 million for the twelve months ending
January 31, 1998, $4.9 million for the twelve months ending January 31, 1999 and
$1.4 million for the remaining balance of intangible assets through the year
ending January 31, 2002.
COST OF SERVICES. Cost of services consists primarily of personnel-related
costs incurred in providing consulting services, training and maintenance to its
customers. Cost of services were $163,000 and $4.8 million for the nine months
ended October 31, 1995 and 1996, respectively, representing 71% and 51% of total
service revenues for each period, respectively. The decrease in absolute dollars
was due primarily to the Company's acquisitions and increased operating activity
resulting, in part, from such acquisitions. The decrease in costs as a
percentage of related service revenues for the nine months ended October 31,
1996 over the same period in 1995 is the result of a significant increase in
total revenues offset by a relatively smaller increase in cost of services
related to the hiring of additional consulting and support personnel in response
to an anticipated increase in the number of customers. The Company has also
invested substantial resources in a worldwide 7x24x365 Customer Support
organization to provide a high level of maintenance service to the Company's
customers. The Company expects service margins to improve to the extent service
revenues continue to increase.
24
<PAGE>
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses include salaries,
commissions, advertising, direct mail, seminars, public relations, trade shows,
travel and other related selling and marketing expenses. Sales and marketing
expenses were $973,000 and $20.8 million for the nine months ended October 31,
1995 and 1996, respectively, representing 129% and 58% of total revenues for
each period, respectively. The increase in absolute dollars was due primarily to
the Company's acquisitions, expansion of the Company's direct sales force and an
increase in marketing personnel and activities. The decrease in sales and
marketing expenses as a percentage of total revenues was primarily due to the
substantial increase in revenues during the period. The Company believes that
the dollar amount of sales and marketing expenses will continue to increase as
the Company expands its sales and marketing organization.
RESEARCH AND DEVELOPMENT. Research and development expenses include
engineering personnel and related expenses as well as consulting costs
associated with new product development and enhancement of existing products. 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 expensed as incurred until technological
feasibility has been established, at which time such costs are capitalized until
the product is available for general release to customers. To date, the
establishment of technological feasibility of the Company's products and general
release of such software have substantially coincided. As a result, software
development costs qualifying for capitalization have been insignificant, and
therefore, the Company has not capitalized any software development costs.
Research and development expenses were $531,000 and $12.8 million for the nine
months ended October 31, 1995 and 1996, respectively, representing 70% and 35%
of total revenues in each period, respectively. The increase in dollar amount
was attributed to an increase in personnel and related expenses. The decrease in
research and development expenses as a percentage of total revenues was
primarily due to the substantial increase in revenues. The Company expects that
that dollar amount of research and development expenses will continue to
increase as the Company continues to commit substantial resources to product
development and engineering in future periods.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include
personnel costs for administration, finance, human resources, information
technology and general management, as well as amortization of goodwill related
to the purchase of IMC. General and administrative expenses were $796,000 and
$9.0 million for the nine months ended October 31, 1995 and 1996, respectively,
representing 106% and 25% of total revenues for each period, respectively. The
increase in dollar amount was attributed to the expansion of the Company's
general and administrative staff and associated expenses necessary to manage and
support the Company's growth. Amortization of goodwill totaled $47,000 in the
nine months ended October 31, 1995 and will total $187,000 per year through
September 30, 2000. The decrease in general and administrative expenses as a
percentage of total revenues was primarily due to the substantial increase in
revenues. The Company expects that the dollar amount of general and
administrative expenses will continue to increase in the future as the Company
expands its staffing and incurs higher costs associated with being a public
company.
WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT. Write-off of in-process
research and development is related to the Acquisitions and totaled $6.1 million
for the nine months ended October 31, 1995, consisting of IMC ($5.2 million) and
certain technology acquired from VI Systems ($860,000). The total of $62.2
million for the nine months ended October 31, 1996 included the acquisitions of
TUXEDO ($60.9 million) and CST ($1.3 million). See Note 2 of Notes to BEA
Systems, Inc. Consolidated Financial Statements.
25
<PAGE>
PROVISION FOR INCOME TAXES
The Company has experienced operating losses to date and incurred tax
expense of $0 and $300,000 for the nine months ended October 31, 1995 and 1996,
respectively. The tax expense is comprised primarily of foreign income tax
withholding.
YEARS ENDED JANUARY 31, 1996 AND DECEMBER 31, 1994
As discussed under "--Company Background," the Company was incorporated in
January 1995, acquired exclusive rights to BEA TUXEDO in February 1996, and has
concluded a number of other acquisitions of businesses, products and
technologies since its incorporation. Accordingly, the Company believes that a
comparison of its operating results for the year ended January 31, 1996 and
those of IMC for the year ended December 31, 1994 is not meaningful and that the
results for such periods should not be relied upon as any indication of the
Company's future performance. Prospective investors in this offering are
referred to the information under the caption "--Selected Quarterly Financial
Data" and "--Selected Pro Forma Operating Results" in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations" as
well as "Selected Consolidated Financial Data" and the consolidated financial
statements and notes thereto included elsewhere herein for a discussion of the
Company's operating results in recent periods.
26
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
The following tables set forth certain unaudited quarterly financial data
for the five most recent quarters and the percentage of total revenues
represented by each line item. The Company believes that all necessary
adjustments, consisting only of normal recurring adjustments, have been included
in the amounts stated below to present fairly the selected quarterly information
when read in conjunction with the Consolidated Financial Statements and the
Notes thereto included elsewhere herein. In view of the Acquisitions and other
factors, the Company believes that quarterly total revenues and operating
results should not be relied upon as indications of future performance or
results for the entire fiscal year.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------
OCT. 31, JAN. 31, APR. 30, JUL. 31, OCT. 31,
1995 1996 1996 1996 1996
--------- --------- ---------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License Revenues................................... $ 524 $ 3,071 $ 5,484 $ 9,678 $ 11,693
Service Revenues................................... 230 1,309 1,367 3,804 4,323
--------- --------- ---------- --------- ----------
Total Revenues................................... 754 4,380 6,851 13,482 16,016
Total Cost of Revenues............................... 487 2,217 2,494 4,243 5,761
--------- --------- ---------- --------- ----------
Gross Margin......................................... 267 2,163 4,357 9,239 10,255
Operating Expenses:
Research and Development........................... 366 2,713 3,097 4,673 5,011
Sales and Marketing................................ 892 1,598 3,912 6,450 10,452
General and Administrative......................... 642 2,122 2,579 2,778 3,662
Write-off of In-Process Research and Development... 6,060 5,274 60,948 1,300 --
--------- --------- ---------- --------- ----------
Total Operating Expenses......................... 7,960 11,707 70,536 15,201 19,125
--------- --------- ---------- --------- ----------
Income (Loss) from Operations........................ (7,693) (9,544) (66,179) (5,962) (8,870)
Other Income (Expense)............................... 4 42 (117) 1 211
Interest Expense..................................... 21 68 1,117 1,765 2,059
--------- --------- ---------- --------- ----------
Income (Loss) before Income Taxes.................... (7,710) (9,570) (67,413) (7,726) (10,718)
Provision for Income Taxes........................... -- 60 38 116 146
--------- --------- ---------- --------- ----------
Net Income (Loss).................................... $ (7,710) $ (9,630) $ (67,451) $ (7,842) $ (10,864)
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Pro Forma Net Income (Loss) Per Share................ $ (0.26) $ (0.20) $ (1.37) $ (0.16) $ (0.21)
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Pro Forma Shares Used In Computing Net Income (Loss)
Per Share.......................................... 29,278 49,231 49,303 49,666 51,351
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------
OCT. 31, JAN. 31, APR. 30, JUL. 31, OCT. 31,
1995 1996 1996 1996 1996
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
License Revenues................. 69% 70% 80% 72% 73%
Service Revenues................. 31 30 20 28 27
-------- --- --------- --- ---
Total Revenues................. 100 100 100 100 100
Total Cost of Revenues............. 65 51 36 31 36
-------- --- --------- --- ---
Gross Margin....................... 35 49 64 69 64
Operating Expenses:
Research and Development......... 48 62 45 35 31
Sales and Marketing.............. 118 37 57 48 65
General and Administrative....... 85 48 38 20 23
Write-off of In-Process Research
and Development................ 804 120 890 10 --
-------- --- --------- --- ---
Total Operating Expenses....... 1,055 267 1030 113 119
-------- --- --------- --- ---
Income (Loss) from Operations...... (1,020) (218) (966) (44) (55)
Other Income (Expense)............. -- 1 (2) -- 1
Interest Expense................... 3 2 16 13 13
-------- --- --------- --- ---
Income (Loss) before Income
Taxes............................ (1,023) (219) (984) (57) (67)
Provision for Income Taxes......... -- 1 1 1 1
-------- --- --------- --- ---
Net Income (Loss).................. (1,023)% (220)% (985)% (58)% (68)%
-------- --- --------- --- ---
-------- --- --------- --- ---
</TABLE>
Total revenues have increased each quarter over the past five quarters from
$754,000 in the quarter ended October 31, 1995 to $16.0 million in the quarter
ended October 31, 1996. These increases were primarily attributable to the
acquisition of BEA TUXEDO in February 1996 and other Acquisitions during the
period, increasing market acceptance of BEA TUXEDO and related services, the
expansion of the Company's direct and indirect sales organizations and growth in
order sizes for the Company's products.
Gross margin increased from 35% in the quarter ended October 31, 1995 to 64%
in the quarter ended October 31, 1996. This increase resulted primarily from the
increase in total revenues during the period as compared to the relatively fixed
level of amortization charges included in cost of revenues during this period.
However, gross margin decreased in the quarter ended October 31, 1996 to 64% as
the Company accelerated its hiring of consulting and support personnel in this
period to support the Company's anticipated revenue growth.
Total operating expenses have varied substantially both in absolute dollars
and as a percentage of total revenues during the period, due primarily to large
one time write-offs of in-process research and development. These write-offs
occurred in the quarters ended October 31, 1995, January 31, 1996, April 30,
1996 and July 31, 1996. Excluding one-time write-offs for in-process research
and development, the dollar amounts of operating expenses have increased in each
successive quarter during the period. However, such expenses decreased as a
percentage of total revenues during the four quarters ended July 31, 1996.
During the quarter ended October 31, 1996, total operating expenses (excluding
write-offs) increased to 19% of total revenues from 103% of total revenues, due
to expenses associated with increased hiring of sales personnel in anticipation
of increased demand for the Company's products and costs related to acquisition
of distributors in France and Finland. While the Company expects operating
expenses to increase in absolute dollars over the next several quarters, to
28
<PAGE>
the extent that revenues increase, management believes that operating expenses
as a percentage of sales will decline.
The Company expects that it will experience significant fluctuations in
future quarterly operating results as a result of many factors, including, among
others: the size and timing of orders; introduction or enhancement of products
by the Company or its competitors; market acceptance of middleware products; the
lengthy sales and implementation cycle for the Company's products and the
potential for significant delays; market acceptance of new products and product
enhancements; technological changes in computer systems and environments; the
structure and timing of future acquisitions of businesses, products and
technologies, if any; increased competition; the ability of the Company to
develop, introduce and market new products on a timely basis; changes in the
Company's or its competitors' pricing policies; customer order deferrals in
anticipation of future new products and product enhancements, if any; the
Company's success in expanding its sales and marketing programs; mix of products
and services sold; mix of distribution channels; ability to meet the service
requirements of its customers; costs associated with acquisitions; loss of key
personnel; fluctuations in foreign currency exchange rates; and general economic
conditions. As a result of all of these factors, the Company believes that
quarterly revenues and operating results are difficult to forecast and
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
SELECTED UNAUDITED PRO FORMA OPERATING RESULTS
The selected unaudited pro forma condensed consolidated financial
information for the Company set forth below gives effect to the acquisition of
IMC, ITI, TUXEDO Systems Group and USL France. The historical and unaudited pro
forma financial information set forth below has been derived from, and is
qualified by reference to, the consolidated financial statements of the Company,
IMC, ITI, TUXEDO Systems Group and USL France and should be read in conjunction
with those consolidated financial statements and the notes thereto. The
unaudited pro forma condensed consolidated statements of operations data for the
year ended January 31, 1996 set forth below gives effect to such acquisitions as
if they had occurred on February 1, 1995. The unaudited pro forma condensed
consolidated statements of operations data for the nine months ended October 31,
1996 gives effect to the acquisitions as if they had occurred on February 1,
1996. The unaudited pro forma condensed consolidated financial information set
forth below reflects certain adjustments, including, among others, adjustments
(i) to eliminate revenues and expenses which occurred between the entities prior
to their acquisition by BEA, (ii) to reflect the amortization of purchased
intangible assets as though the business had been combined for the full period,
(iii) exclude write-offs of in-process research and development and
extraordinary gain, which are considered material, non-recurring items and (iv)
reflect increased interest expense resulting from debt to acquire IMC and TUXEDO
Systems Group. The information set forth below should be read in conjunction
with the other information contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements of BEA, IMC, ITI, TUXEDO Systems Group and USL. The unaudited pro
forma condensed consolidated financial information set forth below does not
purport to represent what the consolidated results of operations or financial
condition of the Company would have been if BEA had acquired IMC, ITI, TUXEDO
Systems Group and USL France on such dates or to project the future consolidated
results of operations or financial condition of the Company. See "Risk
Factors--Past and Future Acquisitions."
29
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
FOR THE YEAR ENDED JANUARY 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
IMC FOR THE ITI FOR THE
PERIOD FROM PERIOD FROM
BEA COMPANY FEBRUARY 1, FEBRUARY 1, TUXEDO FOR PRO FORMA
FOR THE YEAR 1995 TO 1995 TO THE YEAR BUSINESS
ENDED JANUARY SEPTEMBER 29, NOVEMBER 1, ENDED OCTOBER COMBINATION
31, 1996 1995 1995 28, 1995(E) ADJUSTMENTS PRO FORMA
------------- --------------- ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total Revenues............... $ 5,133 $ 4,172 $ 5,346 $ 20,371 $ (1,461)(a) $ 33,561
Total Cost of Revenues....... 2,704 1,891 2,324 5,627 (a)(b 12,546
------------- ------- ------------- ------------- ------- -------------
Gross Margin................. 2,429 2,281 3,022 20,371 (7,088) 21,015
Operating Expenses:
Research and Development... 3,244 665 1,350 3,017 8,276
Sales and Marketing........ 2,572 1,153 1,663 1,055 6,443
General and
Administrative........... 3,058 1,410 1,138 128(c) 5,734
Write-off of In-Process
Research and
Development.............. 11,194 (11,194)(d)
------------- ------- ------------- ------------- ------- -------------
Total Operating
Expenses............... 20,068 3,228 4,151 4,072 (11,066) 20,453
------------- ------- ------------- ------------- ------- -------------
Income (Loss) from
Operations................. (17,639) (947) (1,129) 16,299 3,978 562
Other Income (Expense)....... 48 (2) 1,050 (1,035)(d) 61
Interest Income (Expense).... (89) (13) (23) (6,670)(f) (6,795)
------------- ------- ------------- ------------- ------- -------------
Income (Loss) before Income
Taxes...................... (17,680) (962) (102) 16,299 (3,727) (6,172)
Provision for Income Taxes... 60 60
------------- ------- ------------- ------------- ------- -------------
Net Income (Loss)............ $ (17,740) $ (962) $ (102) $ 16,299 $ (3,727) $ (6,232)
------------- ------- ------------- ------------- ------- -------------
------------- ------- ------------- ------------- ------- -------------
Pro forma net loss per common
share(g)................... $ (0.21)
-------------
-------------
Pro forma weighted average
number of common shares
outstanding(g)............. 30,385
-------------
-------------
Pro forma as adjusted net
loss per common share(g)...
Pro forma as adjusted
weighted average number of
common shares
outstanding(g).............
<CAPTION>
MANAGEMENT'S PRO FORMA AS
BUSINESS ADJUSTED FOR YEAR
COMBINATION ENDED JANUARY 31,
ADJUSTMENTS 1996
-------------- -----------------
<S> <C> <C>
Total Revenues............... $ $ 33,561
Total Cost of Revenues....... 3,166(h) 15,712
-------------- --------
Gross Margin................. (3,166) 17,849
Operating Expenses:
Research and Development... 1,783(i) 10,059
Sales and Marketing........ 8,660(j) 15,102
General and
Administrative........... 785(j) 6,519
Write-off of In-Process
Research and
Development..............
-------------- --------
Total Operating
Expenses............... 11,228 31,681
-------------- --------
Income (Loss) from
Operations................. (14,394) (13,832)
Other Income (Expense)....... 61
Interest Income (Expense).... (6,795)
-------------- --------
Income (Loss) before Income
Taxes...................... (14,394) (20,566)
Provision for Income Taxes... 60
-------------- --------
Net Income (Loss)............ $ (14,394) $ (20,626)
-------------- --------
-------------- --------
Pro forma net loss per common
share(g)...................
Pro forma weighted average
number of common shares
outstanding(g).............
Pro forma as adjusted net
loss per common share(g)... $ (0.68)
--------
--------
Pro forma as adjusted
weighted average number of
common shares
outstanding(g)............. 30,385
--------
--------
</TABLE>
- --------------
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JANUARY 31, 1996, ARE AS FOLLOWS:
(a) Reflects the elimination of revenues and related cost of revenues on
transactions between the entities prior to acquisition by the Company.
(b) Reflects the amortization of acquired distribution rights, developed
technology and trademarks and tradenames.
(c) Reflects amortization of goodwill arising from the IMC acquisition.
30
<PAGE>
(d) The unaudited pro forma condensed consolidated financial statements of
operations for the year ended January 31, 1996 do not include the
$11,194,000 in-process research and development write-offs relating to the
acquisitions of IMC and ITI, or the extraordinary gain of $1,035,000
relating to forgiveness of debt at ITI, since they are considered material
non-recurring charges. The write-offs are included in the actual historical
consolidated statements of operations in the period in which they were
incurred.
(e) As the operating results of USL France for its year ended October 28, 1995
were consolidated in the operations of TUXEDO for the year ended October 28,
1995, separate unaudited pro forma operating results for USL have not been
presented for the year ended January 31, 1996.
(f) Interest expense has been increased to reflect pro forma interest expense
on debt incurred in connection with the acquisitions of IMC and TUXEDO.
(g) Pro forma net loss per share and pro forma as adjusted net loss per share is
computed by dividing pro forma net loss and pro forma as adjusted net loss
by the pro forma weighted average number of shares used elsewhere in this
Prospectus.
MANAGEMENT ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JANUARY 31, 1996, ARE AS FOLLOWS:
(h) Prior to acquisition by the Company, IMC and ITI provided customer support
in all but the most technically difficult situations, at which point
customers were referred to Novell's corporate-wide customer support
organization. Since the Company was unable to substantiate costs incurred by
Novell required to provide these services, an estimate of the costs to
provide these services has been made based on the Company's actual customer
support cost experience.
(i) The costs included by Novell for the twelve months ended October 28, 1995
included only salaries and benefits expenses. The Company has provided an
estimate, based on its own experience, for other expenses incurred by its
research and development departments, primarily for costs such as outside
professional services, facilities and other office costs and depreciation on
equipment employed.
(j) The costs included by Novell for the twelve months ended October 28, 1995
included only salaries and benefits expenses for the domestic marketing
organization. However, the costs of bringing TUXEDO to customers include the
costs of the sales organization, as well as other expenses associated with
marketing including travel, trade shows, facilities and depreciation
expense. Additionally, there are certain other general and administrative
expenses associated with the TUXEDO business such as the costs of finance,
facilities and human resources departments and depreciation on property and
equipment. These sales and marketing, as well as general and administrative
expenses, were included in Novell's overall operating results but could not
be directly identified with TUXEDO. The Company has made estimates, based on
its own experience, of costs incurred related to these expenses.
31
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
FOR THE NINE MONTHS ENDED OCTOBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
USL FOR THE PRO FORMA
BEA FOR THE PERIOD FROM PRO FORMA FOR THE NINE
NINE MONTHS FEBRUARY 1, BUSINESS MONTHS ENDED
ENDED OCTOBER 1995 TO MAY COMBINATION OCTOBER 31,
31, 1996 5, 1995 ADJUSTMENTS 1996
------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Total Revenues........................................ $ 36,349 $ 1,368 $ (351)(a) $ 37,366
Total Cost of Revenues................................ 12,498 888 (7)(a) 13,379
------------- ------------ -------------- ------------
Gross Margin.......................................... 23,851 480 (344) 23,987
Operating Expenses:
Research and Development............................ 12,781 -- 12,781
Sales and Marketing................................. 20,814 357 21,171
General and Administrative.......................... 9,019 65 9,084
Write-off of In-Process Research and Development.... 62,248 (62,248)(b) --
------------- ------------ -------------- ------------
Total Operating Expenses.......................... 104,862 422 (62,248) 43,036
------------- ------------ -------------- ------------
Income (Loss) from Operations......................... (81,011) 58 61,904 (19,049)
Interest Expense...................................... 4,941 10 -- 4,951
Other Income (Expense)................................ 95 -- -- 95
------------- ------------ -------------- ------------
Income (Loss) before Income Taxes..................... (85,857) 48 61,904 (23,905)
Provision for Income Taxes............................ 300 26 -- 326
------------- ------------ -------------- ------------
Net Income (Loss)..................................... $ (86,157) $ 22 $ 61,904 $ (24,231)
------------- ------------ -------------- ------------
------------- ------------ -------------- ------------
Pro forma net loss per common share(c)................ $ (0.48)
------------
------------
Pro forma weighted average number of common shares
outstanding(c)...................................... 50,107
------------
------------
</TABLE>
- --------------
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER 31, 1996, ARE AS
FOLLOWS:
(a) Reflects the elimination of revenues and related cost of revenue on
transactions between the entities prior to acquisition by the Company.
(b) The unaudited pro forma condensed consolidated financial statements of
operations for the nine months ended October 31, 1996 do not include the
in-process research and development write-offs relating to the acquisitions
of TUXEDO ($60.9 million) and CST ($1.3 million), since they are conisdered
material non-recurring charges. The write-offs are included in the actual
historical consolidated statements of operations in the period in which they
were incurred.
(c) Pro forma net loss per share is computed by dividing pro forma net loss per
share by the pro forma weighted average number of shares used elsewhere in
this Prospectus.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations, and acquisitions
of subsidiaries and the distribution rights to TUXEDO, primarily through the
private sale of equity securities of approximately $50 million, notes payable of
approximately $80 million, financing of approximately $1 million under its
equipment lease line, and borrowings on a revolving credit arrangement. Under
the terms of the credit
32
<PAGE>
arrangement, the Company had the ability to borrow up to $10 million based upon
80% of eligible trade receivables. At October 31, 1996, the Company had borrowed
$5.5 million and had an additional borrowing availability of $1.0 million. The
credit arrangement is collateralized by the assets of the Company and also
contains certain financial covenants. As of October 31, 1996, the Company was in
compliance with the covenants. The credit arrangement bears interest at the
LIBOR rate plus 5.125% (10.39% in aggregate at October 31, 1996) and is
scheduled to expire in April 1997. However, the lender has agreed to
automatically renew the arrangement for one year and allow the Company to borrow
up to $10 million regardless of the eligible trade receivable balance.
During the year ended January 31, 1996, the Company purchased businesses and
technologies for, in aggregate, $16.1 million in cash, a note payable for $2.7
million and assumed $5.4 million of other liabilities. For the nine months ended
October 31, 1996, the Company purchased businesses and technologies for, in
aggregate, $5.4 million in cash and the assumption of $6.6 million in
liabilities. Also during the period ended October 31, 1996, BEA acquired from
Novell the exclusive development and distribution rights to the TUXEDO software
for a note payable of $77.3 million.
The $2.7 million note payable, issued as partial consideration in the
acquisition of IMC, was increased as a result of a bonus payment of $1.4 million
due to revenue levels achieved by IMC subsequent to acquisition. The note
accrues interest at 8%, with the principal and all accrued interest payable on
the earlier of October 2000 or the successful completion of a public offering of
the Company's equity securities. See "Use of Proceeds."
The note payable issued for the purchase of the exclusive development and
distribution rights to the TUXEDO software calls for payments aggregating $89.6
million. Interest was imputed at 8%, which resulted in the recorded liability of
$77.3 million. The note is collateralized by the rights to the software. The
payments owed to Novell can be discounted by 8% if paid prior to 30 days of the
established due date. However, management does not currently anticipate any
early payments.
In the fiscal year ending January 31, 1996 and the nine months ending
October 31, 1996, the Company used approximately $720,000 and $2.9 million,
respectively, of cash to purchase property and equipment, primarily for
leasehold improvements, personal computers and for furniture and other office
equipment. The Company also acquired equipment with a cost of approximately
$981,000 under a capital lease line of credit. At October 31, 1996, the Company
had available borrowings of $1.0 million under the capital lease line of credit.
The Company had no other material investing activities. As of October 31, 1996,
the Company did not have any material commitments for capital expenditures.
At October 31, 1996, the Company had $1.6 million in cash and cash
equivalents and a working capital deficit of $30.0 million.
Due to the relatively large dollar size of individual sales and the fact
that a substantial portion of the Company's accounts receivable from license
revenues have been generated within the last weeks of the quarter, the Company
has experienced significant fluctuations in its average days sales outstanding.
The Company believes that such fluctuations will continue in the future and will
continue to affect its liquidity, working capital and financial condition.
The Company believes that the net proceeds from the Offerings, together with
its current cash balances, cash available under its lines of credit and cash
from operations will be sufficient to meet its working capital requirements
through January 31, 1998. Although operating activities may provide cash in
certain periods, to the extent that the Company experiences growth in the
future, the Company anticipates that its operating and investing activities may
use cash. Consequently, any such growth may require the Company to obtain
additional equity or debt financing. There can be no assurance that additional
financing will be available or, if available, that it will be on terms
satisfactory to the Company. See "Risk Factors--Substantial Future Capital
Needs."
33
<PAGE>
BUSINESS
INTRODUCTION
BEA Systems, Inc. ("BEA" or the "Company") designs, develops, markets and
supports software used by large organizations to enable and support their most
critical business processes. The Company's Enterprise Transaction Framework is
an integrated middleware software platform for developing, deploying and
managing distributed mission-critical computer software applications. The core
of the BEA Enterprise Transaction Framework is BEA TUXEDO, a software engine
that manages transactions and communications for enterprise-wide applications,
enabling organizations to realize the benefits offered by distributed computing
environments while preserving the traditional advantages of mainframe-based
systems. BEA products provide a middleware software infrastructure that supports
thousands of simultaneous users distributed worldwide. In addition to its
software products, BEA provides its customers with complete solutions through a
range of professional services offerings.
BEA's products are marketed and sold worldwide, principally through the
Company's direct sales force and also indirectly through third parties. BEA's
products have been adopted in a wide variety of industries, including banking
and finance, manufacturing, retail, technology, telecommunications and
transportation. For the nine months ended October 31, 1996, BEA sold new product
licenses to over 170 customers, including over 50 new customers. The total
number of customers using products that have been acquired and developed by BEA
is greater than 600 worldwide. These customers include: The AT&T Corp., Bell
Communications Research, Inc., Damark International Inc., Discover Card Trust,
Federal Express Corp., Fidelity Investments, Gap Inc., J.J. Kenney, McKesson
Corp., Motorola Inc., Nippon Telephone & Telegraph, Northwest Airlines Corp.,
U.K. Employment Services, Union Bank of Switzerland and Walgreens Co. In
addition, ISVs such as PeopleSoft Inc. and Clarify, Inc. embed BEA TUXEDO into
their own product offerings in order to improve the scalability, portability and
interoperability of their products.
INDUSTRY BACKGROUND
Over the past decade, the information systems of many large organizations
have been evolving from traditional mainframe-based systems to distributed
computing environments. This evolution has been driven by the benefits offered
by distributed computing, including lower incremental technology costs; faster
application development and deployment; increased flexibility; and improved
access to business information. Despite these benefits, large-scale
mission-critical applications that enable and support fundamental business
processes, such as airline reservations, credit card processing and customer
billing and support systems, have largely remained in mainframe environments.
For several decades, the high levels of reliability, scalability, security,
manageability and control required for these complex, transaction-intensive
systems within thousands of organizations have been provided by mainframe
middleware software such as IBM's Customer Information and Control Systems
("CICS"). Today, according to estimates by The Standish Group, there are more
than 50,000 CICS licenses and over two billion lines of CICS code in use for
mission-critical applications worldwide. These mainframe environments, however,
suffer from several shortcomings, including inflexibility, lengthy development
and maintenance cycles and limited, character-based user interfaces.
Increasingly, these shortcomings are forcing many organizations to seek out
technologies that will enable them to overcome the limitations of distributed
computing for mission-critical applications while providing the robust computing
infrastructure previously unavailable outside the mainframe environment.
THE LIMITATIONS OF DISTRIBUTED COMPUTING FOR LARGE-SCALE MISSION-CRITICAL
APPLICATIONS
While some mission-critical applications have been successfully migrated to
distributed computing environments, the inherent technical and business
limitations of distributed computing have generally precluded its use for the
complex, large-scale, transaction-intensive applications that are critical to
the ongoing operations of many organizations. These limitations include the
following:
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LIMITED SCALABILITY, RELIABILITY AND INTEROPERABILITY. Distributed
computing applications are generally limited in scalability to the capacity of
database and application servers. Adding servers requires significant rewriting
of application logic because existing applications are written in such a manner
that each component must know the specific location within the system of all
other components. In addition, in distributed computing environments, a
significant portion of an application's business logic typically resides on the
client (a desktop PC or workstation), while the database resides on one or more
servers. Large amounts of data must travel over the network, limiting network
performance, while application changes or updates must be deployed and monitored
at each client, making effective network administration and management
difficult. As a result of these factors, the addition of more clients and
servers may actually lead to a decrease in system performance. Also, additional
servers exponentially increase the difficulty of managing multiple resources and
dynamically balancing processing loads across the network as a result of several
factors, including: the risk of interruption to critical business processes due
to the inability to make online changes to applications, the complexities that
arise in ensuring that any changes are reflected across the network in a
comprehensive and consistent manner and the need to reoptimize system
performance in light of these changes.
Mission-critical applications must maintain the highest levels of
reliability and data and transaction integrity, all of which are very difficult
to achieve in distributed computing environments. These requirements mandate
comprehensive monitoring and control of all system components in order to verify
the correct completion of each processing step. In addition, most of these
environments are heterogeneous, requiring applications to interoperate across a
variety of hardware and software platforms. The lack of scalability, reliability
and interoperability has greatly limited the use of distributed computing for
large-scale, mission-critical applications.
DIFFICULTY IN LEVERAGING INVESTMENTS IN LEGACY TECHNOLOGY. Many
organizations have significant, long-standing investments in their
mainframe-based systems and the mission-critical applications running on these
systems. According to IDC, approximately $250 billion has been spent to date on
mainframe system hardware purchases. Distributed computing technologies have
provided minimal integration or interoperability with existing mission-critical
applications on the mainframe; therefore, achieving the benefits of distributed
computing has generally required organizations to build entirely new
applications. This typically means abandoning previous investments in legacy
applications and increases the risk of costly business interruptions when
organizations attempt to migrate mission-critical applications from the
mainframe.
DIFFICULTY IN LEVERAGING EXISTING PERSONNEL AND SKILLS. Over time,
organizations have invested extensively in mainframe-based programmers and
technology. The Standish Group estimates that there are currently one million
COBOL programmers worldwide. These programmers are well-versed in the business
logic, programming languages and development methodologies necessary to build
mainframe-based mission-critical applications. The successful implementation of
distributed computing, however, requires additional expertise in various other
skill sets and emerging technologies. Organizations that seek to implement
distributed computing for mission-critical applications are thus faced with the
choice of either retraining existing programmers or replacing them with new
programmers possessing the requisite skills, but who must still be trained in
the organization's business processes. These alternatives are extremely costly,
have no guarantee of success and raise the risk of potential disruptions to
critical business processes.
MIDDLEWARE AS THE MEANS TO IMPLEMENT DISTRIBUTED MISSION-CRITICAL APPLICATIONS
In order to overcome the technical and business limitations of distributed
computing for large-scale, mission-critical applications, organizations are
turning to a new architecture that incorporates middleware--a software
infrastructure that is designed to connect clients, applications and databases.
A sufficiently robust middleware product would enable developers to create
large-scale, mission-critical applications that can be deployed and interoperate
across multiple heterogeneous platforms,
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databases and operating systems while providing the flexibility to select those
platforms that best suit a particular application environment. Such a software
infrastructure would provide the traditional benefits of mainframe-based
computing--scalability, reliability, security, manageability and control--while
taking advantage of the opportunities offered by distributed computing.
MARKET OPPORTUNITY
The Company believes that robust middleware software, and the training and
professional services capabilities required to support it, are crucial to
enabling organizations to extend their mission-critical applications to take
advantage of the benefits offered by distributed computing. The Standish Group
estimates that U.S. companies spent over $60 billion in 1996 to modernize their
mainframe-based applications to include distributed client/server and Internet
technologies and that this annual spending rate will double by the year 2000.
The Company believes that the potential benefits to organizations of distributed
computing for mission-critical applications are significant. In order to be
successful, however, distributed computing environments must provide many of the
desirable capabilities of current mainframe-based systems and must preserve and
leverage existing investments in technology and programmers.
THE BEA SOLUTION
BEA's products and services enable companies to overcome the limitations of
distributed computing for mission-critical applications. BEA's Enterprise
Transaction Framework, based upon time-tested and market-proven BEA TUXEDO
technology, provides a middleware solution that addresses the scalability,
manageability, platform independence, interoperability, integrity, reliability
and security requirements of complex, large-scale, distributed computing in the
heterogeneous environments present in most major organizations. The BEA solution
allows companies to leverage their substantial investments in legacy systems,
significantly extending the useful lives of mainframe and programmer assets
while fully exploiting the benefits offered by distributed computing.
The BEA solution provides the following benefits:
PROVIDES A TESTED, PROVEN INFRASTRUCTURE FOR DISTRIBUTED MISSION-CRITICAL
APPLICATIONS
BEA TUXEDO, the foundation of the BEA Enterprise Transaction Framework, is a
time-tested and market-proven infrastructure for distributed mission-critical
applications. By providing a robust, scalable, cost-effective
infrastructure--formerly available only on mainframe computers--BEA enables
mission-critical applications to run in distributed computing environments. BEA
TUXEDO overcomes the limitations on scalability that characterize distributed
computing environments by providing a messaging and dynamic load balancing
infrastructure that determines the location and syntax of any component without
requiring them to be programmed within an application. This separation of
business logic from location and syntax enables an arbitrary number of servers
to be added to the network with processing loads being balanced dynamically,
thereby providing mainframe-like scalability and flexibility. This separation
also enables applications written using BEA TUXEDO to reflect more closely
underlying business processes, thereby increasing an organization's flexibility
with respect to the design, development, implementation and adaptability of its
mission-critical applications.
BEA TUXEDO's application, transaction and fault management systems combine
to ensure data and transaction integrity, enabling distributed computing
environments to achieve mainframe-like reliability and security. By using BEA's
products and services, organizations do not have to build their own custom
infrastructure solutions, a costly and time-consuming process that is often
beyond their technical capabilities and resources. Instead, organizations can
focus on developing and deploying their mission-critical applications, with the
assurance that BEA TUXEDO will ensure their scalability, reliability,
interoperability and security.
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<PAGE>
PRESERVES THE VALUE OF INVESTMENTS IN LEGACY SYSTEMS AND SKILLS
BEA products and services preserve an organization's investment in mainframe
technology and programmers while allowing customers to take advantage of the
capabilities of distributed computing. Customers do not need to change or
replace reliable, robust mission-critical applications in which they have made
significant investments; rather, BEA's products and services enable them to
extend and evolve these applications to take advantage of the benefits of
distributed computing. BEA's solutions allow mainframe software to be extended
to distributed computing platforms with minimal change, protecting the
investment in mainframe-based systems while permitting an orderly transition to
a distributed computing environment. Because BEA's products allow the mainframe
to be treated as just another node on the network, programmers can continue to
develop, deploy and maintain mainframe-based applications as before. This allows
current programmers who are well-versed in the business processes and logic of
the organization to work more efficiently without needing to be trained in the
skills necessary to maintain a reliable distributed computing environment.
Additionally, BEA's products enable customers to adopt and integrate new
technologies--such as the Internet and object-oriented development
technologies--as they emerge.
ENABLES INTEROPERABILITY ACROSS A BROAD RANGE OF PLATFORMS
BEA TUXEDO runs on virtually all major commercial platforms, providing
interoperability across heterogeneous computing environments. This allows
organizations to develop mission-critical applications that are independent of
specific hardware, software and networking technologies. This interoperability
enables organizations to avoid the cost, delay and technical risks associated
with rewriting of applications to be compatible with new technologies and
computer systems. By providing an open application programming interface for BEA
TUXEDO, programmers may write applications only to that interface and can then
rely on BEA TUXEDO to execute their applications across multiple platforms.
Currently, BEA TUXEDO supports over 40 operating platforms, including the
market-leading UNIX platforms, Windows NT and IBM MVS. BEA TUXEDO also supports
all XA-compliant relational databases available as of October 31, 1996,
including products from IBM Corporation, Informix Software, Inc., Microsoft
Corporation, Oracle Corporation and Sybase Inc. BEA TUXEDO also works with over
40 development, testing and management tools.
REDUCES TIME AND COST OF APPLICATION DEVELOPMENT AND DEPLOYMENT
Application development using the BEA Enterprise Transaction Framework
allows programmers to design the business logic in their applications
independent of system deployment issues. Once the business logic has been
programmed, the BEA Enterprise Transaction Framework provides the translations
and interface conversions necessary to run the application in a distributed
computing environment. This reduces the time and cost of developing and
deploying applications because programmers need focus only on the business
logic, while the BEA Enterprise Transaction Framework ensures that these changes
are incorporated automatically in a comprehensive and consistent manner. Because
of this segregation, BEA's products enable an entire worldwide system to be
tuned and administered, servers to be added and deleted and the network
configuration to be altered, without changing the business application.
EXTENDS MISSION-CRITICAL APPLICATIONS TO THE INTERNET AND INTRANETS
BEA Jolt enables the extension of enterprise-wide mission-critical
applications to the Internet and intranets without reprogramming. BEA Jolt
translates between Java applets and BEA TUXEDO, ensuring that transaction
integrity is maintained despite unreliable connections and the Internet's
inherent inability to retain the current state of a transaction. By enabling
Internet and intranet applications to meet the stringent scalability,
reliability and availability requirements for mission-critical applications,
many of
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<PAGE>
the challenges of electronic commerce can be overcome. See "Risk
Factors--Technological Change; Dependence on New Products and Product
Enhancements."
THE BEA STRATEGY
The Company's strategy is to leverage its current leadership position in
distributed transaction processing in order to establish its middleware
solutions as the industry standard for developing, deploying and managing
large-scale mission-critical applications for distributed environments.
The key elements of the Company's strategy are:
ENHANCE BEA'S TECHNOLOGY LEADERSHIP
The BEA Enterprise Transaction Framework is based upon BEA TUXEDO, a
market-tested and proven technology initially developed at AT&T Bell Labs in
1984. The Company, which acquired the rights to TUXEDO in February 1996, intends
to continue to invest in the enhancement of its core BEA TUXEDO technology. BEA
expects to add new functionality to all components of the BEA Enterprise
Transaction Framework. Over the course of the next 12 months, planned releases
of BEA products will extend these products beyond Java to encompass standard
object-oriented programming models (e.g. the Common Object Request Broker
Architecture ("CORBA") and Microsoft's Distributed Component Object Model
("DCOM")), improve Internet electronic commerce capabilities and increase the
number of platforms supported to more than 50.
EXPAND BEA'S GLOBAL SOLUTIONS CHANNEL
Due to the strategic nature of the Company's products, customers require BEA
to provide complete global services and support. As of October 31, 1996, the
Company had 22 offices in 12 countries worldwide and intends to continue to
expand its global distribution facilities to provide the direct sales, services,
training and support necessary to enable customers to develop, deploy and manage
distributed mission-critical applications. In addition, the Company will
continue to develop third-party relationships to augment its sales, services,
training and support capabilities.
PROMOTE THE EMBEDDING OF BEA TUXEDO IN ISV APPLICATIONS
BEA will continue to work with ISVs to embed BEA TUXEDO into their product
offerings. By licensing its products in this manner, the Company aims to
accelerate the acceptance of BEA's products and establish these products as the
de facto standard middleware solution. ISVs can benefit significantly from
embedding BEA software into their product offerings, enabling them to scale the
number of clients supported, eliminate most hardware porting concerns and
provide interoperability with other applications based on the BEA Enterprise
Transaction Framework. ISVs that have already embedded BEA software into their
products include Clarify Inc., Cycare Systems, Inc., Filoli Information Systems
and PeopleSoft Inc.
LEVERAGE STRATEGIC PARTNERSHIPS
The sale of middleware solutions for distributed mission-critical
applications requires significant expertise and time spent with potential
customers. By leveraging its strategic partnerships with hardware OEMs, ISVs,
systems integrators and consultants, the Company is able to extend the reach of
its direct sales force. The Company intends to strengthen existing relationships
with key industry players, such as Andersen Consulting, Hewlett-Packard
Corporation and Sun Microsystems, as well as develop new relationships, in order
to increase market awareness and demand and shorten the sales cycle for BEA's
products.
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FACILITATE THE EMERGENCE OF ELECTRONIC COMMERCE OVER THE INTERNET
The Company intends to provide the software and services necessary to enable
businesses to conduct safe, reliable commercial transactions over the Internet
while making use of their existing mission-critical applications. In order to
provide robust commerce over the Internet, an application must be able to
accommodate unreliable connections, massive scalability requirements and an
inherent inability to retain the current state of a transaction. With BEA Jolt
and the BEA Enterprise Transaction Framework, the Company provides both the
middleware infrastructure and Java-based technology to meet these technical
challenges and to enable an organization to extend its mission-critical
applications to the Internet and intranets without reprogramming. See "Risk
Factors--Technological Changes; Dependence on New Products and Product
Enhancements."
MARKETS AND CUSTOMERS
The total number of licensees using BEA TUXEDO and related products is
greater than 1,200 worldwide. For the nine months ended October 31, 1996, BEA
sold new product licenses to over 170 customers, including over 50 new
customers. The Company's target end-user customers are organizations with
sophisticated, high-end information systems with numerous, often geographically
dispersed users and diverse, heterogeneous computing environments. Customers are
generally mainframe-reliant or have large-scale client/server implementations
that handle very high volumes of business transactions. The Company's customers
use BEA products as a middleware platform for developing, deploying and managing
mission-critical applications key to the customer's business.
The following is a representative list of the organizations that accounted
for at least $100,000 in revenues to the Company during the nine months ended
October 31, 1996:
<TABLE>
<CAPTION>
TELECOMMUNICATIONS BANKING AND FINANCE GOVERNMENT
- --------------------------- --------------------------- ---------------------------
<S> <C> <C>
Alltel Corp. Banco del Atlantico Finnish Ministry of Labor
Ameritech Corp. Cybercash, Inc. Finnish Post
AT&T Corp. First Datacard Greek Ministry of Finance
AT&T Wireless Societe Generale Swedish Police
Bell Atlantic Corp. Swiss Life Swedish Tax Office
Bell Communications RBC Dominion Swedish Labor Union
Research, Inc. Union Bancaire Privee United Utilities
Cincinnati Bell Information Union Bank of Switzerland United States Postal
Systems, Inc. DISTRIBUTION AND Service
Deutsche Telecom TRANSPORTATION RETAIL
France Telecom Federal Express Corp. Broadway & Seymour Inc.
Lucent Technologies Inc. McKesson Corp. Shopright Checkers
MCI Communications Corp. Northwest Airlines Corp. Walgreens Co.
Motorola Inc. Renault
Nynex Cablecommunication
Group Inc.
Nippon Telephone and
Telegraph
Pacific Bell
Southern New England
Telecommunications
Corporation
Telecom Finland
</TABLE>
In addition to direct sales to end-user customers, BEA works with systems
and software integrators that incorporate BEA products for resale. The Company
also sells BEA TUXEDO to software and
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<PAGE>
computer hardware providers to embed into their application software or software
toolsets. These customers include the following organizations:
<TABLE>
<CAPTION>
HARDWARE OEMS ISVS SYSTEMS INTEGRATORS/CONSULTANTS
- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C>
Bull Compagnie des Machines CableData Andersen Consulting
Data General Corporation Clarify Inc. Cambridge Technology Partners
Digital Equipment Corp. Cylink Corporation Computer Science Corporation
ICL plc Filoli Information Systems Electronic Data Systems
Sequent Computer Systems Inc. Minnesota Mining and Corporation
Sun Microsystems Manufacturing Co. Tangent Computer, Inc.
Tandem Computers Inc. Nomad Software
Unisys Corp. PeopleSoft Inc.
Sybase Inc.
</TABLE>
See "Risk Factors--Expanding Distribution Channels and Reliance on Third
Parties"
The following examples illustrate how some organizations are using BEA
products as a middleware framework to provide the infrastructure for enabling
mission-critical distributed transaction processing applications.
AT&T
AT&T's Consumer Customer Care system for bill inquiry and order entry
supports 7,500 services and 1,500 sales/customer contact positions 24 hours a
day, seven days a week and is key to AT&T's overall customer satisfaction
efforts. When AT&T decided to reengineer these applications to make use of
distributed systems, BEA TUXEDO was selected as the middleware solution to
provide reliable communications among the Customer Care system's many
applications. The decision to use BEA TUXEDO was based on the product's
asynchronous messaging technology and data-dependent routing capabilities, and
its ability to support multiple processors in a flexible configuration. In the
AT&T implementation of BEA TUXEDO, each processor is viewed as an independent
domain. By providing independent application services that can be used by all
domains, BEA TUXEDO isolates the impact of single processor failures, which has
enabled high availability applications to be supported without redundant
hardware. Overall, through this reengineering effort, AT&T is lowering unit
costs and improving customer and employee satisfaction in support of bill
inquiry and order entry functions.
BANCO DEL ATLANTICO
Banco del Atlantico ("B.A."), the fifth largest bank in Mexico, needed an
information system that would allow it to leverage its legacy Unisys platform
with its newly acquired Hewlett-Packard distributed systems. B.A. had over 4,000
personal computers and more than 100 local area networks running on
heterogeneous platforms at its branch banks and headquarters in Mexico City.
B.A. chose to invest in a middleware solution to increase total reliability and
security, allow for more consistent performance, and solve key connectivity
issues relating to integrating legacy and distributed systems. B.A. initially
evaluated BEA TUXEDO and several other products and chose BEA TUXEDO because of
its reliability and ability to provide seamless integration among all of B.A.'s
platforms. BEA TUXEDO provides a common layer in the B.A. infrastructure to
direct the complex interactions between applications and systems. Currently, all
of B.A.'s telephone banking applications and customer information database
applications are supported by BEA TUXEDO.
DAMARK
After years of growth, Damark, a major catalog direct marketing company,
reached an earnings plateau in early 1994, despite increased sales. Damark was
experiencing increasing paper and postage
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costs, which represent significant elements of its direct marketing efforts to
10 million prospective customers. The challenge faced by its IT department was
to find the most efficient, cost-effective way to receive and fill customer
orders, which at times reach fifteen thousand per day. The IT department
evaluated middleware solutions that were capable of handling peak order volume
and scaling to incorporate multiple call centers around the United States.
Damark's specific requirements included guaranteed message delivery for both
asynchronous or synchronous communications, a single development interface for
all components, operational manageability and off-the-shelf, proven technology.
Through a solution that combined BEA TUXEDO and Oracle relational databases.
Through a solution that combined BEA TUXEDO and Oracle relational databases,
Damark was able to connect its toll-free call representatives directly to the
prospective customer's information database, thereby significantly improving
overall representative efficiency. In addition, Damark uses BEA TUXEDO to
minimize system downtime, as users are transferred within 30 seconds from a
failed node to another node capable of handling the requested transaction.
PACIFIC BELL
Pacific Bell has undertaken a multi-billion dollar project to upgrade its
infrastructure in efforts to meet the increasing demands of customers and
advanced technologies, such as Internet access. The project, which Pacific Bell
calls the Advanced Communication Network (ACN), involves running fiber optic
cable to all households and businesses in California and Nevada. To support the
enhanced telecommunications infrastructure, Pacific Bell is developing an
advanced computer infrastructure that includes on-line customer care and billing
systems. This is considered to be a highly competitive, mission-critical
distributed system that requires a robust transaction management system. Pacific
Bell evaluated several alternative solutions in the market and selected BEA
TUXEDO, which was able to meet all of Pacific Bell's requirements for
transaction management, including load balancing, data-dependent routing,
guaranteed transaction integrity and support for heterogeneous computing
environments. Pacific Bell selected BEA TUXEDO because of its time-tested
market-proven technology and efficient memory usage on the desktop. Once in full
production, this system is expected to enable Pacific Bell to scale its customer
care and billing systems to regularly support the tens of thousands of Pacific
Bell customers, increasing customer satisfaction and overall service. In
addition, the flexibility of the system is expected to allow Pacific Bell to
enhance its product and service offering capabilities, making advanced
technologies more readily available to the customer. BEA TUXEDO has become a
critical integrated component of Pacific Bell's on-line customer care and
billing systems, and has already helped the company save on additional
consulting, personnel and technology costs.
PEOPLESOFT
PeopleSoft, a leading provider of enterprise software supporting human
resources, financial and manufacturing applications on open systems, needed a
software framework to strengthen its ability to implement applications across
multiple sites and computing environments. PeopleSoft investigated multiple
technologies, including a number of middleware products. PeopleSoft decided to
base PeopleSoft Release 6 and future applications on BEA technology, selecting
BEA TUXEDO because of its request/reply and publish/subscribe messaging
capabilities, and its strengths in handling high-volume transaction processing
with high availability and reliability. By using BEA TUXEDO as its middleware
infrastructure, PeopleSoft is able to deliver multi-tier global applications.
PeopleSoft is making use of the multiple communication capabilities within the
BEA TUXEDO framework based on the need of applications to process transactions
in either a real-time or asynchronous mode. In addition, end users can use BEA
TUXEDO to enable custom applications to interoperate with the packaged
PeopleSoft applications. PeopleSoft 6, the first PeopleSoft release using BEA
TUXEDO, began shipping to customers in December 1996.
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<PAGE>
UNITED KINGDOM EMPLOYMENT SERVICE
In 1996, the United Kingdom Employment Service ("E.S.") determined that it
needed a new software application to support its labor market activities. E.S.'s
existing systems were reaching the end of their product life cycles and did not
have the flexibility to incorporate new technology to enhance functionality.
E.S. selected BEA TUXEDO as the middleware framework for the Labour Market
System ("LMS"), an application designed to replace all existing applications.
LMS now links all 1,067 job centers in Great Britain, using CA-Ingres relational
databases running on Sequent platforms as the core of the system. LMS has become
one of the world's largest distributed systems. Thirty thousand people
throughout E.S. have been trained to use the system, which processes over five
million transactions per day. The integrated system enables immediate searches
and displays of suitable vacancies and opportunities for job seekers, thereby
improving the services that E.S. is able to offer its clients.
YELLOW FREIGHT
In order to be competitive in the changing environment of the freight
industry, Yellow Freight must provide customers increasingly faster transit
times, improved on-time performance, and undamaged freight, all at a reduced
cost. Yellow Freight and its technology division embarked on a reengineering
project to provide applications with a new set of capabilities: a universal view
of business data to enable mission-critical business information to move in
real-time ahead of freight, improved time-to-market for new business
applications by providing "pre-built" application frameworks, increased
scalability of application processing capacity, and an architectural model
providing high, but cost-effective, levels of availability and performance. BEA
TUXEDO was selcted because it offered platform independence and multiple
scalability options, provided a high level of availability through an automatic
restart/recovery capability, could support a high-volume transaction throughput
requirements and is successfully implemented in production environments in
combination with Powerbuilder and Oracle, which were the other technologies
Yellow Freight selected for this project. The first enterprise-wide distributed
BEA TUXEDO application implemented is used in two customer service centers
supporting several hundred customer service representatives, providing 24 hours
a day, seven days a week service to inbound customer calls. The application
provides rapid response time, high availability, and increased scalability,
while giving the Yellow Freight users the benefits of an easy-to use graphical
interface.
PRODUCTS
The BEA Enterprise Transaction Framework is an integrated middleware
software platform for building, deploying and managing distributed
mission-critical applications. The BEA Enterprise Transaction Framework provides
the scalability, manageability, platform independence, interoperability,
integrity, reliability and security requirements of complex, large-scale,
transaction-intensive mission-critical applications in a distributed computing
environment. The core of the BEA Enterprise Transaction Framework is BEA TUXEDO,
a market-proven and time-tested technology first developed at AT&T Bell Labs in
1984. The Company took over development, sales and support of TUXEDO from Novell
in February 1996 and has subsequently shipped BEA TUXEDO Release 6.2, BEA
Connect SNA Version 1.1, BEA Connect TCP Version 1.1, and BEA Jolt Version 1.0.
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THE BEA ENTERPRISE TRANSACTION FRAMEWORK
Set forth on page is a horizontal rectangular box bearing the caption "BEA
TUXEDO KERNEL." Set forth on top of this box are four square boxes each with a
caption reading, from left to right, "BEA BUILDER," "BEA CONNECT," "BEA TP BLUE"
and "BEA JOLT." Set forth to the left of the five aforementioned boxes is a
vertical rectangular box of equal height as the combined other boxes, with a
caption reading "BEA MANAGER."
BEA TUXEDO
BEA TUXEDO is a robust engine for developing, deploying and managing
mission-critical applications in distributed computing environments. BEA TUXEDO
provides distributed transaction processing and application messaging
capabilities, as well as the full complement of services necessary to build and
run mission-critical applications. It enables developers to create applications
that interoperate across multiple hardware platforms, databases and operating
systems.
BEA TUXEDO provides mainframe-like performance for distributed
mission-critical applications. It allows these applications to accommodate
thousands of worldwide users, high-transaction throughput, multiple concurrent
database access and large volumes of data, while maintaining short response
times, high data integrity and security and 7x24x365 system availability. At the
same time, BEA TUXEDO enables developers and systems managers to take advantage
of the benefits offered by distributed computing environments, such as lower
incremental technology costs, increased flexibility, faster application
development and deployment and improved access to business information.
BEA JOLT
BEA Jolt extends the capabilities of BEA TUXEDO to the Internet and
intranets, making mission-critical applications immediately accessible through
these media without the need for any additional application programming. It
enables Internet and intranet application developers to take full advantage of
the benefits offered by the BEA Enterprise Transaction Framework and, the
Company believes, provides the means for resolving many of the technical issues
hindering the development of electronic commerce on the Internet. BEA Jolt
ensures that transaction integrity is maintained, notwithstanding the Internet's
inherent inability to retain the current state of any transaction or the
frequently unreliable connections encountered by users. BEA Jolt employs a
Java-based interface that allows programmers to execute service requests from
any Java-enabled web browser without requiring any knowledge of detailed
transaction semantics. BEA Jolt also ensures an application's security, since
neither transactional programming nor semantics are accessible from the Internet
or intranets.
BEA TP BLUE
BEA TP Blue provides mainframe-to-UNIX and mainframe-to-NT application
portability, compatibility and connectivity for CICS-based transaction
processing. With BEA TP Blue, organizations can extend the useful lives of CICS
applications, either by seamlessly sharing the transaction processing load with
UNIX- or NT-based hardware or by migrating applications and data from the
mainframe to a UNIX- or NT-based distributed computing environment. BEA TP Blue
preserves organizations' investments in CICS/COBOL programs and programmers,
while enabling them to take advantage of UNIX- and NT-based technologies.
Programmers can continue to develop and deploy mission-critical
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applications on the mainframe using CICS/COBOL and to rely upon BEA TP Blue to
connect or migrate those applications to UNIX and NT whenever necessary.
BEA CONNECT
BEA Connect is a family of connectivity products that allows applications to
extend across heterogeneous hardware and software platforms. Designed to work in
concert with all other BEA products, BEA Connect assures ready, transparent
access to critical information across the network with a single, standard
programming interface. BEA Connect supports a variety of mainframe-based and
distributed transactional technologies, including CICS and IMS, by using
standard network protocols such as TCP/IP, LU6.2/SNA or OSITP. Interfaces can
also be built for connectivity with specific packaged software applications,
such as SAP's R/3. BEA Connect also enables customers to write mission-critical
applications that access remote application services on mainframes or other
hosts via industry-standard communications mechanisms.
BEA BUILDER
BEA Builder enables programmers to use familiar graphical development
environments, such as Visual Basic, Visual C++ and PowerBuilder, in the
development of BEA TUXEDO-based applications. BEA Builder incorporates
application frameworks and code generators that enhance programmers'
productivity, and provides pre-programmed wizards to automate the configuration
and deployment of an application. By leveraging developers' familiarity with
popular development environments and adding the capabilities noted above, BEA
Builder reduces the training and development needed to design and deploy
distributed mission-critical applications using BEA TUXEDO.
BEA MANAGER
The BEA Manager family of products extends the native management
capabilities of BEA TUXEDO by enabling it to integrate with, and take advantage
of the capabilities of, various third-party management frameworks, including
Tivoli's TME 10 NetView, Sun's Solstice and Hewlett-Packard's OpenView. BEA
Manager adds application level instrumentation for performance measurement and
centralized message logging, which together provide increased detection and
isolation capabilities for application faults. BEA Manager also provides a set
of customizable intelligent agents that reduce the human involvement required to
handle routine maintenance and fault correction. Finally, BEA Manager can be
deployed by existing operations staff with little additional training required.
To date, the majority of the Company's license revenues have come from the
BEA TUXEDO product. The Company's other products are sold as additional
components of the BEA Enterprise Transaction Framework, often at the time of the
initial BEA TUXEDO license sale. The core BEA TUXEDO product is priced based on
the number of concurrent run-time users and has a U.S. list price of $395 per
user. The additional components of the BEA Enterprise Transaction Framework are
priced and licensed separately. During the nine months ended October 31, 1996,
license fees per customer for BEA products generally ranged from $95,000 to more
than $1.7 million and averaged approximately $395,000. Some components of the
BEA Enterprise Transaction Framework, such as BEA Jolt, are priced by server
class. See "Risk Factors--Product Concentration; Dependence on Growth of Market
for Middleware; Novell Relationship."
TECHNOLOGY
TUXEDO was initially developed in 1983 within AT&T Bell Labs and released in
1984. Release 1.0 enabled an application to be partitioned into a set of
cooperating client and server processes and an application programming interface
("API"). Subsequent releases built on this foundation, incorporating
capabilities to support high levels of system availability, highly secured and
widely distributed clients and
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servers, interoperability across heterogeneous platforms, a graphical user
interface for administration, transactional control of heterogeneous databases,
implementation of both conversational and queued communications methodologies,
enhanced data integrity and security and an event broker that supports the
publish and subscribe paradigm.
The most recent version of BEA TUXEDO, Release 6.2, conforms with
industry-standard interfaces and protocols. BEA TUXEDO's modular architecture is
centered on the Application Transaction Manager Interface ("ATMI"), which
consists of 30 simple calls and has been adopted by The Open Group as a standard
X/Open API. BEA TUXEDO supports the Open Group's Distributed Computing
Environment Remote Procedure Call ("DCE RPC") interface. BEA TUXEDO's
performance is publicly documented in Transaction Processing Performance Council
("TPC") benchmarks and is used by virtually all hardware and database vendors
publishing audited benchmarks of their platforms.
The BEA Enterprise Transaction Framework is a set of inter-related software
technologies that enable the development, deployment and management of
large-scale, mission-critical distributed applications. BEA technologies are
typically used in conjunction with relational database management systems
("RDBMS"). The RDBMS provides a run-time environment for storing and retrieving
data, while BEA provides the application server infrastructure for executing the
business logic. BEA also provides a rich set of messaging services that enable
reliable, efficient communications among components of a distributed
application, as well as web-based access to the application services using Java
and HTML. BEA technologies are hardware and operating system independent and are
available on a wide variety of platforms, including Microsoft Windows and
Windows NT, all major versions of UNIX, MVS Open Edition, Tandem NSK and AS/400.
TRANSACTION INTEGRITY AND SECURITY
Transaction integrity and security are fundamental requirements for building
mission-critical applications, particularly in distributed computing
environments where additional burdens are placed on the execution and management
of these applications. BEA TUXEDO, through its transactional kernel, enables the
resolution and execution of distributed application service requests. These
application service requests are implementations of business processes, such as
withdrawals and deposits in a banking application. BEA TUXEDO provides automated
preparation and transmission of the underlying distributed application services
in a real-time manner. It also provides automated propagation of transactions
and security contexts, which enables distributed services to be automatically
invoked without explicit sign-on to each server. BEA TUXEDO also provides
automatic advertisement of available transaction services. This feature is
critical when an application server becomes unavailable, as it prevents an
application from waiting indefinitely for that particular service. The
combination of these capabilities enables applications that incorporate BEA
TUXEDO to achieve mainframe-like transaction integrity and security, while still
taking advantage of the benefits offered by distributed computing environments.
ROBUST MESSAGING--PUBLISH-AND-SUBSCRIBE MODEL
Through the use of the recently developed publish-and-subscribe model, a new
BEA product called the Event Broker allows applications to subscribe to events
about which they are interested. BEA's Event Broker manages these subscriptions
by maintaining a subscription list and managing event posting. The BEA Event
Broker executes subscription actions in which subscriber and publisher maintain
complete anonymity and independence. The Event Broker enables clients and
servers to post events that have occurred and ensures that the appropriate
applications are notified of the occurrence of those events. By combining BEA
TUXEDO asynchronous messaging capability and the Event Broker, network traffic
can be significantly reduced, as applications are only notified of relevant
events. In addition, the complexity associated with incorporating new
applications within a system is simplified by ensuring that
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existing applications are notified of updates and that subscription lists and
postings are modified accordingly.
BEA TUXEDO supports five different modes of communication. In addition to
the publish-and-subscribe model, these modes include asynchronous and
synchronous transactions, request/ response, peer-to-peer messaging and reliable
queuing. Each of these can be carried out with or without distributed
transaction semantics and any combination can be utilized within a single
business application. This enables BEA TUXEDO to be utilized as a
message-oriented middleware platform for developing both transactional and
non-transactional distributed applications.
OPEN ARCHITECTURE AND PROGRAMMING API
The APIs provided with the BEA Enterprise Transaction Framework are built on
a common set of robust kernel services provided by BEA TUXEDO. These services
provide a level of abstraction between the application programs and the
underlying system facilities. They also enable transparent interoperability
between components developed to different APIs. For example, a Java client can
invoke a CICS transaction or an X/Open-compliant XATMI-based service via the
same API call. This support of multiple programming styles also facilitates the
migration of existing applications to distributed computing environments via the
BEA Enterprise Transaction Framework.
BEA products have been designed from the ground up to conform with
industry-standard interfaces and protocols. These include both formal standards,
such as X/Open, DCE and ISO, and de facto standards, such as SNA, the Java
Virtual Machine, OLE and ActiveX. The Company's product development efforts
continuously reflect the knowledge gained from working with customers to build
large-scale, mission-critical distributed applications. An example of the
benefits to the Company of these efforts is the XA implementation within BEA
TUXEDO, which vendors such as Oracle and Microsoft have selected as the
reference platform for their database integration efforts. The Company's
products support all major RDBMS platforms, which, in addition to Oracle and
Microsoft's SQL Server, include Informix, IBM DB2/6000, Sybase and CA/Ingres.
SYSTEMS SERVICES
BEA products provide a robust set of system services that enable distributed
applications to be developed in a standard and consistent manner. These services
include naming, application activation and deactivation, dynamic application
reconfiguration and system fault management. In addition, the Company's products
also provide a set of application level services. These services include
intra-node and inter-node application communication management, application
transaction management, client/ workstation handling, security management,
application queue management and event management. By providing these system and
application level services, the Company's products significantly reduce the
amount of system and application level programming effort required. These
services also enable applications developed within the BEA Enterprise
Transaction Framework to interoperate across heterogeneous computing
environments.
MANAGEMENT INFORMATION BASE
BEA's products enable distributed transaction system monitoring and
management through a Management Information Base ("MIB"). This system monitors
applications, databases, operating systems and networks; it also provides
logging facilities, and event and performance management. The management
information base enables systems administrators to set pre-defined rules or
allows them to monitor and manages systems interactively through an easy-to-use
graphical interface. In addition, BEA provides a Simple Network Management
Protocol ("SNMP") agent kit to allow the use of any SNMP-based management tool,
such as OpenView or TME.
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APPLICATION-TO-APPLICATION CONNECTIVITY
Most connectivity products on the market today only provide a low-level
solution, such as connecting a UNIX system running TCP/IP to a mainframe running
SNA. This leaves most of the application-level connectivity programming to the
IT programmers. BEA's products, however, support high-level
application-to-application connectivity for a wide variety of mainframe and
distributed systems, relieving programmers of the burden previously associated
with systems level programming efforts. These connectivity technologies support
industry-wide networking standards, such as the OSI/TP protocol for application
services or the IBM LU6.2/SNA protocol. In addition, the Company provides an IBM
syncpoint-enabled transactional connectivity technology for IMS-based or
CICS-based applications. The Company is also currently developing an
IBM-compatible Intersystems Communication ("ISC") protocol-based connectivity
technology for customers who wish to develop mainframe-style applications in a
fully-distributed environment.
INTERNET/INTRANET EXTENSIBILITY
BEA Jolt extends BEA TUXEDO-based applications to the Internet/intranets
without the need for additional application programming. BEA Jolt provides
object-oriented access, from any Java-enabled browser via Java applets, to BEA
TUXEDO-based applications behind an organization's firewall. Legacy mainframe
environments, such as CICS, are similarly accessible using BEA Jolt and BEA
Connect. BEA Jolt simplifies application design by providing object interfaces
for Java, as well as turn-key access to BEA-developed Java class definitions and
customized Java applets residing in the BEA Jolt repository. For ease of
management, the BEA Jolt server can be administered with the same tools used to
manage any resource within the BEA TUXEDO environment.
RESEARCH AND DEVELOPMENT
The Company has made substantial investments in technology acquisition and
product development. BEA TUXEDO was originally developed by AT&T Bell Labs, and
had been revised by UNIX System Labs and Novell before BEA became the developer
of the product in February 1996. Important product technology for the BEA
Enterprise Transaction Framework was gained through many of the Company's
acquisitions. The Company will continue to review possible technology
acquisitions when appropriate. See "Risk Factors--Past and Future Acquisitions"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operation."
At October 31, 1996, the Company had a development staff of 89, which
included the original four architects, as well as many of the original
developers, of TUXEDO. In the nine months ended October 31, 1996, product
development expenses were $12.8 million. The Company's product development
organization is responsible for product architecture, core technology and
functionality, product testing, user interface development and expanding the
ability of BEA's products to operate with the leading hardware platforms,
operating systems, relational database management systems ("RDBMSs"),
application development and management tools and networking and communication
protocols. To date, the Company has not capitalized any software development
costs and does not anticipate capitalizing any software development costs. The
Company expects to continue to devote substantial resources to its product
development activities, including continued support of existing and emerging
hardware platforms, operating systems, RDBMSs, application development and
management tools, and networking and communication protocols.
BEA shipped BEA TUXEDO Release 6.1, Vol. 2 in July 1996, BEA Connect SNA
Version 1.1 in August 1996, BEA Connect TCP in November 1996, and BEA TUXEDO 6.2
in December 1996. The Company released the first customer shipment of BEA Jolt
Version 1.0, the first product developed exclusively by BEA, in December 1996.
The Company intends to continue to extend the functionality of BEA TUXEDO and
the BEA Enterprise Transaction Framework, to commit significant resources to the
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ongoing development of BEA TUXEDO and to support existing and emerging
technologies such as object-oriented technology.
The market for the Company's products is highly fragmented, competitive with
alternative computing architectures, and characterized by continuing
technological development, evolving industry standards and changing customer
requirements. The introduction of products embodying new technologies, the
emergence of new industry standards or changes in customer requirements could
render the Company's existing products obsolete and unmarketable. As a result,
the Company's success depends upon its ability to further enhance existing
products, respond to changing customer requirements, and develop and introduce
in a timely manner new products that keep pace with technological developments
and emerging industry standards. Customer requirements include, but are not
limited to, operability across distributed and changing heterogeneous hardware
platforms, operating systems, relational databases and networks. For example,
although BEA TUXEDO interoperates with applications on over 40 operating
platforms, as certain of the Company's customers start to utilize emerging
platforms, it will be necessary for the Company to further enhance its products
to interoperate with applications on these emerging platforms. There can be no
assurance that the Company's products will adequately address the changing needs
of the marketplace or that the Company will be successful in developing and
marketing enhancements to its existing products or new products incorporating
new technology on a timely basis. Failure to develop and introduce new products,
or enhancements to existing products, in a timely manner in response to changing
market conditions or customer requirements, will materially and adversely affect
the Company's business, operating results and financial condition.
SALES, MARKETING AND SERVICES
The Company's sales strategy is to pursue opportunities worldwide within
large organizations through its direct sales, professional services and
technical support organizations, complemented by indirect sales channels such as
hardware OEMs, packaged application software developers, systems integrators and
independent consultants, software tool vendors and distributors. The Company
currently intends to add to its direct sales, support and professional services
organizations in all major markets worldwide.
DIRECT SALES ORGANIZATION
BEA markets its software and services primarily through its direct sales
organization. As of October 31, 1996, the Company's direct sales force totaled
60 sales representatives in 22 offices worldwide. At October 31, 1996, the
direct sales force was supported by 15 technical sales engineers worldwide.
Field sales representatives are assigned quotas and compensated for all Company
revenues, both direct and indirect, resulting from their assigned territory.
Leads are generally qualified by a third party and then passed through the field
sales organization.
The Company typically uses a consultative, solution-oriented sales model
that entails the collaboration of technical and sales personnel to formulate
proposals to address specific customer requirements. Because the Company's
products are typically used to integrate applications that are critical to a
customer's business, the Company focuses its initial sales efforts on senior IT
department personnel who are responsible for such applications. Subsequent
efforts often include other senior members of a customer's executive management
team.
PRODUCT SALES AND IMPLEMENTATION CYCLE
The license of the Company's software products is often an enterprise-wide
decision by prospective customers and requires the Company to engage in a
lengthy sales cycle to provide a significant level of education to prospective
customers regarding the use and benefits of the Company's products. The
Company's sales process consists of several phases: lead generation, initial
contact, lead qualification,
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needs assessment, proposal generation and contract negotiation. Following the
signing of a license contract for BEA products, a customer's implementation
consists of a pre-deployment and a deployment phase. Approximately 10 to 30
percent of the revenue from a typical customer is realized during the
pre-deployment phase and is usually weighted toward professional services and
training. The remaining portion of revenue is realized during the deployment
stage and predominantly consists of license fees. While the sales and
implementation cycle varies substantially from customer to customer, for initial
sales it has ranged from 18 to 24 months from the initial contact to the
completion of the deployment phase. In many cases, a customer begins a second
development project using BEA products, often with substantially shortened
development and deployment timeframes. Additional development projects by a
particular customer are often implemented in progressively abbreviated
timeframes. See "Risk Factors--Lengthy Sales and Implementation Cycle."
STRATEGIC RELATIONSHIPS
An important element of the Company's sales and marketing strategy is to
expand its relationships with third parties to increase the market awareness,
demand and acceptance of BEA and its products. The Company often benefits from
third-party selling assistance and believes that, in a number of instances, its
relationships with strategic partners have substantially shortened the Company's
sales cycle. Partners have often generated and qualified sales leads, made
initial customer contacts, assessed needs and recommended contact with the
Company prior to BEA's introduction. Partners can provide customers with
additional resources and expertise, especially in vertical markets, to help meet
their system application development requirements. Types of partners include:
HARDWARE OEMS. BEA's hardware partners often act as resellers of BEA
TUXEDO, either under the BEA TUXEDO name or integrated with their own software
products, or recommend BEA TUXEDO to their customers and prospects who are
planning to implement high-end, mission-critical applications on their hardware
platform. BEA's relationships with hardware manufacturers include Digital
Equipment Corp., Fujitsu Limited, Hewlett-Packard Corporation, IBM Corporation,
NEC Corporation, Pyramid Technology Corp., Sequent Computer Systems Inc.,
Siemens-Nixdorf Informationssysteme A.G., Sun Microsystems Inc. and Tandem
Computers Inc.
PACKAGED APPLICATION SOFTWARE DEVELOPERS. BEA licenses its software to
packaged application software vendors. These vendors embed the software as a
middleware infrastructure for the applications they supply, giving these
applications increased distribution, scalability and portability across all
platforms on which BEA TUXEDO runs. Customers can also easily integrate custom
applications built using BEA TUXEDO into these existing packaged applications.
Vendors that embed BEA TUXEDO software in their packaged applications include
CableData, Clarify, Inc., Cycare Systems, Inc., Filoli Information Systems and
PeopleSoft Inc.
SYSTEMS INTEGRATORS AND INDEPENDENT CONSULTANTS. Systems integrators often
refer their customers to BEA and may utilize BEA as a subcontractor in some
situations. BEA TUXEDO has been designated by EDS as a certified framework
product, and BEA seeks similar certification from other systems integrators. BEA
also works cooperatively with independent consulting organizations, often being
referred to prospective customers by professional services organizations with
expertise in high-end transactional applications. In addition to EDS, BEA has
relationships with systems integrators such as Andersen Consulting, Oracle
Consulting and Perot Systems Corporation, as well as many independent
consultants.
INDEPENDENT SOFTWARE TOOL VENDORS. Partner ISVs integrate their tools with
BEA TUXEDO to enable their customers to use these tools to build scalable
distributed applications more easily. BEA has relationships with over 40 tool
vendors, including Borland International Inc., BMC Software Inc., Compuware
Corporation, Mercury Interactive Corporation, Microsoft Corporation, NAT Systems
International, Inc., Oracle Corporation and Passport Communications, Inc.
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DISTRIBUTORS. The Company uses distributors to sell its products in North
America and major markets in Europe, Asia and Latin America to augment the
efforts of its direct sales force. As of October 31, 1996, the Company was
represented by 13 distributors.
PROFESSIONAL SERVICES
The Company's professional services organization provides a full range of
consulting services to customers developing, deploying and managing
mission-critical applications using BEA products. These services include
architectural assistance, prototyping, implementation, legacy migration,
porting, application integration, performance evaluation and tuning, and data
conversions. Because of the complex nature of its customers' mission-critical
applications, the Company believes that its professional services organization
plays a key role in facilitating initial license sales and enabling customers to
successfully develop, deploy and manage such applications. As of October 31,
1996, the Company employed 73 professional services consultants. Fees for
professional services are generally charged on a time and materials basis and
vary depending upon the nature and extent of services to be performed.
TECHNICAL SUPPORT
The Company believes that a high level of customer support is integral to
the successful marketing and sale of BEA products. Mission-critical applications
require rapid support response and problem resolution. The Company's direct
sales to customers include a basic level of maintenance. Comprehensive 7x24x365
support contracts are also available, typically on an annual basis. In addition,
the Company offers introductory and advanced classes and training programs at
the Company's offices, customer sites and training centers worldwide. Telephone
hotline support is offered worldwide at either a standard or around-the-clock
level, depending on customer requirements. The Company maintains product and
technology experts on call at all times worldwide and has support call centers
located in Sunnyvale, California and Paris, France. The Company sponsors user
group conferences in North America and Europe.
MARKETING
The Company's marketing efforts are directed at broadening the market for
BEA TUXEDO and the BEA Enterprise Transaction Framework by increasing awareness
of the benefits of using the Company's products to build mission-critical
distributed applications. Marketing efforts are also aimed at supporting the
Company's worldwide direct and indirect sales channels. Marketing personnel
engage in a variety of activities including conducting public relations and
product seminars, issuing newsletters, sending direct mailings, preparing sales
collateral and other marketing materials, coordinating the Company's
participation in industry trade shows, programs and forums, and establishing and
maintaining close relationships with recognized industry analysts. The Company's
senior executives are frequent speakers at industry forums in many of the major
markets the Company serves.
COMPETITION
The market for middleware software and related services is highly
competitive. The Company's competitors are diverse and offer a variety of
solutions directed at various segments of the middleware software marketplace.
These competitors include database vendors such as Oracle Corporation
("Oracle"), IBM Corporation ("IBM") and others, which offer their own
development tools for use with their proprietary databases, as well as companies
offering and developing middleware software products and related services or
application development tools that compete with products offered by the Company.
In addition, internal development groups within prospective customers'
organizations may develop software and hardware systems that may substitute for
those offered by the Company. A number of the Company's competitors and
potential competitors have longer operating histories,
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significantly greater financial, technical, marketing and other resources,
greater name recognition and a larger installed base of customers than the
Company.
The Company's principal competitors currently are database vendors that
advocate client/server networks driven by the database server and software tool
vendors that offer development tools designed to enable customers to create
distributed mission-critical applications. Oracle is the primary relational
database vendor offering products that are intended to serve as alternatives to
the Company's enterprise middleware solutions. Currently, the software
development tool vendors typically emphasize the broad versatility of their
toolsets and, in some cases, offer complementary middleware software that
supports these tools and performs messaging and other basic middleware
functions. There can be no assurance that the Company will compete successfully
with database vendors and software tool vendors, or that the products offered by
such vendors will not achieve greater market acceptance than the Company's
products.
Microsoft has announced that it will provide middleware functionality in
future versions of its Windows NT operating system and has recently announced
the release of a product that includes certain middleware functionality. The
bundling of middleware functionality in Windows NT will require the Company to
compete with Microsoft in the Windows NT marketplace, where Microsoft will have
certain inherent advantages due to its significantly greater financial,
technical, marketing and other resources, greater name recognition, its
substantial installed base and the integration of its enterprise middleware
functionality with Windows NT. If Microsoft successfully incorporates middleware
functionality into Windows NT or separately offers middleware applications, the
Company will need to differentiate its products based on functionality,
interoperability with non-Microsoft platforms, performance and reliability and
establish its products as more effective solutions to customers' needs. There
can be no assurance that the Company will be able to successfully differentiate
its products from those offered by Microsoft, or that Microsoft's entry into the
middleware market will not materially adversely affect the Company's business,
operating results and financial condition.
In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties, thereby increasing the ability of their products to address the
needs of the Company's current and prospective customers. Accordingly, it is
possible that new competitors or alliances among current and new competitors may
emerge and rapidly gain significant market share. Such competition could
materially adversely affect the Company's ability to sell additional licenses
and maintenance and support renewals on terms favorable to the Company. Further,
competitive pressures could require the Company to reduce the price of its
products and related services, which could materially adversely affect the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors, and the failure to do so would have a material adverse
effect upon the Company's business, operating results and financial condition.
The Company believes that the principal competitive factors in the market
for its products are the ability to scale to accommodate a large number of
users, interoperability with major hardware and software platforms and legacy
systems, cost, time to implementation, robustness and support services. Based on
these factors, the Company believes its products compete favorably, although
there can be no assurance that the Company can maintain its competitive position
against current and potential competitors.
In order to be successful in the future, the Company must continue to
respond promptly and effectively to the challenges of technological change and
competitors' innovations. There can be no assurance that the Company will be
able to compete successfully with existing or new competitors or that
competition will not have a material adverse effect on the Company's business,
financial condition and results of operations.
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INTELLECTUAL PROPERTY
The Company's success depends upon its proprietary technology. The Company
relies on a
combination of copyright, trademark and trade secret rights, confidentiality
procedures and licensing arrangements to establish and protect its proprietary
rights. The Company presently has three issued patents and two pending patent
applications, as well as an exclusive license to one patent and one pending
patent application. No assurance can be given that competitors will not
successfully challenge the validity or scope of the Company's patents and that
such patents will provide a competitive advantage to the Company. As part of its
confidentiality procedures, the Company generally enters into non-disclosure
agreements with its employees, distributors and corporate partners, and license
agreements with respect to its software, documentation and other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use the Company's products or technology without
authorization, or to develop similar technology independently. In particular,
the Company has, in the past, provided certain hardware OEMs with access to its
source code, and any unauthorized publication or proliferation of this source
code could materially adversely affect the Company's business, operating results
and financial condition. Policing unauthorized use of the Company's products is
difficult and, although 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. Effective protection of intellectual property rights is
unavailable or limited in certain foreign countries. There can be no assurance
that the Company's protection of its proprietary rights will be adequate or that
the Company's competitors will not independently develop similar technology,
duplicate the Company's products or design around any patents issued to the
Company or other intellectual property rights of the Company.
The Company is not aware that any of its products infringe the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim such infringement by the Company with respect to current or
future products. The Company expects that software product developers will
increasingly be subject to such claims as the number of products and competitors
in the Company's industry segment grows and the functionality of products in the
industry segment overlaps. Any such claims, with or without merit, could result
in costly litigation that could absorb significant management time, which could
have a material adverse effect on the Company's business, operating results and
financial condition. Such claims might require the Company to enter into royalty
or license agreements. Such royalty or license agreements, if required, may not
be available on terms acceptable to the Company or at all, which could have a
material adverse effect upon the Company's business, operating results and
financial condition.
EMPLOYEES
At December 31, 1996, the Company had 439 full-time employees of whom 100
were primarily engaged in research and development, 301 in consulting, training,
sales, support and marketing and 38 in administration and finance. None of the
Company's employees is represented by a collective bargaining agreement and the
Company has never experienced any work stoppage. The Company considers its
relations with its employees to be good. The Company also employs a number of
temporary and contract employees from time to time. At December 31, 1996, the
Company employed approximately 51 temporary and contract employees.
The Company's future performance depends to a significant degree upon the
continued service of its key members of management, as well as key marketing,
sales, consulting and product development personnel. The loss of any of William
T. Coleman III, the Company's President, Chairman and Chief Executive Officer,
Edward W. Scott, Jr., the Company's Executive Vice President of Worldwide Field
Operations, or Alfred S. Chuang, the Company's Chief Technical Officer and
Executive Vice President of Product Development, or one or more of the Company's
other key personnel, would have a material adverse effect on the Company's
business, operating results and financial condition. The Company
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believes its future success will also depend in large part upon its ability to
attract and retain highly skilled management, marketing, sales, consulting and
product development personnel. Competition for such personnel is intense, and
there can be no assurance that the Company can retain its key employees or that
it will be successful in attracting, assimilating and retaining such personnel
in the future. Hiring of qualified technical personnel in foreign countries will
be difficult due to a more limited number of qualified professionals, as the
Company seeks to expand its worldwide support organization. Failure to attract,
assimilate and retain key personnel would have a material adverse effect on the
Company's business, operating results and financial condition. In addition, the
Novell Agreement requires the Company to employ a minimum number of research and
development personnel.
FACILITIES
The Company's primary offices are located in approximately 38,000 and 18,000
square feet of space in Sunnyvale, California and approximately 61,000 square
feet in Bernards Township, New Jersey under leases expiring in January 31, 2001,
June 30, 1998 and April 31, 2006, respectively. The Company has an option to
extend the lease of the premises in Sunnyvale for an additional five years after
the original expiration date on substantially the same terms. The Company also
leases space for its sales and support offices in Atlanta, Georgia; Boston,
Massachusetts; Brisbane, Australia; Capetown, South Africa; Chicago, Illinois;
Dallas, Texas; Escondido, California; Espoo, Finland; Golden, Colorado;
Johannesburg, South Africa; Kowloon, Hong Kong; London, England; Minneapolis,
Minnesota; Munich, Germany; Paris, France; Philadelphia, Pennsylvania; Reston,
Virginia; Sao Paulo, Brazil; Schaumburg, Illinois; Sydney, Australia; Toronto,
Canada; Yokohama, Japan and Zaventem, Belgium. The Company believes that its
existing facilities are sufficient to meet its anticipated needs for the
foreseeable future.
53
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company as of October 31, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- -------------------------- ----------- --------------------------------------------------------------------------------
<S> <C> <C>
William T. Coleman III 49 President, Chief Executive Officer, Chairman of the Board and Director
Edward W. Scott, Jr. 58 Executive Vice President of Worldwide Field Operations, Assistant Secretary and
Director
Alfred S. Chuang 35 Chief Technical Officer, Executive Vice President of Product Development
Steve L. Brown 43 Executive Vice President, Chief Financial Officer and Secretary
Carol Bartz(1) 48 Director
Cary J. Davis 30 Director
Stewart K.P. Gross(2) 37 Director
William H. Janeway(1) 53 Director
Dean Morton(2) 64 Director
</TABLE>
- --------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
MR. COLEMAN was a founder of the Company and has been its President, Chief
Executive Officer and a member of its Board of Directors since the Company's
inception. Prior to founding the Company in January 1995, Mr. Coleman was
employed by Sun Microsystems, Inc. from 1985 to January 1995, where his last
position was Vice President and General Manager of its Sun Integration division.
Mr. Coleman holds a B.S. from the Air Force Academy and an M.S. from Stanford
University.
MR. SCOTT is a founder of the Company and has been a member of its Board of
Directors and its Executive Vice President of Worldwide Field Operations since
the Company's inception. Prior to founding the Company in January 1995, Mr.
Scott was employed by Pyramid Technology, Inc. as its Executive Vice President
of Worldwide Sales and Marketing from September 1988 to April 1995 and by Sun
Microsystems from October 1985 to September 1988. Mr. Scott has a B.A. and an
M.A. from Michigan State University and a Bachelor's Degree from Oxford
University.
MR. CHUANG is a founder of the Company and has been its Chief Technical
Officer and Executive Vice President of Product Development since the Company's
inception. He served as a member of its Board of Directors from the Company's
inception until September 1995. From 1986 to December 1994, Mr. Chuang worked at
Sun Microsystems, Inc. in various positions, including Chief Technology Officer
of Sun Integration Services and Corporate Director of Strategic Systems
Development of Sun's Middleware Group. Mr. Chuang has a B.S. from the University
of San Francisco and an M.S. from U.C. Davis.
MR. BROWN joined the Company in August 1996 and is currently Executive Vice
President, Chief Financial Officer and Secretary. From October 1994 to July
1996, Mr. Brown was employed by MicroUnity Systems Engineering, Inc., where his
last position was Vice President, Finance. From 1978 to 1994, Mr. Brown was
employed at the Hewlett-Packard Corporation in various controller and treasury
positions. He holds a B.A. from San Diego State University and an M.B.A. from
UCLA.
54
<PAGE>
MS. BARTZ has served as a director of the Company since November 1995. From
April 1992 to present, Ms. Bartz has served as the Chairman and Chief Executive
Officer of Autodesk, Inc. From 1983 to April 1992, Ms. Bartz served in various
positions with Sun Microsystems, Inc., most recently as Vice President of
Worldwide Field Operations. Ms. Bartz is a director of Autodesk, Inc., AirTouch
Communications, Cadence Design Systems, Inc., Cisco Systems, Inc. and Network
Appliance, Inc. Ms. Bartz holds a B.S. from the University of Wisconsin at
Madison.
MR. DAVIS has served as a director of the Company since November 1995. Mr.
Davis is a Vice President of Warburg, Pincus Ventures, LLC, the venture capital
subsidiary of E.M. Warburg, Pincus & Company, LLC, ("EMWP") where he has been
employed since October 1994. From August 1992 to September 1994, Mr. Davis was
employed by Dell Computer Corporation, where his last position was Manager of
Worldwide Desktop Marketing. Mr. Davis holds a B.A. from Yale University and an
M.B.A. from Harvard University.
MR. GROSS has served as a director of the Company since inception. Mr. Gross
is a Managing Director of EMWP and has been employed by EMWP since 1987. Prior
to joining EMWP, Mr. Gross was employed at Morgan Stanley & Co. Mr. Gross is a
director of Vanstar Corporation, OpenVision Technologies, Inc. and several
privately-held companies. Mr. Gross has a B.A. from Harvard University and an
M.B.A. from Columbia University.
MR. JANEWAY has served as a director of the Company since inception. Mr.
Janeway has been a Managing Director of EMWP since July 1988. Prior to joining
EMWP, Mr. Janeway was the Vice President and Director of Corporate Finance at F.
Eberstadt & Co., Inc. from 1979 to July 1988. Mr. Janeway is a director of
ECSoft Group plc, Industri-Matematik Corp., Maxis, Inc., OpenVision
Technologies, Inc., Vanstar Corporation, Zilog, Inc. and several privately-held
companies. Mr. Janeway has a B.A. from Princeton University and a Ph.D. from
Cambridge University, where he studied as a Marshall Scholar.
MR. MORTON has served as a director of the Company since March 1996. Mr.
Morton was Executive Vice President, Chief Operating Officer and a Director of
the Hewlett-Packard Corporation until his retirement in October 1992, where he
held various positions since 1960. Mr. Morton is a director of ALZA Corporation,
Raychem Corporation, Tencor Instruments, The Clorox Company, Centigram
Communications Corporation, and Kaiser Foundation Health Plan, Inc. Hospitals.
He is a trustee of the State Street Research Group of Funds, The State Street
Research Portfolios, Inc. and The Metropolitan Series Fund. Mr. Morton holds a
B.S. from Kansas State University and an M.B.A. from Harvard University.
Currently all directors hold office until the next annual meeting of
stockholders or until their successors are duly qualified. Upon completion of
the Offerings, the Amended and Restated Certificate of Incorporation of the
Company will provide for the Board of Directors to be divided into three
classes, each with staggered three-year terms. As a result, only one class of
directors will be elected at each annual meeting of stockholders of the Company,
with the other classes continuing for the remainder of their respective
three-year terms. Upon the division of the Board of Directors into three
classes, in the absence of cumulative voting rights, the Company's stockholders
holding a majority of the shares of Common Stock outstanding will be able to
elect all the directors. See "Description of Capital Stock-- Antitakeover
Effects of Provisions of the Company's Charter and Bylaws" and "Risk
Factors--Control by Management and Current Stockholders."
Officers are elected by and serve at the discretion of the Board of
Directors. There are no family relationships among the directors or officers of
the Company.
BOARD COMMITTEES
AUDIT COMMITTEE. The Audit Committee of the Board of Directors reviews the
results and scope of the annual audit and other services provided by the
Company's independent accountants, reviews and
55
<PAGE>
evaluates the Company's internal audit and control functions, and monitors
transactions between the Company and its employees, officers and directors.
Stewart K.P. Gross and Dean Morton serve as members of the Audit Committee.
COMPENSATION COMMITTEE. The Compensation Committee of the Board of
Directors administers the 1997 Stock Incentive Plan, the 1997 Employee Stock
Purchase Plan and the 1995 Flexible Stock Incentive Plan, and reviews and
approves the compensation and benefits for the Company's executive officers.
Carol Bartz and William H. Janeway serve as members of the Compensation
Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between any member of the Company's
Board of Directors or Compensation Committee and any member of the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
DIRECTOR COMPENSATION
The Company's outside directors are reimbursed for expenses incurred in
connection with attending Board and Committee meetings but are not compensated
for their services as Board members. The Company may also grant to directors
options to purchase Common Stock of the Company pursuant to the terms of the
1997 Stock Incentive Plan. See "--Stock Plans--1997 Stock Incentive Plan."
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
of the Company's Chief Executive Officer and each of the four other most highly
compensated executive officers of the Company whose aggregate cash compensation
exceeded $100,000 during the year ended January 31, 1996 (collectively, the
"Named Executive Officers"). There have been no option grants to or option
exercises by the Named Executive Officers during the fiscal year ended January
31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($)
- -------------------------------------------------------------------- ----------- ----------- -----------------
<S> <C> <C> <C>
William T. Coleman III ............................................. 151,500 -- 22,500(1)
President, Chief Executive Officer, Chairman of the Board and
Director
Edward W. Scott, Jr ................................................ 91,154 -- --
Executive Vice President
and Director
Alfred S. Chuang ................................................... 109,654 -- 16,500(1)
Executive Vice President
</TABLE>
- --------------
(1) Represents contributions made by the Company to the named individual's
retirement plan.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with William T. Coleman,
Edward W. Scott, Jr. and Alfred S. Chuang (the "Employees"), dated September 28,
1995 (the "Employment Agreements").
56
<PAGE>
The Employment Agreements provide that Mr. Coleman, Mr. Scott and Mr. Chuang
receive a yearly salary of $180,000, $150,000 and $150,000, respectively (to be
reviewed annually), and reimbursement for certain expenses. The Employees are
also entitled to participate in any pension, bonus, insurance, savings or other
employee benefit plans adopted by the Company.
The Employment Agreements continue until the earlier of (1) September 28,
1999 or (2) termination of employment (i) by the Board of Directors for cause at
any time upon 10 days' written notice, or without cause upon 24 hours' written
notice; (ii) by death; (iii) by the Employee for good reason or following
certain corporate transactions, or at will upon two weeks' notice; or (iv) due
to disability. Upon termination of employment without cause by the Company, or
for good reason by the Employee, the Company will hire the Employee as a
consultant until the end of the period of employment, or for a period of two
years following termination. During the Consultancy Period (as defined in the
Employment Agreements), the Employee is required to be available a maximum of 40
hours per week in return for which he will be entitled to receive a monthly
salary, bonus and benefits equal to the amount that he received immediately
prior to the termination of employment. Upon termination of employment for cause
by the Company, or at will by the Employee, the Company can require the Employee
to provide consulting services for a maximum of 40 hours per week until the end
of the period of employment, during which period the Employee will be paid his
monthly salary on a prorated basis. Upon termination by death or disability, the
Employee or his estate will under certain circumstances receive the Employee's
salary and certain other benefits until the end of the period of employment.
The Employment Agreements contain a covenant not to compete which provides
that during the Consultancy Period, under certain circumstances the Employee
cannot compete with the Company, or accept employment with a competitor of the
Company.
STOCK PLANS
1995 FLEXIBLE STOCK INCENTIVE PLAN
The Company's 1995 Flexible Stock Incentive Plan (the "1995 Incentive Plan")
was adopted by the Board of Directors and approved by the Company's stockholders
in September 1995. The 1995 Incentive Plan provides for the granting to
employees of the Company and of its subsidiaries of incentive stock options
within the meaning of Section 422A of the Internal Revenue Code of 1986, as
amended (the "Code"), and for the granting to employees, outside directors,
consultants, and independent contractors of nonstatutory stock options. In
addition, the 1995 Incentive Plan provides for the sale or grant of restricted
Common Stock to eligible individuals in connection with the performance of
services for the Company. The Board of Directors and the stockholders have
authorized a total of 9,600,000 shares of Common Stock for issuance pursuant to
the 1995 Incentive Plan.
The 1995 Incentive Plan may be administered by the Board of Directors or a
committee of the Board (the "Committee"). The Committee has the power to
determine the terms of the options granted, including the exercise price, number
of shares subject to the option and the exercisability thereof, and the form of
consideration payable upon exercise. Options granted under the 1995 Incentive
Plan are not transferable by the optionee other than by will or the laws of
descent or distribution, and each option is exercisable during the lifetime of
the optionee only by such optionee. The exercise price of all incentive stock
options granted under the 1995 Incentive Plan must be at least equal to the fair
market value of the Common Stock on the date of grant. The exercise price of all
nonstatutory stock options granted under the 1995 Incentive Plan must be at
least 85% of the fair market value of the Common Stock on the date of grant.
With respect to any participant who owns stock representing more than 10% of the
combined voting power of the Company or certain affiliated entities (a "10%
Stockholder"), the exercise price of any incentive stock option granted must
equal at least 110% of the fair market value on the grant date. The term of
incentive stock options granted under the 1995 Incentive Plan may not exceed ten
years (or five years in the case of an incentive stock option granted to a 10%
Stockholder). No stock option
57
<PAGE>
granted under the 1995 Incentive Plan shall vest at a rate of less than 20% per
year over 5 years from the date the option is granted. The consideration for
exercising any option must consist of cash unless the Board, in its sole
discretion, permits payment by check, Company shares, a promissory note or the
assignment of part of the proceeds of the shares acquired upon exercise of the
options.
With certain exceptions, the options terminate upon termination of
employment, disability or death of the employee. In the event of a merger with
or into another corporation, the options will terminate upon the consummation of
a merger, unless assumed or substituted by a successor corporation or its parent
company.
Unless terminated sooner, the 1995 Incentive Plan will terminate
automatically in 2005. The Board has authority to amend, suspend or terminate
the 1995 Incentive Plan, provided no such action may affect any share of Common
Stock previously issued and sold or any option previously granted under the 1995
Incentive Plan.
1997 STOCK INCENTIVE PLAN
The Company's 1997 Stock Incentive Plan (the "1997 Stock Incentive Plan")
was adopted by the Board of Directors in January 1997 and is anticipated to be
approved by the Company's stockholders prior to consummation of the Offerings.
The purpose of the 1997 Stock Incentive Plan is to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to employees, directors and consultants of the Company and
its subsidiaries and to promote the success of the Company's business. The 1997
Stock Incentive Plan provides for the granting to employees of incentive stock
options within the meaning of Section 422 of the Code and the granting of
nonstatutory stock options, stock appreciation rights, dividend equivalent
rights, restricted stock, performance units, performance shares, and other
equity-based rights ("Awards") to employees, directors and consultants of the
Company. Initially, 2,500,000 shares of Common Stock are reserved for issuance
under the plan. Commencing January 2, 1997, the number of shares of Common Stock
reserved for issuance under the 1997 Stock Incentive Plan will be increased by a
number equal to two percent (2%) of the number of shares of Common Stock
outstanding as of December 31 of the immediately preceding calendar year,
provided that the number of shares of Common Stock available for grant of
incentive stock options shall be 2,500,000 shares, and such number shall not be
subject to adjustment as described above. Where the Award agreement permits the
exercise or purchase of the Award for a certain period of time following the
recipient's termination of service with the Company, disability, or death, the
Award will terminate to the extent not exercised or purchased on the last day of
the specified period or the last day of the original term of the Award,
whichever occurs first. To date, no Awards have been granted under the 1997
Stock Incentive Plan.
With respect to Awards granted to directors or officers, the 1997 Stock
Incentive Plan is administered by the Board of Directors or a committee
designated by the Board of Directors constituted to permit such Awards to be
exempt from Section 16(b) of the Securities Exchange Act of 1934, as amended, in
accordance with Rule 16b-3 thereunder. With respect to Awards granted to other
participants, the 1997 Stock Incentive Plan is administered by the Board of
Directors or a committee designated by the Board of Directors. In each case, the
Board of Directors or such committees (the "Plan Administrator") shall determine
the provisions, terms and conditions of each Award, including, but not limited
to, the Award vesting schedule, repurchase provisions, rights of first refusal,
forfeiture provisions, form of payment (cash, shares of Common Stock, or other
consideration) upon settlement of the Award, payment contingencies and
satisfaction of any performance criteria. Incentive stock options are not
transferable by the optionee other than by will or the laws of descent or
distribution, and each incentive stock option is exercisable during the lifetime
of the optionee only by such optionee. Other Awards shall be transferable to the
extent provided in the agreement evidencing the Award. The exercise price of
incentive stock options must be at least equal to the fair market value of the
Common Stock on the date of grant, and the term of the option must not exceed
ten years. The term of other Awards will be
58
<PAGE>
determined by the Plan Administrator. With respect to an employee who owns stock
possessing more than 10% of the voting power of all classes of the Company's
outstanding capital stock, the exercise price of any incentive stock option must
equal at least 110% of the fair market value of the Common Stock on the grant
date and the term of the option must not exceed five years. The exercise or
purchase price of other Awards will be such price as determined by the Plan
Administrator. The consideration to be paid for the shares of Common Stock upon
exercise or purchase of an Award will be determined by the Plan Administrator
and may include cash, check, shares of Common Stock, a promissory note, or the
assignment of part of the proceeds from the sale of shares acquired upon
exercise or purchase of the Award.
In the event of an acquisition of the Company through the sale of all or
substantially all of its assets, a merger or other business combination, the
Plan Administrator has the discretion to accelerate vesting restrictions with
respect to any outstanding Awards under the 1997 Stock Incentive Plan.
Unless terminated sooner, the 1997 Stock Incentive Plan will terminate
automatically in 2007. The Board has the authority to amend, suspend or
terminate the 1997 Stock Incentive Plan subject to stockholder approval of
certain amendments and provided no such action may affect Awards previously
granted under the 1997 Stock Incentive Plan.
1997 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1997 Employee Stock Purchase Plan (the "Stock Purchase Plan"),
which was approved by the Board of Directors in January 1997 and is anticipated
to be approved by the Company's stockholders prior to the consummation of the
Offerings, is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Code and to provide employees of the Company with an
opportunity to purchase Common Stock through payroll deductions. An aggregate of
1,250,000 shares of the Company's Common Stock are reserved for issuance under
the Stock Purchase Plan and available for purchase thereunder, subject to
adjustment in the event of a stock split, stock dividend or other similar change
in the Common Stock or the capital structure of the Company. All employees of
the Company and its subsidiaries (including officers) whose customary employment
is for more than five months in any calendar year and more than 20 hours per
week are eligible to participate in the Stock Purchase Plan. Outside directors,
consultants and employees subject to the rules or laws of a foreign jurisdiction
that prohibit or make impractical the participation of such individuals in the
Stock Purchase Plan are not eligible to participate in the Stock Purchase Plan.
The Stock Purchase Plan designates Purchase Periods, Accrual Periods and
Exercise Dates. Purchase Periods are generally overlapping periods of 24 months.
A Purchase Period will initiate on the effective date of the Registration
Statement applicable to the Offerings and additional Purchase Periods will
commence each subsequent January and July. The initial Purchase Period will end
on March 31, 1999. Accrual Periods are generally six months periods initially
commencing on the effective date of the Offerings and ending on June 30 and
December 31. Thereafter Accrual Periods will commence each January 1 and July 1.
The Exercise Dates are the last days of each Accrual Period.
On the first day of each Purchase Period, a participating employee is
granted a purchase right which is a form of option to be automatically exercised
on the forthcoming Exercise Dates within the Purchase Period during which
deductions are to be made from the pay of participants (in accordance with their
authorizations) and credited to their accounts under the Stock Purchase Plan.
When the purchase right is exercised, the participant's withheld salary is used
to purchase shares of Common Stock of the Company. The price per share at which
shares of Common Stock are to be purchased under the Stock Purchase Plan during
any Accrual Period is the lesser of (a) 85% of the fair market value of the
Common Stock on the date of the grant of the option (the commencement of the
Purchase Period) or (b) 85% of the fair market value of the Common Stock on the
Exercise Date (the last day of an Accrual Period). The participant's purchase
right is exercised in this manner on all four Exercise Dates arising in the
Purchase
59
<PAGE>
Period unless, on the first day of any Accrual Period, the fair market value of
the Common Stock is lower than the fair market value of the Common Stock on the
first day of the Purchase Period. If so, the participant's participation in the
original Purchase Period is terminated, and the participant is automatically
enrolled in the new Purchase Period during that day.
Payroll deductions may range from 1% to 10% (in whole percentage increments)
of a participant's regular base pay, exclusive of overtime, bonuses,
shift-premiums or commissions. Participants may not make direct cash payments to
their accounts. The maximum number of shares of Common Stock which any employee
may purchase under the Stock Purchase Plan during an Accrual Period is 1,000
shares. Certain additional limitations on the amount of Common Stock which may
be purchased during any calendar year are imposed by the Code.
The Stock Purchase Plan will be administered by the Board of Directors or a
committee designated by the Board, which will have the authority to administer
the Stock Purchase Plan and to resolve all questions relating to its
administration.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by the Delaware General Corporation Law,
as amended. The Company is also empowered under its Bylaws to enter into
indemnification agreements with its directors and officers and to purchase
insurance on behalf of any person whom it is required or permitted to indemnify.
The Company has entered into indemnification agreements with each of its
directors and executive officers and intends to obtain a policy of directors'
and officers' liability insurance that insures such persons against the cost of
defense, settlement or payment of a judgment under certain circumstances.
In addition, the Company's Certificate of Incorporation provides that the
liability of the Company's directors for monetary damages shall be eliminated to
the fullest extent permissible under the Delaware General Corporation Law, as so
amended. This provision in the Certificate of Incorporation does not eliminate a
director's duty of care, and in appropriate circumstances equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available. Each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Company, for acts or omissions not in good
faith or involving intentional misconduct or knowing violations of law, for acts
or omissions that the director believes to be contrary to the best interests of
the Company or its stockholders, for any transaction from which the director
derived an improper personal benefit, for improper transactions between the
director and the Company and for improper distributions to stockholders and
loans to directors and officers. This provision also does not affect a
director's responsibilities under any other laws, such as the federal securities
laws or state or federal environmental laws.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
There is no pending litigation or proceeding involving a director or officer
of the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of October 31,
1996 as adjusted to reflect the sale of shares offered hereby, by (a) each
person known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (b) each of the Company's directors, (c) each Named
Executive Officer (see "Management--Executive Compensation"), and (d) all
current executive officers and directors as a group.
<TABLE>
<CAPTION>
SHARES PERCENTAGE PRIOR PERCENTAGE AFTER
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED TO THE OFFERING THE OFFERING(2)
- ------------------------------------------------------- ------------------- ----------------- -----------------
<S> <C> <C> <C>
Warburg, Pincus Ventures, LLC(3).......................
William T. Coleman III(4).............................. 2,506,828
Edward W. Scott, Jr.................................... 1,671,586
Alfred S. Chuang(5).................................... 1,671,586
Stewart K.P. Gross(6)..................................
William H. Janeway(6)..................................
Carol Bartz(7)......................................... 100,000 * *
Dean Morton(8)......................................... 100,000 * *
All executive officers and directors as a
group(9 persons)......................................
</TABLE>
- --------------
* Less than 1% of the outstanding Common Stock.
(1) To the Company's knowledge, except as set forth in the footnotes to this
table and subject to applicable community property laws, each person named
in the table has sole voting and investment power with respect to the shares
set forth opposite such person's name. Except as otherwise indicated, the
address of each of the persons in this table is as follows: c/o BEA Systems,
Inc., 385 Moffett Park Drive, Suite 105 Sunnyvale, California 94089-1208.
(2) Assumes no exercise of the underwriters' over-allotment option. If the
over-allotment option is exercised in full, the Company will sell an
aggregate of shares of Common Stock.
(3) Includes shares of Common Stock issuable upon conversion of shares of
Series A Preferred Stock on a two-for-one basis which will occur
automatically upon the closing of the Offerings and shares of Common
Stock issuable upon conversion of shares of Series B Preferred Stock
assuming a public offering price of $ per share and proceeds to the
Company, after deducting the underwriting discount and expenses, of
$ per share. Includes shares issuable within 5 days
after the Closing of the Offering, at Warburg's option, pursuant to a
convertible line of credit extended to the Company, assuming a public
offering price of $ per share and proceeds to the Company, after
deducting the underwriting discount and expenses, of $ per share.
The sole general partner of Warburg, Pincus Ventures, LLC. ("Warburg") is
Warburg, Pincus & Co., a New York general partnership ("WP"). E.M. Warburg,
Pincus & Co., LLC, a New York limited liability company ("EMWP"), manages
Warburg. The members of EMWP are substantially the same as the partners of
WP. Lionel I. Pincus is the managing partner of WP and the managing member
of EMWP and may be deemed to control both WP and EMWP. WP has a 15% interest
in the profits of Warburg as the general partner, and also owns
approximately 1.5% of the limited partnership interests in Warburg. Messrs.
Janeway and Gross, directors of the Company, are Managing Directors and
members of EMWP and general partners of WP. As such, Messrs. Janeway and
Gross may be deemed to have an indirect pecuniary interest (within the
meaning of Rule 16a-1 under the Securities Exchange Act of 1934) in an
indeterminate portion of the shares beneficially owned by Warburg and WP.
See Note 7 below. The address for Warburg, Pincus Ventures, LLC is 466
Lexington Avenue, New York, New York, 10017.
61
<PAGE>
(4) Represents 2,506,828 shares held of record by the Coleman Family Trust,
dated July 12, 1995, of which William T. and Claudia L. Coleman are
co-trustees. Includes 41,000 shares of which the economic ownership has been
transferred to certain of Mr. Coleman's relatives. Mr. Coleman retains sole
voting power and investment power of these shares.
(5) Includes 90,000 shares of which the economic ownership has been transferred
to certain of Mr. Chuang's relatives. Mr. Chuang retains sole voting power
and investment power of these shares.
(6) All of the shares indicated as owned by Mr. Janeway and Mr. Gross are owned
directly by Warburg and are included because of Mr. Janeway's and Mr.
Gross's affiliation with Warburg. Mr. Janeway and Mr. Gross disclaim
beneficial ownership of these shares within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934. The address for Mr. Janeway and Mr.
Gross is c/o Warburg, Pincus Ventures, LLC, 466 Lexington Avenue, New York,
New York 10017.
(7) Represents 100,000 shares of Common Stock issuable upon conversion of shares
of Series A Preferred Stock on a two-for-one basis which will occur
automatically upon the closings of the Offerings. The address for Mr. Morton
is c/o Hewlett-Packard Corporation, 3200 Hillview Avenue, Palo Alto,
California 94304.
(8) Represents 100,000 shares of Common Stock issuable upon conversion of shares
of Series A Preferred Stock on a two-for-one basis which will occur
automatically upon the closings of the Offerings. The address for Ms. Bartz
is c/o Autodesk, Inc., 111 McInnis Parkway, San Rafael, CA 94903.
CERTAIN TRANSACTIONS
On September 28, 1995, Warburg entered into a Stock Purchase Agreement with
the Company which was subsequently amended on October 31, 1995, January 10,
1996, April 16, 1996, July 1, 1996 and September 3, 1996. As a result of these
purchases, Warburg acquired an aggregate of 4,000,000 shares of Common Stock,
17,066,000 shares of Series A Preferred Stock and 16,347,800 shares of Series B
Preferred Stock for an aggregate purchase price of $46,500,000. In addition, on
April 24, 1996, the board approved the purchase of an aggregate of 100,000
shares of Series A Preferred Stock, convertible into 200,000 shares of Common
Stock, by two directors of the Company. Both Series A and Series B Preferred
Stock convert automatically into shares of Common Stock upon the closing of the
Offering. The conversion ratio of the Series B Preferred Stock depends upon the
initial public offering price and the proceeds to the Company after deducting
the underwriting discount and expenses. In connection with these purchases the
Company, certain of its directors and officers and Warburg entered into a number
of ancillary agreements, such as a stockholder agreement and an investment
agreement.
On September 28, 1995, in connection with the Company's acquisition of its
two main operating subsidiaries, the Company and Warburg, the Company's major
stockholder, entered into an Assignment Agreement, under the terms of which
Warburg assigned to the Company certain rights to acquire stock from
stockholders of the subsidiaries, as well as a number of agreements related to
the acquisitions, such as letters of intent and an Escrow Agreement, enabling
the Company to acquire all outstanding stock of the two operating subsidiaries.
See "Risk Factors--Past and Future Acquisitions" and "Management's Discussion
and Analysis of Financial Conditions and Results of Operations-- Overview."
On January 22, 1997, the Company entered into a credit agreement with
Warburg pursuant to the terms of which Warburg granted the Company a
subordinated line of credit of up to $10,000,000. The agreement provides for an
annual interest rate of 11% and is repayable 5 business days after the closing
of the Offerings or on July 22, 1998, whichever occurs first. The loan is
convertible, at Warburg's option, into shares of Common Stock within five days
after the closing of the Offerings, at a conversation ratio
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based upon the net price to the Company of the initial public offering, after
deducting the underwriting discount and expenses.
On February 1, 1995 and following the incorporation of the Company, the
Company's three founders, William T. Coleman III, the Company's President and
Chief Executive Officer and a member of its Board of Directors, Edward W. Scott,
Jr., the Company's Executive Vice President for Worldwide Sales and a member of
its Board of Directors and Alfred S. Chuang, the Company's Executive Vice
President of Product Development and Chief Technical officer, purchased
1,200,000, 800,000 and 800,000 shares, respectively, of the Company's Common
Stock at a price of $.005 per share. These shares were purchased pursuant to
Restricted Stock Purchase Agreements, which provide for the repurchase of these
shares under certain conditions.
On September 28, 1995, Messrs. Coleman, Scott and Chuang purchased
1,306,828, 871,586 and 871,586 shares, respectively, of the Company's Common
Stock at a price per share of $.285 per share, payable in part in cash and in
part in the form of a recourse, five-year promissory note secured by the
purchased shares pursuant to a security agreement entered into on the same date.
The original principal amounts of these notes for Messrs. Coleman, Scott and
Chuang were $97,446, $248,402 and $198,402, respectively. The notes bear
interest at 7% per annum. These shares were purchased pursuant to Restricted
Stock Purchase Agreements, which provide for the repurchase at original cost of
these shares in decreasing percentages during the four year period following the
date of issuance of these shares.
Certain holders of Common Stock and Warburg, as the holder of shares of
Common Stock issued upon conversion of the Series A and Series B Preferred
Stock, are entitled to certain registration rights. See "Description of Capital
Stock--Registration Rights."
On December 12, 1995, Edward W. Scott, the Company's Executive Vice
President of Worldwide Operations issued a promissory note in the amount of
$720,000 in favor of the Company for the purpose of financing real property. The
note bears interest at 7% per annum and is secured by a deed of trust covering
the property acquired by Mr. Scott. Pursuant to its terms, the note is repayable
within eight months after the closing of the Offerings.
The Company has entered into employment agreements with certain of its
directors and officers. See "Management--Employment Agreements."
All future transactions, including loans, between the Company and its
officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors on the Board of Directors.
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DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of the Offerings, the Company will be authorized
to issue up to 120,000,000 shares, $.001 par value, to be divided into two
classes to be designated, respectively, "Common Stock" and "Preferred Stock." Of
such shares authorized, 80,000,000 shares shall be designated as Common Stock,
and 40,000,000 as Preferred Stock.
COMMON STOCK
As of December 31, 1996, there were shares of Common Stock outstanding
that were held of record by approximately 20 stockholders (assuming conversion
of all shares of Preferred Stock outstanding as of December 31, 1996). There
will be shares of Common Stock outstanding (assuming no exercise of the
U.S. Underwriters' or International Underwriters' overallotment options and no
exercise of outstanding options) after giving effect to the sale of Common Stock
offered to the public by the Company hereby.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The Company does
not have cumulative voting rights in the election of directors, and accordingly,
holders of a majority of the shares voting are able to elect all of the
directors. Subject to preferences that may be granted to any then outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor as well as any distributions to the stockholders. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to share ratably in all assets
of the Company remaining after payment of liabilities and the liquidation
preference of any then outstanding Preferred Stock. Holders of Common Stock have
no preemptive or other subscription of conversion rights. There are no
redemption or sinking fund provisions applicable to the Common Stock.
PREFERRED STOCK
Effective upon the closing of the Offerings and pursuant to the Company's
Certificate of Incorporation, the Board of Directors will have the authority,
without further action by the stockholders, to issue up to 40,000,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of such series, any or all of which may be greater than the rights of Common
Stock, without any further vote or action by stockholders. The issuance of
Preferred Stock could adversely affect the voting power of holders of Common
Stock and the likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plan
to issue any shares of Preferred Stock after consummation of the Offerings.
REGISTRATION RIGHTS
Pursuant to an investor rights agreement (the "Rights Agreement") entered
into in September 1995 between the Company and holders (the "Holders") of
approximately 9,850,000 shares of the Company's Common Stock, 17,066,000 shares
of the Company's Series A Preferred Stock and 16,347,800 shares of the Company's
Series B Preferred Stock, including William T. Coleman III, Alfred S. Chuang,
Edward W. Scott, Jr., and Warburg, the Holders are entitled to certain rights
with respect to the registration of such shares under the Securities Act of
1933, as amended (the "Securities Act"). In addition, Warburg has an option,
exercisable at Warburg's option within five days after the closing of the
Offerings, to acquire a maximum of shares of Common Stock upon conversion
of the outstanding amounts under a $10,000,000 line of credit extended to the
Company. If the Company proposes to register any of its securities under the
Securities Act, either for its own account or the
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<PAGE>
account of other security holders, the Company is required to notify such
Holders and to use its best efforts to effect the registration, and such Holders
are entitled to include at the Company's expense their Registrable Securities
(as such term is defined in the Rights Agreement) in such registration, subject
to certain conditions and limitations. In addition, Holders may also require the
Company to file a registration statement under the Securities Act at the
Company's expense with respect to their shares, and the Company is required to
use its diligent reasonable efforts to effect such registration. Further,
Holders may require the Company to file registration statements on Form S-3 at
the Company's expense, when such form is available for use by the Company. These
rights are subject to certain conditions and limitations, among them the right
of the underwriters of an offering to limit the number of shares included in
such registration and the right of the Company not to effect a requested
registration within six months following a registered offering of the Company's
securities, including the offering made hereby. See "Management--Certain
Transactions."
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS
Upon completion of the Offerings, the Certificate of Incorporation of the
Company will provide for the Board of Directors to be divided into three
classes, with staggered three-year terms. As a result, only one class of
directors will be elected at each annual meeting of stockholders of the Company,
with the other classes continuing for the remainder of their respective
three-year terms. Stockholders will have no cumulative voting rights and the
Company's stockholders representing a majority of the shares of Common Stock
outstanding are able to elect all of the directors. The Company's Bylaws will
also provide that all stockholder action must be effected at a duly called
meeting of stockholders and not by a consent in writing; the Bylaws provide that
only the Company's Chief Executive Officer and the President of the Company may
call a special meeting of stockholders.
The classification of the Board of Directors and lack of cumulative voting
will make it more difficult for the Company's existing stockholders to replace
the Board of Directors as well as for another party to obtain control of the
Company by replacing the Board of Directors. Since the Board of Directors has
the power to retain and discharge officers of the Company, these provisions
could also make it more difficult for existing stockholders or another party to
effect a change in management.
These and other provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company. These
provisions are intended to enhance the likelihood of continued stability in the
composition of the Board of Directors and in the policies furnished by the Board
of Directors and to discourage certain types of transactions that may involve an
actual or threatened change of control of the Company. These provisions are
designed to reduce the vulnerability of the Company to an unsolicited
acquisition proposal. The provisions also are intended to discourage certain
tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for the Company's
shares and, as a consequence, they also may inhibit fluctuations in the market
price of the Company's shares that could result from actual or rumored takeover
attempts. Such provisions also may have the effect of preventing changes in the
management of the Company. See "Risk Factors--Antitakeover Effects of
Certificate of Incorporation, Bylaws and Delaware Law."
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to Section 203 or the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested holder, (ii)
upon consummation of the transaction that that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of
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the voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) at or subsequent
to such time, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
In general, Section 203 defines business combination to include: (i) any
merger or consolidation involving the corporation and the interested
stockholder, (ii) any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested stockholder, (iii)
subject to certain exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder, (iv) any transaction involving the corporation that has the effect
of increasing the proportionate share of the stock or any class or series of the
corporation beneficially owned by the interested stockholder or (v) the receipt
by the interested stockholder of the benefit of any loss, advances, guarantees,
pledges or other financial benefits by or through the corporation. In general,
Section 203 defines interested stockholder as an entity or person beneficially
owning 15% or more of the outstanding voting stock of the corporation and any
entity or person affiliated with or controlling or controlled by such entity or
person. See "Risk Factors--Antitakeover Effects of Certificate of Incorporation,
Bylaws and Delaware Law."
LISTING
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "BEAS."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock of the Company is
Boston EquiServe. Its address is 150 Royall Street, Canton, Massachusetts 02021,
and its telephone number is (617) 575-3120.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no public market for the Common Stock
of the Company, and any sale of substantial amounts in the open market may
adversely affect the market price of the Common Stock offered hereby.
Upon completion of the Offerings, the Company will have shares of
Common Stock outstanding based on shares outstanding as of October 31, 1996. Of
these shares, the shares sold in the Offerings will be freely transferable
without restriction under the Securities Act, unless they are held by
"affiliates" of the Company as that term is used under the Securities Act and
the Regulations promulgated thereunder.
The remaining outstanding shares were sold by the Company in reliance
on exemptions from the registration requirements of the Securities Act and are
restricted securities within the meaning of Rule 144 under the Securities Act.
Approximately of these shares of Common Stock will be eligible for sale in
the public market immediately upon the effective date of the Registration
Statement of which this Prospectus is a part (the "Effective Date") in reliance
on Rule 144(k) under the Securities Act. Beginning 90 days after the Effective
Date, an additional approximately of these shares will become eligible for
sale subject to the provisions of Rule 144 and Rule 701. Beginning 180 days
after the date of this Prospectus, approximately additional shares will
become eligible for sale subject to the provisions of Rule 144 or Rule 701 upon
the expiration of agreements not to sell such shares entered
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<PAGE>
into between the Underwriters and such stockholders of the Company and such
stockholders. Beginning 180 days after the date of this Prospectus,
approximately additional shares subject to vested options as of the
Effective Date will be available for sale subject to compliance with Rule 701
and upon the expiration of agreements not to sell such shares entered into
between the Underwriters and such stockholders. In addition, the Commission has
proposed revisions to Rule 144 and Rule 144(k), the effect of which would be to
shorten the holding period under Rule 144 from two years to one year and to
shorten the holding period under Rule 144(k) from three years to two years. If
enacted, these proposed revisions would increase, potentially substantially, the
number of shares that would be available for sale in the public market 180 days
after the Effective Date. Any shares subject to lock-up agreements may be
released at any time without notice by the Underwriters. See "Risk
Factors--Shares Eligible for Future Sale."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted shares for at least two years is entitled to sell, within any
three-month period commencing 90 days after the Effective Date, a number of
shares that does not exceed the greater of (i) 1% of the then outstanding shares
of Common Stock (approximately shares immediately after the Offerings) or
(ii) the average weekly trading volume in the Common Stock during the four
calendar weeks preceding such sale, subject to the filing of a Form 144 with
respect to such sale and certain other limitations and restrictions. In
addition, a person who is not deemed to have been an affiliate of the Company at
any time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least three years, would be entitled to sell
such shares under Rule 144(k) without regard to the requirements described
above.
Any employee, officer or director of or consultant to the Company who
purchased his or her shares prior to the Effective Date or who holds vested
options as of that date pursuant to a written compensatory plan or contract is
entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public-information, holding-period, volume-limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding-period restrictions, in each case commencing 90
days after the Effective Date. However, the Company and certain officers,
directors and other stockholders of the Company have agreed not to sell or
otherwise dispose of any shares of Common Stock of the Company for the 180-day
period after the date of this Prospectus without the prior written consent of
the U.S. Underwriters and the International Underwriters. See "Underwriting."
Approximately 90 days after the Effective Date, the Company intends to file
a registration statement on Form S-8 under the Securities Act to register shares
of Common Stock reserved for issuance under the 1995 Flexible Stock Incentive
Plan, the 1997 Stock Incentive Plan, and the 1997 Employee Stock Purchase Plan,
thus permitting the resale of such shares by non-affiliates in the public market
without restriction under the Securities Act. Such registration statements will
become effective immediately upon filing.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Morrison & Foerster LLP, Palo Alto, California. A partner at Morrison
& Foerster LLP owns 50,000 shares of Common Stock of the Company. Certain U.S.
legal matters in connection with the offerings will be passed upon for the U.S.
Underwriters and the International Underwriters by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated balance sheets of BEA Systems, Inc. as of January 31, 1996
and October 31, 1996, and the consolidated statements of operations, redeemable,
convertible preferred stock and stockholders' equity (deficit) and cash flows
for the year ended January 31, 1996 and for the nine
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<PAGE>
months ended October 31, 1996, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The balance sheets of Information Management Company as of December 31, 1994
and September 29, 1995, and the statements of operations and retained earnings
(deficit) and cash flows for the year ended December 31, 1994 and for the nine
months ended September 29, 1995, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The statements of operations and cash flows of Independent Technologies,
Inc. for the period from January 1, 1995 to November 1, 1995, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
The statements of revenues and direct salaries and benefits expenses for
domestic TUXEDO employees of the TUXEDO Systems Group of Novell, Inc., for the
year ended October 28, 1995 and the four months ended February 24, 1996,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The consolidated balance sheet of USL Finance S.A. as of May 5, 1996, and
the consolidated statements of operations, shareholders' equity and cash flows
for the period from November 1, 1995 to May 5, 1996, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young Audit,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form SB-2
under the Securities Act of 1933, as amended, with respect to the Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
Certain items are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed 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, and, in each instance, if such contract or
document is filed as an exhibit, reference is made to the copy of such contract
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference to such exhibit. The
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at the North Western Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, NY 10048, and copies of all or any part
thereof may be obtained from such office after payment of fees prescribed by the
Commission. The Commission maintains a web site at http://www.sec.gov that
contains, reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
BEA SYSTEMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS--YEAR ENDED JANUARY 31, 1996 AND NINE MONTHS ENDED
OCTOBER 31, 1996
Report of Ernst & Young LLP, Independent Auditors.................................... F-2
Consolidated Balance Sheets........................................................ F-3
Consolidated Statements of Operations.............................................. F-4
Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit)................................................... F-5
Consolidated Statements of Cash Flows.............................................. F-6
Notes to Consolidated Financial Statements......................................... F-7
INFORMATION MANAGEMENT COMPANY
FINANCIAL STATEMENTS--YEAR ENDED DECEMBER 31, 1994 AND NINE MONTHS ENDED SEPTEMBER
29, 1995
Report of Ernst & Young LLP, Independent Auditors.................................... F-24
Balance Sheets..................................................................... F-25
Statements of Operations and Retained Earnings (Deficit)........................... F-26
Statements of Cash Flows........................................................... F-27
Notes to Financial Statements...................................................... F-28
INDEPENDENCE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS AND CASH FLOWS--FOR THE PERIOD FROM JANUARY 1, 1995 TO
NOVEMBER 1, 1995
Report of Ernst & Young LLP, Independent Auditors.................................... F-32
Statement of Operations............................................................ F-33
Statement of Cash Flows............................................................ F-34
Notes to Statements of Operations and Cash Flows................................... F-35
TUXEDO SYSTEMS GROUP OF NOVELL, INC.
STATEMENTS OF REVENUES AND DIRECT SALARIES AND BENEFITS EXPENSES FOR DOMESTIC TUXEDO
EMPLOYEES--YEAR ENDED OCTOBER 28, 1995 AND FOUR MONTHS ENDED FEBRUARY 24, 1996
Report of Ernst & Young LLP, Independent Auditors.................................... F-38
Statements of Revenues and Direct Salaries and Benefits Expenses for Domestic
TUXEDO Employees................................................................. F-39
Notes to Statements................................................................ F-40
USL FINANCE S.A.
CONSOLIDATED FINANCIAL STATEMENTS--FOR THE PERIOD FROM NOVEMBER 1, 1995 TO
MAY 5, 1996
Report of Ernst & Young Audit, Independent Auditors.................................. F-42
Consolidated Balance Sheet......................................................... F-43
Consolidated Statement of Operations............................................... F-44
Consolidated Statement of Shareholders' Equity..................................... F-45
Consolidated Statement of Cash Flows............................................... F-46
Notes to Consolidated Financial Statements......................................... F-47
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
BEA Systems, Inc.
We have audited the accompanying consolidated balance sheets of BEA Systems,
Inc. as of January 31, 1996 and October 31, 1996, and the related consolidated
statements of operations, redeemable convertible preferred stock and
stockholders' equity (deficit), and cash flows for the year ended January 31,
1996 and for the nine months ended October 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 consolidated financial position of BEA Systems,
Inc. at January 31, 1996 and October 31, 1996, and the results of its operations
and its cash flows for the year ended January 31, 1996 and for the nine months
ended October 31, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Jose, California
January 30, 1997
F-2
<PAGE>
BEA SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
(DEFICIT) AT
OCTOBER 31,
JANUARY 31, OCTOBER 31, 1996
1996 1996 (SEE NOTE 11)
----------- ----------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 4,549 $ 1,628
Accounts receivable, net of allowance for doubtful accounts of $400 at January
31, 1996 and $1,036 at October 31, 1996..................................... 3,725 19,838
Prepaid expenses and other current assets..................................... 752 1,368
----------- -----------
Total current assets............................................................ 9,026 22,834
----------- -----------
Property and equipment, net..................................................... 456 4,975
Acquired intangible assets, net................................................. 8,751 18,684
Note receivable from officer.................................................... 720 720
Other assets.................................................................... -- 1,250
----------- -----------
Total assets.................................................................... $ 18,953 $ 48,463
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Borrowings under line of credit............................................... $ -- $ 5,530
Accounts payable.............................................................. 772 3,223
Accrued payroll and related liabilities....................................... 800 3,955
Other accrued liabilities..................................................... 1,032 5,992
Accrued sales tax............................................................. 949 1,410
Royalties payable............................................................. 777 976
Deferred revenue.............................................................. 2,146 6,052
Current portion of notes payable and capital lease obligations................ 40 25,714
----------- -----------
Total current liabilities....................................................... 6,516 52,852
Notes payable and capital lease obligations..................................... 4,287 52,361
Commitments.....................................................................
Series B redeemable convertible preferred stock, $0.001 par value:
Authorized shares--20,000,000
Issued and outstanding shares--6,060,000 at January 31, 1996 and 16,347,800 at
October 31, 1996, respectively (none pro forma); liquidation preference of
$16,965 at October 31, 1996................................................. 6,112 16,965 $--
Stockholders' equity (deficit):
Series A preferred stock, $0.001 par value.................................... 11 17 --
Authorized shares--20,000,000
Issued and outstanding shares--11,100,000 at January 31, 1996 and 17,166,000
at October 31, 1996, respectively (none pro forma); liquidation preference
of $29,182 at October 31, 1996............................................
Common stock, $0.001 par value................................................ 8 10 47
Authorized shares--80,000,000
Issued and outstanding shares--8,274,000 at January 31, 1996 and 10,347,750
at October 31, 1996, respectively.........................................
Additional paid-in capital...................................................... 20,355 32,223 49,168
Notes receivable from stockholders.............................................. (544) (544) (544)
Deferred compensation........................................................... -- (906) (906)
Cumulative translation adjustment............................................... -- (1) (1)
Accumulated deficit............................................................. (17,792) (104,514) (104,514)
----------- ----------- ---------------
Stockholders' equity (deficit).................................................. 2,038 (73,715) $(56,750)
----------- ----------- ---------------
---------------
Total liabilities and stockholders' equity (deficit)............................ $ 18,953 $ 48,463
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
BEA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED --------------------------
JANUARY 31, OCTOBER 31, OCTOBER 31,
1996 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
License............................................................... $ 3,569 $ 524 $ 26,855
Service............................................................... 1,564 230 9,494
------------ ------------ ------------
Total revenues...................................................... 5,133 754 36,349
Cost of revenues:
License............................................................... 1,929 324 7,655
Service............................................................... 775 163 4,843
------------ ------------ ------------
Total cost of revenues.............................................. 2,704 487 12,498
------------ ------------ ------------
Gross margin............................................................ 2,429 267 23,851
Operating expenses:
Research and development.............................................. 3,244 531 12,781
Sales and marketing................................................... 2,572 973 20,814
General and administrative............................................ 3,058 796 9,019
Write-off of in-process research and development...................... 11,194 6,060 62,248
------------ ------------ ------------
Total operating expenses................................................ 20,068 8,360 104,862
------------ ------------ ------------
Income (loss) from operations........................................... (17,639) (8,093) (81,011)
Interest expense........................................................ 89 21 4,941
Other income (expense).................................................. 48 5 95
------------ ------------ ------------
Income (loss) before income taxes....................................... (17,680) (8,109) (85,857)
Provision for income taxes.............................................. 60 -- 300
------------ ------------ ------------
Net income (loss)....................................................... $ (17,740) $ (8,109) $ (86,157)
------------ ------------ ------------
------------ ------------ ------------
Pro forma net income (loss) per share................................... $ (0.58) $ (1.72)
------------ ------------
------------ ------------
Shares used in computing pro forma net income (loss) per share.......... 30,385 50,107
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
BEA SYSTEMS, INC.
CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
(DEFICIT)
YEAR ENDED JANUARY 31, 1996 AND NINE MONTHS ENDED OCTOBER 31, 1996
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
SERIES B ------------------------------------------------------------------
REDEEMABLE CONVERTIBLE
SERIES A
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------- ------------------ ------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
---------- ----------- ---------- ------ ---------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock...... -- $-- -- $-- 8,000,000 $ 8 $ 1,446 $ --
Exercise of stock options..... -- -- -- -- 100,000 -- 1 --
Issuance of preferred stock... -- -- 11,100,000 11 -- -- 18,859 --
Issuance of Series B
redeemable convertible
preferred stock.............. 6,060,000 6,060 -- -- -- -- -- --
Accretion of cumulative
dividends on Series B
redeemable convertible
preferred stock.............. -- 52 -- -- -- -- -- (52)
Issuance of common stock for
services..................... -- -- -- -- 174,000 -- 49 --
Net loss...................... -- -- -- -- -- -- -- (17,740)
---------- ----------- ---------- ------ ---------- ------ ---------- -----------
Balance at January 31, 1996... 6,060,000 6,112 11,100,000 11 8,274,000 8 20,355 (17,792)
Issuance of preferred stock... -- -- 6,066,000 6 -- -- 10,306 --
Issuance of common stock...... -- -- -- -- 2,000,000 2 568 --
Exercise of stock options..... -- -- -- -- 3,750 -- 1 --
Issuance of Series B
redeemable convertible
preferred stock.............. 10,287,800 10,288 -- -- -- -- -- --
Accretion of cumulative
dividends on Series B
redeemable convertible
preferred stock.............. -- 565 -- -- -- -- -- (565)
Issuance of common stock for
services..................... -- -- -- -- 70,000 -- 20 --
Deferred compensation related
to grant of stock options.... -- -- -- -- -- -- 973 --
Amortization of deferred
compensation................. -- -- -- -- -- -- -- --
Translation adjustment........ -- -- -- -- -- -- -- --
Net loss...................... -- -- -- -- -- -- -- (86,157)
---------- ----------- ---------- ------ ---------- ------ ---------- -----------
Balance at October 31, 1996... 16,347,800 $16,965 17,166,000 $17 10,347,750 $10 $32,223 $(104,514)
---------- ----------- ---------- ------ ---------- ------ ---------- -----------
---------- ----------- ---------- ------ ---------- ------ ---------- -----------
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------
NOTES TOTAL
RECEIVABLE CUMMULATIVE STOCKHOLDERS'
FROM DEFERRED TRANSLATION EQUITY
STOCKHOLDERS COMPENSATION ADJUSTMENT (DEFICIT)
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Issuance of common stock...... $(544) $-- --$ $ 910
Exercise of stock options..... -- -- -- 1
Issuance of preferred stock... -- -- -- 18,870
Issuance of Series B
redeemable convertible
preferred stock.............. -- -- -- --
Accretion of cumulative
dividends on Series B
redeemable convertible
preferred stock.............. -- -- -- (52)
Issuance of common stock for
services..................... -- -- -- 49
Net loss...................... -- -- -- (17,740)
------ ------ --- -------------
Balance at January 31, 1996... (544) -- -- 2,038
Issuance of preferred stock... -- -- -- 10,312
Issuance of common stock...... -- -- -- 570
Exercise of stock options..... -- -- -- 1
Issuance of Series B
redeemable convertible
preferred stock.............. -- -- -- --
Accretion of cumulative
dividends on Series B
redeemable convertible
preferred stock.............. -- -- -- (565)
Issuance of common stock for
services..................... -- -- -- 20
Deferred compensation related
to grant of stock options.... -- (973) -- --
Amortization of deferred
compensation................. -- 67 -- 67
Translation adjustment........ -- -- (1) (1)
Net loss...................... -- -- -- (86,157)
------ ------ --- -------------
Balance at October 31, 1996... $(544) $(906) $(1) $ (73,715)
------ ------ --- -------------
------ ------ --- -------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
BEA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM INCORPORATION
(JANUARY 20, 1995) TO NINE MONTHS
-------------------------- ENDED
JANUARY 31, OCTOBER 31, OCTOBER 31,
1996 1995 1996
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................................... $ (17,740) $ (8,109) $ (86,157)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization........................................ 39 12 1,226
Amortization of deferred compensation................................ -- -- 67
Amortization of intangible assets acquired and write-off of
in-process research and development................................ 12,302 6,223 67,689
Issuance of note for compensation.................................... 1,429 -- --
Issuance of common stock for services................................ 49 -- 20
Changes in assets and liabilities:
Interest accrued................................................... 89 -- 254
Accounts receivable................................................ (1,510) (329) (9,526)
Prepaid expenses and other current assets.......................... (576) (44) 375
Note receivable from officer....................................... (720) -- --
Other assets....................................................... -- -- (1,250)
Accounts payable................................................... 772 329 1,976
Accrued payroll and related liabilities............................ 80 (232) 3,155
Other accrued liabilities.......................................... (4,261) (1,670) (867)
Accrued sales tax.................................................. 949 600 461
Royalties payable.................................................. 777 -- 199
Deferred revenue................................................... 2,146 349 3,093
------------ ------------ -------------
Net cash used in operating activities.................................. (6,175) (2,871) (19,285)
------------ ------------ -------------
INVESTING ACTIVITIES
Acquisition of property and equipment.................................. (67) (105) (3,200)
Acquisition of businesses, net of cash acquired........................ (15,050) (8,140) (2,348)
------------ ------------ -------------
Net cash provided by (used in) investing activities.................... (15,117) (8,245) (5,548)
------------ ------------ -------------
FINANCING ACTIVITIES
Borrowings under line of credit........................................ -- -- 5,530
Repayment of principal on notes payable and capital lease
obligations........................................................... -- -- (4,788)
Proceeds from issuance of common and preferred stock................... 25,841 21,340 21,171
------------ ------------ -------------
Net cash provided by financing activities.............................. 25,841 21,340 21,913
------------ ------------ -------------
Net increase (decrease) in cash and cash equivalents................... 4,549 10,224 (2,920)
Cumulative translation adjustment...................................... -- -- (1)
Cash and cash equivalents at beginning of period....................... -- -- 4,549
------------ ------------ -------------
Cash and cash equivalents at end of period............................. $ 4,549 $ 10,224 $ 1,628
------------ ------------ -------------
------------ ------------ -------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest............................... $ -- $ -- $ 4,325
------------ ------------ -------------
------------ ------------ -------------
Incurrence of capital lease obligations related to acquisition of
equipment............................................................. $ -- $ -- $ 981
------------ ------------ -------------
------------ ------------ -------------
Notes issued to acquire businesses..................................... $ 4,262 $ -- $ 77,301
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE PERIOD FROM INCORPORATION TO OCTOBER 31, 1995 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
BEA Systems, Inc. (the "Company" or "BEA"), a Delaware corporation, was
incorporated on January 20, 1995. The Company designs, develops, markets, and
supports the BEA Enterprise Transaction Framework, an integrated middleware
software platform for building, deploying, and managing distributed
mission-critical computer software applications. In addition to its software
products, the Company provides customer solutions through a range of
professional services offerings.
BASIS OF PRESENTATION
On September 30, 1995, the Company acquired all of the shares of Information
Management Company ("IMC") for approximately $12,551,000. The transaction was
recorded using the purchase method of accounting. Accordingly, a new basis of
accounting was established based on the purchase price. See Note 2.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All intercompany transactions and
balances have been eliminated. Operations of businesses acquired and accounted
for as a purchase are consolidated as of the date of acquisition. The Company
had no operating activity from inception through January 31, 1995. Accordingly,
operating results for the year ending January 31, 1996 reflect the period from
incorporation (January 20, 1995) to January 31, 1996.
The Company has incurred operating losses to date and incurred a net loss of
approximately $86.2 million for the nine months ended October 31, 1996. At
October 31, 1996, the Company had a stockholders' deficit of approximately $73.7
million and current liabilities exceeded current assets by approximately $30.0
million. The majority shareholder of the Company has guaranteed certain payment
obligations of the Company as discussed in Note 6. In addition, in January 1997,
the Company received a $10,000,000 unsecured line of credit from its majority
shareholder. The Company anticipates additional equity funding will be needed to
finance expected operations in the fiscal year ending January 31, 1998 and for
existing obligations. If such additional equity funding is not available,
management believes, based on anticipated operations, that available resources
combined with the majority shareholder line of credit and debt guaranty will
provide sufficient resources to enable the Company to meet its obligations
through at least January 31, 1998. If anticipated operations are not achieved,
management has the intent and believes it has the ability to delay or reduce
expenditures so as not to require additional financial resources if such
resources were not available.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of 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.
CONCENTRATION OF CREDIT RISK
The Company sells its products to customers, typically large corporations,
in a variety of industries in North America, Europe, and Asia/Pacific. The
Company performs ongoing credit evaluations of its
F-7
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM INCORPORATION TO OCTOBER 31, 1995 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
customers and generally does not require collateral. The Company maintains
reserves for estimated credit losses and such losses have been within
management's expectations.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's foreign subsidiaries is the local
currency of the respective subsidiary. The Company translates the assets and
liabilities, revenues and expense of its foreign subsidiaries to U.S. dollars at
the rates of exchange in effect at the beginning of the period. Gains and losses
from currency translation are included in stockholders' equity. Currency
transaction gains or losses are recognized in current operations and have not
been significant to the Company's operating results in any period.
INTERIM FINANCIAL INFORMATION
The consolidated statements of operations and cash flows for the period from
incorporation to October 31, 1995 are unaudited but include all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of its operating results and cash flows for
the period. Results for the interim periods are not necessarily indicative of
results for the entire year.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and highly liquid investments with
insignificant interest rate risk and maturities of three months or less at the
date of purchase.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives ranging from three to
five years. Assets under capital leases and leasehold improvements are amortized
over the shorter of the asset life or the remaining lease term. The related
amortization expense is included in depreciation expense.
INTANGIBLE ASSETS
Intangible assets consist of developed technology, distribution rights,
trademarks and tradenames and goodwill related to acquisitions accounted for by
the purchase method. See Note 2. Amortization of these purchased intangibles is
provided on the straight-line basis over the respective useful lives of the
assets ranging from thirty months for developed technology and distribution
rights to sixty months for trademarks and tradenames and goodwill. Acquired
in-process research and development without alternative future use is expensed
as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts discussed below have been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting market
data to develop the estimates of fair value. Accordingly, the
F-8
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM INCORPORATION TO OCTOBER 31, 1995 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
estimates presented herein are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
The Company maintains its cash and cash equivalents principally with major
banks. At January 31, 1996 and October 31, 1996, the Company had $4.0 million
and $19,000, respectively, of cash and cash equivalents invested in money market
mutual funds which invest in various short-term corporate debt instruments and
U.S. Treasury bills. As such, the carrying value of these investments by the
Company approximate their market value, and therefore, no unrealized gains or
losses exist at this date.
At October 31, 1996, the carrying value of notes receivable from
stockholders approximates their fair value. The fair values of notes receivable
from stockholders are estimated using discounted cash flow analyses, based on
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality.
The fair value of short-term and long-term debt is estimated based on
current interest rates available to the Company for debt instruments with
similar terms, the degree of risk, and remaining maturities. The carrying values
of the loans approximate their respective fair values.
PRODUCT CONCENTRATION
The Company currently derives the majority of its revenue from the licensing
of products in its BEA TUXEDO product line and fees from related services. These
products and services are expected to continue to account for the majority of
the Company's revenue for the foreseeable future. Furthermore, under the terms
of its agreement with Novell, the Company is obligated to make certain payments
to Novell through January 1999 as discussed in Note 6 to acquire perpetual
rights to the TUXEDO product. Failure by the Company for any reason to make
these payments could terminate the Company's continuing rights to BEA TUXEDO.
Consequently, a reduction in demand for, or an increase in competition on these
products, or a decline in sales of such products, would adversely affect
operating results.
REVENUE RECOGNITION
The Company recognizes revenues in accordance with American Institute of
Certified Public Accountants Statement of Position 91-1, SOFTWARE REVENUE
RECOGNITION. Revenues from software license agreements are recognized at the
time of product shipment, provided there are no vendor obligations remaining to
be fulfilled and collectibility is probable. Ongoing License royalties are
recognized on an as-reported basis by the Company's licensees.
Service revenues include consulting services, post-contract customer support
and training. Consulting revenues and the related cost of these revenues are
generally recognized on a time and materials basis; however, revenue from
certain fixed price contracts are recognized on the percentage of completion
basis, which involves the use of estimates. Actual results could differ from
those estimates and, as a result, future profitability on such contracts may be
more or less than planned. The amount of consulting contracts recognized on a
percentage of completion basis has not been material to date. Post-contract
customer support revenues are recognized ratably over the term of the support
period (generally one year), and training and other service revenues are
recognized as the related services are
F-9
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM INCORPORATION TO OCTOBER 31, 1995 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
provided. The unrecognized portion of amounts paid in advance for licenses and
services is reported as deferred revenues.
RESEARCH AND DEVELOPMENT
Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, requires
the capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon the
completion of a working model. Costs incurred by the Company between the
completion of the working model and the point at which the product is ready for
general release have been insignificant. Accordingly, the Company has charged
all such costs to research and development expense in the period incurred.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("FAS 123") that also is
effective for the Company's 1996 fiscal year. FAS 123 allows companies that have
stock-based compensation arrangements with employees to adopt a new fair-value
basis of accounting for stock options and other equity instruments, or to
continue to apply the existing accounting rules under APB Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), but with additional
financial statement disclosure. The Company has continued to account for
stock-based compensation arrangements under APB 25; therefore, FAS 123 did not
have a material impact on its financial position, results of operations or cash
flows.
NET LOSS PER SHARE
Except as noted below, historical net loss per share is computed using the
weighted average number of common shares outstanding. Common equivalent shares
from common stock options and convertible preferred stock are excluded from the
computation as their effect is antidilutive, except that, pursuant to the
Securities and Exchange Commission ("SEC") Staff Accounting Bulletins, common
and common equivalent shares issued during the period commencing twelve months
prior to the initial filing of a proposed public offering at prices below the
assumed public offering price have been included in the calculation as if they
were outstanding for all periods presented (using the treasury stock method at
an assumed offering price per share for stock options and the if-converted
method for preferred stock). Per share information calculated on the above noted
basis is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED ------------------------
JANUARY 31, OCTOBER 31, OCTOBER 31,
1996 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Net loss per share....................................... $(0.76) $(0.37 ) $(3.11 )
----------- ----------- -----------
Shares used in calculating net loss per share (in
thousands).............................................. 23,418 22,214 27,907
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-10
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM INCORPORATION TO OCTOBER 31, 1995 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Pro forma net loss per share has been computed as described above and also
gives effect, pursuant to SEC policy, to common equivalent shares from
convertible preferred stock issued more than twelve months from the proposed
initial public offering that will automatically convert upon completion of the
Company's initial public offering (using the if-converted method) from the
original date of issuance.
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS
ACQUISITION OF INFORMATION MANAGEMENT COMPANY
On September 30, 1995, the Company acquired 100% of the outstanding shares
of Information Management Company ("IMC"). The aggregate purchase price
(including direct acquisition costs) was approximately $12,551,000 and consisted
of cash, assumption of certain liabilities and issuance of notes payable to the
founders of IMC. The Company has accounted for the acquisition using the
purchase method, and the results of operations of IMC are included in the
Company's operations since acquisition.
The following is a summary of the purchase price allocation (IN THOUSANDS):
<TABLE>
<S> <C>
Current assets and other tangible assets.......................... $ 1,438
Acquired in-process research and development...................... 5,200
Developed technology.............................................. 4,780
Trademarks and tradenames......................................... 200
Goodwill.......................................................... 933
---------
$ 12,551
---------
---------
</TABLE>
ACQUISITION OF INFORMATION TECHNOLOGIES, INC.
On November 2, 1995, the Company acquired 100% of the outstanding shares of
Independence Technologies, Inc. ("ITI"). The aggregate purchase price (including
direct acquisition costs) was approximately $10,761,000 and consisted of cash
and assumption of certain liabilities. The Company has accounted for the
acquisition using the purchase method, and the results of operations of ITI are
included in the Company's operations since acquisition.
The following is a summary of the purchase price allocation (IN THOUSANDS):
<TABLE>
<S> <C>
Current assets and other tangible assets.......................... $ 1,681
Acquired in-process research and development...................... 5,134
Developed technology.............................................. 3,946
---------
$ 10,761
---------
---------
</TABLE>
ACQUISITION OF TUXEDO PRODUCT LINE
On February 23, 1996, the Company entered into a license agreement with
Novell, Inc. ("Novell") and acquired exclusive rights to distribute and make
enhancements to Novell's TUXEDO product on UNIX, Windows NT, and all non-NetWare
platforms. In addition, the Company has assumed Novell's
F-11
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM INCORPORATION TO OCTOBER 31, 1995 IS UNAUDITED)
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
obligations and rights under all contracts with TUXEDO partners, distributors
and customers, and has exclusive rights to the TUXEDO trademark. The aggregate
purchase price (including direct acquisition costs) was approximately
$78,202,000 and consists primarily of a note payable to Novell with fixed
payment terms. See Note 6.
The following is a summary of the purchase price allocation (IN THOUSANDS):
<TABLE>
<S> <C>
Receivables and other tangible assets............................. $ 4,270
Acquired in-process research and development...................... 60,948
Developed technology.............................................. 9,825
Trademarks and tradenames......................................... 3,159
---------
$ 78,202
---------
---------
</TABLE>
ACQUISITION OF USL FINANCE, S.A., A FRENCH CORPORATION
On May 5, 1996, the Company acquired 100% of the outstanding shares of USL
Finance, S.A. ("USL"), a distributor of BEA TUXEDO in France. The aggregate
purchase price (including direct acquisition costs) was approximately $8,732,000
and consisted of cash and assumption of certain liabilities. The Company has
accounted for the acquisition using the purchase method, and the results of
operations of USL are included in the Company's operations since acquisition.
The following is a summary of the purchase price allocation (IN THOUSANDS):
<TABLE>
<S> <C>
Current assets and other tangible assets........................... $ 6,060
Distribution rights................................................ 2,672
---------
$ 8,732
---------
---------
</TABLE>
ACQUISITION OF CLIENT SERVER TECHNOLOGIES, OY, A FINNISH CORPORATION
On June 12, 1996, the Company acquired 100% of the outstanding shares in
Client Server Technologies, OY ("CST"), a distributor of BEA TUXEDO in Finland.
The aggregate purchase price (including direct acquisition costs) was
approximately $3,230,000 and consisted of cash and assumption of certain
liabilities. The Company has accounted for the acquisition using the purchase
method, and the results of operations of CST are included in the Company's
operations since acquisition.
The following is a summary of the purchase price allocation (IN THOUSANDS):
<TABLE>
<S> <C>
Current assets and other tangible assets........................... $ 1,483
In-process research and development................................ 1,300
Distribution rights................................................ 389
Trademarks and tradenames.......................................... 58
---------
$ 3,230
---------
---------
</TABLE>
F-12
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM INCORPORATION TO OCTOBER 31, 1995 IS UNAUDITED)
2. BUSINESS COMBINATIONS AND TECHNOLOGY ACQUISITIONS (CONTINUED)
The following unaudited pro forma summary represents the consolidated
results of operations of the Company as if the acquisitions of IMC, ITI, TUXEDO,
USL France and CST had occurred at the beginning of the periods presented and
does not purport to be indicative of what would have occurred had the
acquisitions been made as of those dates or the results which may occur in the
future.
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED NINE MONTHS
JANUARY 31, ENDED OCTOBER
1996 31, 1996
------------ -------------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C>
Pro forma net revenues........................................... $ 33,561 $ 37,366
------------ -------------
------------ -------------
Pro forma net loss............................................... $ (6,232) $ (24,231)
------------ -------------
------------ -------------
Pro forma net loss per share..................................... $ (.21) $ (.48)
------------ -------------
------------ -------------
</TABLE>
The pro forma results include the historical operations of the Company and
the historical operations of the acquired businesses adjusted to reflect the
amortization of the excess purchase prices and an increase in interest expense
resulting from additional debt used to finance the acquisitions. The pro forma
results do not include the write-offs of in-process research and development
relating to the business acquisitions or an extraordinary gain relating to the
forgiveness of debt, which was recorded in the historical operations of IMC,
since they are considered material non-recurring charges. The pro forma results
do not include any adjustments for the Company's proposed initial public
offering or other management adjustments.
OTHER
On August 1, 1995, the Company purchased certain technology of VI Systems,
Inc. for $860,000 in cash. The entire purchase price has been charged to
acquired in-process research and development on the date of acquisition as
substantially all of the technology was to be incorporated in products under
development and had no alternative future use.
3. ACQUIRED INTANGIBLE ASSETS
Values assigned to acquired in-process research and development,
distribution rights, developed technology, and trademarks and tradenames were
generally determined by independent appraisals using discounted cash flow
analysis. To determine the value of the in-process research and development, the
Company considered, among other factors, the state of development of each
project, the time and cost needed to complete each project, expected income, and
associated risks which included the inherent difficulties and uncertainties in
completing the project and thereby achieving technological feasibility and risks
related to the viability of and potential changes to future target markets. This
analysis results in amounts assigned to in-process research and development
projects that had not yet reached technological feasibility (as defined and
utilized by the Company in assessing software capitalization) and does not have
alternative future uses. To determine the value of the distribution rights, the
Company considered, among other factors, the size of the current and potential
future customer base, quality of existing relationships with customers, the
expected income, and associated risks.
F-13
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM INCORPORATION TO OCTOBER 31, 1995 IS UNAUDITED)
3. ACQUIRED INTANGIBLE ASSETS (CONTINUED)
Associated risks included the inherent difficulties and uncertainties in
transitioning the business relationships from the acquired entity to the
Company, and risks related to the viability of and potential changes to future
target markets. To determine the value of the developed technology, the expected
future cash flows of each existing technology product were discounted taking
into account risks related to the characteristics and applications of each
product, existing and future markets, and assessments of the life cycle stage of
each product. Based on this analysis, the existing technology that had reached
technological feasibility was capitalized.
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1996 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Developed technology and distribution rights...................... $ 8,726 $ 21,612
Trademarks and tradenames......................................... 200 3,417
Goodwill.......................................................... 933 933
------------ ------------
9,859 25,962
Accumulated amortization.......................................... (1,108) (7,278)
------------ ------------
Acquired intangible assets, net................................... $ 8,751 $ 18,684
------------ ------------
------------ ------------
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (IN THOUSANDS):
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1996 1996
------------- ------------
<S> <C> <C>
Computer equipment................................................ $ 384 $ 2,354
Software.......................................................... 4 932
Furniture and fixtures............................................ 48 844
Vehicles and other................................................ 37 85
Leasehold improvements............................................ 22 1,044
Equipment under capital leases.................................... -- 981
----- ------------
495 6,240
Accumulated depreciation and amortization......................... (39) (1,265)
----- ------------
$ 456 $ 4,975
----- ------------
----- ------------
</TABLE>
There was no accumulated amortization on equipment under capital leases at
October 31, 1996 as such assets were added under the lease arrangement in
October, 1996.
5. OTHER ASSETS
Included in other assets at October 31, 1996 is $1,250,000 invested in bank
certificates of deposit (CDs) at interest rates ranging from 3.90% to 4.25%. The
CDs' support letters of credit that are required as a security deposits by
certain of the Company's facilities leases and other credit arrangements.
F-14
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM INCORPORATION TO OCTOBER 31, 1995 IS UNAUDITED)
6. LINE OF CREDIT, NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
LINE OF CREDIT
At October 31, 1996, the Company had borrowed $5.5 million pursuant to a
revolving line of credit with a commercial lender. The maximum credit available
is $10,000,000 and borrowing availability is based on a percentage of certain
accounts receivable. Additional borrowings available under the line totaled $1.0
million at October 31, 1996. The credit arrangement bears interest adjusted
monthly at the LIBOR plus 5.125% (10.39% in aggregate at October 31, 1996) and
is secured by substantially all assets of the Company. In addition, the loan
agreement prohibits the Company from paying dividends without the lender's
approval. The credit agreement has a maturity date of April, 1997 and shall
automatically renew thereafter for additional one-year terms unless the Company
or the lender elects to terminate the agreement. The credit arrangement was not
in place at January 31, 1996.
NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1996 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Subordinated notes payable to founders of IMC bearing interest at
8%. Principal and interest is payable upon the earlier of a
successfully completed public offering generating net proceeds
of at least $20,000,000 or September 2000. Accrued interest of
$89 and $343 is included at January 31, 1996 and October 31,
1996, respectively.............................................. $ 4,248 $ 4,502
Note payable to Novell with interest imputed at 8%. The note is
due in quarterly installments of various amounts totalling
$68,550,000, which are guaranteed by the majority shareholder of
the Company, with a final payment of $12,000,000 due in January
1999 upon the Company's exercise of an option to purchase
perpetual rights................................................ -- 72,461
Other notes payable, bearing interest ranging from 9%-12% per
annum, payable in installments through October 31, 1997......... 79 131
Capital lease obligations......................................... -- 981
------------ ------------
4,327 78,075
Less amounts due within one year.................................. (40) (25,714)
------------ ------------
Long-term debt and capital obligations due after one year......... $ 4,287 $ 52,361
------------ ------------
------------ ------------
</TABLE>
F-15
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM INCORPORATION TO OCTOBER 31, 1995 IS UNAUDITED)
6. LINE OF CREDIT, NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
Scheduled maturities of notes payable and capital lease obligations are as
follows:
<TABLE>
<CAPTION>
CAPITAL
NOTES LEASES
PAYABLE OBLIGATIONS
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Fiscal year ending January 31,
1997 (three months)...................................................................... $ 2,561 $ 95
1998..................................................................................... 27,338 365
1999..................................................................................... 42,693 365
2000..................................................................................... 4,502 439
--------- -----------
Total.................................................................................... $ 77,094 1,264
---------
---------
Less amount representing interest........................................................ (283)
-----------
Present value of net minimum lease payments.............................................. 981
Less current portion..................................................................... (253)
-----------
Noncurrent obligations under capital leases.............................................. $ 728
-----------
-----------
</TABLE>
The Company has available capital lease lines totaling $1,020,000 at October
31, 1996, which availability expires June 30, 1997.
7. NOTES RECEIVABLE FROM SHAREHOLDERS
In September 1995, the Company issued 3,050,000 shares of common stock to
certain officers in exchange for, in aggregate, cash of $325,000 and notes
receivable of $544,250. The notes bear interest at 7% compounded semi-annually
and are due upon the earlier of September 28, 2000 or on thirty days or one year
after termination, depending upon the circumstances of the termination.
In December 1995, the Company loaned $720,000 to an officer and founder of
the Company for the financing of real property. The note receivable, which is
secured by a deed of trust on the real property, bears interest at 7% per annum
and is due and payable on the earlier of January 1, 2001 or eight months
subsequent to the closing of an underwritten public offering of the Company's
common stock where the gross proceeds are $10,000,000 and the offering price is
at least $5 per share. The note may be repaid at any time prior to the due date.
F-16
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM INCORPORATION TO OCTOBER 31, 1995 IS UNAUDITED)
8. LEASE COMMITMENTS
The Company leases its facilities under operating lease arrangements.
Certain of the leases provide for certain specified annual rent increases.
Approximate annual minimum lease commitments are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASE
OBLIGATIONS
---------------
(IN THOUSANDS)
<S> <C>
Fiscal year ending January 31,
1997 (three months).......................................................... $ 791
1998......................................................................... 2,808
1999......................................................................... 2,573
2000......................................................................... 2,446
2001......................................................................... 1,605
Thereafter................................................................... 9,906
---------------
Total minimum lease payments................................................. $ 20,129
---------------
---------------
</TABLE>
Total rental expense charged to operations for the periods from
incorporation to January 31, 1996 and October 31, 1995 and for the nine months
ended October 31, 1996 was approximately $184,000, $75,000, and $2.2 million,
respectively.
9. INCOME TAXES
The provisions for income taxes of $60,000 and $300,000 for the periods
ended January 31 and October 31, 1996, respectively, represent foreign
withholding taxes for which no U.S. tax benefit is currently recognizable.
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rate (34%) to income tax expense is
as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1996 1996
------------ ------------
<S> <C> <C>
Tax at U.S. statutory rate........................................ $ (6,011) $ (29,192)
Nondeductible amortization of intangibles......................... 1,770 11,478
Valuation Allowance............................................... 4,241 17,714
Foreign withholding taxes......................................... 60 300
------------ ------------
60 300
------------ ------------
------------ ------------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax
F-17
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM INCORPORATION TO OCTOBER 31, 1995 IS UNAUDITED)
9. INCOME TAXES (CONTINUED)
purposes. Significant components of the Company's deferred tax assets for
federal and state income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1996 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................................ $ 1,545 $ 7,476
Deferred revenue................................................ 468 562
Accruals and reserves........................................... 580 368
Property and equipment and intangibles.......................... 2,549 18,727
------------ ------------
Total deferred tax assets................................... 5,142 27,133
Valuation allowance............................................... (5,142) (27,133)
------------ ------------
Net deferred tax assets........................................... $ -- $ --
------------ ------------
------------ ------------
</TABLE>
Realization of deferred tax assets is dependent on future earnings, the
timing and amount of which are uncertain. Accordingly, a valuation allowance, in
an amount equal to the net deferred tax assets at January 31 and October 31,
1996, has been established to reflect these uncertainties. The valuation
allowance increased by $21,991,000 in the period ended October 31, 1996.
As of January 31 and October 31, 1996, the Company had net operating loss
carryforwards for federal tax purposes of approximately $4,100,000 and
$20,000,000, respectively, that will expire from 2010 through 2011. The Company
also has state net operating loss carryforwards at January 31 and October 31,
1996 of approximately $2,300,000 and $9,600,000, respectively, expiring from
2000 through 2001. Utilization of net operating loss carryforwards may be
subject to substantial limitations due to the ownership change and other
limitations provided by the Internal Revenue Code and similar state provisions.
These limitations may result in the expiration of net operating loss
carryforwards before full utilization.
10. SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK
Holders of Series B Redeemable Convertible Preferred Stock (the "Series B
Stock") are entitled to annual dividends, when and if declared by the Board of
Directors, of $0.07 per share, payable prior and in preference to any
declaration or payment of any dividend on the Series A Convertible Preferred
Stock (the "Series A Stock") and the Common Stock. The right to receive such
dividends are cumulative and will accrue to the extent that such dividends are
not declared or paid in any year. No dividends have been declared or paid by the
Company on the Series B Stock. Total accumulated dividends on the Series B Stock
were approximately $617,200 at October 31, 1996.
In the event of liquidation of the Company, holders of Series B Stock are
entitled to receive a liquidation preference of $1.00 per share, plus all
accumulated but unpaid dividends, prior and in preference to any payments made
to holders of Series A Stock and common stock. The Series B Stock carries no
voting rights.
Each share of Series B Stock is convertible, at the option of the holder,
into that number of shares of common stock obtained by dividing the amount
payable to such holder in the event of liquidation by the
F-18
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM INCORPORATION TO OCTOBER 31, 1995 IS UNAUDITED)
10. SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
fair value of the Company's common stock, as determined by the Board of
Directors, or, in the event of a conversion in connection with an initial public
offering, by the per share initial public offering price, net of underwriting
commissions.
Each holder of Series B Stock has the right, exercisable at any time
following September 30, 2001, to require the Company to redeem all or a portion
of such holder's Series B Stock for $1.00 per share, plus accumulated and unpaid
dividends (the "Redemption Price"). However, upon the closing of an initial
public offering of the Company's common stock at an offering price of not less
than $5.00 per share and gross proceeds to the Company of at least $10,000,000,
each share of Series B Stock will be redeemed for the Redemption Price unless
converted, at the option of the holder, into shares of common stock of the
Company. Additionally, the Company may, at its option, redeem at any time any or
all of the outstanding shares of the Series B Stock at the Redemption Price.
11. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
Series A Stock holders are entitled to noncumulative annual dividends, when
and if declared by the Board of Directors, of $0.12 per share, payable in
preference to common stock dividends, but after all cumulative dividends payable
with respect to the Series B Stock have been declared and paid. No dividends
have been declared or paid by the Company on the Series A Stock.
In the event of liquidation of the Company, Series A Stock holders are
entitled to receive a liquidation preference of $1.70 per share, plus all
declared but unpaid dividends, after payment of the full liquidation preference
has been made on the Series B Stock prior and in preference to any payments made
to holders of common stock.
Each share of Series A Stock votes equally with shares of common stock on an
"if-converted" basis. Each share of Series A Stock is convertible at any time at
the option of the shareholder into two shares of common stock. The conversion
ratio is subject to upward adjustment upon the occurrence of certain events.
Upon conversion, all declared and unpaid dividends will be paid in cash. Each
share of Series A Stock automatically converts into common stock at the
then-effective conversion rate in the event of an underwritten initial public
offering of the Company's common stock at an offering price of not less than
$5.00 per share and gross proceeds to the Company of at least $10,000,000, or
upon the written consent of two-thirds of the then outstanding Series A Stock.
COMMON STOCK REPURCHASE RIGHTS
The Company has stock repurchase agreements with certain individuals
whereby, if the stockholder ceases to be a consultant or employee of the
Company, the Company has the right to repurchase the stock at the original
issuance price. Such repurchase rights generally lapse over four to five years
from the original date of issuance. Certain of the repurchase rights lapse upon
the successful completion of an initial public offering. Common stock subject to
repurchase totaled 6,057,231 shares with an aggregate repurchase price of
$7,836,000 as of October 31, 1996. Series A Stock subject to repurchase at
October 31, 1996 was 95,833 shares at an aggregate price of $163,000.
F-19
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM INCORPORATION TO OCTOBER 31, 1995 IS UNAUDITED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
At October 31, 1996, the Company had reserved shares of common stock for
future issuance as follows:
<TABLE>
<S> <C>
Conversion of Series A convertible preferred stock............. 34,332,000
1995 Stock Option Plan......................................... 9,252,250
</TABLE>
In addition, the Company has reserved sufficient shares of common stock for
the conversion of Series B redeemable convertible preferred stock.
STOCK OPTION PLAN
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123, requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recorded.
The fair value option valuation models were developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly speculative assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Pro forma information regarding net income and earnings per share is
required by FAS 123 which also requires that the information be determined as if
the Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that statement. The fair value
for these options was estimated at the date of grant using a minimum
value-pricing model with a risk free interest rate of 5.0% and no dividend
yields. The effect of applying the minimum value method to the stock option
activity did not result in pro forma net loss and loss per share that are
materially different from historical amounts reported. Therefore, such pro forma
information is not separately presented herein. Future pro forma net income or
loss and earnings or loss per share may be materially different from actual
amounts reported.
The Company's 1995 Flexible Stock Incentive Plan (the "Plan") provides for
the grant of incentive and nonstatutory stock options, as determined by the
Board of Directors. Options are generally granted at an exercise price of not
less than the fair value per share of the common stock on the date of grant. The
vesting and exercise provision are determined by the Board of Directors with a
maximum term of ten years. Options granted under the Plan are immediately
exercisable and generally vest over a four-year period with 25% vesting after
one year and 2.08% each month thereafter. Unvested shares are subject to
repurchase by the Company. There were 494,425 shares vested at October 31, 1996,
at an average exercise price of $0.285. At October 31, 1996, 2,909,250 shares of
common stock were reserved for future grants under the Plan. The Plan also
provides for the sale or bonus of common stock to eligible
F-20
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM INCORPORATION TO OCTOBER 31, 1995 IS UNAUDITED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
individuals in connection with the performance of services for the Company.
During the year ended January 31, 1996 and the nine months ended October 31,
1996, the Company issued under the Plan 174,000 and 70,000 shares of Common
Stock, respectively, as payment for services.
Information with respect to option activity in the Plan is summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS PRICE AVERAGE
OUTSTANDING PER SHARE PRICE
------------ -------------- -----------
<S> <C> <C> <C>
Balance at January 20, 1995............................................ -- $ --
Granted.............................................................. 2,344,200 $.01 - $.285 $ 0.273
Exercised............................................................ (100,000) $0.01 $ 0.010
------------
Balance at January 31, 1996............................................ 2,244,200 $ 0.285
Granted.............................................................. 4,086,550 $0.285 $ 0.285
186,750 $1.000 $ 1.000
235,500 $2.000 $ 2.000
Exercised............................................................ (3,750) $0.285 $ 0.285
Forfeited............................................................ (406,250) $0.285 $ 0.285
------------
Balance at October 31, 1996............................................ 6,343,000 $ 0.382
------------
------------
</TABLE>
The assumed weighted average contribution life of options at October 31,
1996 is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
- -------------------------------------
WEIGHTED
PRICE AVERAGE CONTRIBUTION
PER SHARE LIFE MONTHS
- ---------- -------------------------
<S> <C>
$0.285 48
$1.00 48
$2.00 48
</TABLE>
The Company has recorded deferred compensation of $973,000 for the
difference between the grant price and the deemed fair value of certain of the
Company's common stock options granted in the period ended October 31, 1996.
This amount is being amortized over the vesting period of the individual
options, generally four years. Compensation expense recognized in the period
ended October 31, 1996 totaled $67,000 and at October 31, 1996, deferred
compensation totaled $906,000.
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
Unaudited pro forma stockholders' equity at October 31, 1996 gives effect to
the conversion of all shares of Series A Stock into common stock upon the close
of the Company's initial public offering, as well as all shares of Series B
Stock, based on an assumed initial public offering price, as the holder has
indicated intent to convert such shares upon the close of the Company's initial
public offering.
F-21
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM INCORPORATION TO OCTOBER 31, 1995 IS UNAUDITED)
12. INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION
The Company operates in one industry segment (the development and marketing
of computer software and related services) and markets its products and services
internationally through subsidiaries in Europe and Asia, and through independent
distributors and resellers located worldwide. Export sales totaled $2.6 million
for the year ended January 31, 1996 and $3.2 million for the nine months ended
October 31, 1996. Transfers between geographic areas are accounted for at
estimated amounts which are generally above cost. Such transfers are eliminated
in the consolidated financial statements. Identifiable assets are those assets
that can be directly associated with a particular geographic area. The following
is a summary of operations within geographic areas.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JANUARY 31, 1996 OCTOBER 31, 1996
----------------- -----------------
<S> <C> <C>
Revenues from unaffiliated customers
United States................................................... $ 4,568 $ 25,201
Europe.......................................................... 565 10,655
Asia and other.................................................. -- 493
-------- --------
Total revenues................................................ $ 5,133 $ 36,349
-------- --------
-------- --------
Income (loss) from operations
United States................................................... $ (15,639) $ (77,916)
Europe.......................................................... (2,000) (1,620)
Asia and other.................................................. -- (1,475)
-------- --------
Total loss.................................................... $ (17,639) $ (81,011)
-------- --------
-------- --------
Identifiable assets
United States................................................... $ 18,953 $ 51,065
Europe.......................................................... -- 13,092
Asia and other.................................................. -- 894
Eliminations.................................................... -- (16,588)
-------- --------
Total identifiable assets..................................... $ 18,953 $ 48,463
-------- --------
-------- --------
</TABLE>
13. SUBSEQUENT EVENTS
In January 1997, the Board of Directors authorized management of the Company
to file a registration statement with the SEC, offering its common stock to the
public.
In January 1997, the Company's Board of Directors adopted, subject to
stockholder approval, the 1997 Stock Option Plan under which the Company is
authorized to grant up to 2,500,000 stock options with similar terms to the 1995
Flexible Stock Incentive Plan.
In addition, in January 1997, the Company's Board of Directors adopted,
subject to stockholder approval, the 1997 Employee Stock Purchase Plan under
which an aggregate of 1,250,000 shares of common stock will be reserved.
F-22
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD FROM INCORPORATION TO OCTOBER 31, 1995 IS UNAUDITED)
13. SUBSEQUENT EVENTS (CONTINUED)
In January 1997, the majority shareholder of the Company extended a $10
million unsecured line of credit to the Company, borrowing on which bears
interest of 8%. The line expires on the earlier of completion of an initial
public offering by the Company or July 15, 1998.
In December 1996, the Company acquired 100% of the outstanding stock of Bay
Technologies Pty Limited, a distributor of TUXEDO in Australia. The aggregate
purchase price totaled $1,000,000 in cash, and the Company is obligated to make
certain contingent payments in cash based on future revenues over the next three
years.
F-23
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Information Management Company
We have audited the accompanying balance sheets of Information Management
Company as of December 31, 1994 and September 29, 1995, and the related
statements of operations and retained earnings (deficit) and cash flows for the
year and nine months then ended, respectively. 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 Information Management
Company at December 31, 1994 and September 29, 1995, and the results of its
operations and its cash flows for the year and nine months then ended,
respectively, in conformity with generally accepted accounting principles.
Ernst & Young LLP
MetroPark, New Jersey
January 10, 1997
F-24
<PAGE>
INFORMATION MANAGEMENT COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 29,
1994 1995
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................................... $ 30,783 $ --
Accounts receivable, less allowance for doubtful accounts of $49,000 in 1994
and $200,000 in 1995......................................................... 1,255,269 1,334,324
Prepaid expenses and other current assets...................................... 13,419 47,414
-------------- --------------
Total current assets............................................................. 1,299,471 1,381,738
Property and equipment, net...................................................... 54,936 56,402
-------------- --------------
$ 1,354,407 $ 1,438,140
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Cash overdraft................................................................. $ -- $ 123,380
Line of credit................................................................. -- 522,123
Accounts payable............................................................... 37,223 259,071
Accrued compensation and related payroll liabilities........................... 213,804 107,656
Accrued royalties.............................................................. 310,102 154,545
Accrued sales taxes............................................................ 350,000 600,000
Other accrued liabilities...................................................... 55,676 112,298
Deferred revenue............................................................... 334,126 505,133
-------------- --------------
Total current liabilities........................................................ 1,300,931 2,384,206
Commitments
Stockholders' equity (deficit):
Common stock, no par value, 1,500 shares authorized, issued and outstanding.... 200 200
Retained earnings (deficit).................................................... 53,276 (946,266)
-------------- --------------
Total stockholders' equity (deficit)............................................. 53,476 (946,066)
-------------- --------------
$ 1,354,407 $ 1,438,140
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
F-25
<PAGE>
INFORMATION MANAGEMENT COMPANY
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 29,
1994 1995
-------------- --------------
<S> <C> <C>
Revenues:
License........................................................................ $ 4,365,735 $ 2,753,789
Service........................................................................ 1,069,221 1,858,759
-------------- --------------
Total revenues................................................................... 5,434,956 4,612,548
Cost of revenues:
License........................................................................ 1,623,565 734,233
Service........................................................................ 887,296 1,407,760
-------------- --------------
Total cost of revenues........................................................... 2,510,861 2,141,993
-------------- --------------
Gross profit..................................................................... 2,924,095 2,470,555
Operating expenses:
Research and development....................................................... 111,504 726,615
Sales and marketing............................................................ 1,513,185 1,223,783
General and administrative..................................................... 996,411 1,505,275
-------------- --------------
Total operating expenses......................................................... 2,621,100 3,455,673
-------------- --------------
Income (loss) from operations.................................................... 302,995 (985,118)
Interest expense................................................................. 22,634 12,543
Other expense.................................................................... 691 1,881
-------------- --------------
Net income (loss)................................................................ 279,670 (999,542)
Retained earnings (deficit) at beginning of period............................... (226,394) 53,276
-------------- --------------
Retained earnings (deficit) at end of period..................................... $ 53,276 $ (946,266)
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
F-26
<PAGE>
INFORMATION MANAGEMENT COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 29,
1994 1995
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................................................ $ 279,670 $ (999,542)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization.................................................. 768 44,746
Changes in assets and liabilities:
Accounts receivable, net..................................................... (1,014,717) (79,055)
Prepaid expenses and other current assets.................................... 14,325 (33,995)
Accounts payable and accrued expenses........................................ 26,927 172,322
Deferred revenue............................................................. 250,276 171,007
Royalties payable............................................................ 310,102 (155,557)
Sales taxes payable.......................................................... 350,000 250,000
-------------- --------------
Net cash provided by (used in) operating activities.............................. 217,351 (630,074)
INVESTING ACTIVITIES
Purchases of property and equipment.............................................. (47,362) (46,212)
-------------- --------------
Net cash used in investing activities............................................ (47,362) (46,212)
-------------- --------------
FINANCING ACTIVITIES
Borrowing under line of credit................................................... 1,341,627 1,646,015
Payments on line of credit....................................................... (1,481,949) (1,123,892)
Cash overdraft................................................................... 123,380
-------------- --------------
Net cash (used in) provided by financing activities.............................. (140,322) 645,503
-------------- --------------
Net increase (decrease) in cash and cash equivalents............................. 29,667 (30,783)
Cash and cash equivalents at beginning of period................................. 1,116 30,783
-------------- --------------
Cash and cash equivalents at end of period....................................... $ 30,783 $ --
-------------- --------------
-------------- --------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest......................................... $ 22,634 $ 12,543
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
F-27
<PAGE>
INFORMATION MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 29, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Information Management Company (the "Company") was incorporated in the state
of Delaware in July 1990 and is located in Liberty Corner, New Jersey. The
Company is engaged in providing standards-based, enterprise-wide client/server
products and services.
Effective September 30, 1995, the Company was purchased by BEA Systems, Inc.
("BEA"); (see Note 7). The accompanying financial statements have been prepared
on the Company's historical cost basis, and do not reflect any adjustments
resulting from the acquisition.
REVENUE RECOGNITION
Revenues from end user software license agreements are recognized at the
time of product shipment, provided there are no vendor obligations remaining to
be fulfilled and collectibility is probable. License fees from resellers are
also recognized as revenue when the software has been shipped, provided that no
significant vendor obligations remain to be fulfilled, certain customer criteria
established by the Company have been met, and the fees are payable within twelve
months.
Services revenues include consulting services, post-contract customer
support, and training. Consulting revenues and the related cost of these
revenues are recognized on a time and materials basis. Support revenues are
recognized pro rata over the term of the service period and training or other
revenues are recognized as the related services are provided. The unrecognized
portion of amounts billed or paid in advance for such services is reported as
deferred revenues.
CASH EQUIVALENTS
The Company considers all highly liquid short-term investments with original
maturities of 90 days or less when purchased to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company sells its products to customers, typically large corporations,
in a variety of industries, primarily in North America. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral. The Company maintains reserves for potential credit losses and such
losses have been within management's expectations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed using the double-declining balance method.
The estimated useful lives used in computing depreciation are as follows:
<TABLE>
<S> <C>
Machinery and equipment.................................. 3-5 years
Furniture and fixtures................................... 7 years
Leasehold improvements................................... 10 years
Vehicles................................................. 5 years
</TABLE>
F-28
<PAGE>
INFORMATION MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 29, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company has elected, with the consent of its shareholders, to be treated
as an S Corporation under the Internal Revenue Code. The shareholder of an S
Corporation includes the Company's income in its own income for income tax
purposes. Accordingly, no federal income taxes are provided for in the
accompanying financial statements. Effective January 1, 1995, the Company has
also elected S Corporation status under the applicable sections of the New
Jersey income tax laws.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RESEARCH AND DEVELOPMENT
Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
requires the capitalization of certain software development costs subsequent to
the establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon the
completion of a working model. Costs incurred by the Company between the
completion of the working model and the point at which the product is ready for
general release have been insignificant. Accordingly, the Company has charged
all such costs to research and development expenses in the accompanying
statements of operations.
PRODUCT CONCENTRATION
The Company derives the majority of its revenue from the licensing of
products in the TUXEDO product line, to which the Company has certain
distribution rights from Novell Inc. ("Novell"), and fees from related services.
These products and services are expected to continue to account for a majority
of the Company's revenue for the foreseeable future. Consequently, a reduction
in demand or an increase in competition for these products due to market factors
or a decline in sales of such products would affect operating results adversely.
During the year ended December 31, 1994 and the nine months ended September
29, 1995, the amount of royalties due to Novell totalled $982,500 and $687,440,
respectively, and are included in cost of sales in the accompanying statements
of operations.
F-29
<PAGE>
INFORMATION MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 29, 1995
2. TRANSACTIONS WITH SIGNIFICANT CUSTOMERS
Customers that comprise greater than 10% of the Company's total revenues in
the periods presented are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 29,
1994 1995
----------------- -----------------
<S> <C> <C>
Customer A................................................ 22% 10%
Customer B................................................ 15% --
Customer C................................................ -- 12%
</TABLE>
Revenues generated from these customers were less than 10% of total revenue
in the periods where percentages are not shown.
3. PROPERTY AND EQUIPMENT
The components of property and equipment at December 31, 1994 and September
29, 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Machinery and equipment.............................................. $ 60,012 $ 82,558
Furniture and fixtures............................................... 14,486 18,685
Leasehold improvements............................................... 9,112 21,578
Vehicles............................................................. 1,060 8,061
--------- -----------
84,670 130,882
Less accumulated depreciation and amortization....................... 29,734 74,480
--------- -----------
$ 54,936 $ 56,402
--------- -----------
--------- -----------
</TABLE>
4. LINE OF CREDIT
In March 1995, the Company entered into an accounts receivable revolving
loan facility with a bank with availability up to $750,000 and renewable
annually. Borrowings are limited to the borrowing base (as defined); however,
the full amount of the facility was available to the Company at September 29,
1995. Advances bear interest at 1.5% above the bank's floating base rate (8% at
September 29, 1995), and the Company is required to pay a fee for the unused
portion equal to .5%, payable quarterly and calculated monthly. Borrowings under
the facility is secured by substantially all assets of the Company and is
personally guaranteed by the principal stockholders.
Management estimates that the carrying value of the revolving loan facility
approximates its fair value.
During 1994, the Company maintained a line of credit with another bank in
the amount of $350,000. This line was increased to $550,000 in January 1995
before it was replaced with the facility discussed above.
F-30
<PAGE>
INFORMATION MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 29, 1995
5. LEASES
The Company leases its operating facility, certain equipment and vehicles
under noncancellable operating leases that expire in 1997. The leases provide
for all real estate taxes and operating expenses to be paid by the Company.
Under the lease of the operating facility, the Company has the option to renew
for additional terms at specified rentals. Minimum future rental payments under
such leases as of September 29, 1995 are as follows:
<TABLE>
<S> <C>
Three months ending December 31, 1995.................... $ 79,851
Year ending December 31, 1996............................ 308,779
Year ending December 31, 1997............................ 178,396
---------
Total minimum future rental payments..................... $ 567,026
---------
---------
</TABLE>
Total rent expense charged to operations was $107,600 and $184,221, during
the year ended December 31, 1994 and the nine months ended September 29, 1995,
respectively.
6. GENERAL AND ADMINISTRATIVE EXPENSES
During the nine months ended September 29, 1995, the Company incurred
various professional fees in conjunction with negotiations for the sale of the
Company to prospective buyers, including BEA (see Note 7). These fees totaled
$213,000 for the period and are included in general and administrative expenses
in the accompanying statement of operations.
7. SUBSEQUENT EVENT
Effective September 30, 1995, the Company was purchased by BEA, a company
which develops and markets middleware solution platforms. The purchase price,
excluding liabilities assumed and direct acquisition costs, was $10,010,000 of
which $7,280,000 was paid in cash at the closing and $2,730,000 is payable
through the issuance of a subordinated promissory note. The interest rate on
this note is 8%.
F-31
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
BEA Systems, Inc.
We have audited the accompanying statements of operations and cash flows of
Independence Technologies, Inc. for the period from January 1, 1995 to November
1, 1995. These statements of operations and cash flows are the responsibility of
BEA Systems, Inc.'s management. Our responsibility is to express an opinion on
these statements of operations and cash flows based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of operations and cash flows
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statements of operations
and cash flows. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
presentation of the statements of operations and cash flows. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying statements of operations and cash flows were prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form SB-2 of
BEA Systems, Inc. as described in Note 1, and are not intended to be a complete
presentation of the financial position and results of operations of Independence
Technologies, Inc.
In our opinion, the statements of operations and cash flows referred to
above present fairly, in all material respects, the results of operations and
cash flow of Independence Technologies, Inc. for the period from January 1, 1995
to November 1, 1995, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
San Jose, California
January 20, 1997
F-32
<PAGE>
INDEPENDENCE TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1995 TO NOVEMBER 1, 1995
<TABLE>
<S> <C>
Revenues:
License...................................................................... $ 3,756,574
Service...................................................................... 1,960,103
-----------
Total revenues............................................................. 5,716,677
-----------
Cost of revenues:
License...................................................................... 1,188,482
Service...................................................................... 1,239,911
-----------
Total cost of revenues..................................................... 2,428,393
-----------
Gross profit................................................................... 3,288,284
Operating expenses:
Research and development..................................................... 1,493,622
Sales and marketing.......................................................... 1,777,710
General and administrative................................................... 1,290,768
-----------
Total operating expenses................................................... 4,562,100
-----------
Loss from operations........................................................... (1,273,816)
Interest income.............................................................. 15,693
Interest expense............................................................. (31,382)
-----------
Loss before extraordinary item................................................. (1,289,505)
Extraordinary item--forgiveness of debt........................................ 1,035,000
-----------
Net loss....................................................................... $ (254,505)
-----------
-----------
</TABLE>
See accompanying notes.
F-33
<PAGE>
INDEPENDENCE TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1995 TO NOVEMBER 1, 1995
<TABLE>
<CAPTION>
OPERATING ACTIVITIES
<S> <C>
Net loss....................................................................... $ (254,505)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 365,417
Gain on forgiveness of debt.................................................. (1,035,000)
Changes in assets and liabilities:
Accounts receivable........................................................ 33,711
Prepaid expenses and other current assets.................................. 61,126
Accounts payable........................................................... 236,063
Accrued liabilities........................................................ 714,529
-----------
Net cash provided by operating activities...................................... 121,341
-----------
INVESTING ACTIVITIES
Acquisition of property and equipment.......................................... (88,963)
Advances to stockholders....................................................... (2,621)
-----------
Net cash used in investing activities.......................................... (91,584)
-----------
FINANCING ACTIVITIES
Repayments of long-term debt................................................... (14,433)
Payments on capital lease obligations.......................................... (13,905)
Net proceeds from issuance of common stock and warrants........................ 48,312
-----------
Net cash provided by financing activities...................................... 19,974
Net increase in cash........................................................... 49,731
Cash, beginning of period...................................................... 250,508
-----------
Cash, end of period............................................................ $ 300,239
-----------
-----------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest....................................... $ 18,216
-----------
-----------
Conversion of debt to common stock............................................. $ 2,466,536
-----------
-----------
</TABLE>
See accompanying notes.
F-34
<PAGE>
INDEPENDENCE TECHNOLOGIES, INC.
NOTES TO STATEMENTS OF OPERATIONS AND CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1995 TO NOVEMBER 1, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Independence Technologies, Inc. (the "Company") which was incorporated in
July 1988 provides object-oriented software, programming products, and
consulting services primarily for large, distributed on-line transaction
processing applications based on the UNIX operating system. The Company also
acts as a distributor of certain third party software products.
BASIS OF PRESENTATION
On November 1, 1995, the Company was acquired by Information Management
Company ("IMC"), a wholly owned subsidiary of BEA Systems, Inc. ("BEA") for
approximately $7,266,000 in cash and the assumption of certain liabilities. The
accompanying financial statements have been prepared on the Company's historical
cost basis, and do not reflect any adjustments resulting from the acquisition.
The accompanying statements of operations and cash flows were prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form-SB-2 of
BEA and are not intended to be a complete presentation of the financial position
and results of operations of Independence Technologies, Inc.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of 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.
CONCENTRATION OF CREDIT RISK
The Company sells its products to customers, typically large corporations,
in a variety of industries. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral. The Company maintains
reserves for potential credit losses and such losses have been within
management's expectations.
REVENUE RECOGNITION
Revenues from end user software license agreements and license fees from
third-party distributors and value-added resellers are recognized at the time of
product shipment, provided there are no significant vendor obligations remaining
to be fulfilled and collectibility is probable. Consulting revenues and the
related costs are generally recognized on a time and materials basis; however,
certain fixed price contracts are recognized on the percentage of completion
basis which involves the use of estimates. Actual results could differ from
those estimates and, as a result, future profitability on such contracts may be
more or less than estimated. The amount of consulting contracts recognized on a
percentage of completion basis has not been material to date. Support revenues
are recognized prorata over the term of the service period. Training and other
service revenues are recognized as the related services are performed. The
unrecognized portion of amounts paid for such consulting, support, and other
services is reported as deferred revenues.
F-35
<PAGE>
INDEPENDENCE TECHNOLOGIES, INC.
NOTES TO STATEMENTS OF OPERATIONS AND CASH FLOWS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1995 TO NOVEMBER 1, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets ranging
from three to seven years. Assets under capital leases and leasehold
improvements are amortized over the shorter of the asset life or the remaining
lease term. The related amortization expense is included in depreciation
expense.
RESEARCH AND DEVELOPMENT
Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
requires the capitalization of certain software development costs subsequent to
the establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon the
completion of a working model. Costs incurred by the Company between the
completion of the working model and the point at which the product is ready for
general release have been insignificant. Accordingly, the Company has charged
all such costs to research and development expenses in the accompanying
statements of operations.
PRODUCT CONCENTRATION
The Company derives a majority of its revenue from the licensing of products
in the TUXEDO product line, to which the Company has certain distribution rights
from Novell, Inc. and fees from related services. These products and services
are expected to continue to account for a majority of the Company's revenue for
the foreseeable future. Consequently, a reduction in demand or an increase in
competition for these products due to market factors, or a decline in sales of
such products, would affect operating results adversely.
2. EXTRAORDINARY ITEM
On June 27, 1995, the Company entered into a settlement agreement to resolve
all disputes with respect to a loan agreement with one of its creditors. In
connection with this settlement agreement, the Company realized an extraordinary
gain of approximately $1,035,000, representing the forgiveness of both principal
and accrued interest due on the loan.
3. LEASE COMMITMENTS
Facilities are leased under operating leases expiring at various dates
through November 30, 1999. Certain leases have escalating rental payments and
options for renewal for additional terms. Future minimum rental payments for the
years ended and period ended December 31, are as follows:
<TABLE>
<S> <C>
November 2 through December 31, 1995............................. $ 27,000
1996............................................................. 164,000
1997............................................................. 171,000
1998............................................................. 176,000
1999............................................................. 162,000
---------
Total............................................................ $ 700,000
---------
---------
</TABLE>
F-36
<PAGE>
INDEPENDENCE TECHNOLOGIES, INC.
NOTES TO STATEMENTS OF OPERATIONS AND CASH FLOWS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1995 TO NOVEMBER 1, 1995
3. LEASE COMMITMENTS (CONTINUED)
Rent expense was $147,916 for the period from January 1, 1995 to November 1,
1995.
4. INCOME TAXES
Due to the Company's loss position, there is no provision for income taxes
for the period from January 1, 1995, to November 1, 1995.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets for federal and state income taxes are as
follows:
<TABLE>
<CAPTION>
NOVEMBER 1,
1995
--------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards............................................ $ 743,000
Deferred revenue............................................................ 554,000
Accruals and reserves....................................................... 527,000
Fixed assets................................................................ 39,000
--------------
Total deferred tax assets................................................. 1,863,000
Valuation allowance......................................................... (1,863,000)
--------------
Net deferred tax assets....................................................... $ 0
--------------
--------------
</TABLE>
Based upon the weight of available evidence, which includes the Company's
historical operating performance, the reported cumulative net loss for the prior
three years, and the uncertainties regarding future results of operations of the
Company, the Company has provided a full valuation allowance against its net
deferred tax assets as at this time it is more likely than not that the deferred
tax assets will not be realized. The change in the valuation allowance was an
increase of $7,000 for the period ended November 1, 1995.
As of November 1, 1995, the Company had net operating loss carryforwards for
federal and state tax purposes of approximately $2,100,000 and $200,000 which
will expire from 1998 through 2009. Utilization of net operating loss
carryforwards may be subject to a substantial annual limitation due to the
ownership change limitations provided by the Internal Revenue Code of 1986, as
amended, and similar state provisions. The annual limitation may result in the
expiration of net operating loss carryforwards before full utilization.
F-37
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Novell, Inc.
We have audited the accompanying statements of revenues and direct salaries
and benefits expenses for domestic Tuxedo employees of the Tuxedo Systems Group
of Novell, Inc. for the year ended October 28, 1995 and the four months ended
February 24, 1996. These statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As described in Note 1, the accompanying statements were prepared solely to
present the revenues and direct salaries and benefits expenses for domestic
Tuxedo employees of the Tuxedo Systems Group of Novell, Inc. pursuant to the
Tuxedo License and Distribution Agreement between Novell, Inc. and BEA Systems
effective February 23, 1996 (as amended), and are not intended to be a complete
presentation of the results of operations of the Tuxedo Systems Group of Novell,
Inc.
In our opinion, the statements referred to above present fairly, in all
material respects, the revenues and direct salaries and benefits expenses for
domestic Tuxedo employees for the year ended October 28, 1995 and the four
months ended February 24, 1996, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
San Jose, California
January 29, 1997
F-38
<PAGE>
TUXEDO SYSTEMS GROUP OF NOVELL, INC.
STATEMENTS OF REVENUES AND DIRECT SALARIES AND BENEFITS EXPENSES
FOR DOMESTIC TUXEDO EMPLOYEES
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED
OCTOBER 28, FEBRUARY 24,
1995 1996
------------ -------------
<S> <C> <C>
Revenues............................................................................. $ 20,371 $ 3,123
Direct salaries and benefits expenses for domestic Tuxedo employees:
Research and development........................................................... 3,017 1,167
Selling, general and administrative................................................ 1,055 443
------------ -------------
4,072 1,610
------------ -------------
Revenues less direct salaries and benefits expenses for domestic Tuxedo employees.... $ 16,299 $ 1,513
------------ -------------
------------ -------------
</TABLE>
See accompanying notes.
F-39
<PAGE>
TUXEDO SYSTEMS GROUP OF NOVELL, INC.
NOTES TO STATEMENTS
1. BASIS OF PRESENTATION
The Tuxedo Systems Group ("Tuxedo") was operated as a business operation of
Novell, Inc. (Novell or the Company). The accompanying statements were prepared
to present the revenues and direct salaries and benefits expenses for domestic
Tuxedo employees, pursuant to the Tuxedo License and Distribution Agreement
between Novell and BEA Systems Inc. ("BEA") effective February 23, 1996 as
amended, (the "Agreement"). The statements are not intended to be a complete
presentation of the results of operations of Tuxedo.
The Tuxedo system is an open transaction management software used by
businesses to develop and deploy multi-tier, client-server applications. Tuxedo
is used to create scaleable, high performance, secure, reliable
business-critical applications, as well as more general purpose client-server
applications. Under the terms of the agreement, BEA became the master
distributor of Tuxedo on non-Netware platforms. The principal markets for these
products are in the United States, Europe, and Japan.
The Tuxedo business had no separate legal status as it was an integral part
of Novell's overall operations. As a result, separate financial statements were
not maintained by Novell for the operations acquired by BEA.
The accompanying statements have been prepared from the historical
accounting records of Novell and do not purport to reflect the results of
operations that would have resulted if Tuxedo had operated as an unaffiliated
independent company. In addition, the accompanying statements do not reflect any
adjustments resulting from the acquisition by BEA.
Revenues denominated in foreign currencies have been remeasured into the
functional currency in accordance with Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation," (FAS 52) using the U.S. dollar
as the functional currency.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUES
Revenues as reported per the accompanying statements represent billings by
Novell for license and service and maintenance agreements related to the Tuxedo
product. Although Novell maintains reserves for returns at the consolidated
level, it does not record or maintain such information at a product line level.
Accordingly, adjustments have not been made to reflect estimated sales returns.
No customer exceeded 10% of revenues during fiscal 1995, and one customer
represented approximately 24% of revenues in the 1996 period.
SOFTWARE LICENSES
The Company recognizes revenue from sales of software licenses upon delivery
of the software product to a customer unless the Company has significant related
obligations remaining. When significant obligations remain after the software
product has been delivered, revenue is not recognized
F-40
<PAGE>
TUXEDO SYSTEMS GROUP OF NOVELL, INC.
NOTES TO STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
until such obligations have been completed or are no longer significant. The
costs of any insignificant obligations are accrued when the related revenue is
recognized.
When software licenses for multiple products are sold, revenue is recognized
on a per unit basis until the delivery of the first copy of each software
product under the arrangement or until the expiration of the arrangement, at
which time the Company recognizes any remaining license fees.
POST-CONTRACT CUSTOMER SUPPORT AND SOFTWARE SERVICES
Revenue from post-contract customer support is recognized over the period
the customer support services are provided and software services revenue is
recognized as services are performed.
DIRECT SALARIES AND BENEFITS EXPENSES FOR DOMESTIC TUXEDO EMPLOYEES
The accompanying statements include only direct salaries and benefits
expenses for domestic Tuxedo employees during the periods presented.
Substantially all of the Tuxedo domestic employees became employees of BEA under
the Agreement. No allocations of corporate expenses or reflection of other
direct expenses have been presented as management believes any method of
allocation would be meaningless due to the immateriality of Tuxedo to Novell and
accumulation of all other direct expenses is impracticable. These direct
expenses are not necessarily indicative of the expenses that would have been
incurred had Tuxedo operated as a stand-alone business.
F-41
<PAGE>
REPORT OF ERNST & YOUNG AUDIT, INDEPENDENT AUDITORS
The Board of Directors
USL Finance S.A.
We have audited the accompanying consolidated balance sheet of USL Finance
S.A. as of May 5, 1996 and the related consolidated statements of operations,
shareholders' equity, and cash flows for the period from November 1, 1995
through May 5, 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 audit.
We conducted our audit in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
USL Finance S.A. as of May 5, 1996, and the consolidated results of its
operations, and its cash flows for the period from November 1, 1995 to May 5,
1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG Audit
Paris, France
December 24, 1996
F-42
<PAGE>
USL FINANCE S.A.
CONSOLIDATED BALANCE SHEET
MAY 5, 1996
(IN THOUSANDS OF U.S. DOLLARS)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents........................................................ $ 2,259
Accounts receivable.............................................................. 2,875
Prepaid expenses and other current assets........................................ 284
---------
Total current assets......................................................... 5,418
---------
Leasehold improvements and equipment, net........................................ 642
---------
Distribution rights, net of amortization......................................... 294
---------
Total assets................................................................. $ 6,354
---------
---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 405
Accrued expenses................................................................. 350
Payable to BEA Systems Inc. ..................................................... 3,091
Value-added tax payable.......................................................... 277
Deferred revenues................................................................ 411
---------
Total current liabilities.................................................... 4,534
Net deferred tax liabilities....................................................... 5
Deferred revenues.................................................................. 750
Long-term debt..................................................................... 541
Minority interests................................................................. 76
Commitments........................................................................
Shareholders' equity:
Common stock, FF 100 par value; 13,220 shares issued and
outstanding.................................................................... 270
Capital in excess of par value................................................... 131
Cumulative translation adjustment................................................ (24)
Retained Earnings................................................................ 71
---------
Total shareholders' equity..................................................... 448
---------
Total liabilities and shareholders' equity................................... $ 6,354
---------
---------
</TABLE>
See accompanying notes.
F-43
<PAGE>
USL FINANCE S.A.
CONSOLIDATED STATEMENT OF OPERATIONS
NOVEMBER 1, 1995 THROUGH MAY 5, 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<S> <C>
Revenues:
License.................................................................. $ 2,024
Service.................................................................. 868
-------
Total revenues............................................................. 2,892
Cost of revenues:
License.................................................................. 1,044
Service.................................................................. 873
-------
Total cost of revenues..................................................... 1,917
-------
Gross profit............................................................... 975
Operating expenses:
Marketing and selling.................................................... 667
General and administrative............................................... 88
Amoritzation of distribution rights...................................... 76
-------
Total operating expenses............................................... 831
-------
Income from operations..................................................... 144
Interest income............................................................ 64
Interest expense........................................................... (20)
Minority interest.......................................................... (32)
-------
Income before income taxes................................................. 156
Income taxes............................................................... (85)
-------
Net income................................................................. $ 71
-------
-------
</TABLE>
See accompanying notes.
F-44
<PAGE>
USL FINANCE S.A.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE TOTAL
---------------------- CAPITAL IN EXCESS TRANSLATION RETAINED SHAREHOLDERS'
SHARES AMOUNT OF PAR VALUE ADJUSTMENT EARNINGS EQUITY
--------- ----------- ------------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance October 31, 1995........ 13,220 $ 270 $ 131 $ (21) $ -- $ 380
Translation adjustment........ -- -- -- (3) -- (3)
Net income.................... -- -- -- -- 71 71
--------- ----- ----- --- --- -----
Balance May 5, 1996............. 13,220 $ 270 $ 131 $ (24) $ 71 $ 448
--------- ----- ----- --- --- -----
--------- ----- ----- --- --- -----
</TABLE>
F-45
<PAGE>
USL FINANCE S.A.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM NOVEMBER 1, 1995 TO MAY 5, 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income................................................................ $ 71
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of leasehold improvements and
equipment........................................................... 48
Amortization of distribution rights................................... 76
Interests in equity investments....................................... 20
Deferred income taxes................................................. 18
Increase (decrease) in cash from:
Accounts receivable................................................... 475
Prepaid expenses and other current assets............................. (174)
Accounts payable and accrued expenses................................. 522
Deferred revenues..................................................... 1,199
Value-added tax payable............................................... 128
-------
Net cash provided by operating activities........................... 2,383
INVESTING ACTIVITIES
Purchase of leasehold improvements and equipment.......................... (479)
Proceeds from sale of equipment........................................... 6
Business acquisition, net of cash acquired................................ (541)
-------
Net cash used in investing activities..................................... (1,014)
FINANCING ACTIVITIES
Increase in long-term debt................................................ 559
-------
Net cash provided by financing activities................................. 559
Effect of changes in foreign exchange rates on cash....................... (81)
-------
Net increase in cash and cash equivalents................................. 1,847
Cash and cash equivalents at beginning of period.......................... 412
-------
Cash and cash equivalents at end of period................................ $ 2,259
-------
-------
</TABLE>
F-46
<PAGE>
USL FINANCE S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM NOVEMBER 1, 1995 THROUGH MAY 5, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
USL Finance S.A. (the "Company") was incorporated in Paris, France in August
1995 and had no operating activity until it acquired from Novell, Inc., with
effect from November 3, 1995, a 90% equity ownership in USL France S.A. (USL).
The main activities of USL are the marketing and support of UNIX software
products as well as offering related consulting and training services. USL's
primary software product is TUXEDO, a product developed by Novell, Inc. USL's
products are distributed through its direct sales force as well as through an
external marketing firm.
With effect from February 23, 1996, Novell, Inc. granted to BEA Systems,
Inc. (BEA) certain rights and licenses relating to TUXEDO software and USL
entered into a new royalty agreement with BEA. Novell, Inc. transferred to BEA
its debt due by USL and related to the royalty agreement in effect between
Novell, Inc. and USL before February 23, 1996. On May 5, 1996, BEA purchased
100% of the shares of USL. The accompanying financial statements have been
prepared on the Company's historical cost basis, and do not reflect any
adjustments resulting from the acquisition.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The Company and its subsidiary prepare their financial statements in
accordance with accounting principles generally accepted in France.
The consolidated financial statements have been restated in order to comply
with accounting principles generally accepted in the United States and stated in
U.S. dollars. The preparation of financial statements requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying footnotes. Actual results could differ from those
estimates.
The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany balances and transactions have
been eliminated.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants' Statement of Position 91-1 on software revenue
recognition. License fees under software license agreements with end users and
distributors are recognized upon shipment if no significant vendor obligations
remain and collection of the resulting receivables is deemed probable. Service
revenues are derived from consulting and training services and fees earned under
annual or multi-year maintenance agreements for providing updates (on an "if and
when available" basis) for existing software products, user documentation, and
technical support. Maintenance revenue is recognized ratably over the term of
such agreements. If such services are included in the initial licensing fee, the
value of the services is unbundled and recognized ratably over the related
service period. Revenue from consulting and training services is recognized as
the services are performed.
CONCENTRATION OF CREDIT RISK
The Company sells its products to customers in a variety of industries in
Southern Europe, Africa, and Israel. The Company performs ongoing credit
evaluations of its customers and maintains
F-47
<PAGE>
USL FINANCE S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM NOVEMBER 1, 1995 THROUGH MAY 5, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
allowances for potential credit losses. To date, such losses have been within
management's expectations.
Three customers accounted for 12%, 11%, and 10% of revenues, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on deposit or temporary cash
investments with original maturities of 90 days or less. The Company considers
all highly liquid investments with insignificant interest rate risk and
purchased with an original maturity of three months or less to be cash
equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At May 5, 1996, the carrying values of cash and cash equivalents
approximated their market value based on the short-term maturities of these
instruments. The fair value of long-term debt is estimated using current
interest rates available to the Company for debt instruments with similar terms,
degree of risk, and maturities. The carrying value of the loans approximate
their respective fair value.
FOREIGN CURRENCY TRANSLATIONS
The functional currency of the Company is the French Franc ("FF"). Foreign
currency transactions outstanding at the balance sheet date are translated into
French Francs at year-end rates of exchange. Aggregate realized and unrealized
gains or losses from foreign currency transactions are included in results of
operations and amounted to a gain of $10,739. The effect of translating to U.S.
Dollars is recorded as a cumulative translation adjustment.
DISTRIBUTION RIGHTS
Distribution rights relate to the right to distribute products in certain
territories. Amortization is computed using the straight-line method over 30
months.
LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Purchase software 3 years
Computer equipment 5 years
Furniture and other equipment 10 years
Leasehold improvements 10 years, or lease term if less
</TABLE>
INCOME TAXES
In accordance with Statement of Financial Accounting Standards No. 109, the
liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are
F-48
<PAGE>
USL FINANCE S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM NOVEMBER 1, 1995 THROUGH MAY 5, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
expected to reverse. A valuation allowance is established if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the deferred tax asset will not be realized.
2. BUSINESS ACQUISITION AND DEBT
On November 3, 1995, the Company completed a transaction with Novell, Inc.
in which the Company purchased from Novell a 90% interest in USL for a
consideration of FF4,500,000 (approximately $870,000), of which FF3,000,000 was
paid in cash with the balance payable in installments with interest at 5% as
follows:
- FF500,000 due on October 31, 1998 (approximately $97,000)
- FF500,000 due on October 31, 1999 (approximately $97,000)
- FF500,000 due on October 31, 2000 (approximately $97,000)
The acquisition was accounted for using the purchase method of accounting in
accordance with APB Opinion No. 16, "Business Combinations" ("APB16"). Under
APB16, purchase price allocations were made to the assets acquired and the
liabilities assumed based on their respective fair value, as follows:
<TABLE>
<S> <C>
Purchase price................................................... $ 870,406
Estimated fair value of net tangibles assets acquired............ 502,321
---------
Excess of purchase price over net tangible assets acquired....... $ 368,085
</TABLE>
The excess of purchase price over net tangible assets acquired was allocated
to distribution rights.
On January 1, 1995, the Company issued FF1,300,000 (approximately $250,000)
in bonds which are payable in full on November 20, 2000. Interest is payable
annually at a rate of 5% beginning October 31, 1996.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents at May 5, 1996 include (in thousands):
<TABLE>
<S> <C>
Cash held at bank............................................... $ 7
Temporary cash investments...................................... 2,252
-----------
$ 2,259
-----------
-----------
</TABLE>
F-49
<PAGE>
USL FINANCE S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM NOVEMBER 1, 1995 THROUGH MAY 5, 1996
4. LEASEHOLD IMPROVEMENT AND EQUIPMENT
Leasehold improvement and equipment at May 5, 1996 include (in thousands):
<TABLE>
<S> <C>
Purchased software.............................................. $ 94
Computer equipment.............................................. 276
Furniture and other equipment................................... 126
Leasehold improvements.......................................... 280
-----
776
Accumulated depreciation and amortization....................... (134)
-----
$ 642
-----
-----
</TABLE>
Depreciation and amortization expense for the period from November 1, 1995
through May 5, 1996 was $47,904.
5. SHAREHOLDERS' EQUITY
At May 5, 1996, the issued and outstanding share capital of the Company
consisted of 13,220 shares with a nominal value of $19.
Dividends may be distributed from the statutory retained earnings, subject
to the requirements of French law and the Company's by-laws. The Company has not
distributed any dividends since its inception and had no distributable retained
earnings at May 5, 1996.
6. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<S> <C>
Current............................................................... $ 67
Deferred.............................................................. 18
---
Provision for income taxes............................................ $ 85
---
---
</TABLE>
A reconciliation of income taxes computed at the French statutory rate
(36.67%) to the income tax benefit is as follows (in thousands):
<TABLE>
<S> <C>
Income taxes computed at the French statutory rate.................... $ 57
Amortization of distribution rights not deductible for tax............ 28
---
Total............................................................. $ 85
---
---
</TABLE>
Deferred taxes reflect the net tax effects of temporary differences between
the carrying amount of assets and liabilities for financial reporting purposes
and the amount used for income tax purposes.
F-50
<PAGE>
USL FINANCE S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM NOVEMBER 1, 1995 THROUGH MAY 5, 1996
6. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred taxes consist of the following
at May 5, 1996 (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards...................................... $ 8
Deferred start-up costs............................................... 11
Other................................................................. 1
---
20
Deferred tax liabilities:
Maintenance recognized as a purchase accounting adjustment............ 25
---
Net deferred tax liability.............................................. $ (5)
---
---
</TABLE>
7. EMPLOYEE RETIREMENT PLANS
The Company contributes to government pensions for personnel in France in
accordance with French law based on the salaries of the individuals. There
exists no actuarial liability in connection with these plans. French law also
requires payment of a lump sum retirement indemnity to employees based upon
years of service and compensation at retirement. Benefits do not vest prior to
retirement. The Company's obligation at May 5, 1996 was immaterial.
8. OPERATING LEASE COMMITMENTS
The Company leases its facilities and certain equipment under operating
leases that expire through 2002. Future minimum lease payments under operating
leases due for the periods from May 5, 1996 through January 31, 1997 and for
fiscal years ending January 31 are as follows (in thousands):
<TABLE>
<S> <C>
May 5, 1996 through January 31, 1997.................................... $ 156
12 month periods ending January 31, 1998................................ 208
1999.................................................................... 208
2000.................................................................... 122
2001 and thereafter..................................................... 1
</TABLE>
Rental expense for the period from November 1, 1995 through May 5, 1996 was
approximately $108,000.
F-51
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the U.S. Underwriters named below (the
"U.S. Underwriters"), and each of the U.S. Underwriters, for whom Goldman, Sachs
& Co., Alex. Brown & Sons Incorporated, Robertson, Stephens & Company LLC, and
SoundView Financial Group, Inc. are acting as representatives, has severally
agreed to purchase from the Company, the respective number of shares of Common
Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
- ---------------------------------------------------------------------------------------------- ------------------
<S> <C>
Goldman, Sachs & Co. .........................................................................
Alex. Brown & Sons Incorporated...............................................................
Robertson, Stephens & Company LLC.............................................................
SoundView Financial Group, Inc................................................................
------------------
Total...................................................................................
------------------
------------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby
(other than those covered by the U.S. Underwriters' over-allotment option
described below), if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $ per share. The U.S. Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share
to certain brokers and dealers. After the shares of Common Stock are released
for sale to the public, the offering price and other selling terms may from time
to time be varied by the Representatives.
The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the Underwriters of the international offering
(the "International Underwriters") providing for the concurrent offer and sale
of shares of Common Stock in an international offering outside the United
States. The offering price and aggregate underwriting discounts and commissions
per share for the two offerings are identical. The closing of the offering made
hereby is a condition to the closing of the international offering, and vice
versa. The representatives of the International Underwriters are Goldman Sachs
International, Alex. Brown & Sons Incorporated, Robertson, Stephens & Company
LLC and SoundView Financial Group, Inc.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver shares offered hereby and any other shares of Common Stock directly
or indirectly only in the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas subject
to its jurisdiction (the "United States") and to U.S. Persons which term shall
mean, for purposes of this paragraph: (a) any individual who is a resident of
the United States or (b) any corporation, partnership or other entity organized
in or under the laws of the United States or any political subdivision thereof
and whose office most directly involved with the purchase is located in the
United States. Each of the International Underwriters has agreed pursuant to the
Agreement Between that, as part of the distribution of the shares offered as
part of the international offering, and subject to certain exceptions, it will
(i) not, directly or indirectly, offer, sell or deliver shares of Common Stock
(a) in the Untied States or to any U.S. person or (b) to any person who it
believes intends to reoffer, resell or deliver the shares in the United States
or to any U.S. persons and (ii) cause any dealer to whom it may sell such shares
at any concession to agree to observe a similar restriction.
U-1
<PAGE>
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
The Company has granted to the U.S. Underwriters an option exercisable for
30 days after the date of this Prospectus to purchase up to an aggregate of
additional shares of Common Stock to cover over-allotments, if any. If the
U.S. Underwriters exercise their over-allotment option, the U.S. Underwriters
have severally agreed, subject to certain conditions, to purchase approximately
the same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the shares of Common Stock
offered hereby. The Company has granted the International Underwriters a similar
option to purchase up to an aggregate of shares of Common Stock.
The Company's officers and directors, and certain other holders of shares of
Common Stock and options therefor, have agreed that, during the period beginning
from the date of this Prospectus and continuing to and including the date 180
days after the date of the Prospectus, they will not offer, pledge, sell,
contract to sell, sell any option to contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the Common Stock without the
prior written consent of a designated representative of the U.S. and
International Underwriters, except for the shares of Common Stock offered in
connection with the concurrent United States and international offerings. The
Company has agreed, with certain limited exceptions, that, during the period
beginning from the date of this Prospectus and continuing to and including the
date 180 days after the date of the Prospectus, it will not offer, sell,
contract to sell, or otherwise dispose of any securities of the Company that are
substantially similar to the shares offered hereby, including but not limited to
any securities that are convertible into, or exchangeable for, or that represent
the right to receive Common Stock or any such substantially similar securities
without the prior written consent of the designated representative of the U.S.
and International Underwriters, except for the shares of Common Stock offered in
connection with the United States and international offerings and except that
the Company may issue securities pursuant to the employee stock plans and
currently outstanding options.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares of
Common Stock offered by them.
Prior to this Offering, there has been no public market for the shares. The
initial public offering price will be negotiated among the Company and the
representatives of the U.S. Underwriters and the International Underwriters.
Among the factors to be considered in determining the initial public offering
price of the Common Stock, in addition to prevailing market conditions, will be
the Company's historical performance, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management and
the consideration of the above factors in relation to market valuations of
companies in related businesses.
The Common Stock will be quoted on the Nasdaq National Market under the
symbol "BEAS."
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
This Prospectus may be used by the Underwriters and dealers in connection
with offers and sales of Common Stock, including shares initially sold in the
international offering to persons located in the United States.
U-2
<PAGE>
Set forth on the inside back cover page is a horizontal rectangular box
bearing the caption "BEA TUXEDO KERNEL." Set forth on top of this box are four
square boxes each with a caption reading, from left to right, "BEA BUILDER,"
"BEA CONNECT." "BEA TP BLUE" and "BEA JOLT." Set forth to the left of the five
aforementioned boxes is a vertical rectangular box of equal height as the
combined other boxes, with a caption reading "BEA MANAGER." Set forth above this
graphic is a caption reading "THE BEA ENTERPRISE TRANSACTION FRAMEWORK." Set
forth below the graphic is the following text:
"The BEA Enterprise Transaction Framework is an integrated middleware
software platform, based upon BEA TUXEDO, for developing, deploying, and
managing distributed mission-critical applications.
BEA TUXEDO provides distributed transaction processing and application
messaging capabilities, as well as the full complement of services necessary to
build and run mission-critical applications.
BEA Jolt extends the capabilities of BEA TUXEDO to the Internet and
intranets by providing a secured infrastructure without the need for additional
application programming.
The BEA TP Blue Interface provides mainframe-to-distributed applications
portability, compatibility, and connectivity for TP Blue-based transaction
processing.
BEA Connect allows applications to access remote applications services on a
variety of host-based computing environments including mainframes.
BEA Builder enables programmers to use familiar development environments to
develop BEA TUXEDO-based applications.
BEA Manager extends the native BEA TUXEDO management capabilities by
allowing it to integrate with third party management frameworks."
<PAGE>
- ----------------------------------------------
----------------------------------------------
- ----------------------------------------------
----------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 6
Use of Proceeds......................... 16
Dividend Policy......................... 16
Capitalization.......................... 17
Dilution................................ 18
Selected Consolidated Financial Data.... 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations............. 21
Business................................ 34
Management.............................. 54
Principal Stockholders.................. 61
Certain Transactions.................... 62
Description of Capital Stock............ 64
Shares Eligible for Future Sale......... 66
Legal Matters........................... 67
Experts................................. 67
Additional Information.................. 68
Index to Consolidated Financial
Statements............................ F-1
Underwriting............................ U-1
</TABLE>
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES 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.
SHARES
BEA SYSTEMS, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
--------------------
[LOGO]
--------------------
GOLDMAN, SACHS & CO.
ALEX. BROWN & SONS INCORPORATED
ROBERTSON, STEPHENS & COMPANY
SOUNDVIEW FINANCIAL GROUP, INC.
REPRESENTATIVES OF THE UNDERWRITERS
- ----------------------------------------------
----------------------------------------------
- ----------------------------------------------
----------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporate Law of the State of Delaware, the
Registrant has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Amended and Restated Bylaws (Exhibit 3.3 hereto) also provide for mandatory
indemnification of its directors and executive officers, and permissive
indemnification of its employees and agents, to the fullest extent permissible
under Delaware law.
The Registrant's Amended and Restated Certificate of Incorporation (Exhibit
3.2 hereto) provides that the liability of its directors for monetary damages
shall be eliminated to the fullest extent permissible under Delaware law.
Pursuant to Delaware law, this includes elimination of liability for monetary
damages for breach of the directors' fiduciary duty of care to the Registrant
and its Stockholders. These provisions do not eliminate the directors' duty of
care and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Registrant, for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for any transaction from which the director derived an improper personal
benefit, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
Prior to the effective date of the Registration Statement, the Registrant
will have entered into agreements with its directors and certain of its
executive officers that require the Registrant to indemnify such persons against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person may
be made a party by reason of the fact that such person is or was a director or
officer of the Registrant or any of its affiliated enterprises, provided such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Registrant and, with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. The indemnification agreements also set forth certain procedures
that will apply in the event of a claim for indemnification thereunder.
The Registrant intends to obtain in conjunction with the effectiveness of
the Registration Statement a policy of directors' and officers' liability
insurance that insures the Company's directors and officers against the cost of
defense, settlement or payment of a judgment under certain circumstances.
The Underwriting Agreements filed as Exhibit 1.1 and Exhibit 1.2 to this
Registration statement provides for indemnification by the U.S. Underwriters and
the International Underwriters of the Registrant and its officers and directors
for certain liabilities arising under the Securities Act or otherwise.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant in connection with the
distribution of the securities being registered, other than underwriting
discounts and commissions, are as follows:
<TABLE>
<CAPTION>
AMOUNT*
-------------
<S> <C>
Securities and Exchange Commission Filing Fee.................................. $ 12,197
NASD Filing Fee................................................................ 4,525
Nasdaq National Market Listing Fee............................................. 30,000
Accounting Fees and Expenses................................................... 900,000
Blue Sky Fees and Expenses..................................................... 5,000
Legal Fees and Expenses........................................................ 300,000
Transfer Agent and Registrar Fees and Expenses................................. 15,000
Printing Expenses.............................................................. 375,000
Miscellaneous Expenses......................................................... 58,278
-------------
Total...................................................................... $ 1,700,000
-------------
-------------
</TABLE>
- --------------
* All amounts are estimates except the SEC filing fee, the NASD filing fee and
the Nasdaq National Market listing fee.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since the Registrant's inception in January 1995, the Registrant has issued
and sold the following unregistered securities:
1. During the period, the Registrant granted stock options to employees,
directors and consultants under its Stock Incentive Plans covering an aggregate
of 7,465,650 shares of the Registrant's Common Stock, at exercise prices ranging
from $0.0100 to $6.00 with a weighted average exercise price of $0.7560 per
share.
2. During the period, the Registrant issued and sold an aggregate of
348,623 shares of its Common Stock to 18 employees for cash and promissory notes
in the aggregate amount of $71,857.58 upon exercise of stock options granted
pursuant to the Registrant's Stock Incentive Plans, at exercise prices ranging
from $0.01 to $0.285 with a weighted average exercise price of $0.2061 per
share.
3. During the period, the Registrant issued and sold an aggregate of
10,344,000 shares of its Common Stock to Warburg, Pincus Ventures, L.P. and
certain employees, directors and consultants for an aggregate purchase price of
$2,094,039.98. Of such shares of Common Stock, on February 1, 1995 and September
28, 1995, 2,506,828 shares of Common Stock were sold to William T. Coleman III
for $378,466 payable $281,000 in cash and $97,446 by an installment note;
1,671,586 shares of Common Stock were sold to Edward W. Scott, Jr. for $252,402
payable $4,000 in cash and $248,402 by an installment note; and 1,671,586 shares
of Common Stock were sold to Alfred S. Chuang for $252,402 payable $54,000 in
cash and $198,402 by an installment note.
4. During the period, the Registrant issued and sold an aggregate of
17,166,000 shares of its Series A Preferred Stock (convertible into 34,332,000
shares of Common Stock) to Warburg, Pincus Ventures, L.P. and certain directors
for an aggregate purchase price of $29,182,200.
5. During the period, the Registrant issued and sold an aggregate of
16,347,800 shares of its Series B Preferred Stock (convertible into shares
of Common Stock) to Warburg, Pincus Ventures, L.P. for an aggregate purchase
price of $16,347,800.
The sale and issuance of securities in the transactions described in
paragraphs 1 and 2 above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated
II-2
<PAGE>
thereunder in that they were offered and sold either pursuant to written
compensatory benefit plans or pursuant to a written contract relating to
compensation, as provided by Rule 701.
The sale and issuance of securities in the transactions described in
paragraphs 3, 4 and 5 above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 4(2) promulgated thereunder.
Appropriate legends were affixed to the stock certificates issued in the
above transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. No Underwriters were employed in any of
the above transactions.
ITEM 27. EXHIBITS
The exhibits are as set forth in the Exhibit Index.
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes to provide the U.S. Underwriters and the
International Underwriters at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such names as
required by the U.S. Underwriters and the International Underwriters to permit
prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the issuer pursuant to the foregoing provisions, or
otherwise, the issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the issuer in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that:
(1) For determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
issuer pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial BONA FIDE
offering of those securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Sunnyvale, State of California on January 31,
1997.
<TABLE>
<S> <C> <C>
BEA SYSTEMS, INC.
By: /s/ WILLIAM T. COLEMAN III
-----------------------------------------
William T. Coleman III
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William T. Coleman III, Edward W. Scott, Jr.,
Alfred S. Chuang, and Steve L. Brown as his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments to this Registration Statement)
and sign any registration statement for the same offering covered by the
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with 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>
President, Chief Executive
/s/ WILLIAM T. COLEMAN III Officer, Chairman of the
- ------------------------------ Board and Director January 31, 1997
William T. Coleman III (Principal Executive
Officer)
Executive Vice President,
/s/ STEVE L. BROWN Chief Financial Officer
- ------------------------------ and Secretary (Principal January 31, 1997
Steve L. Brown Financial and Accounting
Officer)
/s/ EDWARD W. SCOTT, JR.
- ------------------------------ Director January 31, 1997
Edward W. Scott, Jr.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ---------------------------- -----------------
<C> <S> <C>
/s/ STEWART K.P. GROSS
- ------------------------------ Director January 31, 1997
Stewart K.P. Gross
/s/ WILLIAM H. JANEWAY
- ------------------------------ Director January 31, 1997
William H. Janeway
/s/ CARY J. DAVIS
- ------------------------------ Director January 31, 1997
Cary J. Davis
/s/ CAROL BARTZ
- ------------------------------ Director January 31, 1997
Carol Bartz
/s/ DEAN MORTON
- ------------------------------ Director January 31, 1997
Dean Morton
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement..........................................................................
3.1 Restated Certificate of Incorporation of the Registrant, as currently in effect.........................
3.2* Form of Registrant's Amended and Restated Certificate of Incorporation to be adopted upon completion of
the Offerings.
3.3 Registrant's Bylaws, as currently in effect along with Certificate of Amendment of Bylaws, dated
November 1995.........................................................................................
3.4* Form of Registrant's Amended and Restated Bylaws, to be adopted upon completion of the Offerings.
4.1 Reference is made to Exhibits 3.1 and 3.2, 3.3 and 3.4..................................................
5.1* Opinion of Morrison & Foerster LLP as to the legality of the Common Stock...............................
10.1 Investor Rights Agreement by and among the Registrant and William T. Coleman III, Alfred S. Chuang,
Edward W. Scott, Jr. and Warburg, Pincus Ventures, L.P., dated September 28, 1995.....................
10.2* Form of Indemnification Agreement between the Registrant and each of its executive officers and
directors.
10.3 Employment Agreement between the Registrant and William T. Coleman III dated as of September 28, 1995...
10.4 Employment Agreement between the Registrant and Edward W. Scott, Jr. dated as of September 28, 1995.....
10.5 Employment Agreement between the Registrant and Alfred S. Chuang dated as of September 28, 1995.........
10.6 Form of Promissory Notes entered into between the Registrant, William T. Coleman III, Edward W. Scott,
Jr. and Alfred S. Chuang each dated September 28, 1995................................................
10.7 Promissory Note secured by deed of trust entered into between the Registrant and Edward W. Scott, Jr.
and Cheryl S. Scott, dated December 12, 1995..........................................................
10.8+ Agreement between the Registrant and Novell, dated January 24, 1996, and Amendments thereto.
10.9 Lease Agreement between the Registrant and William H. and Leila A. Cilker dated November 15, 1995 and
First Amendment thereto, dated January 19, 1996.......................................................
10.10 Stock Purchase Agreement between the Registrant and Warburg, Pincus Ventures, L.P. dated September 28,
1995, and Amendments thereto..........................................................................
10.11 Registrant's 1995 Flexible Stock Incentive Plan, including forms of agreements thereunder...............
10.12* Registrant's 1997 Stock Incentive Plan, including forms of agreements thereunder.
10.13* Registrant's 1997 Employee Stock Purchase Plan, including forms of agreements thereunder.
10.14 Subordinated Bridge Line of Credit between the Registrant and Warburg, Pincus Ventures, L.P., dated
January 22, 1997......................................................................................
11.1 Statement regarding calculation of net income (loss) per share..........................................
21.1 List of Significant Subsidiaries........................................................................
23.1* Consent of Morrison & Foerster LLP. Reference is made to Exhibit 5.1....................................
23.2 Consent of Ernst & Young LLP., Independent Auditors Reference is made to Page II-6......................
23.3 Consent of Ernst & Young LLP., Independent Auditors Reference is made to Page II-7......................
23.4 Consent of Ernst & Young LLP., Independent Auditors Reference is made to Page II-8......................
23.5 Consent of Ernst & Young LLP., Independent Auditors Reference is made to Page II-9......................
23.6 Consent of Ernst & Young Audit. Reference is made to Page II-10.........................................
24.1 Powers of Attorney. Reference is made to pages II-4 and II-5............................................
27.1 Financial Data Schedule.................................................................................
</TABLE>
- --------------
* To be filed by amendment.
+ Confidential treatment requested as to portions of this exhibit.
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
BEA SYSTEMS, INC.
Pursuant to Sections 242 and 245
of the General Corporation Law of the State of
Delaware
_______________________________________________
BEA SYSTEMS, INC. (the "Corporation"), a Corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "General Corporation Law") having filed its original Certificate
of Incorporation under the name BEA Enterprises, Inc. on January 20, 1995, does
hereby certify as follows:
That the following resolutions amending and restating the Corporation's
Certificate of Incorporation were duly adopted by the Corporation's Board of
Directors and by the holders of a majority of the Corporation's outstanding
stock entitled to vote thereon and if required, a majority of each class
entitled to vote thereon as a class, in accordance with the provisions of
Sections 242 and 245 of the General Corporation Law by written consent of the
Board of Directors and the stockholders given in accordance with Sections 141
and 228, respectively of the General Corporation Law:
"NOW, THEREFORE, BE IT RESOLVED, that the Certificate of Incorporation
of the Corporation be amended and restated in its entirety as follows:
"FIRST: The name of the corporation (hereinafter called the
"Corporation") is BEA Systems, Inc.
SECOND: The address, including street, number, city and county, of
the registered office of the Corporation in the State of Delaware is 32
Loockerman Square, Suite L-100, City of Dover, 19901, County of Kent; and the
name of the registered agent of the Corporation in the State of Delaware at
such address is The Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business and the purposes to be conducted
and promoted by the Corporation shall be to conduct any lawful business, to
promote any lawful purpose, and to engage in any lawful act or activity for
which Corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH: The 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 the Corporation shall have authority to
issue is 80,000,000 and the total number of shares of Preferred Stock the
Corporation shall have authority to issue is 40,000,000. The par value of the
Common Stock and the Preferred Stock shall be
<PAGE>
$0.001 per share. On the filing of this Restated Certificate of
Incorporation, each outstanding share of Common Stock is split up, divided,
and converted into two shares of Common Stock.
A description of the respective classes and series of stock and a
statement of the designations, preferences, voting powers, relative,
participating, optional or other special rights and privileges and the
qualifications, limitations and restrictions of the Preferred and Common Stock
are as follows:
1. DESIGNATION AND AMOUNT. There shall be designated a Series A
Preferred Stock (the "Series A Preferred"), and the number of shares
constituting such series shall be 20,000,000, and there shall be designated a
Series B Preferred Stock (the "Series B Preferred"), and the number of shares
constituting such series shall be 20,000,000. Shares of Series A Preferred
and Series B Preferred shall have a par value of $0.001 per share.
2. DIVIDENDS AND DISTRIBUTIONS.
(a) SERIES B PREFERRED. Subject to the provisions for
adjustment hereinafter set forth, the holders of shares of Series B Preferred
shall be entitled to receive, when, as and if declared by the Board of
Directors (the "Board") out of funds legally available for the purpose, an
annual cash dividend in the amount of $.07 per share (adjusted to reflect any
stock split, stock dividend, combination, recapitalization and the like
(collectively, a "Recapitalization") with respect to the Series B Preferred),
prior and in preference to any declaration or payment of any dividend
(payable other than in Common Stock) on the Series A Preferred or the Common
Stock of the Corporation. Such dividends shall be cumulative, and the right
to receive such shall accrue to holders of Series B Preferred to the extent
that such cumulative dividends are not declared or paid in any year.
(b) SERIES A PREFERRED. Subject to the provisions for
adjustment hereinafter set forth and after all cumulative dividends payable
with respect to the Series B Preferred have been declared and paid in
accordance with Section 2(a) above, the holders of Series A Preferred shall
be entitled to receive, when, as and if declared by the Board, out of funds
legally available for the purpose, an annual cash dividend in the amount of
$.12 per share of Series A Preferred (as adjusted to reflect any
Recapitalization with respect to the Series A Preferred), prior and in
preference to any declaration or payment of any dividend (payable other than
in Common Stock) on the Common Stock of the Corporation. Such dividends
shall not be cumulative, and no right shall accrue to holders of Series A
Preferred by reason of the fact that dividends on such shares are not
declared or paid in any year.
(c) REPURCHASE OF COMMON. Notwithstanding Sections 2(a) and
2(b) hereof, the Corporation may at any time, out of funds legally available
therefor, repur chase shares of Common Stock of the Corporation (i) issued to
or held by employees, directors or consultants of the Corporation or its
subsidiaries upon
2
<PAGE>
termination of their employment or services, pursuant to any agreement
providing for such right of repurchase, or (ii) issued to or held by any
person subject to the Corporation's right of first refusal to purchase such
shares where the purchase is pursuant to the exercise of such right of first
refusal, in either case whether or not dividends on the Preferred Stock shall
have been declared and paid or funds set aside therefor.
3. LIQUIDATION RIGHTS. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, distributions shall be made to the holders of Series A Preferred
and Series B Preferred in respect of such Series A Preferred and Series B
Preferred before any amount shall be paid to the holders of Common Stock in
respect of such Common Stock, in the following manner:
(a) SERIES B PREFERRED. The holders of Series B Preferred
shall be entitled to be paid first out of the assets of the Corporation
available for distribution to holders of its capital stock an amount per
share equal to $1.00 per share of Series B Preferred, as adjusted to reflect
any Recapitalization of the Series B Preferred, plus all cumulated and unpaid
dividends, if any. If, upon the occurrence of a liquidation, dissolution or
winding up, the assets and funds to be distributed among the holders of the
Series B Preferred shall be insufficient to permit the payment to such
holders of their full liquidation preferences, then the entire assets and
funds of the Corporation legally available for distribution to the holders of
capital stock shall be distributed ratably among the holders of the Series B
Preferred such that the same percentage of the foregoing liquidation
preference is paid to each such holder with respect to the shares of Series B
Preferred such holder then holds.
(b) SERIES A PREFERRED. If assets are remaining after
payment of the full preferential amount with respect to the Series B
Preferred set forth in Section 3(a) above, the holders of the Series A
Preferred shall be entitled to then be paid out of the assets of the
Corporation an amount per share equal to $1.70 per share of Series A
Preferred, as adjusted to reflect any Recapitalization of the Series A
Preferred, plus all declared and unpaid dividends, if any. If, upon the
occurrence of a liquidation, dissolution or winding up, the assets and funds
to be distributed among the holders of the Series A Preferred shall be
insufficient to permit the payment to such holders of their full liquidation
preferences, then the entire remaining assets and funds of the Corporation
legally available for distribution to the holders of capital stock shall be
distributed ratably among the holders of the Series A Preferred such that the
same percentage of the foregoing liquidation preferences is paid to each such
holder with respect to the shares of Series A Preferred each holder then
holds.
(c) COMMON STOCK. If assets are remaining after payment of
the full preferential amount with respect to the Series A Preferred and the
Series B Preferred set forth in Sections 3(a) and 3(b) above, then the
holders of the Common Stock shall be entitled to share ratably based upon
their ownership of Common Stock in all such remaining assets and surplus
funds.
3
<PAGE>
(d) EVENTS DEEMED A LIQUIDATION. For purposes of this
Section 3, a liquidation, dissolution or winding up of the Corporation shall
be deemed to be occasioned by and to include the consolidation or merger of
the Corporation with or into any other Corporation or the sale or other
transfer in a single transaction or a series of related transactions of all
or substantially all of the assets of this Corporation, or any other
reorganization of this Corporation unless the stockholders of the Corporation
immediately prior to any such transaction are holders of a majority of the
voting securities of the surviving or acquiring Corporation immediately
thereafter (and for purposes of this calculation equity securities which any
stockholder or the Corporation owned immediately prior to such merger or
consolidation as a stockholder of another party to the transaction shall be
disregarded).
(e) VALUATION OF SECURITIES AND PROPERTY. In the event the
Corporation proposes to distribute assets other than cash in connection with
any liquidation, dissolution or winding up of the Corporation, the value of
the assets to be distributed to the holders of shares of Series A Preferred
and Series B Preferred shall be determined in good faith by the Board. Any
securities not subject to investment letter or similar restrictions on free
marketability shall be valued as follows:
(i) If traded on a securities exchange, the value
shall be deemed to be the average of the security's closing prices on such
exchange over the thirty (30) day period ending three (3) days prior to the
distribution;
(ii) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid prices over the thirty
(30) day period ending three (3) days prior to the distribution; and
(iii) If there is no active public market, the value shall
be the fair market value thereof as determined in good faith by the Board.
The method of valuation of securities subject to investment letter or
other restrictions on free marketability shall be adjusted to make an
appropriate discount from the market value determined as above in clauses
(i), (ii) or (iii) to reflect the fair market value thereof as determined in
good faith by the Board. The holders of at least 50% of the outstanding
Series A Preferred and Series B Preferred, voting together as a single class,
shall have the right to challenge any determination by the Board of fair
market value pursuant to this Section 3(e), in which case the determination
of fair market value shall be made by an independent appraiser selected
jointly by the Board and the challenging parties, the cost of such appraisal
to be borne equally by the Corporation and the challenging parties.
4
<PAGE>
4. REDEMPTION RIGHTS.
(a) HOLDER'S REDEMPTION RIGHTS.
(i) Each holder of Series B Preferred ("Series B
Holder") shall have the right, exercisable at any time following September
30, 2001 and upon written notice to the Corporation in accordance with
Section 4(a)(iii) ("Redemption Notice"), to cause the Corporation to redeem,
and the Corporation shall redeem (unless prevented by law), all or a portion
of the shares of Series B Preferred then held by such Holder on such date
designated by such Holder in accordance with Section 4(a)(iii) below
("Designated Redemption Date").
(ii) The price to be paid for each share of Series B
Preferred redeemed pursuant to this Section 4 shall be $1.00 per share, plus
an amount equal to all accrued and unpaid dividends (the "Redemption Price").
(iii) The redemption rights of each Series B Holder under
this Section 4(a) shall be exercised by providing written notice to the
Corporation at least ten (10) but not more than sixty (60) days prior to any
Designated Redemption Date. From and after any Designated Redemption Date
with respect to which the redemption rights under this Section 4(a) have been
exercised, all dividends on shares of Series B Preferred to be redeemed
pursuant to this Section 4(a), shall cease to accrue, and all rights of the
holders thereof as stockholders of the Corporation shall cease, except the
right to receive payment in full of the Redemption Price for such shares upon
surrender of certificates representing such shares. Shares of the Series B
Preferred redeemed by the Corporation pursuant to this Section 4(a) shall be
deemed retired and may not under any circumstances thereafter be reissued or
otherwise disposed of by the Corporation.
(iv) At any time on or after any Designated Redemption
Date, the holders of the Series B Preferred Stock to be redeemed on such date
shall be entitled to receive payment of the Redemption Price therefore upon
actual delivery to the Corporation or its agents of the certificates
representing the shares to be redeemed. If upon any Designated Redemption
Date the assets of the Corporation available for redemption shall be
insufficient to pay all Series B Holders the full amounts to which they shall
be entitled pursuant to this Section 4(a), the Corporation shall redeem on a
PRO RATA basis such number of shares of the Series B Preferred as it shall
have legally available funds to redeem, and the remainder of the shares of
the Series B Preferred required to be redeemed shall be redeemed on the
earliest practicable date next following the day on which the Corporation
shall first have funds legally available for the redemption of such shares.
On and after any Designated Redemption Date, all rights in respect of the
shares of the Series B Preferred to be redeemed, except the right to receive
the Redemption Price as herein provided, shall cease and terminate (unless
default shall be made by the Corporation in the payment of the Redemption
Price as herein provided, in which event such rights shall be exercisable
until such default is cured), and such
5
<PAGE>
shares shall no longer be deemed to be outstanding, whether or not the
certificates representing such shares have been received by the Corporation.
(b) MANDATORY REDEMPTION ON INITIAL PUBLIC OFFERING.
(i) Upon the closing of the Initial Public Offering (as
defined in Section 5(b) below), each share of Series B Preferred, unless the
holder thereof shall elect to convert such holder's Series B Preferred as of
such closing pursuant to Section 5(c) below, shall be redeemed by the
Corporation (unless the Corporation is prevented by law from effecting such
redemption). To the extent shares of Series B Preferred are to be redeemed at
a later date pursuant to any provision of this Section 4, such redemption
shall be accelerated pursuant to this Section 4(b) and occur as of the
Closing of the Initial Public Offering.
(ii) The price to be paid for each share of Series B
Preferred redeemed pursuant to this Section 4(b) shall be the Redemption Price.
(iii) At any time on or after the Initial Public
Offering, the holders of record of shares of the Series B Preferred to be
redeemed on any such date shall be entitled to receive payment of the
Redemption Price for the shares being redeemed upon actual delivery to the
Corporation or its agents of the certificates representing the shares to be
redeemed.
(iv) If upon any Initial Public Offering the assets of
the Corporation available for redemption shall be insufficient to pay all
holders of the Series B Preferred the full amounts to which they shall be
entitled pursuant to this Section 4(b), the Corporation shall redeem on a PRO
RATA basis such number of shares of the Series B Preferred as it shall have
legally available funds to redeem, and the remainder of the shares of the
Series B Preferred required to be redeemed shall be redeemed on the earliest
practicable date next following the day on which the Corporation shall first
have funds legally available for the redemption of such shares. On and after
the Initial Public Offering, all rights in respect of the shares of the
Series B Preferred to be redeemed, except the right to receive the Redemption
Price as herein provided, shall cease and terminate (unless default shall be
made by the Corporation in payment of the Initial Public Offering Price as
herein provided, in which event such rights shall be exercisable until such
default is cured), and such shares shall no longer be deemed to be
outstanding, whether or not the certificates representing such shares have
been received by the Corporation.
(c) CORPORATION'S REDEMPTION RIGHTS.
(i) The Corporation, at its option, may redeem, at any
time and from time to time, any or all of the outstanding shares of the
Series B Preferred (any such date being referred to as a "Designated
Redemption Date"). Any proposed redemption of shares of the Series B
Preferred pursuant to this Section 4(c) may be made only if prior notice is
given by the Corporation, at least 30 but not more than 60 days
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prior to the applicable Redemption Date, to all holders of record of shares
of the Series B Preferred Stock at their respective addresses appearing on
the books of the Corporation. Such notice shall specify (i) the number of
shares being redeemed, and (ii) the Designated Redemption Date. From and
after the Designated Redemption Date, all dividends upon the shares of the
Series B Preferred to be redeemed shall cease to accrue, and all rights of
the holders thereof as stockholders of the Corporation, shall cease except
the right to receive payment in full of the applicable Redemption Price.
(ii) The price to be paid for each share of the Series B
Preferred to be redeemed pursuant to this Section 4(c) shall be the
Redemption Price. Redemptions of less than all of the outstanding shares of
the Series B Preferred pursuant to this Section 4(c) shall be made PRO RATA
among all Series B Holders. Shares of the Series B Preferred redeemed by the
Corporation pursuant to this Section 4(c) shall be deemed retired and may not
under any circumstances thereafter be reissued or otherwise disposed of by
the Corporation.
(iii) At any time on or after any Designated Redemption
Date, the Series B Holders as to those shares of the Series B Preferred to be
redeemed on any such date shall be entitled to receive payment of the
Redemption Price for the shares being redeemed upon actual delivery to the
Corporation or its agents of the certificates representing the shares to be
redeemed.
(iv) If upon any Designated Redemption Date the assets
of the Corporation available for redemption shall be insufficient to pay all
holders of the Series B Preferred the full amounts to which they shall be
entitled pursuant to this Section 4(c), the Corporation shall redeem on a PRO
RATA basis such number of shares of the Series B Preferred as it shall have
legally available funds to redeem, and the remainder of the shares of the
Series B Preferred required to be redeemed shall be redeemed on the earliest
practicable date next following the day on which the Corporation shall first
have funds legally available for the redemption of such shares. On and after
the Designated Redemption Date, all rights in respect of the shares of the
Series B Preferred to be redeemed, except the right to receive the Redemption
Price as herein provided, shall cease and terminate (unless default shall be
made by the Corporation in payment of the Redemption Price as herein
provided, in which event such rights shall be exercisable until such default
is cured), and such shares shall no longer be deemed to be outstanding,
whether or not the certificates representing such shares have been received
by the Corporation.
5. CONVERSION. The holders of the Series A Preferred and the
Series B Preferred have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT SERIES A PREFERRED. Each share of
Series A Preferred shall initially be convertible, at the option of the
holder thereof, at any time after the date of issuance of such share at the
office of the Corporation or any transfer agent for the Series A Preferred
into the number of fully paid and non-assessable
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shares of Common Stock which results from dividing the Series A Conversion
Price (as hereinafter defined) per share in effect at the time of conversion
into the per share Conversion Value (as hereinafter defined) of such series.
The initial Conversion Price shall be $1.70, and the Conversion Value of the
Series A Preferred shall be $1.70. The initial Series A Conversion Price
shall be subject to adjustment from time to time as provided in Section 5(d)
hereof. Upon conversion, all declared and unpaid dividends on the Series A
Preferred shall be paid in cash, to the extent legally permitted.
(b) AUTOMATIC CONVERSION OF SERIES A PREFERRED. Each share
of Series A Preferred shall automatically be converted into shares of Common
Stock upon (i) the closing the Initial Public Offering involving the sale of
securities for the account of the Corporation to the public, the gross
proceeds of which exceed $10,000,000 at a price to the public of at least
$5.00 per share (appropriately adjusted for any Recapitalization of the
Common Stock), or (ii) the written consent of holders of not less than
two-thirds (2/3) of the then-outstanding shares of Series A Preferred. For
purposes of this Section 5 and Section 4 above, the "Initial Public Offering"
shall mean the first firm commitment underwritten public offering of the
Common Stock of the Corporation pursuant to an effective registration
statement declared effective under the Securities Act of 1933, as amended
(other than a registration effected by the Corporation in connection with an
employee benefit plan or a Rule 145 transaction, as defined in Rule 145 of
the Securities and Exchange Commission).
(c) RIGHT TO CONVERT SERIES B PREFERRED. Each share of
Series B Preferred shall be convertible, at the option of the holder thereof,
at any time after the date of issuance of such share and on or prior to the
fifth (5th) day prior to the Redemption Date fixed by the Redemption Notice
at the office of the Corporation or any transfer agent for the Series B
Preferred into the number of fully paid and non-assessable shares of Common
Stock which results from dividing the Series B Liquidation Amount (as
hereinafter defined) by the Series B Conversion Value (as hereinafter
defined). The Series B Liquidation Amount shall be the full amount then
distributable with respect to each share of Series B Preferred pursuant to
Section 3(a) hereof upon a liquidation, dissolution or winding up of the
Corporation. The Series B Conversion Value shall be: (i) in the event of any
conversion as of the closing of the Initial Public Offering, an amount equal
to the gross proceeds per share of Common Stock paid to the Company (as
reduced for underwriter commissions and discounts as calculated on a per
share basis) pursuant to the Initial Public Offering; and (ii) in the event
of a conversion not subject to the preceding clause (i), the fair market
value of a share of the Company's Common Stock, as is determined in good
faith by the Board as of the date of such conversion.
(d) MECHANICS OF CONVERSION. Before any holder of Series A
Preferred or Series B Preferred shall be entitled to convert the same into
shares of Common Stock and to receive certificates therefor, such holder
shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Corporation or of any transfer agent for the Series A
Preferred, and shall give written notice to the Corporation at such office
that such holder elects to convert the same; provided, however, that in the
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event of an automatic con version pursuant to Section 5(b) hereof, the
outstanding shares of Series A Preferred shall be converted automatically
without any further action by the holders of such shares and whether or not
the certificates representing such shares are surrendered to the Corporation
or its transfer agent; and provided further that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock
issuable upon such automatic conversion unless and until the certificates
evidencing such shares of Series A Preferred are either delivered to the
Corporation or its transfer agent as provided above, or the holder notifies
the Corporation or its transfer agent that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the Corporation
to indemnify the Corporation from any loss incurred by it in connection with
such certificates. The Corporation shall, as soon as practicable after such
delivery, or after such agreement and indemnification, issue and deliver at
such office to such holder of Series A Preferred, a certificate or
certificates for the number of shares of Common Stock to which he or she
shall be entitled as aforesaid and a check payable to the holder in the
amount of any declared and unpaid dividends payable pursuant to Section 5(a)
hereof, if any. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of
the shares of Series A Preferred or Series B Preferred to be converted, or,
in the case of automatic conversion, immediately prior to the occurrence of
the event leading to such automatic conversion, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on such date.
(e) ADJUSTMENTS TO SERIES A CONVERSION PRICE.
(i) SPECIAL DEFINITIONS. For purposes of this
Section 5(e), the following definitions shall apply:
(1) 'OPTIONS' shall mean rights, options or warrants
to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) 'CONVERTIBLE SECURITIES' shall mean any
evidences of indebtedness, shares or other securities convertible into or
exchangeable for Common Stock.
(3) 'ADDITIONAL SHARES OF COMMON' shall mean all
shares of Common Stock issued (or, pursuant to Section 5(e)(iii), deemed to
be issued) by the Corporation after the Series A Original Issue Date, other
than shares of Common Stock issued or issuable:
(A) upon conversion of shares of Series A
Preferred or Series B Preferred;
(B) to officers, directors or employees of, or
consultants to, the Corporation pursuant to a stock grant, option plan or
purchase plan
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or other employee stock incentive program or agreement approved by the Board,
not to exceed 3,300,000 shares, net of repurchases and cancellations and
expirations (without exercise) of options, since the incorporation of the
Corporation;
(C) as a dividend or distribution on Series A
Preferred or Series B Preferred;
(D) in a transaction described in
Section 5(e)(vi); or
(E) by way of dividend or other distribution
on shares of Common Stock excluded from the definition of Additional Shares
of Common by the foregoing clauses (A), (B), (C), (D) or this clause (E).
(ii) 'SERIES A ORIGINAL ISSUE DATE' shall mean the first
date upon which a share of Series A Preferred shall be issued by
the Corporation.
(iii) NO ADJUSTMENT OF SERIES A CONVERSION PRICE. No
adjustment in the Conversion Price of the Series A Preferred shall be made in
respect of the issuance of Additional Shares of Common unless the
consideration per share for an Additional Share of Common issued or deemed to
be issued by the Corporation is less than the Series A Conversion Price, in
effect on the date of, and immediately prior to, such issue.
(iv) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON.
(1) OPTIONS AND CONVERTIBLE SECURITIES. In the
event the Corporation at any time or from time to time after the Series A
Original Issue Date shall issue any Options or Convertible Securities or
shall fix a record date for the determination of holders of any class of
securities entitled to receive any such Options or Convertible Securities,
then the maximum number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein for a subsequent
adjustment of such number) of Common Stock issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor, the
exercise of such Options and conversion or exchange of such Convertible
Securities shall be deemed to be Additional Shares of Common issued as of the
time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that Additional Shares
of Common shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Section 5(e)(v) hereof) of such Additional
Shares of Common would be less than the Conversion Price in effect on the
date of and immediately prior to such issue, or such record date, as the case
may be, and provided further that in any such case in which Additional Shares
of Common are deemed to be issued:
(A) except as provided in Section 5(e)(iii),
no further adjustment in the Conversion Price shall be made upon the
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subsequent issue of Convertible Securities or shares of Common Stock upon the
exercise of such Options or conversion or exchange of such Convertible
Securities;
(B) if such Options or Convertible Securities
by their terms provide, with the passage of time or otherwise, for any change
in the consideration payable to the Corporation, or change in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof (other than under or by reason of provisions designed to protect
against dilution), the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto) and
any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities; and
(C) no readjustment pursuant to clause (B)
above shall have the effect of increasing the Series A Conversion Price to an
amount which exceeds the lower of (1) the Series A Conversion Price on the
original adjustment date or (2) the Series A Conversion Price that would have
resulted from any issuance of Additional Shares of Common between the
original adjustment date and such readjustment date.
(v) ADJUSTMENT OF SERIES A CONVERSION PRICE UPON
ISSUANCE OF ADDITIONAL SHARES OF COMMON. In the event this Corporation shall
issue Additional Shares of Common (including Additional Shares of Common
deemed to be issued pursuant to Section 5(e)(iii)) without consideration or
for a consideration per share less than the Series A Conversion Price in
effect on the date of and immediately prior to such issue (such issuance
price being referred to herein as the "Dilution Price"), then and in each
such event the Series A Conversion Price of the Series A Preferred or the
Series B Preferred, as applicable, shall be reduced to a price (calculated to
the nearest cent) determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of shares
of Common Stock which the aggregate consideration received by the Corporation
for the total number of Additional Shares of Common so issued would purchase
at such Conversion Price; and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number of such Additional Shares of Common so issued; provided that, for the
purposes of this Section 5(e)(iv), all shares of Common Stock issuable upon
conversion of all outstanding Series A Preferred and Series B Preferred and
all outstanding Options (provided such Options have an exercise price below
the Series A Conversion Price, immediately prior to such issue) and
Convertible Securities shall be deemed to be outstanding, and, immediately
after any Additional Shares of Common are deemed issued pursuant to Section
5(e)(iii), such Additional Shares of Common shall be deemed to be outstanding.
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(vi) DETERMINATION OF CONSIDERATION. For purposes of
this Section 5(e), the consideration received by the Corporation for the
issue of any Additional Shares of Common shall be computed as follows:
(1) CASH AND PROPERTY: Such consideration shall:
(A) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation;
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue,
as determined by Board in the good faith exercise of its reasonable business
judgment; and
(C) in the event Additional Shares of Common
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above,
as determined in good faith by the Board.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common deemed to have been issued pursuant to Section 5(e)(iii)(1), relating
to Options and Convertible Securities, shall be determined by dividing
(A) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options
or Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options
or the conversion or exchange of such Convertible Securities, or in the case
of Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities, by
(B) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to
any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.
(vii) OTHER ADJUSTMENTS TO SERIES A CONVERSION PRICE.
(1) SUBDIVISIONS, COMBINATIONS, OR CONSOLIDATIONS
OF COMMON STOCK. In the event the outstanding shares of Common Stock shall
be subdivided, combined or consolidated, by stock split, stock dividend,
combination or like
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event, into a greater or lesser number of shares of Common Stock, the Series
A Conversion Price in effect immediately prior to such subdivision,
combination, consolidation or stock dividend shall, concurrently with the
effectiveness of such subdivision, combination or consolidation, be
proportionately adjusted.
(2) DISTRIBUTIONS OTHER THAN CASH DIVIDENDS
OUT OF RETAINED EARNINGS. In case the Corporation shall distribute to
holders of its Common Stock shares of its capital stock (other than Common
Stock), stock or other securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends)
or options or rights (excluding options to purchase and rights to subscribe
for Common Stock or other securities of the Corporation convertible into or
exchangeable for Common Stock), then, in each such case, the holders of
shares of Series A Pre ferred shall, concurrently with the distribution to
holders of Common Stock, receive a like distribution based upon the number of
shares of Common Stock into which the Series A of Preferred is then
convertible.
(3) RECLASSIFICATIONS. In the case, at any
time after the date hereof, of any capital reorganization or any
reclassification of the stock of the Corporation (other than as a result of a
stock dividend or subdivision, split-up or combination of shares), or the
consolidation or merger of the Corporation with or into another person (other
than a consolidation or merger in which the Corporation is the continuing
entity and which does not result in any change in the Common Stock or which
is treated as a liquidation pursuant to Section 3(c)), or of the sale or
other disposition of all or substantially all the properties and assets of
the Corporation, the shares of the Series A Preferred shall, after such
reorganization, reclassification, consolidation, merger, sale or other
disposition, be convertible into the kind and number of shares of stock or
other securities or property of the Corpora tion or otherwise to which such
holder would have been entitled if immediately prior to such reorganization,
reclassification, consolidation, merger, sale or other disposition he had
converted his shares of the Series A Preferred or Series B Preferred into
Common Stock. The provisions of this clause 5(e)(vi)(3) shall similarly
apply to successive reorganizations, reclassifications, consolidations,
mergers, sales or other dispositions.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Series A Conversion Price pursuant to
this Section 5, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series A Preferred a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at
any time of any holder of Series A Preferred, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Series A Conversion Price at the time
in effect, and (iii) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the
conversion of the Series A Preferred.
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(g) STATUS OF CONVERTED STOCK. In case any shares of Series
A Preferred or Series B Preferred shall be converted pursuant to Section 5
hereof, the shares so converted shall be canceled, shall not be reissuable
and shall cease to be a part of the authorized capital stock of the
Corporation.
(h) FRACTIONAL SHARES. In lieu of any fractional shares to
which the holder of Series A Preferred or Series B Preferred would otherwise
be entitled upon conversion, the Corporation shall pay cash equal to such
fraction multiplied by the fair market value of one share of Common Stock as
determined by the Board. The number of whole shares issuable to each holder
upon such conversion shall be determined on the basis of the number of shares
of Common Stock issuable upon conversion of the total number of shares of
Series A Preferred and Series B Preferred held by such holder at the time of
converting into Common Stock.
(i) MISCELLANEOUS.
(i) All calculations under this Section 5 shall be made
to the nearest cent or to the nearest one hundredth (1/100) of a share, as
the case may be.
(ii) The holders of at least 50% of the outstanding
Series A Preferred, each such Series having the right to act and vote
separately as a class, shall have the right to challenge any determination by
the Board of fair value pursuant to this Section 5, in which case such
determination of fair value shall be made by an independent appraiser
selected jointly by the Board and the challenging parties, the cost of such
appraisal to be borne equally by the Corporation and the challenging parties.
(iii) No adjustment in the Series A Conversion Price of
the Series A Preferred need be made if such adjustment would result in a
change in such Conversion Price of less than $0.01. Any adjustment of less
than $0.01 which is not made shall be carried forward and shall be made at
the time of and together with any subsequent adjustment which, on a
cumulative basis, amounts to an adjustment of $0.01 or more in such Series A
Conversion Price.
(j) NO IMPAIRMENT. The Corporation will not through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 5
and in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of Series A Preferred
or Series B Preferred against impairment.
(k) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series A Preferred and Series B
Preferred, such number of its shares of Common Stock
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as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series A Preferred and Series B Preferred. If at any
time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then-outstanding shares of
Series A Preferred, the Corporation will take such corpo rate action as may,
in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
6. VOTING RIGHTS. Except as otherwise required by law or by
Section 9 hereof, the holder of each share of Common Stock issued and
outstanding shall have one vote, and the holder of each share of Series A
Preferred issued and outstanding shall be entitled to the number of votes
equal to the number of shares of Common Stock into which such share of Series
A Preferred could be converted at the record date for determination of the
stockholders entitled to vote on such matters, or, if no such record date is
established, at the date such vote is taken or any written consent of
stockholders is solicited, such votes to be counted together with all other
shares of stock of the Corporation having general voting power and not
separately as a class. Except as otherwise required by law or by Section 9
hereof, the Series B Preferred shall be non-voting stock of the Corporation.
Fractional votes by the holders of Series A Preferred shall not, however, be
permitted, and any fractional voting rights shall (after aggregating all
shares into which shares of Series A Preferred held by each holder could be
converted) be rounded to the nearest whole number.
7. NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of Series A Preferred or Series B
Preferred, at least twenty (20) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character
of such dividend, distribution or right.
8. NOTICES. Any notice required by the provisions of the
Certificate to be given to the holders of Series A Preferred and Series B
Preferred shall be deemed given when deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his or her address
appearing on the books of this Corporation.
9. PROTECTIVE PROVISIONS.
(a) SERIES A PREFERRED. So long as any shares of Series A
Preferred are outstanding, the Corporation shall not, without first obtaining
the approval of the holders of at least a majority of the then-outstanding
shares of such series, voting as a separate class, take any action that:
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(i) alters the rights, preferences or privileges of such
series;
(ii) creates any new class or series of shares that has
a preference over or is on a parity with such series with respect to voting,
dividends or liquidation preferences;
(iii) reclassifies stock into shares having a preference
over or on a parity with such series with respect to voting, dividends or
liquidation preferences;
(iv) repurchases, redeems or retires any shares of
capital stock of the Corporation other than pursuant to contractual rights to
repurchase shares of Common Stock held by employees, directors or consultants
of the Corporation or its subsidiaries upon termination of their employment
or services or pursuant to the exercise of a contractual right of first
refusal held by the Corporation;
(v) results in the consolidation or merger with or into
any other Corporation or the sale or other transfer in a single transaction
or a series of related transactions of all or substantially all of the assets
of this Corporation, or otherwise results in the reorganization of this
Corporation unless the stockholders of this Corporation immediately prior to
any such transaction are holders of a majority of the voting securities of
the surviving or acquiring Corporation immediately thereafter (and for
purposes of this calculation equity securities which any stockholder or the
Corporation owned immediately prior to such merger or consolidation as a
stockholder of another party to the transaction shall be disregarded);
(vi) materially alters or changes the business of the
Corporation; or
(vii) increases the authorized number of directors as set
forth in the Bylaws of the Corporation.
(b) SERIES B PREFERRED. So long as any shares of Series B
Preferred are outstanding, the Corporation shall not, without first obtaining
the approval of the holders of at least a majority of the then-outstanding
shares of such series, voting as a separate class, take any action that:
(i) alters the rights, preferences or privileges of
such series;
(ii) creates any new class or series of shares that has
a preference over or is on a parity with such series with respect to
dividends or liquidation preferences; or
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(iii) reclassifies stock into shares having a preference
over or on a parity with respect to dividends or liquidation preferences.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: Whenever a compromise is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and
its stockholders or any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application
of any receiver or receivers appointed for this Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of Title 8
of the Delaware Code order a meeting of the creditors, or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as
the case may be, to be summoned in such manner as the said court directs. If
a majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of
this Corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of this Corporation as a consequence of such
compromise or arrangement, the same compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class or
creditors, and/or on all the stockholders or class of stockholders, of this
Corporation, as the case may be, and also on this Corporation.
SEVENTH: For the management of the business and for the conduct of
the affairs of the Corporation, and in further definition, limitation, and
regulation of the powers of the Corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
(a) The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors. The
number of directors which shall constitute the whole Board of Directors shall
be fixed by, or in the manner provided in, the Bylaws. The phrase "whole
Board" and the phrase "total number of directors" shall be deemed to have the
same meaning, to wit, the total number of directors which the Corporation
would have if there were no vacancies. No election of directors need be by
written ballot.
(b) After the original or other Bylaws of the Corporation have
been adopted, amended, or repealed, as the case may be, in accordance with
the provisions of Section 109 of the General Corporation Law of the State of
Delaware, and, after the Corporation has received any payment for any of its
stock, the power to adopt, amend, or repeal the Bylaws of the Corporation may
be exercised by the Board of Directors of the Corporation; provided, however,
that any provision for the classification of directors of the Corporation for
staggered terms pursuant to the provisions of subsection (d) of Section 141
of the General Corporation Law of the State of Delaware shall be set forth in
17
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an initial Bylaw or in a Bylaw adopted by the stockholders entitled to vote
of the Corporation unless provisions for such classification shall be set
forth in this certificate of incorporation.
(c) Whenever the Corporation shall be authorized to issue only
one class of stock, each outstanding share shall entitle the holder thereof
to notice of, and the right to vote at, any meeting of stockholders.
Whenever the Corporation shall be authorized to issue more than one class of
stock, no outstanding share of any class of stock which is denied voting
power under the provisions of the certificate of incorporation shall entitle
the holder thereof to the right to vote at any meeting of stockholders except
as the provisions of paragraph (2) of subsection (b) of Section 242 of the
General Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied voting
power shall entitle the holder thereof to vote upon the increase or decrease
in the number of authorized shares of said class.
EIGHTH: The personal liability of the directors of the Corporation
is hereby eliminated to the fullest extent permitted by the provisions of
paragraph (7) of subsection (b) of Section 102 of the General Corporation Law
of the State of Delaware, as the same may be amended and supplemented.
NINTH: The Corporation shall, to the fullest extent permitted by
the provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities, or other matters referred
to in or covered by said section, and the indemnification provided for herein
shall not be deemed exclusive of any other rights to which those indemnified
may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the heirs, executors,
and administrators of such person.
TENTH: From time to time any of the provisions of this certificate
of incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and
all rights at any time conferred upon the stockholders of the Corporation by
this certificate of incorporation are granted subject to the provisions of
this Article TENTH.
RESOLVED FURTHER, that the foregoing Restated Certificate of
Incorporation is hereby approved and adopted."
IN WITNESS WHEREOF, BEA SYSTEMS, INC. has caused this Certificate to
be signed by William T. Coleman III, its President and Chief Executive
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Officer, and attested to by Edward W. Scott, Jr., its Secretary, this 10th
day of November, 1995.
BEA SYSTEMS, INC.
/s/ William T. Coleman III
_______________________________
William T. Coleman III
President and Chief Executive Officer
ATTEST:
/s/ Edward W. Scott, Jr.
By:______________________
Edward W. Scott, Jr.
Secretary
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20
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BYLAWS
OF
BEA ENTERPRISES, INC.
A DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
PAGE
- ---------------------------------------------------------------------------
ARTICLE I
OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. REGISTERED OFFICE . . . . . . . . . . . . . . . . 1
2. OTHER OFFICES . . . . . . . . . . . . . . . . . . 1
ARTICLE II
STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . 1
Section .1 Place of Meetings. . . . . . . . . . . . . . . . . . . 1
Section .2 Annual Meetings . . . . . . . . . . . . . . . . . . . 1
Section .3 Special Meetings . . . . . . . . . . . . . . . . . . . 1
Section .4 Notice of Meetings . . . . . . . . . . . . . . . . . . 2
Section .5 Quorum . . . . . . . . . . . . . . . . . . . . . . . 2
Section .6 Voting Rights. . . . . . . . . . . . . . . . . . . . . 3
Section .7 List of Stockholders . . . . . . . . . . . . . . . . . 3
Section .8 Action Without Meeting . . . . . . . . . . . . . . . . 3
ARTICLE III
DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section .1 Number and Term of Office. . . . . . . . . . . . . . . 4
Section .2 Powers . . . . . . . . . . . . . . . . . . . . . . . . 4
Section .3 Vacancies. . . . . . . . . . . . . . . . . . . . . . . 4
Section .4 Resignations and Removals. . . . . . . . . . . . . . . 4
Section .5 Meetings . . . . . . . . . . . . . . . . . . . . . . . 5
Section .6 Quorum and Voting. . . . . . . . . . . . . . . . . . . 5
Section .7 Action Without Meeting . . . . . . . . . . . . . . . . 6
Section .8 Fees and Compensation . . . . . . . . . . . . . . . . 6
Section .9 Committees . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV
OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section .1 Officers Designated. . . . . . . . . . . . . . . . . . 7
Section .2 Tenure and Duties of Officers. . . . . . . . . . . . . 7
ARTICLE V
EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF
SECURITIES OWNED BY THE CORPORATION . . . . . . . . . . . . . . . . . . 8
Section .1 Execution of Corporate Instruments. . . . . . . . . . 8
Section .2 Voting of Securities Owned by Corporation . . . . . . 9
ARTICLE VI
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
- ---------------------------------------------------------------------------
SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section .1 Form and Execution of Certificates. . . . . . . . . . 9
Section .2 Lost Certificates . . . . . . . . . . . . . . . . . . 9
Section .3 Transfer . . . . . . . . . . . . . . . . . . . . . .10
Section .4 Fixing Record Dates . . . . . . . . . . . . . . . . .10
Section .5 Registered Stockholders . . . . . . . . . . . . . . .10
ARTICLE VII
OTHER SECURITIES OF THE CORPORATION . . . . . . . . . . . . . . . . . .11
ARTICLE VIII
CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
ARTICLE XI
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS. . . . . .11
Section .1 Right to Indemnification. . . . . . . . . . . . . . .11
Section .2 Authority to Advance Expenses . . . . . . . . . . . .12
Section .3 Right of Claimant to Bring Suit . . . . . . . . . . .12
Section .4 Provisions Nonexclusive . . . . . . . . . . . . . . .13
Section .5 Authority to Insure . . . . . . . . . . . . . . . . .13
Section .6 Survival of Rights . . . . . . . . . . . . . . . . .13
Section .7 Settlement of Claims. . . . . . . . . . . . . . . . .13
Section .8 Effect of Amendment . . . . . . . . . . . . . . . . .13
Section .9 Subrogation . . . . . . . . . . . . . . . . . . . . .13
Section .10 No Duplication of Payments. . . . . . . . . . . . . .13
ARTICLE X
NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
ARTICLE XI
AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
BEA SYSTEMS, INC.
- -------------------------------------------------------------------------------
SECTION 1.
OFFICES
SECTION 1.1. REGISTERED OFFICE. The registered office of the
corporation in the State of Delaware shall be 32 Loockerman Square, Suite
L-100, City of Dover, 19901, County of Kent.
SECTION 1.2. OTHER OFFICES. The corporation shall also have and
maintain an office or principal place of business at 2465 East Bayshore Road,
Suite 301, Palo Alto, CA 94303, and may also have offices at such other
places, both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation
may require.
SECTION 2.
STOCKHOLDERS' MEETINGS
SECTION 2.1. PLACE OF MEETINGS. Meetings of the stockholders of
the corporation shall be held at such place, either within or without the
State of Delaware, as may be designated from time to time by the Board of
Directors, or, if not so designated, then at the office of the corporation
required to be maintained pursuant to Section 1.2 of Article I hereof.
Section 2.2. ANNUAL MEETINGS. The annual meetings of the
stockholders of the corporation, commencing with the year 1995, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.
Section 2.3. SPECIAL MEETINGS. Special Meetings of the
stockholders of the corporation may be called, for any purpose or purposes,
by the Chairman of the Board or the President or the Board of Directors at
any time. Upon written request of any stockholder or stockholders holding in
the aggregate one-TENTH of the voting power of all stockholders delivered in
person or sent by registered mail to the Chairman of the Board, President or
Secretary of the corporation, the Secretary shall call a special meeting of
stockholders to be held at the office of the corporation required to be
maintained pursuant to Section 1.2 hereof at such time as the Secretary may
fix, such meeting to be held not less than ten nor more than sixty days after
the receipt of such request, and if the Secretary shall neglect or refuse to
call such meeting, within seven days after the receipt of such request, the
stockholder making such request may do so.
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Section 2.4. NOTICE OF MEETINGS.
1. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of
stockholders, specifying the place, date and hour and purpose or
purposes of the meeting, shall be given not less than ten nor
more than sixty days before the date of the meeting to each
stockholder entitled to vote thereat, directed to his address as
it appears upon the books of the corporation; except that where
the matter to be acted on is a merger or consolidation of the
Corporation or a sale, lease or exchange of all or substantially
all of its assets, such notice shall be given not less than
twenty (20) nor more than sixty (60) days prior to such meeting.
2. If at any meeting action is proposed to be
taken which, if taken, would entitle shareholders fulfilling the
requirements of section 262(d) of the Delaware General
Corporation Law to an appraisal of the fair value of their
shares, the notice of such meeting shall contain a statement of
that purpose and to that effect and shall be accompanied by a
copy of that statutory section.
3. When a meeting is adjourned to another time
or place, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which
the adjournment is taken unless the adjournment is for more than
thirty days, or unless after the adjournment a new record date
is fixed for the adjourned meeting, in which event a notice of
the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
4. Notice of the time, place and purpose of any
meeting of stockholders may be waived in writing, either before
or after such meeting, and to the extent permitted by law, will
be waived by any stockholder by his attendance thereat, in
person or by proxy. Any stockholder so waiving notice of such
meeting shall be bound by the proceedings of any such meeting in
all respects as if due notice thereof had been given.
5. Unless and until voted, every proxy shall be
revocable at the pleasure of the person who executed it or of
his legal representatives or assigns, except in those cases
where an irrevocable proxy permitted by statute has been given.
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Section 2.5. QUORUM.
1. At all meetings of stockholders, except
where otherwise provided by law, the Certificate of
Incorporation, or these Bylaws, the presence, in person or by
proxy duly authorized, of the holders of a majority of the
outstanding shares of stock entitled to vote shall constitute a
quorum for the transaction of business. Shares, the voting of
which at said meeting have been enjoined, or which for any
reason cannot be lawfully voted at such meeting, shall not be
counted to determine a quorum at said meeting. In the absence
of a quorum, any meeting of stockholders may be adjourned, from
time to time, by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted
at such meeting. At such adjourned meeting at which a quorum is
present or represented any business may be transacted which
might have been transacted at the original meeting. The
stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business
until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
2. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, all action taken
by the holders of a majority of the voting power represented at
any meeting at which a quorum is present shall be valid and
binding upon the corporation.
Section 2.6. VOTING RIGHTS.
1. Except as otherwise provided by law, only
persons in whose names shares entitled to vote stand on the
stock records of the corporation on the record date for
determining the stockholders entitled to vote at said meeting
shall be entitled to vote at such meeting. Shares standing in
the names of two or more persons shall be voted or represented
in accordance with the determination of the majority of such
persons, or, if only one of such persons is present in person or
represented by proxy, such person shall have the right to vote
such shares and such shares shall be deemed to be represented
for the purpose of determining a quorum.
2. Every person entitled to vote or execute
consents shall have the right to do so either in person or by an
agent or agents authorized by a written proxy executed by such
person or his duly authorized agent, which proxy shall be filed
with the Secretary of the corporation at or before the meeting
at which it is to be used. Said proxy so appointed need not be
a stockholder. No proxy shall be voted on after three years
from its date unless the proxy provides for a longer period.
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Section 2.7. LIST OF STOCKHOLDERS. The officer who has charge of
the stock ledger of the corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at said meeting, arranged in alphabetical order, showing the
address of and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within
the city where the meeting is to be held and which place shall be specified
in the notice of the meeting, or, if not specified, at the place where said
meeting is to be held, and the list shall be produced and kept at the time
and place of meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
Section 2.8. ACTION WITHOUT MEETING. Unless otherwise provided in
the certificate of incorporation, any action required by statute to be taken
at any annual or special meeting of stockholders of the corporation, or any
action which 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 or consents in writing, setting forth the action
so taken, are 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. To be effective, a written consent must be delivered to the
corporation by delivery to its registered office in delaware, its principal
place of business, or an officer or agent of the corporation having custody
of the book in which proceedings of meetings of stockholders are recorded.
Delivery made to a corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. Every written
consent shall bear the date of signature of each stockholder who signs the
consent and no written consent shall be effective to take the corporate
action referred to therein unless, within sixty days of the earliest dated
consent delivered in the manner required by this section to the corporation,
written consents signed by a sufficient number of holders to take action are
delivered to the corporation in accordance with this section. 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.
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Section 3.
DIRECTORS
Section 3.1. NUMBER AND TERM OF OFFICE. The number of directors
which shall constitute the whole of the board of directors shall be not less
that four (4) nor more than seven (7). With the exception of the first board
of directors, which shall be elected by the incorporators, and except as
provided in section 3.3 of this article iii, the directors shall be elected
by a plurality vote of the shares represented in person or by proxy, at the
stockholders annual meeting in each year and entitled to vote on the election
of directors. Elected directors shall hold office until the next annual
meeting and until their successors shall be duly elected and qualified.
Directors need not be stockholders. If, for any cause, the board of
directors shall not have been elected at an annual meeting, they may be
elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these bylaws.
Section 3.2. POWERS. The powers of the corporation shall be
exercised, its business conducted and its property controlled by or under the
direction of the board of directors.
Section 3.3. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be
filled by a majority of the directors then in office, although less than a
quorum, or by a sole remaining director, and each director so elected shall
hold office for the unexpired portion of the term of the director whose place
shall be vacant, and until his successor shall have been duly elected and
qualified. A vacancy in the board of directors shall be deemed to exist
under this section in the case of the death, removal or resignation of any
director, or if the stockholders fail at any meeting of stockholders at which
directors are to be elected (including any meeting referred to in section 3.4
below) to elect the number of directors then constituting the whole board.
Section 3.4. RESIGNATIONS AND REMOVALS.
1. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to
specify whether it will be effective at a particular time, upon receipt by
the Secretary or at the pleasure of the Board of Directors. If no such
specification is made it shall be deemed effective at the pleasure of the
Board of Directors. When one or more directors shall resign from the Board,
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office for the unexpired portion of the term of the director whose place
shall be vacated and until his successor shall have been duly elected and
qualified.
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2. At a special meeting of stockholders called
for the purpose in the manner hereinabove provided, the Board of
Directors, or any individual director, may be removed from
office, with or without cause, and a new director or directors
elected by a vote of stockholders holding a majority of the
outstanding shares entitled to vote at an election of directors.
Section 3.5. MEETINGS.
1. The annual meeting of the Board of Directors
shall be held immediately after the annual stockholders' meeting
and at the place where such meeting is held or at the place
announced by the Chairman at such meeting. No notice of an
annual meeting of the Board of Directors shall be necessary and
such meeting shall be held for the purpose of electing officers
and transacting such other business as may lawfully come before
it.
2. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the
office of the corporation required to be maintained pursuant to
Section 1.2 of Article I hereof. Regular meetings of the Board
of Directors may also be held at any place within or without the
State of Delaware which has been designated by resolutions of
the Board of Directors or the written consent of all directors.
3. Special meetings of the Board of Directors
may be held at any time and place within or without the State of
Delaware whenever called by the Chairman of the Board or, if
there is no Chairman of the Board, by the President, or by any
of the directors.
4. Written notice of the time and place of all
regular and special meetings of the Board of Directors shall be
delivered personally to each director or sent by telegram or
facsimile at least 48 hours before the start of the meeting, or
sent by first class mail at lease 120 hours before the start of
the meeting. Notice of any meeting may be waived in writing at
any time before or after the meeting and will be waived by any
director by attendance thereat.
Section 3.6. QUORUM AND VOTING.
1. A quorum of the Board of Directors shall
consist of a majority of the exact number of directors fixed
from time to time in accordance with Section 3.1 of Article III
of these Bylaws, but not less than one; provided, however, at
any meeting whether a quorum be present or otherwise, a majority
of the directors present may adjourn from time to time until the
time fixed for the next regular meeting of the Board of
Directors, without notice other than by announcement at the
meeting.
2. At each meeting of the Board at which a
quorum is present all questions and business shall be determined
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by a vote of a majority of the directors present, unless a
different vote be required by law, the Certificate of
Incorporation, or these Bylaws.
3. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of
conference telephone or similar communication equipment by means
of which all persons participating in the meeting can hear each
other, and participation in a meeting by such means shall
constitute presence in person at such meeting.
4. The transactions of any meeting of the Board
of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be
present and if, either before or after the meeting, each of the
directors not present shall sign a written waiver of notice, or
a consent to holding such meeting, or an approval of the minutes
thereof. All such waivers, consents or approvals shall be filed
with the corporate records or made a part of the minutes of the
meeting.
Section 3.7. ACTION WITHOUT MEETING. 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 of such committee, as the case may be, consent thereto in writing, and
such writing or writings are filed with the minutes of proceedings of the
board or committee.
Section 3.8. FEES AND COMPENSATION. Directors and members of
committees shall not receive any salary, fees or other compensation for their
services as directors.
Section 3.9. COMMITTEES.
1. EXECUTIVE COMMITTEE. The Board of Directors
may, by resolution passed by a majority of the whole Board,
appoint an Executive Committee of not less than one member, each
of whom shall be a director. The Executive Committee, to the
extent permitted by law, shall have and may exercise when the
Board of Directors is not in session all powers of the Board in
the management of the business and affairs of the corporation,
including, without limitation, the power and authority to
declare a dividend or to authorize the issuance of stock, except
such committee shall not have the power or authority to amend
the Certificate of Incorporation, to adopt an agreement or
merger or consolidation, to recommend to the stockholders the
sale, lease or exchange of all or substantially all of the
corporation's property and assets, to recommend to the
stockholders of the Corporation a dissolution of the Corporation
or a revocation of a dissolution, or to amend these Bylaws.
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2. OTHER COMMITTEES. The Board of Directors
may, by resolution passed by a majority of the whole Board, from
time to time appoint such other committees as may be permitted
by law. Such other committees appointed by the Board of
Directors shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such
committee, but in no event shall any such committee have the
powers denied to the Executive Committee in these Bylaws.
3. TERM. The members of all committees of the
Board of Directors shall serve a term coexistent with that of
the Board of Directors which shall have appointed such
committee. The Board, subject to the provisions of
subsections (a) or (b) of this Section 3.9, may at any time
increase or decrease the number of members of a committee or
terminate the existence of a committee; provided, that no
committee shall consist of less than one member. The membership
of a committee member shall terminate on the date of his death
or voluntary resignation, but the Board may at any time for any
reason remove any individual committee member and the Board may
fill any committee vacancy created by death, resignation,
removal or increase in the number of members of the committee.
The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee, and, in
addition, in the absence or disqualification of any 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.
4. MEETINGS. Unless the Board of Directors
shall otherwise provide, regular meetings of the Executive
Committee or any other committee appointed pursuant to this
Section 3.9 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee,
and when notice thereof has been given to each member of such
committee, no further notice of such regular meetings need be
given thereafter; special meetings of any such committee may be
held at the principal office of the corporation required to be
maintained pursuant to Section 1.2 of Article I hereof; or at
any place which has been designated from time to time by
resolution of such committee or by written consent of all
members thereof, and may be called by any director who is a
member of such committee, upon written notice to the members of
such committee of the time and place of such special meeting
given in the manner provided for the giving of written notice to
members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any
special meeting of any committee may be waived in writing at any
time after the meeting and will be waived by any director by
attendance thereat. A majority of the authorized number of
members of any such committee shall constitute a
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quorum for the transaction of business, and the act of a
majority of those present at any meeting at which a quorum is
present shall be the act of such committee.
Section 4.
OFFICERS
Section 4.1. OFFICERS DESIGNATED. The officers of the corporation
shall be a chairman of the board of directors and a president, and one or
more vice-presidents, a secretary, and a treasurer. The order of the
seniority of the vice presidents shall be in the order of their nomination,
unless otherwise determined by the board of directors. The board of directors
or the chairman of the board or the president may also appoint one or more
assistant secretaries, assistant treasurers, and such other officers and
agents with such powers and duties as it or he shall deem necessary. The
board of directors may assign such additional titles to one or more of the
officers as they shall deem appropriate. Any one person may hold any number
of offices of the corporation at any one time unless specifically prohibited
therefrom by law. The salaries and other compensation of the officers of the
corporation shall be fixed by or in the manner designated by the board of
directors.
Section 4.2. TENURE AND DUTIES OF OFFICERS.
1. GENERAL. All officers shall hold office at
the pleasure of the Board of Directors and until their
successors shall have been duly elected and qualified, unless
sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of
Directors. If the office of any officer becomes vacant for any
reason, the vacancy may be filled by the Board of Directors.
Nothing in these Bylaws shall be construed as creating any kind
of contractual right to employment with the corporation.
2. DUTIES OF THE CHAIRMAN OF THE BOARD OF
DIRECTORS. The Chairman of the Board of Directors (if there be
such an officer appointed) shall be the chief executive officer
of the corporation and, when present, shall preside at all
meetings of the shareholders and the Board of Directors. The
Chairman of the Board of Directors shall perform such other
duties and have such other powers as the Board of Directors
shall designate from time to time.
3. DUTIES OF PRESIDENT. The President shall be
the chief executive officer of the corporation in the absence of
the Chairman of the Board and shall preside at all meetings of
the shareholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed
and is present.
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The President shall perform such other duties and have such
other powers as the Board of Directors shall designate from
time to time.
4. DUTIES OF VICE-PRESIDENTS. The Vice-
Presidents, in the order of their seniority, may assume and
perform the duties of the President in the absence or disability
of the President or whenever the office of the President is
vacant. The Vice-President shall perform such other duties and
have such other powers as the Board of Directors or the
President shall designate from time to time.
5. DUTIES OF SECRETARY. The Secretary shall
attend all meetings of the shareholders and of the Board of
Directors and any committee thereof, and shall record all acts
and proceedings thereof in the minute book of the corporation.
The Secretary shall give notice, in conformity with these
Bylaws, of all meetings of the shareholders, and of all meetings
of the Board of Directors and any Committee thereof requiring
notice. The Secretary shall perform such other duties and have
such other powers as the Board of Directors shall designate from
time to time. The President may direct any Assistant Secretary
to assume and perform the duties of the Secretary in the absence
or disability of the Secretary, and each Assistant Secretary
shall perform such other duties and have such other powers as
the Board of Directors or the President shall designate from
time to time.
6. DUTIES OF TREASURER. The Treasurer shall
keep or cause to be kept the books of account of the corporation
in a thorough and proper manner, and shall render statements of
the financial affairs of the corporation in such form and as
often as required by the Board of Directors or the President.
The Treasurer, subject to the order of the Board of Directors,
shall have the custody of all funds and securities of the
corporation. The Treasurer shall perform all other duties
commonly incident to his office and shall perform such other
duties and have such other powers as the Board of Directors or
the President shall designate from time to time. The President
may direct any Assistant Treasurer to assume and perform the
duties of the Treasurer in the absence or disability of the
Treasurer, and each Assistant Treasurer shall perform such other
duties and have such other powers as the Board of Directors or
the President shall designate from time to time.
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Section 5.
EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
Section 5.1. EXECUTION OF CORPORATE INSTRUMENTS.
1. The Board of Directors may, in its
discretion, determine the method and designate the signatory
officer or officers, or other person or persons, to execute any
corporate instrument or document, or to sign the corporate name
without limitation, except where otherwise provided by law, and
such execution or signature shall be binding upon the
corporation.
2. Unless otherwise specifically determined by
the Board of Directors or otherwise required by law, formal
contracts of the corporation, promissory notes, deeds of trust,
mortgages and other evidences of indebtedness of the
corporation, and other corporate instruments or documents
requiring the corporate seal, and certificates of shares of
stock owned by the corporation, shall be executed, signed or
endorsed by the Chairman of the Board (if there be such an
officer appointed) or by the President; such documents may also
be executed by any Vice-President AND by the Secretary or
Treasurer or any Assistant Secretary or Assistant Treasurer.
All other instruments and documents requiring the corporate
signature, but not requiring the corporate seal, may be executed
as aforesaid or in such other manner as may be directed by the
Board of Directors.
3. All checks and drafts drawn on banks or
other depositaries on funds to the credit of the corporation, or
in special accounts of the corporation, shall be signed by such
person or persons as the Board of Directors shall authorize so
to do.
Section 5.2. VOTING OF SECURITIES OWNED BY CORPORATION. All stock
and other securities of other corporations owned or held by the corporation
for itself, or for other parties in any capacity, shall be voted, and all
proxies with respect thereto shall be executed, by the person authorized so
to do by resolution of the board of directors or, in the absence of such
authorization, by the chairman of the board (if there be such an officer
appointed), or by the president, or by any vice-president.
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Section 6.
SHARES OF STOCK
Section 6.1. FORM AND EXECUTION OF CERTIFICATES. Certificates for
the shares of stock of the corporation shall be in such form as is consistent
with the certificate of incorporation and applicable law. Every holder of
stock in the corporation shall be entitled to have a certificate signed by,
or in the name of the corporation by, the chairman of the board (if there be
such an officer appointed), or by the president or any vice-president and by
the treasurer or assistant treasurer or the secretary or assistant secretary,
certifying the number of shares owned by him in the corporation. Any or all
of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer
agent, or registrar at the date of issue. If the corporation shall be
authorized to issue more than one class of stock or more than one series of
any class, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate which the corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided in section 202
of the delaware general corporation law, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which 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, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights.
Section 6.2. LOST CERTIFICATES. The board of directors may direct
a new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost
or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost or destroyed. When authorizing
such issue of a new certificate or certificates, the board of directors may,
in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost or destroyed certificate or certificates, or
his legal representative, to indemnify the corporation in such manner as it
shall require and/or to give the corporation a surety bond in such form and
amount as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost or destroyed.
Section 6.3. TRANSFERS. Transfers of record of shares of stock of
the corporation shall be made only upon its books by the holders thereof, in
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person or by attorney duly authorized, and upon the surrender of a
certificate or certificates for a like number of shares, properly endorsed.
Section 6.4. FIXING RECORD DATES.
1. 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, the Board of
Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors, and which record date
shall not be more than sixty nor less than ten days before the
date of such meeting. If no record date is fixed by the Board
of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the date on which
the meeting is held. A determination of stockholders of record
entitled 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. In order that the corporation may determine
the stockholders entitled to consent to corporate action in
writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the
Board of Directors, and which date shall not be more than ten
days after the date upon which the resolution fixing the record
date is adopted by the Board of Directors. If no record date
has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board
of Directors is required by the Delaware General Corporation
Law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered
office in Delaware, its principal place of business, or an
officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded.
Delivery made to a corporation's registered office shall be by
hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required
by law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall
be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
3. In order that the corporation may determine
the stockholders entitled to receive payment of any dividend or
other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors
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may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty
days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section 6.5. 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, and
shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
Section 7.
OTHER SECURITIES OF THE CORPORATION
All bonds, debentures and other corporate securities of the corporation,
other than stock certificates, may be signed by the Chairman of the Board (if
there be such an officer appointed), or the President or any Vice-President
or such other person as may be authorized by the Board of Directors and the
corporate seal impressed thereon or a facsimile of such seal imprinted
thereon and attested by the signature of the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer; provided, however,
that where any such bond, debenture or other corporate security shall be
authenticated by the manual signature of a trustee under an indenture
pursuant to which such bond, debenture or other corporate security shall be
issued, the signature of the persons signing and attesting the corporate seal
on such bond, debenture or other corporate security may be the imprinted
facsimile of the signatures of such persons. Interest coupons appertaining
to any such bond, debenture or other corporate security, authenticated by a
trustee as aforesaid, shall be signed by the Treasurer or an Assistant
Treasurer of the corporation, or such other person as may be authorized by
the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall
appear thereon or before the bond, debenture or other corporate security so
signed or attested shall have been delivered, such bond, debenture or other
corporate security nevertheless may be adopted by the corporation and issued
and delivered as though the person who signed the same or whose facsimile
signature shall have been used thereon had not ceased to be such officer of
the corporation.
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Section 8.
CORPORATE SEAL
The corporate seal shall consist of a die bearing the name of the
corporation and the state and date of its incorporation. Said seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 9.
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
Section 9.1. RIGHT TO INDEMNIFICATION. Each person who was or is
a party or is threatened to be made a party to or is involved (as a party,
witness, or otherwise), in any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative (hereinafter a "proceeding"), by reason of the fact that he, or
a person of whom he is the legal representative, 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 or of a partnership, joint venture, trust, or other
enterprise, including service with respect to employee benefit plans, whether
the basis of the proceeding is alleged action in an official capacity as a
director, officer, employee, or agent or in any other capacity while serving
as a director, officer, employee, or agent (hereafter an "agent"), shall be
indemnified and held harmless by the corporation to the fullest extent
authorized by the delaware general corporation law, as the same exists or may
hereafter be amended or interpreted (but, in the case of any such amendment
or interpretation, only to the extent that such amendment or interpretation
permits the corporation to provide broader indemnification rights than were
permitted prior thereto) against all expenses, liability, and loss (including
attorneys' fees, judgments, fines, erisa excise taxes or penalties, and
amounts paid or to be paid in settlement, and any interest, assessments, or
other charges imposed thereon, and any federal, state, local, or foreign
taxes imposed on any agent as a result of the actual or deemed receipt of any
payments under this article) reasonably incurred or suffered by such person
in connection with investigating, defending, being a witness in, or
participating in (including on appeal), or preparing for any of the foregoing
in, any proceeding (hereinafter "expenses"); provided, however, that except
as to actions to enforce indemnification rights pursuant to section 9.3 of
this article, the corporation shall indemnify any agent seeking
indemnification in connection with a proceeding (or part thereof) initiated
by such person only if the proceeding (or part thereof) was authorized by the
board of directors of the corporation. The right to indemnification
conferred in this article shall be a contract right.
Section 9.2. AUTHORITY TO ADVANCE EXPENSES. Expenses incurred by
an officer or director (acting in his capacity as such) in defending a
proceeding
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shall be paid by the corporation in advance of the final disposition of such
proceeding, provided, however, that if required by the delaware general
corporation law, as amended, such expenses shall be advanced only upon
delivery to the corporation of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation as authorized in
this article or otherwise. Expenses incurred by other agents of the
corporation (or by the directors or officers not acting in their capacity as
such, including service with respect to employee benefit plans) may be
advanced upon such terms and conditions as the board of directors deems
appropriate. Any obligation to reimburse the corporation for expense
advances shall be unsecured and no interest shall be charged thereon.
Section 9.3. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under
section 9.1 or 9.2 of this article is not paid in full by the corporation
within 90 days after a written claim has been received by the corporation,
the claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, if successful in whole or in
part, the claimant shall be entitled to be paid also the expense (including
attorneys' fees) of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred
in defending a proceeding in advance of its final disposition where the
required undertaking has been tendered to the corporation) that the claimant
has not met the standards of conduct that make it permissible under the
delaware general corporation law for the corporation to indemnify the
claimant for the amount claimed. The burden of proving such a defense shall
be on the corporation. Neither the failure of the corporation (including its
board of directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper under the circumstances because he
has met the applicable standard of conduct set forth in the delaware general
corporation law, nor an actual determination by the corporation (including
its board of directors, independent legal counsel, or its stockholders) that
the claimant had not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that claimant has not met the
applicable standard of conduct.
Section 9.4. PROVISIONS NONEXCLUSIVE. The rights conferred on any
person by this article shall not be exclusive of any other rights that such
person may have or hereafter acquire under any statute, provision of the
certificate of incorporation, agreement, vote of stockholders or
disinterested directors, or otherwise, both as to action in an official
capacity and as to action in another capacity while holding such office. To
the extent that any provision of the certificate, agreement, or vote of the
stockholders or disinterested directors is inconsistent with these bylaws,
the provision, agreement, or vote shall take precedence.
Section 9.5. AUTHORITY TO INSURE. The corporation may purchase
and maintain insurance to protect itself and any agent against any expense,
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whether or not the corporation would have the power to indemnify the agent
against such expense under applicable law or the provisions of this article.
Section 9.6. SURVIVAL OF RIGHTS. The rights provided by this
article shall continue as to a person who has ceased to be an agent and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
Section 9.7. SETTLEMENT OF CLAIMS. The corporation shall not be
liable to indemnify any agent under this article (a) for any amounts paid in
settlement of any action or claim effected without the corporation's written
consent, which consent shall not be unreasonably withheld; or (b) for any
judicial award if the corporation was not given a reasonable and timely
opportunity, at its expense, to participate in the defense of such action.
Section 9.8. EFFECT OF AMENDMENT. Any amendment, repeal, or
modification of this article shall not adversely affect any right or
protection of any agent existing at the time of such amendment, repeal, or
modification.
Section 9.9. SUBROGATION. In the event of payment under this
article, the corporation shall be subrogated to the extent of such payment to
all of the rights of recovery of the agent, who shall execute all papers
required and shall do everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable the corporation
effectively to bring suit to enforce such rights.
Section 9.10. NO DUPLICATION OF PAYMENTS. The corporation shall
not be liable under this article to make any payment in connection with any
claim made against the agent to the extent the agent has otherwise actually
received payment (under any insurance policy, agreement, vote, or otherwise)
of the amounts otherwise indemnifiable hereunder.
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Section 10.
NOTICES
Whenever, under any provisions of these Bylaws, notice is required to be
given to any stockholder, the same shall be given in writing, timely and duly
deposited in the United States Mail, postage prepaid, and addressed to his
last known post office address as shown by the stock record of the
corporation or its transfer agent. Any notice required to be given to any
director may be given by the method hereinabove stated, or by telegram or
other means of electronic transmission, except that such notice other than
one which is delivered personally, shall be sent to such address or (in the
case of facsimile telecommunication) facsimile telephone number as such
director shall have filed in writing with the Secretary of the corporation,
or, in the absence of such filing, to the last known post office address of
such director. If no address of a stockholder or director be known, such
notice may be sent to the office of the corporation required to be maintained
pursuant to Section 1.2 of Article I hereof. An affidavit of mailing,
executed by a duly authorized and competent employee of the corporation or
its transfer agent appointed with respect to the class of stock affected,
specifying the name and address or the names and addresses of the stockholder
or stockholders, director or directors, to whom any such notice or notices
was or were given, and the time and method of giving the same, shall be
conclusive evidence of the statements therein contained. All notices given
by mail, as above provided, shall be deemed to have been given as at the time
of mailing and all notices given by telegram or other means of electronic
transmission shall be deemed to have been given as at the sending time
recorded by the telegraph company or other electronic transmission equipment
operator transmitting the same. It shall not be necessary that the same
method of giving be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or
others. The period or limitation of time within which any stockholder may
exercise any option or right, or enjoy any privilege or benefit, or be
required to act, or within which any director may exercise any power or
right, or enjoy any privilege, pursuant to any notice sent him in the manner
above provided, shall not be affected or extended in any manner by the
failure of such a stockholder or such director to receive such notice.
Whenever any notice is required to be given under the provisions of the
statutes or of the Certificate of Incorporation, or of these Bylaws, a waiver
thereof in writing signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto. Whenever notice is required to be given, under any provision of law
or of the Certificate of Incorporation or Bylaws of the corporation, to any
person with whom communication is unlawful, the giving of such notice to such
person shall not be required and there shall be no duty to apply to any
governmental authority or agency for a license or permit to give such notice
to such person. Any action or meeting which shall be taken or held without
notice to any such person with whom communication is unlawful shall have the
same force and effect as if such notice had been duly given. In the event
that the action taken by the corporation is such as to require the filing of
a certificate under any provision of the Delaware General Corporation Law,
the certificate shall state, if such is the fact and if notice is required,
that notice was given to all persons entitled to receive notice except such
persons with whom communication is unlawful.
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Section 11.
AMENDMENTS
These Bylaws may be repealed, altered or amended or new Bylaws adopted
by written consent of stockholders in the manner authorized by Section 2.11
of Article II, or at any meeting of the stockholders, either annual or
special, by the affirmative vote of a majority of the stock entitled to vote
at such meeting. The Board of Directors shall also have the authority to
repeal, alter or amend these Bylaws or adopt new Bylaws (including, without
limitation, the amendment of any Bylaws setting forth the number of directors
who shall constitute the whole Board of Directors) by unanimous written
consent or at any annual, regular, or special meeting by the affirmative vote
of a majority of the whole number of directors, subject to the power of the
stockholders to change or repeal such Bylaws and provided that the Board of
Directors shall not make or alter any Bylaws fixing the qualifications,
classifications, or term of office of directors.
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CERTIFICATE OF AMENDMENT
OF
THE BYLAWS
BEA SYSTEMS, INC.
November 29, 1995
The undersigned, Michael C. Phillips, hereby certifies that:
1. He is the duly elected and acting Assistant Secretary
of BEA Systems, Inc., a Delaware corporation (the "Company").
2. Effective as of the date above, Section 2.3 of the
Company's Bylaws is amended in its entirety to read as follows:
Special Meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by the Chairman of the Board
or the President or the Board of Directors at any time. Upon written
request of any stockholder or stockholders holding in the aggregate
one-tenth of the voting power of all stockholders delivered in
person or sent by registered mail to the Chairman of the Board,
President or Secretary of the corporation, the Secretary shall call a
special meeting of stockholders to be held at the office of the
corporation required to be maintained pursuant to Section 1.2 hereof
at such time as the Secretary may fix, such meeting to be held not
less than ten nor more than sixty days after the receipt of such
request, and if the Secretary shall neglect or refuse to call such
meeting, within seven days after the receipt of such request, the
stockholder making such request may do so.
IN WITNESS HEREOF, the undersigned has set his hand hereto
this 29th day of November.
/s/ Michael C. Phillips
------------------------
Michael C. Phillips
Assistant Secretary
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CERTIFICATE OF SECRETARY
The undersigned, Secretary of BEA Enterprises, Inc., a Delaware
corporation, hereby certifies that the foregoing is a full, true and correct
copy of the Bylaws of said Corporation, with all amendments to date of this
Certificate.
WITNESS the signature of the undersigned and the seal of the Corporation
this 16th day of February, 1995.
/s/ James W. Adkisson
____________________________________
SECRETARY
-21-
<PAGE>
EXHIBIT 10.1
BEA SYSTEMS, INC.
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (the "Agreement") is made as of
September 28, 1995 by and among BEA Systems, Inc., a Delaware corporation
(the "Company"), and William T. Coleman III, Alfred S. Chuang, and Edward W.
Scott, Jr (individually "Founder" and collectively, the "Founders") and
Warburg, Pincus Ventures, L.P., a Delaware limited partnership (individually
"Investor" and collectively with the Founders as the "Stockholders").
R E C I T A L S
A. The Founders have organized the Company and own an aggregate of
2,925,000 shares of its Common Stock, $.001 par value (the "Founders Stock").
B. Investor is purchasing an aggregate of 1,000,000 shares of the
Company's Common Stock, $.001 par value ("Investor Common Stock") and
7,900,000 shares of the Company's Series A Preferred Stock, $.001 par value
(the "Preferred Stock") pursuant to a Stock Purchase Agreement of even date
herewith between Investor and the Company (the "Purchase Agreement").
C. The obligations of the Company and Investor under the Purchase
Agreement are conditioned, among other things, upon the execution and
delivery of this Agreement by Investor and the Company.
NOW, THEREFORE, in consideration of the mutual promises and
covenants hereinafter set forth, all parties hereto agree as follows:
1. CERTAIN DEFINITIONS. All capitalized terms used and not otherwise
defined herein shall have the meanings given them in the Purchase Agreement.
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.
"CONVERSION STOCK" means the Common Stock issued or issuable
pursuant to conversion of the Preferred Stock.
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"HOLDER" shall mean (i) any Founder or Investor holding Registrable
Securities, and (ii) any person holding Registrable Securities to whom the
rights under this Agreement have been transferred in accordance with Section
5.10 hereof; provided that neither the Founders nor any of their assignees
shall not be deemed Holders for the purposes of Sections 5.1 or 5.3 below.
"INITIATING HOLDERS" shall mean any Holders (other than Holders who
are Founders or assignees of the Founders) who in the aggregate hold not less
than 50% of the Registrable Securities held by all such Holders.
"PREFERRED STOCK" shall mean the Series A Preferred Stock of the
Company issued pursuant to the Stock Purchase Agreement.
"REGISTRABLE SECURITIES" means (i) the Conversion Stock, (ii) the
Investor Common Stock; (iii) the Founders Stock; and (iv) any Common Stock of
the Company issued or issuable in respect of the Conversion Stock, the
Investor Common Stock or the Founders Stock upon any stock split, stock
dividend, recapitalization, or similar event, or any Common Stock otherwise
usable with respect to the Conversion Stock, the Investor Common Stock or the
Founders Stock; provided, however, that shares of Conversion Stock or other
securities shall only be treated as Registrable Securities if and so long as
they have not been sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction. 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, except as
otherwise stated below, incurred by the Company in complying with Sections
5.1, 5.2 and 5.3 hereof, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and expenses, 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) and the reasonable
fees and disbursements of one counsel for all Holders.
"RESTRICTED SECURITIES" shall mean the securities of the Company
required to bear the legend set forth in Section 3 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered
by the Holders and, except as set
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forth under "Registration Expenses," all fees and disbursements of counsel
for any Holder.
2. RESTRICTIONS ON TRANSFERABILITY. The Preferred Stock, the Investor
Common Stock, the Founders Stock, the Conversion Stock and any other
securities issued in respect of the Preferred Stock, the Investor Common
Stock, the Founders Stock, or the Conversion Stock upon any stock split,
stock dividend, recapitalization, merger, consolidation or similar event
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. Investor will
cause any proposed purchaser, assignee, transferee, or pledgee of any such
shares held by Investor to agree to take and hold such securities subject to
the provisions and upon the conditions specified in this Agreement.
3. RESTRICTIVE LEGEND. Each certificate representing (i) the
Preferred Stock, (ii) the Conversion Stock, (iii) the Investor Common Stock,
(iv) the Founders Stock, and (v) any other securities issued in respect of
the Preferred Stock, the Investor Common Stock, the Founders Stock, or the
Conversion Stock upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall (unless otherwise permitted by
the provisions of Section 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 NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISTRIBUTION THEREOF. SUCH SHARES MAY NOT BE SOLD OR TRANS-
FERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING
THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. COPIES OF THE
AGREEMENTS COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING
THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
Each Stockholder and/or Holder consents to the Company making a notation on
its records and giving instructions to any transfer agent of the Preferred
Stock or the Common Stock in order to implement the restrictions on transfer
established in this Agreement.
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 4. Prior to any proposed
sale, assignment, transfer or pledge of any Restricted
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Securities (other than (i) a transfer not involving a change in beneficial
ownership, (ii) in transactions involving the distribution without
consideration of Restricted Securities by the Investor to any of its
partners, or retired partners, or to the estate of any of its partners or
retired partners, (iii) in transactions involving the transfer without
consideration of Restricted Securities by a Founder during his lifetime by
way of gift or on death by will or intestacy, (iv) in transactions involving
the transfer or distribution of Restricted Securities by a corporation to any
subsidiary, parent or affiliated corporation of such corporation, or (v) in
transactions in compliance with Rule 144), 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 (i) an unqualified written
opinion of legal counsel who shall be, 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 (ii) a "no action"
letter from the Commission to the effect that the transfer of such securities
without registration will not result in a recommendation by the staff of the
Commission that action be taken with respect thereto, whereupon the holder of
such Restricted Securities shall be entitled to transfer such Restricted
Securities in accordance with the terms of the notice delivered by the holder
to the Company. 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 legend set forth in Section
3 above, 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 provision of the
Securities Act.
5. REGISTRATION.
5.1 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company shall
receive from Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to not less than
one-half of their shares of Registrable Securities, or any lesser number of
shares if the anticipated aggregate offering price, net of underwriting
discounts and commissions, would exceed ten million dollars ($10,000,000),
the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to
effect such registration, qualification or compliance (including, without
limitation, 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
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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 20 days
after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section 5.1:
(A) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance unless the
Company is already subject to service in such jurisdiction and except as may
be required by the Securities Act;
(B) Prior to the earlier of September 28, 1998 or
six months after the effective date of the Company's first registered public
offering of its stock;
(C) If the Company, within ten (10) days of the
receipt of the request of the Initiating Holders, gives notice of its bona
fide intention to effect the filing of a registration statement with the
Commission within ninety (90) days of receipt of such request (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan);
(D) During the period starting with the date of
filing of, and ending on the date 180 days immediately following the
effective date of, any registration statement pertaining to securities of the
Company (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;
(E) After the Company has effected two such
registrations pursuant to this Section 5.1(a), and such registrations have
been declared or ordered effective;
(F) Within twelve (12) months after the Company has
effected such a registration pursuant to this Section 5.1(a), and such
registration has been declared or ordered effective; or
(G) If the Company shall furnish to such Initiating
Holders a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its stockholders for a registration statement
to be filed in the near future, in which case the Company's obligation to use
its best efforts to register, qualify or comply under this Section 5.1 shall
be deferred for a period not to exceed 90 days from the date of receipt of
written request
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from the Initiating Holders, provided that the Company may not exercise this
deferral right more than once per twelve-month period.
Subject to the foregoing clauses (A) through (G), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders.
(b) UNDERWRITING. In the event that a registration pursuant
to Section 5.1 is for a public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 5.1(a)(i), and the right of any Holder to registration pursuant to
Section 5.1 shall be conditioned upon such Holder's participation in such
underwriting arrangements, and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent requested shall be limited to
the extent provided herein.
The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter
selected for such underwriting by a majority in interest of the Initiating
Holders, but subject to the Company's reasonable approval. Notwithstanding
any other provision of this Section 5.1, if the managing underwriter advises
the Initiating Holders that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise all
holders of Registrable Securities, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders at the time
of filing the registration statement. No Registrable Securities excluded
from the underwriting by reason of the underwriter's marketing limitation
shall be included in such registration. To facilitate the allocation of
shares in accordance with the above provisions, the Company or the
underwriters may round the number of shares allocated to any Holder to the
nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of
the underwriting, such person may elect to withdraw therefrom by written
notice to the Company, the managing underwriter and the Initiating Holders.
The Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to 120 days after the effective
date of such registration, or such other shorter period of time as the
underwriters may require.
5.2 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from time to
time the Company shall determine to register any of its equity securities,
either for its own account or for the account of a security holder or
holders, other than (A) a registration relating solely to employee benefit
plans, or (B) a registration relating solely to a Rule 145 transaction, the
Company will:
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(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 30 days after receipt of such
written notice from the Company, by any Holder.
(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 5.2(a)(i). In such event the right of any Holder to
registration pursuant to Section 5.2 shall be conditioned upon such Holder's
participation in such underwriting, and the inclusion of Registrable
Securities in the underwriting shall be limited 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. Notwithstanding any other
provision of this Section 5.2, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Registrable Securities
to be included in such registration (i) in the case of the Company's initial
public offering, to zero, and (ii) in the case of any other offering, to an
amount no less than 25% of all shares to be included in such offering;
PROVIDED HOWEVER, that (x) any such limitation or "cut-back" shall be first
applied to all shares proposed to be sold in such offering other than for the
account of the Company which are not Registrable Securities, and (y)
notwithstanding clause (x), in no event shall any shares being sold by a
stockholder exercising a demand registration right similar to that granted in
Section 5.1 be excluded from such offering. The Company shall so advise all
Holders and other holders distributing their securities through such
underwriting, and the number of shares of Registrable Securities or other
securities that may be included in the registration and underwriting shall be
first allocated among all the Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Holder at the time of filing the Registration Statement. To facilitate the
allocation of shares in accordance with the above provisions, the Company may
round the number of shares allocated to any Holder or holder to the nearest
100 shares.
If any Holder or holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration, and shall
not be transferred in a public distribution prior to 120 days after the
effective date of the registration statement relating thereto, or such other
shorter period of time as the underwriters may require.
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(c) RIGHT TO TERMINATE REGISTRATION. The Company shall have
the right to terminate or withdraw any registration initiated by it under
this Section 5.2 prior to the effectiveness of such registration whether or
not any Holder has elected to include securities in such registration.
5.3 REGISTRATION ON FORM S-3.
(a) If any Holder or Holders request that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities the reasonably
anticipated aggregate price to the public of which would equal or exceed
$2,500,000, 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 and to cause such Registrable Securities to be
qualified in such jurisdictions as such Holder or Holders may reasonably
request; provided, however, that the Company shall not be required to effect
more than one registration pursuant to this Section 5.3 in any six (6) month
period. The Company shall inform other Holders of the proposed registration
and offer them the opportunity to participate. In the event the registration
is proposed to be part of a firm commitment underwritten public offering, the
substantive provisions of Section 5.1(b) shall be applicable to each such
registration initiated under this Section 5.3.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 5.3:
(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) if the Company, within ten (10) days of the receipt
of the request of the initiating Holders, gives notice of its bona fide
intention to effect the filing of a registration statement with the
Commission within ninety (90) days of receipt of such request (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan);
(iii) after the Company has effected two such
registrations pursuant to Section 5.3(a), and such registrations have been
declared or ordered effective;
(iv) during the period starting with the date of filing
of, and ending on the date 180 days immediately following the effective date
of, any registration statement pertaining to securities of the Company (other
than a registration of securities in a Rule 145 transaction or with respect
to an employee benefit plan), provided that the Company is
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actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(v) if the Company shall furnish to such Holder or
Holders a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its stockholders for registration statements to
be filed in the near future, in which case the Company's obligation to use
its best efforts to file a registration statement shall be deferred for a
period not to exceed 90 days from the receipt of the request to file such
registration by such Holder or Holders, provided that the Company may not
exercise this deferral right more than once per twelve-month period.
5.4 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the Closing Date, the Company shall not enter into any agreement granting any
holder or prospective holder of any securities of the Company registration
rights with respect to such securities without the written consent of the
holders of a majority of the Registrable Securities then outstanding, unless
(i) such other registration rights are subordinate to the registration rights
granted to the Holders hereunder, and (ii) the holders of such rights are
subject to market standoff obligations no more favorable to such persons than
those contained herein.
5.5 EXPENSES OF REGISTRATION. All Registration Expenses incurred
in connection with (i) two registrations pursuant to Section 5.1, (ii) all
registrations pursuant to Section 5.2, and (iii) two registrations pursuant
to Section 5.3, shall be borne by the Company. Unless otherwise stated, all
Selling Expenses relating to securities registered on behalf of the Holders
and all other registration expenses shall be borne by the Holders of such
securities pro rata on the basis of the number of shares so registered.
5.6 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Agreement, the Company will keep each Holder 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 its best efforts to cause
such registration statement to become and remain effective for at least one
hundred twenty (120) days or until the distribution described in the
registration statement has been completed, whichever first occurs; 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 Holders and underwriters may
reasonably request in order to facilitate the public offering of such
securities.
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5.7 INDEMNIFICATION.
(a) The Company will indemnify each Holder of Registrable
Securities included in a registration pursuant to this Agreement, 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
Agreement, and each underwriter, if any, and each person who controls any
under writer within the meaning of Section 15 of the Securities Act, against
all expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or
any amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, or any violation by the
Company of the Securities Act of 1933, the Securities Exchange Act of 1934,
state securities law or any rule or regulation promulgated under the such
laws 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, directors and partners, 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, as
such expenses are incurred, in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided that
the Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission or alleged untrue statement or omission, made in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by any Holder, controlling person or
underwriter and stated to be specifically for use therein; provided, however,
that the foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any such untrue statement, alleged untrue statement,
omission or alleged omission made in a preliminary prospectus on file with
the Commission at the time the registration statement becomes effective or
the amended prospectus filed with the Commission pursuant to Rule 424(b) (the
"Final Prospectus"), such indemnity agreement shall not inure to the benefit
of any underwriter, or any Holder, if there is no underwriter, if a copy of
the Final Prospectus was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act, and if the Final Prospectus would have cured the defect
giving rise to the loss, liability, claim or damage.
(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
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other such Holder, each of its officers, directors and partners and each
person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
such registration statement, prospectus, offering circular or other document,
or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, partners, persons, underwriters or control persons for any legal or
any other expenses reasonably incurred, as such expenses are incurred, in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to the Company by an instrument duly executed
by such Holder and stated to be specifically for use therein.
Notwithstanding the foregoing, the liability of each Holder under this
Section 5.7(b) shall be limited in an amount equal to the net proceeds of the
shares sold by such Holder, unless such liability arises out of or is based
on willful misconduct by such Holder.
(c) Each party entitled to indemnification under this Section
5.7 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld), and the Indemnified Party may participate in
such defense at such party's expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Agreement unless the
failure to give such notice is materially prejudicial to an Indemnifying
Party's ability to defend such action, and provided further that the
Indemnifying Party shall not assume the defense for matters as to which
representation of both the Indemnifying Party and the Indemnified Party by
the same counsel would be inappropriate due to actual or potential differing
interests between them, but shall instead in such event pay the fees and
costs of separate counsel for the Indemnified Party. 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.
5.8 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 Agreement.
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5.9 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;
(b) File with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended (at any time after it has become
subject to such reporting requirements); and
(c) So long as a Holder owns any Restricted Securities to
furnish to such Holder forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after 90 days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the
general public) and of the Securities Act and the Securities Exchange Act of
1934 (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 Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing the Holder to sell any such securities
without registration.
5.10 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted Investors under Sections 5.1, 5.2 and
5.3 may be assigned to a transferee or assignee in connection with any
transfer or assignment of Registrable Securities by the Investor provided
that: (i) such transfer may otherwise be effected in accordance with
applicable securities laws, (ii) such assignee or transferee acquires at
least 500,000 shares of Preferred Stock, Investor Common Stock, Founders
Stock and/or Conversion Stock held by the assignor or transferor
(appropriately adjusted for recapitalizations, stock splits and the like) or
such lesser number, if it constitutes all such shares held by the assignor or
transferor, (iii) written notice is promptly given to the Company and (iv)
such transferee agrees to be bound by the provisions of this Agreement.
Notwithstanding the foregoing, the rights to cause the Company to register
securities may be assigned to (A) any affiliated partnership or constituent
partner or retired partner of an Investor which is a partnership, or (B) an
officer, director or shareholder or a subsidiary, parent or affiliated
corporation of Investor which is a corporation, or (C) a family member or
trust for the benefit of a Founder who is an individual, without compliance
with item (ii) above, provided written notice thereof is promptly given to
the Company and the transferee agrees to be bound by the provisions of this
Agreement.
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5.11 TERMINATION OF REGISTRATION RIGHTS. The rights granted
pursuant to Sections 5.2 and 5.3 of this Agreement shall terminate as to any
Holder at such time as such Holder (i) can sell all of his Registrable
Securities pursuant to Rule 144(k) promulgated under the Securities Act or
(ii) can sell all of his Registrable Securities pursuant to Rule 144
promulgated under the Securities Act in any ninety (90) day period.
6. FINANCIAL INFORMATION.
(a) The Company will provide the following reports to Investor:
(i) As soon as practicable after the end of each fiscal year,
and in any event within 90 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 operations and of cash flows and stockholders'
equity 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 audited by independent public accountants of
national standing selected by the Company, and a capitalization table in
reasonable detail for such fiscal year.
(ii) At least thirty days prior to the beginning of each
fiscal year, a budget adopted by the Company's Board of Directors for the
fiscal year, prepared on a monthly basis, including balance sheets and
sources and applications of funds statements for such months, and, as soon as
prepared, any other budgets or revised budgets prepared by the Company;
(iii) Within 30 days after the end of each monthly
accounting period, a consolidated condensed balance sheet of the Company and
its subsidiaries, if any, as of the end of each such monthly period, and
consolidated condensed statement of operations of the Company and its
subsidiaries for such period and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles (other
than for accompanying notes), subject to changes resulting from year-end
audit adjust ments, together with management's analysis of results and a
statement of the chief financial or accounting officer of the Company
explaining any differences from the budget for such monthly accounting
period, and signed by the principal financial or accounting officer of the
Company, and a capitalization table in reasonable detail for such monthly
accounting period.
7. CONFIDENTIALITY. Investor acknowledges and agrees that any
information obtained pursuant to Section 6 which may be considered "inside"
non-public information will not be utilized by Investor or transferee in
connection with purchases or sales of the Company's securities and will not
be disclosed by any such Investor or transferee.
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8. RIGHT OF FIRST REFUSAL.
(a) The Company hereby grants to Investor and its assigns, the
right of first refusal to purchase its Pro Rata Share of New Securities (as
defined in this Section 8) which the Company may, from time to time, propose
to sell and issue. The "Pro Rata Share", for purposes of this right of first
refusal, is the ratio that (i) the sum of the number of shares of Common
Stock then held by Investor or such assignee and the number of shares of
Common Stock issuable upon conversion of the Preferred Stock then held by
Investor or such assignees bears to (ii) the sum of the total number of
shares of Common Stock (the "Conversion Stock") then outstanding and the
number of shares of Common Stock issuable upon exercise or conversion of all
then outstanding securities exercisable for or convertible into, directly or
indirectly, Common Stock.
(b) Except as set forth below, "New Securities" shall mean any
shares of capital stock of the Company, including Common Stock and any series
of preferred stock, whether now authorized or not, and rights, options or
warrants to purchase said shares of Common Stock or preferred stock, and
securities of any type whatsoever that are, or may become, convertible into
or exchangeable for said shares of Common Stock or preferred stock.
Notwithstand ing the foregoing, "New Securities" does not include (i) the
Conversion Stock, (ii) Common Stock offered to the public generally pursuant
to a registration statement under the Securities Act in connection with the
Company's initial public offering, (iii) securities issued pursuant to the
acquisition of another corporation by the Company by merger, purchase of all
or substantially all of the assets or other reorganization whereby the
Company or its stockholders own more than fifty percent (50%) of the voting
power of the surviving or successor corporation, (iv) up to 3,300,000 shares
(net of any repurchases) of the Company's Common Stock or related options,
warrants or other rights to purchase such Common Stock issued on or after the
date hereof to employees, officers and directors of, and consultants to, the
Company, and (v) stock issued in connection with any stock split, stock
dividend or recapitalization by the Company.
(c) In the event the Company proposes to undertake an issuance of
New Securities, it shall give Investor and such assignees written notice of
its intention, describing the amount and type of New Securities, and the
price and terms upon which the Company proposes to issue the same. Investor
and such assignees shall have fifteen (15) days from the date of receipt of
any such notice to agree to purchase up to its respective Pro Rata Share of
such New Securities for the price and upon the terms specified in the notice
by giving written notice to the Company and stating therein the quantity of
New Securities to be purchased.
(d) In the event all of the New Securities are not elected to be
purchased by Investor within fifteen (15) days after the notice pursuant to
Section 9(c) above, the Company shall have ninety (90) days thereafter to
sell the New Securities not elected to be purchased by Investor at the price
and upon the terms no more favorable to the purchasers of such securities
than specified in the Company's notice. In the event the Company has not
sold the New Securities within said ninety (90) day period, the Company shall
not thereafter issue or sell any New Securities without first offering such
securities in the manner provided above.
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(e) The right of first refusal hereunder is not assignable except
by Investor to its partners or other affiliates or to any party who acquires
at least 500,000 shares of the Investor Common Stock, Preferred Stock and/or
Conversion Stock (appropriately adjusted for recapitalizations, stock splits
and the like) from Investor.
9. TERMINATION OF COVENANTS. The covenants set forth in Sections 6
and 8 shall terminate and be of no further force or effect upon the
consummation of a firm commitment underwritten public offering or at such
time as the Company is required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended, whichever shall
occur first.
10. STANDOFF AGREEMENT. In connection with the initial public offering
of the Company's securities, each Holder agrees, 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, or otherwise dispose of any securities of the Company (other
than those included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed one hundred eighty (180) days) from the effective date of such
registration as may be requested by the underwriters, provided that all
officers and directors of the Company who own stock of, or hold options to
purchase stock of, the Company and all other persons who hold 5% or more of
the then outstanding capital stock of the Company also agree to such
restrictions. The Stockholders agree that the Company may instruct its
transfer agent to place stop-transfer notations in its records to enforce the
provisions of this Section 10.
11. DETERMINATION OF SHARE AMOUNTS AND PERCENTAGES. For the purposes
of determining the minimum holdings set forth in this Agreement, including
without limitation the minimum holdings pursuant to Sections 5.10 and 12, the
following rules shall govern:
(a) All shares held by entities affiliated with the holder shall
be deemed held by such holder, and any holder which is a partnership shall be
deemed to hold any shares of Preferred Stock, Investor Common Stock and/or
Conversion Stock originally purchased by such holder and subsequently
distributed to partners of such holder, but which have not been resold by
such partners.
(b) When shares of Preferred Stock are counted together with
shares of Conversion Stock or shares of Common Stock, shares of Preferred
Stock shall be counted on an as-converted into Common Stock basis, and the
term "Conversion Stock" shall mean only the shares of Common Stock which have
been issued pursuant to conversion of Preferred Stock.
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12. AMENDMENT. Any provision of Section 5 of this Agreement may be
amended or the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding or deemed to be outstanding. Any
provisions of Sections 6 and 8 of this Agreement may be amended or the
observance thereof so waived only with the written consent of the Company and
Investor. Any provisions other than Sections 5, 6 and 8 of this Agreement
may be amended or the observance thereof so waived only with the written
consent of the Company and a majority of the holders of such Registrable
Securities. Any amendment or waiver effected in accordance with this Section
12 shall be binding upon Investor and each Holder of Registrable Securities
at the time outstanding or deemed to be outstanding (including securities
into which such securities are convertible), each future holder of all such
securities and the Company.
13. GOVERNING LAW. This Agreement and the legal relations between the
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California. The parties hereto agree to submit
to the jurisdiction of the federal and state courts of the State of
California with respect to the breach or interpretation of this Agreement or
the enforcement of any and all rights, duties, liabilities, obligations,
powers, and other relations between the parties arising under this Agreement.
14. ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties regarding the matters set
forth herein. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon the successors,
assigns, heirs, executors and administrators of the parties hereto.
15. NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery to the party to be notified or three (3) days after
deposit with the United States mail, by registered or certified mail, postage
prepaid, addressed (a) if to Investor, at such Investor's address as set
forth in the Purchase Agreement, or at such other address as such Investor
shall have furnished to the Company in writing in accordance with this
Section 15, (b) if to any other holder of Preferred Stock, the Investor
Common Stock, the Founders Stock, or Conversion Stock, at such address as
such holder shall have furnished the Company in writing in accordance with
this Section 15, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder thereof who has so
furnished an address to the Company, or (c) if to the Company, at its
principal office.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
The foregoing Investor Rights Agreement is hereby executed as of the
date first above written.
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"COMPANY" FOUNDERS
BEA SYSTEMS, INC.
By: /s/ William T. Coleman III /s/ William T. Coleman III
--------------------------- --------------------------
William T. Coleman III
Title: President /s/ Alfred Chuang
------------------------ --------------------------
Alfred S. Chuang
/s/ Edward W. Scott, Jr.
"INVESTOR" --------------------------
WARBURG, PINCUS VENTURES, L.P. Edward W. Scott, Jr.
By: /s/ Stuart K. P. Gross
---------------------------
Title: Partner, Warburg, Pincus & Co.
-------------------------------
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EXHIBIT 10.3
BEA SYSTEMS, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, is entered into as of September 28,
1995, between BEA Systems, Inc., a Delaware corporation (the "Company"), and
William T. Coleman III ("Employee").
R E C I T A L S
---------------
A. Employee has developed a business plan for the acquisition and
operation of certain businesses in the transaction processing industry and
Warburg, Pincus Ventures, L.P. ("Warburg") has agreed to invest up to a
maximum of $50,000,000 in the Company to provide financing for the
implementation of Employee's business plan pursuant to the terms of that
certain Stock Purchase Agreement dated September 28, 1995 and that certain
Adjustment Agreement dated September 28, 1995 among Warburg, the Company,
Employee and certain other stockholders of the Company.
B. Immediately prior to the date of this Agreement,
Employee owned 600,000 shares of the Common Stock of the Company
and in connection with the investment by Warburg as contemplated by
Recital A above, Employee has entered into that certain Restricted
Stock Purchase Agreement dated September 28, 1995 (the "Stock
Purchase Agreement") for the purchase of 653,414 additional shares
of Common Stock in the Company.
C. Company desires to obtain the services of Employee,
on its own behalf and on behalf of all existing and future
Affiliated Companies (defined to mean any corporation or other
business entity or entities that directly or indirectly controls,
is controlled by, or is under common control with the Company), and
Employee desires to secure employment from the Company upon the
following terms and conditions.
A G R E E M E N T
-----------------
ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS:
1. POSITION, PERIOD OF EMPLOYMENT.
(a) PERIOD OF EMPLOYMENT. The Company hereby employs Employee to
render services to the Company in the position and with the duties and
responsibilities described in Section 1(b) for the period (the "Period of
Employment") commencing on the date of this Agreement and ending the earlier
of (i) September 28, 1999; or (ii) the date this Agreement is terminated in
accordance with Section 3 below.
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(b) President and Chief Executive Officer (or in such other
position(s) as the Board of Directors of the Company (the "Board") shall
designate). Employee shall devote his full time and attention and his best
efforts to the performance of the services customarily incident to such
office and to such other services as may be reasonably requested by the
Board. The Company shall retain full direction and control of the means and
methods by which Employee performs the above services and of the place(s) at
which such services are to be rendered.
(c) OTHER ACTIVITIES. Except upon the prior written consent of
the Board, Employee, during the Period of Employment, will not (i) accept any
other employment; (ii) engage, directly or indirectly, in any other business
activity (whether or not pursued for pecuniary advantage) that is or may be
competitive with, or that might place him in a competing position to that of
the Company or any Affiliated Company, as determined in the discretion of the
Board; or (iii) engage in any work or business activity of any kind outside
those of the Company.
2. COMPENSATION, BENEFITS, EXPENSES.
(a) COMPENSATION. In consideration of the services to be rendered
hereunder, including, without limitation, services to any Affiliated Company,
Employee shall be paid an annual salary of One Hundred Eighty Thousand
Dollars ($180,000.00), payable at the times and pursuant to the procedures
regularly established, and as they may be amended, by the Company during the
Period of Employment. This rate shall be reviewed annually on a calendar
year basis, in accordance with the Company's salary review practices, and
adjusted in the sole discretion of the Board of the Company to reflect
increases in the cost of living and such other increases as are awarded in
accordance with the Company's regular salary review practices for giving
salary increases to similarly situated employees.
(b) STOCK OPTIONS. Employee may become eligible to receive
options under the Company's 1995 Flexible Stock Incentive Plan and such other
option plans as the Company may from time to time adopt, as approved by the
Board or a Committee thereof.
(c) BONUS. Employee shall be eligible to participate in such
bonus plans as the Company may from time to time adopt for the benefit of
similarly situated employees of the Company. Employee's right to receive any
such bonus shall be subject to the terms of any Company bonus plan for which
he may become a participant and the terms determined by the Board or a
Committee thereof designating him as a participant or granting him an award
thereunder.
(d) VACATION. Employee shall be entitled to vacation in
accordance with the Company's vacation policies for similarly situated
employees, as such policies may be amended from time to time.
(e) BENEFITS. As he becomes eligible therefor, the Company shall
provide Employee with the right to participate in and to receive benefits
from all present and future life, accident, disability, medical, pension, and
savings plans and all similar benefits made
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available generally to similarly situated employees of the Company. The
amount and extent of benefits to which Employee is entitled shall be governed
by the specific benefit plan, as it may be amended from time to time.
(f) EXPENSES. The Company shall reimburse Employee for reasonable
travel and other business expenses incurred by Employee in the performance of
his duties hereunder in accordance with the Company's general policies, as
they may be amended from time to time during the course of this Agreement.
3. TERMINATION OF EMPLOYMENT.
(a) BY DEATH. The Period of Employment shall terminate
automatically upon the death of the Employee; provided however that the
Company shall pay to the Employee's beneficiaries or estate, as appropriate,
the compensation to which he is entitled pursuant to Sections 2(a) and 2(c)
and the benefits to which he is entitled pursuant to Section 2(e) shall
continue through the end of the Period of Employment, on the same time
schedule as if Employee were living. For the purposes of determining the
level of bonus compensation payable pursuant to said Section 2(c), Employee's
beneficiaries or estate, as appropriate, shall be eligible to receive bonus
payments in accordance with Section 2(c) based upon the average of the
bonuses paid to Employee for the two (2) years prior to termination;
PROVIDED, THAT if Employee's Period of Employment terminates prior to
September 28, 1997, then such bonus payments shall be 80% of the target bonus
for Employee for the year of termination as reasonably determined by the
Board. Thereafter, the Company's obligations hereunder shall terminate.
Nothing in this Section shall affect any entitlement of the Employee's heirs
to the benefits of any life insurance plan.
(b) BY DISABILITY. If the Employee shall become "permanently
disabled" as determined for purposes of the disability insurance policy
provided by the Company for Employee, then, to the extent permitted by law,
the Period of Employment shall terminate as of the date that Employee shall
be deemed to have become "permanently disabled" for purposes of such
disability insurance policy, provided, however that, the compensation to
which Employee is entitled pursuant to Sections 2(a) and 2(c) (net of amounts
paid to Employee pursuant to said disability insurance policy) and the
benefits to which he is entitled pursuant to Section 2(e) shall continue
through the end of the Period of Employment, on the same time schedule as if
Employee were not disabled. The amount of bonus payable to Employee pursuant
to this Section 3(b) shall be calculated in the manner set forth in Section
3(a) above. Thereafter, the Company's obligations hereunder shall terminate.
Employee shall continue to be receive benefits under any disability plan in
which Employee is a participant to the extent permitted under the applicable
plan.
(c) BY COMPANY FOR CAUSE. The Company may terminate, without
liability, the Period of Employment for Cause (as defined below) at any time
and without notice upon ten (10) days' advance written notice to Employee.
The Company shall pay Employee the compensation to which he is entitled
pursuant to Section 2(a) through the end of the notice period and thereafter
the Company's obligations hereunder shall terminate. The Company may
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terminate the employment of the Employee and all of the Company's obligations
under this Agreement at any time for "cause" by giving the Employee notice of
such termination, with reasonable specificity of the details thereof. For
the purposes of this Section 3(c), "Cause" shall mean: (i) the Employee's
material misconduct which could reasonably be expected to have a material
adverse effect on the business and affairs of the Company, (ii) the
Employee's disregard of lawful instructions of the Company's Board of
Directors consistent with the Employee's position relating to the business of
the Company or neglect of duties or failure to act, which, in each case,
could reasonably be expected to have a material adverse effect on the
business and affairs of the Company; (iii) Employee is convicted of common
law fraud, or a felony or criminal act against the Company or any Affiliate
thereof or any of the assets of any of them; (iv) the Employee's abuse of
alcohol or other drugs or controlled substances, or conviction of a crime
involving moral turpitude, or (v) the Employee's material breach of any of
the agreements contained herein. A termination pursuant to Section 3(c) (i),
(ii), (iv) (other than as a result of a conviction of a crime involving moral
turpitude), or (v) shall take effect 30 days after the giving of the notice
contemplated hereby unless the Employee shall, during such 30-day period,
remedy to the satisfaction of the Board of Directors of the Company the
misconduct, disregard, abuse or breach specified of such notice; PROVIDED,
HOWEVER, that such termination shall take effect immediately upon giving of
such notice if the Board of Directors of the Company shall have determined
that such misconduct, disregard, abuse or breach is not remediable which
determination shall be stated in such notice. A determination pursuant to
Section 3(c) (iii) or (iv) (as a result of a conviction of a crime involving
moral turpitude) shall take effect immediately upon giving of the notice
contemplated hereby.
(d) AT WILL BY EMPLOYEE. At any time and subject to Section 3(g)
below, Employee may terminate the Period of Employment with or without cause,
on written notice to the Company. In the event Employee elects to terminate
the Period of Employment pursuant to this Section 3(d), Employee shall give
the Company not less than two (2) weeks notice of such termination. If the
Employee terminates his employment pursuant to this Section 3(d), the Company
shall pay Employee the compensation to which he is entitled pursuant to
Section 2(a) through the end of the notice period and thereafter all
obligations of the Company shall terminate.
(e) AT WILL BY THE COMPANY. At any time, the Company may
terminate the Period of Employment for any reason, without cause, upon 24
hours written notice to the Employee. In the event the Company elects to
terminate the Period of Employment pursuant to this Section 3(e), the Company
shall retain Employee as a consultant to the Company for a period commencing
on the date of such termination and continuing until the expiration of the
Period of Employment (the "Consultancy Period"), during which time Employee
agrees to be available to the Company (which may include availability via
telephone) to consult with officers and directors regarding the business of
the Company, whenever so requested, such consultancy work not to exceed 40
hours per week. Employee shall continue to receive payment of his
compensation under Sections 2(a), 2(c) and 2(f) during the Consultancy Period
and his benefits described in Section 2(e); PROVIDED THAT if (i) any of the
events listed in paragraph (c) of this Section 3 occur then the Company's
obligations hereunder shall be governed in accordance with the applicable
paragraph or (ii) Employee breaches Sections 3(h),
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3(i) and/or 4 hereof, including a violation of his Proprietary Information
and Inventions Agreement (described at Section 4 below), then all of the
Company's obligations hereunder shall cease immediately. The amount of bonus
payable to Employee pursuant to this Section 3(e) shall be calculated in the
manner set forth in Section 3(a) above. Employee hereby agrees that the
Company may dismiss him under this Section 3(e) without regard (i) to any
general or specific policies (whether written or oral) of the Company
relating to the employment or termination of its employees, or (ii) to any
statements made to Employee, whether made orally or contained in any
document, pertaining to Employee's relationship with the Company. During the
Consultancy Period, Employee agrees not to compete with the business of the
Company during such Consultancy Period as set forth in Section 3(i) hereof.
(f) TERMINATION BY EMPLOYEE FOR GOOD REASON FOLLOWING CORPORATE
TRANSACTION. At any time following a Corporate Transaction (as defined in
Section 6 of the Stock Purchase Agreement) and without limitation of
Employee's rights under Section 3(d) above, Employee may terminate the Period
of Employment for Good Reason (as defined below) on not less than two (2)
weeks written notice to the Company. In the event of a termination by
Employee for Good Reason pursuant to this Section 3(f), the Company shall
retain Employee as a consultant to the Company for a period commencing on the
date of such termination and continuing for two (2) years thereafter
(irrespective of the Consulting Period) for the compensation and benefits and
subject to all of the terms set forth in Section 3(e) above (other than the
term for such consultancy services). The following shall constitute a
termination by Employee for "Good Reason" if: (i) there is an assignment to
the Employee of any duties materially inconsistent with or which constitute a
material change in the Employee's position, duties, responsibilities, or
status with the Company, or a material change in the Employee's position,
duties, responsibilities, or status with the Company, or a material change in
the Employee's reporting responsibilities, title, or offices; or removal of
the Employee from or failure to re-elect the Employee to any of such
positions, except in connection with the termination for the Period of
Employment for Cause, or due to disability or death; (ii) there is a
reduction by the Company in the Employee's annual salary then in effect other
than a reduction similar in percentage to a reduction generally applicable to
similarly situated employees of the Company; or (iii) the Company acts in any
way that would adversely affect the Employee's participation in or materially
reduce the Employee's benefit under any benefit plan of the Company in which
the Employee is participating or deprive the Employee of any material fringe
benefit enjoyed by the Employee except those changes generally affecting
similarly situated employees of the Company.
(g) COMPANY RIGHT TO REQUIRE CONSULTING SERVICES. In
the event of a termination of the Period of Employment pursuant to
Section 3(c) or 3(d) above, the Company shall have the option,
exercisable on written notice to Employee within twenty (20) days
following such termination of the Period of Employment, to require
Employee to provide consulting services upon the same terms
provided in Section 3(e) above, including without limitation,
Employee's duties not to compete with the Company as provided in
Section 3(i), except that: (i) the Company may thereafter terminate
the Consultancy Period on thirty (30) days notice to Employee; and
(ii) the compensation payable to Employee during the Consultancy
Period shall be equal to Employee's salary payable pursuant to
Section 2(a)
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hereof as prorated and reduced to be equal to an hourly rate (assuming forty
(40) hours work weeks and forty-eight (48) full weeks of service during a
year), and Employee shall be so paid by the Company at such hourly rate for
such consulting services based on the greater of: (i) the actual number of
hours of consulting services provided by Employee; and (ii) ten (10) hours
per calendar month; provided, that if the Company requires in excess of
twenty (20) hours per week of consulting, then the Company shall compensate
Employee and provide benefits and bonuses as if Employee is working full time
during the Consultancy Period. The Company may require up to a maximum of
forty (40) hours per week of consulting services. In the event that the
Company requires less than forty (40) hours of consulting services per week,
then the Company may not prevent Employee from accepting other employment or
engaging in any work or other activity of any kind during the Consultancy
Period provided that such employment, work or activity is not competitive
with the business of the Company (as defined in Section 3(i) hereof) and
Employee may accept such other noncompetitive employment or engage in other
noncompetitive work or business activities during the Consultancy Period.
The Company acknowledges that once it chooses to require less than forty (40)
hours per week of consulting services from Employee that the Company may not
later unilaterally increase the consulting services required of Employee to
forty (40) hours per week or restrict Employee's ability to accept other
noncompetitive employment or engage in other noncompetitive work or
activities without Employee's consent, which may be withheld in Employee's
discretion.
(h) OTHER TERMINATION OBLIGATIONS.
(1) Employee hereby acknowledges and agrees that all personal
property, including, without limitation, all books, manuals, records,
reports, notes, contracts, computer files, lists, blueprints, and other
documents, or materials, or copies thereof, proprietary information, and
equipment furnished to or prepared by Employee in the course of or incident
to his employment, including, without limitation, records and any other
materials pertaining to the Company's proprietary information, belong to the
Company and shall be promptly returned to the Company upon termination of the
Period of Employment. Following termination, the Employee will not retain any
written or other tangible material containing any Proprietary Information or
information pertaining to the Company's proprietary information.
(2) Upon termination of the Period of Employment, the
Employee shall be deemed to have resigned from all offices and directorships
then held with the Company or any affiliates.
(3) Employee agrees that he will not, either directly or
indirectly, for a period of two (2) years following the termination of the
later of the Period of Employment or the Consultancy Period: (i) contact,
for purposes of soliciting employment, any employee of the Company; or, (ii)
contact for the purpose of inducing any termination or breach of any
contractual relationship with the Company, any individual or entity that has
a contractual relationship with the Company.
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(4) Employee agrees to comply with the covenant not to compete as
set forth in such Section 3(i).
(i) COVENANT NOT TO COMPETE. During the Consultancy Period,
Employee agrees not to compete with the business of the Company during such
Consultancy Period, anywhere within, from or into the countries listed in
EXHIBIT A and from or into any additional countries where the Company does
business at the time of termination of Employee's employment. For purposes
of this Section 3(h), Employee shall be deemed to compete if he either as an
employee, employer, consultant, agent, principal, partner, stockholder,
corporate officer, director or in any other individual or representative
capacity engages or participates, or makes preparations to establish, any
business that conducts the same or substantially the same business as or is
competitive with the business which is conducted by the Company on the date
of Employee's termination, including, without limitation, work relating to
Top End, Encina, Unikix, CICS/6000, CICS/9000 and any activity engaged in by
the Company during the twelve months immediately preceding the date of
termination of the Period of Employment or any activity contemplated by the
Company on the date of such termination. Nothing contained in this Section
3(i) shall be construed to prohibit Employee from purchasing and owning
(directly or indirectly) up to one percent (1%) of the capital stock or other
securities of any corporation or other entity whose stock or securities are
traded on any national or regional securities exchange or the national
over-the-counter market and such ownership shall not constitute a violation
of this Section 3(i). In the event of a termination of the Period of
Employment pursuant to Section 3(c) or 3(d) above, the Company shall have the
option, exercisable on written notice to Employee within twenty (20) days
following such termination of the Period of Employment, to require Employee
to provide consulting services upon the same terms provided in Section 3(e)
above, including without limitation, Employee's duties not to compete with
the Company as provided herein.
4. PROPRIETARY INFORMATION AGREEMENT. As a condition to his
employment with the Company, Employee shall execute and deliver a copy of the
Company's standard form Employee Proprietary Information and Inventions
Agreement in substantially the form of EXHIBIT B attached hereto and
incorporated herein. Any breach by Employee of such agreement shall be deemed
a breach of this Agreement for purposes of Section 3(c) hereof. Employee's
obligations under such Employee Proprietary Information and Inventions
Agreement shall survive any termination of the Period of Employment.
5. ASSIGNMENT; SUCCESSORS AND ASSIGNS. Employee agrees that
he will not assign, sell, transfer, delegate or otherwise dispose
of, whether voluntarily or involuntarily, or by operation of law,
any rights or obligations under this Agreement, nor shall
Employee's rights be subject to encumbrance or the claims of
creditors. Any purported assignment, transfer, or delegation shall
be null and void. Nothing in this Agreement shall prevent the
consolidation of the Company with, or its merger into, any other
corporation, or the sale by the Company of all or substantially all
of its properties or assets, or the assignment by the Company of
this Agreement and the performance of its obligations hereunder to
any successor in interest or any Affiliated Company. Subject to the
foregoing, this Agreement shall be binding upon and shall inure to
the benefit of the parties and their respective heirs, legal
representatives, successors,
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and permitted assigns, and shall not benefit any person or entity other than
those enumerated above. Without limitation of the foregoing, any such
successor in interest (including an entity which acquires substantially all
the assets and the business of the Company) in such acquisition transaction
or any Affiliated Company shall be bound by all of the terms and conditions
of this Agreement.
6. NOTICES. All notices or other communications required or
permitted hereunder shall be made in writing and shall be deemed to have been
duly given if delivered by hand or mailed, postage prepaid, by certified or
registered mail, return receipt requested, and addressed to the Company at:
BEA Systems, Inc.
2465 E. Bayshore Road, Ste. 301
Palo Alto, CA 94303
Attn: Vice President, Finance
or to the Employee at: William T. Coleman III
278 Alta Vista Avenue
Los Altos, CA 94022
Notice of change of address shall be effective only when done in accordance
with this Section.
7. ENTIRE AGREEMENT. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of Employee by the Company and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that
this Agreement shall constitute the complete and exclusive statement of its
terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative, or other legal proceeding involving this Agreement.
8. AMENDMENTS; WAIVERS. This Agreement may not be modified,
amended, or terminated except by an instrument in writing, signed by the
Employee and by a duly authorized representative of the Company other than
Employee. By an instrument in writing similarly executed, either party may
waive compliance by the other party with any provision of this Agreement that
such other party was or is obligated to comply with or perform, provided,
however, that such waiver shall not operate as a waiver of, or estoppel with
respect to, any other or subsequent failure. No failure to exercise and no
delay in exercising any right, remedy, or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right,
remedy, or power hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, or power provided herein or by law
or in equity.
9. SEVERABILITY; ENFORCEMENT. If any provision of this Agreement, or
the application thereof to any person, place, or circumstance, shall be held
by a court of competent jurisdiction to be invalid, unenforceable, or void,
the remainder of this Agreement and such provisions as applied to other
persons, places, and circumstances shall remain in full force and effect. It
is the intention of the parties that the covenants contained in Section 3(f)
8
<PAGE>
shall be enforced to the greatest extent in time, area, and degree of
participation as is permitted by the law of that jurisdiction whose law is
found to be applicable to any acts allegedly in breach of these covenants.
10. GOVERNING LAW. The validity, interpretation, enforceability,
and performance of this Agreement shall be governed by and construed in
accordance with the law of the State of California.
11. EMPLOYEE ACKNOWLEDGMENT. Employee acknowledgs (i) that he has
consulted withor has had the opportunity to consult with independent counsel
of his own choice concerning this Agreement and has been advised to do so by
the Company, and (ii) that he has read and understands the Agreement, is
fully aware of its legal effect, and has entered into it freely based on his
own judgment.
12. EXCLUSIVE. Both parties agree that this Agreement shall
provide the exclusive remedies for any breach by the Company of its terms.
The parties have duly executed this Agreement as of the date first
written above.
COMPANY: EMPLOYEE:
BEA SYSTEMS, INC.
By: /s/ Edward W. Scott, Jr. /s/ William T. Coleman III
------------------------------------ -------------------------------
Title: Executive Vice President William T. Coleman III
---------------------------------
9
<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
Canada
England
France
Germany
Japan
Spain
United States
10
<PAGE>
EXHIBIT 10.4
BEA SYSTEMS, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, is entered into as of September 28, 1995,
between BEA Systems, Inc., a Delaware corporation (the "Company"), and Edward
W. Scott, Jr. ("Employee").
R E C I T A L S
---------------
A. Employee has developed a business plan for the acquisition and
operation of certain businesses in the transaction processing industry and
Warburg, Pincus Ventures, L.P. ("Warburg") has agreed to invest up to a
maximum of $50,000,000 in the Company to provide financing for the
implementation of Employee's business plan pursuant to the terms of that
certain Stock Purchase Agreement dated September 28, 1995 and that certain
Adjustment Agreement dated September 28, 1995 among Warburg, the Company,
Employee and certain other stockholders of the Company.
B. Immediately prior to the date of this Agreement, Employee
owned 400,000 shares of the Common Stock of the Company and in connection
with the investment by Warburg as contemplated by Recital A above, Employee
has entered into that certain Restricted Stock Purchase Agreement dated
September 28, 1995 for the purchase of 435,793 additional shares of Common
Stock in the Company.
C. Company desires to obtain the services
of Employee, on its own behalf and on behalf of all existing and future
Affiliated Companies (defined to mean any corporation or other business
entity or entities that directly or indirectly controls, is controlled by, or
is under common control with the Company), and Employee desires to secure
employment from the Company upon the following terms and conditions.
A G R E E M E N T
-----------------
ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS:
1. POSITION, PERIOD OF EMPLOYMENT.
(a) PERIOD OF EMPLOYMENT. The Company hereby employs Employee to
render services to the Company in the position and with the duties and
responsibilities described in Section 1(b) for the period (the "Period of
Employment") commencing on the date of this Agreement and ending the earlier
of (i) September 28, 1999; or (ii) the date this Agreement is terminated in
accordance with Section 3 below.
1
<PAGE>
(b) Executive Vice President and Secretary (or in such other
position(s) as the Board of Directors of the Company (the "Board") shall
designate). Employee shall devote his full time and attention and his best
efforts to the performance of the services customarily incident to such
office and to such other services as may be reasonably requested by the
Board. The Company shall retain full direction and control of the means and
methods by which Employee performs the above services and of the place(s) at
which such services are to be rendered.
(c) OTHER ACTIVITIES. Except upon the prior written consent of
the Board, Employee, during the Period of Employment, will not (i) accept any
other employment; (ii) engage, directly or indirectly, in any other business
activity (whether or not pursued for pecuniary advantage) that is or may be
competitive with, or that might place him in a competing position to that of
the Company or any Affiliated Company, as determined in the discretion of the
Board; or (iii) engage in any work or business activity of any kind outside
those of the Company.
2. COMPENSATION, BENEFITS, EXPENSES.
(a) COMPENSATION. In consideration of the services to be rendered
hereunder, including, without limitation, services to any Affiliated Company,
Employee shall be paid an annual salary of One Hundred Fifty Thousand Dollars
($150,000.00), payable at the times and pursuant to the procedures regularly
established, and as they may be amended, by the Company during the Period of
Employment. This rate shall be reviewed annually on a calendar year basis,
in accordance with the Company's salary review practices, and adjusted in the
sole discretion of the Board of the Company to reflect increases in the cost
of living and such other increases as are awarded in accordance with the
Company's regular salary review practices for giving salary increases to
similarly situated employees.
(b) STOCK OPTIONS. Employee may become eligible to receive
options under the Company's 1995 Flexible Stock Incentive Plan and such other
option plans as the Company may from time to time adopt, as approved by the
Board or a Committee thereof.
(c) BONUS. Employee shall be eligible to participate in such
bonus plans as the Company may from time to time adopt for the benefit of
similarly situated employees of the Company. Employee's right to receive any
such bonus shall be subject to the terms of any Company bonus plan for which
he may become a participant and the terms determined by the Board or a
Committee thereof designating him as a participant or granting him an award
thereunder.
(d) VACATION. Employee shall be entitled to vacation in
accordance with the Company's vacation policies for similarly situated
employees, as such policies may be amended from time to time.
(e) BENEFITS. As he becomes eligible therefor, the Company shall
provide Employee with the right to participate in and to receive benefits
from all present and future life, accident, disability, medical, pension, and
savings plans and all similar benefits made
2
<PAGE>
available generally to similarly situated employees of the Company. The
amount and extent of benefits to which Employee is entitled shall be governed
by the specific benefit plan, as it may be amended from time to time.
(f) EXPENSES. The Company shall reimburse Employee for reasonable
travel and other business expenses incurred by Employee in the performance of
his duties hereunder in accordance with the Company's general policies, as
they may be amended from time to time during the course of this Agreement.
3. TERMINATION OF EMPLOYMENT.
(a) BY DEATH. The Period of Employment shall terminate
automatically upon the death of the Employee; provided however that the
Company shall pay to the Employee's beneficiaries or estate, as appropriate,
the compensation to which he is entitled pursuant to Sections 2(a) and 2(c)
and the benefits to which he is entitled pursuant to Section 2(e) shall
continue through the end of the Period of Employment, on the same time
schedule as if Employee were living. For the purposes of determining the
level of bonus compensation payable pursuant to said Section 2(c), Employee's
beneficiaries or estate, as appropriate, shall be eligible to receive bonus
payments in accordance with Section 2(c) based upon the average of the
bonuses paid to Employee for the two (2) years prior to termination;
PROVIDED, THAT if Employee's Period of Employment terminates prior to
September 28, 1997, then such bonus payments shall be 80% of the target bonus
for Employee for the year of termination as reasonably determined by the
Board. Thereafter, the Company's obligations hereunder shall terminate.
Nothing in this Section shall affect any entitlement of the Employee's heirs
to the benefits of any life insurance plan.
(b) BY DISABILITY. If the Employee shall become "permanently
disabled" as determined for purposes of the disability insurance policy
provided by the Company for Employee, then, to the extent permitted by law,
the Period of Employment shall terminate as of the date that Employee shall
be deemed to have become "permanently disabled" for purposes of such
disability insurance policy, provided, however that, the compensation to
which Employee is entitled pursuant to Sections 2(a) and 2(c) (net of amounts
paid to Employee pursuant to said disability insurance policy) and the
benefits to which he is entitled pursuant to Section 2(e) shall continue
through the end of the Period of Employment, on the same time schedule as if
Employee were not disabled. The amount of bonus payable to Employee pursuant
to this Section 3(b) shall be calculated in the manner set forth in Section
3(a) above. Thereafter, the Company's obligations hereunder shall terminate.
Employee shall continue to be receive benefits under any disability plan in
which Employee is a participant to the extent permitted under the applicable
plan.
(c) BY COMPANY FOR CAUSE. The Company may terminate, without
liability, the Period of Employment for Cause (as defined below) at any time
and without notice upon ten (10) days' advance written notice to Employee.
The Company shall pay Employee the compensation to which he is entitled
pursuant to Section 2(a) through the end of the notice period and thereafter
the Company's obligations hereunder shall terminate. The Company may
3
<PAGE>
terminate the employment of the Employee and all of the Company's obligations
under this Agreement at any time for "cause" by giving the Employee notice of
such termination, with reasonable specificity of the details thereof. For
the purposes of this Section 3(c), "Cause" shall mean: (i) the Employee's
material misconduct which could reasonably be expected to have a material
adverse effect on the business and affairs of the Company, (ii) the
Employee's disregard of lawful instructions of the Company's Board of
Directors consistent with the Employee's position relating to the business of
the Company or neglect of duties or failure to act, which, in each case,
could reasonably be expected to have a material adverse effect on the
business and affairs of the Company; (iii) Employee is convicted of common
law fraud, or a felony or criminal act against the Company or any Affiliate
thereof or any of the assets of any of them; (iv) the Employee's abuse of
alcohol or other drugs or controlled substances, or conviction of a crime
involving moral turpitude, or (v) the Employee's material breach of any of
the agreements contained herein. A termination pursuant to Section 3(c) (i),
(ii), (iv) (other than as a result of a conviction of a crime involving moral
turpitude), or (v) shall take effect 30 days after the giving of the notice
contemplated hereby unless the Employee shall, during such 30-day period,
remedy to the satisfaction of the Board of Directors of the Company the
misconduct, disregard, abuse or breach specified of such notice; PROVIDED,
HOWEVER, that such termination shall take effect immediately upon giving of
such notice if the Board of Directors of the Company shall have determined
that such misconduct, disregard, abuse or breach is not remediable which
determination shall be stated in such notice. A determination pursuant to
Section 3(c) (iii) or (iv) (as a result of a conviction of a crime involving
moral turpitude) shall take effect immediately upon giving of the notice
contemplated hereby.
(d) AT WILL BY EMPLOYEE. At any time and subject to Section 3(g)
below, Employee may terminate the Period of Employment with or without cause,
on written notice to the Company. In the event Employee elects to terminate
the Period of Employment pursuant to this Section 3(d), Employee shall give
the Company not less than two (2) weeks notice of such termination. If the
Employee terminates his employment pursuant to this Section 3(d), the Company
shall pay Employee the compensation to which he is entitled pursuant to
Section 2(a) through the end of the notice period and thereafter all
obligations of the Company shall terminate.
(e) AT WILL BY THE COMPANY. At any time, the Company may
terminate the Period of Employment for any reason, without cause, upon 24
hours written notice to the Employee. In the event the Company elects to
terminate the Period of Employment pursuant to this Section 3(e), the Company
shall retain Employee as a consultant to the Company for a period commencing
on the date of such termination and continuing until the expiration of the
Period of Employment (the "Consultancy Period"), during which time Employee
agrees to be available to the Company (which may include availability via
telephone) to consult with officers and directors regarding the business of
the Company, whenever so requested, such consultancy work not to exceed 40
hours per week. Employee shall continue to receive payment of his
compensation under Sections 2(a), 2(c) and 2(f) during the Consultancy Period
and his benefits described in Section 2(e); PROVIDED THAT if (i) any of the
events listed in paragraph (c) of this Section 3 occur then the Company's
obligations hereunder shall be governed in accordance with the applicable
paragraph or (ii) Employee breaches Sections 3(h),
4
<PAGE>
3(i) and/or 4 hereof, including a violation of his Proprietary Information
and Inventions Agreement (described at Section 4 below), then all of the
Company's obligations hereunder shall cease immediately. The amount of bonus
payable to Employee pursuant to this Section 3(e) shall be calculated in the
manner set forth in Section 3(a) above. Employee hereby agrees that the
Company may dismiss him under this Section 3(e) without regard (i) to any
general or specific policies (whether written or oral) of the Company
relating to the employment or termination of its employees, or (ii) to any
statements made to Employee, whether made orally or contained in any
document, pertaining to Employee's relationship with the Company. During the
Consultancy Period, Employee agrees not to compete with the business of the
Company during such Consultancy Period as set forth in Section 3(i) hereof.
(f) TERMINATION BY EMPLOYEE FOR GOOD REASON FOLLOWING CORPORATE
TRANSACTION. At any time following a Corporate Transaction (as defined in
Section 6 of the Stock Purchase Agreement) and without limitation of
Employee's rights under Section 3(d) above, Employee may terminate the Period
of Employment for Good Reason (as defined below) on not less than two (2)
weeks written notice to the Company. In the event of a termination by
Employee for Good Reason pursuant to this Section 3(f), the Company shall
retain Employee as a consultant to the Company for a period commencing on the
date of such termination and continuing for two (2) years thereafter
(irrespective of the Consulting Period) for the compensation and benefits and
subject to all of the terms set forth in Section 3(e) above (other than the
term for such consultancy services). The following shall constitute a
termination by Employee for "Good Reason" if: (i) there is an assignment to
the Employee of any duties materially inconsistent with or which constitute a
material change in the Employee's position, duties, responsibilities, or
status with the Company, or a material change in the Employee's position,
duties, responsibilities, or status with the Company, or a material change in
the Employee's reporting responsibilities, title, or offices; or removal of
the Employee from or failure to re-elect the Employee to any of such
positions, except in connection with the termination for the Period of
Employment for Cause, or due to disability or death; (ii) there is a
reduction by the Company in the Employee's annual salary then in effect other
than a reduction similar in percentage to a reduction generally applicable to
similarly situated employees of the Company; or (iii) the Company acts in any
way that would adversely affect the Employee's participation in or materially
reduce the Employee's benefit under any benefit plan of the Company in which
the Employee is participating or deprive the Employee of any material fringe
benefit enjoyed by the Employee except those changes generally affecting
similarly situated employees of the Company.
(g) COMPANY RIGHT TO REQUIRE CONSULTING SERVICES. In the event of
a termination of the Period of Employment pursuant to Section 3(c) or 3(d)
above, the Company shall have the option, exercisable on written notice to
Employee within twenty (20) days following such termination of the Period of
Employment, to require Employee to provide consulting services upon the same
terms provided in Section 3(e) above, including without limitation,
Employee's duties not to compete with the Company as provided in Section
3(i), except that: (i) the Company may thereafter terminate the Consultancy
Period on thirty (30) days notice to Employee; and (ii) the compensation
payable to Employee during the Consultancy Period shall be equal to
Employee's salary payable pursuant to Section 2(a)
5
<PAGE>
hereof as prorated and reduced to be equal to an hourly rate (assuming forty
(40) hours work weeks and forty-eight (48) full weeks of service during a
year), and Employee shall be so paid by the Company at such hourly rate for
such consulting services based on the greater of: (i) the actual number of
hours of consulting services provided by Employee; and (ii) ten (10) hours
per calendar month; provided, that if the Company requires in excess of
twenty (20) hours per week of consulting, then the Company shall compensate
Employee and provide benefits and bonuses as if Employee is working full time
during the Consultancy Period. The Company may require up to a maximum of
forty (40) hours per week of consulting services. In the event that the
Company requires less than forty (40) hours of consulting services per week,
then the Company may not prevent Employee from accepting other employment or
engaging in any work or other activity of any kind during the Consultancy
Period provided that such employment, work or activity is not competitive
with the business of the Company (as defined in Section 3(i) hereof) and
Employee may accept such other noncompetitive employment or engage in other
noncompetitive work or business activities during the Consultancy Period.
The Company acknowledges that once it chooses to require less than forty (40)
hours per week of consulting services from Employee that the Company may not
later unilaterally increase the consulting services required of Employee to
forty (40) hours per week or restrict Employee's ability to accept other
noncompetitive employment or engage in other noncompetitive work or
activities without Employee's consent, which may be withheld in Employee's
discretion.
(h) OTHER TERMINATION OBLIGATIONS.
(1) Employee hereby acknowledges and agrees that all personal
property, including, without limitation, all books, manuals, records,
reports, notes, contracts, computer files, lists, blueprints, and other
documents, or materials, or copies thereof, proprietary information, and
equipment furnished to or prepared by Employee in the course of or incident
to his employment, including, without limitation, records and any other
materials pertaining to the Company's proprietary information, belong to the
Company and shall be promptly returned to the Company upon termination of the
Period of Employment. Following termination, the Employee will not retain any
written or other tangible material containing any Proprietary Information or
information pertaining to the Company's proprietary information.
(2) Upon termination of the Period of Employment, the
Employee shall be deemed to have resigned from all offices and directorships
then held with the Company or any affiliates.
(3) Employee agrees that he will not, either directly or
indirectly, for a period of two (2) years following the termination of the
later of the Period of Employment or the Consultancy Period: (i) contact,
for purposes of soliciting employment, any employee of the Company; or, (ii)
contact for the purpose of inducing any termination or breach of any
contractual relationship with the Company, any individual or entity that has
a contractual relationship with the Company.
6
<PAGE>
(4) Employee agrees to comply with the covenant not to
compete as set forth in such Section 3(i).
(i) COVENANT NOT TO COMPETE. During the Consultancy Period,
Employee agrees not to compete with the business of the Company during such
Consultancy Period, anywhere within, from or into the countries listed in
EXHIBIT A and from or into any additional countries where the Company does
business at the time of termination of Employee's employment. For purposes
of this Section 3(h), Employee shall be deemed to compete if he either as an
employee, employer, consultant, agent, principal, partner, stockholder,
corporate officer, director or in any other individual or representative
capacity engages or participates, or makes preparations to establish, any
business that conducts the same or substantially the same business as or is
competitive with the business which is conducted by the Company on the date
of Employee's termination, including, without limitation, work relating to
Top End, Encina, Unikix, CICS/6000, CICS/9000 and any activity engaged in by
the Company during the twelve months immediately preceding the date of
termination of the Period of Employment or any activity contemplated by the
Company on the date of such termination. Nothing contained in this Section
3(i) shall be construed to prohibit Employee from purchasing and owning
(directly or indirectly) up to one percent (1%) of the capital stock or other
securities of any corporation or other entity whose stock or securities are
traded on any national or regional securities exchange or the national
over-the-counter market and such ownership shall not constitute a violation
of this Section 3(i). In the event of a termination of the Period of
Employment pursuant to Section 3(c) or 3(d) above, the Company shall have the
option, exercisable on written notice to Employee within twenty (20) days
following such termination of the Period of Employment, to require Employee
to provide consulting services upon the same terms provided in Section 3(e)
above, including without limitation, Employee's duties not to compete with
the Company as provided herein.
4. PROPRIETARY INFORMATION AGREEMENT. As a condition to his
employment with the Company, Employee shall execute and deliver a copy of the
Company's standard form Employee Proprietary Information and Inventions
Agreement in substantially the form of EXHIBIT B attached hereto and
incorporated herein. Any breach by Employee of such agreement shall be deemed
a breach of this Agreement for purposes of Section 3(c) hereof. Employee's
obligations under such Employee Proprietary Information and Inventions
Agreement shall survive any termination of the Period of Employment.
5. ASSIGNMENT; SUCCESSORS AND ASSIGNS. Employee agrees that he will not
assign, sell, transfer, delegate or otherwise dispose of, whether voluntarily
or involuntarily, or by operation of law, any rights or obligations under this
Agreement, nor shall Employee's rights be subject to encumbrance or the claims
of creditors. Any purported assignment, transfer, or delegation shall be null
and void. Nothing in this Agreement shall prevent the consolidation of the
Company with, or its merger into, any other corporation, or the sale by the
Company of all or substantially all of its properties or assets, or the
assignment by the Company of this Agreement and the performance of its
obligations hereunder to any successor in interest or any Affiliated Company.
Subject to the foregoing, this Agreement shall be binding upon and shall inure
to the benefit of the parties and their respective heirs, legal
representatives, successors,
7
<PAGE>
and permitted assigns, and shall not benefit any person or entity other than
those enumerated above. Without limitation of the foregoing, any such
successor in interest (including an entity which acquires substantially all
the assets and the business of the Company) in such acquisition transaction
or any Affiliated Company shall be bound by all of the terms and conditions
of this Agreement.
6. NOTICES. All notices or other communications required or permitted
hereunder shall be made in writing and shall be deemed to have been duly
given if delivered by hand or mailed, postage prepaid, by certified or
registered mail, return receipt requested, and addressed to the Company at:
BEA Systems, Inc.
2465 E. Bayshore Road, Ste. 301
Palo Alto, CA 94303
Attn: Vice President, Finance
or to the Employee at: Edward W. Scott, Jr.
3464 Spring Creek Lane
Milpitas, CA 95035
Notice of change of address shall be effective only when done in accordance
with this Section.
7. ENTIRE AGREEMENT. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of Employee by the Company and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that
this Agreement shall constitute the complete and exclusive statement of its
terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative, or other legal proceeding involving this Agreement.
8. AMENDMENTS; WAIVERS. This Agreement may not be modified, amended,
or terminated except by an instrument in writing, signed by the Employee and
by a duly authorized representative of the Company other than Employee. By
an instrument in writing similarly executed, either party may waive
compliance by the other party with any provision of this Agreement that such
other party was or is obligated to comply with or perform, provided, however,
that such waiver shall not operate as a waiver of, or estoppel with respect
to, any other or subsequent failure. No failure to exercise and no delay in
exercising any right, remedy, or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, or
power hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, or power provided herein or by law or in
equity.
9. SEVERABILITY; ENFORCEMENT. If any provision of this Agreement, or
the application thereof to any person, place, or circumstance, shall be held
by a court of competent jurisdiction to be invalid, unenforceable, or void,
the remainder of this Agreement and such provisions as applied to other
persons, places, and circumstances shall remain in full force and effect. It
is the intention of the parties that the covenants contained in Section 3(f)
8
<PAGE>
shall be enforced to the greatest extent in time, area, and degree of
participation as is permitted by the law of that jurisdiction whose law is
found to be applicable to any acts allegedly in breach of these covenants.
10. GOVERNING LAW. The validity, interpretation, enforceability, and
performance of this Agreement shall be governed by and construed in
accordance with the law of the State of California.
11. EMPLOYEE ACKNOWLEDGMENT. Employee acknowledges (i) that he has
consulted with or has had the opportunity to consult with independent counsel
of his own choice concerning this Agreement and has been advised to do so by
the Company, and (ii) that he has read and understands the Agreement, is
fully aware of its legal effect, and has entered into it freely based on his
own judgment.
12. EXCLUSIVE. Both parties agree that this Agreement shall provide
the exclusive remedies for any breach by the Company of its terms.
The parties have duly executed this Agreement as of the date first
written above.
COMPANY: EMPLOYEE:
BEA SYSTEMS, INC.
By: /s/ William T. Coleman III /s/ Edward W. Scott, Jr.
---------------------------------- -----------------------------
Title: President & CEO Edward W. Scott, Jr.
-------------------------------
9
<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
Canada
England
France
Germany
Japan
Spain
United States
10
<PAGE>
EXHIBIT 10.5
BEA SYSTEMS, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, is entered into as of September 28, 1995,
between BEA Systems, Inc., a Delaware corporation (the "Company"), and Alfred
S. Chuang ("Employee").
R E C I T A L S
---------------
A. Employee has developed a business plan for the acquisition and
operation of certain businesses in the transaction processing industry and
Warburg, Pincus Ventures, L.P. ("Warburg") has agreed to invest up to a
maximum of $50,000,000 in the Company to provide financing for the
implementation of Employee's business plan pursuant to the terms of that
certain Stock Purchase Agreement dated September 28, 1995 and that certain
Adjustment Agreement dated September 28, 1995 among Warburg, the Company,
Employee and certain other stockholders of the Company.
B. Immediately prior to the date of this Agreement, Employee
owned 400,000 shares of the Common Stock of the Company and in connection
with the investment by Warburg as contemplated by Recital A above, Employee
has entered into that certain Restricted Stock Purchase Agreement dated
September 28, 1995 for the purchase of 435,793 additional shares of Common
Stock in the Company.
C. Company desires to obtain the services of Employee, on its own
behalf and on behalf of all existing and future Affiliated Companies (defined
to mean any corporation or other business entity or entities that directly or
indirectly controls, is controlled by, or is under common control with the
Company), and Employee desires to secure employment from the Company upon the
following terms and conditions.
ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS:
1. POSITION, PERIOD OF EMPLOYMENT.
(a) PERIOD OF EMPLOYMENT. The Company hereby employs Employee to
render services to the Company in the position and with the duties and
responsibilities described in Section 1(b) for the period (the "Period of
Employment") commencing on the date of this Agreement and ending the earlier
of (i) September 28, 1999; or (ii) the date this Agreement is terminated in
accordance with Section 3 below.
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(b) Executive Vice President (or in such other position(s) as the
Board of Directors of the Company (the "Board") shall designate). Employee
shall devote his full time and attention and his best efforts to the
performance of the services customarily incident to such office and to such
other services as may be reasonably requested by the Board. The Company
shall retain full direction and control of the means and methods by which
Employee performs the above services and of the place(s) at which such
services are to be rendered.
(c) OTHER ACTIVITIES. Except upon the prior written consent of
the Board, Employee, during the Period of Employment, will not (i) accept any
other employment; (ii) engage, directly or indirectly, in any other business
activity (whether or not pursued for pecuniary advantage) that is or may be
competitive with, or that might place him in a competing position to that of
the Company or any Affiliated Company, as determined in the discretion of the
Board; or (iii) engage in any work or business activity of any kind outside
those of the Company.
2. COMPENSATION, BENEFITS, EXPENSES.
(a) COMPENSATION. In consideration of the services to be rendered
hereunder, including, without limitation, services to any Affiliated Company,
Employee shall be paid an annual salary of One Hundred Fifty Thousand Dollars
($150,000.00), payable at the times and pursuant to the procedures regularly
established, and as they may be amended, by the Company during the Period of
Employment. This rate shall be reviewed annually on a calendar year basis,
in accordance with the Company's salary review practices, and adjusted in the
sole discretion of the Board of the Company to reflect increases in the cost
of living and such other increases as are awarded in accordance with the
Company's regular salary review practices for giving salary increases to
similarly situated employees.
(b) STOCK OPTIONS. Employee may become eligible to receive
options under the Company's 1995 Flexible Stock Incentive Plan and such other
option plans as the Company may from time to time adopt, as approved by the
Board or a Committee thereof.
(c) BONUS. Employee shall be eligible to participate in such
bonus plans as the Company may from time to time adopt for the benefit of
similarly situated employees of the Company. Employee's right to receive any
such bonus shall be subject to the terms of any Company bonus plan for which
he may become a participant and the terms determined by the Board or a
Committee thereof designating him as a participant or granting him an award
thereunder.
(d) VACATION. Employee shall be entitled to vacation in
accordance with the Company's vacation policies for similarly situated
employees, as such policies may be amended from time to time.
(e) BENEFITS. As he becomes eligible therefor, the Company shall
provide Employee with the right to participate in and to receive benefits
from all present and future life, accident, disability, medical, pension, and
savings plans and all similar benefits made
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available generally to similarly situated employees of the Company. The
amount and extent of benefits to which Employee is entitled shall be governed
by the specific benefit plan, as it may be amended from time to time.
(f) EXPENSES. The Company shall reimburse Employee for reasonable
travel and other business expenses incurred by Employee in the performance of
his duties hereunder in accordance with the Company's general policies, as
they may be amended from time to time during the course of this Agreement.
3. TERMINATION OF EMPLOYMENT.
(a) BY DEATH. The Period of Employment shall terminate
automatically upon the death of the Employee; provided however that the
Company shall pay to the Employee's beneficiaries or estate, as appropriate,
the compensation to which he is entitled pursuant to Sections 2(a) and 2(c)
and the benefits to which he is entitled pursuant to Section 2(e) shall
continue through the end of the Period of Employment, on the same time
schedule as if Employee were living. For the purposes of determining the
level of bonus compensation payable pursuant to said Section 2(c), Employee's
beneficiaries or estate, as appropriate, shall be eligible to receive bonus
payments in accordance with Section 2(c) based upon the average of the
bonuses paid to Employee for the two (2) years prior to termination;
PROVIDED, THAT if Employee's Period of Employment terminates prior to
September 28, 1997, then such bonus payments shall be 80% of the target bonus
for Employee for the year of termination as reasonably determined by the
Board. Thereafter, the Company's obligations hereunder shall terminate.
Nothing in this Section shall affect any entitlement of the Employee's heirs
to the benefits of any life insurance plan.
(b) BY DISABILITY. If the Employee shall become "permanently
disabled" as determined for purposes of the disability insurance policy
provided by the Company for Employee, then, to the extent permitted by law,
the Period of Employment shall terminate as of the date that Employee shall
be deemed to have become "permanently disabled" for purposes of such
disability insurance policy, provided, however that, the compensation to
which Employee is entitled pursuant to Sections 2(a) and 2(c) (net of amounts
paid to Employee pursuant to said disability insurance policy) and the
benefits to which he is entitled pursuant to Section 2(e) shall continue
through the end of the Period of Employment, on the same time schedule as if
Employee were not disabled. The amount of bonus payable to Employee pursuant
to this Section 3(b) shall be calculated in the manner set forth in Section
3(a) above. Thereafter, the Company's obligations hereunder shall terminate.
Employee shall continue to be receive benefits under any disability plan in
which Employee is a participant to the extent permitted under the applicable
plan.
(c) BY COMPANY FOR CAUSE. The Company may terminate, without
liability, the Period of Employment for Cause (as defined below) at any time
and without notice upon ten (10) days' advance written notice to Employee.
The Company shall pay Employee the compensation to which he is entitled
pursuant to Section 2(a) through the end of the notice period and thereafter
the Company's obligations hereunder shall terminate. The Company may
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terminate the employment of the Employee and all of the Company's obligations
under this Agreement at any time for "cause" by giving the Employee notice of
such termination, with reasonable specificity of the details thereof. For
the purposes of this Section 3(c), "Cause" shall mean: (i) the Employee's
material misconduct which could reasonably be expected to have a material
adverse effect on the business and affairs of the Company, (ii) the
Employee's disregard of lawful instructions of the Company's Board of
Directors consistent with the Employee's position relating to the business of
the Company or neglect of duties or failure to act, which, in each case,
could reasonably be expected to have a material adverse effect on the
business and affairs of the Company; (iii) Employee is convicted of common
law fraud, or a felony or criminal act against the Company or any Affiliate
thereof or any of the assets of any of them; (iv) the Employee's abuse of
alcohol or other drugs or controlled substances, or conviction of a crime
involving moral turpitude, or (v) the Employee's material breach of any of
the agreements contained herein. A termination pursuant to Section 3(c) (i),
(ii), (iv) (other than as a result of a conviction of a crime involving moral
turpitude), or (v) shall take effect 30 days after the giving of the notice
contemplated hereby unless the Employee shall, during such 30-day period,
remedy to the satisfaction of the Board of Directors of the Company the
misconduct, disregard, abuse or breach specified of such notice; PROVIDED,
HOWEVER, that such termination shall take effect immediately upon giving of
such notice if the Board of Directors of the Company shall have determined
that such misconduct, disregard, abuse or breach is not remediable which
determination shall be stated in such notice. A determination pursuant to
Section 3(c) (iii) or (iv) (as a result of a conviction of a crime involving
moral turpitude) shall take effect immediately upon giving of the notice
contemplated hereby.
(d) AT WILL BY EMPLOYEE. At any time and subject to Section 3(g)
below, Employee may terminate the Period of Employment with or without cause,
on written notice to the Company. In the event Employee elects to terminate
the Period of Employment pursuant to this Section 3(d), Employee shall give
the Company not less than two (2) weeks notice of such termination. If the
Employee terminates his employment pursuant to this Section 3(d), the Company
shall pay Employee the compensation to which he is entitled pursuant to
Section 2(a) through the end of the notice period and thereafter all
obligations of the Company shall terminate.
(e) AT WILL BY THE COMPANY. At any time, the Company may
terminate the Period of Employment for any reason, without cause, upon 24
hours written notice to the Employee. In the event the Company elects to
terminate the Period of Employment pursuant to this Section 3(e), the Company
shall retain Employee as a consultant to the Company for a period commencing
on the date of such termination and continuing until the expiration of the
Period of Employment (the "Consultancy Period"), during which time Employee
agrees to be available to the Company (which may include availability via
telephone) to consult with officers and directors regarding the business of
the Company, whenever so requested, such consultancy work not to exceed 40
hours per week. Employee shall continue to receive payment of his
compensation under Sections 2(a), 2(c) and 2(f) during the Consultancy Period
and his benefits described in Section 2(e); PROVIDED THAT if (i) any of the
events listed in paragraph (c) of this Section 3 occur then the Company's
obligations hereunder shall be governed in accordance with the applicable
paragraph or (ii) Employee breaches Sections 3(h),
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3(i) and/or 4 hereof, including a violation of his Proprietary Information
and Inventions Agreement (described at Section 4 below), then all of the
Company's obligations hereunder shall cease immediately. The amount of bonus
payable to Employee pursuant to this Section 3(e) shall be calculated in the
manner set forth in Section 3(a) above. Employee hereby agrees that the
Company may dismiss him under this Section 3(e) without regard (i) to any
general or specific policies (whether written or oral) of the Company
relating to the employment or termination of its employees, or (ii) to any
statements made to Employee, whether made orally or contained in any
document, pertaining to Employee's relationship with the Company. During the
Consultancy Period, Employee agrees not to compete with the business of the
Company during such Consultancy Period as set forth in Section 3(i) hereof.
(f) TERMINATION BY EMPLOYEE FOR GOOD REASON FOLLOWING CORPORATE
TRANSACTION. At any time following a Corporate Transaction (as defined in
Section 6 of the Stock Purchase Agreement) and without limitation of
Employee's rights under Section 3(d) above, Employee may terminate the Period
of Employment for Good Reason (as defined below) on not less than two (2)
weeks written notice to the Company. In the event of a termination by
Employee for Good Reason pursuant to this Section 3(f), the Company shall
retain Employee as a consultant to the Company for a period commencing on the
date of such termination and continuing for two (2) years thereafter
(irrespective of the Consulting Period) for the compensation and benefits and
subject to all of the terms set forth in Section 3(e) above (other than the
term for such consultancy services). The following shall constitute a
termination by Employee for "Good Reason" if: (i) there is an assignment to
the Employee of any duties materially inconsistent with or which constitute a
material change in the Employee's position, duties, responsibilities, or
status with the Company, or a material change in the Employee's position,
duties, responsibilities, or status with the Company, or a material change in
the Employee's reporting responsibilities, title, or offices; or removal of
the Employee from or failure to re-elect the Employee to any of such
positions, except in connection with the termination for the Period of
Employment for Cause, or due to disability or death; (ii) there is a
reduction by the Company in the Employee's annual salary then in effect other
than a reduction similar in percentage to a reduction generally applicable to
similarly situated employees of the Company; or (iii) the Company acts in any
way that would adversely affect the Employee's participation in or materially
reduce the Employee's benefit under any benefit plan of the Company in which
the Employee is participating or deprive the Employee of any material fringe
benefit enjoyed by the Employee except those changes generally affecting
similarly situated employees of the Company.
(g) COMPANY RIGHT TO REQUIRE CONSULTING SERVICES. In the event of
a termination of the Period of Employment pursuant to Section 3(c) or 3(d)
above, the Company shall have the option, exercisable on written notice to
Employee within twenty (20) days following such termination of the Period of
Employment, to require Employee to provide consulting services upon the same
terms provided in Section 3(e) above, including without limitation,
Employee's duties not to compete with the Company as provided in Section
3(i), except that: (i) the Company may thereafter terminate the Consultancy
Period on thirty (30) days notice to Employee; and (ii) the compensation
payable to Employee during the Consultancy Period shall be equal to
Employee's salary payable pursuant to Section 2(a)
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<PAGE>
hereof as prorated and reduced to be equal to an hourly rate (assuming forty
(40) hours work weeks and forty-eight (48) full weeks of service during a
year), and Employee shall be so paid by the Company at such hourly rate for
such consulting services based on the greater of: (i) the actual number of
hours of consulting services provided by Employee; and (ii) ten (10) hours
per calendar month; provided, that if the Company requires in excess of
twenty (20) hours per week of consulting, then the Company shall compensate
Employee and provide benefits and bonuses as if Employee is working full time
during the Consultancy Period. The Company may require up to a maximum of
forty (40) hours per week of consulting services. In the event that the
Company requires less than forty (40) hours of consulting services per week,
then the Company may not prevent Employee from accepting other employment or
engaging in any work or other activity of any kind during the Consultancy
Period provided that such employment, work or activity is not competitive
with the business of the Company (as defined in Section 3(i) hereof) and
Employee may accept such other noncompetitive employment or engage in other
noncompetitive work or business activities during the Consultancy Period.
The Company acknowledges that once it chooses to require less than forty (40)
hours per week of consulting services from Employee that the Company may not
later unilaterally increase the consulting services required of Employee to
forty (40) hours per week or restrict Employee's ability to accept other
noncompetitive employment or engage in other noncompetitive work or
activities without Employee's consent, which may be withheld in Employee's
discretion.
(h) OTHER TERMINATION OBLIGATIONS.
(1) Employee hereby acknowledges and agrees that all personal
property, including, without limitation, all books, manuals, records,
reports, notes, contracts, computer files, lists, blueprints, and other
documents, or materials, or copies thereof, proprietary information, and
equipment furnished to or prepared by Employee in the course of or incident
to his employment, including, without limitation, records and any other
materials pertaining to the Company's proprietary information, belong to the
Company and shall be promptly returned to the Company upon termination of the
Period of Employment. Following termination, the Employee will not retain any
written or other tangible material containing any Proprietary Information or
information pertaining to the Company's proprietary information.
(2) Upon termination of the Period of Employment, the
Employee shall be deemed to have resigned from all offices and directorships
then held with the Company or any affiliates.
(3) Employee agrees that he will not, either directly or
indirectly, for a period of two (2) years following the termination of the
later of the Period of Employment or the Consultancy Period: (i) contact,
for purposes of soliciting employment, any employee of the Company; or, (ii)
contact for the purpose of inducing any termination or breach of any
contractual relationship with the Company, any individual or entity that has
a contractual relationship with the Company.
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(4) Employee agrees to comply with the covenant not to
compete as set forth in such Section 3(i).
(i) COVENANT NOT TO COMPETE. During the Consultancy Period,
Employee agrees not to compete with the business of the Company during such
Consultancy Period, anywhere within, from or into the countries listed in
EXHIBIT A and from or into any additional countries where the Company does
business at the time of termination of Employee's employment. For purposes
of this Section 3(h), Employee shall be deemed to compete if he either as an
employee, employer, consultant, agent, principal, partner, stockholder,
corporate officer, director or in any other individual or representative
capacity engages or participates, or makes preparations to establish, any
business that conducts the same or substantially the same business as or is
competitive with the business which is conducted by the Company on the date
of Employee's termination, including, without limitation, work relating to
Top End, Encina, Unikix, CICS/6000, CICS/9000 and any activity engaged in by
the Company during the twelve months immediately preceding the date of
termination of the Period of Employment or any activity contemplated by the
Company on the date of such termination. Nothing contained in this Section
3(i) shall be construed to prohibit Employee from purchasing and owning
(directly or indirectly) up to one percent (1%) of the capital stock or other
securities of any corporation or other entity whose stock or securities are
traded on any national or regional securities exchange or the national
over-the-counter market and such ownership shall not constitute a violation
of this Section 3(i). In the event of a termination of the Period of
Employment pursuant to Section 3(c) or 3(d) above, the Company shall have the
option, exercisable on written notice to Employee within twenty (20) days
following such termination of the Period of Employment, to require Employee
to provide consulting services upon the same terms provided in Section 3(e)
above, including without limitation, Employee's duties not to compete with
the Company as provided herein.
4. PROPRIETARY INFORMATION AGREEMENT. As a condition to his
employment with the Company, Employee shall execute and deliver a copy of the
Company's standard form Employee Proprietary Information and Inventions
Agreement in substantially the form of EXHIBIT B attached hereto and
incorporated herein. Any breach by Employee of such agreement shall be deemed
a breach of this Agreement for purposes of Section 3(c) hereof. Employee's
obligations under such Employee Proprietary Information and Inventions
Agreement shall survive any termination of the Period of Employment.
5. ASSIGNMENT; SUCCESSORS AND ASSIGNS. Employee agrees that he will
not assign, sell, transfer, delegate or otherwise dispose of, whether
voluntarily or involuntarily, or by operation of law, any rights or
obligations under this Agreement, nor shall Employee's rights be subject to
encumbrance or the claims of creditors. Any purported assignment, transfer,
or delegation shall be null and void. Nothing in this Agreement shall
prevent the consolidation of the Company with, or its merger into, any other
corporation, or the sale by the Company of all or substantially all of its
properties or assets, or the assignment by the Company of this Agreement and
the performance of its obligations hereunder to any successor in interest or
any Affiliated Company. Subject to the foregoing, this Agreement shall be
binding upon and shall inure to the benefit of the parties and their
respective heirs, legal representatives, successors,
7
<PAGE>
and permitted assigns, and shall not benefit any person or entity other than
those enumerated above. Without limitation of the foregoing, any such
successor in interest (including an entity which acquires substantially all
the assets and the business of the Company) in such acquisition transaction
or any Affiliated Company shall be bound by all of the terms and conditions
of this Agreement.
6. NOTICES. All notices or other communications required or permitted
hereunder shall be made in writing and shall be deemed to have been duly
given if delivered by hand or mailed, postage prepaid, by certified or
registered mail, return receipt requested, and addressed to the Company at:
BEA Systems, Inc.
2465 E. Bayshore Road, Ste. 301
Palo Alto, CA 94303
Attn: Vice President, Finance
or to the Employee at: Alfred S. Chuang
1305 Victoria Terrace
Sunnyvale, CA 94087
Notice of change of address shall be effective only when done in accordance
with this Section.
7. ENTIRE AGREEMENT. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of Employee by the Company and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that
this Agreement shall constitute the complete and exclusive statement of its
terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative, or other legal proceeding involving this Agreement.
8. AMENDMENTS; WAIVERS. This Agreement may not be modified, amended,
or terminated except by an instrument in writing, signed by the Employee and
by a duly authorized representative of the Company other than Employee. By
an instrument in writing similarly executed, either party may waive
compliance by the other party with any provision of this Agreement that such
other party was or is obligated to comply with or perform, provided, however,
that such waiver shall not operate as a waiver of, or estoppel with respect
to, any other or subsequent failure. No failure to exercise and no delay in
exercising any right, remedy, or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, or
power hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, or power provided herein or by law or in
equity.
9. SEVERABILITY; ENFORCEMENT. If any provision of this Agreement, or
the application thereof to any person, place, or circumstance, shall be held
by a court of competent jurisdiction to be invalid, unenforceable, or void,
the remainder of this Agreement and such provisions as applied to other
persons, places, and circumstances shall remain in full force and effect. It
is the intention of the parties that the covenants contained in Section 3(f)
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shall be enforced to the greatest extent in time, area, and degree of
participation as is permitted by the law of that jurisdiction whose law is
found to be applicable to any acts allegedly in breach of these covenants.
10. GOVERNING LAW. The validity, interpretation, enforceability, and
performance of this Agreement shall be governed by and construed in
accordance with the law of the State of California.
11. EMPLOYEE ACKNOWLEDGMENT. Employee acknowledges (i) that he has
consulted with or has had the opportunity to consult with independent counsel
of his own choice concerning this Agreement and has been advised to do so by
the Company, and (ii) that he has read and understands the Agreement, is
fully aware of its legal effect, and has entered into it freely based on his
own judgment.
12. EXCLUSIVE. Both parties agree that this Agreement shall provide
the exclusive remedies for any breach by the Company of its terms.
The parties have duly executed this Agreement as of the date first
written above.
COMPANY: EMPLOYEE:
BEA SYSTEMS, INC.
By: /s/ William T. Coleman III /s/ Alfred Chuang
---------------------------------- ---------------------------
Title: President & CEO Alfred S. Chuang
-------------------------------
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EXHIBIT A
TO
EMPLOYMENT AGREEMENT
Canada
England
France
Germany
Japan
Spain
United States
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EXHIBIT 10.6
INSTALLMENT NOTE
Palo Alto, California
$________ September 28, 1995
FOR VALUE RECEIVED, ________ promises to pay to BEA Systems, Inc. a
Delaware corporation (the "Company"), or order, the principal sum of ________
($________), together with interest on the unpaid principal hereof from the
date hereof at the rate of seven percent (7%) per annum, compounded
semiannually.
Principal and interest shall be due and payable as follows: Principal
and accrued but unpaid interest shall be due and payable on the fifth
anniversary of this Note, September 28, 2000; PROVIDED HOWEVER, that this
Note shall accelerate and all principal and accrued but unpaid interest shall
be due and payable within 30 days of the termination of ________ employment
with the Company pursuant to either Section 3(c) or Section 3(d) of that
certain Employment Agreement dated September 28, 1995 between the Company and
________ (the "Employment Agreement"); and PROVIDED FURTHER that all
principal and accrued but unpaid interest on this Note shall be due and
payable within one year of the involuntary termination of ________ employment
with the Company pursuant to any of Section 3(a), Section 3(b), or Section
3(e) of the Employment Agreement. Should the undersigned fail to make full
payment of any installment of principal or interest for a period of 10 days
or more after the due date thereof, the whole unpaid balance on this Note of
principal and interest shall become immediately due at the option of the
holder of this Note. Payments of principal and interest shall be made in
lawful money of the United States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is delivered upon the purchase of Common Stock of the Company
pursuant to that certain Restricted Stock Purchase Agreement dated September
28, 1995 between the Company and the undersigned and is subject to the terms
of such Agreement. This Note is secured by a pledge of the Company's Common
Stock under the terms of a Security Agreement of even date herewith and is
subject to all the provisions thereof.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by
the undersigned.
The holder of this Note shall have full recourse against the maker, and
shall not be required to proceed against the collateral securing this Note in
the event of default.
_________________
<PAGE>
EXHIBIT 10.7
PROMISSORY NOTE
SECURED BY
DEED OF TRUST
$720,000 DATED December 12, 1995
FOR VALUE RECEIVED, Edward W. Scott, Jr. and Cheryl S. Scott
(collectively referred to as "Borrower"), an individual residing at 3464
Spring Creek Lane, Milpitas, California 95035 promises to pay to the order of
BEA Systems, Inc., a Delaware corporation ("Lender"), at its offices located
at 2465 E. Bayshore Rd., Suite 301, Palo Alto, California 94303, or such
other place as Lender may designate from time to time, the principal sum of
SEVEN HUNDRED TWENTY THOUSAND AND NO/100 DOLLARS ($720,000.00), or such
lesser amount as may be outstanding from time to time, together with interest
on the unpaid principal from the date hereof at the rate of interest of seven
percent (7%) per annum, compounded annually.
1. PAYMENT PROVISIONS.
1.1 PAYMENT. The principal amount of this Note, and all
accrued interest shall be due and payable on the earlier of the following
dates ("Maturity"):
(a) Eight (8) months after the closing of the
Initial Public Offering involving the sale of securities for the account of
Lender to the public, the gross proceeds of which exceed $10,000,000 at a
price to the public of at least $10.00 per share (appropriately adjusted for
any recapitalization of the Common Stock). For purposes of this Section 1.1,
the "Initial Public Offering" shall mean the first firm commitment
underwritten public offering of the Common Stock of Lender pursuant to an
effective registration statement declared effective under the Securities Act
of 1933, as amended (other than a registration effected by Lender in
connection with an employee benefit plan or a Rule 145 transaction, as
defined in Rule 145 of the Securities and Exchange Commission); or
(b) January 1, 2001.
1.2 VOLUNTARY PREPAYMENT. Borrower may at any time,
upon seven (7) days prior written notice to Lender, prepay this Note in whole
or in part.
1.3 MANDATORY PREPAYMENT. Concurrently with the
execution of this Note, Borrower is entering an Account Agreement with Wells
Fargo Bank (the "Account Agreement"). Borrower's obligations under the
Account Agreement shall be secured by a first deed of trust on the Property
(defined in Section 2 below). In the event the aggregate amount advanced to
Borrower under the Account Agreement exceeds $500,000 at any one time, then
Borrower shall be required to make principal payments to Lender under this
Note within ten (10) days so that sum of the outstanding principal
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balances of this Note and the Account Agreement do not exceed $1,220,000 in
the aggregate.
1.4 INTEREST CALCULATIONS/PAYMENT METHOD. All
computations of interest hereunder shall be made on the basis of a year of
360 days for the actual number of days (including the first day but excluding
the last day) occurring in the period for which such interest is payable.
Interest shall be compounded annually. Interest and principal shall be paid
at Maturity. All payments hereunder shall be made in lawful money of the
United States of America and shall be applied first to accrued interest and
then to principal.
2. SECURITY. Payment of this Note is secured by a deed of trust
(the "Deed of Trust') of even date herewith, executed by Borrower and
covering that certain real property known as 3464 Spring Creek Lane,
Milpitas, California 95035, (APN: 042-25-007) (the "Property"). A copy of
the Deed of Trust is attached as Exhibit A hereto. The Deed of Trust shall
be second only to that of Wells Fargo Bank on the Property evidenced by that
certain deed of trust of even date herewith securing Borrower's obligations
to Wells Fargo Bank under the Account Agreement (the "Wells Fargo Deed of
Trust").
3. GOVERNING LAW. The terms of this Note shall be construed in
accordance with the laws of the State of California.
4. AMENDMENTS/WAIVERS. Any term of this Note may be amended or
waived only upon the written consent of Borrower and Lender.
5. DEFAULT. All of the following shall be deemed events of
default under this Note. Upon the occurrence of any such event of default,
at the option of Lender (except with respect to the default described in
subsection (c) below, in which case acceleration shall be automatic), the
entire principal balance and accrued interest owing hereunder shall at once
become due and payable without notice of default or other notices or demands
of any kind whatsoever, all of which are hereby expressly waived by Borrower.
Lender's failure to exercise such option to accelerate shall not be
construed as a waiver of the provisions hereof as regarding any subsequent
event.
(a) Borrower fails to pay the entire principal balance and
accrued interest owing under this Note upon Maturity; or
(b) Borrower fails to pay principal and accrued interest as
required under Section 1.3 hereof; or
(c) Borrower receives a notice of default under the Wells
Fargo Deed of Trust or the Account Agreement, which notice of default must be
promptly delivered to Lender. The parties agree that a request for notice of
default shall be recorded concurrently with the Deed of Trust hereunder; or
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<PAGE>
(d) Borrower fails fully and timely to perform or observe any
other obligation or term of this Note, the Deed of Trust, the Wells Fargo
Deed of Trust or the Account Agreement on its part to be performed or
observed in accordance with the terms hereof or thereof; or
(e) Borrower is the subject of an order for relief by the
bankruptcy court, or is unable or admits in writing Borrower's inability to
pay Borrower's debts as they mature, or makes an assignment for the benefit
of creditors; or Borrower applies for or consents to the appointment of any
receiver, trustee, custodian, conservator, liquidator, rehabilitator or
similar officer for Borrower or for all or any part of Borrower's property;
or any receiver, trustee, custodian, conservator, liquidator, rehabilitator
or similar officer is appointed without the application or consent of
Borrower, and the appointment continues undischarged or unstayed for sixty
(60) calendar days; or Borrower institutes or consents to any bankruptcy,
insolvency or similar proceeding relating to Borrower or to all or any part
of Borrower's property under the laws of any jurisdiction; or any similar
proceeding is instituted without the consent of Borrower and continues
undismissed or unstayed for sixty (60) calendar days; or any judgment,
warrant, writ of attachment or execution, or similar process is issued or
levied against all or any part of the property of Borrower and is not
released, vacated or fully bonded within thirty (30) calendar days after its
issue or levy; or
(f) Borrower encumbers, sells, transfers, or conveys, or
permits to be encumbered, sold, transferred, or conveyed, voluntarily or
involuntarily, by agreement for sale or in any other manner, all or any
portion of the property, regardless of whether the Lender has consented to
any previous encumbrance, sale, transfer, or conveyance except for the Wells
Fargo Deed of Trust; or
(g) All or a substantial portion of the Property is
condemned, seized or appropriated by a governmental body or agency.
6. EXERCISE OF POWER BY LENDER. No single or partial exercise of
any power hereunder or under the Deed of Trust shall preclude other or
further exercises thereof or the exercise of any other power. Lender shall
at all times have the right to proceed against any portion of the security
for this Note in such order and in such manner as Lender may consider
appropriate, without waiving any rights with respect to any of the security.
Any delay or omission on the part of Lender in exercising any right hereunder
or under the Deed of Trust shall not operate as a waiver of such right, or of
any other right under this Note or the Deed of Trust.
7. SUCCESSORS AND ASSIGNS. This Note shall inure to the benefit
of Lender and its successors and assigns.
8. LIABILITY FOR COSTS AND EXPENSES. Borrower will be liable for
all costs and expenses of collection, including reasonable attorneys' fees,
incurred in collecting the money due hereunder, whether such items are
incurred in or out of litigation, in or out of a bankruptcy case or
proceeding, or otherwise.
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IN WITNESS WHEREOF, this Promissory Note Secured by Deed of Trust
is executed as of the date first set forth above.
BORROWER:
/s/ Edward W. Scott, Jr.
-----------------------------
Edward W. Scott, Jr.
/s/ Cheryl S. Scott
-----------------------------
Cheryl S. Scott
4
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EXHIBIT 10.9
LEASE
1. BASIC LEASE PROVISIONS. ("Basic Lease Provisions")
1.1 PARTIES. This Lease, dated, for reference purposes only, as
of November 15, 1995, is made by and between WILLIAM H. AND LEILA A. CILKER
(herein called "Lessor"), and BEA SYSTEMS, INC., a Delaware corporation,
(herein called "Lessee").
1.2 PREMISES. Suite Number 105, consisting of approximately
twelve thousand one hundred sixty-four (12,164) usable square feet ("USF"),
as measured from the centerline of shared walls to the outside surface of
outside walls; thirteen thousand six hundred twenty-four (14,624) rentable
square feet ("RSF") more or less, including a 12% load factor, as defined in
Paragraph 1.11 and as shown on Exhibit "A1" hereto (the "Premises").
1.3 BUILDING. Commonly described as being located at 385 Moffett
Park Drive in the City of Sunnyvale, County of Santa Clara, State of
California as defined in Paragraph 2.1 and as shown on Exhibit "A2" hereto
(the "Building"), as measured to the dripline of the outside walls.
1.4 USE. The Premises shall be used for general office, the
design, research, development, sales, storage, distribution, and marketing of
computer software, including all related support and administrative functions
and for no other purposes without the prior written consent of Lessor,
subject to Paragraph 6.
1.5 TERM. Five (5) years commencing no later than February 1,
1996 ("Commencement Date") and ending five (5) years after the Commencement
Date in accordance with Exhibit D (Commencement Date Memorandum).
1.6 BASE MONTHLY RENT. Eighteen Thousand Three Hundred Ninety-Two
and No/100th Dollars ($18,392.00) per month, payable on the first day of each
month, per Paragraph 4.1, commencing on the Commencement Date but no later
than February 1, 1996.
1.7 BASE MONTHLY RENT INCREASE. Monthly Base Rent payable under
Paragraph 1.6 above shall be adjusted as provided in Paragraph 4.1 below.
1.8 RENT PAID UPON EXECUTION. Eighteen Thousand Three Hundred
Ninety-Two and No/100ths Dollars (18,392.00) for February 1, 1996.
1.9 SECURITY DEPOSIT. Twenty One Thousand One Hundred Seventeen
and No/100ths Dollars ($21,117.00) payable upon execution.
1.10 LESSEE'S SHARE OF OPERATING EXPENSE INCREASE. 18.2% as
defined in Paragraph 4.2.
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1.11 LOAD FACTOR. Based on the Total Square Foot Space of the
lobby, common hallways, elevator, common bathrooms, utility rooms,
janitorial, storage rooms and other shared space expressed as a percentage of
the total Building area measured to the outer surface of the outside walls.
2. PREMISES, BUILDING, OFFICE BUILDING PROJECT, PARKING AND COMMON
AREAS.
2.1 PREMISES. The Premises are a portion of a building, herein
sometimes referred to as the "Building" identified in Paragraph 1.3 of the
Basic Lease Provisions. The Premises, the Building, the Common Areas, the
land upon which the same are located, along with all other improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project." Lessor hereby leases to Lessee and Lessee leases from
Lessor for the terms, at the rental, and upon all of the conditions set forth
herein, the real property referred to in the Basic Lease Provisions,
Paragraph 1.2, as the "Premises," including rights to the Common Areas as
hereinafter specified in Paragraph 2.4.
2.2 VEHICLE PARKING. So long as Lessee is not in default, and
subject to the rules and regulations attached hereto, and as established by
Lessor from time to time, Lessee shall be entitled to use 48 parking spaces
in the Common Area of the Office Building Project. Ten of these spaces shall
be designated for "Visitors." If Lessee commits, permits or allows any of
the prohibited activities described in the Lease or the rules then in effect,
then Lessor shall have the right, after making reasonable effort to notify
Lessee of the prohibited activity, in addition such other rights and remedies
that it may have, to remove or tow away any vehicle involved in such
prohibited activity, or otherwise take action to cure such prohibited
activity, and charge the cost to Lessee, which cost shall be immediately
payable upon demand by Lessor.
2.3 COMMON AREAS--DEFINITION. The term "Common Areas" is defined
as all areas and facilities outside the Premises and within the exterior
boundary line of the Office Building Project that are provided and designated
by the Lessor from time to time for the general nonexclusive use of Lessor,
Lessee and of other lessees of the Office Building Project and their
respective employees, suppliers, shippers, customers and invitees, including
but not limited to common entrances, parking areas to the extent not
otherwise prohibited by this Lease, roadways and walks, walkways, parkways,
ramps, driveways, striping, bumpers, irrigation systems, and Common Area
lighting facilities and landscaped areas.
2.4 COMMON AREA--RULES AND REGULATIONS. Lessee agrees to abide by
and conform to the rules and regulations attached hereto as Exhibit "B" with
respect to the Office Building Project and Common Areas and to cause its
employees, suppliers, shippers, customers, and invitees to so abide and
conform. Lessor or such other person(s) as Lessor may appoint shall have the
exclusive control and management of the Common Areas and shall have the right
to enforce said rules and regulations and
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may, from time to time, reasonably modify or amend and enforce said rules and
regulations.
2.5 COMMON AREAS--CHANGES. Lessor shall have the right in Lessor's
sole discretion, from time to time:
(a) To make changes to the Building exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the windows, air
shafts, driveways, entrances, parking spaces, parking areas, loading and
unloading areas, ingress, egress, direction of traffic, landscaped areas,
walkways and the outside walls and he roof of the Building;
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to he Premises remains
available;
(c) To designate other land and improvements outside the
boundaries of the Office Building Project to be a part of the Common Areas,
provided that such other land and improvements have a reasonable and
functional relationship to the Office Building Project;
(d) To add additional improvements to the Common Areas;
(e) To use the Common Areas while engaged in making
additional improvements, repairs or alterations to the Office Building
Project, or any portion thereof;
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Office Building
Project as Lessor may, in the exercise of sound business judgment, deem to be
appropriate.
3. TERM
3.1 TERM. The Term and Commencement Date of this Lease shall be
as specified in Paragraph 1.5 of the Basic Lease Provisions in accordance
with EXHIBIT D (Commencement Date Memorandum).
3.2 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee s agreed herein by the Commencement
Date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease, or the obligations of Lessee
hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor
delivers possession of the Premises to Lessee. If possession of the Premises
is not delivered to Lessee within sixty (60) days after the Commencement
Date, Lessee may, at its option, by notice in writing to Lessor within ten
(10) days thereafter, cancel this Lease, in which
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event the parties shall be discharged from all obligations hereunder;
provided, however, that if such written notice by Lessee is not received by
Lessor within said ten (10) day period, Lessee's right to cancel this Lease
shall terminate and be of no further force or effect.
4. RENT.
4.1 BASE MONTHLY RENT. Lessee shall pay to Lessor the Base
Monthly Rent for the Premises set forth in Paragraph 1.6 of the Basic Lease
Provisions and this Paragraph 4.1, without offset or deduction, payable on
the first day of each month (or in the event of a partial month, on the first
day of such partial month). Lessee shall pay Lessor upon execution hereof
the advance Base Rent described in Paragraph 1.8 of the Basic Lease
Provisions. The Base Monthly Rent is subject to change based upon the final
determination of the Rentable Square Feet leased.
Rent for any period during the term hereof which is for less than
one month shall be prorated based upon the actual number of days of the
calendar month involved. Rent shall be payable in lawful money of the United
States to Lessor at the address stated herein or to such other persons or at
such other places as Lessor may designate in writing.
Tenant shall pay the Base Monthly Rent on the amount and for the
months set forth below, and otherwise as provided in this Paragraph 4.1.
Months 1 - 12 - $18,392
Months 13 - 24 - $19,074
Months 25 - 36 - $19,755
Months 37 - 48 - $20,436
Months 49 - 60 - $21,117
4.2 OPERATING EXPENSES. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share of Operating
Expenses, as defined in Paragraph 1.10, of any increases in total Operating
Expenses for any "Comparison Year," as defined in Paragraph 4.2(d) herein
over the Operating Expenses for the Base Year, as hereinafter defined, during
each calendar year, following the Base Year, of the term of this Lease, in
accordance with the following provisions:
(a) "Lessee's Share of Operating Expenses" as specified in
Paragraph 1.10 of the Base Lease Provisions. Lessee's Share of Operating
Expenses has been established as a percentage determined by dividing the
approximate rentable square footage of the Premises by the approximate total
rentable square footage of the Building. Using this same method of
determination, the Lessee's Share of Operating Expenses may be redetermined
by Lessor in the event of a change in the rentable square footage in the
Building.
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(b) "Operating Expenses" is defined, for purposes of this
Lease, to include all costs incurred by Lessor pursuant to Paragraph 7.1 in
the exercise of its reasonable discretion, for:
(i) The operation, repair, maintenance, and replacement, in
neat, clean, safe, good order and condition, of the Common Areas;
(ii) Trash disposal, landscaping, irrigation, replacement
of plants and trees, wash windows and doors, service door and window seals,
janitorial services and supplies, sealing and striping the parking area, roof
repairs, security services, reserve for painting the Building;
(iii) Any other service to be provided by Lessor that is
elsewhere in this Lease to be an "Operating Expense":
(iv) The cost of the premiums for all insurance policy to
be maintained by Lessor under Paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by
Lessor under Paragraph 10.1 hereof;
(vi) The cost of utilities, including water, sewer, gas,
electricity, and other publicly mandated services to the Building, including
fire detection systems, fire sprinkler systems and security systems;
(vii) The cost of monitoring environmental matters;
(viii) Replacing and/or adding any improvement
mandated by any governmental agency, and any repairs or removals necessitated
thereby, including seismic upgrades, amortized over its useful life according
to federal income tax regulations or guidelines for depreciation thereof
(including interest on the unamortized balance as is then reasonable in the
judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements to include
HVAC, elevator maintenance, plumbing, including fire sprinklers, supplies,
materials and equipment and tools; including maintenance, cost and upkeep of
all parking and common areas; expenses incurred in an amount necessary to
reduce direct expenses; and
(x) A management fee attributable to the operation of
the Office Building Project.
(c) "Base Year" is defined, for purposes of this Lease, to be
the year ending December 31, 1996, which shall be based on the months at a
minimum of 95% occupancy.
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(d) "Comparison Year" is defined, for purposes of this Lease,
as each calendar year, during the term of this Lease, subsequent to the Base
Year.
(e) Lessee's Share of the Operating Expenses identified in
Paragraph 4.2(b) shall be payable by Lessee within thirty (30) days after a
statement of actual expenses is presented to Lessee by Lessor.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the security deposit set forth in Paragraph 1.9 of the Basic Lease
Provisions as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any charge in default for the payment
of any other sum to which Lessor may become obligated by reason of Lessee's
default, or to compensate Lessor for any loss or damage which Lessor may
suffer thereby. If Lessor so uses or applies all or any portion of said
deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to
the full amount then required of Lessee. Lessor shall not be required to
keep said security deposit separate from its general accounts. If Lessee
performs all of Lessee's obligations hereunder, said deposit, or so much
thereof as has not heretofore been supplied by Lessor, shall be returned,
without payment of interest or other increment for its use, to Lessee (or, at
Lessor's option, to the last assignee, if any, of Lessee's interest
hereunder) at the expiration of the term hereof, and after Lessee has vacated
the Premises. No trust relationship is created herein between Lessor and
Lessee with respect to said Security Deposit. Lessee at Lessee's option
shall be able to assign their Security Deposit to another company which may
purchase Lessee and Lessee's business.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the
purpose set forth in Paragraph 1.4 of the Basic Lease Provisions or any other
use which is reasonably comparable to that use and for no other purpose.
6.2 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in
this Lease, Lessee shall, at Lessee's expense, promptly comply with all
applicable statutes, ordinances, rules, regulations, orders, covenants and
restrictions or record, and requirements of any fire insurance underwriters
or rating bureaus, now in effect or which may hereafter come into effect,
whether or not they reflect a change in policy from that now existing, during
the term or any part of the term hereof, relating in any manner to the
Premises and the occupation and use by Lessee of the Premises. Lessee shall
conduct Lessee's business in a lawful manner and shall not use or permit the
use of the Premises or the Common Areas in any manner that will tend to
create waste or nuisance or shall tend to disturb other occupants of the
Office Building Project.
6.3 CONDITION OF PREMISES. Subject to EXHIBIT C attached hereto,
Lessee accepts the Premises and the Office Building Project in their condition
existing as
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of the Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating
the use of the Premises, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that it has satisfied itself by its own independent
investigation that the Premises are suitable for its intended use, and that
neither Lessor nor Lessor's agent or agents has made any representation or
warranty as to the present or further suitability of the Premises, Common
Areas, or Office Building Project for the conduct of Lessee's business.
6.4 HAZARDOUS MATERIALS.
(a) Lessee shall not engage in any activities upon or in the
Office Building Project, nor bring onto, create, or dispose of upon or in the
Premises, any Hazardous Material (except for office and janitorial supplies
of types and in quantities generally and reasonably used in connection with
the uses of the Premises contemplated hereunder) without Lessor's prior
written consent, which consent shall not be unreasonably withheld or delayed.
(b) Lessee shall not engage in any activity upon or in the
Premises that violates any federal, state or local laws, rules or regulations
pertaining to Hazardous Material. Lessee shall promptly, at Lessee's sole
cost and expense, take all investigatory or remedial actions requested or
ordered for clean-up of any contamination of the Premises created or suffered
by Lessee. Lessee shall comply with any and all requirements related to
handling, use, storage and disposal of Hazardous Materials.
(c) Lessee shall indemnify, defend and hold harmless Lessor,
Lessor's agents, employees, servants, and lenders, from any and all claims,
losses, liability, demands, damages, costs, offsets, lawsuits, judgments,
award and expenses, including, but not limited to, attorneys' fees arising
out of or in connection with any breach of Lessee's obligations under this
Paragraph 6.4.
(d) Lessee's obligations under this Paragraph 6.4 shall
survive the ending, termination, and cancellation of this Lease, and no
termination, cancellation or release agreement entered into by Lessor and
Lessee shall release Lessee form Lessee's obligations under this Paragraph
6.4 unless any such agreement expressly sets forth Lessor's intention to so
release Lessee.
(e) The term "Hazardous Material" means any chemical
substance:
(i) the presence of which requires investigation,
regulation or remediation under any federal, state or local statute,
regulation, ordinance, order, action, policy or common law; or
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(ii) which is or becomes defined as a "hazardous waste"
or "hazardous substance" under any federal, state or local stature,
regulation or ordinance or amendments thereto including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. Section 9601 ET SEQ.) and or the Resource Conservation and Recovery
Act (42 U.S.C. Section 6901 ET SEQ.); or
(iii) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is or becomes regulated by any governmental authority, agency,
department, commission, board, agency or instrumentality of the United
States, the State of California or any political subdivision thereof; or
(iv) the presence of which on the Premises poses or
threatens to pose a hazard to the health or safety of persons on or about the
Premises; or
(v) without limitation which contains gasoline, diesel
fuel or other petroleum hydrocarbons; or
(vi) without limitation which contains polychlorinated
bipheynols (PCBs), or asbestos; or
(vii) which is considered by any government authority
to be harmful, dangerous, toxic, flammable or otherwise deserving of special
care.
(f) Lessee warrants that they will not be using any chemical
or Hazardous Material within its business. Provided that the Lessee does not
have any Hazardous Material on the Premises, it shall not be responsible for
Hazardous Material found on the Premises during the term of the Lease and
prior to occupancy.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building
Project, including the Premises, interior and exterior walls, roof, and
common areas, and the equipment whether used exclusively for the Premises or
in common with other premises, in good condition and repair; provided,
however, Lessor shall not be obligated to paint, repair or replace wall
coverings, or to repair or replace any improvements that are not ordinarily a
part of the Building or are above then Building standards. Lessor shall not
be obligated to repair damage caused by negligence of Lessee or of Lessee's
agents, employees, contractors, guests or invitees, or by reason of the
failure of Lessee to perform or comply with any terms, conditions or
covenants in this Lease, or caused by alterations, additions or improvements
made by Lessee or Lessee's agents, employees or contractors, which damage
Lessee shall repair at its sole expense. Lessee expressly waives the
benefits of any statute now or hereafter in effect (including, without
limitation,
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the provisions of Sections 1941 and 1942 of the California Civil Code) which
would otherwise afford Lessee the right to make repairs at Lessor's expense
or to terminate this Lease because of Lessor's failure to keep the Premises,
the Building or the Common Areas in good order, condition and repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Notwithstanding Lessor's obligation to keep the Premises
in good condition and repair, Lessee shall be responsible for payment to
Lessor, as additional rent, that portion of the cost of any maintenance and
repair of the Premises, or any equipment (wherever located), that serves only
Lessee or the Premises, to the extent such cost is attributable to any cause
beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises Improvements that are not ordinarily a part of the Building or that
are above then Building standards. Lessor may, at its option, upon
reasonable notice, elect to have Lessee perform any such particular
maintenance or repairs the cost of which is Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear excepted, clean and free of
debris. Any damage or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good
maintenance practices by Lessee. Lessee shall repair any damage to the
Premises occasioned by the installation or removal of Lessee's trade
fixtures, alterations, furnishings and equipment. Except as otherwise stated
in this Lease, Lessee shall leave the air lines, power panels, electrical
distribution systems, lighting fixtures, air conditioning, window coverings,
ceilings and plumbing on the Premises clean and in good operating condition
and shall leave the ceiling panels, air conditioning vents, painted surfaces,
wall coverings, paneling and carpets clean and in good repair.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not make any alterations, improvement,
additions, Utility Installation or repair in, on or about the Premises over
Ten Thousand Dollars ($10,000), without Lessor's prior written consent. As
used in the Paragraph 7.3 the term "Utility Installation" shall mean
carpeting, window and wallcoverings, power panels, electrical distribution
systems, lighting fixtures, air conditioning and plumbing. At the expiration
of the term, Lessor may require the removal of any or all of said
alterations, improvements, additions or Utility Installations, and the
restoration of the Premises to their prior condition, at Lessee's expense.
Should Lessor permit Lessee to make its own alterations, improvements,
additions or Utility Installations, Lessee shall use only such contractor as
has been expressly approved by Lessor, and Lessor may require Lessee to
provide Lessor, at Lessee'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 Lessor against any liability for mechanic's and
materialmen's
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liens and to insure completion of the work. Should Lessee make any
alterations, improvements, additions or Utility Installations without the
prior approval of Lessor, or use a contractor not expressly approved by
Lessor, Lessor may, at any time during the term of this Lease or within one
hundred twenty (120) days after lease expiration, require that Lessee remove
any part or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises over Ten Thousand Dollars ($10,000)
that Lessee shall desire to make shall be presented to Lessor in written
form, with proposed detailed plans. If Lessor shall give its consent to
Lessee's making such alteration, improvement, addition or Utility
Installation, the consent shall be deemed conditioned upon Lessee acquiring a
permit to do so from the applicable governmental agencies, furnishing a copy
thereof to Lessor prior to the commencement of the work, and compliance by
Lessee with all conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or
for use in the Premises, which claims are or may be secured by any mechanic's
or materialmen's lien against the Premises, the Building or the Office
Building Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days'
notice prior to the commencement of any work in the Premises by Lessee, and
Lessor shall the right to post notices of non-responsibility in or on the
Premises or the Building as provided by law. If Lessee shall, in good faith,
contest the validity of any such lien, claim or demand, then Lessee shall, at
its sole expense defend itself and Lessor against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises, the Building or the
Office Building Project, upon the condition that if Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an
amount equal to such contested liability for the same and holding the
Premises, the Building and the Office Building Project free from the effect
of such lien or claim. In addition, Lessor may require Lessee to pay
Lessor's reasonable attorneys' fees and costs in participating in such action
if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures or Lessee), which may be made to the Premises by Lessee, including
but not limited to, floor coverings, paneling, doors, drapes, built-ins,
moldings, sound attenuation, and lighting, conduit, wiring outlets, shall be
made and done in a good and workmanlike manner and of good and sufficient
quality and materials and shall be the property of Lessor and remain upon and
be surrendered with the Premises at the expiration of the Lease term, unless
Lessor requires their removal pursuant to Paragraph 7.3(a). Provided Lessee
is not in default, notwithstanding the provisions of this Paragraph 7.3(e),
Lessee's personal property and equipment, other than that which is affixed to
the Premises so that it cannot be removed without material damage to the
Premises or the Building, and other than
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Utility Installations, shall remain the property of Lessee and may be removed
by Lessee subject to the provisions of Paragraph 7.2(b).
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations regardless of said costs.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building
Project, including, but not by way of limitation, such utilities as plumbing,
electrical systems, security systems, communication systems, and fire
protection and detection systems, so long as such installations do not
unreasonably interfere with Lessee's use of the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE - LESSEE. Lessee shall, at Lessee's
expense, obtain and keep in force during the term of this Lease a policy of
Comprehensive General Liability insurance utilizing an Insurance Services
Office standard form with Broad Form General Liability Endorsement (GL0404),
or equivalent, in an amount of not less than One Million Dollars ($1,000,000)
per occurrence of bodily injury and property damage combined or in a greater
amount as reasonably determined by Lessor as the amount then customarily
carried by owners and operators of similar properties and shall insure
Lessee, and Lessor as an additional insured, against liability arising out of
the use, occupancy or maintenance of the Premises. Compliance with the above
requirement shall not, however, limit the liability of Lessee hereunder.
8.2 PROPERTY INSURANCE - LESSEE. Lessee shall, at Lessee's
expense, obtain and keep in force during the term of this Lease for the
benefit of Lessee, replacement cost of fire and extended coverage insurance,
with vandalism and malicious mischief endorsements, in an amount sufficient
to cover not less than 100% of the full replacement cost, as the same may
exist from time to time, all of Lessee's personal property, fixtures,
equipment and tenant improvements.
8.3 INSURANCE -- LESSOR. Lessor shall obtain and keep in force
during the term of this lease a policy or policies of insurance covering loss
or damage to the Office Building Project improvements, but not Lessee's
personal property, fixtures, equipment or tenant improvements, in the amount
of the full replacement cost thereof, as the same may exist from time to
time, utilizing Insurance Services Office standard form, or such other form
as Lessor elects, providing protection against all perils included within the
classification of special causes of loss, and such other perils as Lessor
deems advisable, including without limitation earthquake and flood coverage.
In addition, Lessor shall, at lessor's option, obtain and keep in force,
during the term of is Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in
any such policies carried by Lessor and shall have no right to any
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proceeds therefrom. The policies required by this Paragraph 8.3 shall
contain such deductibles as Lessor or the aforesaid lender may determine. In
the event that the Premises shall suffer an insured loss as defined in
Paragraph 9.1(e) hereof, the deductible amounts under the applicable
insurance policies shall be deemed an Operating Expense. Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
carried by Lessor. Lessee shall pay the entirety of any increase in the
property insurance premium for the Office building Project over what it was
immediately prior the commencement of the term of this Lease if the increase
is specified by Lessor's insurance carrier as being caused by the nature of
Lessee's occupancy or any act or omission of Lessee.
8.4 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of
all insurance policies required to be maintained by Lessee under this section
8 or certificates evidencing the existence and amounts of such insurance
within fifteen (15) days after the Commencement Date of this Lease. All such
policies shall name Lessor as an additional insured and no such policy shall
be cancelable or subject to reduction of coverage or other modification
except after thirty (30) days prior written notice to Lessor. Lessee shall,
at least thirty (30) days prior to the exploration of such policies, furnish
Lessor with renewals thereof.
8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release
and relieve the other, and waive their entire right of recovery against the
other, for direct or consequential loss or damage arising out of or incident
to the perils covered by property insurance carried by such party, whether
due to the negligence of lessor or Lessee or their agents, employees,
contractors and/or invitees. If necessary all property insurance policies
required under this Lease shall be endorsed to so provide.
8.6 INDEMNITY. Except to the extent and proportion caused solely by
Lessor's negligence or willful misconduct, Lessee shall indemnify and hold
harmless Lessor and its agents, partners and lenders, from and against any and
all liability, cost, expense, loss or claim for damage to the person or property
of anyone or any entity arising from Lessee's use of the Office Building
Project, or from the conduct of Lessee's business or from any activity, work or
things done, permitted or suffered by Lessee in or about the Premises or
elsewhere and shall further indemnify and hold harmless Lessor from and against
any and all liability, cost, expense, loss or claim arising from any breach or
default in the performance of any obligation on Lessee's part to be performed
under the terms of this Lease, or arising from any act or omission of Lessee, or
any of Lessee's agents, contractors, employees or invitees and from and against
all costs, attorneys' fees, expenses and liabilities incurred by Lessor as the
result of any such use, conduct, activity, work, things done, permitted or
suffered, breach, default or negligence, and in dealing reasonably therewith,
including but not limited to the defense or pursuit of any claim or any action
or proceeding be brought against lessor by reason of any such matter, Lessee
upon notice from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such
defense. Lessor need not have first paid any such liability cost, expense, loss
or claim in order to be so
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indemnified. Lessee, as a material part of the consideration to Lessor,
hereby assumes all risk of damage to property of Lessee or injury to persons,
in, upon or about the Office Building Project arising from any cause and
Lessee hereby waives all claims in respect thereof against Lessor.
8.7 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of
income therefrom or from loss of or damage to the goods, wares, merchandise
or other property of Lessee, Lessee's employees, invitees, customers, or any
other person in or about the Premises or the Office Building Project, nor
shall Lessor be liable for injury to the person of Lessee, Lessee's
employees, agents or contractors, whether such damage or injury is caused by
or results from thefts, fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from
any other cause, whether said damage or injury results from conditions
arising upon the Premises or upon other portions of the Office Building
Project, or from other sources or places, or from new construction or the
repair, alteration or improvement of any part of the Office Building Project,
or of the equipment, fixtures or appurtenances applicable thereto, and
regardless of whether the cause of such damage or injury or the means of
repairing the same is inaccessible. In addition, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant
or user of the Office Building Project, nor from the failure of Lessor to
enforce the provisions of any other lease.
8.8 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of insurance specified in this
section 8 are adequate to cover Lessee's property or obligations under this
Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Damage" shall mean if the Premises are
damaged or destroyed to any extent.
(b) "Premises Partial Damage" shall mean if the Premises
are damaged or destroyed to the extent that the cost of repair is
less than thirty-three and one-third percent (33-1/3%) of the then
Replacement Cost of the Building.
(c) "Premises Total Destruction" shall mean if the
Building is damaged or destroyed to the extent that the cost of
repair is thirty-three and one-third percent (33-1/3%) or more of
the then Replacement Cost of the Building.
(d) "Building Total Destruction" shall mean if the
Building is damaged or destroyed to the extent that the cost of
repair is thirty-three and one-third percent (33-1/3%) or more of
the then Replacement Cost of the Building.
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(e) "Insured Loss" shall mean damage or destruction
which was caused by an event actually covered by the insurance
described in section 8. The fact that an insured Loss has a
deductible amount shall not make the loss an uninsured loss.
(f) "Replacement Cost" shall mean the amount of money
necessary to be spent in order to repair or rebuild the damaged are
to the condition that existed immediately prior to the damage
occurring, excluding all improvements made by Lessee, other than
those installed by Lessor or Lessee at Lessee's expense.
9.2 PREMISES DAMAGE; PREMISES PARTIAL DAMAGE.
(a) INSURED LOSS: Subject to the provisions of
Paragraphs 9.4 and 9.5, if at any time during the term of this
Lease there is damage which is an Insured Loss and which falls into
the classification of either Premises Damage or Premises Partial
Damage, then Lessor shall, as soon as reasonably possible and to
the extent the required materials and labor are readily available
through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements
originally paid for by Lessee) to its condition existing at the
time of the damage, and this Lease shall continue in full force and
effect.
(b) UNINSURED LOSS: Subject to the provisions of
Paragraphs 9.4 and 9.5, if at any time during the term of this
Lease there is damage which is not an Insured Loss and which falls
within the classification of Premises Damage or Premises Building
partial Damage, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's
expense), Lessor may at Lessor's option either (i) repair such
damage as soon as reasonably possible at Lessor's expense, in which
event this Lease shall continue in full force and effect, or (ii)
give written notice to Lessee within thirty (30) days after the
date of the occurrence of such damage of Lessor's intention to
cancel and terminate this Lease as of the date of the occurrence of
such damage, in which event this Lease shall terminate as of the
date of the occurrence of such damage.
9.3 PREMISES TOTAL DESTRUCTION; OFFICE BUILDING PROJECT
TOTAL DESTRUCTION. Subject to the provisions of Paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage,
whether or not it is an Insured Loss, which falls into the
classification of either (i) Premises Total Destruction, or (ii)
Office Building Project Total Destruction, then Lessor may at
Lessor's option either (i) repair such damage or destruction as
soon as reasonably possible at lessor's expense (to the extent the
required materials are readily available through usual commercial
channels) to its condition existing at the time of the damage, but
not Lessee's fixtures, equipment or tenant improvements, and this
Lease shall continue in full force and effect, or (ii) give written
notice to Lessee within thirty (30) days after the date of
occurrence of such
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damage of Lessor's intention to cancel and terminate this Lease, in
which case this Lease shall terminate as of the date of the
occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM. If at any time during the
last twelve (12) months of the term of this Lease there is
substantial damage to the Premises, Lessor may at Lessor's option
cancel and terminate this Lease as of the date of occurrence of
such damage by giving written notice to Lessee of Lessor's election
to do so within thirty (30) days after the date of occurrence of
such damage.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Building
or Premises pursuant to the provisions of this Section 9, and any
part of the Premises are not usable (including loss of use due to
loss of access or essential services), the rent payable hereunder
(including Lessee's Share of Operating Expenses) for the period
during which such damage, repair or restoration continues shall be
abated, provided (1) the damage was not the result of the
negligence of Lessee, and (2) such abatement shall be in proportion
to the part of the Premises which is unusable by Lessee for the
conduct of its business. Except for said abatement of rent, if
any, Lessee shall have no claim against Lessor for any damage
suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore
the Premises or the Building under the provisions of this Section 9
and shall not commence such repair or restoration within ninety
(90) days after such occurrence, Lessee may at Lessee's option
cancel and terminate this Lease by giving Lessor written notice of
Lessee's election to do so at any time prior to the commencement or
completion, respectively, of such repair or restoration. In such
event this Lease shall terminate as of the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection
with any such restoration and repair, including but not limited to
the approval and/or execution of plans and specifications as and
when required.
9.6 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Section 9, an equitable adjustment shall be made concerning
advance rent, if any, and any advance payments made by Lessee to Lessor.
Lessor shall, in addition return to Lessee so much of Lessee's security
deposit as has not theretofore been applied by Lessor or which Lessor has a
right to apply pursuant to the terms of this Lease.
9.7 WAIVER. Lessor and lessee waive the provisions of any
statutes which relate to termination of leases when leased property is
destroyed and agree that such event shall be governed by the terms of this
lease.
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10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as
defined in Paragraph 10.3, applicable to the Office Building Project subject
to the payment by Lessee of Lessee's Share of Operating Expenses in
accordance with the provisions of Paragraph 4.2, except as otherwise provided
in Paragraph 10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for
paying any increase in real property tax specified in the tax assessor's
records and work sheets as being caused by additional improvements placed
upon the Office Building Project by other Lessees or by Lessor for the
exclusive enjoyment of any other lessee. Notwithstanding the provisions set
forth in Paragraph 4.2 hereof, Lessee shall, however, pay to Lessor at the
time that Operating Expenses are payable under Paragraph 4.2(d) the entirety
of any increase in real property taxes if assessed solely by reason of
additional improvements placed upon the Premises by Lessee at Lessee's
request.
10.3 DEFINITION OF "REAL PROPERTY TAX". As used herein, he term
"real property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvements bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Office Building Project or
any portion thereof by any authority having the direct or indirect power to
tax, including any city, county, state or federal government, or any school,
agricultural, sanitary, fire, street, drainage or other improvement district
thereof, as against any legal or equitable interest of Lessor in the Office
Building Project or in any portion thereof, as against Lessor's right to rent
or other income therefrom, and as against Lessor's business of leasing the
Office Building Project.
10.4 JOINT ASSESSMENT. If the improvements or property, the taxes
for which are to be paid separately by Lessee under Paragraph 10.2 or 10.5,
are not separately assessed, Lessee's portion of that tax shall be equitably
determined by Lessor from the respective valuations assigned in the
assessor's work sheets or such other information (which may include the cost
of construction) as may be reasonably available. Lessor's reasonable
determination thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes
assessed against and levied upon trade fixtures, furnishings,
equipment and all other personal property of Lessee contained in
the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay to Lessor
the taxes attributable to Lessee within ten (10) days after receipt
of a written statement setting forth the taxes applicable to
Lessee's property.
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11. UTILITIES AND SERVICES.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines,
water for reasonable and normal drinking and lavatory use, and replacement
light bulbs and/or fluorescent tubes and ballasts for standard overhead
fixtures.
11.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water,
heating, ventilation, air conditioning, light, power, telephone, data and
other utilities and services specially or exclusively supplied and/or metered
exclusively to the Premises or to Lessee, together with any taxes thereon.
If any such services are not separately metered to the Premises, Lessee shall
pay at Lessor's option, either Lessee's Share or a reasonable proportion to
be determined by Lessor of all charges jointly metered with other premises in
the Building.
11.3 HOURS OF SERVICE. Said services and utilities shall be
provided during generally accepted business days, Monday through Friday,
hours 7:00 a.m. through 6:00 p.m. or such other days or hours as may
hereafter be set forth. Utilities and services required at other times shall
be subject to advance request and reimbursement by Lessee to Lessor of the
cost thereof.
11.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to
the utilities except by or through existing outlets and shall not install or
use machinery or equipment in or about the premises that uses excess water,
lighting, or power, or suffer or permit any act that causes extra burden upon
the utilities or services, including but not limited to security services,
over standard office usage for the Office Building Property. Lessor shall
require Lessee to reimburse Lessor for any excess expenses or costs that may
arise out of a breach of this subparagraph by Lessee. Lessor may in its sole
discretion, install at Lessee's expense supplemental equipment and/or
separate metering applicable to Lessee's excess usage or loading.
11.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor
shall not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
Lessee may elect to terminate this lease if an interruption of utility or
service results for thirty (30) consecutive calendar days and is caused by
the negligent acts of Lessor or its agents.
12. OPTION TO EXTEND. Provided that Lessee is not in default under any
of the terms of this Lease at the date on which the option granted herein is
exercised or at the expiration of the Term, Lessee (but not a subtenant or
assignee of Lessee except as provided in Paragraph 13.2 hereof) shall have
the option to extend the Term for one (1) additional five (5) year period
commencing on the day following the termination date of the original Term
(the "Option Term") by giving Lessor written notice of Lessee's
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irrevocable exercise of the Option Term not less than one hundred eighty
(180) days prior to the expiration of the original Term ("Lessee's Notice"),
in which event the Term shall be deemed to include the period of the Option
Term. All terms and conditions of this Lease shall apply to the Option Term
except that the monthly rent payable pursuant to section 4 hereof shall be
one hundred percent (100%) of the Prevailing Market Rate be less than the
rental rate paid during the last month of the Base Lease Term.
The Monthly Rent shall be increased five cents ($0.05) per rentable
square foot per month at the beginning of each year thereafter (years 2
through 5).
"Prevailing Market Rate" ("PMR") is to be determined
in accordance with this section 12. PMR shall be the actual effective rental
being obtained at the time Lessor receives Lessee's Notice under leases on
comparable space in comparable buildings. To the extent feasible, the
aforementioned comparable buildings shall be in the surrounding area. The
PMR shall be determined by agreement of Lessor and Lessee within thirty (30)
days of receipt by Lessor of Lessee's Notice, or in the absence of such
agreement, by one real estate appraiser with at least five (5) years' full
time commercial appraisal experience in the area where the Premises are
located who shall be selected jointly by Lessor and Lessee within forty-five
(45) days after receipt by Lessor of Lessee's Notice. Said appraiser shall
make a determination, which shall be binding on each party, within thirty
(30) days of h is or her appointment.
13. ASSIGNMENT AND SUBLETTING.
13.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the
Premises, without Lessor's prior written consent, which Lessor shall not
unreasonably withhold. Any attempted assignment, transfer, mortgage,
encumbrance or subletting without such consent shall be void and shall
constitute a material default and breach of this Lease without the need for
notice to Lessee under Paragraph 14.1. "Transfer" within the meaning of this
Section 13 shall include the transfer or transfers aggregating: (a) if
Lessee is a corporation, more than fifty percent (50%) of the voting stock of
such corporation, or (b) if Lessee is a partnership, more than fifty percent
(50%) of the profit and loss participation in such partnership.
13.2 LESSEE AFFILIATE. Notwithstanding the provisions of Paragraph
13.1 hereof, Lessee may assign or sublet the Premises, or any portion
thereof, without Lessor's consent, to any corporation which controls, is
controlled by or is under common control whit Lessee, or to any corporation
resulting from the merger or consolidation with Lessee, or to any person or
entity which acquires all the assets of Lessee as a going concern of the
business that is being conducted on the Premises, all of which are referred
to as "Lessee Affiliate"; provided that before such assignment shall be
effective, (a) said assignee shall assume, in full, the obligations of Lessee
under the Lease and (b) Lessor shall be given written notice of such
assignment and assumption. Any such assignment
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shall not, in any way, affect or limit the liability of Lessee under the
terms of this Lease even if after such assignment of subletting the terms of
this Lease are materially changed or altered without the consent of Lessee,
the consent of whom shall not be necessary.
13.3 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or
subletting shall release Lessee of Lessee's obligations hereunder
of alter the primary liability of Lessee to pay the rent and other
sums due Lessor hereunder including Lessee's Share of Operating
Expenses, and to perform all other obligations to be performed by
Lessee hereunder.
(b) Lessor may accept rent from any person other than
Lessee pending approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of
such assignment or subletting nor the acceptance of rent, shall
constitute a waiver or estoppel of Lessor's right to exercise its
remedies for the breach of any of the terms or conditions of this
Section 14 or this Lease.
(d) If Lessee's obligations under this Lease have been
guaranteed by third parties, then an assignment or sublease, and
Lessor's consent thereto, shall not be effective unless said
guarantors give their written consent to such assignment or
sublease and the terms thereof.
(e) The consent of Lessor to any assignment or
subletting shall not constitute a consent to any subsequent
assignment or subletting by Lessee or to any subsequent or
successive assignment of subletting by the sublessee. However,
Lessor may consent to subsequent subletting and assignments of the
sublease or any amendments or modifications thereto without
notifying Lessee or anyone else liable on the Lease or sublease and
without obtaining their consent and such action shall not relieve
such persons from liability under this Lease or said sublease;
provided, however, such persons shall not be responsible to the
extent any such amendment or modification enlarges or increases the
obligations of the Lessee or sublessee under this Lease or such
sublease.
(f) In the event of any default under this Lease, Lessor
may proceed directly against Lessee, any guarantors or anyone else
responsible for the performance of this Lease, including the
sublessee, without first exhausting Lessor's remedies against any
other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or
subletting of the Premises by Lessee shall not constitute an
acknowledgment that no default then exists under this lease of the
obligations to be performed by Lessee nor shall
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such consent be deemed a waiver of any then existing default,
except as may be other wise stated by Lessor at the time.
(h) The discovery of the fact that any financial
statement relied upon by Lessor in giving its consent to an
assignment or subletting was materially false shall, at Lessor's
election, render Lessor's said consent null and void.
(i) If Lessee receives rent or other consideration,
either initially or over the term of any assignment or sublease in
excess of the rent required under this Lease, Lessee shall pay to
Lessor, an additional rent hereunder, 50% of the excess of each
such payment of rent or additional consideration by Lessee after
deducting Lessee's cost for marketing and real estate commissions.
13.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING.
Regardless of Lessor's consent, the following terms and conditions shall
apply to any subletting by Lessee of all or any part of the Premises and
shall be deemed included in all subleases under this Lease whether or not
expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rental and income arising from any
sublease heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's
obligations under this Lease, provided, however, that until a
default shall occur in the performance of Lessee's obligations
under this Lease, Lessee may receive, collect and enjoy the rents
accruing under such sublease. Lessor shall not, by reasons of this
or any other assignment of such sublease to Lessor nor by reason of
the collection of the rents from a sublessee be deemed liable to
the sublessee for any failure of Lessee to perform and comply with
any of Lessee's obligations to such sublessee under such sublease.
Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating
that a default exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor the rents due and to become due
under the sublease. Lessee agrees that such sublessee shall have
the right to relay upon any such statement and request from Lessor,
and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists
and notwithstanding any notice from or claim from Lessee to the
contrary. Lessee shall have no right or claim against said
sublessee or Lessor for any such rents so paid by said sublessee to
Lessor.
(b) No sublease entered into by Lessee shall be
effective unless and until it has been approved in writing by
Lessor. In entering into any sublease, Lessee shall use only such
form of sublease as is satisfactory to Lessor, and once approved by
Lessor, such sublease shall not be changed of modified without
Lessor's prior written consent. Any sublessee shall, by reason of
entering into a sublease under this Lease, be deemed for the
benefit of Lessor, to have assumed
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and agreed to conform and comply with each and every obligation
herein to be performed by Lessee other than such obligations as are
contrary to or inconsistent with provisions contained in a sublease
to which Lessor has expressly consented in writing.
(c) In the event Lessee shall default in the performance
of its obligations under this Lease, Lessor, at its option and
without any obligation to do so, may require any sublessee to
attorney to Lessor, in which event Lessor shall undertake the
obligations of Lessee under such sublease from the time of the
exercise of said option to the termination of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents
or security deposit paid by such sublessee to Lessee or for any
other prior defaults of Lessee under such sublease.
(d) No sublessee shall further assign or sublet all or
any part of the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has
consented, Lessor agrees to deliver a copy of any notice of default
by Lessee to the sublessee. Such sublessee shall have the right to
cure a default of lessee within three (3) days after Service of
said notice of default upon such sublessee, and the sublessee shall
have the right of reimbursement and offset from and against Lessee
for any such defaults cured by the sublessee.
13.5 LESSOR'S EXPENSES. In the event Lessee shall assign or sublet
the Premises or request the consent of Lessor to any assignment or subletting
or if Lessee shall request the consent of Lessor for any act Lessee proposes
to do then Lessee shall pay Lessor's reasonable costs and expenses incurred
in connection therewith, including attorneys', architects', engineers' and
other consultants' fees.
13.6 CONDITIONS TO CONSENT. Lessor reserves the right to condition
any approval to assign or sublet upon Lessor's determination that (a) the
proposed assignee or sublessee shall conduct a business on the Premises of a
quality substantially equal to that of Lessee and consistent with the general
character of the other occupants of the Office Building Project and not in
violation of any exclusives or rights then held by other tenants, and (b) the
proposed assignee or sublessee be at least as financially responsible as
Lessee was expected to be at the time of the execution of this Lease or of
such assignment or subletting, whichever is greater.
14. DEFAULT; REMEDIES.
14.1 DEFAULT. The occurrence of any one or more of the following
events shall constitute a material default of this Lease by Lessee:
(a) The abandonment of the Premises by Lessee. Abandonment
of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is
paid.
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(b) The failure by Lessee to make any payment of rent or
any other payment required to be made by Lessee hereunder, as and
when due, where such failure shall continue for a period of three
(3) business days after written notice thereof from lessor to
Lessee. In the event that Lessor serves Lessee with a Notice to
Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice
required by this subparagraph.
(c) (i) The making by Lessee of any general arrangement or
general assignment for the benefit of creditors; (ii) Lessee
becoming a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days);
(iii) the appointment of a trustee or receiver to take possession
of substantially all of Lessee's assets located at the Premises or
of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30 days. In the event that any provision
of this Paragraph 14.1(c) is contrary to any applicable law, such
provision shall be of no force or effect.
(d) The discovery by Lessor that any financial statement
given to Lessor by Lessee, or its successor in interest or by any
guarantor of Lessee's obligation hereunder, was materially false.
(e) The failure by Lessee to observe or perform any of
the covenants, conditions or provisions of this Lease to be
observed or performed by Lessee, other than those specifically
referenced in other subparagraphs of this Paragraph 14.1, where
such failure shall continue for a period of thirty (30) days after
written notice thereof from Lessor to Lessee; provided, however,
that if the nature of Lessee's noncompliance is such that more than
thirty (30) days are reasonably required for its cure, then Lessee
shall not be deemed to be in default if Lessee commenced such cure
within said thirty (30) day period and thereafter diligently
pursues such cure to completion. To the extent permitted by law,
such thirty (30) day notice shall constitute the sole and exclusive
notice required to be given to lessee under applicable Unlawful
Detainer statutes. In the event a specific time period for
performance is set forth in any covenant, condition or provision of
this Lease, such specific time period shall govern such performance
rather than the thirty (30) day period set forth in this section
and such specific time period shall not be subject to extension as
provided in this section.
14.2 REMEDIES. In the event of any material default or breach of
this Lease by Lessee, Lessor may at any time thereafter, with or without
notice or demand and without limiting Lessor in the exercise of any right or
remedy which Lessor may have by reason of such default.
(a) Terminate Lessee's right to possession of the
Premises by any lawful means, in which case this Lease and the term
hereof shall terminate
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and Lessee shall immediately surrender possession of the Premises
to Lessor. In such event Lessor shall be entitled to recover from
Lessee all damages incurred by Lessor by reason of Lessee's default
including but not limited to, the cost of recovering possession of
the Premises; expenses of reletting, including necessary renovation
and alteration of the Premises, reasonable attorneys' fees, and any
real estate commission actually paid; the worth at the time of
award by the court having jurisdiction thereof of the amount by
which the unpaid rent for the balance of the term after the time of
such award exceeds the amount of such rental loss for the same
period that Lessee proves could be reasonably avoided; that portion
of the leasing commission paid by Lessor pursuant to Section 16
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession, in which case
this Lease shall continue in effect whether or not Lessee shall
have vacated or abandoned the Premises. In such event Lessor shall
be entitled to enforce all of Lessor's rights and remedies under
this Lease, including the right to recover the rent as it becomes
due hereunder.
(c) Pursue any other remedy now or hereafter available
to Lessor under the laws or judicial decisions of the state wherein
the Premises are located. Unpaid installments of rent, and other
unpaid monetary obligations of Lessee under the terms of this Lease
shall bear interest from the date due at the maximum rate then
allowable by law.
(d) Lessor and Lessee agree that if at attorney is
consulted by Lessor in connection with a Lessee Default, $500 is a
reasonable minimum sum per such occurrence for legal services and
costs in the preparation and service of a notice of default and
that Lessor may include the greater of $500 or the actual cost of
such services and costs in said notice as rent due and payable to
cure said Default.
14.3 DEFAULT BY LESSOR. Lessor shall not be in default unless
Lessor fails to perform obligations required of Lessor within a reasonable
time, but in no event later than thirty (30) days after written notice by
Lessee to Lessor specifying wherein Lessor has failed to perform such
obligation; provided, however, that if the nature of Lessor's obligation is
such that more than thirty (30) days are required for performance then Lessor
shall not be in default if Lessor commences performance within such 30-day
period and thereafter diligently pursues the same to completion.
14.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expenses or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to, processing and accounting
charges, and late charges which may be imposed on Lessor by the term of any
mortgage or trust deed covering the Office Building Project.
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Accordingly, if any installment of Base Rent, Operating Expenses, or any
other sum due from Lessee shall not be received by Lessor or Lessor's
designee within ten (10) days after such amount shall be due, then, without
any requirement for notice to Lessee, lessee shall pay to Lessor a late
charge equal to ten percent (10%) of such overdue amount. The parties hereby
agree that such late charge represents a fair and reasonable estimate of the
costs Lessor will incur by reason of late payment by Lessee. Acceptance of
such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder. Lessor
will grant to Lessee a one-time exemption from this requirement provided the
late payment is received by Lessor within twenty (20) days after written
notice by Lessor.
15. CONDEMNATION. If the Premises or any portion thereof or the Office
Building Project are taken under the power of eminent domain, or sold under
the threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first
occurs; provided that if so much of the Premises or the Office Building
Project are taken by such condemnation as would substantially and adversely
affect the operation and profitability of Lessee's business conducted from
the Premises, Lessee shall have the option, to be exercised only in writing
within thirty (30) days after Lesson shall have given Lessee written notice
of such taking (or in the absence of such notice, within thirty (30) days
after the condemning authority shall have taken possession), to terminate
this Lease as of the date the condemning authority takes such possession. If
Lessee does not terminate this Lease in accordance with the foregoing, this
Lease shall remain in the full force and effect as to the portion of the
Premises remaining, except that the rent and Lessee's Share of Operating
Expenses shall be reduced in the proportion that the floor area of the
Premises taken bears to the total floor area of the Premises. Common Areas
taken shall be excluded from the Common Areas usable by Lessee and no
reduction of rent shall occur with respect thereto or by reason thereof.
Lessor shall have the option in its sole discretion to terminate this Lease
as of the taking of possession by the condemning authority, by giving written
notice to Lessee of such election within thirty (30) days after receipt of
notice of a taking by condemnation of any part of the Premises or the Office
Building Project. Any award for the taking of all or any part of the
Premises or the Office Building Project under the power of eminent domain or
any payment made under threat of the exercise of such power shall be the
property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
separate award for loss of or damage to Lessee's trade fixtures, removable
personal property and unamortized tenant improved that have been paid for by
Lessee. For that purpose, the cost of such improvements shall be amortized
over the original term of this Lease excluding any options. In the event
that this Lease is not terminated by reason of such condemnation, Lessor
shall to the extent of severance damages received by Lessor in connection
with such condemnation, repair any damage to the Premises caused by such
condemnation except to the extent that Lessee has
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been reimbursed therefor by the condemning authority. Lessee shall pay any
amount in excess of such severance damages required to complete such repair.
16. BROKER'S FEE.
(a) The only brokers involved in this transaction are
CPS Realty Group and Cornish & Carey Commercial. Lessor shall pay
to said brokers, fees set forth in the Listing Agreement with CPS
Realty Group.
(b) Lessee and Lessor each represent and warrant to the
other that neither has had any dealings with any person, firm,
broker or finder (other than the person(s), if any, whose names are
set forth in Paragraph 16(a), above) in connection with the
negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other
person, firm or entity is entitled to any commission or finder's
fee in connection with said transaction and Lessee and Lessor do
each hereby indemnify and hold the other harmless from and against
any costs, expenses, attorneys' fees or liability for compensation
or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions or the
indemnifying party.
17. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time
upon not less than ten (10) days' prior written notice from the
other party ("requesting party") execute, acknowledge and deliver
to the requesting party a statement in writing (i) 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, and (ii) acknowledging that there are not, to the
responding party's knowledge, any uncured defaults on the part of
the requesting party, or specifying such defaults if any are
claimed. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrance of the Office Building Project
or of the business of Lessee.
(b) At the requesting party's option, the failure to
deliver such statement within such time shall be a material default
of this Lease by the party who is to respond, without any further
notice to such party, and shall give rise to all rights of a
non-defaulting party against a defaulting party without necessity
of further notice or cure period. In addition, at the requesting
party's option, such failure shall be conclusive upon such party
that (i) this Lease is in full force and effect, without
modification except as may be represented by the requesting party,
(ii) there are no uncured defaults in the requesting party's
performance, and (iii) if Lessor is the requesting party, not more
than one month's rent has been paid in advance.
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(c) If Lessor desires to finance, refinance, or sell the
Office Building Project, or any part thereof, Lessee hereby agrees
to deliver to any lender or purchaser designated by Lessor such
financial statements of Lessee as may be reasonably required by
such lender or purchaser. Such statements shall include the past
three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or
purchaser in confidence and shall be used only for the purposes
herein set forth.
18. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean
only the owner or owners at the time in question, of the fee title or a
lessee's interest in a ground lease of the Office Building Project, and
except as expressly provided in Section 16, in the event of any transfer of
such title or interest, Lessor herein named (and in case of any subsequent
transfers then the grantor) shall be relieved from and after the date of such
transfer of all liability as respects Lessor's obligations thereafter to be
performed, provided that any funds in the hands of Lessor or the then grantor
at the time of such transfer, in which Lessee has an interest, shall be
delivered to the grantee. The obligations contained in this Lease to be
performed by Lessor shall, subject as aforesaid, be binding on Lessor's
successors and assigns, only during their respective periods of ownership.
19. SEVERABILITY. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction shall i no way affect the
validity of any other provision hereof.
20. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
provided, any amount due to Lessor not paid when due shall bear interest at
the maximum rate then allowable by law or judgments from the date due.
Payment of such interest shall not excuse or cure any default by Lessee under
this Lease; provided, however, that interest shall not be payable on late
charges incurred by Lessee nor on any amounts upon which late charges are
paid by Lessee.
21. TIME OF ESSENCE. Time is of the essence with respect to the
obligations to be performed under this Lease.
22. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor
under the terms of this Lease, including but not limited to Lessee's Share of
Operating Expense and any other expenses payable by Lessee hereunder, shall
be deemed to be rent.
23. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains
all agreements of the parties with respect to any matter mentioned herein.
No prior or contemporaneous agreement or understanding pertaining to any such
matter shall be effective. This Lease may be modified in writing only,
signed by the parties in interest at the time of the modification. Except as
otherwise stated in this Lease, Lessee hereby acknowledges that neither the
real estate brokers listed in Section 16 hereof nor any cooperating broker on
this transaction nor the Lessor or any employee or agents of any of said
persons has made any oral or written warranties or
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representations to Lessee relative to the condition or use by Lessee of the
Premises or the Office Building Project and Lessee acknowledges that Lessee
assumes all responsibility regarding the Occupational Safety Health Act, the
legal use and adaptability of the Premises and the compliance thereof with
all applicable laws and regulations in effect during the term of this Lease.
24. NOTICES. Any notice required or permitted to be given hereunder
shall be in writing and may be given by personal delivery or by certified or
registered mail, and shall be deemed sufficiently given if delivered or
addressed to Lessee or to Lessor at the address noted below or adjacent to
the signature of the respective parties, as the case may be. Mailed notices
shall be deemed given upon actual receipt at the address required, or
forty-eight (48) house following deposit in the mail, postage prepaid,
whichever first occurs. Either party may be noticed to the other specifying a
different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address
for notice purposes. A copy of all notices required or permitted to be given
to Lessor hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate
to notice to Lessee.
25. WAIVER. No waiver by Lessor of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by
Lessee of the same or any other provision. Lessor's consent to, or approval
of, any act shall not be deemed to render unnecessary the obtaining of
Lessor's consent to or approval to any subsequent act by Lessee. The
acceptance of rent hereunder by Lessor shall not be a waiver of any preceding
breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted, regardless of Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
26. RECORDING. Lessee shall, upon request of Lessor, execute,
acknowledge and deliver to Lessor a "short form" memorandum of this Lease for
recording purposes.
27. NO RIGHT TO HOLD OVER. Lessee has no right to retain possession of
the Premises or any part thereof beyond the expiration or earlier termination
of this Lease unless agreed to by the parties.
28. CUMULATIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
29. COVENANTS AND CONDITIONS. Each provision of this Lease preferable
by Lessee shall be deemed both a covenant and a condition.
30. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions
of Section 19, this Lease shall bind the parties, their personal
representatives, successors and
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assigns. This Lease shall be governed by the laws of the State where the
Office Building Project is located and any litigation concerning this Lease
between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
31. SUBORDINATION.
(a) This Lease, any Option or right of first refusal
granted hereby, at Lessor's option, shall be subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation
or security now or hereafter placed upon the Office Building
Project and to any and all advances made on the security thereof
and to all renewals, modifications, consolidations, replacements
and extensions thereof without requirement that Lessee execute any
acknowledgment of such subordination. Notwithstanding such
subordination, Lessee's right to quiet possession of the Premises
shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the
provisions of this Lease, unless this Lease is otherwise terminated
pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease and the Options granted hereby prior
to the lien of its mortgage, deed of trust or ground lease, and
shall give written notice thereof to Lessee, this Lease and such
Options shall be deemed prior to such mortgage, deed of trust or
ground lease, whether this Lease or such Options are dated prior or
subsequent to the date of said mortgage, deed of trust or ground
lease or the date of recording thereof and whether or not Lessee
has executed any acknowledgment of such.
(b) Lessee agrees to execute any documents requested to
evidence or effectuate an attornment, a subordination, or to make
this Lease or any option granted herein prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be so long
as such document is consistent with the provisions set forth herein
and contains Lessee's right to not be disturbed as described
herein. Lessee's failure to execute such documents within ten (10)
days after written demand shall constitute a material default by
Lessee hereunder without further notice to Lessee or any additional
cure period and shall give rise to all remedies of Lessor arising
from a default by Lessee hereunder.
32. ATTORNEYS' FEES.
32.1 ATTORNEYS' FEES. If either party or the broker(s) named
herein brings an action to enforce the terms hereof or declare rights
hereunder, the prevailing party in any such action, trial or appeal thereon,
shall be entitled to his reasonable attorneys' fees to be paid by the losing
party as fixed by the court in the same or a separate suit, and whether or
not such action is pursued to decision or judgment. The provisions of this
paragraph shall inure to the benefit of the broker named herein who seeks to
enforce a right hereunder.
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32.2 REIMBURSEMENT. The attorneys' fee aware shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys fees reasonable incurred in good faith.
32.3 DEFAULT. Lessor shall be entitled to reasonable attorneys'
fees and all other costs and expenses incurred in the preparation and service
of notices of default and consultations in connection therewith, whether or
not a legal action is subsequently commenced in connection with such default.
33. LESSOR'S ACCESS.
33.1 ENTRY ONTO PREMISES. Lessor and Lessor's agents shall have
the right to enter the Premises at reasonable times for the purpose of
inspecting the same, performing any services required of Lessor, showing the
same to prospective purchasers, lenders, or lessees, taking such safety
measures, erecting such scaffolding or other necessary structures, making
such alterations, repairs, improvements or additions to the Premises or to
the Office Building Project as Lessor may reasonably deem necessary or
desirable and the erecting, using and maintaining of utilities, services,
pipes and conduits through the Premises and/or other premises as long as
there is no material adverse effect to Lessee's use of the Premises. Lessor
may at any time place on or about the Premises or the Building any ordinary
"For Sale" signs and Lessor may at any time during the last 180 days of the
term hereof place on or about the Premises any ordinary "For Lease" signs.
Lessor shall endeavor to minimize any interference with Lessee's use of the
Premises.
33.2 ABATEMENT OF RENT. All activities of Lessor pursuant to this
paragraph shall be without abatement of rent, nor shall Lessor have any
liability to Lessee for same.
33.3 EMERGENCY. In case of emergency, at any time of night or day,
Lessee shall provide Lessor immediate access to the Premises by means of
Lessee's personnel, security guard, by key or by any reasonably appropriate
means. Moreover, Lesser shall have the right to enter the Premises in case
of emergency by any reasonable means, and any such entry shall not be deemed
a forceable or unlawful entry or detainer of the Premises or an eviction.
Lessee waives any charges for damages or injuries or interference with
Lessee's property or business in connection therewith.
34. AUCTIONS. Lessee shall not conduct, nor permit to be conducted,
either voluntarily or involuntarily, any auction upon the Premises or the
Common Areas without first having obtained Lessor's prior written consent.
Notwithstanding anything to the contrary in this Lease, Lessor shall not be
obligated to exercise any standard of reasonableness in determining whether
to grant such consent. The holder of any auction on the Premises or Common
Areas in violation of this paragraph shall constitute a material default of
this Lease.
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35. SIGNS. Lessee shall not place any sign on the Premises or the
Office Building Project without Lessor's prior written consent. Under no
circumstances shall Lessee place a sign on any roof of the Office Building
Project. All such signs are subject to all covenants, conditions and
restrictions and zoning and other ordinances applicable to the Premises and
the prior written consent of Lessor as to the size, color and other details
of any such sign.
36. MERGER. The voluntary or other surrender of this Lease by Lessee,
or a mutual cancellation thereof, or a termination by Lessor, shall not work
a merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
37. CONSENTS. Except for Sections 35 (Auctions) and 36 (Signs) hereof,
wherever in this Lease the consent of one party is required to an action of
the other party, such consent shall not be unreasonably withheld or delayed.
38. GUARANTOR. In the event that there is a guarantor of this Lease,
said guarantor shall have the same obligations as Lessee under this Lease.
39. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed thereunder, Lessee shall have
quiet possession of the Premises for the entire term hereof subject to all of
the provisions of this Lease. The individuals executing this Lease on behalf
of Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
40. SECURITY MEASURES - LESSOR'S RESERVATIONS.
40.1 SECURITY MEASURES. Lessee hereby acknowledges that Lessor
shall have no obligation whatsoever to provide guard service or other
security measures for the benefit of the Premises or the Office Building
Project. Lessee assumes all responsibility for the protection of Lessee, its
agents, and invitees and the property of Lessee and of Lessee's agents and
invitees from acts of third parties. Nothing herein contained shall prevent
Lessor, at Lessor's sole option, from providing security protection for the
Office Building Project or any part thereof, in which event the cost thereof
shall be included within the definition of Operating Expenses, as set forth
in Paragraph 4.2(b).
40.2 LESSOR'S RESERVATIONS. Lessor shall have the following rights:
(a) To change the name or title of the Office Building
Project or building Project or building in which the Premises are
located upon not less than ninety (90) days prior written notice;
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(b) To permit any lessee the exclusive right to conduct
any business as long as such exclusive does not conflict with any
rights expressly given herein;
(c) To place such signs, notices or displays as Lessor
reasonably deems necessary or advisable upon the roof, exterior of
the buildings or the Office Building Project or on pole signs in
the Common Areas.
41. EASEMENTS.
41.1 LESSOR'S RESERVATIONS. Lessor reserves to itself the right,
from time to time, to grant such easements, rights and dedications that
Lessor deems necessary or desirable, and to cause the recordation of Parcel
Maps and restrictions, so long as such easements, rights, dedications, Maps
and restrictions do not unreasonably interfere with the use of the Premises
by Lessee. Lessee shall sign any of the aforementioned documents upon
request of Lessor and failure to do so shall constitute a material default to
this Lease by Lessee without the need for further notice to Lessee.
41.2 OBSTRUCTION. The obstruction of Lessee's view, air, or light
by any structure erected in the vicinity of the Building, whether by Lessor
or third parties, shall in no way affect this Lease or impose any liability
upon Lessor.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as
to any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment, and there shall survive
the right on the part of said party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said party to pay such sum or any part thereof, said party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
43. AUTHORITY. If Lessee is a corporation, trust, or general or
limited partnership, Lessee, and each individual executing this Lease on
behalf of such entity, represent and warrant that such individual is duly
authorized to execute and deliver this Lease on behalf of said entity. If
Lessee is a corporation, trust or partnership, Lessee shall, within thirty
(30) days after execution of this Lease, deliver to Lessor evidence of such
authority satisfactory to Lessor.
44. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent
and submission of same to Lessee shall not be deemed an offer to Lessee to
lease. The Lease shall become binding upon Lessor and Lessee only when fully
executed by both parties.
45. LENDER MODIFICATION. Lessee agrees to make such reasonable
modifications to this Lease as may be reasonably required by an institutional
lender in
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connection with the obtaining of normal financing or refinancing of the
Office Building Project.
46. MULTIPLE PARTIES. If more than one person or entity is named as
either Lessor or Lessee herein, except as otherwise expressly provided
herein, the obligations of the Lessor or Lessee herein shall be the joint and
several responsibility of all persons or entities named herein as such Lessor
Lessee, respectively.
47. TENANT IMPROVEMENTS. Lessee shall be responsible for managing and
constructing the "Tenant Improvements" described and depicted on Exhibit "C"
to this Lease. Lessee shall use its best efforts to substantially complete
the Tenant Improvements prior to the Commencement Date. Lessee's architect
and final plans are subject to Lessor's approval.
48. RIGHT OF FIRST AND SECOND REFUSAL. If there is not an event of
default under this Lease, then Lessee shall have the First Right of Refusal
on any vacant space in approximately the westerly half of the second floor
and the Second Right of Refusal on any adjacent vacant available space on the
first floor (the "Expansion Space") on substantially the same terms and
conditions as contained in this Lease. The following procedures shall be
followed with respect the Lessee's Right of Refusal under this Lease.
48.1 Lessee shall have five (5) business days to elect, by written
notice to Lessor, to exercise its Right of First or Second Refusal (as the
case may be) to lease the Expansion Space. If Lessee so elects, the parties
shall immediately execute an amendment to this Lease identifying the addition
of such Expansion Space to the Premises and the increased rental.
48.2 Lessee's failure to exercise its Right of First or Second
Refusal shall not be deemed a waiver of such future right(s) with respect to
any other transaction.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH
TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW
THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT,
AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
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"LESSOR" "LESSEE"
William H. and Leila A. Cilker BEA Systems, Inc.
By: /s/ William H. Cilker By: /s/ Steve Wong
--------------------------- ----------------------------
William H. Cilker
Title: VP Finance and Administration
------------------------------
Steve Wong
Lessor's address for notices: Lessee's address for notices:
William H. Cilker
Cilker Orchards
1631 Willow Street, Suite 225
San Jose, CA 95125
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FIRST AMENDMENT TO LEASE
This First Amendment to Lease (the "First Amendment") is made and
entered into as of this 19th day of January 1996 by and between William H.
and Leila A. Cilker ("Lessor") and BEA Systems, Inc., a Delaware corporation
("Lessee").
RECITALS
A. On or about November 15, 1995 Lessor and Lessee entered into a
Lease (the "Lease") of those certain premises commonly known as Suite 105,
385 Moffett Park Drive, Sunnyvale, California, consisting of approximately
twelve thousand one hundred sixty-four (12,164) usable square feet (USF),
thirteen thousand six hundred twenty-four (13,624) rentable square feet (RSF)
(the "Original premises") as more particularly described therein.
B. Lessor and Lessee now wish to expand the premises demised under the
Lease to include the remaining vacant space on the second floor of the
Building which consists of approximately twenty one thousand five hundred
(21,500) USF, twenty four thousand eighty (24,800) RSF and is identified as
Suite 200 (the "Expansion Space") for a total of thirty three thousand six
hundred sixty-four (33,664) USF and thirty seven thousand seven hundred four
(37,704) RSF.
C. Lessor and Lessee also wish to amend the Lease in order to provide
for the construction of certain tenant improvements in the Expansion Space.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
agree to amend the Lease as follows:
1. PREMISES. 1.2 Premises in the Lease remains unchanged. The following is
added as a second paragraph.
Suite number 200, consisting of approximately twenty-one thousand
five hundred (21,500) usable square feet (USF) as measured from
the center line of the shared wall to the outside of the outside
walls; twenty-four thousand eighty (24,080) rentable square feet
(RSF), more or less, (the expansion space) for a total of thirty-
three thousand six hundred (33,600) USF and thirty-seven thousand
seven hundred four (37,704) RSF including a 12% load factor (the
"Premises").
2. BASE RENT. Paragraph 1.6 of the Lease is hereby amended as follows:
1.6 BASE MONTHLY RENT. For Suite 105, Eighteen Thousand Three
Hundred Ninety-Two Dollars ($18,392.00) per month payable on the
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first day of each month, per Paragraph 4.1, commencing on the
Commencement Date but no later than February 1, 1996.
For Suite 200, Thirty Thousand Seven Hundred Eighty Dollars
($30,70.00) per month payable on the first day of each month
commencing on March 25, 1996 (prorated).
3. RENT PAID UPON EXECUTION. Paragraph 1.8 of the Lease is hereby amended to
read as follows:
1.8 RENT PAID UPON EXECUTION. Eighteen Thousand Three Hundred
Ninety-Two Dollars ($13,392.00), as to Suite 105, for the month
of February 1996, and Thirty Thousand Seven Hundred Eighty
Dollars ($30,780.00), as to Suite 200, for April 1996.
4. SECURITY DEPOSIT. Paragraph 1.9 of the Lease is hereby amended to read as
follows:
1.9 SECURITY DEPOSIT. Twenty One Thousand One Hundred Seventeen
Dollars ($21,117.00) as to Suite 105 paid upon execution of the
Lease and Forty Thousand Nine Hundred Thirty-Six Dollars
($40,936.00) as to Suite 200 payable upon execution of this First
Amendment.
5. LESSEE'S SHARE OF OPERATING EXPENSE INCREASE is hereby amended to read as
follows:
1.10 LESSEE'S SHARE OF OPERATING EXPENSE INCREASE is Forty-seven
and five-tenths percent (47.5%) as defined in Paragraph 4.2.
6. VEHICLE PARKING. The first two sentences of Paragraph 2.2 are hereby
amended to read as follows:
2.2 VEHICLE PARKING. So long as Lessee is not in default, and
subject to the rules and regulations attached hereto, and as
established by Lessor from time to time, Lessee shall be entitled
to use one hundred thirty-five (135) parking spaces in the Common
Area of the Office Building Project. Twenty-eight (28) of these
spaces shall be designated for "Visitors."
The remainder of Paragraph 2.2 is unchanged.
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7. BASE MONTHLY RENT. Paragraph 4.1 of the Lease is hereby amended as
follows:
4.1 BASE MONTHLY RENT. Lessee shall pay the Base Monthly Rent
on the amount and for the months set forth below, and otherwise
as provided in this Paragraph 4.1.
Month 1 2/1/96 thru 2/28/96 $ 18,392.00*
Month 2 3/1/96 thru 3/31/96 $ 25,342.00
Month 3 - 12 4/1/96 thru 1/31/96 $ 49,172.00**
Month 13 - 24 2/1/97 thru 1/31/98 $ 56,398.00
Month 25 - 36 2/1/98 thru 1/31/99 $ 58,283.00
Month 37 - 48 2/1/99 thru 1/31/00 $ 60,168.00
Month 49 - 60 2/1/00 thru 1/31/01 $ 62,053.00
*Suite 105, $18,392.00 paid upon execution of the Lease Agreement.
**Suite 200, $30,780.00 paid upon execution of the Lease Agreement.
8. BASE YEAR is hereby amended to read as follows:
4.2(c) "Base Year is defined, for purposes of this Lease, to be
the year ending December 31, 1996, which shall be based on
annualizing the months at a minimum of 95% occupancy.
9. OPTION TO EXTEND. The last two sentences of the first paragraph of
Section 12 of the Lease is hereby amended to read as follows:
12. OPTION TO EXTEND. All terms and conditions of this Lease
shall apply to the Option Term except that the monthly rent
payable pursuant to Section 4 hereof shall be one hundred percent
(100%) of the Prevailing Market Rent, as hereinafter defined, but
not less than the rental rate paid during the last month of the
Base Lease Term.
10. TENANT IMPROVEMENTS. Section 47 of the Lease is hereby amended by addition
of the following as a second paragraph:
47. Lessee shall at Lessee's expense construct the "Tenant
Improvements" described and depicted on Exhibit C-2 to be
attached to this First Amendment. Lessor shall provide included
in the rent, the "Tenant Improvement Allowance" of Five Dollars
($5.00) per usable square foot (60,820) (the "Additional Tenant
Improvement Allowance") to be repaid by an increase in Base
Monthly Rent equal to Twenty-One and 25/100th Dollars ($32.25)
for each One Thousand Dollars ($1,000). In accordance with the
provisions of Paragraph 9 of
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the Work Letter Agreement, within thirty (30) days of substantial
completion of the Tenant Improvements and following receipt of a
statement from Lessee setting forth in reasonable detail the
application of the Tenant Improvement Allowance and the Additional
Tenant Improvement Allowance, reimburse Lessee for these funds
expended, but not to exceed $10.00 per USF (121,640). Lessee shall
use Lessee's best efforts to substantially complete the Tenant
Improvements prior to April 1, 1996.
11. RIGHT OF FIRST AND SECOND REFUSAL. The first paragraph of section 48 is
hereby amended to read as follows:
If there is not an event of default under this Lease, then Lessee
shall have the First Right of Refusal on any vacant space in
approximately the westerly half of the second floor and the
Second Right of Refusal on any adjacent vacant available space on
the first floor (the "Expansion space") on substantially the same
terms and conditions contained in the Lease, except for the Rent
which shall be at the current lease rate or at the rate of the
offer, whichever is higher. The following procedures shall be
followed with respect to Lessee's Rights of Refusal under this
Lease.
12. OCCUPANCY OF EXPANSION SPACE. Section 49 shall be added to the Lease to
read as follows:
49. OCCUPANCY OF EXPANSION SPACE. Lessee shall have occupancy
of the Expansion Space, Suite 200, on February 1, 1996.
Except as amended hereby, the Lease shall remain in full force and effect.
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IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the day and year first above written.
:LESSOR" "LESSEE"
WILLIAM H. AND LEILA A. CILKER BEA SYSTEMS, INC., a Delaware
corporation
By: /s/ William H. Cilker By: /s/ Steve Wong
--------------------------- ----------------------------
William H. Cilker
By: /s/ Leila H. Cilker Its: VP of Finance and Administration
-------------------------- ----------------------------------
Leila H. Cilker
Lessor's address for notices and Lessee's address for notices:
payment of rent:
William H. Cilker Steve Wong
Cilker Orchards BEA Systems, Inc.
1631 Willow Street, Suite 225 2465 E. Bayshore Road, #301
San Jose, CA 95125 Palo Alto, CA 94303
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EXHIBIT 10.10
BEA ENTERPRISES, INC.
STOCK PURCHASE AGREEMENT
This Agreement is made as of September 28, 1995 among BEA
Enterprises, Inc., a Delaware corporation (the "Company") located at 2465 E.
Bayshore Road, Suite 301, Palo Alto, CA 94303, and Warburg, Pincus Ventures,
L.P., a Delaware limited partnership (the "Purchaser").
RECITALS
--------
A. Purchaser has also entered into that certain Option Agreement dated
July 27, 1995 for the purchase of all of the outstanding stock of Information
Management Company, a Delaware corporation ("IMC"). Purchaser desires to
assign its right to acquire the outstanding stock of IMC to the Company, and
the Company desires to accept such assignment and to consummate the purchase
of all of the outstanding stock of IMC (the "IMC Transaction") in accordance
with a stock purchase agreement to be entered into among the Company and the
stockholders of IMC concurrently with the execution and delivery of this
Agreement by Purchaser and the Company.
B. Purchaser also has entered into that certain Option Agreement dated
August 14, 1995 for the purchase of TWL Holding's ("TWL") stock in
Independent Technologies, Inc. a Delaware corporation ("ITI"). Purchaser
desires to assign its right to acquire the outstanding stock of ITI from TWL
to the Company, and the Company desires to accept such assignment and to
consummate the purchase of the outstanding stock of ITI (the "ITI
Transaction") in accordance with a stock purchase agreement or merger
agreement to be entered into among the Company, TWL and ITI.
C. The Company has entered an agreement to purchase certain assets of VI
Systems, Inc. (the "VI Transaction").
D. Purchaser desires to purchase certain shares of the Company's Series
A Preferred Stock, the Company's Series B Preferred Stock and the Company's
Common Stock and the Company desires to issue and sell such shares to
Purchaser to enable the Company to consummate the IMC Transaction, the ITI
Transaction, the VI Transaction and future acquisitions by the Company as
mutually agreed to by Purchaser and the Company.
NOW, THEREFORE, the parties hereto agree as follows:
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AGREEMENT
---------
SECTION I
AUTHORIZATION AND SALE OF PREFERRED STOCK
1.1 AUTHORIZATION. The Company will authorize the sale and
issuance of (i) up to 20,000,000 shares of its Series A Preferred Stock (the
"Series A Preferred"), having the rights, preferences, privileges and
restrictions as set forth in the Certificate of Amendment of the Certificate
of Incorporation (the "Certificate") in the form attached to this Agreement
as EXHIBIT A, and (ii) up to 20,000,000 shares of Series B Preferred Stock
(the "Series B Preferred") having the rights, preferences, privileges and
restrictions as set forth in the Certificate.
1.2 SALE OF PREFERRED AND COMMON.
(a) Subject to the terms and conditions hereof, the Company will
issue and sell to Purchaser at the first Closing (as defined below), and
Purchaser will buy from the Company at the first Closing, (i) 7,900,000
shares of Series A Preferred for a purchase price of $1.70 per share for an
aggregate purchase price of $13,430,000; (ii) 1,000,000 shares of the
Company's Common Stock ("Common Stock") for a purchase price of $.57 per
share for an aggregate purchase price of $570,000. Purchaser also intends to
purchase shares of Series B Preferred in the future as described in paragraph
(b) of this Section 1.2. For purposes of this Agreement, shares of Series A
Preferred and/or Series B Preferred shall be referred to as the "Preferred
Shares," shares of Series A Preferred, Series B Preferred and Common Stock
shall be referred to as the "Shares." The aggregate purchase price to be
paid for the Series A Preferred and Common Stock at the First Closing shall
be referred to as the "Purchase Price."
(b) Subject to the terms and conditions hereof, the Company
will issue and sell to Purchaser, and the Purchaser will buy from the
Company, such additional shares of Preferred Shares and Common Stock at such
time and at the purchase price as mutually agreed to by the Company and
Purchaser which additional investments will be reflected on the Schedule of
Investments attached hereto as EXHIBIT B, which exhibit will be modified to
reflect additional capital investments upon the mutual consent of the Company
and Purchaser. The Company's agreement with respect to closing each purchase
are separate agreements, and each sale of the Stock to the Purchaser are
separate sales.
SECTION II
CLOSING DATES; DELIVERY
2.2 CLOSING DATES. The first closing of the purchase and sale of
the hereunder shall be held at the offices of Morrison & Foerster, 1290
Avenue of the Americas, New York, New York, 10104-0185, concurrently with the
closing of the IMC Transaction (the "first
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Closing") or at such other time and place upon which the Company and
Purchaser shall agree (the date of the first Closing is hereinafter referred
to as the "Closing Date").
2.3 SUBSEQUENT CLOSINGS. The Company may, at its option, schedule
additional closings (the "Additional Closings") after the first Closing has
been completed on such date or dates as the Company may determine, but not
later than September 30, 1998. The date of each Additional Closing is
hereinafter referred to as an "Additional Closing Date." The first Closing
and each Additional Closing are sometimes referred to herein individually as
a "Closing" and the first Closing Date and each Additional Closing Date are
sometimes referred to herein individually as a "Closing Date."
2.4 DELIVERY.
(a) At the first Closing, the Company shall deliver to Purchaser
certificates, registered in such Purchaser's name, representing the Series A
Preferred and Common Stock against payment of the Purchase Price therefor,
which shall be paid (i) as to $10,880,000 wire transfer per the Company's
instructions; (ii) as to $860,000 in the form of a credit for amounts paid by
Purchaser to the Company pursuant to that certain Agreement, dated as of
September 18, 1995, between the Company and Purchaser regarding the VI
Transaction; (iii) as to $1,000,000 in the form of a credit for amounts
previously paid to the stockholders of IMC as an option payment in connection
with the IMC Transaction; (iv) as to $500,000 in the form of a credit for
amounts previously paid to TWL Holdings as an option payment in connection
with the ITI Transaction; (v) as to $200,000 in the form of a credit for
amounts paid by Purchaser to the Company pursuant to that certain Agreement,
dated as of September 27, 1995, between the Company and the Purchaser; and
(vi) as to $560,000 in the form of previous advances to the Company.
(b) At each Additional Closing, the Company shall deliver to
each Purchaser a certificate or certificates, registered in such Purchaser's
name set forth on the Schedule of Purchasers, representing the number of
Shares designated on the Schedule of Purchasers to be purchased by such
Purchaser, against payment of the purchase price therefor, by check payable
to the Company or wire transfer per the Company's instructions.
SECTION III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on EXHIBIT C attached hereto ("Schedule of
Exceptions"), the Company represents and warrants to Purchaser as follows:
3.1 ORGANIZATION AND STANDING; CERTIFICATE AND BY-LAWS. The
Company is a corporation duly organized and existing under, and by virtue of,
the laws of the State of Delaware and is in good standing under such laws.
The Company has requisite corporate power and authority to own and operate
its properties and assets, and to carry on its business as
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currently conducted and as proposed to be conducted. The Company is not
currently qualified to do business as a foreign corporation in any
jurisdiction, except for California, and the failure to be so qualified will
not have a material adverse affect on the Company's business as now
conducted. The Company has furnished Purchaser with copies of its
Certificate of Incorporation and By-Laws, as amended. Said copies are true,
correct and complete and contain all amendments through the Closing Date.
3.2 CORPORATE POWER. The Company has all requisite legal and
corporate power and authority to execute and deliver this Agreement, the
Investor Rights Agreement in the form attached hereto as EXHIBIT D (the
"Rights Agreement"), and the Shareholders Agreement in the form attached
hereto as EXHIBIT E (the "Shareholders Agreement") to sell and issue the
Shares hereunder, to issue the Common Stock issuable upon conversion of the
Series A Preferred, and to carry out and perform all of its obligations under
the terms of this Agreement and such other agreements and instruments.
3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated
companies and does not otherwise control, directly or indirectly, or have any
ownership interest in any corporation, partnership, business trust,
association or business entity.
3.4 CAPITALIZATION. The authorized capital stock of the Company
consists, or will, upon the filing of the Certificate and immediately prior
to the First Closing, consist, of 40,000,000 shares of Common Stock, $0.001
par value, of which 1,525,000 shares will be issued and outstanding
immediately prior to the First Closing, and 36,784,000 shares of Preferred
Stock, $0.001 par value, of which (i) 18,066,000 shares have been designated
"Series A Preferred," of which no shares will be issued and outstanding
immediately prior to the First Closing; and (ii) 18,718,000 shares have been
designated "Series B Preferred," of which no shares will be issued and
outstanding immediately prior to the First Closing. All outstanding shares
have been duly authorized and validly issued, are fully paid and
nonassessable, were issued in compliance with all federal and state
securities laws, and were not issued in violation of any preemptive rights.
The Company has reserved 18,066,000 shares of Series A Preferred for issuance
hereunder and 18,718,000 shares of Series B Preferred for issuance hereunder
1,000,000 shares of Common for issuance hereunder, 36,784,000 shares of
Common Stock for issuance upon conversion of the authorized Series A and
Series B Preferred Stock and 3,300,000 shares of its Common Stock for
issuance to employees, consultants, or directors under stock plans or
arrangements approved by the Board of Directors. The Series A Preferred and
Series B Preferred shall have the rights, preferences, privileges and
restrictions set forth in the Certificate. Except as set forth above, there
are no other authorized or outstanding subscription, warrant, option or other
rights or commitments (including, without limitation, preemptive rights or
rights of first refusal) to purchase or acquire from the Company any shares
of any class of capital stock of the Company or securities convertible into
or exchangeable for such capital stock. The Company is under no duty to
redeem or to repurchase any shares of any class or series of stock.
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3.5 AUTHORIZATION. All corporate action on the part of the
Company, its directors and stockholders necessary for the authorization,
execution, delivery and performance of this Agreement and the Rights
Agreement by the Company, the authorization, sale, issuance and delivery of
the Shares and the Common Stock issuable upon conversion of the Series A
Preferred and the performance of all of the Company's obligations hereunder
and thereunder has been taken or will be taken prior to the Closing. Each of
this Agreement, the Shareholders Agreement and the Rights Agreement, when
each is executed and delivered by the Company, shall constitute a valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as the indemnification provisions of Section 5.7 of the Rights
Agreement may be limited by principles of public policy, and subject to laws
of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies. The Shares, when issued in compliance with the
provisions of this Agreement, will be validly issued, fully paid and
nonassessable, and will have the rights, preferences, privileges and
restrictions described in the Certificate. The Common Stock issuable upon
conversion of the Series A Preferred has been duly and validly reserved and,
when issued in compliance with the provisions of this Agreement and the
Certificate will be validly issued, fully paid and nonassessable. The
issuance and delivery of the Shares, in accordance with this Agreement, and
the Common Stock issuable upon conversion of the Series A Preferred Shares,
as applicable, is not subject to any preemptive or other similar rights or
any liens or encumbrances; provided, however, that the Shares and the Common
Stock issuable upon conversion of the Series A Preferred, as applicable, may
be subject to restrictions on transfer under state and/or federal securities
laws as set forth herein or in the Rights Agreement.
3.6 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The
Company is not in breach or violation of any term of its Certificate of
Incorporation or By-Laws, of any term or provision of any mortgage, deed of
trust, indebtedness, indenture, contract, agreement, instrument, judgment or
decree, or any order, statute, rule or regulation, in each case where such
breach or violation would have a material adverse effect on the Company. No
event or failure of performance has occurred that, with the passage of time
or the giving of notice, would constitute such a breach or violation by the
Company. The execution, delivery and performance of and compliance with this
Agreement, the Shareholders Agreement and the Rights Agreement and the
issuance, sale and delivery of the Shares, in accordance with this Agreement,
and the Common Stock issuable upon conversion of the Series A Preferred do
not conflict with, and will not result in a breach or violation of the terms,
conditions or provisions of, or constitute a default (or an event that, with
the giving of notice or passage of time, or both, could result in a default)
under, or result in the creation or imposition of any lien pursuant to the
terms of the Company's Certificate of Incorporation or Bylaws, or any
statute, law, rule or regulation, any state or federal order, judgment or
decree, or any indenture, mortgage, deed of trust, lease or other agreement
or instrument to which the Company, or any of its properties, is subject, in
each case where such conflict, breach, violation, default or lien would have
a material adverse effect on the Company.
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3.7 LITIGATION, ETC. There is no action, proceeding or
investigation pending or threatened (nor to the Company's knowledge is there
a reasonable basis therefor) against the Company or any of its properties or
assets or that questions the validity of this Agreement, the Shareholders
Agreement or the Rights Agreement, or any action taken or to be taken in
connection herewith. The foregoing includes, without limitation, actions
pending or threatened involving the prior employment of any of the Company's
employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers.
The Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. No action, suit or proceeding has been instituted or is
threatened by the Company.
3.8 REGISTRATION RIGHTS. Except as set forth in the Rights
Agreement, the Company is not under any contractual obligation to register
(as defined in Section 1 of the Rights Agreement) any of its currently
outstanding securities or any of its securities which hereafter may be issued.
3.9 CERTAIN TRANSACTIONS. Neither the Company nor, to the Company's
knowledge, any of its officers has any interest (other than as holders of
less than 1% of the voting securities of a publicly-traded company), either
directly or indirectly, in any entity that currently (i) provides any
services or designs, produces or sells any products or product lines that are
the same, similar to or competitive with any activity or business in which
the Company is engaged or proposes to engage; (ii) is a supplier, customer,
or creditor of the Company; or (iii) has any direct or indirect interest in
any asset or property, real or personal, tangible or intangible, of the
Company or any property, real or personal, tangible or intangible, that is
necessary for the Company's business as currently conducted or proposed to be
conducted. No employee, stockholder, officer or director of the Company, or
their spouses or children, is indebted to the Company, nor is the Company
indebted to any of them.
3.10 SECURITIES LAWS; GOVERNMENTAL CONSENT. Based in part on the
accuracy of the Purchaser's representations and warranties set forth in
Section 4, the offer, sale and issuance of the Shares and the Common Stock
issuable upon conversion of the Series A Preferred as provided in this
Agreement are exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933 (the "Securities Act"), and have
been qualified (or are exempt from qualification) under all applicable state
securities qualification requirements. Except for the filing of (a) the
Certificate with the Secretary of State of the State of Delaware, and (b)
notices required or permitted to be filed after the Closing Date with certain
United States federal and state securities commissions, which notices the
Company will file on a timely basis, no consent, approval or authorization
of, or designation, declaration or filing with, any governmental authority on
the part of the Company is required in connection with the valid execution,
delivery and performance of this Agreement or the Rights Agreement, the
offer, sale or issuance of the Shares (and the issuance of the Common Stock
issuable upon conversion of the
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Series A Preferred) or the consummation of any other transaction contemplated
hereby or by the Shareholders Agreement or the Rights Agreement.
3.11 DISCLOSURE. The Company has fully provided Purchaser with all
the information that the Purchasers have requested for the purpose of
deciding whether to purchase the Shares pursuant to the terms of this
Agreement. This Agreement with the Exhibits hereto, when taken as a whole,
do not contain any untrue statement of a material fact on the part of the
Company or omit to state a material fact necessary in order to make the
statements contained herein on the part of the Company not misleading.
SECTION IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Purchaser hereby severally represents and warrants to the Company
with respect to the purchase of the Shares pursuant to the terms of this
Agreement and the Common Stock issuable upon conversion of the Series A
Preferred (collectively, the "Securities") as follows:
4.1 INVESTMENT EXPERIENCE. Purchaser is aware of the Company's
business affairs and financial condition and has acquired sufficient
information about the Company to reach an informed and knowledgeable decision
to acquire the Securities.
4.2 INVESTMENT INTENT. Purchaser is acquiring the Securities for
investment only for its own account, and not with the view to, or for resale
in connection with, any distribution thereof. Purchaser understands that the
Securities have not been, and will not be, registered under the Securities
Act by reason of a specific exemption from the registration provisions of the
Securities Act, the availability of which depends upon, among other things,
the bona fide nature of the investment intent of such Purchaser as expressed
herein.
4.3 RULE 144. Purchaser acknowledges that the Securities must be
held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from such registration is available. Purchaser is aware
of the provisions of Rule 144 promulgated under the Securities Act which
permit limited resale of shares purchased in a private placement subject to
the satisfaction of certain conditions, including, among other things, the
existence of a public market for the shares, the availability of certain
current public information about the Company, the resale occurring not less
than two years after the security was last held by the Company or an
affiliate of the Company, the sale being effected through a "broker's
transaction" or in transactions directly with a "market maker" and the number
of shares being sold during any three-month period not exceeding specified
limitations.
4.4 NO PUBLIC MARKET. Purchaser understands that no public market
now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Company's securities.
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4.5 ACCESS TO DATA. Purchaser has had an opportunity to discuss
the Company's business, management and financial affairs with the Company's
management and the opportunity to review the Company's facilities and
business plan. Purchaser has also had an opportunity to ask questions of
officers of the Company, which questions were answered to its satisfaction.
Purchaser understands that such discussions, as well as any written
information issued by the Company, were intended to describe certain aspects
of the Company's business and prospects which the Company believes to be
material, but were not a thorough or exhaustive description, except as set
forth in Section 3 hereof.
4.6 AUTHORIZATION. Each of this Agreement and the Rights Agreement
when executed and delivered by such Purchaser will constitute a valid and
legally binding obligation of the Purchaser, enforceable in accordance with
its terms, except as the indemnification provisions of Section 5.7 of the
Rights Agreement may be limited by principles of public policy, and subject
to laws of general application relating to bankruptcy, insolvency and the
relief of debtors and rules of law governing specific performance, injunctive
relief or other equitable remedies.
SECTION V
CONDITIONS TO CLOSING
5.1 CONDITIONS TO BOTH THE PURCHASER'S AND THE COMPANY'S
OBLIGATIONS. The obligations of the Purchaser to purchase and of the Company
to issue and sell the Shares are subject to the fulfillment, on or prior to
each Closing Date, of all of the following conditions, any of which may be
waived in whole or in part by mutual agreement of the Purchasers and the
Company:
(a) The Company shall have obtained all consents, permits and
waivers necessary or appropriate on the part of the Company for consummation
of the transactions contemplated by this Agreement and the Rights Agreement.
Except for the notices required to be filed after each Closing Date with
certain federal and state securities commissions, which notices the Company
will file on a timely basis, the Company shall have obtained all approvals of
any federal or state governmental authority or regulatory body that are
required on the part of the Company in connection with the lawful sale and
issuance of the Shares and the Common Stock issuable upon conversion of the
Series A Preferred.
(b) At each Closing, the purchase of the Shares by Purchaser
hereunder shall be legally permitted by all laws and regulations to which
Purchaser or the Company is subject.
(c) Prior to the first Closing, the Certificate shall have been
filed with the Secretary of State of the State of Delaware.
(d) Prior to the first Closing, the Company and Purchaser shall
have entered into the Rights Agreement.
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(e) The Company, Purchaser and each of the stockholders of the
Company signatories thereto shall have entered into the Shareholders
Agreement at the first Closing, which will be amended at Additional Closings
if additional stockholders have purchased stock;
(f) The IMC Transaction shall be closing concurrently with the
occurrence of the first Closing pursuant to this Agreement, and the terms and
conditions of the IMC Transaction and the closing thereof shall have approved
in writing by each of the Company and Purchaser; and
(g) Each subsequent Transaction's closing shall occur
concurrently with each Closing pursuant to this Agreement, and the terms of
each Transaction and the closing thereof shall have been approved in writing
by each of the Company and the Purchaser.
5.2 ADDITIONAL CONDITIONS TO THE PURCHASER'S OBLIGATIONS. In
addition to the conditions set forth in Section 5.1 hereof, Purchaser's
obligation to purchase the Shares is subject to the fulfillment, on or prior
to each Closing Date, of all of the following conditions (except as otherwise
provided below), any of which may be waived in whole or in part by such
Purchaser:
(a) The representations and warranties made by the Company in
Section 3 hereof shall be true and correct when made, and shall be true and
correct on each Closing Date with the same force and effect as if they had
been made on and as of the same date, provided that the Company shall be
entitled to update EXHIBIT C in connection with any Additional Closing.
(b) The Company shall have performed all obligations and
conditions herein required to be performed or observed by it on or prior to
each Closing Date.
(c) With respect to the first Closing only, the Purchaser shall
have received from Morrison & Foerster, an opinion letter addressed to them,
dated the first Closing Date and in substantially the form attached hereto as
EXHIBIT F.
(d) The Company shall have delivered to Purchaser a
certificate, executed by the chief executive officer of the Company and dated
the Closing Date, and each Additional Closing Date certifying to the
fulfillment of the conditions specified in Sections 5.1(a), 5.2(a) and 5.2(b).
5.3 ADDITIONAL CONDITION TO OBLIGATIONS OF THE COMPANY. In
addition to the conditions set forth in Section 5.1 hereof, the Company's
obligation to issue and sell the Shares to the Purchaser is subject to the
fulfillment to the Company's satisfaction, on or prior to each Closing Date,
of the following conditions, any of which may be waived in whole or in part
by the Company:
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(a) The representations and warranties made by Purchaser in
Section 4 hereof shall be true and correct when made, and shall be true and
correct on each Closing Date with the same force and effect as if they had
been made on and as of the same date.
(b) Purchaser shall have performed all obligations and
conditions herein required to be performed or observed by it on or prior to
each Closing Date, including payment of the Purchase Price.
SECTION VI
MISCELLANEOUS
6.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
6.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser
and the closing of the transactions contemplated hereby. All statements as
to factual matters contained in any certificate or other instrument delivered
by or on behalf of the Company pursuant hereto or in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder as of the date of such certificate or
instrument.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
6.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof. Neither this Agreement nor any provision hereof may be amended,
changed, waived, discharged or terminated other than by a written instrument
signed by the party against who enforcement of any such amendment, change,
waiver, discharge or termination is sought.
6.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be effective upon receipt and shall be in writing
and may be delivered in person, by telecopy, electronic mail, express
delivery service or U.S. mail, in which event it may be mailed by
first-class, certified or registered, postage prepaid, addressed:
(a) if to Company: BEA Enterprises, Inc.
2465 E. Bayshore Road, Ste. 301
Palo Alto, CA 94303
Attn: President and Chief Executive Officer
10
<PAGE>
(b) if to Purchaser: Warburg, Pincus Ventures, L.P.
466 Lexington Avenue
New York, NY 10017-3147
Attn: Stewart K.P. Gross
with a copy to: Michael C. Phillips, Esq.
Morrison & Foerster
755 Page Mill Road
Palo Alto, CA 94304-1018
or at such other address as the party shall so indicate in accordance with
this Section 6.5.
6.6 SEVERABILITY. If any provision of this Agreement shall be
judicially determined to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
6.7 FINDER'S FEES.
(a) The Company (i) represents and warrants that it has
retained no finder or broker in connection with the transactions contemplated
by this Agreement and (ii) hereby agrees to indemnify and to hold the
Purchasers harmless of and from any liability for any commission or
compensation in the nature of a finder's fee to any broker or other person or
firm (and the costs and expenses of defending against such liability or
asserted liability) for which the Company, or any of its employees or
representatives, is responsible.
(b) The Purchaser (i) represents and warrants that, except for
Nancy Albertini, it has retained no finder or broker in connection with the
transactions contemplated by this Agreement and (ii) hereby agrees to
indemnify and to hold the Company harmless of and from any liability for any
commission or compensation in the nature of a finder's fee to any broker or
other person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which Purchaser, or any of its employees
or representatives, is responsible, including, without limitation, Nancy
Albertini.
6.8 TITLES AND SUBTITLES. The titles of the Articles and Sections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.10 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party upon any breach or
default of any other party under this Agreement shall impair any such right,
power or remedy, nor shall it be construed to
11
<PAGE>
be a waiver of any such breach or default, or any acquiescence therein, or of
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. It is further agreed that any
waiver, permit, consent or approval of any kind or character of any breach or
default under this Agreement, or any waiver of any provisions or conditions
of this Agreement must be in writing and shall be effective only to the
extent specifically set forth in writing, and that all remedies, either under
this Agreement, by law or otherwise, shall be cumulative and not alternative.
12
<PAGE>
6.11 PAYMENT OF FEES AND EXPENSES. Each party shall be responsible
for paying its own fees, costs and expenses in connection with this Agreement
and the transactions herein contemplated.
6.12 EXHIBITS. Each of the exhibits and schedules to this Agreement
are incorporated in the Agreement by this reference.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first written above.
COMPANY:
BEA ENTERPRISES, INC.
By: /s/ William T. Coleman III
--------------------------------
Title: President
-----------------------------
PURCHASER:
WARBURG, PINCUS VENTURES, L.P.
By: /s/ Stuart K. P. Gross
--------------------------------
Title: Partner, Warburg, Pincus & Co.
General Partner
-------------------------------
13
<PAGE>
EXHIBITS
--------
EXHIBIT NAME
------- ----
A Certificate of Amendment to Certificate of Incorporation
B Schedule of Investments
C Schedule of Exceptions
D Investor Rights Agreement
E Shareholder Agreement
F Opinion of Morrison & Foerster
i
<PAGE>
EXHIBIT B
SCHEDULE OF INVESTMENTS
Date Purchase Price Shares
September 28, 1995 $570,000 1,000,000 common stock
September 28, 1995 $13,430,000 7,900,000 Series A Preferred Stock
ii
<PAGE>
FIRST AMENDMENT
TO STOCK PURCHASE AGREEMENT
This First Amendment is made and dated as of October 31, 1995
by and between BEA Systems, a Delaware corporation (formerly known as, BEA
Enterprises, Inc.) (the "Company") and Warburg, Pincus Ventures, L.P., a
Delaware limited partnership (the "Purchaser") with respect to that certain
Stock Purchase Agreement dated September 28, 1995 between the Company and
Purchaser (the "Agreement") regarding the following facts:
RECITALS
A. WHEREAS, pursuant to the terms of the Agreement, Purchase invested
Fourteen Million Dollars ($14,000,000) in the Company in exchange for
7,900,000 of the Company's Series A Preferred Stock and 1,000,000 shares of
the Company's Common Stock.
B. WHEREAS, the Agreement contemplates additional investments by
Purchaser in the Company and the Purchaser desires to purchase additional shares
of the Company's Series A Preferred Stock and the Company's Series B Preferred
Stock and the Company desires to issue and sell such shares to Purchaser to
enable the Company to consummate the ITI transaction (as that term is defined in
the Agreement).
AGREEMENT
NOW THEREFORE, the parties hereto agree as follows:
1. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
hereof and of the Agreement, the Company will issue and the Purchaser will
buy from the Company (a) Three Million Two Hundred Thousand (3,200,000)
shares of Series A Preferred for a purchase price of $1.70 per share for an
aggregate purchase price of Five Million Four Hundred Forty Thousand Dollars
($5,440,000), and (b) Two Million Sixty Thousand (2,060,000) shares of Series
B Preferred for a purchase price of $1.00 per share for an aggregate purchase
price of Two Million Sixty Thousand Dollars ($2,060,000).
2. AMENDED EXHIBIT B. EXHIBIT B to the Agreement is hereby amended
to reflect the purchase of the shares referenced in paragraph 1 above, which
amended EXHIBIT B is attached hereto and incorporated herein.
3. CLOSING. The closing of the purchase and sale of shares hereunder
shall be held on October 31, 1995 and shall constitute an "Additional
Closing" pursuant to the terms of the Agreement.
4. AGREEMENT CONTINUES. Except as specifically modified herein, the
terms and conditions of the Agreement shall remain in full force and effect
and the Company and Purchaser
1
<PAGE>
each reaffrim their respective representations and warranties as set forth in
the Agreement to the extent they apply to each Additional Closing.
5. DEFINITIONS. Capitalized terms used herein shall have the meanings
set forth in the Agreement, unless otherwise specifically defined
herein.
2
<PAGE>
6. COUNTERPARTS. This First Amendment may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to the Stock Purchase Agreement to be duly executed and delivered
by their proper and duly authorized officers as of the day and year first
written above.
COMPANY:
BEA SYSTEMS, INC.
By: /s/ William T. Coleman III
----------------------------------
Title: President & CEO
-------------------------------
PURCHASER:
WARBURG, PINCUS VENTURES, L.P.
By: /s/ Stuart K. P. Gross
----------------------------------
Title: Partner, Warburg, Pincus & Co.
General Partner
-------------------------------
3
<PAGE>
EXHIBIT B
SCHEDULE OF INVESTMENTS
DATE PURCHASE PRICE SHARES
September 28, 1995 $570,000 1,000,000 Common Stock
September 28, 1995 $13,430,000 7,900,000 Series A Preferred Stock
October 31, 1995 $5,440,000 3,200,000 Series A Preferred Stock
October 31, 1995 $2,060,000 2,060,000 Series B Preferred Stock
<PAGE>
SECOND AMENDMENT
TO STOCK PURCHASE AGREEMENT
This Second Amendment is made and dated as of January 10, 1996 by and
between BEA Systems, a Delaware corporation (formerly known as, BEA
Enterprises, Inc.) (the "Company") and Warburg, Pincus Ventures, L.P., a
Delaware limited partnership (the "Purchaser") with respect to that certain
Stock Purchase Agreement dated September 28, 1995, as amended, between the
Company and Purchaser (the "Agreement") regarding the following facts:
RECITALS
WHEREAS, the Agreement contemplates additional investments by Purchaser in
the Company and the Purchaser desires to invest an additional $4,000,000 in the
Company and to purchase 4,000,000 additional shares of the Company's Series B
Preferred Stock and the Company desires to issue and sell such shares to
Purchaser.
AGREEMENT
NOW THEREFORE, the parties hereto agree as follows:
1. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
hereof and of the Agreement, the Company will issue and the Purchaser will
buy from the Company Four (4,000,000) shares of Series B Preferred for a
purchase price of $1.00 per share for an aggregate purchase price of Four
Million Dollars ($4,000,000).
2. AMENDED EXHIBIT B. EXHIBIT B to the Agreement is hereby amended
to reflect the purchase of the shares referenced in paragraph 1 above, which
amended EXHIBIT B is attached hereto and incorporated herein.
3. CLOSING. The closing of the purchase and sale of shares hereunder
shall be held on January 8, 1996 and shall constitute an "Additional Closing"
pursuant to the terms of the Agreement.
4. AGREEMENT CONTINUES. Except as specifically modified herein, the
terms and conditions of the Agreement shall remain in full force and effect
and the Company and Purchaser each reaffirm their respective representations
and warranties as set forth in the Agreement to the extent they apply to each
Additional Closing.
5. DEFINITIONS. Capitalized terms used herein shall have the
meanings set forth in the Agreement, unless otherwise specifically defined
herein.
1
<PAGE>
6. COUNTERPARTS. This Second Amendment may be executed in any number
of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to the Stock Purchase Agreement to be duly executed and delivered by their
proper and duly authorized officers as of the day and year first written above.
COMPANY:
BEA SYSTEMS, INC.
By: /s/ William T. Coleman III
----------------------------------
Title: President
-------------------------------
PURCHASER:
WARBURG, PINCUS VENTURES, L.P.
By: /s/ Stuart K. P. Gross
----------------------------------
Title: Partner, Warburg, Pincus & Co.
General Partner
-------------------------------
2
<PAGE>
EXHIBIT B
SCHEDULE OF INVESTMENTS
DATE PURCHASE PRICE SHARES
September 28, 1995 $570,000 1,000,000 Common Stock
September 28, 1995 $13,430,000 7,900,000 Series A Preferred Stock
October 31, 1995 $5,440,000 3,200,000 Series A Preferred Stock
October 31, 1995 $2,060,000 2,060,000 Series B Preferred Stock
November 30, 1995 NC -split shares 1,000,000 Common Stock
January 10, 1996 $4,000,000 4,000,000 Series B Preferred Stock
<PAGE>
THIRD AMENDMENT
TO STOCK PURCHASE AGREEMENT
This Third Amendment is made and dated as of April 16, 1996 by and
between BEA Systems, Inc. a Delaware corporation (formerly known as, BEA
Enterprises, Inc.) (the "Company") and Warburg, Pincus Ventures, L.P., a
Delaware limited partnership (the "Purchaser") with respect to that certain
Stock Purchase Agreement dated September 28, 1995, as amended, between the
Company and Purchaser (the "Agreement") regarding the following facts:
RECITALS
WHEREAS, the Agreement contemplates additional investments by Purchaser
in the Company and the Purchaser desires to invest an additional $5,000,000
in the Company and to purchase an additional 174,150 additional shares of the
Company's Series A Preferred Stock and an additional 4,703,945 shares of the
Company's Series B Preferred Stock and the Company desires to issue and sell
such shares to Purchaser.
AGREEMENT
NOW THEREFORE, the parties hereto agree as follows:
1. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
hereof and of the Agreement, the Company will issue and the Purchaser will
buy from the Company (i) One Hundred Seventy Four Thousand One Hundred and
Fifty (174,150) shares of Series A Preferred for a purchase price of $1.70
per share for an aggregate purchase price of Two Hundred Ninety Six Thousand
Fifty Five Dollars ($296,055), and (ii) Four Million Seven Hundred and Three
Thousand Nine Hundred and Forty Five (4,703,945) shares of Series B Preferred
for a purchase price of $1.00 per share for an aggregate purchase price of
Four Million Seven Hundred and Three Thousand Nine Hundred and Forty Five
dollars ($4,703,945).
2. AMENDED EXHIBIT B. EXHIBIT B to the Agreement is hereby amended
to reflect the purchase of the shares referenced in paragraph 1 above, which
amended EXHIBIT B is attached hereto and incorporated herein.
3. CLOSING. The closing of the purchase and sale of shares hereunder
shall be held on April 16, 1996 and shall constitute an "Additional Closing"
pursuant to the terms of the Agreement.
4. AGREEMENT CONTINUES. Except as specifically modified herein, the
terms and conditions of the Agreement shall remain in full force and effect
and the Company and Purchaser each reaffirm their respective representations
and warranties as set forth in the Agreement to the extent they apply to each
Additional Closing.
1
<PAGE>
5. DEFINITIONS. Capitalized terms used herein shall have the
meanings set forth in the Agreement, unless otherwise specifically defined
herein.
6. COUNTERPARTS. This Third Amendment may be executed in any number
of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
the Stock Purchase Agreement to be duly executed and delivered by their proper
and duly authorized officers as of the day and year first written above.
COMPANY:
BEA SYSTEMS, INC.
By: /s/ William T. Coleman III
----------------------------------
Title: President & CEO
-------------------------------
PURCHASER:
WARBURG, PINCUS VENTURES, L.P.
By: /s/ Stuart K. P. Gross
----------------------------------
Title: Partner, Warburg, Pincus & Co.
General Partner
-------------------------------
2
<PAGE>
EXHIBIT B
SCHEDULE OF INVESTMENTS
DATE PURCHASE PRICE COMMON SERIES A SERIES B
SHARES SHARES SHARES
September 28, 1995 $570,000 1,000,000
September 28, 1995 $13,430,000 7,900,000
October 31, 1995 $5,440,000 3,200,000
October 31, 1995 $2,060,000 2,060,000
November 30, 1995 NC -split shares 1,000,000
January 10, 1996 $4,000,000 4,000,000
April 16, 1996 $5,000,000 174,150 4,703,945
------------------ ---------- ---------- ----------
Total to Date $30,500,000 2,000,000 11,274,150 10,763,945
<PAGE>
FOURTH AMENDMENT
TO STOCK PURCHASE AGREEMENT
This Fourth Amendment is made and dated as of July 1, 1996 by and
between BEA Systems, Inc. a Delaware corporation (formerly known as, BEA
Enterprises, Inc.) (the "Company") and Warburg, Pincus Ventures, L.P., a
Delaware limited partnership (the "Purchaser") with respect to that certain
Stock Purchase Agreement dated September 28, 1995, as amended, between the
Company and Purchaser (the "Agreement") regarding the following facts:
RECITALS
WHEREAS, the Agreement contemplates additional investments by Purchaser
in the Company and the Purchaser desires to invest an additional $4,000,000
in the Company and to purchase an additional 2,000,000 shares of the
Company's Common Stock, 1,664,000 additional shares of the Company's Series A
Preferred Stock and an additional 601,200 shares of the Company's Series B
Preferred Stock and the Company desires to issue and sell such shares to
Purchaser.
AGREEMENT
NOW THEREFORE, the parties hereto agree as follows:
1. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
hereof and of the Agreement, the Company will issue and the Purchaser will
buy from the Company (i) Two Million (2,000,000) shares of Common Stock for a
purchase price of $.285 per share for an aggregate purchase of Five Hundred
Seventy Thousand Dollars ($570,000), (ii) One Million Six Hundred Sixty Four
Thousand (1,664,000) shares of Series A Preferred for a purchase price of
$1.70 per share for an aggregate purchase price of Two Million Eight Hundred
Twenty Eight Thousand Eight Hundred Dollars ($2,828,800), and (iii) Six
Hundred and One Thousand Two Hundred (601,200) shares of Series B Preferred
for a purchase price of $1.00 per share for an aggregate purchase price of
Six Hundred and One Thousand Two Hundred Dollars ($601,200).
2. AMENDED EXHIBIT B. EXHIBIT B to the Agreement is hereby amended
to reflect the purchase of the shares referenced in paragraph 1 above, which
amended EXHIBIT B is attached hereto and incorporated herein.
3. CLOSING. The closing of the purchase and sale of shares hereunder
shall be held on July 1, 1996 and shall constitute an "Additional Closing"
pursuant to the terms of the Agreement.
4. AGREEMENT CONTINUES. Except as specifically modified herein, the
terms and conditions of the Agreement shall remain in full force and effect
and the Company and Purchaser
1
<PAGE>
each reaffirm their respective representations and warranties as set forth in
the Agreement to the extent they apply to each Additional Closing.
5. DEFINITIONS. Capitalized terms used herein shall have the
meanings set forth in the Agreement, unless otherwise specifically defined
herein.
6. COUNTERPARTS. This Fourth Amendment may be executed in any number
of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment
to the Stock Purchase Agreement to be duly executed and delivered by their
proper and duly authorized officers as of the day and year first written above.
COMPANY:
BEA SYSTEMS, INC.
By: /s/ William T. Coleman III
----------------------------------
Title: President & CEO
-------------------------------
PURCHASER:
WARBURG, PINCUS VENTURES, L.P.
By: /s/ Stuart K. P. Gross
----------------------------------
Title: Partner, Warburg, Pincus & Co.
General Partner
-------------------------------
2
<PAGE>
EXHIBIT B
SCHEDULE OF INVESTMENTS
DATE PURCHASE PRICE COMMON SERIES A SERIES B
SHARES SHARES SHARES
September 28, 1995 $570,000 1,000,000
September 28, 1995 $13,430,000 7,900,000
October 31, 1995 $5,440,000 3,200,000
October 31, 1995 $2,060,000 2,060,000
November 30, 1995 NC -split shares 1,000,000
January 10, 1996 $4,000,000 4,000,000
April 16, 1996 $5,000,000 174,150 4,703,945
July 1, 1996 $4,000,000 2,000,000 1,664,000 601,200
------------------ ---------- ----------- ----------
Total to Date $34,500,000 4,000,000 12,938,150 11,365,145
<PAGE>
FIFTH AMENDMENT
TO STOCK PURCHASE AGREEMENT
This Fifth Amendment is made and dated as of September 3, 1996
by and between BEA Systems, Inc. a Delaware corporation (formerly known as,
BEA Enterprises, Inc.) (the "Company") and Warburg, Pincus Ventures, L.P., a
Delaware limited partnership (the "Purchaser") with respect to that certain
Stock Purchase Agreement dated September 28, 1995, as amended, between the
Company and Purchaser (the "Agreement") regarding the following facts:
RECITALS
WHEREAS, the Agreement contemplates additional investments by
Purchaser in the Company and the Purchaser desires to invest an additional
$12,000,000 in the Company and to purchase an additional 4,127,850 additional
shares of the Company's Series A Preferred Stock and an additional 4,982,655
shares of the Company's Series B Preferred Stock and the Company desires to
issue and sell such shares to Purchaser.
AGREEMENT
NOW THEREFORE, the parties hereto agree as follows:
1. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
hereof and of the Agreement, the Company will issue and the Purchaser will
buy from the Company (i) Four Million One Hundred Twenty Seven Thousand Eight
Hundred and Fifty (4,127,850) shares of Series A Preferred for a purchase
price of $1.70 per share for an aggregate purchase price of Seven Million
Seventeen Thousand Three Hundred Forty Five Dollars ($7,017,345), and (ii)
Four Million Nine Hundred Eighty Two Thousand Six Hundred and Fifty Five
(4,982,655) shares of Series B Preferred for a purchase price of $1.00 per
share for an aggregate purchase price of Four Million Nine Hundred Eighty Two
Thousand Six Hundred and Fifty Five dollars ($4,982,655).
2. AMENDED EXHIBIT B. EXHIBIT B to the Agreement is hereby amended
to reflect the purchase of the shares referenced in paragraph 1 above, which
amended EXHIBIT B is attached hereto and incorporated herein.
3. CLOSING. The closing of the purchase and sale of shares
hereunder shall be held on September 3, 1996 and shall constitute an
"Additional Closing" pursuant to the terms of the Agreement.
4. AGREEMENT CONTINUES. Except as specifically modified herein, the
terms and conditions of the Agreement shall remain in full force and effect
and the Company and Purchaser
1
<PAGE>
each reaffirm their respective representations and warranties as set forth in
the Agreement to the extent they apply to each Additional Closing.
5. DEFINITIONS. Capitalized terms used herein shall have the
meanings set forth in the Agreement, unless otherwise specifically defined
herein.
6. COUNTERPARTS. This Fifth Amendment may be executed in any number
of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Fifth
Amendment to the Stock Purchase Agreement to be duly executed and delivered
by their proper and duly authorized officers as of the day and year first
written above.
COMPANY:
BEA SYSTEMS, INC.
By: /s/ William T. Coleman III
----------------------------------
Title: President & CEO
-------------------------------
PURCHASER:
WARBURG, PINCUS VENTURES, L.P.
By: /s/ Stuart K. P. Gross
----------------------------------
Title: Partner, Warburg, Pincus & Co.
General Partner
-------------------------------
2
<PAGE>
EXHIBIT B
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DATE PURCHASE PRICE COMMON SERIES A SERIES B
SHARES SHARES SHARES
<S> <C> <C> <C> <C>
September 28, 1995 $570,000 1,000,000
September 28, 1995 $13,430,000 7,900,000
October 31, 1995 $5,440,000 3,200,000
October 31, 1995 $2,060,000 2,060,000
November 30, 1995 NC-split shares 1,000,000
January 10, 1996 $4,000,000 4,000,000
April 16, 1996 $5,000,000 174,150 4,703,945
July 1, 1996 $4,000,000 2,000,000 1,664,000 601,200
September 3, 1996 $12,000,000 0 4,127,850 4,982,655
--------------- --------- ---------- ----------
Total to Date $46,500,000 4,000,000 17,066,000 16,347,800
</TABLE>
<PAGE>
EXHIBIT 10.11
BEA SYSTEMS, INC.
1995 FLEXIBLE STOCK INCENTIVE PLAN
1. ESTABLISHMENT, PURPOSE, AND DEFINITIONS.
(a) There is hereby adopted the 1995 Flexible Stock Incentive
Plan (the "Plan") of BEA Systems, Inc. (the "Company").
(b) The purpose of the Plan is to provide a means whereby
eligible individuals (as defined in paragraph 4, below) can acquire
Common Stock of the Company (the "Stock"). The Plan provides employees
(including officers and directors who are employees) of the Company and
of its Affiliates an opportunity to purchase shares of Stock pursuant to
options which may qualify as incentive stock options (referred to as
"incentive stock options") under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), and employees, officers,
directors, independent contractors, and consultants of the Company and
of its Affiliates an opportunity to purchase shares of Stock pursuant to
options which are not described in Sections 422 or 423 of the Code
(referred to as "nonqualified stock options"). The Plan also provides
for the sale or bonus of Stock to eligible individuals in connection
with the performance of services for the Company or its Affiliates.
(c) The term "Affiliates" as used in the Plan means
parent or subsidiary corporations, as defined in Sections 424(e) and (f)
of the Code (but substituting "the Company" for "employer corporation"),
including parents or subsidiaries which become such after adoption of
the Plan.
2. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board of
Directors of the Company (the "Board"). The Board may delegate the
responsibility for administering the Plan to a committee, under such
terms and conditions as the Board shall determine (the "Committee"). If
the Board delegates its responsibilities hereunder to a Committee, then
the Committee shall select one of its members as chairman, and shall
hold meetings at such times and places as it may determine. A majority
of the Committee shall constitute a quorum and acts of the Committee at
which a quorum is present, or acts reduced to or approved in writing by
all the members of the Committee, shall be the valid acts of the
Committee. For purposes of this Plan, where references are made to the
Board, such reference shall also include the Committee to the extent the
Board chooses to delegate its responsibility for administering the Plan
to a Committee.
(b) The Board shall determine which eligible individuals
(as defined in paragraph 4, below) shall be granted options under the
Plan, the timing of
1
<PAGE>
such grants, the terms thereof (including any restrictions on the Stock),
and the number of shares subject to such options.
(c) The Board may amend the terms of any outstanding
option granted under this Plan, but any amendment which would adversely
affect the optionee's rights under an outstanding option shall not be
made without the optionee's written consent. The Board may, with the
optionee's written consent, cancel any outstanding stock option or
accept any outstanding stock option in exchange for a new option.
(d) The Board shall also determine which eligible
individuals (as defined in paragraph 4, below) shall be issued Stock
under the Plan, the timing of such grants, the terms thereof (including
any restrictions), and the number of shares to be granted. The Stock
shall be issued for such consideration (if any) as the Board deems
appropriate. Stock issued subject to restrictions shall be evidenced by
a written agreement (the "Restricted Stock Purchase Agreement" or the
"Restricted Stock Bonus Agreement"). The Board may amend any Restricted
Stock Purchase Agreement or Restricted Stock Bonus Agreement, but any
amendment which would adversely affect the shareholder's rights to the
Stock shall not be made without his or her written consent.
(e) The Board shall have the sole authority, in its absolute
discretion to adopt, amend, and rescind such rules and regulations as, in its
opinion, may be advisable for the administration of the Plan, to construe and
interpret the Plan, the rules and the regulations, and the instruments
evidencing options or Stock granted under the Plan and to make all other
determinations deemed necessary or advisable for the administration of the
Plan. All decisions, determinations, and interpretations of the Board shall
be binding on all participants.
(f) Without limitation of the foregoing, the Board shall
have the right, with the optionee's consent, to accelerate the exercise
date of any options issued pursuant to the Plan or terminate the
restrictions applicable to any stock issued pursuant to the Plan.
3. STOCK SUBJECT TO THE PLAN.
(a) An aggregate of not more than 9,600,000 shares of
Stock shall be available for the grant of stock options or the issuance
of Stock under the Plan. If an option is surrendered (except surrender
for shares of Stock) or for any other reason ceases to be exercisable in
whole or in part, the shares which were subject to such option but as to
which the option had not been exercised shall continue to be available
under the Plan. Any Stock which is retained by the Company upon
exercise of an option in order to satisfy the exercise price for such
option or any withholding taxes due with respect to such option exercise
shall be treated as issued to the optionee and will thereafter not be
available under the Plan.
2
<PAGE>
(b) If there is any change in the Stock subject to the
Plan, an Option Agreement, a Restricted Stock Purchase Agreement, or a
Restricted Stock Bonus Agreement, through merger, consolidation,
reorganization, recapitalization, reincorporation, stock split, stock
dividend, or other change in the capital structure of the Company,
appropriate adjustments shall be made by the Board in order to preserve
but not to increase the benefits to the individual, including
adjustments to the aggregate number, kind and price per share of shares
subject to the Plan, an Option Agreement, a Restricted Stock Purchase
Agreement, or a Restricted Stock Bonus Agreement.
4. ELIGIBLE INDIVIDUALS. Individuals who shall be eligible to
have granted to them the options or Stock provided for by the Plan shall be
such employees, officers, directors, independent contractors and consultants
of the Company or an Affiliate as the Board, in its discretion, shall
designate from time to time. Notwithstanding the foregoing, only employees
of the Company or an Affiliate (including officers and directors who are bona
fide employees) shall be eligible to receive incentive stock options.
5. THE OPTION PRICE. The exercise price of the Stock covered by
each incentive stock option shall be not less than the per share fair market
value of such Stock on the date the option is granted. The exercise price of
the Stock covered by each nonqualified stock option shall be as determined by
the Board, but shall not be less than eighty-five percent of the per share
fair market value of such stock on the date the option is granted.
Notwithstanding the foregoing, in the case of an incentive stock option
granted to a person possessing more than ten percent of the combined voting
power of the Company or an Affiliate, the exercise price shall be not less
than 110 percent of the fair market value of the Stock on the date the option
is granted. The exercise price of an option shall be subject to adjustment
to the extent provided in paragraph 3(b), above.
6. TERMS AND CONDITIONS OF OPTIONS.
(a) Each option granted pursuant to the Plan will be
evidenced by a written Stock Option Agreement executed by the Company
and the person to whom such option is granted.
(b) The Board shall determine the term of each option
granted under the Plan; PROVIDED, HOWEVER, that the term of an incentive
stock option shall not be for more than 10 years and that, in the case
of an incentive stock option granted to a person possessing more than
ten percent of the combined voting power of the Company or an Affiliate,
the term shall be for no more than five years.
(c) In the case of incentive stock options, the
aggregate fair market value (determined as of the time such option is
granted) of the Stock with respect to which incentive stock options are
exercisable for the first time by an eligible employee in any calendar
year (under this Plan and any other plans of the Company or its
Affiliates) shall not exceed $100,000.
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(d) The Stock Option Agreement may contain such other
terms, provisions and conditions consistent with this Plan as may be
determined by the Board. If an option, or any part thereof is intended
to qualify as an incentive stock option, the Stock Option Agreement
shall contain those terms and conditions which are necessary to so
qualify it. Notwithstanding the foregoing, no stock option granted
under the Plan shall vest at a rate of less than 20% per year over five
(5) years from the date the option is granted.
7. TERMS AND CONDITIONS OF STOCK PURCHASES AND BONUSES.
(a) Each sale or grant of stock pursuant to the Plan will be
evidenced by a written Restricted Stock Purchase Agreement or a Restricted
Stock Bonus Agreement executed by the Company and the person to whom such
stock is sold or granted.
(b) The Restricted Stock Purchase Agreement or
Restricted Stock Bonus Agreement may contain such other terms,
provisions and conditions consistent with this Plan as may be determined
by the Board, including not by way of limitation, restrictions on
transfer, forfeiture provisions, repurchase provisions and vesting
provisions; provided, however, that the purchase price of any stock sold
or granted pursuant to any Restricted Stock Purchase Agreement or
Restricted Stock Bonus Agreement shall not be less than eighty-five
percent of the per share fair market value of such stock at the time the
right to purchase the stock is granted or, the time the purchase is
consummated. Notwithstanding the foregoing, in the case of a sale or
grant of stock to a person possessing more than ten percent of the
combined voting power of the Company or an Affiliate, the purchase price
shall be not less than 100 percent of the fair market value of the stock
at the time the right to purchase the stock is granted or, the time the
purchase is consummated. The purchase price of stock shall be subject
to adjustment to the extent provided in paragraph 3(b), above.
8. USE OF PROCEEDS. Cash proceeds realized from the sale of
Stock under the Plan shall constitute general funds of the Company.
9. AMENDMENT, SUSPENSION, OR TERMINATION OF THE PLAN.
(a) The Board may at any time amend, suspend or
terminate the Plan as it deems advisable; provided that such amendment,
suspension or termination complies with all applicable requirements of
state and federal law, including any applicable requirement that the
Plan or an amendment to the Plan be approved by the Company's
shareholders, and provided further that, except as provided in paragraph
3(b) above, the Board shall in no event amend the Plan in the following
respects without the consent of shareholders then sufficient to approve
the Plan in the first instance:
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(i) To increase the maximum number of shares subject to
incentive stock options issued under the Plan; or
(ii) To change the designation or class of persons
eligible to receive incentive stock options under the Plan.
(b) No option may be granted nor any Stock issued under
the Plan during any suspension or after the termination of the Plan, and
no amendment, suspension or termination of the Plan shall, without the
affected individual's consent, alter or impair any rights or obligations
under any option previously granted under the Plan. The Plan shall
terminate with respect to the grant of incentive stock options on
September 15, 2005, unless previously terminated by the Board pursuant
to this paragraph 9.
10. ASSIGNABILITY. Each option granted pursuant to this Plan
shall, during optionee's lifetime, be exercisable only by him, and neither
the option nor any right hereunder shall be transferable by optionee by
operation of law or otherwise other than by will or the laws of descent and
distribution. Stock subject to a Restricted Stock Purchase Agreement or a
Restricted Stock Bonus Agreement shall be transferable only as provided in
such Agreement.
11. RIGHT TO REPURCHASE SHARES.
(a) RESTRICTION ON TRANSFER OF STOCK. Except as
expressly permitted in this Plan, an optionee may not transfer,
encumber, or dispose of any Stock or any interest in the Stock.
(b) RIGHT OF FIRST REFUSAL. Before an optionee may
transfer any Stock (whether voluntarily or involuntarily), optionee must
deliver to the Company at its principal office a written notice
describing the proposed transfer and stating the name of the proposed
transferee, the number of shares of Stock to be transferred, and the
consideration for which the shares of Stock are to be transferred
("Disposition Notice"), and a written offer signed by the proposed
transferee (if the proposed transfer is voluntary) to acquire the shares
of Stock on the terms specified in the Disposition Notice. Thereafter,
for thirty (30) days, the Company may purchase the shares of Stock by
giving optionee written notice ("Repurchase Notice"). The purchase
price for the shares of Stock shall be the price specified in the
Disposition Notice. If the Company repurchases any shares pursuant to
this right of first refusal, it must purchase all of the shares of Stock
proposed to be transferred.
(c) EXCHANGES OR OTHER TRANSFERS. If the consideration
specified in a Disposition Notice is property other than cash but with a
readily ascertainable fair market value, the purchase price of the Stock
shall be an amount equal to the fair market value of the consideration
specified in the Disposition Notice. If the consideration for the shares
of stock set forth in the Disposition Notice consists of property other
than cash and does not have a readily ascertainable fair market value,
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the purchase price for the Stock shall be the Current Market Value (as
defined in paragraph (f) of this paragraph 11) of the Stock determined
as of the date the Company receives the Disposition Notice.
(d) EFFECT OF NOTICE. Except as otherwise provided
herein, Stock shall be deemed repurchased when optionee or any other
holder of the Stock receives a Repurchase Notice. All rights accorded a
holder of such Stock, other than the right to payment therefor, shall
cease at that time. The Company shall pay the purchase price of any
Stock so purchased within five (5) business days after tender of the
certificates representing such Stock to the Company's transfer agent.
(e) FAILURE TO REPURCHASE STOCK; SURVIVAL OF
RESTRICTIONS ON TRANSFER. If the Company or its assignee does not
exercise the right of first refusal set forth in paragraph 11(b), the
shares of stock subject to repurchase may be transferred only in the
manner and to the persons specified in the Disposition Notice within six
(6) months after delivery of the Disposition Notice. Shares of stock
transferred pursuant to paragraph 11(b) shall continue to be subject to
the restrictions imposed by this Plan.
(f) CURRENT MARKET PRICE. For purposes of this Plan,
the "Current Market Price" means the fair market value of the Company's
common stock for the purpose of any employee benefit plan of the
Company, including the Plan, as most recently determined by the Board.
(g) ASSIGNMENT. The Company may assign its rights to
repurchase Stock under this paragraph.
(h) TERMINATION OF RESTRICTIONS. The restrictions on
Stock imposed by this paragraph 11 shall terminate when a public market
exists for the Common Stock of the Company. A public market shall be
deemed to exist if any of the Company's shares of common stock have been
registered pursuant to Section 5 of the Securities Act of 1933 or
Section 12 of the Securities Exchange Act of 1934, and (a) said stock
has ever been listed on a national securities exchange, or (b) offers by
two or more persons to buy or sell said stock have ever been published
at least daily for ninety (90) days in a publication of the National
Quotation Bureau, Inc.
(i) REPURCHASE RIGHTS LEGENDS. Unless a public market
exists for the Stock, each certificate representing the Stock shall bear
a legend in form and substance satisfactory to the Company to the effect
that the shares of Stock are subject to restrictions on transfer and to
repurchase under the circumstances set forth in this Plan.
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12. PAYMENT UPON EXERCISE OF OPTIONS.
(a) Payment of the purchase price upon exercise of any
option granted under this Plan shall be made in cash; provided, however,
that the Board, in its sole discretion, may permit an optionee to pay
the option price in whole or in part (i) with shares of Stock owned by
the optionee; (ii) by delivery on a form prescribed by the Board of an
irrevocable direction to a securities broker approved by the Board to
sell shares and deliver all or a portion of the proceeds to the Company
in payment for the Stock; (iii) by delivery of the optionee's promissory
note with such recourse, interest, security, and redemption provisions
as the Board in its discretion determines appropriate; or (iv) in any
combination of the foregoing. Any Stock used to exercise options shall
be valued at its fair market value on the date of the exercise of the
option. In addition, the Board, in its sole discretion, may authorize
the surrender by an optionee of all or part of an unexercised option and
authorize a payment in consideration thereof of an amount equal to the
difference between the aggregate fair market value of the Stock subject
to such option and the aggregate option price of such Stock. In the
Board's discretion, such payment may be made in cash, shares of Stock
with a fair market value on the date of surrender equal to the payment
amount, or some combination thereof.
(b) In the event that the exercise price is satisfied by
the Board retaining from the shares of Stock otherwise to be issued to
optionee shares of Stock having a value equal to the exercise price, the
Board may issue optionee an additional option, with terms identical to
this option agreement, entitling optionee to purchase additional Stock
in an amount equal to the number of shares so retained.
13. WITHHOLDING TAXES.
(a) No Stock shall be granted or sold under the Plan to
any participant, until the participant has made arrangements acceptable
to the Board for the satisfaction of federal, state, and local income
and social security tax withholding obligations, including without
limitation obligations incident to the receipt of Stock under the Plan,
the lapsing of restrictions applicable to such Stock, the failure to
satisfy the conditions for treatment as incentive stock options under
applicable tax law, or the receipt of cash payments. Upon ercise of a
stock option or lapsing or restriction on stock issued under the Plan,
the Company may satisfy its withholding obligations by withholding from
the optionee or requiring the Shareholder to surrender shares of the
Company's Stock sufficient to satisfy federal, state, and local income
and social security tax withholding obligations.
(b) In the event that such withholding is satisfied by
the Company or the optionee's employer retaining from the shares of
Stock otherwise to be issued to optionee shares of Stock having a value
equal to such withholding tax, the Board may issue optionee an
additional option, with terms identical to the option agreement
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under which the option was received, entitling optionee to purchase
additional Stock in an amount equal to the number of shares so retained.
14. RESTRICTIONS ON TRANSFER OF SHARES. The Stock acquired
pursuant to the Plan shall be subject to such restrictions and agreements
regarding sale, assignment, encumbrances or other transfer as are in effect
among the shareholders of the Company at the time such Stock is acquired, as
well as to such other restrictions as the Board shall deem advisable.
15. CORPORATE TRANSACTION.
(a) For purposes of this Paragraph 15, a "Corporate
Transaction" shall include any of the following shareholder-approved
transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is
not the surviving entity, except for (1) a transaction the principal
purpose of which is to change the state of the Company's incorporation,
or (2) a transaction in which the Company's shareholders immediately
prior to such merger or consolidation hold (by virtue of securities
received in exchange for their shares in the Company) securities of the
surviving entity representing more than fifty percent (50%) of the total
voting power of such entity immediately after such transaction;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company unless the Company's
shareholders immediately prior to such sale, transfer or other
disposition hold (by virtue of securities received in exchange for their
shares in the Company) securities of the purchaser or other transferee
representing more than fifty percent (50%) of the total voting power of
such entity immediately after such transaction; or
(iii) any reverse merger in which the Company is the
surviving entity but in which the Company's shareholders immediately
prior to such merger do not hold (by virtue of their shares in the
Company held immediately prior to such transaction) securities of the
Company representing more than fifty percent (50%) of the total voting
power of the Company immediately after such transaction.
(b) In the event of any Corporate Transaction, any
option shall terminate and any restricted stock shall be reconveyed to
or repurchased by the Company immediately prior to the specified
effective date of the Corporate Transaction unless assumed by the
successor corporation or its parent company, pursuant to options or
restricted stock agreements providing substantially equal value and
having substantially equivalent provisions as the options or restricted
stock granted pursuant to this Plan.
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16. SHAREHOLDER APPROVAL. This Plan shall only become effective
with regard to incentive stock options upon its approval by a majority of the
shareholders voting (in person or by proxy) at a shareholders' meeting held
within 12 months of the Board's adoption of the Plan. The Board may grant
incentive stock options under the Plan prior to the shareholders' meeting,
but until shareholder approval of the Plan is obtained, no incentive stock
option shall be exercisable.
17. MISCELLANEOUS PROVISIONS. The Company shall provide to each
participant, on a periodic basis (but not less than annually), financial
statements of the Company. The Company may provide other information
regarding the Company as determined by the Board in its discretion."
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BEA SYSTEMS, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Agreement is made as of _______________________________ (the
"Grant Date"), between BEA Systems, Inc. (the "Company") and
____________________________________ "Optionee").
WITNESSETH:
WHEREAS, the Company has adopted the 1995 Flexible Stock Incentive
Plan (the "Plan"), which Plan is incorporated in this Agreement by reference and
made a part of it; and
WHEREAS, the Company regards Optionee as a valuable employee of the
Company, and has determined that it would be to the advantage and in the
interests of the Company and its shareholders to grant the options provided for
in this Agreement to Optionee as an inducement to remain in the service of the
Company (as defined in the Plan) and as an incentive for increased efforts
during such service;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties to this Agreement hereby agree as follows:
1. OPTION GRANT. The Company hereby grants to Optionee the right and
option to purchase from the Company on the terms and conditions hereinafter set
forth, all or any part of an aggregate of ____________ shares of the Common
Stock of the Company (the "Stock"). This option is intended to satisfy the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") and qualify as an incentive stock option.
2. OPTION PRICE. The purchase price of the Stock subject to this
option shall be $__________ per share, which price is not less than the per
share fair market value of such Stock as of the Grant Date as determined by the
Board of Directors of the Company or a Committee designated by it (the
"Committee"), or, if Optionee possesses more than ten percent of the combined
voting power of the Company or any of its Affiliates, not less than 110 percent
of the per share fair market value of the Stock as of the Grant Date as
determined by the Committee. The term "Option Price" as used in this agreement
refers to the purchase price of the Stock subject to this option.
3. OPTION PERIOD. This option shall be exercisable only during the
Option Period, and during such Option Period, the exercisability of the option
shall be subject to the limitations of paragraph 4 and the vesting provisions of
paragraph 5. The Option Period shall commence on the Grant Date and except as
provided in paragraph 4, shall terminate (the
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"Termination Date") ten years from the Grant Date; provided, however, that
the Option Period for a person possessing more than ten percent of the
combined voting power of the Company or an Affiliate shall terminate five
years from the Grant Date.
4. LIMITS ON OPTION PERIOD. The Option Period may end before the
Termination Date, as follows:
(a) If Optionee ceases to be a bona fide employee of the Company
or an Affiliate for any reason other than disability (within the meaning of
subparagraph (c)) or death during the Option Period, the Option Period
shall terminate three months after the date of such cessation of employment
or on the Termination Date, whichever shall first occur, and the option
shall be exercisable only to the extent exercisable under paragraph 5 on
the date of Optionee's cessation of employment.
(b) If Optionee dies while in the employ of the Company or any
of its Affiliates, the Option Period shall end one year after the date of
death or on the Termination Date, whichever shall first occur, and
Optionee's executor or administrator or the person or persons to whom
Optionee's rights under this option shall pass by will or by the applicable
laws of descent and distribution may exercise this option only to the
extent exercisable under paragraph 5 on the date of Optionee's death.
(c) If Optionee's employment is terminated by reason of
disability, the Option Period shall end one year after the date of
Optionee's cessation of employment or on the Termination Date, whichever
shall first occur; provided, however, that in the event that the
Termination Date shall occur sooner than six (6) months after the date of
Optionee's cessation of employment, then the Option Period shall end on the
first business day after six (6) calendar months following the date of
Optionee's cessation of employment. The option shall be exercisable only
to the extent exercisable under paragraph 5 on the date of Optionee's
cessation of employment; provided, however, that if such disability is not
a "disability" as such term is defined in Section 22(e)(3) of the Code,
this incentive stock option shall automatically convert to a nonstatutory
stock option on the day three (3) months and one (1) day following such
cessation of employment. To the extent Optionee was not entitled to
exercise the option at the date of cessation of employment, or if Optionee
does not exercise such option to the extent so entitled within the time
specified herein, the option shall terminate, and the Stock covered by such
option shall revert to the Plan.
(d) If Optionee is on a leave of absence from the Company or an
Affiliate because of his disability, or for the purpose of serving the
government of the country in which the principal place of employment of
Optionee is located, either in a military or civilian capacity, or for such
other purpose or reason as the Committee may approve, Optionee shall not be
deemed during the period of such absence, by virtue of such absence alone,
to have terminated employment with the Company or an Affiliate except as
the Committee may otherwise expressly provide.
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5. VESTING OF RIGHT TO EXERCISE OPTIONS. Subject to other
limitations contained in this Agreement, the Optionee shall have the right to
exercise the option in accordance with the following schedule:
(a) As to ___% of the number of shares covered by the option, at
any time after one year from the Grant Date;
(b) As to an additional ___% of the number of shares covered by
the option, at any time after the end of each month thereafter until the option
shall be fully exercisable.
(c) Any portion of the option that is not exercised shall
accumulate and may be exercised at any time during the Option Period prior to
the Termination Date. No partial exercise of this option may be for less than
5 percent of the total number of shares then available under this option. In no
event shall the Company be required to issue fractional shares.
(d) Notwithstanding the foregoing, the aggregate fair market
value (determined as of the time such option is granted) of the Stock with
respect to which incentive stock options are exercisable for the first time in
any calendar year (under the Plan and any other incentive stock option plans of
the Company or its Affiliates) shall not exceed $100,000.
6. METHOD OF EXERCISE. Optionee may exercise the option with
respect to all or any part of the shares of Stock then subject to such exercise
as follows:
(a) By giving the Company written notice of such exercise,
specifying the number of such shares as to which this option is exercised. Such
notice shall be accompanied by an amount equal to the Option Price of such
shares, in the form of any one or combination of the following: (i) cash;
(ii) a certified check, bank draft, postal or express money order payable to the
order of the Company in lawful money of the United States; (iii) shares of Stock
valued at fair market value; or (iv) if authorized for Optionee by the
Committee, notes. The shares of Stock shall be valued in accordance with
procedures established by the Committee. Any note used to exercise this option
shall be a full recourse, interest-bearing obligation containing such terms as
the Committee shall determine. If a note is used, the Optionee agrees to
execute such further documents as the Committee may deem necessary or
appropriate in connection with issuing the note, perfecting a security interest
in the Stock purchased with the note, and any related terms or conditions that
the Committee may propose. Such further documents may include, not by way of
limitation, a security agreement, an escrow agreement, a voting trust agreement
and an assignment separate from certificate.
(b) Optionee (and Optionee's spouse, if any) shall be required,
as a condition precedent to acquiring Stock through exercise of the option, to
execute one or more agreements relating to obligations in connection with
ownership of the Stock or restrictions on transfer of the Stock no less
restrictive than the obligations and restrictions to which the other
shareholders of the Company are subject at the time of such exercise.
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(c) If required by the Committee, Optionee shall give the
Company satisfactory assurance in writing, signed by Optionee or his legal
representative, as the case may be, that such shares are being purchased for
investment and not with a view to the distribution thereof, provided that such
assurance shall be deemed inapplicable to (1) any sale of such shares by such
Optionee made in accordance with the terms of a registration statement covering
such sale, which may hereafter be filed and become effective under the
Securities Act of 1933, as amended (the "Securities Act"), and with respect to
which no stop order suspending the effectiveness thereof has been issued, and
(2) any other sale of such shares with respect to which in the opinion of
counsel for the Company, such assurance is not required to be given in order to
comply with the provisions of the Securities Act.
As soon as practicable after receipt of the notice required in
paragraph 6(a) and satisfaction of the conditions set forth in paragraphs 6(b)
and 6(c), the Company shall, without transfer or issue tax and without other
incidental expense to Optionee, deliver to Optionee at the office of the
Company, at 385 Moffett Park Drive Suite 105, Sunnyvale, California 94089-1208,
attention of the Secretary, or such other place as may be mutually acceptable to
the Company and Optionee, a certificate or certificates of such shares of Stock;
provided, however, that the time of such delivery may be postponed by the
Company for such period as may be required for it with reasonable diligence to
comply with applicable registration requirements under the Securities Act, the
Securities Exchange Act of 1934, as amended, any applicable listing requirements
of any national securities exchange, and requirements under any other law or
regulation applicable to the issuance or transfer of such shares.
7. CORPORATE TRANSACTIONS.
(a) If there should be any change in a class of Stock subject to
this option, through merger, consolidation, reorganization, recapitalization,
reincorporation, stock split, stock dividend or other change in the capital
structure of the Company, the Company shall make appropriate adjustments in
order to preserve, but not to increase, the benefits to Optionee, including
adjustments in the number of shares of such Stock subject to this option and in
the price per share. Any adjustment made pursuant to this paragraph 7 as a
consequence of a change in the capital structure of the Company shall not
entitle Optionee to acquire a number of shares of such Stock of the Company or
shares of stock of any successor company greater than the number of shares
Optionee would receive if, prior to such change, Optionee had actually held a
number of shares of such Stock equal to the number of shares then subject to
this option.
(b) For purposes of this paragraph 7, a "Corporate Transaction"
shall include any of the following stockholder-approved transactions to which
the Company is a party:
(i) a merger or consolidation in which the Company is not
the surviving entity, except for (1) a transaction the principal purpose of
which is to change the state of the Company's incorporation, or (2) a
transaction in which the Company's shareholders immediately prior to such
merger or consolidation hold (by virtue of securities received in exchange
for their shares in the Company) securities of the
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surviving entity representing more than fifty percent (50%) of the total
voting power of such entity immediately after such transaction;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company unless the Company's
shareholders immediately prior to such sale, transfer or other disposition
hold (by virtue of securities received in exchange for their shares in the
Company) securities of the purchaser or other transferee representing more
than fifty percent (50%) of the total voting power of such entity
immediately after such transaction; or
(iii) any reverse merger in which the Company is the
surviving entity but in which the Company's shareholders immediately prior
to such merger do not hold (by virtue of their shares in the Company held
immediately prior to such transaction) securities of the Company
representing more than fifty percent (50%) of the total voting power of the
Company immediately after such transaction.
(c) In the event of any Corporate Transaction, any non-vested
option shall terminate immediately prior to the specified effective date of the
Corporate Transaction unless assumed by the successor corporation or its parent
company, pursuant to options providing substantially equal value and having
substantially equivalent provisions as the options granted pursuant to this
Agreement.
8. LIMITATIONS ON TRANSFER. This option shall, during Optionee's
lifetime, be exercisable only by Optionee, and neither this option nor any right
hereunder shall be transferable by Optionee by operation of law or otherwise
other than by will or the laws of descent and distribution. In the event of any
attempt by Optionee to alienate, assign, pledge, hypothecate, or otherwise
dispose of this option or of any right hereunder, except as provided for in this
Agreement, or in the event of the levy of any attachment, execution, or similar
process upon the rights or interest hereby conferred, the Company at its
election may terminate this option by notice to Optionee and this option shall
thereupon become null and void.
9. NO SHAREHOLDER RIGHTS. Neither Optionee nor any person entitled
to exercise Optionee's rights in the event of his death shall have any of the
rights of a shareholder with respect to the shares of Stock subject to this
option except to the extent the certificates for such shares shall have been
issued upon the exercise of this option.
10. LOCK-UP AGREEMENT. Optionee, if requested by the Company and
an underwriter of the Stock or other securities of the Company, shall not
sell or otherwise transfer or dispose of any Stock of the Company held by
Optionee (except Stock included in such registration) during the 180-day
period following the effective date of the first registration statement of
the Company filed under the Securities Act for a public offering, or such
shorter period of time as the Company and the underwriter shall require. The
Company may impose stop-transfer instructions with respect to such Stock
subject to the foregoing restriction until the end of said period.
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11. NO EFFECT ON TERMS OF EMPLOYMENT. SUBJECT TO THE TERMS OF ANY
WRITTEN EMPLOYMENT CONTRACT TO THE CONTRARY, THE COMPANY (OR ITS AFFILIATE WHICH
EMPLOYS OPTIONEE) SHALL HAVE THE RIGHT TO TERMINATE OR CHANGE THE TERMS OF
EMPLOYMENT OF OPTIONEE AT ANY TIME AND FOR ANY REASON WHATSOEVER, WITH OR
WITHOUT CAUSE.
12. NOTICE. Any notice required to be given under the terms of this
Agreement shall be addressed to the Company in care of its Secretary at the
Office of the Company at 2465 East Bayshore Road, Suite 301, Palo Alto,
California 94303, and any notice to be given to Optionee shall be addressed to
him at the address given by him beneath his signature to this Agreement, or such
other address as either party to this Agreement may hereafter designate in
writing to the other. Any such notice shall be deemed to have been duly given
when enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
registered or certified and deposited (postage or registration or certification
fee prepaid) in a post office or branch post office regularly maintained by the
United States.
13. COMMITTEE DECISIONS CONCLUSIVE. All decisions of the Committee
upon any question arising under the Plan or under this Agreement shall be
conclusive.
14. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of any successor or successors of the Company. Where the context
permits, "Optionee" as used in this Agreement shall include Optionee's executor,
administrator or other legal representative or the person or persons to whom
Optionee's rights pass by will or the applicable laws of descent and
distribution.
15. EARLY DISPOSITIONS. Optionee agrees, as partial consideration
for the designation of this option as an incentive stock option under
Section 422 of the Code, to notify the Company in writing within thirty days of
any disposition of any shares acquired by exercise of this option if such
disposition occurs within two years from the Grant Date or within one year from
the date Optionee purchased such shares by exercise of this option. If the
Company is required to withhold an amount for the purpose of income and
employment taxes as a result of an early disposition, Optionee acknowledges that
it will be required to satisfy the amount of such withholding in a manner that
the company prescribes.
16. RESTRICTIVE LEGENDS. All certificates for shares of the Stock
shall bear the following legends, in addition to any other legends required by
applicable state securities law and securities commissioners:
"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. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT
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AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE
TERMS OF, AND ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR
OF THE COMPANY, AS PROVIDED IN THE COMPANY'S 1995 FLEXIBLE STOCK
INCENTIVE PLAN, A COPY OF WHICH IS AVAILABLE FROM THE COMPANY."
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES."
17. CALIFORNIA LAW. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of California.
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IN WITNESS WHEREOF, the Company and Optionee have executed this
agreement as of the day and year first above written.
BEA SYSTEMS, INC.
By____________________________________________
Its___________________________________________
_____________________________________________
Optionee
Address:_____________________________________
_____________________________________________
_____________________________________________
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ATTACHMENT A
CONSENT OF SPOUSE
I, _________________________, spouse of ___________________________,
have read and approved the foregoing Agreement. In consideration of granting of
the right of my spouse to purchase shares of BEA Systems, Inc. as set forth in
the Agreement, I hereby appoint my spouse as my attorney-in-fact with respect to
the exercise of any rights of the Agreement insofar as I may have any rights
under such community property laws of the State of California or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated: _______________ By: _______________________________
<PAGE>
BEA SYSTEMS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
This Agreement is made as of __________________________________ (the
"Grant Date"), between BEA Systems, Inc. (the "Company") and
______________________________________________("Optionee").
WITNESSETH:
WHEREAS, the Company has adopted the 1995 Flexible Stock Incentive
Plan (the "Plan"), which Plan is incorporated in this Agreement by reference and
made a part of it; and
WHEREAS, the Company regards Optionee as a valuable employee or
service provider of the Company, and has determined that it would be to the
advantage and in the interests of the Company and its shareholders to grant the
options provided for in this Agreement to Optionee as an inducement to remain in
the employ or service of the Company and its Affiliates (as defined in the Plan)
and as an incentive for increased efforts during such employ or service;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties to this Agreement hereby agree as follows:
1. OPTION GRANT. The Company hereby grants to Optionee the right and
option to purchase from the Company on the terms and conditions hereinafter set
forth, all or any part of an aggregate of ____________ shares of the Common
Stock of the Company (the "Stock"). This option is not intended to satisfy the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") for incentive stock options.
2. OPTION PRICE. The purchase price of the Stock subject to this
option shall be $__________ per share, which price is not less than 85% of the
per share fair market value of such Stock as of the Grant Date as determined by
the Board of Directors of the Company or a Committee designated by it (the
"Committee"). The term "Option Price" as used in this agreement refers to the
purchase price of the Stock subject to this option.
3. OPTION PERIOD. This option shall be exercisable only during the
Option Period, and during such Option Period, the exercisability of the option
shall be
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subject to the vesting provisions of paragraph 5. The Option Period
shall commence on the Grant Date and shall terminate ten years from the Grant
Date (the "Termination Date").
4. LIMITS ON OPTION PERIOD. The Option Period may end before the
Termination Date, as follows:
(a) If Optionee ceases to be an employee or service provider of
the Company or an Affiliate for any reason other than disability (within
the meaning of subparagraph (c)) or death during the Option Period, the
Option Period shall terminate three months after the date of such cessation
of employment or on the Termination Date, whichever shall first occur, and
the option shall be exercisable only to the extent exercisable under
paragraph 5 on the date of Optionee's cessation of employment and shall
thereafter cease to be exercisable.
(b) If Optionee dies while an employee or service provider of
the Company or any of its Affiliates, the Option Period shall end one year
after the date of death or on the Termination Date, whichever shall first
occur, and Optionee's executor or administrator or the person or persons to
whom Optionee's rights under this option shall pass by will or by the
applicable laws of descent and distribution may exercise this option only
to the extent exercisable under paragraph 5 on the date of Optionee's
death.
(c) If Optionee ceases to be an employee or service provider by
reason of disability (within the meaning of Section 22(e)(3) of the Code),
the Option Period shall end one year after the date of Optionee's cessation
of employment or on the Termination Date, whichever shall first occur, and
the option shall be exercisable only to the extent exercisable under
paragraph 5 on the date of Optionee's cessation of employment.
(d) If Optionee is on a leave of absence from the Company or an
Affiliate because of his disability, or for the purpose of serving the
government of the country in which the principal place of employment of
Optionee is located, either in a military or civilian capacity, or for such
other purpose or reason as the Committee may approve, Optionee shall not be
deemed during the period of such absence, by virtue of such absence alone,
to have terminated employment with the Company or an Affiliate except as
the Committee may otherwise expressly provide.
5. VESTING OF RIGHT TO EXERCISE OPTIONS. Subject to other
limitations contained in this Agreement, the Optionee shall have the right to
exercise the options in accordance with the following schedule:
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(a) As to ____% of the number of shares covered by the option,
at any time after one year from date of the Grant Date;
(b) As to an additional ___% of the remaining number of shares
covered by the option, at any time after the end of each month thereafter until
the option shall be fully exercisable.
(c) Any portion of the option that is not exercised shall
accumulate and may be exercised at any time during the Option Period prior to
the Termination Date. No partial exercise of this option may be for less than
5 percent of the total number of shares then available under this option. In no
event shall the Company be required to issue fractional shares.
6. METHOD OF EXERCISE. Optionee may exercise the option with
respect to all or any part of the shares of Stock then subject to such exercise
as follows:
(a) By giving the Company written notice of such exercise,
specifying the number of such shares as to which this option is exercised. Such
notice shall be accompanied by an amount equal to the Option Price of such
shares, in the form of any one or combination of the following: (i) cash; (ii)
a certified check, bank draft, postal or express money order payable to the
order of the Company in lawful money of the United States; (iii) shares of Stock
valued at fair market value; or (iv) if authorized for Optionee by the
Committee, notes. The shares of Stock shall be valued in accordance with
procedures established by the Committee. Any note used to exercise this option
shall be a full recourse, interest-bearing obligation containing such terms as
the Committee shall determine. If a note is used, the Optionee agrees to
execute such further documents as the Committee may deem necessary or
appropriate in connection with issuing the note, perfecting a security interest
in the Stock purchased with the note, and any related terms or conditions that
the Committee may propose. Such further documents may include, not by way of
limitation, a security agreement, an escrow agreement, a voting trust agreement
and an assignment separate from certificate.
(b) Optionee (and Optionee's spouse, if any) shall be required,
as a condition precedent to acquiring Stock through exercise of the option, to
execute one or more agreements relating to obligations in connection with
ownership of the Stock or restrictions on transfer of the Stock no less
restrictive than the obligations and restrictions to which the other
shareholders of the Company are subject at the time of such exercise.
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<PAGE>
(c) If required by the Committee, Optionee shall give the
Company satisfactory assurance in writing, signed by Optionee or his legal
representative, as the case may be, that such shares are being purchased for
investment and not with a view to the distribution thereof, provided that such
assurance shall be deemed inapplicable to (1) any sale of such shares by such
Optionee made in accordance with the terms of a registration statement covering
such sale, which may hereafter be filed and become effective under the
Securities Act of 1933, as amended (the "Securities Act"), and with respect to
which no stop order suspending the effectiveness thereof has been issued, and
(2) any other sale of such shares with respect to which in the opinion of
counsel for the Company, such assurance is not required to be given in order to
comply with the provisions of the Securities Act.
As soon as practicable after receipt of the notice required in
paragraph 6(a) and satisfaction of the conditions set forth in paragraphs 6(b)
and 6(c), the Company shall, without transfer or issue tax and without other
incidental expense to Optionee, deliver to Optionee at the office of the
Company, at 2465 East Bayshore Road, Suite 301, Palo Alto, CA 94303, attention
of the Secretary, or such other place as may be mutually acceptable to the
Company and Optionee, a certificate or certificates of such shares of Stock;
provided, however, that the time of such delivery may be postponed by the
Company for such period as may be required for it with reasonable diligence to
comply with applicable registration requirements under the Securities Act, the
Securities Exchange Act of 1934, as amended, any applicable listing requirements
of any national securities exchange, and requirements under any other law or
regulation applicable to the issuance or transfer of such shares.
7. CORPORATE TRANSACTIONS.
(a) If there should be any change in a class of Stock subject to
this option, through merger, consolidation, reorganization, recapitalization,
reincorporation, stock split, stock dividend or other change in the capital
structure of the Company, the Company shall make appropriate adjustments in
order to preserve, but not to increase, the benefits to Optionee, including
adjustments in the number of shares of such Stock subject to this option and in
the price per share. Any adjustment made pursuant to this paragraph 7 as a
consequence of a change in the capital structure of the Company shall not
entitle Optionee to acquire a number of shares of such Stock of the Company or
shares of stock of any successor company greater than the number of shares
Optionee would receive if, prior to such change, Optionee had actually held a
number of shares of such Stock equal to the number of shares then subject to
this option.
(b) For purposes of this paragraph 7, a "Corporate Transaction"
shall include any of the following stockholder-approved transactions to which
the Company is a party:
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(i) a merger or consolidation in which the Company is not
the surviving entity, except for (1) a transaction the principal purpose of
which is to change the state of the Company's incorporation, or (2) a
transaction in which the Company's shareholders immediately prior to such
merger or consolidation hold (by virtue of securities received in exchange
for their shares in the Company) securities of the surviving entity
representing more than fifty percent (50%) of the total voting power of
such entity immediately after such transaction;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company unless the Company's
shareholders immediately prior to such sale, transfer or other disposition
hold (by virtue of securities received in exchange for their shares in the
Company) securities of the purchaser or other transferee representing more
than fifty percent (50%) of the total voting power of such entity
immediately after such transaction; or
(iii) any reverse merger in which the Company is the
surviving entity but in which the Company's shareholders immediately prior
to such merger do not hold (by virtue of their shares in the Company held
immediately prior to such transaction) securities of the Company
representing more than fifty percent (50%) of the total voting power of the
Company immediately after such transaction.
(c) In the event of any Corporate Transaction, any non-vested
option shall terminate immediately prior to the specified effective date of the
Corporate Transaction unless assumed by the successor corporation or its parent
company, pursuant to options providing substantially equal value and having
substantially equivalent provisions as the options granted pursuant to this
Agreement.
8. LIMITATIONS ON TRANSFER. This option shall, during Optionee's
lifetime, be exercisable only by Optionee, and neither this option nor any right
hereunder shall be transferable by Optionee by operation of law or otherwise
other than by will or the laws of descent and distribution. In the event of any
attempt by Optionee to alienate, assign, pledge, hypothecate, or otherwise
dispose of this option or of any right hereunder, except as provided for in this
Agreement, or in the event of the levy of any attachment, execution, or similar
process upon the rights or interest hereby conferred, the Company at its
election may terminate this option by notice to Optionee and this option shall
thereupon become null and void.
9. NO SHAREHOLDER RIGHTS. Neither Optionee nor any person entitled
to exercise Optionee's rights in the event of his death shall have any of the
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<PAGE>
rights of a shareholder with respect to the shares of Stock subject to this
option except to the extent the certificates for such shares shall have been
issued upon the exercise of this option.
10. LOCK-UP AGREEMENT. Optionee, if requested by the Company and
an underwriter of the Stock or other securities of the Company, shall not
sell or otherwise transfer or dispose of any Stock of the Company held by
Optionee (except Stock included in such registration) during the 180-day
period following the effective date of the first registration statement of
the Company filed under the Securities Act for a public offering, or such
shorter period of time as the Company and the underwriter shall require. The
Company may impose stop-transfer instructions with respect to such Stock
subject to the foregoing restriction until the end of said period.
11. NO EFFECT ON TERMS OF EMPLOYMENT. SUBJECT TO THE TERMS OF ANY
WRITTEN EMPLOYMENT CONTRACT TO THE CONTRARY, THE COMPANY (OR ITS AFFILIATE WHICH
EMPLOYS OPTIONEE) SHALL HAVE THE RIGHT TO TERMINATE OR CHANGE THE TERMS OF
EMPLOYMENT OF OPTIONEE AT ANY TIME AND FOR ANY REASON WHATSOEVER, WITH OR
WITHOUT CAUSE.
12. NOTICE. Any notice required to be given under the terms of this
Agreement shall be addressed to the Company in care of its Secretary at the
Office of the Company at 2465 East Bayshore Road, Suite 301, Palo Alto,
California 94303, and any notice to be given to Optionee shall be addressed to
him at the address given by him beneath his signature to this Agreement, or such
other address as either party to this Agreement may hereafter designate in
writing to the other. Any such notice shall be deemed to have been duly given
when enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
registered or certified and deposited (postage or registration or certification
fee prepaid) in a post office or branch post office regularly maintained by the
United States.
13. COMMITTEE DECISIONS CONCLUSIVE. All decisions of the Committee
upon any question arising under the Plan or under this Agreement shall be
conclusive.
14. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of any successor or successors of the Company. Where the context
permits, "Optionee" as used in this Agreement shall include Optionee's executor,
administrator or other legal representative or the person or persons to whom
Optionee's rights pass by will or the applicable laws of descent and
distribution.
15. WITHHOLDING. Optionee agrees to withholding of shares from
exercise for satisfaction of any applicable federal, state or local income tax
or employment tax withholding requirements. The Committee may issue Optionee an
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<PAGE>
additional option, with terms identical to this option Agreement, entitling
Optionee to purchase additional Stock in an amount equal to the number of shares
so retained.
16. CALIFORNIA LAW. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of California.
IN WITNESS WHEREOF, the Company and Optionee have executed this
Agreement as of the day and year first above written.
BEA SYSTEMS, INC.
By____________________________________________
Its___________________________________________
_____________________________________________
Optionee
Address:_____________________________________
_____________________________________________
_____________________________________________
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ATTACHMENT A
CONSENT OF SPOUSE
I, _______________________, spouse of _____________________________,
have read and approved the foregoing Agreement. In consideration of
granting of the right of my spouse to purchase shares of BEA Systems, Inc., as
set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact
with respect to the exercise of any rights of the Agreement insofar as I may
have any rights under such community property laws of the State of California or
similar laws relating to marital property in effect in the state of our
residence as of the date of the signing of the foregoing Agreement.
Dated: _______________ By: ______________________________________
<PAGE>
BEA SYTEMS, INC.
1995 FLEXIBLE STOCK INCENTIVE PLAN
IMMEDIATELY EXERCISABLE NONQUALIFIED STOCK OPTION AGREEMENT
This Agreement is made as of _________, 1995, between BEA Systems,
Inc., a Delaware corporation (the "Company"), and ____________________
("Optionee").
W I T N E S S E T H:
WHEREAS, the Company has adopted the Company's 1995 Flexible Stock
Incentive Plan (the "Plan"), which Plan is incorporated in this Agreement by
reference and made a part hereof; and
WHEREAS, the Company regards Optionee as a valuable employee or
service provider of the Company, and has determined that it would be to the
advantage and interest of the Company and its shareholders to grant the options
provided for in this Agreement to Optionee as an inducement to remain in the
employ or service of the Company and its affiliates (as defined in the Plan) and
as an incentive for increased efforts during such employ of service;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties to this Agreement hereby agree as follows:
I. A. OPTION GRANT. The Company hereby grants to Optionee the
right and option to purchase from the Company on the terms and conditions
hereinafter set forth, all or any part of an aggregate of ______ shares of the
Common Stock of the Company (the "Stock"). This Option to purchase the Stock
(the "Option") is not intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
(b) OPTION PRICE. The purchase price of the Stock subject to
this Option shall be _____________ ($___) per share, which price is at least 85%
of the fair market value (as defined in the Plan) of the Stock. The term
"Option Price" as used in this Agreement refers to the purchase price of the
Stock subject to this Option.
2. OPTION PERIOD. This option shall be exercisable only during the
Option Period, and during such Option Period, the exercisability of the Option
shall be subject to the limitations of paragraph 3 and the right of repurchase
provisions set forth in paragraph 4. The Option Period shall commence on
__________, 199_ (the "Grant Date) and shall terminate 120 months from the Grant
Date (the "Termination Date").
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3. LIMITS ON OPTION PERIOD. The Option Period may end before the
Termination Date, as follows:
(a) If Optionee ceases to be an employee or service provider of
the Company or any of its affiliates for any reason other than removal for
cause, disability (within the meaning of subparagraph (c)) or death during the
Option Period, the Option Period shall terminate thirty (30) days after the date
of such cessation of employment or service or on the Termination Date, whichever
shall first occur, and the Option shall be exercisable only to the extent
exercisable under paragraph 4 on the date of Optionee's cessation of employment
or service.
(b) If Optionee dies while an employee or service provider of
the Company or any of its affiliates, the Option Period shall end one year after
the date of death or on the Termination Date, whichever shall first occur, and
Optionee's executor or administrator or the person or persons to whom Optionee's
rights under this Option shall pass by will or by the applicable laws of descent
and distribution may exercise this Option only to the extent exercisable under
paragraph 4 on the date of Optionee's death.
(c) If Optionee ceases to be an employee or service provider of
the Company or any of its affiliates by reason of disability (within the meaning
of Section 22(e)(3) of the Code), the Option Period shall end one year after the
date of Optionee's cessation of employment or service or on the Termination
Date, whichever shall first occur, and the Option shall be exercisable only to
the extent exercisable under paragraph 4 on the date of Optionee's cessation of
employment or service.
(d) If Optionee is on a leave of absence from the Company or any
of its affiliates because of Optionee's disability, or for the purpose of
serving the government of the country in which the principal place of employment
of Optionee is located, either in a military or civilian capacity, or for such
other purpose or reason as the Board of Directors of the Company (the "Board")
or the Committee of the Board charged with the administering of the Plan (the
"Committee") may approve, Optionee shall not be deemed during the period of such
absence, by virtue of such absence alone, to have terminated employment with the
Company or an affiliate except as the Board or Committee may otherwise expressly
provide.
(e) If Optionee's employment or service with the Company or any
of its affiliates terminates for cause during the Option Period, the Option
Period shall terminate on the date of such Optionee's termination of employment
or service and shall not thereafter be exercisable to any extent.
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4. RIGHT TO EXERCISE OPTIONS; REPURCHASE RIGHT. Subject to other
limitations contained in this Agreement, the Option shall be immediately
exercisable until termination of the Option pursuant to this Agreement. All
shares of Stock purchased upon exercise of the Option shall be subject to
repurchase by the Company upon termination of Optionee's employment or service
to the Company or its affiliates for any reason as set forth below (the
"Repurchase Right"). The Repurchase Right shall lapse and cease to have effect
in accordance with the following schedule: as to one forty eighth (1/48th) of
the number of shares of Stock covered by the Option, at the end of each month
commencing after the Grant Date so that the Company's Repurchase Right shall
fully lapse as to all shares of Stock subject to this Option four (4) years from
the Grant Date; provided, however, that in the event Optionee dies or becomes
disabled (as defined in Section 22(e)(3), the Company's Repurchase Right shall
be accelerated by one year. In such an event, the Board or Committee shall
inform Optionee of the adjusted rate at which the Company's Repurchase Right
shall lapse.
The Repurchase Right shall be exercisable by the Company by
written notice to the Optionee within thirty (30) days after the date Optionee
ceases to be an employee or service provider of the Company or its affiliates
for any reason other than Optionee's death or disability, and one year in the
event of Optionee's death or disability. In the event the Company exercises its
Repurchase Right, the Company shall pay the Optionee the Option Price for each
share repurchased (the "Repurchase Price"). The Company, at its option, shall
pay the Repurchase Price by cash, check or the cancellation of indebtedness of
the Optionee to the Company (even if not yet due and payable) or any combination
of the foregoing.
5. RIGHT OF FIRST REFUSAL.
5.1 GRANT. 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 Stock acquired by Optionee upon exercise of the
Option. For purposes of this paragraph 5, the term "transfer" shall include any
assignment, pledge, encumbrance or other disposition for value of the Stock
intended to be made by the Owner (defined below), but shall not include any of
the permitted transfers under paragraph 8. For purposes of this paragraph 5,
the term "Owner" shall include the Optionee or any subsequent holder of the
Stock who derives his chain of ownership through a transfer permitted by
Paragraph 8.
5.2 LAPSE. The Company's First Refusal Right under this
paragraph 5 shall lapse and cease to have effect upon the closing of the first
underwritten public offering of Common Stock of the Company that is pursuant to
a registration statement filed with, and declared effective by, the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), covering the offer and sale of any Common Stock to the public
for the Company's account.
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5.3 NOTICE OF INTENDED DISPOSITION. In the event the Owner
desires to accept a bona fide third-party offer for any or all of the Stock (the
shares subject to such offer to be hereinafter called, solely for the purposes
of this paragraph 5, the "Target Shares"), Owner shall promptly deliver 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.
5.4 EXERCISE OF RIGHT. The Company (or its assignee) shall, for
a period of twenty (20) days following receipt of the Disposition Notice, have
the right to repurchase any or 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 Owner prior to the expiration of the twenty (20) day
exercise period. If the Exercise Notice pertains to all the Target Shares
specified in the Disposition Notice, then the Company (or its assignees) shall
effect the repurchase of such Target Shares, including payment of the purchase
price, not more than five (5) business days after delivery of the Exercise
Notice; and at such time Owner 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 cancelled and cease to be issued and outstanding shares of the Company's
common stock. However, should the purchase price specified in the Disposition
Notice be payable in property other than cash or evidences of indebtedness, the
Company (or its 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 Owner 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 Owner 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 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.
5.5 NON-EXERCISE OF RIGHT. In the event the Exercise Notice is
not given to Owner within twenty (20) days following the date of the Company's
receipt of the Disposition Notice, Owner shall have a period of ninety (90) 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 purchaser than those specified in the Disposition Notice. The third-party
purchaser shall acquire the Target Shares free and clear of all the terms and
provisions of this Agreement (including the Company's First Refusal Right
hereunder). In the event Owner does not sell or otherwise dispose of the Target
Shares within the specified ninety (90) day period, the Company's First Refusal
Right shall continue to be
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applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses in accordance with paragraph 5.2
5.6 PARTIAL EXERCISE OF RIGHT. In the event the Company (or its
assignees) makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Company
delivered within ninety (90) days after the date of the Disposition Notice, to
effect the sale of the Target Shares pursuant to one of the following
alternatives:
(i) sale or other distribution of all the Target Shares to
a third-party purchaser in compliance with the requirements of
paragraph 5.5, as if the Company did not exercise the First Refusal
Right hereunder; or
(ii) sale to the Company (or its assignees) of the portion
of the Target Shares which the Company (or its assignees) has elected
to purchase, such sale to be effected in substantial conformity with
the provisions of paragraph 5.4.
Failure of Owner to deliver timely notification to the
Company under this paragraph 5.6 shall be deemed to be an election by Owner to
sell the Target Shares pursuant to alternative (ii) above.
5.7 RECAPITALIZATION.
(a) In the event of any stock dividend, stock split,
recapitalization or other transaction affecting the Company's outstanding
securities without receipt of consideration, then any new, substituted or
additional securities or other property (including money paid other than as a
cash dividend) which is by reason of such transaction distributed with respect
to the Stock shall be immediately subject to the provisions of paragraphs 4 and
5 hereunder, but only to the extent the Stock is at such time covered by such
provisions.
(b) In the event of a Corporate Transaction (as defined in
paragraph 9), the Company's rights under this paragraph shall remain in full
force and effect and shall apply to any capital stock or other securities
received in exchange for the Stock in consummation of the Corporate Transaction
and delivered to the Company (or its successors) or the Optionee, but only to
the extent the Stock is at such time covered by such provisions.
6. PARTIAL EXERCISE. No partial exercise of this Option may be for
less than five percent (5%) of the total number of shares of Stock available
under the Option. In no event shall the Company be required to issue fractional
shares.
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7. METHOD OF EXERCISE. Optionee may exercise the Option with
respect to all or any part of the shares of Stock then subject to such exercise
as follows:
(a) By giving the Company written notice of such exercise,
specifying the number of such shares as to which this Option is exercised. Such
notice shall be accompanied by Optionee's payment of an amount equal to the
Option Price of such shares. Such payment may be made in whole or in part (a)
in cash, or in the discretion of the Board or Committee, (i) by check, (ii) by
delivery to the Company of the Optionee's promissory note, or (iii) by delivery
of shares of Stock owned by Optionee for at least six (6) months or such other
period as may be required to avoid a charge to the Company's earnings; (b) with
such other consideration as the Board or the Committee, in its absolute
discretion, determines is consistent with the Plan's purpose and applicable law;
or (c) in any combination of the foregoing. Any Stock used to exercise all or
part of the Option shall be valued in accordance with the Plan. Such
consideration may also be paid through a broker-dealer sale and remittance
procedure pursuant to which the optionee shall (a) provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Company, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate option price
payable for the purchased shares plus all applicable Federal and State income
and employment taxes required to be withheld by the Company in connection with
such purchase and (b) provide written directives to the Company to deliver the
certificates for the purchased shares directly to such brokerage firm in order
to complete the sale transaction. Any note used to exercise this Option shall
(i) be full recourse, (ii) bear interest at the lowest rate required to avoid
imputed interest under federal and state income tax laws, (iii) be due five (5)
years or upon sale of the Stock (proportionately in the event of a sale of less
than all the Stock), (iv) provide for payment of interest at maturity, (v) be
secured by Shares in the Company, and (vi) contain such terms as the Board or
Committee shall determine. If a note is used, the Optionee agrees to execute
such further documents as the Company may deem necessary or appropriate in
connection with issuing the note, perfecting a security interest in the Stock
purchased with the note, and any related terms or conditions that the Company
may propose. Such further documents may include, not by way of limitation, a
security agreement, an escrow agreement, a voting trust agreement and an
assignment separate from certificate.
(b) If required by the Company, Optionee (and Optionee's spouse,
if any) shall, as a condition precedent to acquiring Stock through exercise of
the option, execute one or more agreements relating to obligations in
connection with ownership of the Stock or restrictions on transfer of the Stock
no less restrictive than the obligations and restrictions to which the other
shareholders of the Company are subject at the time of such exercise.
(c) If required by the Company, Optionee shall give the Company
satisfactory assurance in writing, signed by Optionee or his legal
representative, as the case may be, that such shares are being purchased for
investment and not with a view to the
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distribution thereof, provided that such assurance shall be deemed
inapplicable to (i) any sale of such shares by such Optionee made in
accordance with the terms of a registration statement covering such sale,
which may hereafter be filed and become effective under the Securities Act,
and with respect to which no stop order suspending the effectiveness thereof
has been issued, and (ii) any other sale of such shares with respect to which
in the opinion of counsel for the Company, such assurance is not required to
be given in order to comply with the provisions of the Securities Act.
As soon as practicable after receipt of the notice required in
paragraph 7(a) and satisfaction of the conditions set forth in paragraphs 7(b)
and 7(c), the Company shall, without transfer or issue tax and without other
incidental expense to Optionee, deliver to Optionee at the principal office of
the Company, attention of the Secretary, or such other place as may be mutually
acceptable to the Company and Optionee, a certificate or certificates of such
shares of Stock; provided, however, that the time of such delivery may be
postponed by the Company for such period as may be required for it with
reasonable diligence to comply with applicable registration requirements under
the Securities Act, the Securities Exchange Act of 1934, as amended, any
applicable listing requirements of any national securities exchange, and
requirements under any other law or regulation applicable to the issuance or
transfer of such shares.
8. CORPORATE TRANSACTIONS.
(a) For purposes of this paragraph 8, a "Corporate Transaction"
shall include any of the following shareholder-approved transactions to which
the Company is a party:
(i) a merger or consolidation in which the Company is not
the surviving entity, except for a transaction the principal purpose
of which is to change the state of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in liquidation or
dissolution of the Company; or
(iii) any reverse merger in which the Company is the
surviving entity but in which securities assessing more than fifty
percent (50%) of the total combined voting power of the Company's
outstanding securities are transferred to holders different from those
who held such securities immediately prior to such merger.
(b) Upon consummation of any Corporate Transaction, any
unexercised portions of this Option shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation or its parent company,
pursuant to options
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providing Optionee substantially equal value and having substantially
equivalent provisions as this Option and, to the extent this Option is
exercised, the Repurchase Right shall terminate unless the Optionee receives
as a result of such Corporate Transaction securities of the successor
corporation or its parent company having substantially similar attributes as
the Stock and having substantially equal value to that received by
shareholders of the same class of stock of the Company; and
(c) In the event that this Option is assumed in connection with
the Corporate Transaction or is otherwise to continue in effect, or in the event
of any other change in a class of stock subject to this Option through a stock
dividend, stock split, recapitalization or other change in the Company's capital
structure, this Option shall be appropriately adjusted, immediately after such
Corporate Transaction or other event, to apply and pertain to the number and
class of securities which would have been issued to Optionee in connection with
the consummation of such Corporate Transaction or other event had Optionee
exercised the Option immediately prior to such Corporate Transaction or other
event. Appropriate adjustments shall also be made to the Option Price, provided
the aggregate option price payable for such securities shall remain the same.
Such adjustments shall be made so as to preserve, but not to increase, the
benefits to Optionee under this Option.
9. LIMITATIONS ON TRANSFER. This Option shall, during Optionee's
lifetime, be exercisable only by Optionee or by Optionee's representative or
legal guardian, and this Option shall not be transferable by Optionee by
operation of law or otherwise, other than by will or the laws of descent and
distribution, in contravention of the Company's Repurchase Right in Paragraph 3
of this Agreement or its First Refusal Right in Paragraph 4 of this Agreement.
In the event of any attempt by Optionee to alienate, assign, pledge,
hypothecate, or otherwise dispose of this Option, or in the event of the levy of
any attachment, execution, or similar process upon the rights or interest hereby
conferred, the Company at its election may terminate this Option by notice to
Optionee and this Option and/or the attempted disposition of the Stock shall
thereupon become null and void.
10. NO SHAREHOLDER RIGHTS. Neither Optionee nor any person entitled
to exercise Optionee's rights in the event of Optionee's death shall have any of
the rights of a shareholder with respect to the shares of Stock subject to this
Option except to the extent the certificates for such shares shall have been
issued upon the exercise of this Option.
11. LOCK-UP AGREEMENT. Optionee, if requested by the Company and an
underwriter of the Stock or other securities of the Company, shall not sell or
otherwise transfer or dispose of any Stock of the Company held by Optionee
(except Stock included in such registration) during the 180-day period following
the effective date of the first registration statement of the Company filed
under the Securities Act for a public offering, or such shorter period of time
as the Company and the underwriter shall require. The Company may impose
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<PAGE>
stop-transfer instructions with respect to such Stock subject to the
foregoing restriction until the end of said period.
12. NO EFFECT ON TERMS OF EMPLOYMENT OR SERVICE. Subject to the
terms of any written employment or service contract to the contrary, the Company
(or its affiliate which employs Optionee) shall have the right to terminate or
change the terms of employment or service of Optionee at any time and for any
reason whatsoever, with or without cause.
13. LEGENDS. The Company may at any time place legends referencing
any applicable federal or state securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement
and the Plan. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the option in the possession of the Optionee in order to effectuate
the provisions of this paragraph. Unless otherwise specified by the Company,
legends placed on such certificates may include, but shall not be limited to,
the following:
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("THE "ACT"), AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES, THE SALE IS MADE
IN ACCORDANCE WITH RULE 144 OR RULE 701 OF THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FORM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT."
(b) Any legend required to be placed thereon by the Commissioner
of Corporations of the State of California.
14. NOTICE. Any notice required to be given under the terms of this
Agreement shall be addressed to the Company in care of its Secretary at the
principal executive office of the Company, and any notice to be given to
Optionee shall be addressed to him at the address given by him beneath his
signature to this Agreement, or such other address as either party to this
Agreement may hereafter designate in writing to the other. Any such notice
shall be deemed to have been duly given when enclosed in a properly sealed
envelope or wrapper addressed as aforesaid, registered or certified and
deposited (postage or registration or certification fee prepaid) in a post
office or branch post office regularly maintained by the United States.
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<PAGE>
15. BOARD/COMMITTEE DECISIONS CONCLUSIVE. All decisions of the Board
or the Committee upon any question arising under the Plan or under this
Agreement shall be conclusive and binding upon the Optionee.
16. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of any successor or successors of the Company. Where the context
permits, "Optionee" as used in this Agreement shall include Optionee's executor,
administrator or other legal representative or the person or persons to whom
Optionee's rights pass by will or the applicable laws of descent and
distribution.
17. WITHHOLDING. Optionee agrees to make appropriate arrangements
with the Company and his employer for satisfaction in cash of any applicable
federal, state or local income tax or employment tax withholding requirements.
18. CALIFORNIA LAW. The interpretation, performance, and enforcement
of this Agreement shall be governed by the laws of the State of California.
19. DELIVERY OF THE PLAN. By executing below, the Optionee hereby
acknowledges receipt of a copy of the Plan.
IN WITNESS WHEREOF, the Company has caused these presents to be
executed on its behalf, and Optionee has hereunto set Optionee's hand as of the
day and year first above written.
BEA SYSTEMS, INC.,
a California corporation
By:_________________________________________
Title:______________________________________
OPTIONEE
___________________________________________
Address: __________________________________
__________________________________________
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<PAGE>
CONSENT OF SPOUSE
I, ______________________________, the spouse of ________________,
have read and approved the foregoing Nonqualified Stock Option Agreement. In
consideration of granting of the right of my spouse to purchase shares of BEA
Systems, Inc., as set forth in the Nonqualified Stock Option Agreement, I hereby
appoint my spouse as my attorney-in-fact with respect to the exercise of any
rights of the Nonqualified Stock Option Agreement insofar as I may have any
rights under such community property laws of the State of California or similar
laws relating to marital property in effect in the state of our residence as of
the date of the signing of the foregoing Nonqualified Stock Option Agreement.
Dated: _______________, 199_. By:______________________________
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<PAGE>
BEA SYSTEMS, INC. STOCK OPTION EXERCISE FORM
________________
(date)
_____ Incentive Stock Option Exercise
_____ Nonqualified Stock Option Exercise
I hereby notify BEA Systems, Inc. (the "Company") that I elect to
exercise the following stock options to purchase the number of shares (the
"Stock") indicated pursuant to the Company's 1995 Flexible Stock Incentive Plan
(the "Plan"):
GRANT # OF PRICE/ TOTAL OPTION PRICE
DATE SHARES SHARE (EXCLUDING TAXES)
____________ ____________ ____________ __________________________
____________ ____________ ____________ __________________________
____________ ____________ ____________ __________________________
____________ ____________ ____________ __________________________
____________ ____________ ____________ __________________________
Concurrently with the delivery of this Exercise Form to the Company, I
shall hereby pay to the Company the Total Option Price for the stock purchased
in accordance with the provisions of my agreement with the Company evidencing
the option(s) specified above. Furthermore, I understand that any taxes which
may be due at the time of this exercise will be calculated and added to the
Total Option Price listed above.
The payment of the Total Option Price will be made via:
a) _____ Cash, Certified Check, Bank Draft, Postal or Money Order.
b) _____ Shares of the Company's stock valued at fair market value.
c) _____ Execution of a secured promissory note and stock pledge agreement
for $___________ (if approved by the Board of Directors).
Please note the following:
a) _____ Yes I wish to have taxes withheld at the following rate (above any
minimum required):
Federal _______% State ________%
b) _____ No I do not wish to have taxes withheld above the minimum required
(if any).
INVESTMENT REPRESENTATIONS
<PAGE>
a) I understand that this sale of the Stock is made in reliance upon the
following representation to the Company that the Stock to be received by me
will be acquired for investment for my own account and not with a view to the
sale or distribution of any part thereof within the meaning of the Securities
Act of 1933, as amended (the "Securities Act").
b) I hereby represent that I am a resident of the state of
________________________.
c)I hereby represent that I have received a copy of the Plan and understand
the restrictions imposed on the Stock I am purchasing, including but not
limited to, the Company's right to repurchase the Stock.
d)I understand that the Stock may not be sold, transferred, or otherwise
disposed of without registration under the Securities Act or an exemption
therefrom, and that in the absence of an effective registration statement
covering the Stock or an available exemption from registration under the
Securities Act, the Stock must be held indefinitely. In particular, I am
aware that the Stock may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that Rule are met. Among
the conditions for use of Rule 144 is the availability of current information
to the public about the Company. Such information is not now available, and
the Company has no present plans to make such information available. I
represent that, in the absence of an effective registration statement
covering the Stock, I will sell, transfer, or otherwise dispose of the Stock
only in a manner consistent with the representations set forth herein.
e)I agree that in no event will I make a transfer or disposition of any of
the Stock (other than pursuant to an effective registration statement under
the Securities Act), unless and until (i) I have notified the Company of the
proposed disposition and have furnished the Company with a statement of the
circumstances surrounding the disposition, (ii) such transfer is made in
accordance with the provisions of the Plan and (iii) if requested by the
Company, at my expense or the expense of the transferee, I shall have
furnished to the Company either (A) an opinion of counsel, reasonably
satisfactory to the Company, to the effect that such transfer may be made
without registration under the Securities Act or (B) a "no action" letter
from the Securities and Exchange Commission to the effect that the transfer
of such securities without registration will not result in a recommendation
by the staff of the Securities and Exchange Commission that action be taken
with respect thereto. The Company will not require such a legal opinion or
"no action" letter in any transaction in compliance with Rule 144.
Signature of Optionee ________________________________________
Please print
Optionee's Name: ________________________________________
Address: ________________________________________
________________________________________
________________________________________
Social Security Number: ________________________________________
<PAGE>
BEA SYSTEMS, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
-----------------------------------
THIS AGREEMENT is entered into as of the ____ day of ______________,
199__, between BEA Systems, Inc., a Delaware corporation (the "Company"), and
__________________________________________ (the "Recipient").
W I T N E S S E T H:
WHEREAS, the Company has adopted the 1995 Flexible Stock Incentive
Plan (the "Plan"), which Plan is hereby incorporated in this Agreement by
reference and made a part of it; and
WHEREAS, the Company regards Recipient as a valuable contributor to
the Company, and has determined that it would be in the interest of the Company
and its stockholders to sell the Stock (as defined below) to the Recipient as a
reward for past efforts and an incentive for continued service with the Company
or its Affiliates (as defined in the Plan) and increased achievements in the
future by Recipient;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties to this Agreement hereby agree as follows:
1. RESTRICTED STOCK PURCHASE.
(a) PURCHASE AND SALE. Contemporaneously with the execution of
this Agreement, the Company will issue to Recipient ____________ shares of
Common Stock of the Company (the "Stock") for a consideration of $_______ per
share ("Purchase Price"). Payment for the Stock in the amount of the
Purchase Price multiplied by the number of shares issued hereunder shall be
made to the Company upon execution of this Agreement. Such payments shall be
made in cash, certified check or wire transfer acceptable to a committee that
may be appointed by the Board of Directors of the Company (the "Board") to
administer the Plan (the "Committee"). (If the Board has not appointed a
Committee, then each reference to the "Committee" shall be construed to refer
to the Board.) If approved by the Commitee, payment may also be made by a
promissory note, in the form attached hereto as EXHIBIT A. In the event of a
purchase by promissory note, recipient shall pledge the Stock as security for
the promissory note pursuant to a security agreement in the form attached
hereto as EXHIBIT B.
(b) RIGHTS OF STOCKHOLDER; ADDITIONAL SECURITIES. All shares
of Stock issued hereunder shall be deemed issued to Recipient as fully paid
and nonassessable shares, and Recipient shall have all rights of a
stockholder with respect thereto, including the right to vote, receive
dividends (including stock dividends),
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participate in stock splits or other recapitalizations, and exchange such
shares in a merger, consolidation or other reorganization. The Company shall
pay any applicable stock transfer taxes. The term "Stock" also refers to the
purchased Stock and all securities received in replacement of the Stock, as a
stock dividend or as a result of any stock split, recapitalization, merger,
reorganization, exchange or the like, and all new, substituted or additional
securities or other properties to which Recipient is entitled by reason of
Recipient's ownership of the Stock.
2. REPURCHASE OPTION.
(a) TRANSFER RESTRICTIONS. No Stock issued to the Recipient
hereunder shall be sold, transferred by gift, pledged, hypothecated, or
otherwise transferred or disposed of by the Recipient prior to the date when
the Recipient shall become vested in such Stock pursuant to Section 4 hereof
("Vested Stock"), and such Stock shall constitute "Non-Vested Stock" until
such date. Any attempt to transfer Stock in violation of this Section 2
shall be null and void and shall be disregarded by the Company.
(b) REPURCHASE OPTION. In addition, Non-Vested Stock shall be
subject to a repurchase option in favor of the Company (the "Repurchase
Option"). The Repurchase Option shall be subject to the following terms and
conditions. In the event of the voluntary or involuntary termination of
employment of Recipient with the Company for any reason, with or without
cause (including death or disability), the Company shall, upon the date of
such termination, have an irrevocable, exclusive option for a period of three
months from such date to repurchase the Non-Vested Stock from Recipient or
any person receiving the Non-Vested Stock by operation of law or other
involuntary transfer, at the original Purchase Price for the Non-Vested Stock.
The Repurchase Option shall be exercised by written notice by the
Company to Recipient or his executor and, at the Company's option, (i) by
delivery to the Recipient or his executor, with such notice, of a check in
the amount of the Purchase Price for the Non-Vested Stock being repurchased,
or (ii) in the event the Recipient is indebted to the Company for all or a
portion of the Purchase Price for the Stock, by cancellation by the Company
of an amount of such purchase money indebtedness equal to the Purchase Price
for the Non-Vested Stock being repurchased, or (iii) by a combination of (i)
and (ii) so that the combined payment and cancellation of indebtedness equals
such Purchase Price. Upon delivery by the Company of such notice and payment
of the Purchase Price in any of the ways described above, the Company shall
become the legal and beneficial owner of the Non-Vested Stock being
repurchased and all rights and interest therein or related thereto, and the
Company shall have the right to transfer to its own name the number of shares
of Non-Vested Stock being repurchased by the Company, without further action
by Recipient.
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<PAGE>
The Repurchase Option may be assigned by the Company to any third
party, provided that in the event the aggregate Purchase Price of the Stock
being assigned is less than the fair market value of such Stock at the time of
assignment, the assignee shall pay to the Company upon assignment cash equal to
the difference between the aggregate Purchase Price and such fair market value.
(c) ESCROW OF STOCK. For purposes of facilitating the
enforcement of the provisions of this Section 2, Recipient agrees,
immediately upon receipt of the certificate(s) for his Shares, to deliver
such certificate(s), together with a stock power in the form attached hereto
as EXHIBIT C executed in blank by Recipient and Recipient's spouse (if
required for transfer) with respect to each such stock certificate, to the
Secretary or Assistant Secretary of the Company, or their designee, to hold
in escrow for so long as such stock remains as Non-Vested Stock, with the
authority to take all such actions and to effectuate all such transfers
and/or releases as may be necessary or appropriate to accomplish the
objectives of this Agreement in accordance with the terms hereof. Recipient
hereby acknowledges that the appointment of the Secretary or Assistant
Secretary of the Company (or their designee) as the escrow holder pursuant to
this Section 2 with the stated authorities herein and therein is a material
inducement to the Company to make this Agreement and that such appointment is
coupled with an interest and is accordingly irrevocable. Recipient agrees
that such escrow holder shall not be liable to any party hereto (or to any
other party) for any actions or omissions unless such escrow holder is
grossly negligent relative thereto. The escrow holder may rely upon any
letter, notice or other document executed by any signature purported to be
genuine and may resign at any time.
3. RIGHT OF FIRST REFUSAL.
(a) GRANT. Before Recipient may transfer any Stock (whether
voluntarily or involuntarily), Recipient must deliver to the Company at its
principal office a written notice describing the proposed transfer and stating
the name of the proposed transferee, the number of shares of Stock to be
transferred, and the consideration for which the shares of Stock are to be
transferred ("Disposition Notice"), and a written offer signed by the proposed
transferee (if the proposed transfer is voluntary) to acquire the shares of
Stock on the terms specified in the Disposition Notice. Thereafter, for thirty
(30) days, the Company may purchase the shares of Stock by giving Recipient
written notice ("Repurchase Notice"). The purchase price for the shares of
Stock shall be the price specified in the Disposition Notice. If the Company
repurchases any shares pursuant to this right of first refusal, it must purchase
all of the shares of Stock proposed to be transferred.
(b) EXCHANGES OR OTHER TRANSFERS. If the consideration
specified in a Disposition Notice is property other than cash but with a
readily ascertainable fair
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<PAGE>
market value, the purchase price of the Stock shall be an amount equal to the
fair market value of the consideration specified in the Disposition Notice.
If the consideration for the shares of stock set forth in the Disposition
Notice consists of property other than cash and does not have a readily
ascertainable fair market value, the purchase price for the Stock shall be
the Current Market Value (as defined in section (e) of this Section 3) of the
Stock determined as of the date the Company receives the Disposition Notice.
(c) EFFECT OF NOTICE. Except as otherwise provided herein,
Stock shall be deemed repurchased when Recipient or any other holder of the
Stock receives a Repurchase Notice. All rights accorded a holder of such
Stock, other than the right to payment therefor, shall cease at that time.
The Company shall pay the purchase price of any Stock so purchased within
five (5) business days after tender of the certificates representing such
Stock to the Company's transfer agent.
(d) FAILURE TO REPURCHASE STOCK; SURVIVAL OF RESTRICTIONS ON
TRANSFER. If the Company or its assignee does not exercise the right of first
refusal set forth in Section 3(b), the shares of stock subject to repurchase
may be transferred only in the manner and to the persons specified in the
Disposition Notice within six (6) months after delivery of the Disposition
Notice. Shares of stock transferred pursuant to Section 3(b) shall continue
to be subject to the restrictions imposed by this Agreement.
(e) CURRENT MARKET PRICE. For purposes of this Agreement, the
"Current Market Price" means the fair market value of the Company's common
stock for the purpose of any employee benefit plan of the Company, including
the Plan, as most recently determined by the Board.
(f) ASSIGNMENT. The Company may assign its rights of first
refusal under this section.
(g) TERMINATION OF RESTRICTIONS. The restrictions on Stock
imposed by this Section 3 shall terminate when a public market exists for the
Common Stock of the Company. A public market shall be deemed to exist if any
of the Company's shares of common stock have been registered pursuant to
Section 5 of the Securities Act of 1933 or Section 12 of the Securities
Exchange Act of 1934, and (a) said stock has ever been listed on a national
securities exchange, or (b) offers by two or more persons to buy or sell said
stock have ever been published at least daily for ninety (90) days in a
publication of the National Quotation Bureau, Inc.
4. VESTING. For purposes of this Agreement, the term "vest"
shall mean with respect to any share of the Stock that such share is no
longer subject to the restrictions on transfer set forth in Section 2 and
that such share is released from the Repurchase Option. If Recipient would
become vested in any fraction of a share of Stock on any date, such
fractional share shall not vest and shall remain Non-Vested until the
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<PAGE>
Recipient becomes vested in the entire share. The Stock subject to this
Agreement shall vest at a minimum of ___% per year over _____ years from the
date hereof as follows:
(a) As to ___% of the number of shares covered by this
Agreement, one year from date of this Agreement;
(b) As to each additional __% of the number of shares covered
by this Agreement, on each anniversary of the date of this Agreement
thereafter until all shares covered by this Agreement have become vested.
5. CORPORATE TRANSACTIONS.
(a) DEFINITION. For purposes of this Section 5, a "Corporate
Transaction" shall include any of the following stockholder-approved
transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is
not the surviving entity, except for (1) a transaction the principal purpose
of which is to change the state of the Company's incorporation, or (2) a
transaction in which the Company's stockholders immediately prior to such
merger or consolidation hold (by virtue of securities received in exchange
for their shares in the Company) securities of the surviving entity
representing more than fifty percent (50%) of the total voting power of such
entity immediately after such transaction;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company unless the Company's
stockholders immediately prior to such sale, transfer or other disposition
hold (by virtue of securities received in exchange for their shares in the
Company) securities of the purchaser or other transferee representing more
than fifty percent (50%) of the total voting power of such entity immediately
after such transaction; or
(iii) any reverse merger in which the Company is the
surviving entity but in which the Company's stockholders immediately prior to
such merger do not hold (by virtue of their shares in the Company held
immediately prior to such transaction) securities of the Company representing
more than fifty percent (50%) of the total voting power of the Company
immediately after such transaction.
(b) RELEASE OF REPURCHASE OPTION. In the event of any
Corporate Transaction, any Non-Vested Stock shall be reconveyed to or
repurchased by the Company immediately prior to the specified effective date
of the Corporate Transaction unless assumed by the successor corporation or
its parent company, pursuant to restricted stock providing substantially
equal value and having substantially equivalent provisions as such Non-Vested
Stock.
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(c) CONTINUATION OF FIRST REFUSAL RIGHTS. In the event of any
Corporate Transaction, the Company's rights under Section 3 shall remain in
full force and effect and shall apply to any capital stock or other
securities, received in exchange for the Stock in consummation of the
Corporate Transaction and delivered to the Company (or its successors) or the
Owner, but only to the extent that the Right of First Refusal has not lapsed
pursuant to Section 3(b).
6. ADDITIONAL SECURITIES. Any securities received as the
result of ownership of Stock (hereinafter called "Additional Securities"),
including, but not by way of limitation, warrants, options and securities
received as a stock dividend or stock split, or as a result of a
recapitalization or reorganization, shall be retained by the Company in the
same manner and subject to the same conditions as the Stock with respect to
which they were issued. Recipient shall be entitled to direct the Company to
exercise any warrant or option received as Additional Securities upon
supplying the funds necessary to do so, in which event the securities so
purchased shall constitute Additional Securities, but the Recipient may not
direct Company to sell any such warrant or option. If Additional Securities
consist of a convertible security, Recipient may exercise any conversion
right, and any securities so acquired shall be deemed Additional Securities.
Additional Securities shall be subject to the provisions of Sections 2 and 3
above in the same manner as the Stock.
7. INVESTMENT REPRESENTATIONS.
(a) INVESTMENT REPRESENTATIONS. This Agreement is made in
reliance upon the Recipient's representation to the Company, which by its
acceptance hereof the Recipient hereby confirms, that the shares of Stock to
be received by the Recipient will be acquired for investment for his or her
own account and not with a view to the sale or distribution of any part
thereof within the meaning of the Securities Act of 1933, as amended (the
"Securities Act").
(b) AVAILABILITY OF EXEMPTION. The Recipient understands that
the Stock is not registered under the Securities Act on the basis that the
sale provided for in this Agreement and the issuance of securities hereunder
is exempt from registration under the Securities Act pursuant to Section 4(2)
thereof, and that the Company's reliance on such exemption is predicated on
the Recipient's representations set forth herein.
(c) RESTRICTIONS ON TRANSFER. The Recipient understands that
the Stock may not be sold, transferred, or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and that in
the absence of an effective registration statement covering the Stock or an
available exemption from registration under the Securities Act, the Stock
must be held indefinitely. In particular, the Recipient is aware that the
Stock (and any Common Stock issued on conversion thereof) may not be sold
pursuant to Rule 144 promulgated under the Securities Act unless all of the
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<PAGE>
conditions of that Rule are met. Among the conditions for use of Rule 144 is
the availability of current information to the public about the Company.
Such information is not now available, and the Company has no present plans
to make such information available. The Recipient represents that, in the
absence of an effective registration statement covering the Stock, it will
sell, transfer, or otherwise dispose of the Stock only in a manner consistent
with its representations set forth herein and then only in accordance with
the provisions of Section 6(d) hereof.
(d) PROCEDURE FOR TRANSFER. The Recipient agrees that in no
event will it make a transfer or disposition of any of the Stock (other than
pursuant to an effective registration statement under the Securities Act),
unless and until (i) the Recipient shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the disposition, (ii) such transfer if made in
accordance with the provisions of Section 2 and Section 3 above and (iii) if
requested by the Company, at the expense of the Recipient or transferee, the
Recipient shall have furnished to the Company either (A) an opinion of
counsel, reasonably satisfactory to the Company, to the effect that such
transfer may be made without registration under the Securities Act or (B) a
"no action" letter from the Securities and Exchange Commission to the effect
that the transfer of such securities without registration will not result in
a recommendation by the staff of the Securities and Exchange Commission that
action be taken with respect thereto. The Company will not require such a
legal opinion or "no action" letter in any transaction in compliance with
Rule 144.
(e) NO ADVERTISEMENT. At no time was Recipient presented with
or solicited by any leaflet, public promotional meeting, circular, newspaper
or magazine article, radio or television advertisement, or any other form of
general advertising.
(f) KNOWLEDGE OF ISSUER. Recipient is a sophisticated
investor having such knowledge and experience in financial and business
matters that Recipient is capable of evaluating the merits of acquiring the
Stock. Recipient is aware of the Company's business affairs and financial
condition, and has acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Stock. Recipient
warrants that the nature and amount of the Stock are consistent with
Recipient's investment objectives, abilities and resources.
8. LEGENDS; STOP TRANSFER.
(a) All certificates for shares of the Stock shall bear the
following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A
7
<PAGE>
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY
THE TERMS OF, AND ARE SUBJECT TO RESTRICTIONS ON TRANSFER AS
PROVIDED IN, THE RESTRICTED STOCK PURCHASE AGREEMENT, A COPY OF
WHICH IS AVAILABLE FROM THE COMPANY."
(b) The certificates for shares of the Stock shall also bear
any legend required by any applicable state securities law.
9. LOCK-UP AGREEMENT. Recipient, if requested by an
underwriter of Common Stock or other securities of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock of the Company held
by the Recipient (except Common Stock included in such registration) during
the 180-day period following the effective date of a registration statement
of the Company filed under the Securities Act, or such shorter period of time
as the underwriter shall require. The Company may impose stop-transfer
instructions with respect to such Common Stock subject to the foregoing
restriction until the end of said period.
10. NO EMPLOYMENT RIGHTS. THIS AGREEMENT SHALL NOT CONFER
UPON RECIPIENT ANY RIGHT WITH RESPECT TO CONTINUATION OF HIS OR HER
EMPLOYMENT WITH THE COMPANY OR ITS AFFILIATES, NOR SHALL IT INTERFERE IN ANY
WAY WITH THE RIGHT OF RECIPIENT OR THE COMPANY, OR ANY OF ITS AFFILIATES, TO
TERMINATE RECIPIENT'S EMPLOYMENT WITH THE COMPANY AT ANY TIME FOR ANY REASON
WITH OR WITHOUT CAUSE OR CHANGE THE TERMS OF EMPLOYMENT OF RECIPIENT.
11. SECTION 83(b) ELECTION. Recipient hereby represents that
he or she understands (a) the contents and requirements of a timely election
made pursuant to Section 83(b) of the Internal Revenue Code or similar
provision of state law (collectively, an "83(b) Election"), (b) the
application of Section 83(b) to the purchase of Stock by Recipient pursuant
to this Agreement, (c) the nature of the election to be made by Recipient
under Section 83(b) and (d) the effect and requirements of the 83(b) Election
under relevant state and local tax laws. Recipient further represents that he
or she intends
8
<PAGE>
to file an election pursuant to Section 83(b), the form of which Election is
attached hereto as EXHIBIT D, with the Internal Revenue Service within thirty
(30) days following purchase of the Stock hereunder, and a copy of such
election with his or her federal tax return for the calendar year in which
the date of this Agreement falls. Recipient covenants to inform the Company
of any change in Recipient's state of residency. Recipient shall provide the
Company with a copy of any timely 83(b) Election. If Recipient makes a
timely 83(b) Election, Recipient shall immediately pay Company (or the
Affiliate that employs Recipient) the amount necessary to satisfy any
applicable federal, state, and local income and employment tax withholding
requirements. If Recipient does not make a timely 83(b) Election, Recipient
shall, either at the time that the restrictions lapse under this Agreement
and the Plan or at the time withholding is otherwise required by any
applicable law, pay the Company (or the Affiliate that employs Recipient) the
amount necessary to satisfy any applicable federal, state, and local income
and employment tax withholding requirements.
12. DISTRIBUTIONS. The Company shall disburse to Recipient all
dividends, interest and other distributions paid or made in cash or property
(other than Additional Securities) with respect to Stock and Additional
Securities, less any applicable federal or state withholding taxes.
13. SUCCESSORS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
14. NOTICE. Any notice or other paper required to be given or
sent pursuant to the terms of this Agreement shall be sufficiently given or
served hereunder to any party when transmitted by registered or certified
mail, postage prepaid, addressed to the party to be served as follows:
9
<PAGE>
Company: BEA Systems, Inc.
385 Moffett Park Drive, Suite 105
Sunnyvale, California 94089-1208
Recipient: At Recipient's address as it appears
under Recipient's signature to this
Agreement, or to such other address as
Recipient may specify in writing to the
Company
Any party may designate another address for receipt of notices so long as notice
is given in accordance with this Section.
15. COMMITTEE DECISIONS CONCLUSIVE. All decisions of the
Committee arising under the Plan or under this Agreement shall be conclusive.
16. SPOUSAL CONSENT. Recipient shall cause his or her spouse
to execute the Consent of Spouse attached hereto as EXHIBIT E concurrently
with the execution of this Agreement or, if later, at the time Recipient
becomes married.
17. CALIFORNIA LAW. The interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Restricted
Stock Purchase Agreement as of the date first above written.
BEA SYSTEMS, INC.
By
-------------------------------------------
Its:
-----------------------------------------
Recipient:
---------------------------------------------
[Name]
Address:
---------------------------------------------
---------------------------------------------
11
<PAGE>
EXHIBIT A
---------
PROMISSORY NOTE
$ [DATE]
--------- ------------
FOR VALUE RECEIVED, the undersigned [NAME] , an individual
residing at [ADDRESS] ("Maker"), hereby promises to pay to BEA
Systems, Inc., a Delaware corporation ("Payee"), on the earlier of (i)
______________ or (ii) the date Maker ceases to be an employee of Payee, for
any reason, the principal sum of ________________ Dollars ($______), in
lawful money of the United States of America and in immediately available
funds, plus simple interest from the date hereof at the rate of _____ percent
(__%) per annum, payable in arrears on [each of] __________
[,__________, __________ and __________] provided however, that the last said
installment shall be in an amount necessary to repay in full the unpaid
principal and interest hereof.
Interest shall be computed on the basis of a year of 365 days for the
actual number of days elapsed. Should interest not be paid when due hereunder,
it shall be added to the principal and thereafter bear like interest as the
principal, but such unpaid interest so compounded shall not exceed an amount
equal to simple interest on the unpaid principal at the maximum rate permitted
by law.
This is the Promissory Note referred to in the Security Agreement of
even date herewith between Maker and Payee, and Payee is entitled to all the
benefits provided therein.
(i) PREPAYMENTS. Maker reserves the right to prepay the outstanding
principal amount of this Note in full or in part at any time during the term of
this Note without notice and without premium or penalty.
(ii) EVENTS OF DEFAULT AND REMEDIES. Any one of the following
occurrences shall constitute an "Event of Default" under this Note:
(a) Maker fails to make payment of full principal amount of this
Note as and when the same becomes due and payable in accordance with the terms
hereof.
(b) Maker becomes insolvent or bankrupt, commits any act of
bankruptcy, generally fails to pay its debts as they become due, becomes the
subject of any proceedings or action of any regulatory agency or any court
relating to insolvency, or makes an
1
<PAGE>
assignment for the benefit of its creditors, or enters into any agreement for
the composition, extension, or readjustment of all or substantially all of
his obligations.
(c) Maker ceases to be an employee of Payee for any reason.
Upon the occurrence of any Event of Default hereunder, the entire
unpaid principal balance of this Note (including accrued interest) shall, at the
option of the Payee and without notice or demand of any kind to Maker or any
other person, immediately become due and payable, and Payee shall have and may
exercise any and all rights and remedies available to it at law or in equity.
(iii) ATTORNEYS' FEES AND COSTS. Maker promises to pay on demand
all reasonable out-of-pocket costs of and expenses of Payee in connection with
the collection of amounts due hereunder, including, without limitation,
attorneys' fees incurred in connection therewith, whether or not any lawsuit is
ever filed with respect thereto.
(iv) MISCELLANEOUS.
(a) WAIVER. Maker waives diligence, presentment, protest and
demand and also notice of protest, demand, dishonor and nonpayment of this Note.
No extension of time for the payment of this Note shall affect the original
liability under this Note of Maker. The pleading of any statute of limitations
as a defense to any demand against Maker is expressly waived by Maker to the
full extent permitted by law.
(b) SETOFF. The obligation to pay Payee shall be absolute and
unconditional and the rights of Payee shall not be subject to any defense,
setoff, counterclaim or recoupment or by reason of any indebtedness or liability
at any time owing by Payee to Maker.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Note as of the date first above written.
MAKER
---------------------------------------------
[Signature]
---------------------------------------------
[Name]
2
<PAGE>
EXHIBIT B
---------
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and entered into as of this ____ day
of (MONTH) , (YEAR) , by and between BEA Systems, Inc., a Delaware corporation
("Secured Party"), and [NAME] , an individual residing at [ADDRESS]
("Debtor").
In consideration of the mutual covenants contained herein and for
other good and valuable consideration, the adequacy and receipt of which is
hereby acknowledged, the parties hereby agree as follows:
1. DEFINITIONS. The following terms have the following meanings:
(a) The term "Collateral" shall mean (i) the tangible assets
owned by Debtor as of the date hereof and described in EXHIBIT A attached hereto
and (ii) all Proceeds of the foregoing Collateral. For purposes of this
Security Agreement, the term "Proceeds" includes whatever is receivable or
received when Collateral or proceeds thereof is sold, collected, exchanged or
otherwise disposed of, whether such disposition is voluntary or involuntary, and
includes, without limitation, all rights to payment, including return premiums,
with respect to any insurance relating thereto.
(b) The term "Obligations" shall mean all of the unpaid
principal sum of that certain Promissory Note in the original principal amount
of $______ of even date herewith (the "Note") evidencing the indebtedness of
Debtor to Secured Party.
(c) The term "UCC" shall mean the Uniform Commercial Code as the
same may, from time to time, be in effect in the State of California.
(d) Capitalized terms used herein shall have the meaning set
forth in the UCC unless otherwise set forth herein.
(e) The term "Event of Default" shall have the meaning set forth
in the Note.
2. GRANT OF SECURITY INTEREST. As collateral security for prompt
and complete payment and performance under the Obligations, Debtor hereby
assigns, conveys, grants, pledges and transfers to and creates in favor of
Secured Party a security interest in the Collateral, including all Proceeds of
the foregoing and all accessions to, substitutions and replacements for the
foregoing. Debtor shall, upon execution of this Security Agreement, and of the
Note as Payee (as such term is defined in the Note), deliver all certificates
representing the Collateral
1
<PAGE>
together with a stock power executed in blank by Debtor and Debtor's spouse
with respect to such stock certificates to the Secretary of Secured Party to
be held in escrow until full satisfaction of Debtor's obligations hereunder
and under the Note with the authority to take all such actions and to
effectuate all such transfers and/or releases as may be necessary or
appropriate to accomplish the objectives of this Security Agreement and the
Note. In the event that the Proceeds from the disposition of the Collateral
are insufficient to fully satisfy the amounts due and owing under the Note,
Debtor shall, subject to the limitations set forth in the UCC, be liable for
any deficiency.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS. Debtor represents,
warrants and covenants that:
(a) TITLE. Apart from the security interest in the Collateral
granted to Secured Party hereunder, Debtor has good and valid title to the
Collateral, free and clear of any and all liens, charges, claims, security
interests or encumbrances of any kind whatsoever.
(b) TRANSFER OF COLLATERAL. Debtor shall not sell, assign,
transfer, encumber or otherwise dispose of any of the Collateral or any interest
therein without the prior written consent of Secured Party. If any such
encumbrance is imposed, Debtor shall give Secured Party immediate written
notice.
(c) PERFECTION. Debtor shall, upon demand, do all such acts as
Secured Party may reasonably request to establish and maintain a perfected
security interest in the Collateral, including, without limitation, executing a
financing statement in the form prescribed by the appropriate Secretary of
State.
4. REMEDIES. Upon the occurrence of any Event of Default hereunder,
the entire unpaid principal balance of the Note shall, at the option of the
Payee and without notice or demand of any kind to Debtor or any other person,
immediately become due and payable, and Secured Party may proceed to exercise
any and all of the rights and remedies of a secured party under the UCC and any
other remedies available at law or in equity, with respect to the Collateral.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be executed as of the date first above written.
SECURED PARTY
By:
----------------------------------------
DEBTOR
-------------------------------------------
[Name]
3
<PAGE>
EXHIBIT A
---------
DESCRIPTION OF COLLATERAL
__________ shares of Common Stock of BEA Systems, Inc.
<PAGE>
EXHIBIT C
---------
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, ___________________ hereby sells, assigns and
transfers unto BEA Systems, Inc., a Delaware corporation ("BEA"),
_______________________ (__________) shares of the Common Stock of BEA, standing
in his name on the books of BEA, represented by Certificate No. __ herewith, and
does hereby irrevocably constitute and appoint the ___________________ attorney
to transfer the said stock in the books of BEA with full power of substitution.
DATED: ________________, 199__
------------------------
(Signature)
------------------------
(Printed Name)
<PAGE>
EXHIBIT D
---------
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the Internal
Revenue Code, to include in gross income for 19__ the amount of any compensation
taxable in connection with the taxpayer's receipt of the property described
below;
1. The name, address, taxpayer identification number and taxable
year of the undersigned are:
TAXPAYER'S NAME:
SPOUSE'S NAME:
TAXPAYER'S SOCIAL SECURITY NO.:
SPOUSE'S SOCIAL SECURITY NO.:
TAXABLE YEAR: Calendar Year 19__
ADDRESS:
2. The property which is the subject of this election is: __________
shares of common stock of BEA Systems, Inc.
3. The property was transferred to the undersigned on ______________,
19___.
4. The property is subject to the following restriction:
____________________________________________.
5. The fair market value of the property at the time of transfer
(determined without regard to any restriction other than a restriction which by
its terms will never lapse) is: $_______ per share x ________ shares =
$____________.
6. The undersigned paid $________ per share x _______ shares for the
property transferred or a total of $__________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The
<PAGE>
undersigned taxpayer is the person performing the services in connection with
the transfer of said property.
The undersigned will file this election with the Internal Revenue
Service office in which he files his annual income tax return not later than 30
days after the date of transfer of the property. A copy of the election also
will be furnished to the person for whom the services were performed.
Additionally, the undersigned will include a copy of the election with his
income tax return for the taxable year in which property is transferred. The
undersigned understands that this election will also be effective as an election
under ________________ law.
Dated:
------------------------------ ------------------------------
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated:
------------------------------ ------------------------------
Spouse of Taxpayer
<PAGE>
EXHIBIT E
---------
CONSENT OF SPOUSE
I, _____________________, spouse of __________________, have read and
approved the foregoing Agreement. In consideration of the right of my spouse to
purchase shares of BEA Systems, Inc., as set forth in the Agreement, I hereby
appoint my spouse as my attorney-in-fact in respect to the exercise of any
rights of the Agreement insofar as I may have any rights under such community
property laws of the State of California or similar laws relating to marital
property in effect in the state of our residence as of the date of the signing
of the foregoing Agreement.
Dated: By:
------------------------------ ------------------------------
[Signature]
------------------------------
[Printed Name]
<PAGE>
EXHIBIT 10.14
THIS AGREEMENT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR REGISTERED UNDER ANY SECURITIES LAW. THIS AGREEMENT MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND REGISTRATION OR QUALIFICATION UNDER
APPLICABLE STATE SECURITIES LAWS UNLESS THE PROPOSED TRANSACTION DOES NOT
REQUIRE SUCH REGISTRATION OR QUALIFICATION AND, IF REQUESTED BY MAKER, MAKER
SHALL HAVE RECEIVED AN OPINION OF COUNSEL (IN FORM AND CONTENT REASONABLY
SATISFACTORY TO MAKER) TO SUCH EFFECT.
January 22, 1997
BEA Systems, Inc.
385 Moffett Park Drive, #105
Sunnyvale, California 94089
Attn: Chief Financial Officer
Re: $10,000,000 SUBORDINATED BRIDGE LINE OF CREDIT
Ladies and Gentlemen:
This letter agreement (the "Agreement") sets forth the terms and
conditions of the subordinated bridge line of credit (the "Line") which
Warburg, Pincus Ventures, L.P. ("Lender") has agreed to establish for BEA
Systems, Inc., a Delaware corporation ("Borrower"), and to which Borrower has
agreed as evidenced by Borrower's signing and returning to Lender the
enclosed copy of this Agreement:
1. Subject to the terms and conditions of this Agreement, Lender
agrees from time to time to make advances (collectively and severally, the
"Advances" and, severally, an "Advance") under the Line to Borrower;
provided, however, that the aggregate amount of Advances outstanding to
Borrower under the Line shall not exceed $10,000,000 at any time.
2. All Advances made to Borrower hereunder shall be payable in
full in accordance with paragraph 3 hereof on the date that is the earlier of
(the "Maturity Date") (i) five (5) business days after the occurrence of an
initial public offering of the common stock of Borrower, and (ii) July 22,
1998.
3.
(a) PAYMENT OPTIONS. If the Advances are to be repaid on the
Maturity Date described in clause (i) of paragraph 2, Borrower shall repay
the Advances and interest accrued thereon (the "Credit Line Liability"), at
Lender's option, (i) in immediately available funds by wire transfer to an
account designated in writing by Lender to Borrower, or (ii) by converting
the Credit Line Liability into shares of common stock of Borrower in
accordance with clauses (b) - (d) of this paragraph 3.
1
<PAGE>
(b) CONDITIONS PRECEDENT TO CONVERSION. The Credit Line Liability
is convertible (in whole but not in part) into common stock of Borrower (the
"Common Stock") at the option of Lender upon written notice for a five (5)
day period following the date on which Borrower has completed an initial
public offering of Common Stock in a firm commitment underwritten offering
consummated pursuant to a Registration Statement filed with the Securities
and Exchange Commission on or prior to February 28, 1997 (the "Initial Public
Offering") filed under the Securities Act of 1933, as amended (the
"Securities Act") and effective under the Securities Act.
(c) CONVERSION RATE. Upon any conversion of the Credit Line
Liability pursuant to Paragraph 3(b), the Lender shall be entitled to receive
that number of shares of Common Stock equal to the Credit Line Liability
DIVIDED BY the Conversion Value (as hereinafter defined). The "Conversion
Value" shall be an amount equal to the gross proceeds per share of Common
Stock paid to Borrower (as reduced for underwriting commissions and discounts
as calculated on a per share basis) pursuant to the Initial Public Offering
described in Paragraph 3(b). Fractional shares shall not be issued, and
Borrower shall make a cash payment to Lender on the conversion date for an
amount equal to any fractional shares.
(d) CONVERSION PROCEDURES. In order to convert the Credit Line
Liability into Common Stock as permitted hereunder, Lender shall deliver to
Borrower at any time prior to expiration of the five (5) day period provided
in Paragraph 3(b) above (i) this Agreement, and (ii) a written notice stating
that this Agreement is being surrendered for conversion into Common Stock to
the extent of the amount of the Credit Line Liability. Borrower shall,
within ten (10) business days following the closing of the Initial Public
Offering issue and deliver to Lender a certificate or certificates
representing the aggregate number of fully paid and nonassessable shares of
Common Stock of Borrower issuable upon such conversion pursuant to the terms
of Paragraph 3(c) (the "Shares"). Such certificate or certificates shall be
deemed to have been issued and the Lender shall be deemed to have become a
holder of record of such Shares on the later of the closing of the Initial
Public Offering or the date the Lender delivers this Agreement and its notice
of conversion to Borrower. Borrower shall cancel this Agreement upon the
issuance and delivery of the certificate or certificates for such conversion
shares.
(e) WIRE TRANSFER PAYMENT IF MATURITY DATE IS AS DESCRIBED IN
PARAGRAPH 2(ii). If the Advances are to be repaid on the Maturity Date
described in clause (ii) of paragraph 2, then Borrower shall repay the Credit
Line Liability on the Maturity Date by wire transfer of immediately available
funds to such account as designated in writing by Lender to Borrower.
4. Advances under the Line will be evidenced by an account
maintained by Lender on its books.
5. Borrower shall give Lender at least five (5) day's prior
written notice of its intention to request an Advance under the Line.
6. Borrower shall pay interest on Advances outstanding under the
Line at a fixed rate of eleven percent (11%) per annum. Interest shall
accrue from the date of each
2
<PAGE>
Advance and shall be payable on the Maturity Date. Interest payable
hereunder shall be computed for the actual number of days elapsed on the
basis of a year consisting of 365 or, where appropriate, 366 days.
7. Each Advance shall be made to Borrower by wire transfer of
immediately available funds to such account as designated by Borrower in the
notice described in paragraph 5 of this Agreement.
8. The Credit Line Liability shall be subordinate and junior in
right of payment to the prior payment in full of any indebtedness of Borrower
identified as senior debt in the event of any liquidation, dissolution or
winding up of Borrower or any receivership, insolvency, bankruptcy,
liquidation, readjustment, reorganization or similar proceeding relative to
Borrower or its properties.
9. Borrower hereby represents and warrants as follows:
(a) Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and is authorized to
do business in the jurisdictions in which its ownership of property or
conduct of business requires such authorization.
(b) Borrower has the corporate power and authority to execute and
deliver, and to perform and observe the provisions of, this Agreement.
(c) The execution, delivery and performance by the Borrower of this
Agreement has been duly authorized by all necessary corporate action.
(d) This Agreement is a legal, valid and binding agreement of
Borrower, enforceable against Borrower in accordance with its terms.
10. The occurrence of any of the following ("Events of Default")
shall terminate any obligation on the part of Lender to extend credit under
this Agreement and, at the option of Lender, shall make all obligations of
Borrower to Lender under or in respect of this Agreement and any instrument
or agreement required under this Agreement immediately due and payable,
without notice of default, presentment or demand for payment, protest or
notice of nonpayment or dishonor, or other notices or demands of any kind or
character:
(a) Borrower fails to pay, within fifteen (15) days after it becomes
due and payable, any interest or principal or any other sum due under this
Agreement in accordance with the terms hereof; or
(b) Any representation or warranty herein, or in any other agreement,
instrument or certificate executed pursuant hereto or in connection with any
transaction contemplated hereby proves to have been false or misleading in
any material respect when made; or
3
<PAGE>
(c) Borrower admits in writing its inability to pay its debts as they
become due or shall become insolvent, or files any petition, proceeding,
case, or action for relief under any bankruptcy, reorganization, insolvency,
or moratorium law, or any other law or laws for the relief of, or relating
to, debtors; or
(d) An involuntary petition is filed under any bankruptcy or similar
statute against Borrower, or a receiver, trustee, liquidator, assignee,
custodian, sequestrator, or other similar official is appointed to take
possession of the properties of Borrower unless such petition or
appointment is set aside or withdrawn or ceases to be in effect within 60
days from the date of said filing or appointment.
11. Lender hereby represents and warrants to Borrower with respect
to the purchase of the Shares pursuant to paragraph 3 of this Agreement, as
follows:
(a) INVESTMENT EXPERIENCE/ACCESS. Lender is aware of Borrower's
business affairs and financial condition and has acquired sufficient
information about Borrower to reach an informed and knowledgeable decision
to acquire the Shares. Lender has sufficient knowledge and experience in
financial and business matters to enable it to evaluate the merits and
risks of an investment in Borrower and its business. At no time was Lender
presented with or solicited by any leaflet, public promotional meeting,
circular, newspaper or magazine article, radio or television advertisement,
or any other form of general advertising regarding the Shares.
(b) INVESTMENT INTENT. Lender is acquiring the Shares for investment
only for its own account, and not with the view to, or for resale in
connection with, any distribution thereof. Lender understands that the
Shares have not been, and will not be, registered under the Securities Act
by reason of a specific exemption from the registration provisions of the
Securities Act, the availability of which depends upon, among other things,
the bona fide nature of the investment intent of such Lender as expressed
herein.
(c) RULE 144. Lender understands that no public market now exists for
any of the securities issued by Borrower, and that Borrower has made no
assurances that a public market will ever exist for Borrower's shares.
Lender acknowledges that the Shares must be held indefinitely unless
subsequently registered under the Securities Act or unless an exemption
from such registration is available. Lender is aware of the provisions of
Rule 144 promulgated under the Securities Act which permit limited resale
of shares purchased in a private placement subject to the satisfaction of
certain conditions. The certificates for Shares shall bear legends as
required by applicable state and federal securities laws.
12. The rights, powers and remedies of Lender hereunder are
cumulative and in addition to all rights, powers and remedies provided under
any and all agreements between Borrower and Lender relating hereto, at law,
in equity or otherwise. Any delay or failure by Lender to exercise any
right, power or remedy shall not constitute a waiver thereof by Lender, and
no single or partial exercise by Lender of any right, power or remedy shall
preclude other or further exercise thereof or any exercise of any other
rights, powers or remedies. No consent or
4
<PAGE>
waiver under this Agreement shall be effective unless in writing. No waiver
of any breach or default shall be deemed a waiver of any breach or default
thereafter occurring.
13. This Agreement embodies the entire agreement and understanding
between Borrower and Lender and supersede all prior agreements and
understandings relating to the subject matter hereof.
14. Borrower shall pay all costs and expenses of Lender
(including, without limitation, reasonable fees and expenses of Lender's
counsel) incurred by Lender in connection with the enforcement of Lender's
rights, powers and remedies hereunder and any instruments or agreements
executed in connection with this Agreement.
15. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
16. This Agreement may be executed in one or more counterparts
each of which shall be an original and all of which together shall be but one
agreement.
If the above provisions accurately and completely reflect Borrower's
understanding of the arrangements described, please so indicate by executing
and returning to Lender the enclosed copy of this Agreement.
Very truly yours,
WARBURG, PINCUS VENTURES, L.P.
By:
-------------------------------------
Title:
----------------------------------
Address: 466 Lexington Avenue
New York, New York 10017
The foregoing is agreed to and accepted this
22nd day of January, 1997.
BEA SYSTEMS, INC.
By:
-------------------------------------
Title
-----------------------------------
Address: 385 Moffett Park Drive, #105
Sunnyvale, California 94089
Attn: Chief Financial Officer
Facsimile: (408) 734-9234
<PAGE>
EXHIBIT 11.1
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31,
JANUARY 31, ---------------------
1996 1995 1996
------------ --------- ----------
<S> <C> <C> <C>
HISTORICAL NET INCOME (LOSS) PER SHARE
Weighted average common shares outstanding for the period................... 4,604 3,400 9,093
Common equivalent shares pursuant to Staff Accounting Bulletin Nos. 64 and
83......................................................................... 18,814 18,814 18,814
------------ --------- ----------
Shares used in per share computation........................................ 23,418 22,214 27,907
------------ --------- ----------
------------ --------- ----------
Net income (loss)........................................................... $ (17,740) $ (8,109) $ (86,157)
Cumulative dividends on Series B redeemable convertible preferred stock..... 52 -- 565
------------ --------- ----------
Net income (loss) applicable to common stock................................ $ (17,792) $ (8,109) (86,722)
------------ --------- ----------
------------ --------- ----------
Net income (loss) per share................................................. $ (0.76) $ (0.37) (3.11)
------------ --------- ----------
------------ --------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31, NINE MONTHS ENDED
1996 OCTOBER 31, 1996
------------ -----------------
<S> <C> <C>
PRO FORMA NET INCOME (LOSS) PER SHARE
Weighted average common shares outstanding for the period........................ 4,604 9,093
Common equivalent shares pursuant to Staff Accounting Bulletin Nos. 64 and 83.... 18,814 18,814
Common equivalent shares assuming conversion of preferred stock.................. 6,967 22,200
Shares used in per share computation............................................. 30,385 50,107
------------ --------
------------ --------
Net income (loss)................................................................ $ (17,740) (86,157)
------------ --------
------------ --------
Net income (loss) per share...................................................... $ (0.58) (1.72)
------------ --------
------------ --------
</TABLE>
<PAGE>
Exhibit 21.1
SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT
1. Information Management Company, a company incorporated under the laws of
Delaware
2. Independence Technologies Inc., a company incorporated under the laws of
Delaware
3. USL Finance S.A., a company incorporated under the laws of France.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BEA SYSTEMS,
INC. AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JAN-31-1996 JAN-31-1997
<PERIOD-START> FEB-01-1995 FEB-01-1996
<PERIOD-END> JAN-31-1996 OCT-31-1996
<CASH> 4,549 1,628
<SECURITIES> 0 0
<RECEIVABLES> 4,125 20,874
<ALLOWANCES> 400 1,036
<INVENTORY> 0 0
<CURRENT-ASSETS> 9,026 22,834
<PP&E> 495 6,240
<DEPRECIATION> 39 1,265
<TOTAL-ASSETS> 18,953 48,463
<CURRENT-LIABILITIES> 6,516 52,852
<BONDS> 4,287 52,361
11 17
6,112 16,965
<COMMON> 8 10
<OTHER-SE> 20,355 32,223
<TOTAL-LIABILITY-AND-EQUITY> 18,953 48,463
<SALES> 3,569 26,855
<TOTAL-REVENUES> 5,133 36,349
<CGS> 1,929 7,655
<TOTAL-COSTS> 2,704 12,498
<OTHER-EXPENSES> 20,068 104,862
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 89 4,941
<INCOME-PRETAX> (17,680) (85,857)
<INCOME-TAX> 60 300
<INCOME-CONTINUING> (17,740) (86,157)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (17,740) (86,157)
<EPS-PRIMARY> (0.58) (1.72)
<EPS-DILUTED> 0 0
</TABLE>