<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VERSATA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA
(PRIOR TO REINCORPORATION IN 7372 68-0255203
DELAWARE)
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2101 WEBSTER STREET
OAKLAND, CA 94612
(510) 238-4100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF THE
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOHN A. HEWITT, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VERSATA, INC.
2101 WEBSTER STREET
OAKLAND, CA 94612
(510) 238-4100
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPIES TO:
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JOHN W. LARSON, ESQ. PETER V. LEPARULO, ESQ.
PATRICK J. SHEA, ESQ. BRADFORD E. MONKS, ESQ.
ANGELA C. HILT, ESQ. THOMAS R. BRIDA, ESQ.
BROBECK, PHLEGER & HARRISON LLP ORRICK, HERRINGTON & SUTCLIFFE LLP
ONE MARKET 400 SANSOME STREET
SPEAR STREET TOWER SAN FRANCISCO, CA 94111
SAN FRANCISCO, CA 94105 (415) 392-1123
(415) 442-0900
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AGGREGATE
OFFERING AMOUNT TO BE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED(1)(2) AMOUNT OF REGISTRATION FEE
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Common Stock, $0.001 par value.............................. $57,500,000 $15,180
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(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
(2) Includes amount subject to the over-allotment option granted to the
Underwriters.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
The information contained in this preliminary prospectus is not complete
and may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This preliminary prospectus is not an offer to sell these securities, and
it is not soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER , 1999
PROSPECTUS
[VERSATA LOGO]
Shares
Common Stock
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This is an initial public offering of shares of common stock of Versata, Inc. We
are offering shares in this offering. No public market currently
exists for our common stock. We anticipate that the initial public offering
price will be between $ and $ per share.
We have applied to have our common stock approved for quotation on the Nasdaq
National Market under the symbol "VATA."
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 5.
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PER SHARE TOTAL
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Public offering price $ $
Underwriting discounts and commissions $ $
Proceeds to us $ $
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The underwriters have an option to purchase additional shares of
common stock from us at the initial public offering price, less underwriting
discounts and commissions, to cover any over-allotments of shares at any time
until 30 days after the date of this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THOMAS WEISEL PARTNERS LLC
DAIN RAUSCHER WESSELS
SG COWEN
The date of this prospectus is , 1999
<PAGE> 3
The inside front cover contains a brief description of the Versata
E-Business Automation System and a graphic showing several classes of e-business
applications that can be deployed with the E-Business Automation System.
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary................... 1
Risk Factors......................... 5
Cautionary Note on Forward-Looking
Statements......................... 18
Use of Proceeds...................... 19
Dividend Policy...................... 19
Capitalization....................... 20
Dilution............................. 22
Selected Financial Data.............. 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 25
Business............................. 39
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PAGE
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Management........................... 55
Related Party Transactions........... 68
Principal Stockholders............... 75
Description of Securities............ 78
Shares Eligible for Future Sale...... 82
Underwriting......................... 84
Legal Matters........................ 86
Experts.............................. 86
Where You Can Find Additional
Information........................ 87
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
-------------------------
You should rely only on the information contained in this document or to
that which we have referred you. We have not authorized anyone to provide you
with information that is different. This document may be used only where it is
legal to sell these securities. The information in this prospectus is accurate
only on the date of this document.
-------------------------
We have filed for several trademarks, including the Versata E-Business
Automation System(TM), the Versata Logic Server(TM), the Versata Studio(TM) and
the Versata Connectors(TM), as well as the Versata logo. Java is a registered
trademark of Sun Microsystems. Trademarks, trade names and service marks of
other companies appearing in this prospectus are the property of the respective
holders. Use or display by Versata of other parties' trade names, trademarks or
service marks is not intended to and does not imply a relationship with, or
endorsement or sponsorship of Versata by, the trade name or trademark owners.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights some of the information found in greater detail
elsewhere in this prospectus. In addition to this summary, we urge you to read
the entire prospectus carefully, especially the risks of investing in our common
stock discussed under "Risk Factors" and the consolidated financial statements,
before you decide to buy our common stock.
OUR COMPANY
Our comprehensive suite of software and services enables our customers to
rapidly deploy e-business applications that can be modified quickly to meet
constantly changing business requirements. The migration of the commercial
marketplace to the Internet and the movement of corporate communication and
information management to intranets has resulted in a new operating model known
as e-business. Our E-Business Automation System utilizes a unique business rules
automation technology that redefines how companies create, deploy and modify
transaction-oriented, mission-critical e-business applications. We believe our
solution enables our customers to achieve a substantial time-to-market and
business flexibility advantage compared to companies using traditional Web
application development tools.
As of September 30, 1999, we had licensed our product to over 400 customers
worldwide for use in a wide range of business-to-business, business-to-employee
and business-to-consumer applications. More than 30 customers have purchased our
products and services for over $100,000, including Canadian Pacific Ships, El
Paso Energy, Hilton Hotels, Interim Services and ITT Fluid Technology. We have
entered into a strategic marketing and development relationship with IBM to
provide a single product offering that integrates our software with IBM's
WebSphere(TM) Application Server Advanced Edition. This integrated product will
be offered under both of our respective brand names. In addition, to complement
our direct sales channel, we have developed relationships with consulting
partners, system integrators, independent software vendors, application service
providers and international distributors and plan to continue to develop more of
these relationships in the future.
With our solution, organizations can:
- rapidly create, deploy and maintain e-business applications required to
execute or modify their e-business strategy, even with few or no skilled
Java programmers;
- rapidly change the business rules required to implement critical shifts
in their strategy, achieving a time-to-market and business flexibility
advantage over traditional programming methods;
- create and deploy e-business applications that are technology independent
and that are readily integrated into legacy computing environments; and
- utilize our comprehensive suite of professional services to automate
e-business applications without regard for internal staffing constraints.
We intend to establish our solution as the foundation for the next
generation of business-to-business Web-based applications. To achieve this
objective, our key growth strategies are to:
- define the new paradigm for e-business automation and establish our
E-Business Automation System as the industry standard;
- enhance our position as a technology leader by increasing the
functionality, performance, ease of use and scalability of our E-Business
Automation System;
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- expand our sales efforts by adding more direct sales teams in North
America, Europe and the Pacific Rim;
- continue to complement our direct sales efforts with multiple indirect
channels to provide additional marketing and sales support for our
products and accelerate the successful deployment of applications using
our solution;
- establish additional marketing and technology relationships with leading
vendors to increase our visibility in the marketplace and broaden the
functionality of our solution; and
- increase the size of our service and support organization to further
expand our professional services capabilities and to provide high quality
customer support.
CORPORATE INFORMATION
Versata, Inc. (through its predecessors Vision Software Tools, Inc. and
Image Innovation Solutions, Inc.) was incorporated in California on August 27,
1991. In September 1996, we began development of our first Web-based software
product, which we began shipping commercially in September 1997. We plan to
reincorporate in Delaware prior to the commencement of this offering. References
in this prospectus to "Versata," "we," "our" and "us" refer to Versata, Inc., a
Delaware corporation, its subsidiaries and its California predecessors. Our
principal executive offices are located at 2101 Webster Street, Oakland,
California 94612 and our telephone number is (510) 238-4100. Our Web site can be
found at www.versata.com. Information contained in our Web site does not
constitute a part of this prospectus.
2
<PAGE> 7
THE OFFERING
Common stock offered by us.......... shares
Common stock outstanding after this
offering............................ shares
Use of proceeds..................... For general corporate purposes,
including working capital, product
development and capital expenditures.
See "Use of Proceeds" for more
information regarding our planned use
of the proceeds from this offering.
Proposed Nasdaq National Market
symbol............................ VATA
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of September 30, 1999. It also
reflects the automatic conversion of all outstanding series of preferred stock
into common stock upon completion of this offering. In addition to the shares of
common stock to be outstanding after this offering, there are:
- 3,049,322 shares that could be issued upon the exercise of options
outstanding as of September 30, 1999 at a weighted average exercise price
of $0.62 per share;
- 1,918,900 shares that could be issued upon the exercise of options issued
subsequent to September 30, 1999 at a weighted average exercise price of
$2.71;
- 1,223,316 shares that could be issued under our option plans at December
1, 1999;
- 614,836 shares that could be issued upon the exercise of warrants
outstanding as of September 30, 1999 at a weighted average exercise price
of $0.52 and 286,186 shares issuable upon conversion of preferred stock
issuable upon the exercise of warrants outstanding as of September 30,
1999 at a weighted average exercise price of $3.08; and
- 500,000 shares that could be issued to employees who elect to buy stock
in the future under our employee stock purchase plan.
Except as otherwise specified in this prospectus, all information in this
prospectus:
- assumes no exercise of the underwriters' over-allotment option; and
- reflects our reincorporation into Delaware before the commencement of
this offering.
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<PAGE> 8
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
You should read the following summary financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the accompanying consolidated financial statements and related
notes which are included in this prospectus.
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NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
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(UNAUDITED)
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STATEMENT OF
OPERATIONS DATA:
Total revenue......... $ 1,124 $ 1,406 $ 3,950 $ 2,709 $ 7,416
Gross profit.......... 215 95 1,468 1,111 3,261
Loss from
operations.......... (9,203) (10,012) (7,883) (5,143) (12,462)
Net loss.............. $ (9,013) $ (9,844) $ (8,134) $ (5,433) (12,911)
Net loss per share:
Basic and diluted... $ (6.05) $ (5.72) $ (3.99) $ (2.82) $ (4.12)
Weighted average
shares
outstanding...... 1,489,294 1,720,649 2,038,393 1,926,744 3,131,586
Unaudited pro forma
net loss per share:
Basic and diluted... $ (0.52) $ (0.55)
Weighted average
shares
outstanding...... 15,703,882 23,350,909
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SEPTEMBER 30, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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BALANCE SHEET DATA (UNAUDITED):
Cash and cash equivalents............................ $ 8,340 $24,968
Working capital...................................... 7,431 24,059
Total assets......................................... 18,253 34,881
Total long-term liabilities.......................... 140 140
Stockholders' equity................................. 8,837 25,465
</TABLE>
The pro forma information reflects the net proceeds of $628,000 from the
sale of 179,396 shares of Series E preferred stock at $3.50 per share on October
8, 1999 and the net proceeds of $16.0 million from the sale of 2,877,698 shares
of Series F preferred stock at $5.56 per share on November 30, 1999.
The pro forma as adjusted information gives effect to:
- the automatic conversion of all outstanding series of preferred stock
into common stock upon completion of this offering; and
- the receipt of the estimated net proceeds of $ million from the
sale of shares of common stock in this offering at an assumed
public offering price of $ per share after deducting underwriting
discounts and commissions and offering expenses. See "Use of Proceeds"
and "Capitalization."
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the following information about these risks, together
with the other information contained in this prospectus, before you decide
whether to buy our common stock. If any of the events described in the following
risks actually occurs, the market price of our common stock could decline, and
you may lose all or part of the money you paid to buy our common stock.
RISKS RELATED TO OUR BUSINESS
WE HAVE INCURRED SUBSTANTIAL LOSSES; WE EXPECT CONTINUED LOSSES, AND WE MAY
NEVER ACHIEVE PROFITABILITY.
We have never been profitable. We have experienced operating losses in each
quarterly and annual period since inception, and we expect to incur significant
losses in the future. We incurred net losses of $3.9 million for the year ended
December 31, 1995, $9.0 million for the year ended December 31, 1996, $9.8
million for the year ended December 31, 1997, $8.1 million for the year ended
December 31, 1998 and $12.9 million for the nine months ended September 30,
1999. As of September 30, 1999, we had an accumulated deficit of $44.5 million.
We expect to incur additional net losses and negative cash flows from operations
on a quarterly and annual basis for at least the next twenty-four months. We
expect our operating expenses will increase substantially as we continue to
expand our business. We also expect to significantly increase our product
development, sales and marketing, and general and administrative expenses in
future periods. As a result, we will need to significantly increase our revenue
to achieve and maintain profitability. We may be unable to do so. If our revenue
grows more slowly than we anticipate or if our operating expenses increase more
than we expect or are not reduced in the event of lower revenue, we may never
achieve profitability. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
OUR LIMITED OPERATING HISTORY AS A COMPANY FOCUSED ON WEB-BASED SOFTWARE
PRODUCTS MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS AND MAKES FORECASTING
DIFFICULT; THE FAILURE TO MEET EXPECTATIONS COULD CAUSE THE PRICE OF OUR COMMON
STOCK TO DECLINE.
We began commercial shipments of our Web-based software in September 1997.
You must consider the risks, expenses and uncertainties that an early stage
company like ours faces, particularly in the new and rapidly evolving Internet
infrastructure software market. These considerations include our ability to:
- continue to expand our customer base;
- generate repeat business from existing customers;
- maintain our current and develop new strategic relationships;
- attract, train, retain and motivate qualified personnel; and
- manage our growth.
Because we have only recently commenced commercial sales of our Web-based
software, our past results and rates of growth may not be meaningful, and you
should not rely on them as an indication of our future performance.
5
<PAGE> 10
As a result of our limited operating history, it is difficult to forecast
our revenue accurately, and we have limited historical financial data upon which
to base planned operating expenses. Our operating expenses are largely based on
anticipated revenue projections, and a high percentage of our expenses are and
will continue to be fixed in the short-term. We may not be able to quickly
reduce spending if revenue is lower than we projected. We would expect our
business, operating results and financial condition to be materially adversely
affected if our revenue does not meet our projections, and that net losses in
any given quarter would be greater than expected. In addition, the revenue and
income potential of our products and services are unproven, and the market that
we are addressing is rapidly evolving. If the Internet infrastructure software
market and, more specifically, the market for e-business automation products and
services does not fully evolve or does not grow at the rates we expect, or if
businesses do not migrate away from the use of traditional programming methods
to implement and change their business rules, our financial results will be
adversely affected and our business could be seriously harmed.
THE UNPREDICTABILITY OF OUR QUARTERLY OPERATING RESULTS MAY ADVERSELY AFFECT THE
TRADING PRICE OF OUR COMMON STOCK.
Our quarterly operating results have not been predictable and are likely to
vary from expectations in the future, making it difficult to predict future
performance. These variations result from a number of factors beyond our control
such as:
- the size and timing of individual sales orders;
- unexpected delays in introducing new products and services;
- customer budget constraints;
- the mix of product license and services revenue;
- the mix of direct and indirect channel sales;
- the level of product competition in our market and the timing and market
acceptance of new product introductions and upgrades by us or our
competitors;
- changes in the rapidly evolving Internet infrastructure software market;
- costs related to possible acquisitions of new technology and businesses;
and
- general economic conditions.
We believe that period-to-period comparisons of our operating results will
not necessarily be meaningful in predicting future performance. If we do not
achieve our expected revenue, it is possible that our operating results will
fall below the expectations of market analysts or investors in some future
quarter or quarters. Our failure to meet these expectations would likely
adversely affect the trading price of our common stock.
Although we have limited historical financial data, we believe that our
quarterly operating results may experience seasonal fluctuations. For instance,
quarterly results may fluctuate based on our clients' calendar year budgeting
cycles, deferral of customer orders in anticipation of product enhancements or
new products, slow summer purchasing patterns particularly in Europe and our
compensation policies that tend to compensate sales personnel for achieving
annual sales quotas, typically in the latter half of the year.
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WE DEPEND ON OUR E-BUSINESS AUTOMATION SYSTEM AND RELATED SERVICES FOR
SUBSTANTIALLY ALL OF OUR REVENUE, AND EXPECT TO FOR THE FORESEEABLE FUTURE; IF
IT DOES NOT ACHIEVE WIDESPREAD MARKET ACCEPTANCE, OUR BUSINESS AND RESULTS OF
OPERATIONS WILL SUFFER.
Software license revenue from our E-Business Automation System was $1.9
million, or 48.7% of total revenue in 1998, and $3.7 million, or 50.3% of total
revenue, in the first nine months of 1999. We derived the balance of our revenue
in those periods from related services. We expect to continue to derive
substantially all our revenue from and be dependent upon our E-Business
Automation System and related services in the future, and any factor adversely
affecting the Internet infrastructure software market in general, or our
software or related services in particular, would adversely affect our ability
to generate revenue. In particular, the market for E-Business Automation Systems
and related services is just emerging, and we cannot be certain that a viable
market for our products will ever develop or be sustained.
The Internet infrastructure software market is new, rapidly evolving and
highly competitive. Our future financial performance will depend in large part
on the successful development, introduction and customer acceptance of our new
products, product enhancements and related services in a timely and cost
effective manner. After this offering, we expect to commit significant resources
to market and further develop our E-Business Automation System and related
services and to enhance the brand awareness of our software and services. If the
market for our software and related services fails to grow or grows more slowly
than we anticipate, or if the market fails to accept our products and related
services, our financial results will be adversely affected. We cannot predict
the level of market acceptance that will be achieved or maintained by our
products and services.
FAILURE TO EXPAND OR GROW OUR SERVICE OFFERINGS WOULD HARM OUR BUSINESS AND
RESULTS OF OPERATIONS.
We believe that growth in our product license revenue depends on our
ability to provide our customers with comprehensive services and to educate
third-party resellers, instructors and consultants on how to provide similar
services. These services include customer support, training, mentoring, staff
augmentation and project management services. If we fail to attract, train and
retain the skilled persons who deliver these services, our business and
operating results could be seriously harmed. We plan to increase the number of
our services personnel to meet these needs. However, competition for qualified
service personnel is intense, and we may not be able to attract, train or
retain, or employ through acquisition, the number of highly qualified service
personnel that our business needs.
We expect our services revenue to increase in dollar amount as we continue
to provide consulting, training and customer support services that complement
our products and as our installed base of customers grows. A decline in the
price of or demand for our service offerings could harm our business and
operating results.
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IF WE FAIL TO MANAGE OUR GROWTH AND EXPANSION, OUR BUSINESS WILL BE HARMED.
We have expanded our operations rapidly in the last nine months and
increased our overall personnel from 90 employees and independent contractors
devoting substantially all of their time to us as of December 31, 1998 to 156 as
of September 30, 1999. We anticipate continued rapid expansion of our operations
in the foreseeable future to pursue existing and potential market opportunities.
This rapid growth is placing, and will continue to place, significant demands on
management and operational resources. To be successful, we will need to:
- implement additional management information systems;
- improve our operating, administrative, financial and accounting systems,
procedures and controls;
- attract, train and retain new employees; and
- maintain close coordination among our executive, engineering,
professional services, accounting, finance, marketing, sales and
operations organizations.
Our growth has resulted, and any future growth will result, in increased
responsibilities for management personnel, many of whom have been employed by us
for a relatively short period of time. In addition, we may not adequately
anticipate all the demands that growth may impose on our systems, procedures and
structure. Any failure to anticipate and respond adequately to these demands or
manage our growth effectively would negatively affect our business.
FAILURE TO ATTRACT, TRAIN AND RETAIN KEY PERSONNEL WOULD HARM OUR BUSINESS.
Our success depends largely on the skills, experience and performance of
the members of our senior management and other key personnel. If we lose one or
more of the members of our senior management or other key employees, our
business and operating results could be seriously harmed. In addition, our
future success will depend largely on our ability to continue to attract, train
and retain highly skilled personnel. Competition is intense for highly qualified
technical, sales and marketing and management personnel and cash compensation
for these employees is likely to increase after the offering because prospective
employees may perceive that the stock option component of our compensation
package is not as valuable as it was prior to the offering. None of our senior
management or other key personnel in the United States are bound by employment
agreements. Like other software companies in the San Francisco Bay Area, we face
intense competition for qualified personnel including software engineering,
service and support, and sales and marketing personnel. If we are unable to hire
additional qualified employees, our business could be impaired, especially our
ability to develop new products and enhance existing products.
OUR MARKETS ARE HIGHLY COMPETITIVE, AND OUR FAILURE TO COMPETE SUCCESSFULLY WILL
LIMIT OUR ABILITY TO RETAIN AND INCREASE OUR MARKET SHARE.
Our markets are new, rapidly evolving and highly competitive. We expect
competition in this market to persist and intensify in the future. While our
primary competition comes from companies developing their e-business
applications internally using traditional programming approaches, we also
compete with a number of other sources, including vendors of application server
products and services, vendors of Web integrated development environments and
companies that market business application software.
As a result of an agreement with IBM, we are integrating our E-Business
Automation System with IBM's WebSphere(TM) Application Server Advanced Edition.
We and IBM will offer the new
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<PAGE> 13
product under our respective brand names. Although we will receive license fees
from IBM, this co-branding will likely result in a situation where we compete
with IBM in the market for e-business automation while simultaneously
maintaining a working relationship with IBM. IBM has a longer operating history,
a significantly larger installed base of customers and substantially greater
financial, distribution, marketing and technical resources than we do. As a
result, we may not be able to compete effectively with IBM in the future, and
our business, operating results and financial condition may be materially
adversely affected.
We expect that IBM's commitment to and presence in the market for
technology that allows for flexible creation, deployment and modification of
e-business applications will substantially increase competitive pressure in the
market. Many of our customers use IBM-based hardware and software platforms, so
it is critical to our success that our products be closely integrated with IBM
technologies. Notwithstanding our current agreement, IBM may in the future
promote technologies and standards more directly competitive with or not
compatible with our business rules automation technology.
In addition, increasing consolidation in the application server market
around major software suppliers such as BEA Systems, IBM, Microsoft, Oracle and
Sun Microsystems could create new competitive forces in the market for
e-business automation. Our failure to maintain and enhance our competitive
position will limit our ability to retain and increase our market share,
resulting in serious harm to our business and operating results.
Many of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do. As a
result, they may be able to respond more quickly to new or changing
opportunities, technologies and customer requirements. Many of our competitors
also have more extensive customer bases, broader customer relationships and
broader industry alliances that they could leverage, thereby establishing
relationships with many of our current and potential customers. These companies
also have significantly more established customer support and professional
services organizations. In addition, these companies may adopt aggressive
pricing policies or offer more attractive terms to customers, may bundle their
competitive products with broader product offerings or may introduce new
products and enhancements. In addition, current and potential competitors may
establish cooperative relationships among themselves or with third parties to
enhance their products. As a result, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share. See "Business -- Competition" for more information about our competition.
OUR SUCCESS DEPENDS ON THE GROWTH OF E-COMMERCE.
Our products enhance companies' abilities to transact business and conduct
Web-based operations. As a result, our future sales and any future profits are
substantially dependent upon the widespread acceptance and use of the Internet
as an effective medium of commerce by consumers and businesses. To be successful
we must rely on emerging Internet companies as well as consumers and businesses
who have not historically used the Internet to transact business and exchange
information.
If e-commerce does not continue to grow or grows more slowly than expected,
demand for our products and services will be reduced. Consumers and businesses
may reject the Internet as a viable commercial medium for a number of reasons,
including potentially inadequate network infrastructure, slow development of
enabling technologies, insufficient commercial support or privacy concerns. The
Internet's infrastructure may not be able to support the demands placed on it by
increased usage. In addition, delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity, or increased government regulation, could cause the Internet to
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<PAGE> 14
lose its viability as a commercial medium. Even if the required infrastructure,
standards, protocols and complementary products, services or facilities are
developed, we may incur substantial expenses adapting our solutions to changing
or emerging technologies.
OUR CUSTOMERS EXPECT US TO INTRODUCE ENHANCEMENTS TO OUR E-BUSINESS AUTOMATION
SYSTEM, AND FAILURE TO DO SO SUCCESSFULLY WOULD HAVE A NEGATIVE EFFECT ON OUR
BUSINESS.
Our future financial performance depends significantly on revenue from
future enhancements to our E-Business Automation System that we are currently
developing and plan to develop. Any delay or difficulties in completing these
enhancements could seriously harm our business and operating results. We are
currently developing a new release of our E-Business Automation System, which
will include functionality that we do not currently have, including integration
with IBM's WebSphere(TM) Application Server Advanced Edition which provides
support for computing standards such as Enterprise Java Beans and Java2, and
third party development tools. While we anticipate that this version will be
released in the first quarter of 2000, this version still requires significant
additional development that could result in delay, and we cannot predict with
certainty the date of commercial release. In addition, we cannot be certain that
enhanced versions of our E-Business Automation System will meet customers'
expectations.
IF WE FAIL TO RESPOND TO RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY
STANDARDS, OUR PRODUCTS MAY BECOME OBSOLETE.
The market for our products and services is characterized by rapid
technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changes in customer demands and evolving industry
standards. New products based on new technologies or new industry standards may
quickly render an existing product obsolete and unmarketable. Our growth and
future operating results depend in part upon our ability to enhance existing
products and develop and introduce new products that conform to prevailing
industry standards, meet or exceed technological advances in the marketplace,
meet changing customer requirements, achieve market acceptance, and respond to
competitive products. Our technology is complex, and new products and product
enhancements can require substantial investment and long development and testing
periods. If we are unable to develop and release new products or product
enhancements in a timely manner, we may lose existing customers or fail to
attract new customers, resulting in a decline in revenue.
WE DEPEND ON INCREASED BUSINESS FROM OUR CURRENT AND NEW CUSTOMERS AND IF WE
FAIL TO GROW OUR CUSTOMER BASE OR GENERATE REPEAT AND EXPANDED BUSINESS, OUR
BUSINESS AND OPERATING RESULTS WOULD BE MATERIALLY ADVERSELY AFFECTED.
We plan to broaden our customer base by selling licenses and services to
current and new customers. Many of our customers initially make a limited
purchase of our products and services for pilot programs. These customers may
not choose to purchase additional licenses to expand their use of our products.
These and other potential customers also may not yet have developed or deployed
initial applications based on our products. If these customers do not
successfully develop and deploy such initial applications, they may not choose
to purchase deployment licenses or additional development licenses. In addition,
as we introduce new versions of our products or new products, our current
customers may not require the functionality of our new products and may not
license these products.
If we fail to add new customers who license our product, our services
revenue will also likely decline. Our services revenue is derived from fees for
professional services and customer support. The total amount of services and
support fees we receive in any period depends in large part on the size
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<PAGE> 15
and number of software licenses that we have previously sold as well as our
customers electing to renew their customer support agreements. In the event of a
downturn in our software license revenue or a decline in the percentage of
customers who renew their annual support agreements, our services revenue would
be materially adversely affected.
BECAUSE A SMALL NUMBER OF CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION OF OUR
REVENUE, OUR REVENUE COULD SUFFER IF WE LOSE A MAJOR CUSTOMER.
Our top ten customers for the year ended December 31, 1998 and the nine
months ended September 30, 1999 in the aggregate accounted for approximately 71%
and 48%, respectively, of our revenue. Shell Energy/Noble Software and Harcourt
General accounted for 17.5% and 12.8%, respectively, of our revenue for the year
ended December 31, 1998 and El Paso Energy Corporation accounted for 11.9% of
our revenue for the nine months ended September 30, 1999. We expect that a small
number of customers will continue to account for a substantial portion of
revenue in any given quarter in the foreseeable future, although it is unusual
for the same customer to account for a substantial amount of revenue in each of
several quarters. As a result, our inability to secure major customers during a
given period or the loss of any one major customer could cause our revenue to
drop quickly and unexpectedly.
FAILURE TO MAINTAIN EXISTING, OR INCREASE THE NUMBER OF, RELATIONSHIPS WITH
SYSTEM INTEGRATORS WILL LIMIT OUR ABILITY TO RETAIN AND INCREASE OUR MARKET
SHARE.
Since our potential customers often rely on third-party systems integrators
to develop, deploy and manage Web sites for conducting commerce on the Internet,
we cultivate relationships with systems integrators in order to encourage them
to support our products. If we do not adequately train a sufficient number of
systems integrators or if systems integrators were to devote their efforts to
integrating or co-selling competitive products, our revenue could be reduced and
our operating results could be harmed.
FAILURE TO MAINTAIN EXISTING, OR INCREASE THE NUMBER OF, THIRD-PARTY
DISTRIBUTION RELATIONSHIPS MAY LIMIT OUR ABILITY TO RETAIN AND INCREASE OUR
MARKET SHARE.
We rely on distributors to complement our direct sales force and sell our
products and services. We have agreements with a limited number of third-party
distributors, and we may not be able to increase the number of our distribution
relationships or maintain our existing relationships. Our failure to increase
the number of our distribution relationships or maintain our existing
relationships may limit our ability to retain and increase our market share. Our
current agreements with our distribution partners do not prevent these companies
from selling products of other companies, including products that may compete
with our products, and do not require these partners to purchase minimum
quantities of our products. These distributors could give higher priority to the
products of other companies or to their own products than they give to our
products. As a result, the loss of, or a significant reduction in sales volume
from our current or future distribution partners could seriously harm our
revenue and operating results.
WE INCLUDE THIRD-PARTY SOFTWARE AND TECHNOLOGY IN OUR PRODUCTS; OUR BUSINESS
WOULD BE HARMED IF WE WERE NOT ABLE TO CONTINUE USING THIS THIRD-PARTY SOFTWARE
AND TECHNOLOGY.
Our products integrate third-party object middleware, Web servers and Java
Virtual Machine(TM). There are inherent limitations in the use and capabilities
of the technology that we license from third parties. Our business would be
seriously harmed if the providers from whom we license software and technology
ceased to deliver and support reliable products, enhance their current products
in a timely
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<PAGE> 16
fashion or respond to emerging industry standards. In addition, the third-party
software may not continue to be available to us on commercially reasonable terms
or at all. For example, we license some of the components of our products from
limited or sole source suppliers. Many of these licenses are subject to periodic
renewal. The loss of, or inability to maintain or obtain this software for any
reason could result in significant shipment delays or reductions. Furthermore,
we might be forced to limit the features available in our current or future
product offerings. If any of these events occur, our business and operating
results could be harmed.
Almost all of our products are written in Java and require a Java Virtual
Machine(TM) made available by Sun Microsystems in order to operate. Sun may not
continue to make the Java Virtual Machine(TM) available at commercially
reasonable terms or at all. Furthermore, if Sun were to make significant changes
to the Java language or its Java Virtual Machine(TM), or fail to correct defects
and limitations in these products, our ability to continue to improve and ship
our products could be impaired. In the future, our customers may also require
the ability to deploy our products on platforms for which technically acceptable
Java implementations either do not exist or are not available on commercially
reasonable terms.
AN INABILITY TO INCREASE MARKET AWARENESS OF OUR E-BUSINESS AUTOMATION SYSTEM
AND GENERATE INCREASED REVENUE THROUGH EXPANDED SALES AND MARKETING CAPABILITIES
COULD IMPAIR OUR ABILITY TO COMPETE EFFECTIVELY.
We must expand our sales operations to increase market awareness of our
products and services, market our products and services to a greater number of
customers and generate increased revenue. We cannot be certain that we will be
successful in these efforts. Over the past year, we have expanded our direct
sales force and plan to hire additional sales personnel commensurate with our
sales objectives. Our products and services require a sophisticated sales effort
targeted at the senior management of our prospective customers. Newly hired
employees will require extensive training and generally take at least nine
months to achieve full productivity. We have limited experience in managing a
large, expanding, geographically dispersed sales force. In addition, we have
limited experience marketing our products broadly to a large number of potential
customers. We cannot be certain that we will be able to hire enough qualified
individuals in the future or that newly-hired employees will achieve necessary
levels of productivity.
OUR SALES CYCLE MAKES IT DIFFICULT TO PREDICT OUR QUARTERLY RESULTS.
Our sales cycle makes it difficult to predict the quarter in which sales
may occur. The sale of our products is subject to delays from our customers'
lengthy budgeting, approval and competitive evaluation processes that typically
accompany significant information technology purchasing decisions. For example,
customers frequently begin by evaluating our products on a limited basis and
devote time and resources to testing our products before they decide whether or
not to purchase a license for deployment. We generally need to commit
substantial time and resources to educate potential customers on the use and
benefits of business rules automation and on the performance features of our
E-Business Automation System. Customers may also defer orders as a result of
anticipated releases of new products or enhancements by us or our competitors.
For these reasons, the length of time between the date of initial contact with a
potential customer and the execution of a license agreement typically ranges
from two to four months, and is subject to delays over which we have little or
no control. As a result, our ability to forecast the timing and amount of
specific sales is limited, and the delay or failure to complete one or more
large transactions could cause our operating results to vary significantly from
quarter to quarter.
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<PAGE> 17
OUR SOFTWARE PRODUCTS ARE COMPLEX AND MAY CONTAIN UNKNOWN DEFECTS THAT COULD
DECREASE MARKET ACCEPTANCE OF OUR PRODUCTS, RESULT IN PRODUCT LIABILITY OR HARM
OUR REPUTATION.
Complex software such as ours often contains errors or defects,
particularly when first introduced or when new versions or enhancements are
released. We cannot be certain that current versions or enhanced versions of our
E-Business Automation System will be free of significant software defects or
bugs. Despite our own testing and testing by customers, our current and future
products may contain serious defects, including year 2000 errors. Serious
defects or errors could result in lost revenue or a delay in market acceptance
and could seriously harm our business and operating results. Since our customers
use our products for transaction-oriented, mission-critical applications,
errors, defects or other performance problems could result in damage to our
customers' businesses. Customers could seek significant compensation from us for
losses. Even if not successful, a product liability claim brought against us
would likely be time-consuming, costly and damaging to our reputation.
WE FACE RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS THAT COULD HARM OUR
BUSINESS.
We expect to commit significant resources to expand our international sales
and marketing activities. However, we may not be able to maintain or increase
market demand for our products abroad, which may harm our business. We have
limited experience in marketing, selling and distributing our products and
services internationally. We are increasingly subject to a number of risks
associated with international business activities which may increase our costs,
lengthen our sales cycle and require significant management attention. These
risks generally include:
- increased expenses associated with customizing products for foreign
countries;
- general economic conditions, including instability, in international
markets;
- currency exchange rate fluctuations;
- unexpected changes in regulatory requirements resulting in unanticipated
costs and delays;
- tariffs, export controls and other trade barriers;
- longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;
- reduced or less certain protection for intellectual property rights; and
- potentially adverse tax consequences, including restrictions on the
repatriation of earnings.
We currently invoice customers primarily in U.S. dollars and we maintain
only nominal foreign currency cash balances. In the future, however, we may
shift financial and administrative control of our foreign operations from the
U.S. to our international offices. If that occurs, we may have increased
exposure to international currency fluctuations.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND CONSEQUENTLY HARM OUR
FINANCIAL CONDITION.
As part of our business strategy, we review on an ongoing basis acquisition
prospects that we believe would be advantageous to the development of our
business. While we have no current agreements with respect to any major
acquisitions, we may make acquisitions of businesses, products, consulting
organizations or technologies in the future. If we make any acquisitions, we
could take any
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<PAGE> 18
or all of the following actions, any of which could materially and adversely
affect our financial results and the price of our common stock:
- issue equity securities that would dilute existing stockholders'
percentage ownership;
- use a substantial portion of our available cash, including proceeds from
this offering;
- incur substantial debt, which may not be available on favorable terms;
- assume contingent liabilities; or
- take substantial charges in connection with the amortization of goodwill
and other intangible assets.
Acquisitions also entail numerous risks, including:
- difficulties in assimilating acquired operations, products and personnel
with our pre-existing business and operations;
- unanticipated costs;
- diversion of management's attention from other business concerns;
- adverse effects on existing business relationships with suppliers and
customers;
- risks of entering markets in which we have limited or no prior
experience; and
- potential loss of key employees from either our preexisting business or
the acquired organization.
We may not be able to successfully integrate any businesses, products,
technologies or personnel that we might acquire in the future, and our failure
to do so could harm our business and operating results.
OUR BUSINESS MAY SUFFER IF WE CANNOT PROTECT OUR INTELLECTUAL PROPERTY.
We rely on a combination of contractual provisions, confidentiality
procedures, and patent, trademark, trade secret and copyright laws to protect
the proprietary aspects of our technology. We currently have one U.S. patent
related to our automated development tool that uses a drag-and-drop metaphor.
This patent is scheduled to expire in April 9, 2016. In addition, we have one
U.S. patent pending relating to our business rules automation in database
application development and maintenance. We cannot predict whether this patent
application will result in an issued patent, or if a patent is issued, whether
it will provide any meaningful protection. Moreover, these legal protections
afford only limited protection and competitors may gain access to our
intellectual property which may result in the loss of our customers.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use our proprietary
information. Litigation may be necessary to enforce our intellectual property
rights, to protect our trade secrets and to determine the validity and scope of
the proprietary rights of others. Any litigation could result in substantial
costs and diversion of resources with no assurance of success and could
seriously harm our business and operating results. In addition, we sell our
products internationally, and the laws of many countries do not protect our
proprietary rights as well as the laws of the United States do. Our future
patents, if any, may be successfully challenged or may not provide us with any
competitive advantages.
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WE COULD INCUR SUBSTANTIAL COSTS DEFENDING OUR INTELLECTUAL PROPERTY FROM
INFRINGEMENT OR A CLAIM OF INFRINGEMENT.
Other companies, including our competitors, may obtain patents or other
proprietary rights that would prevent, limit or interfere with our ability to
make, use or sell our products. As a result, we may be found to infringe on the
proprietary rights of others. In the event that a successful claim of
infringement is brought against us and we fail or are unable to license the
infringed technology, our business and operating results would be significantly
harmed. Companies in the Internet infrastructure software market are
increasingly bringing suits alleging infringement of their proprietary rights,
particularly patent rights. Although we are not currently subject to any
litigation or claims, any future claims, whether or not valid, could result in
substantial costs and diversion of resources with no assurance of success.
Intellectual property litigation or claims could force us to do one or more of
the following:
- cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
- obtain a license from the holder of the infringed intellectual property
right, which license may not be available on reasonable terms; and
- redesign products or services.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF THE SYSTEMS WE USE ARE NOT YEAR 2000
COMPLIANT OR IF OUR CUSTOMERS OR POTENTIAL CUSTOMERS ALTER THEIR PURCHASING
PATTERNS AS A RESULT OF THE YEAR 2000.
The "year 2000 issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that are not year 2000 compliant may not be able
to distinguish whether "00" means 1900 or 2000, which may result in failures or
the creation of erroneous results. We are subject to potential year 2000
problems affecting our products, our internal systems and the systems of our
suppliers and customers, any of which could disrupt our business and hurt our
operating results.
The risks posed by year 2000 issues could adversely affect our business in
a number of significant ways. Although we believe that our internally developed
systems and technology are year 2000 compliant, our information and
non-information technology systems nevertheless could be substantially impaired
or cease to operate due to year 2000 problems. Additionally, we rely on
information technology supplied by third parties and the distributors of our
products are heavily dependent on information technology systems and on their
own and third-party systems. Year 2000 problems experienced by us or any of
these third parties could materially adversely affect our business.
We do not currently have any information concerning the year 2000
compliance status of our customers. Our current or future customers may incur
significant expenses to achieve year 2000 compliance. If our customers are not
year 2000 compliant, they may experience material costs to remedy problems, or
they may face litigation costs. In either case, year 2000 issues could reduce or
eliminate the budgets that current or potential customers could have for
purchases of our products and services, or result in irregular purchasing
patterns. As a result, our business, results of operations or financial
condition could be materially adversely affected.
We have not developed a contingency plan to address situations that may
result if we are unable to achieve year 2000 readiness of our critical
operations and do not anticipate the need to do so. The cost of developing and
implementing a plan may itself be material. Finally, we are also subject to
external forces that might generally affect industry and commerce, such as
utility or transportation company year 2000 compliance failures and related
service interruptions. As a result, we may
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<PAGE> 20
experience material problems and costs with year 2000 compliance that could
adversely affect our business, results of operations and financial condition.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
INVESTORS PURCHASING SHARES IN THIS OFFERING.
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering. We will negotiate and determine the initial
public offering price with the representatives of the underwriters based on
several factors. You may be unable to sell your shares of common stock at or
above the initial public offering price, which may result in substantial losses
to you. In addition, the market price of our common stock may be highly
volatile. The market prices of securities of other technology-based companies,
particularly Internet-related companies, currently are highly volatile. The
market price of our common stock may fluctuate significantly in response to the
following factors, some of which are beyond our control:
- variations in our quarterly operating results;
- deviations in our results of operations from the estimates of securities
analysts;
- changes in securities analysts' estimates of our financial performance;
- changes in market valuations of similar companies and stock market price
and volume fluctuations generally;
- economic conditions specific to online commerce, transaction-based Web
applications and e-business automation;
- announcements by us or our competitors of new or enhanced products,
technologies or services or significant contracts, acquisitions,
strategic relationships, joint ventures or capital commitments;
- regulatory developments;
- additions or departures of key personnel; and
- future sales of our common stock or other securities.
Our initial public offering price may not be indicative of the price of our
stock that will prevail in the trading market. In the past, securities class
action litigation has often been brought against a company following periods of
volatility in the market price of its securities. We may in the future be the
target of similar litigation. Securities litigation could result in substantial
costs and divert management's attention and resources.
OUR STOCK PRICE COULD BE ADVERSELY AFFECTED BY SHARES BECOMING AVAILABLE FOR
SALE.
Sales of a substantial number of shares of our common stock, or the
perception that these sales could occur, could depress the market price of our
common stock and could impair our ability to raise capital through the sale of
additional equity securities. In addition, we have entered into registration
rights agreements with some investors that entitle these investors to have their
shares registered for sale in the public market. The exercise of these rights
could affect the market price of our common stock. See "Shares Eligible for
Future Sale" for further information concerning potential sales of our shares
after this offering, including information concerning the registration rights we
have granted.
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PURCHASERS IN THIS OFFERING WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
We expect that the initial public offering price of our common stock will
be substantially higher than the book value per share of the outstanding common
stock. As a result, you will incur immediate and substantial dilution of
$ per share in the net tangible book value per share of common stock from
the initial public offering price. In the past, we have issued options and
warrants to acquire common stock at prices significantly below the initial
public offering price. The exercise of options and warrants currently
outstanding could cause additional, substantial dilution to you. See "Dilution"
for more detailed information regarding the potential dilution you may incur.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT
OR DELAY A CHANGE IN CONTROL OF OUR COMPANY.
We have anti-takeover provisions that could prevent or delay an acquisition
of our business at a premium price. Some of the provisions of our certificate of
incorporation and bylaws could discourage, delay or prevent an acquisition of
our company at a premium price or at all. These provisions:
- provide for a staggered board;
- prevent stockholders from taking action by written consent;
- limit the persons who may call special meetings of stockholders;
- authorize the issuance of preferred stock in one or more series; and
- require advance notice for stockholder proposals and director
nominations.
In addition, Section 203 of the Delaware General Corporation law also imposes
restrictions on mergers and other business combinations between us and any
holder of 15% or more of our common stock. See "Description of Capital
Stock-Preferred Stock" and "Description of Capital Stock -- Antitakeover Effects
of Provisions of the Certificate of Incorporation, Bylaws and Delaware Law" for
a more detailed discussion of these anti-takeover provisions.
INSIDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER VERSATA AFTER THIS
OFFERING AND COULD DELAY OR PREVENT A CHANGE IN CORPORATE CONTROL.
The interest of management could conflict with the interest of our other
stockholders. Upon completion of this offering, our executive officers,
directors and principal stockholders will beneficially own, in the aggregate,
approximately % of our outstanding common stock (and % if the
underwriters exercise their over-allotment option in full). As a result, these
stockholders will be able to exercise control over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. This could have the effect of delaying or
preventing a change of control of Versata, which in turn could reduce the market
price of our stock.
WE MAY NEED ADDITIONAL FINANCING WHICH COULD BE DIFFICULT TO OBTAIN.
We expect that the net proceeds from this offering, together with cash
generated from operations, will be sufficient to meet our working capital and
capital expenditure needs for at least the next 12 months. After that, we may
need to raise additional funds, and we cannot be certain that we will be able to
obtain additional financing on favorable terms, if at all. Furthermore, if we
issue additional equity securities, stockholders may experience additional
dilution or the new equity securities may have rights, preferences or privileges
senior to those of existing holders of common
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stock. If we cannot raise funds on acceptable terms if and when needed, we may
not be able to develop or enhance our products and services, take advantage of
future opportunities, grow our business or respond to competitive pressures or
unanticipated requirements, which could seriously harm our business.
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus may contain forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
Forward-looking statements relate to future events or to our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expects," "plans," "anticipates,
"could," "believes," "estimates," "predicts," "potential" or similar
expressions. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of factors more fully described
in the "Risk Factors" section and elsewhere in this prospectus.
Although we believe that the expectations reflected in any forward-looking
statements are reasonable, we cannot guarantee future events or results. We
undertake no obligation to update publicly any forward-looking statements for
any reason, even if new information becomes available or other events occur.
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USE OF PROCEEDS
We estimate the net proceeds from the sale of the shares of
common stock offered will be $ million, assuming an initial public offering
price of $ per share, after deducting the estimated underwriting discounts
and commissions and offering expenses. If the underwriters' over-allotment
option is exercised in full, we estimate that we will receive approximately
$ million in net proceeds from this offering.
We intend to use the net proceeds for general corporate purposes, including
working capital, product development and capital expenditures. In addition, we
may use a portion of the net proceeds to acquire or invest in complementary
businesses, products or services or to obtain the right to use complementary
technologies. We currently have no agreements or commitments with respect to any
acquisition or investment. Management will retain broad discretion in the
allocation of the net proceeds of the offering. You will not have the
opportunity to evaluate the economic, financial or other information on which we
base our decisions on how to use the proceeds. Pending these uses, we will
invest the net proceeds of this offering in short-term, interest-bearing
investment-grade securities.
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock and do not
anticipate declaring or paying cash dividends in the foreseeable future.
Payments of future dividends, if any, will be at the discretion of our board of
directors after taking into account various factors our board of directors deems
relevant, including our financial condition, operating results, current and
anticipated cash needs, plans for expansion and debt covenants. Our line of
credit with Venture Banking Group, a division of Cupertino National Bank,
prohibits us from paying dividends while we have any outstanding obligations
under the line of credit or while the bank is committed to make any advances to
us.
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and total
capitalization as of September 30, 1999. This table should be read in
conjunction with the "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and the related notes appearing elsewhere in this
prospectus. This information is presented:
- on an actual basis;
- on a pro forma basis to reflect:
- the net proceeds of $628,000 from the sale of 179,396 shares of Series E
preferred stock at $3.50 per share on October 8, 1999; and
- the net proceeds of $16.0 million from the sale of 2,877,698 shares of
Series F preferred stock at $5.56 per share on November 30, 1999; and
- on a pro forma as adjusted basis to give effect to:
- the automatic conversion of all outstanding series of preferred stock
into common stock upon completion of this offering; and
- the receipt of the estimated net proceeds from the sale of
shares of common stock in this offering at an assumed
initial public offering price of $ per share after deducting
underwriting discounts and commissions and offering expenses.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ------------ --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents........................ $ 8,340 $ 24,968
======== ========
Total long-term liabilities...................... 140 140
Stockholders' equity:
Convertible preferred stock, issuable in
series, $0.001 par value, 30,580,000 shares
authorized, actual and pro forma; 23,395,334
shares issued and outstanding, actual;
26,452,428 shares issued and outstanding,
pro forma; 5,000,000 shares authorized, no
shares issued and outstanding, pro forma as
adjusted.................................... 23 26
Common stock, $0.001 par value, 40,000,000
authorized, actual and pro forma; 6,407,682
shares issued and outstanding, actual and
pro forma; 150,000,000 shares authorized,
shares issued and outstanding, pro
forma as adjusted........................... 5 5
Additional paid-in capital..................... 56,957 73,582
Notes receivable from stockholders............. (697) (697)
Unearned stock-based compensation.............. (2,965) (2,965)
Accumulated deficit............................ (44,486) (44,486)
-------- --------
Total stockholders' equity................ 8,837 25,465
-------- --------
Total capitalization...................... $ 8,977 $ 25,605
======== ========
</TABLE>
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The common stock outstanding as shown above is based on shares outstanding
as of September 30, 1999 and excludes:
- 3,049,322 shares that could be issued upon the exercise of options
outstanding as of September 30, 1999 at a weighted average exercise price
of $0.62 per share;
- 1,918,900 shares that could be issued upon the exercise of options issued
subsequent to September 30, 1999 at a weighted average exercise price of
$2.71;
- 1,223,316 shares that could be issued under our option plans at December
1, 1999;
- 614,836 shares that could be issued upon the exercise of warrants
outstanding as of September 30, 1999 at a weighted average exercise price
of $0.52 and 286,186 shares issuable upon conversion of preferred stock
issuable upon the exercise of warrants outstanding as of September 30,
1999 at a weighted average exercise price of $3.08; and
- 500,000 shares that could be issued to employees who elect to buy our
stock in the future under our employee stock purchase plan.
For additional information regarding these shares, see "Management -- Stock
Plans," "Description of Securities" and the notes to the consolidated financial
statements.
21
<PAGE> 26
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock after this offering. Our pro forma net tangible book value at
September 30, 1999, was approximately $ million, or $ per share of common
stock. Pro forma net tangible book value per share represents our total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding, at September 30, 1999 after giving effect to: (i) the sale of
shares of Series E preferred stock on October 8, 1999; (ii) the sale of shares
of Series F preferred stock on November 30, 1999; and (iii) the conversion of
all outstanding series of preferred stock into common stock upon completion of
this offering.
After giving effect to the sale of shares of our common
stock, at an assumed initial public offering price of $ per share, and after
deducting estimated underwriting discounts and commissions and offering
expenses, our pro forma as adjusted net tangible book value at September 30,
1999 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 and substantial dilution of $ per share to new
investors purchasing shares of common stock in this offering. The following
table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at
September 30, 1999..................................... $
Increase per share attributable to new investors..........
-----
Pro forma as adjusted net tangible book value per share
after the offering........................................
--------
As adjusted dilution per share to new investors............. $
========
</TABLE>
Assuming the exercise in full of the underwriters' over-allotment option,
our pro forma as adjusted net tangible book value at September 30, 1999 would
have been approximately $ per share, representing an immediate increase in
net tangible book value of $ per share to our existing stockholders and an
immediate and substantial dilution in net tangible book value of $ per share
to new investors.
The following table summarizes, at September 30, 1999, on a pro forma
basis, the total number of shares purchased from us, and consideration paid to
us and the average price per share paid by existing stockholders and by new
investors purchasing shares of common stock in this offering at an assumed
initial public offering price of $ per share, before deducting the estimated
underwriting discounts and commissions and offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ % $ % $
New investors....................
----------- ----- -------- -----
Totals................. 100.0% $ 100.0%
=========== ===== ======== =====
</TABLE>
To the extent that any of our outstanding options or warrants are
exercised, there could be further dilution to new investors. For additional
information regarding these shares, see "Capitalization," "Management -- Stock
Plans," "Description of Securities" and note 1 of notes to consolidated
financial statements.
22
<PAGE> 27
SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction with
the consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. The statement of operations data for the
years ended December 31, 1996, 1997 and 1998, and the balance sheet data as of
December 31, 1997 and 1998, are derived from the audited consolidated financial
statements included in this prospectus, which have been audited by
PricewaterhouseCoopers LLP. The statement of operations data for the years ended
December 31, 1994 and 1995 and the balance sheet data as of December 31, 1995
and 1996, are derived from audited consolidated financial statements not
included in this prospectus. The statement of operations data for the nine
months ended September 30, 1998 and 1999 and the balance sheet data as of
September 30, 1999 are derived from the unaudited consolidated financial
statements included in this prospectus and include all adjustments, consisting
of only normal recurring adjustments, necessary for the fair statement of such
information when read in conjunction with the audited consolidated financial
statements and related notes. The diluted net loss per share computation
excludes potential shares of common stock (preferred stock, options and warrants
to purchase common stock and common stock subject to repurchase rights that we
hold), since their effect would be antidilutive. See the notes to our
consolidated financial statements for a detailed explanation of the
determination of the shares used to compute actual and pro forma basic and
diluted net loss per share. Our historical results are not necessarily
indicative of results to be expected for future periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------------- ------------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------- ---------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Software license................ $ -- $ 64 $ 872 $ 526 $ 1,924 $ 1,353 $ 3,733
Services........................ 234 -- 252 880 2,026 1,356 3,683
---------- ---------- ---------- ---------- ----------- ---------- -----------
Total revenue................. 234 64 1,124 1,406 3,950 2,709 7,416
---------- ---------- ---------- ---------- ----------- ---------- -----------
Cost of revenue:
Software license................ -- 84 127 234 170 375
Services........................ 130 11 825 1,184 2,248 1,428 3,780
---------- ---------- ---------- ---------- ----------- ---------- -----------
Total cost of revenue......... 130 11 909 1,311 2,482 1,598 4,155
---------- ---------- ---------- ---------- ----------- ---------- -----------
Gross profit...................... 104 53 215 95 1,468 1,111 3,261
---------- ---------- ---------- ---------- ----------- ---------- -----------
Operating expense:
Sales and marketing............. 104 957 4,583 4,779 4,495 2,905 9,064
Product development............. 475 2,432 3,486 3,547 3,275 2,466 3,033
General and administrative...... 224 637 1,349 1,781 1,379 883 1,967
Stock-based compensation........ -- -- -- -- 202 -- 1,659
---------- ---------- ---------- ---------- ----------- ---------- -----------
Total operating expense....... 803 4,026 9,418 10,107 9,351 6,254 15,723
---------- ---------- ---------- ---------- ----------- ---------- -----------
Loss from operations.............. (699) (3,973) (9,203) (10,012) (7,883) (5,143) (12,462)
Other income (expense), net....... 17 42 190 168 (251) (290) (449)
---------- ---------- ---------- ---------- ----------- ---------- -----------
Net loss................. $ (682) $ (3,931) $ (9,013) $ (9,844) $ (8,134) $ (5,433) $ (12,911)
========== ========== ========== ========== =========== ========== ===========
Net loss per share:
Basic and diluted............... $ (0.57) $ (3.14) $ (6.05) $ (5.72) $ (3.99) $ (2.82) $ (4.12)
========== ========== ========== ========== =========== ========== ===========
Weighted average shares
outstanding................... 1,200,000 1,251,691 1,489,294 1,720,649 2,038,393 1,926,744 3,131,586
========== ========== ========== ========== =========== ========== ===========
Unaudited pro forma net loss per
share:
Basic and diluted............... $ (0.52) $ (0.55)
=========== ===========
Weighted average shares
outstanding................... 15,703,882 23,350,909
=========== ===========
</TABLE>
23
<PAGE> 28
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $1,235 $4,764 $1,332 $2,338 $5,767 $8,340
Working capital............................ 1,128 4,405 54 835 3,878 7,431
Total assets............................... 1,367 5,665 3,374 4,235 8,468 18,253
Total long-term liabilities................ 196 720 612 1,175 498 140
Stockholders' equity....................... 1,041 4,435 820 889 4,356 8,837
</TABLE>
24
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
"Selected Financial Data" and the consolidated financial statements and notes
attached to those statements included elsewhere in this prospectus. This
discussion contains certain forward-looking statements. Please see "Risk
Factors" and "Cautionary Note on Forward-Looking Statements."
OVERVIEW
We provide a comprehensive suite of software and services that enables our
customers to rapidly deploy e-business applications that can be modified quickly
to meet constantly changing business requirements. From our incorporation in
August 1991 through December 1994, we were a professional services company and
generated revenue from technical consulting projects. In January 1995, we
commenced development efforts on our initial software products, from which we
generated revenue from late 1995 through early 1998. In September 1996, we began
development of our first Web-based software product, which we began shipping
commercially in September 1997. In September 1998, we introduced the first
generation of what is now our Versata E-Business Automation System. To date, we
have licensed our products and provided services to more than 400 customers
around the world. Since the second quarter of 1998, we have derived our revenue
exclusively from our Web-based software products and related services.
We derive our revenue from the sale of software product licenses and from
related services. Software license revenue is derived from the sale of software
licenses for our Versata E-Business Automation System. Our software licenses are
priced based on the size of the customer's project. Software license revenue
also includes product maintenance, which provides the customer with software
upgrades over a specified term, typically twelve months. Services revenue
consists of fees from professional services and customer support. Professional
services include consulting and training. Customers typically purchase these
professional services from us to enlist our support in implementation
activities, generally when the sale is made through direct sales efforts.
Professional services are sold on either a time-and-materials or on a
fixed-price basis, while customer support is priced based on the particular
level of support chosen by the customer. Software license revenue accounted for
approximately 49.9% and 50.3% of our total revenue in the nine months ended
September 30, 1998 and 1999, respectively, while services revenue accounted for
50.1% and 49.7%, respectively.
We recognize revenue in accordance with Statement of Position 97-2,
"Software Revenue Recognition." Software license revenue is recognized when a
license agreement is signed by both parties, the fee is fixed, determinable,
collection is probable and delivery of the product has occurred. Our customers
usually purchase maintenance agreements for product upgrades, and revenue is
recognized ratably over the term of the agreement, typically one year, as a
component of software license revenue. We bill professional services fees either
on a time-and-materials or on a fixed-price basis and recognize revenue as the
services are performed. We offer differing levels of customer support and
revenue is recognized ratably over the term of the customer support agreement,
typically one year. We record cash receipts from customers and billed amounts
due from customers in excess of revenue recognized as deferred revenue. Fees
from arrangements which provide for extended payment terms are recognized as
revenue when payments become due. The portion of fees related to either products
delivered or services rendered which are not due under our standard payment
terms is reflected in deferred revenue and in unbilled receivable until payments
become due. As of September 30, 1999, we had deferred revenue of $4.1 million.
25
<PAGE> 30
We market our products and services through our direct sales force,
independent software vendors, system integrators, consulting partners and
international distributors. While our revenue to date has been derived
predominantly from customers in the United States, we believe international
revenue will represent a more meaningful component of our total revenue as we
expand our direct and indirect international sales efforts. Revenue from
international sales represented 8.4% of our total revenue for the nine months
ended September 30, 1998, and 14.6% of our total revenue in the nine months
ended September 30, 1999.
Our cost of software license revenue consists of royalty payments to third
parties for technology incorporated in our product, the cost of manuals and
product documentation, as well as packaging and distribution costs. Our cost of
services revenue consists of salaries of professional services personnel, and
payments to third-party consultants incurred in providing customer support,
training, and consulting services. We currently generate positive gross margins
from our consulting and training services; our fixed cost of customer support
services exceeds our revenue generated from support activities. We expect this
trend to continue for the next several quarters. Cost of services revenue as a
percentage of services revenue is likely to vary significantly from period to
period depending on overall utilization rates, the mix of services we provide
and whether such services are provided by us or by third-party contractors.
Since our inception, we have incurred substantial costs to develop our
technology and products, to recruit and train personnel for our product
development, sales and marketing and professional services departments, and to
establish our administrative infrastructure. To date, all software development
costs have been expensed in the period incurred. Historically, our operating
expenses have exceeded the revenue generated by our products and services. As a
result, we have incurred net losses in each quarter since inception and had an
accumulated deficit of $44.5 million as of September 30, 1999. We anticipate
that our operating expenses will increase substantially in future quarters as we
increase sales and marketing operations, expand distribution channels, establish
additional domestic and international sales offices, increase product
development, broaden professional services, expand facilities and support, and
improve operational and financial systems. We expect to incur additional net
losses and negative cash flows from operations on a quarterly and annual basis
for at least the next twenty-four months. In addition, our limited operating
history as a company focused on Web-based software products makes it difficult
for us to predict future operating results and, accordingly, there can be no
assurance that we will achieve or sustain revenue growth or profitability.
We increased our number of employees and independent contractors devoting
substantially all of their time to us from 90 as of December 31, 1998 to 156 as
of September 30, 1999. This rapid growth places a significant demand on our
management and operational resources. In order to manage growth effectively, we
must implement and improve our operational systems, procedures and controls on a
timely basis. In addition, we expect that future expansion will continue to
challenge our ability to attract, train and retain our employees. Competition is
intense for highly qualified technical, sales and marketing and management
personnel and cash compensation for these employees is likely to increase after
this offering because prospective employees may perceive that the stock option
component of our compensation package is not as valuable as it was prior to this
offering. If our total revenue does not increase relative to our operating
expenses, our management systems do not expand to meet increasing demands, we
fail to attract and retain qualified personnel, or our management otherwise
fails to manage our expansion effectively, there would be a material adverse
effect on our business, operating results and financial condition.
As a result of stock options granted in 1998 and during the nine months
ended September 30, 1999 with exercise prices below fair value, we recognized a
total unearned compensation expense of $4.4 million which will be amortized on
an accelerated basis over the vesting periods of the options,
26
<PAGE> 31
usually 50 months. In October and November 1999, we will record an additional
$4.8 million in unearned stock-based compensation which will be amortized over
the vesting schedule of the options.
RESULTS OF OPERATIONS
The following table presents selected financial data for the periods
indicated as a percentage of total revenue. Data for the period from inception
through December 31, 1995 is not presented because revenue during that period
was not material.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue:
Software license................... 77.6% 37.4% 48.7% 49.9% 50.3%
Services........................... 22.4 62.6 51.3 50.1 49.7
------- ------- ------- ------- -------
Total revenue................... 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Software license................... 7.5 9.0 5.9 6.3 5.0
Services........................... 73.4 84.2 56.9 52.7 51.0
------- ------- ------- ------- -------
Total cost of revenue........... 80.9 93.2 62.8 59.0 56.0
------- ------- ------- ------- -------
Gross profit......................... 19.1 6.8 37.2 41.0 44.0
------- ------- ------- ------- -------
Operating expense:
Sales and marketing................ 407.7 339.9 113.8 107.3 122.2
Product development................ 310.1 252.3 82.9 91.0 40.9
General and administrative......... 120.0 126.7 34.9 32.6 26.5
Stock-based compensation........... -- -- 5.1 -- 22.4
------- ------- ------- ------- -------
Total operating expense......... 837.9 718.9 236.7 230.9 212.0
------- ------- ------- ------- -------
Loss from operations................. (818.8) (712.1) (199.5) (189.9) (168.0)
Other income (expense), net.......... 16.9 11.9 (6.4) (10.7) (6.1)
------- ------- ------- ------- -------
Net loss............................. (801.9)% (700.2)% (205.9)% (200.6)% (174.1)%
======= ======= ======= ======= =======
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1998
REVENUE
Total revenue consists of software license revenue and services revenue.
Total revenue increased by $4.7 million, or 173.8%, from $2.7 million in the
nine months ended September 30, 1998 to $7.4 million in the nine months ended
September 30, 1999. This increase was attributable to an increase in our
customer base, which was largely the result of the release of an upgrade of our
software product in September 1998. As a percentage of total revenue, software
license revenue was 49.9% and 50.3% in the nine months ended September 30, 1998
and September 30, 1999, respectively, while services revenue was 50.1% and
49.7%, respectively.
Software License Revenue. Software license revenue increased by $2.4
million, or 175.9%, from $1.3 million in the nine months ended September 30,
1998 to $3.7 million in the nine months ended September 30, 1999. This increase
was primarily attributable to growth in both the number of licenses sold as well
as higher average sales prices realized for such licenses. Software license
revenue also benefited from the expansion of our distribution channels, through
the addition of consulting partners, systems integrators and value added
resellers. As a result of an increase in the number of international
distributors selling our product, revenue from international sales increased by
$702,000,
27
<PAGE> 32
or 360.0%, from $195,000 in the nine months ended September 30, 1998 to $897,000
in the nine months ended September 30, 1999. As a percentage of software license
revenue, international sales increased from 14.1% in the nine months ended
September 30, 1998 to 22.8% in the nine months ended September 30, 1999.
Services Revenue. Services revenue increased by $2.3 million, or 171.6%,
from $1.4 million in the nine months ended September 30, 1998 to $3.7 million in
the nine months ended September 30, 1999. This increase was attributable to
growth in the number of our customers and support contracts from direct sales
efforts. Services revenue from international customers increased by $154,000, or
466.7%, from $33,000, in the nine months ended September 30, 1998 to $187,000,
in the nine months ended September 30, 1999.
COST OF REVENUE
Total cost of revenue consists of cost of software license revenue and cost
of services revenue. Total cost of revenue increased by $2.6 million, or 160.0%,
from $1.6 million in the nine months ended September 1998 to $4.2 million in the
nine months ended September 1999.
Cost of Software License Revenue. Cost of software license revenue consists
of royalty payments to third parties for technology incorporated into our
product, the cost of manuals and product documentation, as well as packaging and
distribution costs. Cost of software license revenue increased by $205,000, or
120.6%, from $170,000 in the nine months ended September 30, 1998 to $375,000 in
the nine months ended September 30, 1999. This increase was attributable to a
larger volume of sales orders in the 1999 period. Gross profit on software
license revenue increased by $2.2 million, or 193.5%, from $1.2 million in the
nine months ended September 30, 1998 to $3.3 million in the nine months ended
September 30, 1999. Gross profit as a percentage of software license revenue
increased from 87.4% to 90.0% for the nine months ended September 30, 1999 as
compared to the nine months ended September 30, 1998. This increase reflected
our lower third-party royalty fees associated with the new version of our
software released in September 1998.
Cost of Services Revenue. Cost of services revenue consists of salaries of
professional services personnel and payments to third-party consultants incurred
in providing customer support, training, and consulting services. Cost of
services revenue increased by $2.4 million, or 164.7%, from $1.4 million in the
nine months ended September 30, 1998 to $3.8 million in the nine months ended
September 30, 1999. This increase was principally due to an increase in the
number of our consulting, training and customer support personnel from 20 at
September 30, 1998 to 31 at September 30, 1999, reflecting the increase in
consulting services that we provided in the 1999 period. As a percentage of
total services revenue, cost of services revenue decreased from 105.2% to 102.6%
for the nine months ended September 30, 1999 as compared to the nine months
ended September 30, 1998, primarily as a result of higher billing rates.
GROSS PROFIT
Gross profit increased $2.2 million, or 193.5%, from $1.1 million in the
nine months ended September 30, 1998 to $3.3 million for the nine months ended
September 30, 1999. As a percentage of total revenue, gross margin increased
from 41.0% to 44.0% for the nine months September 30, 1998 and September 30,
1999, respectively. This increase reflects improved margins in both software
license revenue and services revenue for the reasons explained above.
28
<PAGE> 33
OPERATING EXPENSE
Operating expense increased by $9.4 million, or 151.4%, from $6.3 million
in the nine months ended September 30, 1998 to $15.7 million in the nine months
ended September 30, 1999. This increase was principally due to increased
investment in our sales and marketing operations to increase our market position
and expand our distribution channels, as well as amortization of unearned stock-
based compensation. As a percentage of revenue, operating expense decreased from
230.9% in the nine months ended September 30, 1998 to 212.0% in the nine months
ended September 30, 1999, as we spread our operating expenses across a
significantly larger revenue base in the 1999 period.
Sales and Marketing. Sales and marketing expense consists of salaries,
commissions, expenses from our sales offices, travel and entertainment expense
and marketing programs. Sales and marketing expense increased by $6.2 million,
or 212.0%, from $2.9 million in the nine months ended September 30, 1998 to $9.1
million in the nine months ended September 30, 1999. Of this increase, $3.8
million was due to increases in payroll and related costs, travel costs and
costs as a result of the growth in the number of sales and marketing personnel,
$1.2 million was due to increased marketing programs to increase market
awareness of our products, and $744,000 was due to increased commissions as a
result of higher sales volumes. We had 26 sales and marketing professionals at
September 30, 1998 compared to 78 at September 30, 1999. As a percentage of
total revenue, sales and marketing expense increased from 107.3% in the nine
months ended September 30, 1998 to 122.2% in the nine months ended September 30,
1999. We anticipate that our sales and marketing expense will continue to
increase in future periods as we continue to expand our sales and marketing
efforts, establish additional domestic and international sales offices and
increase promotional activities related to our branding of the Versata name. We
also expect that sales and marketing expenses may fluctuate as a percentage of
total revenue from period to period as new sales personnel are hired and begin
to achieve productivity.
Product Development. Product development expense includes costs associated
with the development of new products, enhancements to existing products, quality
assurance and technical publication activities. These costs consist primarily of
employee salaries and the cost of consulting resources that supplement our
product development teams. Product development expense increased by $567,000, or
23.0%, from $2.5 million in the nine months ended September 30, 1998 to $3.0
million in the nine months ended September 30, 1999. This increase was primarily
attributable to increases in the number of personnel to support product
development and engineering activities, from 21 at September 30, 1998 to 29 at
September 30, 1999. As a percentage of total revenue, product development
expense decreased from 91.0% in the 1998 period to 40.9% in the 1999 period, as
product development expense was spread across a significantly larger revenue
base in the 1999 period. We believe that continued investment in product
development is critical to attaining our strategic objectives, and, as a result,
we expect product development expense to increase significantly in future
periods.
General and Administrative. General and administrative expense consists of
salaries for executive, administrative and finance personnel, information
systems costs, professional service fees and allowance for doubtful accounts.
General and administrative expense increased by $1.1 million, or 122.8%, from
$883,000 in the nine months ended September 30, 1998 to $2.0 million in the nine
months ended September 30, 1999. This increase was primarily attributable to the
increases in legal and accounting fees and in our allowance for doubtful
accounts, which we increased to $830,000, as of September 30, 1999. This
increase occurred in response to the broadening of our customer base and
increasing accounts receivable balance. As a percentage of total revenue,
general and administrative expense decreased from 32.6% in the nine months ended
September 30, 1998 to 26.5% in the nine months ended September 30, 1999, as our
costs were spread across a significantly larger revenue base in the 1999 period.
We believe general and administrative expense will increase in
29
<PAGE> 34
future periods, as we expect to add personnel to support our expanding
operations and assume the responsibilities of a public company.
Stock-Based Compensation. Stock-based compensation expense includes the
amortization of unearned employee stock-based compensation and expenses for
stock granted to consultants in exchange for services. Employee stock-based
compensation expense is amortized on an accelerated basis over the vesting
period of the related options, generally 50 months. Total stock-based
compensation expense for the nine months ended September 30, 1999 was $1.7
million.
Other income (expense), net. Other income (expense), net is primarily
comprised of interest expense, interest income and foreign currency adjustments.
We had net expense of $290,000 for the nine months ended September 30, 1998 as
compared to net expense of $449,000 for the nine months ended September 30,
1999. This increase was principally due to higher interest expense paid on debt,
partially offset by interest income.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
REVENUE
Total revenue increased by $2.6 million, or 180.9%, from $1.4 million in
1997 to $4.0 million in 1998. This increase was largely attributable to an
increase in our customer base in 1998, resulting from the September 1997 launch
of the first generation of what is now our Versata E-Business Automation System.
We released the current version of our Versata E-Business Automation System in
September 1998. Prior to the 1997 release, we generated revenue from software
licenses and services associated with a non-Web-based software product, which we
discontinued in early 1998. As a percentage of total revenue, software license
revenue was 37.4% and 48.7% in 1997 and 1998, respectively, while services
revenue was 62.6% and 51.3%, respectively.
Software License Revenue. Software license revenue increased by $1.4
million, or 265.8% from $526,000 in 1997 to $1.9 million in 1998. This increase
was primarily due to an increase in our customer base resulting from the
September 1997 launch of the first generation of our Versata E-Business
Automation System as well as the September 1998 introduction of the current
version of the software.
Services Revenue. Services revenue increased by $1.1 million, or 130.2%,
from $880,000 in 1997 to $2.0 million in 1998. This increase was principally due
to an increase in training and consulting as a result of our expansion of our
software license revenue.
COST OF REVENUE
Total cost of revenue increased by $1.2 million, or 89.3%, from $1.3
million in 1997 to $2.5 million in 1998.
Cost of Software License Revenue. Cost of software license revenue
increased by $107,000, or 84.3%, from $127,000 in 1997 to $234,000 in 1998. This
increase is attributable to a larger amount of royalties paid on third-party
software incorporated into our products due to an increase in software license
revenue.
Cost of Services Revenue. Cost of services revenue increased by $1.1
million, or 89.9% from $1.2 million in 1997 to $2.3 million in 1998. This
increase was principally due to an increase in our support organization and our
professional consulting services organization.
30
<PAGE> 35
GROSS PROFIT
Gross profit increased by $1.4 million, or 1,445.3%, from $95,000 in 1997
to $1.5 million in 1998. This increase reflects significantly higher software
license revenue in 1998, which generated higher gross margins resulting from
higher average sales prices, as well as improved margins on our new software
released in late 1997. Gross profit as a percentage of total revenue was 6.8%
and 37.2% for 1997 and 1998, respectively.
OPERATING EXPENSE
Operating expense decreased by $756,000, or 7.5%, from $10.1 million in
1997 to $9.4 million in 1998. This decrease was principally due to a
restructuring of our business that occurred in late 1997, which led to a
subsequent decline in each component of operating expense. As a percentage of
revenue, operating expense decreased from 718.9% in 1997 to 236.7% in 1998.
Sales and Marketing. Sales and marketing expense decreased by $284,000 or
5.9%, from $4.8 million in 1997 to $4.5 million in 1998. This decrease was
principally due to the decreased level of spending on marketing programs in
1998. Sales and marketing as a percentage of revenue was 339.8% and 113.8% for
1997 and 1998, respectively.
Product Development. Product development expense decreased by $272,000, or
7.7%, from $3.5 million in 1997 to $3.3 million in 1998. Personnel related to
product engineering and development increased in 1998 as compared to 1997. This
increase was more than offset by the reduction in consulting resources in late
1997. Product development as a percentage of revenue was 252.3% and 82.9% for
1997 and 1998, respectively.
General and Administrative. General and administrative expense decreased by
$402,000, or 22.6%, from $1.8 million in 1997 to $1.4 million in 1998. The 1997
amount includes a restructuring charge of $182,000. In addition, we had lower
outside consulting expenses and a decrease in the funding of our allowance for
doubtful accounts in 1998. General and administrative expense as a percentage of
revenue was 126.7% and 34.9% for 1997 and 1998, respectively.
Stock-Based Compensation. Total stock-based compensation expense in 1998
was $202,000.
Other income (expense), net. Other income (expense), net amounted to
$168,000 income in 1997 as compared to an expense of $251,000 in 1998. This
change is principally due to an increase of $269,000 in interest expense and a
decrease of $150,000 in interest income in 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
REVENUE
Total revenue increased by $282,000, or 25.1%, from $1.1 million in 1996 to
$1.4 million in 1997. This increase was largely due to the launch of the first
generation of our Versata E-Business Automation System that was launched in
September 1997. In 1996, we generated revenue solely from our non Web-based
software and related services. As a percentage of total revenue, software
license revenue was 77.6% and 37.4% in 1996 and 1997, respectively, while
services revenue was 22.4% and 62.6%, respectively.
Software License Revenue. Software license revenue decreased by $346,000,
or 39.7%, from $872,000 in 1996 to $526,000 in 1997. The decrease was
attributable to the discontinuation of one of our non Web-based software
products during 1997 and the phase-out of the other beginning in late 1997. We
launched the first generation of our Versata E-Business Automation System in
September 1997 and benefited only from three months of sales from this product.
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Services Revenue. Services revenue increased by $628,000, or 249.2%, from
$252,000 in 1996 to $880,000 in 1997. The increase was principally due to the
increase of consulting services associated with a full year of services revenue
for 1997 as compared to approximately six months of services revenue for 1996.
COST OF REVENUE
Total cost of revenue increased by $402,000, or 44.2%, from $909,000 in
1996 to $1.3 million in 1997.
Cost of Software License Revenue. Cost of software license revenue
increased by $43,000, or 51.2%, from $84,000 in 1996 to $127,000 in 1997. This
increase was principally due to a charge taken in 1997 for discontinued product
prior to the introduction of our new products in September 1997. Cost of
software license revenue as a percentage of revenue was 7.5% and 9.0% in 1996
and 1997, respectively.
Cost of Services Revenue. Cost of services revenue increased by $359,000,
or 43.5%, from $825,000 in 1996 to $1.2 million in 1997. This increase was
principally due to an increase in our professional consulting services and our
support organization.
GROSS PROFIT
Gross profit decreased by $120,000, or 55.8%, from $215,000 in 1996 to
$95,000 in 1997. Gross profit as a percentage of total revenue was 19.1% and
6.8%, in 1996 and 1997, respectively. This decrease was principally due to a
higher service revenue mix to software license mix in 1997.
OPERATING EXPENSE
Operating expense increased by $689,000, or 7.3%, from $9.4 million in 1996
to $10.1 million in 1997. This increase was principally due to higher sales and
marketing expenses related to the launch of the first generation of our Versata
E-Business Automation System and an increase in general and administrative
expense. As a percentage of revenue, operating expense decreased from 837.9% in
1996 to 718.8% in 1997.
Sales and Marketing. Sales and marketing expense increased by $196,000, or
4.3%, from $4.6 million in 1996 to $4.8 million in 1997. This increase was
principally due to increased marketing programs prior to the launch of the first
generation of our Versata E-Business Automation System in September 1997. As a
percentage of revenue, sales and marketing expense was 407.7% and 339.9% in 1996
and 1997, respectively.
Product Development. Product development expense was relatively unchanged
at $3.5 million for 1996 and 1997. Product development expense as a percentage
of revenue was 310.1% and 252.3% in 1996 and 1997, respectively.
General and Administrative. General and administrative expense increased by
$432,000, or 32.0%, from $1.4 million in 1996 to $1.8 million in 1997. This
increase was principally due to increases in headcount and in our allowance for
doubtful accounts. In addition, we incurred a one-time restructuring charge of
$182,000 related to the restructuring in late 1997. General and administrative
expense as a percentage of revenue was 120.0% and 126.7% in 1996 and 1997,
respectively.
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Other income (expense), net. Other income (expense), net decreased by
$22,000, or 11.6%, from $190,000 in 1996 to $168,000 in 1997. The change was
principally due to higher interest income from higher average cash balances
during 1997 as compared to 1998.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our historical unaudited quarterly
information for our most recent seven quarters, both in absolute dollars and as
a percentage of total revenue for each quarter. This quarterly information has
been prepared on a basis consistent with our audited financial statements and,
we believe, includes all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the information shown. Our
quarterly operating results have fluctuated and may continue to fluctuate
significantly as a result of a variety of factors and operating results for any
quarter are not necessarily indicative of results for a full fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30,
1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software license........................... $ 233 $ 346 $ 774 $ 572 $ 961 $ 1,099 $ 1,673
Services................................. 292 417 647 669 817 1,370 1,496
------- ------- ------- ------- ------- ------- -------
Total revenue...................... 525 763 1,421 1,241 1,778 2,469 3,169
Cost of revenue:
Software license......................... 28 63 79 64 66 187 122
Services................................. 356 399 672 821 1,002 1,292 1,486
------- ------- ------- ------- ------- ------- -------
Total cost of revenue.............. 384 462 751 885 1,068 1,479 1,608
Gross profit............................... 141 301 670 356 710 990 1,561
------- ------- ------- ------- ------- ------- -------
Operating expense:
Sales and marketing...................... 704 901 1,301 1,589 2,157 2,836 4,071
Product development...................... 769 817 880 809 915 1,036 1,082
General and administrative............... 253 289 340 497 407 696 864
Stock-based compensation................. -- -- -- 202 420 473 766
------- ------- ------- ------- ------- ------- -------
Total operating expense............ 1,726 2,007 2,521 3,097 3,899 5,041 6,783
------- ------- ------- ------- ------- ------- -------
Loss from operations....................... (1,585) (1,706) (1,851) (2,741) (3,189) (4,051) (5,222)
Other income (expense), net................ (13) (64) (214) 40 28 (35) (442)
------- ------- ------- ------- ------- ------- -------
Net loss......................... $(1,598) $(1,770) $(2,065) $(2,701) $(3,161) $(4,086) $(5,664)
======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF REVENUE:
Revenue:
Software license......................... 44.4% 45.3% 54.5% 46.1% 54.0% 44.5% 52.8%
Services................................. 55.6 54.7 45.5 53.9 46.0 55.5 47.2
------- ------- ------- ------- ------- ------- -------
Total revenue...................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Software license......................... 5.3 8.3 5.6 5.2 3.7 7.6 3.8
Services................................. 67.8 52.3 47.3 66.1 56.4 52.3 46.9
------- ------- ------- ------- ------- ------- -------
Total cost of revenue.............. 73.1 60.6 52.9 71.3 60.1 59.9 50.7
Gross profit............................... 26.9 39.4 47.1 28.7 39.9 40.1 49.3
------- ------- ------- ------- ------- ------- -------
Operating expense:
Sales and marketing...................... 134.1 118.1 91.6 128.0 121.3 114.9 128.5
Product development...................... 146.5 107.0 61.9 65.2 51.5 42.0 34.1
General and administrative............... 48.2 37.9 23.9 40.1 22.9 28.1 27.3
Stock-based compensation................. -- -- -- 16.3 23.6 19.2 24.2
------- ------- ------- ------- ------- ------- -------
Total operating expense............ 328.8 263.0 177.4 249.6 219.3 204.2 214.0
------- ------- ------- ------- ------- ------- -------
Loss from operations....................... (301.9) (223.6) (130.3) (220.9) (179.4) (164.1) (164.8)
Other income (expense), net................ (2.5) (8.4) (15.0) 3.2 1.6 (1.4) (13.9)
------- ------- ------- ------- ------- ------- -------
Net loss......................... (304.4)% (232.0)% (145.3)% (217.6)% (177.8)% (165.5)% (178.7)%
======= ======= ======= ======= ======= ======= =======
</TABLE>
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Our limited operating history as a company focused on Web-based software
products, as well as the emerging nature of the Internet infrastructure software
market, make it difficult for us to accurately forecast our revenue. Our revenue
could fall short of our expectations if we experience delays or cancellations of
even a small number of product licenses. A number of factors are likely to cause
fluctuations in our operating results, including, but not limited to:
- the size and timing of individual sales orders;
- unexpected delays in introducing new products and services;
- customer budget constraints;
- the mix of product license and services revenue;
- the mix of direct and indirect channel sales;
- the level of product competition in our market and the timing and market
acceptance of new product introductions and upgrades by us or our
competitors;
- changes in the rapidly evolving Internet infrastructure software market;
- costs related to possible acquisitions related to new technology and
businesses; and
- general economic conditions.
Please see "Risk Factors -- Our limited operating history as a company
focused on Web-based software products makes it difficult to evaluate our
business and makes forecasting difficult; the failure to meet expectations could
cause the price of our common stock to decline" and "-- The unpredictability of
our quarterly operating results may adversely affect the trading price of our
common stock."
NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS
As of September 30, 1999, we had net operating losses and research and
experimentation credit carryforwards of approximately $38.5 million and
$635,000, respectively, for federal tax purposes, and approximately $31.0
million and $415,000, respectively, for state tax purposes. The federal net
operating loss and research and experimentation credit carryforwards are
available through 2019 (through 2004 for state net operating loss carryforwards)
if not used beforehand to offset taxable income or tax liabilities. Under the
provisions of the Internal Revenue Code, certain substantial changes in our
ownership may limit the amount of net operating loss and tax credit
carryforwards that could be utilized annually in the future to offset taxable
income. A valuation allowance has been established in our financial statements
to reflect the uncertainty of future taxable income required to utilize
available tax loss carryforwards and other deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through the
private sale of our equity securities, resulting in net proceeds of
approximately $68.8 million, including $628,000 from the sale of Series E
preferred stock and $16.0 million from the sale of Series F preferred stock
received subsequent to September 30, 1999. We have also funded our operations
through equipment financing. As of September 30, 1999, we had $8.3 million in
cash and cash equivalents and $7.4 million in working capital. We have one bank
line of credit with the Venture Banking Group, a division of Cupertino National
Bank for amounts borrowed to finance equipment. This term loan bears interest at
the bank's prime rate plus 0.75%. At September 30, 1999, we had a total of
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$381,000 outstanding under this bank line of credit. Borrowings under the bank
line of credit are secured by substantially all of our assets. We also obtained
a capital financing line from Phoenix Leasing Incorporated to purchase up to
$1.0 million in fixed assets. Any borrowings under this financing line are
payable over 36 months, with an effective interest rate of approximately 17%. At
September 30, 1999, there was no borrowing outstanding under this line.
Borrowings under this line are collateralized by the equipment being financed.
Net cash used in operating activities was $8.6 million in 1997, $7.0
million in 1998 and $11.5 million for the nine months ended September 30, 1999.
Net cash flows used in operating activities for each period reflect net losses
and increasing accounts receivable offset in part by increases in accounts
payable and accrued liabilities and deferred revenue.
Net cash used in investing activities was $402,000 in 1997, $299,000 in
1998, and $812,000 for the nine months ended September 30, 1999. Cash used in
investing activities reflects purchases of property and equipment in each
period. Our capital expenditures consisted of purchases of operating resources
to manage our operations, including computer hardware and software, office
furniture and equipment and leasehold improvements. We expect that our capital
expenditures will continue to increase in the future.
Net cash provided by financing activities was $10.0 million in 1997, $10.7
million in 1998 and $14.8 million for the nine months ended September 30, 1999.
Cash provided by financing activities includes net proceeds from the issuance of
preferred and common stock, offset by the payments on long-term debt and capital
lease obligations for each period, as well as proceeds from bridge loan
financings in 1998 and 1999.
We expect to experience significant growth in our operating expenses,
particularly product development and sales and marketing expenses, for the
foreseeable future to execute our business plan. As a result, we anticipate that
such operating expenses, as well as the expansion of our professional services
organization, will constitute a material use of our cash resources. In addition,
we may use cash resources to fund acquisitions of, or investments in,
complementary businesses, technologies or product lines.
We believe that the net proceeds from the sale of the common stock in this
offering, together with funds generated from operations, will be sufficient to
meet our working capital and capital expenditure requirements for at least the
next twelve months. Thereafter, we may find it necessary to obtain additional
equity or debt financing. In the event additional financing is required, we may
not be able to raise it on acceptable terms or at all.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products need to be upgraded to accept four digit entries
to distinguish 21st century dates from 20th century dates. Otherwise, companies
using these systems and software products could experience year 2000 system
failures or miscalculations, causing disruption of operations. Our failure to
address potential year 2000 malfunctions in our computer and non-information
technology equipment, in past, current and future versions of our E-Business
Automation System software, and in technology systems used by our business
partners could result in our suffering business interruption, financial loss,
reputational harm and legal liability.
The majority of software and hardware we use to internally operate and
manage our business has been purchased or developed by us within the past few
years. In addition, where necessary, we have upgraded our network and operating
systems and purchased year 2000 compliant servers,
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<PAGE> 40
workstations, software packages and peripheral devices. Generally, hardware and
software designed within the current decade and the past several years in
particular has greater consideration to year 2000 issues. We have also purchased
year 2000 compliance testing software which we have used to test our systems.
While these efforts do not uniformly protect us against year 2000 exposure,
we believe our exposure for our internal systems is limited because the
information technology we use to operate and manage our business is not based
upon legacy hardware and software systems. In addition, we do not have any
significant non-information technology equipment or systems. However, we will
continue to assess and test our internal systems to ensure that all additions
and/or modifications to our systems meet specifications for year 2000
compliance. Because we and our customers depend, to a very substantial degree,
upon the proper functioning of our computer systems, a failure of our internal
systems to correctly recognize dates beyond December 31, 1999 could materially
disrupt our operations and adversely affect our business, financial condition
and results of operations.
We have conducted a year 2000 readiness review for current versions of our
E-Business Automation System software, and we plan to conduct readiness reviews
for any future versions. This review included an assessment, validation, testing
and, where necessary, remediation, upgrading and replacement of our product
versions, as well as contingency planning. Based on our review, we believe
versions of our E-Business Automation System software after April 1999, are year
2000 compliant, when configured and used in accordance with our related
documentation, so long as the underlying operating system of the host machine
and any other software used with or in the host machine or with our products are
also year 2000 compliant. As part of our standard customer warranty, we
represent and warrant that our E-Business Automation System software will be
year 2000 compliant through the year 2030.
We continue to respond to customer questions about prior versions of our
products on a case-by-case basis. We believe that versions of our products prior
to the version released in April 1999 may be year 2000 compliant. However, we
have not certified our other products as compliant and recommend that users of
these versions upgrade to the latest version. We provide software patches for
versions of our products prior the versions released in April 1999 on a
case-by-case basis. Our customers who have update assurance agreements with us
each have the right to receive the latest version of our product. Our customers
who do not have update assurance agreements with us may purchase the latest
version of our product from us.
The year 2000 problem may also affect third-party software products that
are incorporated in, or integrated with, our E-Business Automation System. We
have sought assurances from relevant third parties that their software is year
2000 compliant, which typically consists of a letter to us, or a public notice,
from the third party asserting year 2000 compliance. In addition, as part of our
ongoing product review, we have tested this third-party software as incorporated
in, or integrated with, our E-Business Automation System. However, we have not
separately tested software obtained from third parties that is incorporated
into, or integrated with, our products. Thus, third-party software products may
contain undetected errors and defects associated with year 2000 date functions.
Errors or defects in third-party products could affect the performance of our
E-Business Automation System and result in delayed or lost revenue, diversion of
development resources, damage to our reputation, increased service and warranty
costs, or liability to our customers, any of which could materially adversely
affect our business results, operating results or financial condition.
We do not currently have any information concerning the year 2000
compliance status of our customers nor do we intend to assess our customers for
year 2000 compliance. Our current or potential customers may incur significant
expenses to achieve year 2000 compliance. If our customers are not year 2000
compliant, they may experience material costs to remedy problems or may face
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<PAGE> 41
litigation costs. In either case, year 2000 issues could reduce or eliminate the
budgets that current or potential customer could have for purchases of our
products and services. As a result, our business, financial condition and
results of operation could be adversely affected.
We have funded the costs to become year 2000 compliant from operating cash
flows and have not separately accounted for these costs in the past. To date,
these costs have not been material. We will incur additional costs related to
year 2000 compliance for personnel to manage any remaining year 2000 compliance
efforts. The possibility exists that we may experience problems and costs with
year 2000 compliance, which could divert management's time from ordinary
business activities and have a material adverse effect on our business,
financial condition and operating results.
The worst case scenario for year 2000 problems for us would be the need to
cease normal operations for an indefinite period of time while we attempt to
respond to our own year 2000 problems. We have not yet developed a contingency
plan to address situations that may result if we experience year 2000 problems.
The cost of developing and implementing a plan may be material itself. We are
also subject to external forces that might generally affect industry and
commerce, such as utility or transportation company year 2000 compliance
failures and related service interruptions. Moreover, it is difficult to predict
what effect year 2000 compliance problems will have on the integrity and
stability of the Internet.
CONVERSION TO EURO
We conduct business in eight European countries, and for the period ended
September 30, 1999, we derived approximately 12.0% of our total revenue from our
European operations. Eleven of the fifteen member countries of the European
Union have adopted the Euro as their legal currency. We expect to be able to
process Euro-denominated transactions early in 2000. In addition, our products
support the Euro currency symbol. We are also assessing the business
implications of the conversion to the Euro, including long-term competitive
implications and the effect of market risk with respect to financial
instruments. Based on the foregoing, we do not believe the Euro will have a
significant effect on our business, financial position, cash flows or results of
operations. We will continue to assess the impact of Euro conversion issues as
the applicable accounting, tax, legal and regulatory guidance evolves.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not currently use derivative financial instruments. We generally
place our cash and cash equivalents in high quality money-market securities such
as 30-day certificate of deposits. We do not expect any material loss from these
investments and therefore believe that our potential interest rate exposure is
not material. Internationally, Versata invoices customers primarily in U.S.
dollars and we maintain only nominal foreign currency cash balances. Working
funds necessary to facilitate the short-term operations of our subsidiaries are
kept in local currencies in which they do business. We do not currently enter
into foreign currency hedge transactions. Through September 30, 1999, foreign
currency fluctuations have not had a material impact on our financial position
or results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities
and supercedes and amends a number of existing accounting standards. SFAS No.
133 requires that all derivatives be recognized in the balance sheet at their
fair market value and the corresponding derivative gains or losses be either
reported in the statement of
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operations or as a deferred item depending on the type of hedge relationship
that exists with respect to such derivatives. In July 1999, the Financial
Accounting Standards Board issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133. SFAS No. 137 deferred the effective date until the first
quarter ending June 30, 2000. The Company will adopt SFAS No. 133 in its quarter
ending June 30, 2000 and has not determined whether the adoption of this
pronouncement will have a material impact on its financial condition or results
of operations.
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BUSINESS
OVERVIEW
Our comprehensive suite of software and services enables our customers to
rapidly deploy e-business applications that can be modified quickly to meet
constantly changing business requirements. Our E-Business Automation System
utilizes a unique business rules automation technology that redefines how
companies create, deploy and modify transaction-oriented, mission-critical
e-business applications. We believe our solution enables our customers to
achieve a substantial time-to-market and business flexibility advantage compared
to businesses using traditional Web application development tools. We intend to
establish our solution as the foundation for the next generation of
business-to-business Web-based applications.
As of September 30, 1999, we had licensed our products to more than 400
customers worldwide for use in a wide range of e-business applications. Over 30
customers have purchased our products and services for over $100,000, including
Canadian Pacific Ships, El Paso Energy, Hilton Hotels, Interim Services and ITT
Fluid Technology. We have entered into a strategic marketing and development
relationship with IBM to provide a single product offering that integrates our
software with IBM's WebSphere(TM) Application Server Advanced Edition. This
integrated product will be offered under our respective brand names. In
addition, to complement our direct sales channel, we have developed
relationships with consulting partners, system integrators, independent software
vendors, application service providers and international distributors and plan
to continue to develop more of these relationships in the future.
INDUSTRY BACKGROUND
The business environment across virtually all industries is becoming
increasingly competitive and dynamic, driven by new business opportunities and
improved productivity through the use of technology. Many companies are
utilizing emerging technologies to address new markets, provide additional
services and enhance their customer relationships. New technology is also
altering the competitive landscape for many businesses, as companies are facing
loss of market share, severe price pressures and shorter product life cycles
that require them to constantly improve their efficiency.
To address these new opportunities and in response to these competitive
pressures, companies are adopting recently developed Internet technologies
throughout their organizations to improve communications and transact business
with their customers, suppliers, partners and employees. The migration of the
commercial marketplace to the Internet and the movement of corporate
communication and information management to intranets has resulted in a new
operating model known as e-business. Companies are developing new e-business
applications that leverage the Internet's unique capabilities and are
integrating these new applications with their mission-critical legacy systems.
The competitive advantage to be gained by implementing Internet technology is
driving companies to adopt this technology as rapidly as possible and is fueling
a major shift toward the processing of transactions over the Internet.
Evidencing the speed at which transactions are moving online, Forrester Research
estimates that the amount of global transactions completed over the Internet
could be as high as $3.2 trillion by 2003.
To keep pace in this dynamic new e-business environment, businesses must be
able to effectively manage, implement and rapidly change the way they conduct
business. Underlying every company's fundamental business strategies, policies
and procedures are a unique set of business rules. These business rules control
the execution of business decisions, processes and constraints. A typical
business rule might be "A customer's account balance cannot exceed a customer's
credit limit" or "Preferred customers get a 10% discount and free shipping."
Historically, business rules were often
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implemented through manual procedures or were automated to a limited extent in
business applications. E-businesses, however, require the automation of entire
business processes. As a result, business rules need to be automated and
interconnected, significantly increasing application complexity.
Defining, implementing and executing the thousands of business rules in
e-business applications with the speed and efficiency demanded by today's
competitive business landscape has proven to be extremely challenging. Companies
increasingly are finding this process to be slow, labor intensive and costly.
Difficulties in carrying out this task include:
- Lengthy Implementation Cycles. Development teams are required to
understand and implement manually, in programming languages such as Java,
the many business rules that are the foundation of a company's business
strategy. Frequently this programming task requires many months of work
by skilled programmers.
- Unavailable Technical Skill. It is difficult for companies to attract and
retain qualified programmers and other technical personnel with the high
level of skill required for complex Web development projects. Competition
for skilled professionals is intense and turnover rates are high in these
types of positions.
- Rapidly Changing Technology. The technology used to develop and deploy
e-business applications is complex and has been changing rapidly. It is
difficult for organizations to keep up with constantly evolving industry
standards and platforms. As new technologies are developed, they must be
integrated into legacy systems and architectures, creating integration
delays and implementation problems.
Once e-business applications are created and deployed, changing a company's
business rules requires manually modifying the code within the applications.
This is a time consuming, error-prone and expensive process, which requires that
many individual components of an application be modified. Once changed, these
components must be reintegrated both within that application and with other
applications and systems. In order to accommodate a relatively simple but
crucial shift in strategy, a business must often make hundreds of programming
changes requiring many months of work by skilled programmers familiar with the
company's applications. To overcome these obstacles, businesses need a solution
that enables the rapid deployment and continual modification of e-business
applications.
SOLUTION
Our E-Business Automation System allows our customers to rapidly deploy
e-business applications that can be modified quickly to meet constantly changing
business requirements. Our E-Business Automation System utilizes a unique
business rules automation technology that redefines how companies create, deploy
and modify transaction-oriented, mission-critical e-business applications. Our
software eliminates the need for traditional programming by enabling users to
define their business rules in precise English statements rather than in a
technical programming language. Our software converts these precise English
statements into executable Java code. We believe that this technology represents
an advantage not available from competitors and enables customers to achieve a
substantial time-to-market and business flexibility advantage compared to
businesses using
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traditional Web application development tools. Our solution, which consists of a
comprehensive suite of software and services, provides the following benefits:
Complete E-Business Automation System
We provide companies with a complete system for automating the creation,
deployment and modification of custom e-business transaction processing
applications, including the user interface, business logic and data access
components of these applications. Our unique automation technology analyzes,
optimizes and compiles business rules into executable Java components hosted on
an application server. A single business rule may require several hundred lines
of executable Java code; our system creates the code automatically. As a result,
users of our system can achieve a substantial time-to-market and business
flexibility advantage over traditional programming methods and can rapidly
deploy and maintain mission-critical e-business applications even with few or no
Java skilled employees.
Flexible and Rapid Response to Changing Business Requirements
Our solution enables companies to rapidly change the business rules
required to implement critical shifts in strategy. By automating the process
through which changes in a company's business rules are reflected throughout its
e-business applications, our customers are able to avoid highly disruptive
reprogramming required in other Web development environments. As a result, users
of our system frequently are able to modify their e-business applications in
significantly less time compared to other programming methods.
Technology Independence
Our solution enables companies to build and deploy e-business applications
that are compatible with a company's technology infrastructure and systems, and
are capable of conforming to new infrastructures as they become available. Our
E-Business Automation System enables organizations to both access information
and apply rules-based business logic across a number of sources, including
leading relational database systems, legacy applications and various
standards-based middleware solutions. This open architecture allows our
customers to continue to use their existing technology infrastructure to support
new e-business applications. We also provide customers with choices in their
application server architecture. Our Versata Logic Server is currently available
in a CORBA edition, and we expect to release the Enterprise Java Beans edition
in the first quarter of 2000.
Comprehensive Customer Service
As an essential component of our total solution, we offer our customers a
full range of professional services, including training, mentoring, staff
augmentation and project management, as well as customer support. Through this
comprehensive suite of services, we enable our customers to automate e-business
applications without regard for internal staffing constraints. Our primary focus
is to rapidly transfer knowledge to our customers and partners, enabling their
technology professionals to quickly understand and properly apply our
technology. In cases where project demands outstrip a customer's ability or
desire to provide technical personnel, we can directly, or in conjunction with
one of our systems integration partners, provide professionals to rapidly deploy
project solutions on short notice. In addition, we can provide complete turnkey
solutions at a customer's request.
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STRATEGY
Our objective is to establish our solution as the foundation for the next
generation of business-to-business Web-based applications. To achieve this
objective, our key growth strategies are to:
Define the New Paradigm for E-business Automation
The market for technology that allows for flexible creation, deployment and
modification of e-business applications is emerging rapidly. Our E-Business
Automation System utilizes a unique business rules automation technology that
redefines how companies rapidly create, deploy and modify transaction-oriented,
mission-critical e-business applications. With the growth in the number of
customers who continue to successfully implement our solution, as well as the
endorsement of our technology by our OEM partner, IBM, we intend to become the
industry standard for E-Business Automation Systems. We recently changed our
corporate name to Versata and plan to launch a variety of marketing programs
designed to build brand and industry recognition of Versata as the e-business
automation leader.
Extend Technology Leadership
We intend to enhance our position as a technology leader by increasing the
functionality, performance, ease of use and scalability of our E-Business
Automation System. We continue to devote substantial resources to the
enhancement of our Versata Logic Server. The next release of our E-Business
Automation System will be integrated with IBM's WebSphere(TM) Application Server
Advanced Edition. This integrated product will allow our customers to utilize
Enterprise Java Beans, a scalable industry standard solution, and will support
enterprise-level team development. We also intend to continue to support the
integration of our software with additional application servers and
technologies. Furthermore, we will continue to introduce Versata Connectors that
will enable our customers to connect to additional legacy databases,
applications and middleware.
Expand Worldwide Direct Sales
Currently, we have 13 direct sales offices throughout North America and
additional offices in the United Kingdom, Germany and China. We plan to continue
to expand our sales efforts by adding more direct sales teams in North America,
Europe and the Pacific Rim. To expand our sales to both new and existing
customers, we intend to continue to develop our direct sales structure based
primarily on geographic region.
Leverage Strategic Partnerships
To increase our visibility in the marketplace and broaden the functionality
of our solution, we plan to continue to develop marketing and technology
relationships with leading vendors. We recently signed an agreement with IBM
that allows us to sell our products integrated with IBM's WebSphere(TM)
Application Server Advanced Edition. This agreement also includes international
language support by IBM and joint marketing programs. We expect our relationship
with IBM to favorably affect our sales efforts and add significantly to our
credibility and positioning. We intend to enter into additional OEM
relationships that will enhance our product development and marketing
activities.
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Continue to Grow our Multi-Channel Distribution Network
We will continue to complement our direct sales channel with multiple
indirect channels, including systems integrators, independent software vendors,
OEM partners and international distributors. These relationships will provide
additional marketing and sales channels for our products and accelerate the
successful deployment of applications using our solution. We intend to leverage
these channels to establish business relationships with emerging growth
companies focused on providing transaction-oriented, business-to-business
services. Finally, we intend to continue to expand and grow our network of
international distributors in Europe, Latin America and the Pacific Rim.
Further Develop Professional Services Capabilities
We currently offer a full range of professional services, including
training, mentoring, staff augmentation and project management. These services
create significant opportunities for high quality account management and further
penetration of key customers, leading to large purchasing decisions at the
enterprise level. We also expect to complete a growing number of projects on a
turnkey basis. We intend to increase the size of our service and support
organization and to further expand our professional services capabilities
through strategic relationships with, or acquisitions of, system integrators and
consulting partners.
PRODUCTS
Our E-Business Automation System is a complete solution that enables
customers to rapidly deploy transaction-oriented, mission-critical e-business
applications. The following is a current list of our products and list prices:
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
PRODUCTS DESCRIPTION LIST PRICE
- -----------------------------------------------------------------------------------------------
Versata Logic Server Integrates business rules $35,000 per deployed CPU $15,000
automation technology with a for limited use development and
scalable and reliable application test system
server. Currently available in
Common Object Request Broker
Architecture (CORBA); the
Enterprise Java Beans-based edition
is expected to be released in the
first quarter of 2000.
- -----------------------------------------------------------------------------------------------
Versata Connectors Provides enterprise-wide $10,000 per deployed CPU
connectivity between the Versata
Logic Server and a variety of data
sources, including legacy
databases, systems and
applications. These Connectors use
our open eXtensible Data Access
architecture to enable our
customers to implement their unique
business rules across a variety of
data storage environments.
- -----------------------------------------------------------------------------------------------
Versata Studio Offers a complete graphical $3,000 per application developer
development studio with functions seat
that enable teams of developers to
describe business rules, design
user interfaces and deploy
e-business applications.
- -----------------------------------------------------------------------------------------------
</TABLE>
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A typical initial client configuration consists of two Versata Logic
Servers for deployment, one limited-use server for development and testing and
three Versata Studio seats. The average price for this basic configuration is
approximately $124,000, including approximately $30,000 for training and
consulting services, but excluding the price of additional Versata Connectors
which may be added as required. We encourage our customers, at the time they
purchase our software, to contract for customer support services and
maintenance.
PRODUCT ARCHITECTURE
The Versata E-Business Automation System provides customers a complete and
open software solution for e-business application development and deployment.
The architecture is illustrated below:
[VERSATA GRAPHIC]
Versata Logic Server
Our Versata Logic Server provides a complete system for deploying
e-business applications. It includes business rules automation technology, an
integrated application server, support for leading Web-based graphical user
interfaces and enterprise data connectivity.
Our business rules automation technology consists of high level services
such as rule sequencers, rule optimizers, and rule compilers that allow
high-performance execution of business rules as Java components hosted on an
application server. Scalable e-business applications require an integrated
application server to provide object caching, client session management, server
thread management, data source connection sharing, load balancing, failover
support and security. Our products include a sophisticated and powerful
application server that enables scalable, reliable and secure deployment.
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We provide customers with open choices in their application server
architecture. Our Versata Logic Server is currently available in a CORBA
edition, and we expect to release the Enterprise Java Beans edition in the first
quarter of 2000. At that time, our Versata Logic Server will support the two
leading component-based computing models. Our CORBA application server option is
built on an object request broker technology foundation from Inprise
Corporation. Our Enterprise Java Beans application server option is being
developed as part of a strategic relationship with IBM. IBM's WebSphere(TM)
Application Server Advanced Edition provides an Enterprise Java Beans
foundation, which we expect to be available as an integrated component of our
solution. The Versata Logic Server provides complete Web deployment by
integrating with a variety of HTTP proxy servers.
E-business applications require sophisticated graphical interfaces that
support a variety of Internet deployment architectures and network
configurations. Our Versata Logic Server allows organizations to deploy highly
graphical applications that support both Java and HTML user interface
technologies. These two user interface technologies integrate business rules
into Web-based business applications. Once deployed, the Versata Logic Server
includes a management console to evaluate, in real time, the performance and
reliability of an e-business application, enabling detailed monitoring and
debugging of end user transactions through a browser-based interface.
Our Versata Logic Server is available for Windows NT, Solaris, AIX and
HP-UX operating systems.
Versata Connectors
Our Versata Connectors enable organizations to leverage a variety of data
source and legacy systems into new e-business solutions. Our Versata Logic
Server uses the Versata Connectors to interact with and apply business rules to
a variety of data sources, including legacy databases, middleware systems and
applications. Versata Connectors are based on our eXtensible Data Access
interface. This Java-based interface maps various data sources into a standard
format that enables business rules automation. Our Versata Logic Server includes
Versata Connectors for leading relational databases, such as Oracle, Microsoft
SQL Server, Sybase SQL Server, IBM DB2 and Informix Dynamic Server, and standard
object formats, such as COM+, CORBA and Enterprise Java Beans.
To access information and apply business rules to additional data sources,
we provide or plan to provide Versata Connectors for:
- Middleware Systems, such as Information Builders EDA SQL, IBM CICS and
IBM MQ-Series; and
- Enterprise Resource Planning (SAP, BAAN, PeopleSoft, etc.) and other
custom applications.
Versata Studio
Our Versata Studio is an integrated suite of development tools that enables
a user to design a complete e-business application, including user interface
design, business rules definition and application deployment. The Versata Studio
goes beyond typical graphical programming tools by providing teams of developers
the ability to directly implement business rules, automate application work flow
and define the look and feel of an applications interface.
Our Versata Studio stores the application design in an XML-based repository
format. This XML format enables our customers to integrate design information
from leading modeling tools such as Rational Rose and CA-Logic Works, and Web
editing and content development products such as MacroMedia's Dreamweaver and
IBM's WebSphere(TM) Studio. This XML format is also compatible
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with leading source control management systems such as Merant's PVCS and
Microsoft's SourceSafe. Our XML repository provides an open development
environment, which allows large development organizations to use our products
across multiple e-business project teams.
Our Versata Studio also includes an integrated deployment manager, enabling
developers to correctly deploy application components in the proper performance
configuration. These components are then compiled and executed by our Versata
Logic Server.
The Versata Developer Studio is available on Windows NT and Windows 98.
SERVICES
An important component of our overall solution is our ability to provide
our customers with comprehensive professional services, including training,
mentoring, staff augmentation and project management, as well as customer
support. Through this comprehensive suite of services, we enable our customers
to automate e-business applications without regard for internal staffing
constraints. As of September 30, 1999, our services organization consisted of 31
professionals, which is augmented from time-to-time by our product development
organization and our services partners.
Consulting Services
We provide mentoring, staff augmentation and project management services to
assist customers in successfully developing and deploying custom e-business
applications using our products. These services include system architecture,
data modeling, system design, application development, testing, configuration
and installation, and performance tuning. These services can be provided at our
customers' sites as well as via remote electronic connection, offering our
customers the balance between personal interaction and speed of responsiveness.
We generally price these consulting services on a time-and-materials basis.
Training Services
We offer our customers introductory and advanced training in the use of our
products and in Java programming. These training services are offered in several
geographic locations, either as standard public training classes or on-site
private training classes. We price these services per course or on a per day
basis.
Customer Support
We believe that a high level of customer support services is essential to
our success. We offer a range of customer support services, including business
hour telephone and e-mail support from our Oakland and United Kingdom
facilities, 24-hour-a-day/seven-day-a-week production system support and on-site
support on request. We also provide our customers with access to news groups,
internal Web sites and other non-public repositories of information regarding
our products. Our customers typically purchase annual customer support contracts
at prices dependent upon their desired level of customer service.
Services Partners
In addition to our internal services organization, we train and promote a
broad range of partners from global system integrators to local consultants that
offer consulting, training and customer support services. We certify partners
who have completed our training programs and are qualified to support
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our products. We encourage our customers to utilize these partners, particularly
for longer term implementations.
CUSTOMERS
As of September 30, 1999, our software products were licensed to over 400
customers worldwide for use in a wide range of business-to-business,
business-to-employee and business-to-consumer applications. The following is a
representative selection of customers who have purchased our system and
services:
COMMUNICATIONS
Advanced Network and
Database Systems
InterNAP
MCI Worldcom
New Global Telecom
CONSULTING PARTNERS
Online Business Systems
Performance Software
Premier Solutions
SIS Propalogica
Template Software
E-COMMERCE
123 SignUp
IT Web
NetFreight.com
Yet2.com
EDUCATION
Boston University
Butte College
University of Alaska
University of California,
Berkeley
ENERGY
CMS (f.k.a. Duke Energy)
EDF (France)
El Paso Energy
ENEL (Italy)
ESBI (Canada)
Shell Energy
TXU (f.k.a. Texas Utilities)
FINANCIAL SERVICES
Aegon NV (Netherlands)
Aspecta (Germany)
Chicago Title
Christiana Bank (Norway)
Group AMA (France)
JP Morgan
Mortgage Flex
PMI Mortgage Insurance
W.R. Hambrecht
Xpede
GOVERNMENT
County of Los Angeles
Maricopa County
U.S. Dept. of Forestry
MANUFACTURING
DuPont
ITT Fluid Technology
Philips Semiconductor
Tetra Pak Americas
OTHER
Avery Dennison
Harcourt General (ASI)
Hilton Hotels
Interim Services
Tree of Life
PHARMACEUTICALS
Bausch and Lomb
Bayer
Neutrogena
SYSTEM INTEGRATORS
Context Integration
Ernst & Young LLP
KPMG LLP
Lante
Lockheed Martin
TRANSPORTATION
Canadian Pacific Ships
Dimerco Express
Herman Miles Trucking
Twin Modal
Since January 1, 1998, over 30 customers in the above table have each
purchased products and services for over $100,000. Shell Energy/Noble Software
and Harcourt General accounted for 17.5% and 12.8%, respectively, of our revenue
for the year ended December 31, 1998 and El Paso Energy Corporation accounted
for 11.9% of our revenue for the nine months ended September 30, 1999.
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The following case studies illustrate the business problems faced by
representative customers and the benefits derived from developing and deploying
their applications using our E-Business Automation System. The statistical and
financial data in these case studies has been provided by the respective
customer.
BENEFITING FROM A CHANGING COMPETITIVE LANDSCAPE -- A BUSINESS-TO-BUSINESS
APPLICATION
TXU
TXU (formerly Texas Utilities) is a large holding company for energy
services companies with more than nine million customers and assets of over $40
billion. Rapid changes in the utility industry, coupled with accelerated
customer demand for Web-based applications, prompted TXU to create a
comprehensive Web strategy to standardize development and deployment of its
e-business applications across all of its domestic business units. After
evaluating 20 vendors, TXU selected Versata to provide the overall architecture
for executing its Web strategy. TXU selected our solution for our ability to
rapidly deliver high performance e-business applications using TXU's existing
technical skills and resources.
Within three months, TXU deployed three applications targeted at diverse
audiences -- facilities contractors, corporate utility customers and employees.
An automated contractor invoicing system, accessible from the Web, was deployed
to make the project change process significantly less costly and more efficient.
A bill presentment system was deployed to allow TXU's largest customers to
access their utility bills from the Web. Finally, an internal resource
management system was implemented to allow TXU's technology department to
schedule, track and match employee skill sets for projects. Each of these
applications leverages the TXU Web architecture to integrate business functions
and improve customer service.
Other customers that have used our E-Business Automation System to benefit
from a changing competitive landscape include Chicago Title Company, El Paso
Energy Corporation, InterNAP, PMI Mortgage Insurance and Shell Energy/Noble
Software.
MANAGING DISTRIBUTION STRATEGY ON THE WEB -- A BUSINESS-TO-BUSINESS APPLICATION
TWIN MODAL
Since 1977, Twin Modal, Inc. has provided freight forwarding services
throughout North America. Twin Modal recently launched a load booking and
shipping status e-business site to provide 24-hour-per-day/seven-day-per-week
transportation brokering services. To accomplish this, Twin Modal deployed
e-business applications to enable shippers, truckers and carriers to execute
transactions over the Internet.
Through this implementation, Twin Modal sought to leverage its huge carrier
network to capitalize on opportunities for matching carriers and loads, provide
greater visibility to preferred carriers, and grow its business capacity while
reducing future hires. The necessary applications were built in under four
months by Online Business Systems, one of our integration partners. The
applications allow truckers to view available loads and make load-delivery
commitments from any computer with Internet access. Shippers can track the
status of any shipment 24 hours a day. The Internet applications are run on a
pool of Versata Logic Servers, accessing trucking and railroad information
stored in several SQL Servers. The secure site uses Versata's rules technology
to match trucking capabilities, such as refrigeration or flatbed, with shipping
requirements. These requirements are critical to a self-service architecture.
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Other customers who have used our E-Business Automation System to manage
their distribution strategies on the Web include Canadian Pacific Ships, Dimerco
Express, Herman Miles Trucking NetFreight.com and Tree of Life.
MANAGING FINANCIAL RELATIONSHIPS ON THE WEB -- A BUSINESS-TO-CONSUMER
APPLICATION
XPEDE
Xpede is an emerging company in the online loan processing market. As an
application service provider, Xpede helps lenders quickly establish an online
loan presence under the lenders' own brand name. Major lending institutions use
Xpede's solution to process loans, extend their brands to the Web, and
personalize interactions with their customers. Xpede needed a highly scalable,
flexible and secure system that could process and distribute financial
information for its customers.
Xpede selected our E-Business Automation System as its development and
deployment platform because of our system's ability to facilitate the rapid
delivery and modification of complex, large-scale Web applications. Our solution
enabled Xpede to rapidly customize and change its customers' applications by
simply changing the business rules that were to be applied to each customer. As
a result, Xpede developed and delivered its first service for a major financial
institution on schedule and on budget. Using our system, Xpede can now support
multiple loan origination channels through the Web, including consumers, loan
officers and brokers. Xpede is able to quickly bring new financial institutions
online because of the flexibility provided by the business rules automation
technology underpinning our system.
Other customers that have used our E-Business Automation System to manage
financial relationships on the Web include 123 SignUp, Christiana Bank (Norway),
the County of Los Angeles, IT Web, W.R. Hambrecht and Company and Yet2.com.
STRATEGIC ALLIANCES
We intend to develop and maintain strategic arrangements which complement
and expand our existing multi-channel distribution network and extend our market
reach. These arrangements include strategic marketing and technology alliances
and relationships with independent software vendors, global systems integrators,
Web integrators and value added distributors.
Our most important strategic relationship to date is with IBM. In September
1999, we entered into a Joint Product Marketing Agreement with IBM, which
created a strategic marketing and development relationship to provide a single
product offering that integrates our Versata Logic Server and Versata Studio
technology with IBM's WebSphere(TM) Application Server Advanced Edition and
WebSphere(TM) Studio. We both will offer the new product under our respective
brand names. Pursuant to the agreement, IBM will translate the integrated
product into nine foreign languages. In addition, IBM will provide worldwide
customer support for customers who purchase the IBM branded version of the
integrated product. Under the IBM agreement, both parties will undertake joint
marketing activities and will make marketing investments to create awareness for
e-business automation and generate demand for the integrated product. These
activities include seminars, business shows and other marketing programs, as
well as sales and support training. In addition, IBM will promote the IBM
branded version of the integrated product as part of its portfolio of e-business
products.
Under the agreement, each party will pay the other a percentage of all
product license fees, upgrade fees and usage fees for the integrated product.
The IBM agreement terminates on December 31, 2001, with automatic annual
renewals each January 1 until December 31, 2005, subject to earlier termination
under specified circumstances.
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SALES AND MARKETING
Sales
We sell our products through a multi-channel distribution model, which
includes both direct and indirect channel sales. As of September 30, 1999, our
sales organization consisted of 65 professionals located in 16 direct sales
offices in North America, Europe and the Pacific Rim. Our direct sales teams
typically includes a sales representative, a system engineer and an inside
salesperson. In addition, we have sales personnel working to further develop our
multi-channel distribution model. We intend to expand our direct and indirect
channel sales organization on a global basis.
Our sales model often includes a proof of concept approach to winning
competitive sales opportunities. In approximately three to five days our sales
engineers can define the business rules for a portion of a company's project and
deploy it as a production application. Also, in a proof of concept, it is
possible to modify the running application by changing the business rules. In
these competitive situations, the tangible results of our proof of concept
substantiate the time-to-market advantage, ability to support business
flexibility and ease of use which often leads to a full project implementation.
We complement our direct sales force with channel sales through three types
of partners that either sell, or help us sell, our products. These partners
include:
- Consulting partners. Our consulting partners include global system
integrators, Web integrators and regional consulting partners. These
partners sell our products to new customers and then provide the
customers with consulting and system integration services. As of December
1, 1999, we had approximately 125 consulting partners, including Context
Integration, Ernst & Young, KPMG, Lante and Lockheed Martin.
- Independent Software Vendors and Application Service Providers. Our
independent software vendor and application service provider partners use
our software to create and maintain their integrated software products.
We receive a royalty from these partners for every software sale that
integrates our E-Business Automation System. As of December 1, 1999, we
had approximately 13 ISV/ASP partners. These partners included
Prefersoft, which sells a customer relationship management system; Xpede,
which provides integrated online loan services; Performance Software,
which sells an integrated Web-based human resources system; Read Q, which
sells an integrated trading system; and Ernst & Young, which sells a risk
assessment system.
- International Distributors. Our international distributors include
vendors that sell business software products to companies in Europe,
Latin America and the Pacific Rim. As of December 1, 1999, we had
approximately 14 distributors. These partners include 2Support,
Bi-Vision, Coalescent, Grupo Informatica and Template Software.
Marketing
We support our sales efforts through a variety of marketing initiatives
implemented through both our corporate headquarters and our regional offices.
Our marketing organization, which consisted of 13 professionals as of September
30, 1999, focuses on creating market awareness for our E-Business Automation
System, generating sales leads, promoting our e-business automation leadership
and
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educating independent research analysts about our solution. We engage in a
variety of marketing initiatives, which include:
- conducting seminars and demonstrations;
- conducting direct mailings and telemarketing;
- managing and maintaining our Web site;
- participating in industry and technology-related trade shows and
conferences;
- conducting marketing programs in conjunction with key local and global
partners;
- ongoing public relations campaigns, including producing and distributing
brochures and white papers; and
- producing and distributing sales support materials.
We also recently changed our corporate name to Versata and plan to launch a
variety of marketing programs designed to build brand and industry recognition
of Versata as the e-business automation leader. As a result of this effort, we
intend to further promote e-business automation as the new paradigm for
creating, deploying and modifying transaction-oriented, mission-critical
e-business applications.
PRODUCT DEVELOPMENT
Since early 1995, we have devoted a significant portion of our resources to
product development. Development of our current software began in September
1996. Our future success depends on our ability to enhance our existing system
and create new products that maintain and expand our technology leadership in
e-business automation. We intend to continue making substantial investments in
product development.
We are currently developing new releases of our products. The next release
of our E-Business Automation System will integrate our Versata Logic Server with
IBM's WebSphere(TM) Application Server Advanced Edition, and add enterprise
level team development functionality. As part of our strategic relationship with
IBM, IBM has agreed to translate this release into nine foreign languages. In
addition, we will continue to add specific connectivity features to support our
customers' legacy computing infrastructures.
Our product development expenses totaled approximately $3.5 million for the
year ended December 31, 1997, $3.7 million for the year ended December 31, 1998
and $3.0 million for the nine months ended September 30, 1999. As of September
30, 1999, we had 29 technical professionals in product development, which
includes quality assurance and technical documentation. Our product development
effort is driven by an efficient team that has benefited from a low turnover
rate, even in an intensely competitive environment for software engineers. While
we have developed most new products and enhancements to existing products
internally, we have also licensed software technology from third parties.
The markets for our products and services are characterized by rapid
technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changes in customer requirements and evolving
industry standards. New products based on new technologies or new industry
standards may quickly render an existing product obsolete and unmarketable. Our
future success will depend in part on our ability to anticipate changes, enhance
our current products, develop and introduce new products that keep pace with
technological advancements and address the
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increasingly sophisticated needs of our customers. See "Risk Factors -- Risks
Relating to Our Business -- If we fail to respond to rapid technological change
and evolving industry standards, our products may become obsolete."
COMPETITION
The Internet infrastructure software market is new, rapidly evolving and
highly competitive, subject to technological changes and significantly affected
by new product introductions and other market activities of industry
participants. We expect the competition in this industry to persist and
intensify in the future. Our primary competition comes from companies developing
their e-business applications internally using traditional programming
approaches. We also compete with a number of other sources, including:
- vendors of application server products and services such as BEA Systems,
Inc. and Sun Microsystems, Inc.;
- vendors of Web integrated development environments such as Bluestone,
Inc. and SilverStream Software; and
- companies that market business application software such as Oracle
Corporation.
We believe that the principal competitive factors in our market are:
- complete software platform;
- responsiveness to business and technical changes;
- performance, scalability and availability;
- use of standards-based technology;
- ease of integration with customers' existing legacy data, applications
and middleware computing infrastructure;
- need for large numbers of skilled Java programmers;
- quality of support and services;
- price; and
- company reputation.
Many of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do. As a
result, they may be able to respond more quickly to new or changing
opportunities, technologies and customer requirements. Many of our competitors
also have more extensive customer bases, broader customer relationships and
broader industry alliances that they could leverage, thereby establishing
relationships with many of our current and potential customers. These companies
also have significantly more established customer support and professional
services organizations. In addition, these companies may adopt more aggressive
pricing policies or offer more attractive terms to customers than we can, may
bundle their competitive products with broader product offerings in a manner
that may discourage the purchase of our products or may introduce new products
and enhancements. In addition, current and potential competitors may establish
cooperative relationships among themselves or with third parties to enhance
their products. As a result, it is possible that new competitors or alliances
among competitors may
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emerge and rapidly acquire significant market share. We may not be able to
maintain our competitive position against current and potential competitors,
especially those with significantly greater resources.
INTELLECTUAL PROPERTY AND LICENSING
Intellectual Property
We rely on a combination of patent, copyright, trademark and trade secret
laws to protect our intellectual property. These legal protections afford only
limited protection for our technology. We currently have one U.S. patent
relating to our automated development tool that uses a drag-and-drop metaphor.
This patent is scheduled to expire in April 9, 2016. In addition, we have one
U.S. patent pending relating to our business rules automation in database
application development and maintenance. We cannot predict whether this patent
application will result in an issued patent, or if a patent is issued, whether
it will provide any meaningful protection. Finally, we seek to avoid disclosure
of our intellectual property by requiring employees and consultants with access
to intellectual property to execute confidentiality agreements with us and by
restricting access to our source code. While we rely on patent, copyright,
trademark, trade secret laws and contractual restrictions to protect our
technology, we believe that factors such as the creativity and technological
skills of our personnel, new product developments, frequent product enhancements
and reliable customer service and product maintenance are more essential to
establishing and maintaining a technology leadership position. We cannot provide
any assurance that other companies will not develop technologies that are
similar or superior to our technology.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult and while we are unable to determine the extent to which piracy of our
software exists, software piracy can be expected to be a persistent problem. In
addition, the laws of many countries do not protect our proprietary rights to as
great an extent as do the laws of the United States. Litigation may be necessary
in the future to enforce our intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary rights of others
or to defend against claims of infringement or invalidity. Any such resulting
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, operating results and
financial condition.
There can be no assurance that our means of protecting our proprietary
rights will be adequate or that our competitors will not independently develop
similar technology. Any failure by us to meaningfully protect our property could
have a material adverse effect on our business, operating results and financial
condition. To date, we have not been notified that our products infringe on the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement with respect to our current or future
products. We expect that developers of Web-based application software products
will increasingly be subject to infringement claims as the number of products
and competitors in our industry segment grows and as the functionality of
products in different segments of the software industry increasingly overlaps.
Any such claims, with or without merit, could be time-consuming to defend,
result in costly litigation, divert management's attention and resources, cause
product shipment delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to us or at all. A successful infringement claim
against us and our failure or inability to license the infringed rights or
develop or license technology with comparable functionality could have a
material adverse effect on our business, financial condition and operating
results.
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Licensing
We integrate third-party software into our products. This third-party
software may not continue to be available on commercially reasonable terms. The
third-party software that we license includes Sun's Java server, Merant's data
direct drivers, Inprise's Visi Broker for Java, IBM's WebSphere(TM) Application
Server Advanced Edition and WebSphere(TM)Studio. These licenses are
non-exclusive and their terms vary from one to two years, subject to earlier
termination under certain circumstances. These licensed components enhance
features in our products. While we believe that alternative sources of these
component software products are available, any significant interruption in the
supply of these products could adversely impact our sales unless and until we
could secure another supplier. In addition, almost all of our products are
written in Java and require a Java Virtual Machine(TM) made available by Sun
Microsystems in order to operate. Our license with Sun Microsystems expires in
June 2000. See "Risk Factors -- We include third-party software and technology
in our products; our business would be harmed if we were not able to continue
using this third-party software and technology."
EMPLOYEES
As of September 30, 1999, we had 156 employees and independent contractors
devoting substantially all of their time to us. Of these individuals, 78 were in
sales and marketing, 29 were in development and engineering services, 31 were in
professional services and customer support, and 18 were in finance and
administration. Our employees are not represented by any collective bargaining
unit, and we believe our relations with employees are satisfactory.
PROPERTIES
Our principal executive and administrative offices are located in
approximately 37,000 square feet of office space in Oakland, California. Monthly
lease payments on the Oakland facility are approximately $66,000. This lease
expires in November 2000. We also maintain leased offices in Atlanta, Hamburg,
London, New Jersey, New York, Texas and Virginia. We have additional offices in
Boston, Calgary, Chicago, Dallas, Denver, Hong Kong, Houston, Los Angeles,
Pittsburgh, Toronto and Washington, D.C. We believe that our existing facilities
are adequate to meet our current and projected needs, or that suitable
additional or substitute space will be available as needed.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings. We may, from time to time,
become a party to various legal proceedings arising in the ordinary course of
business.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding our executive officers
and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John A. Hewitt, Jr....................... 56 President, Chief Executive Officer,
Secretary and Director
Kevin Ferrell............................ 52 Chief Financial Officer
Val Huber................................ 50 Vice President, Development and Chief
Technology Officer
Peter Harrison........................... 36 Vice President, Sales
Michael DeVries.......................... 40 Vice President, Marketing
Michael Stangl........................... 33 Vice President, Professional Services
Gary Morgenthaler(1)..................... 51 Chairman of the Board
Naren Bakshi............................. 56 Director
Robert Davoli............................ 51 Director
Donald W. Feddersen(1)(2)................ 65 Director
John W. Larson(2)........................ 64 Director
Kanwal Rekhi(1).......................... 53 Director
Eugene Wong.............................. 64 Director
</TABLE>
- -------------------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
John A. Hewitt, Jr. Mr. Hewitt joined Versata in December 1995 as Vice
President, Services, Chief Financial Officer and Secretary and became President
and Chief Executive Officer in 1997. Mr. Hewitt has served as a director of
Versata since June 1998. Prior to joining Versata, from 1982 to 1995, Mr. Hewitt
served in several executive positions with TRW Financial Systems (TFS, formerly
Teknekron Financial Systems), a commercial systems integration company. Prior to
working with TFS, Mr. Hewitt served as the Chief Operating Officer of a
Warren-King Energy Company, UnderSecretary and Chief Financial Officer, U.S.
Department of Energy and Assistant Secretary Financial Management, U.S. Air
Force. Mr. Hewitt holds a B.S. in Engineering Management from the USAF Academy
where he graduated with distinction. Mr. Hewitt also holds an M.B.A. in
Production Management from the University of California, Los Angeles.
Kevin Ferrell. Mr. Ferrell joined Versata in November 1999 as Chief
Financial Officer. Prior to joining Versata, from March 1999 to November 1999,
Mr. Ferrell served as Executive Vice President at EQE International, a risk
management company. From September 1996 to March 1999, Mr. Ferrell served as a
Managing Director in Investment Banking and Risk Management Advisory at Bankers
Trust. From September 1994 to September 1996, Mr. Ferrell was Vice President and
CFO at McKesson Corporation. From 1976 to 1994, Mr. Ferrell was an officer of
BankAmerica Corporation serving in positions including Head of Treasury,
Domestic and President of Seafirst Bank, a subsidiary of BankAmerica
Corporation. Mr. Ferrell holds an A.B. in Mathematics and an M.B.A. in Finance
and International Business from the University of California, Berkeley.
Val Huber. Mr. Huber joined Versata in 1995 as Vice President, Development
and Chief Technology Officer. Prior to joining Versata, from 1989 to 1994, Mr.
Huber served as a lead architect on various technology projects at Sybase. Prior
to working with Sybase, from 1980 to 1989, Mr. Huber served as Director of
Business Computer Systems at Wang Labs. Mr. Huber holds a B.A. in Chemistry from
Vanderbilt University.
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Peter Harrison. Mr. Harrison joined Versata in 1996 as Vice President,
Sales. Prior to joining Versata, from 1990 to October 1996, Mr. Harrison
co-founded Seer Technologies, a software company, and served as Vice President
of Sales. Prior to working with Seer Technologies, from 1986 to 1990, Mr.
Harrison served in various positions at Credit Suisse First Boston. Mr. Harrison
holds a B.S. in Software Engineering from Birmingham University in the U.K.
Michael DeVries. Mr. DeVries joined Versata in 1997 as Vice President,
Marketing. Prior to joining Versata, from May 1996 to August 1997, Mr. DeVries
served as Vice President of Marketing at Persistence Software. From January 1993
to April 1996, Mr. DeVries served as Vice President, Marketing, and Director of
Production Management at Synon. Mr. DeVries holds a B.A. in Economics from the
University of California, Santa Barbara.
Michael Stangl. Mr. Stangl joined Versata in 1998 as Vice President,
Professional Services. Prior to joining Versata, from 1992 to 1998, Mr. Stangl
served in various positions, including Vice President, Professional Services,
and Channel Sales Manager at Seer Technologies, a software company. Prior to
working with Seer Technologies, Mr. Stangl served as a senior consultant with
Andersen Consulting. Mr. Stangl holds a B.S. in Hotel Administration and an
M.B.A. in Finance from Cornell University.
Gary Morgenthaler. Mr. Morgenthaler has served as a director of Versata
since 1997. Mr. Morgenthaler is a general partner of Morgenthaler Ventures. Mr.
Morgenthaler is a co-founder and former Chairman of Illustra Information
Technologies, Inc., a database applications company. Prior to becoming a partner
of Morgenthaler Ventures, Mr. Morgenthaler was Chairman, Chief Executive Officer
and a co-founder of INGRES, a relational database management systems company.
Mr. Morgenthaler holds a B.A. in International Relations from Harvard
University.
Naren Bakshi. Mr. Bakshi, a co-founder of Versata, has served as a director
of Versata since 1995. He also served as President and Chief Executive Officer
of Versata until 1997. Currently, he is Chairman of the Board and Executive Vice
President of Xpede, a company he co-founded in 1998, a provider of e-commerce
lending services to major financial institutions, and an advisor to TekEdge and
123SignUp. Mr. Bakshi also served in various management positions at TRW from
1980 to 1991. Mr. Bakshi has also served as Vice President of Information
Services at Ameritrust Bank. Mr. Bakshi holds an M.S. in Industrial Engineering
and an M.B.A. in Finance from the University of California, Berkeley.
Robert Davoli. Mr. Davoli has served as a director of Versata since
November 1999. Prior to becoming a director, Mr. Davoli served as a technical
consultant to Versata from 1995. Since November 1995, Mr. Davoli has served as a
partner at Sigma, a venture capital firm. From February 1993 to September 1994,
Mr. Davoli served as President and Chief Executive Officer of Epoch Systems, a
software vendor. Previous to working with Epoch Systems, Mr. Davoli served as
President and Chief Executive Officer of SQL Solutions, a services and tools
provider for the relational database market. From 1990 to 1992, Mr. Davoli
served as an executive officer of Sybase. Mr. Davoli is a director of Internet
Security Systems, Inc. and Vignette Corporation. Mr. Davoli holds a B.A. in
History from Ricker College and studied Computer Science at Northeastern
University for two years.
Donald W. Feddersen. Mr. Feddersen has served as a director of Versata
since 1997. Mr. Feddersen has been a private investor since July 1997. From 1984
to July 1997, Mr. Feddersen was a General Partner of Charles River Ventures.
Before joining Charles River Ventures, Mr. Feddersen was President and Chief
Executive Officer at Applicon from 1978 to 1984. Mr. Feddersen is a director of
Policy Management Systems Corporation. Mr. Feddersen holds a B.S. in Engineering
from Purdue University and an M.B.A. from the University of Chicago.
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John W. Larson. Mr. Larson has served as a director of Versata since 1998.
Mr. Larson has served as senior partner at the law firm of Brobeck, Phleger &
Harrison LLP since March 1996. From 1988 until March 1996, Mr. Larson was Chief
Executive Officer of the firm. He has been a partner with the firm since 1969,
except for the period from July 1971 to September 1973 when he was in government
service as Assistant Secretary of the United States Department of the Interior
and Counselor to George P. Shultz, Chairman of the Cost of Living Council. Mr.
Larson holds a B.A., with distinction, in Economics, and an L.L.B. from Stanford
University.
Kanwal Rekhi. Mr. Rekhi has served as a director of Versata since 1995.
Since 1994, Mr. Rekhi has been a mentor to and investor in early-stage
technology companies. From March 1998 to September 1998, Mr. Rekhi served as
Chief Executive Officer and Chairman of the Board of Cybermedia, a software
company. Prior to 1994, Mr. Rekhi served as Executive Vice President and Chief
Technology Officer at Novell. Mr. Rekhi holds an M.S. in Electrical Engineering
from Michigan Technical University and a degree in Electrical Engineering from
the Indian Institute of Technology in Bombay.
Eugene Wong. Dr. Wong has served as a director of Versata since May 1998.
Since 1997, Dr. Wong has served as a technical consultant and chief scientist to
Versata. Dr. Wong has served as Professor Emeritus at the University of
California on assignment with the National Science Foundation since June 1998.
Dr. Wong acted as Associate Director of the office of Science and Technology
Policy in the Bush White House from 1990 to 1993. Dr. Wong holds a B.S.E., an
A.M., and a Ph.D., all in Electrical Engineering, all from Princeton University.
BOARD OF DIRECTORS
We currently have authorized eight directors. Following this offering, our
board will consist of eight directors divided into three classes. At each annual
meeting of stockholders, directors will be elected by the holders of common
stock to succeed the directors whose terms are expiring. The three classes will
be as nearly equal in number as possible, as determined by the board of
directors, one class (Class I) to hold office initially for a term expiring at
the annual meeting to be held in 2000, another class (Class II) to hold office
initially for a term expiring at the annual meeting of stockholders held in 2001
and another class (Class III) to hold office initially for a term expiring at
the annual meeting of stockholders to be held in 2002. At each annual meeting of
stockholders after the initial classification, the successors of the class of
directors whose term expires at that meeting shall be elected to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election. This classification of the board of
directors may delay or prevent a change in control of our company or in our
management. See "Description of Capital Stock -- Antitakeover Effects of
Provisions of the Certificate of Incorporation, Bylaws and Delaware Law."
BOARD COMMITTEES
We have established an audit committee composed of independent directors
that reviews and supervises our financial controls, including the selection of
our auditors, reviews our books and accounts, meets with our officers regarding
our financial controls, acts upon recommendations of our auditors and takes
further actions as the audit committee deems necessary to complete an audit of
our books and accounts. The audit committee also performs such other duties as
may from time to time be determined. The audit committee currently consists of
two directors, Messrs. Feddersen and Larson.
We have also established a compensation committee that reviews and approves
the compensation and benefits for our executive officers, administers our
compensation and stock plans, makes
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<PAGE> 62
recommendations to the board of directors regarding such matters and performs
other duties as may from time to time be determined by the board. The
compensation committee currently consists of three directors, Messrs.
Morgenthaler, Feddersen and Rekhi.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our compensation committee members has been an officer or employee
of Versata at any time. None of our executive officers serves on the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of our board or our compensation committee.
DIRECTOR COMPENSATION
We currently do not compensate any non-employee member of the board for
their service as board members, except in some cases through the grant of stock
options. Directors who are also employees do not receive additional compensation
for serving as directors.
Under our 2000 stock incentive plan, which was adopted by our board on
November 16, 1999 and approved by the stockholders in 2000,
non-employee directors will receive automatic option grants upon becoming
directors and on the date of each annual meeting of stockholders. The 2000 stock
incentive plan also contains a director fee option grant program. Should this
program be activated in the future, each non-employee board member will have the
opportunity to apply all or a portion of any annual retainer fee otherwise
payable in cash to the acquisition of an option with an exercise price below the
then fair market value of our shares. Non-employee directors will also be
eligible to receive discretionary option grants and direct stock issuances under
our 2000 stock incentive plan. See "Management -- Stock Plans."
EXECUTIVE OFFICERS
Each officer is elected by, and serves at the discretion of, the board of
directors. Each of our officers and directors, other than non-employee
directors, devotes full-time to the affairs of Versata. Our non-employee
directors devote such time to the affairs of Versata as is necessary to
discharge their duties. There are no family relationships among any of our
directors or executive officers.
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EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation earned
during the fiscal year ended December 31, 1998 by our Chief Executive Officer
and each of our four other most highly compensated executive officers for that
fiscal year, referred to collectively in this prospectus as the named executive
officers. No individual who would otherwise have been includable in the table on
the basis of salary and bonus earned during 1998 has resigned or otherwise
terminated his or her employment during 1998.
The options listed in the following table were originally granted under our
1997 stock option plan. These options have been incorporated into our new 2000
stock incentive plan, but will continue to be governed by their existing terms.
See "Management -- Stock Plans."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL ------------
COMPENSATION(1) SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
--------------------------- -------- ------- ------------
<S> <C> <C> <C>
John A. Hewitt, Jr.
President, Chief Executive Officer and Secretary... $160,000 $60,000 868,000
Val Huber
Vice President, Development
and Chief Technology Officer....................... 135,000 60,000 180,000
Peter Harrison
Vice President, Sales.............................. 140,000 60,000 165,000
Michael DeVries
Vice President, Marketing.......................... 140,000 74,000 180,000
Michael Stangl(2)
Vice President, Professional Services.............. 7,000 -- 375,000
</TABLE>
- -------------------------
(1) Excludes other compensation in the form of perquisites and other personal
benefits that constitutes the lesser of $50,000 or 10% of the total annual
salary and bonus of each of the named executive officers in 1998.
(2) Mr. Stangl joined us on December 14, 1998. His annualized base salary for
1998 was $145,000.
OPTION GRANTS IN FISCAL YEAR 1998
The following table sets forth information with respect to stock options
granted to each of our named executive officers in 1998. No stock appreciation
rights were granted during 1998.
The potential realizable value is calculated assuming the fair market value
of the common stock appreciates at the indicated rate for the entire term of the
option and that the option is exercised and sold on the last day of its term at
the appreciated price. Stock price appreciation of 5% and 10% is assumed
pursuant to the rules of the Securities and Exchange Commission. We can give no
assurance that the actual stock price will appreciate over the term of the
options at the assumed 5% and 10% levels or at any other defined level. Actual
gains, if any, on stock option exercises will be dependent on the future
performance of our common stock. Unless the market price of the common
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stock appreciates over the option term, no value will be realized from the
option grants made to the named executive officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
PERCENTAGE OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------
NAME GRANTED FISCAL 1998 SHARE DATE 5% 10%
---- ---------- -------------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
John A. Hewitt, Jr......... 120,000 3.52% $0.20 6/16/08 $15,093 $ 38,250
73,000 2.14 0.20 6/16/08 9,182 23,269
25,000 0.73 0.20 6/16/08 3,144 7,969
500,000 14.65 0.20 9/30/08 62,889 159,373
150,000 4.40 0.20 9/30/08 18,867 47,812
Val Huber.................. 105,000 3.08 0.20 9/30/08 13,207 33,469
75,000 2.20 0.20 9/30/08 9,433 23,906
Peter Harrison............. 105,000 3.08 0.20 9/30/08 13,207 33,469
60,000 1.76 0.20 9/30/08 7,547 19,124
Michael DeVries............ 105,000 3.08 0.20 9/30/08 13,207 33,469
75,000 2.20 0.20 9/30/08 9,433 23,906
Michael Stangl............. 300,000 8.80 0.20 12/13/08 37,734 95,625
75,000 2.20 0.20 12/13/08 9,433 23,906
</TABLE>
In 1998, we granted options to purchase up to an aggregate of 3,412,335
shares to employees, directors and consultants under our 1997 stock option plan
at exercise prices equal to the fair market value of our common stock on the
date of grant, as determined in good faith by our board of directors. Each
option has a maximum term of 10 years, subject to earlier termination upon the
optionee's termination of service with us. Except as otherwise described below,
the options are immediately exercisable, but any shares purchased under these
options that are not vested are subject to our right to repurchase the shares at
the shares' option exercise price. In general, this repurchase right lapses as
to 12% of the shares after six months of service and as to the remaining shares
in equal monthly installments over an additional 44-month period. However:
- The shares subject to the 120,000-share option granted to Mr. Hewitt on
June 17, 1998 vest as to 10,000 shares per month, measured from January
1, 1998.
- The shares subject to the 73,000-share option granted to Mr. Hewitt on
June 17, 1998 vest as to 3,000 shares per month, measured from January 1,
1998. This option qualifies as an incentive stock option for federal tax
purposes and replaces an option for the same number of shares, with the
same exercise price and vesting schedule, which was granted to Mr. Hewitt
in 1997 and did not qualify as an incentive stock option. That option was
cancelled as of June 17, 1998.
- The shares subject to the 25,000-share option granted to Mr. Hewitt on
June 17, 1998 will vest in the event we appoint a new Chief Executive
Officer but, in any event, the option will become exercisable and fully
vested five years from the date of grant.
- The options granted in October 1998 to Messrs. Hewitt, Huber, Harrison
and DeVries to purchase 150,000, 75,000, 60,000 and 75,000 shares,
respectively, and the option granted to Mr. Stangl in December 1998 to
purchase 75,000 shares, are performance-based options which become
exercisable and vested in full on November 30, 2003 for Messrs. Hewitt,
Huber, Harrison and DeVries and on February 13, 2004 for Mr. Stangl.
However, if we attain our
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annual financial target for the 1999 fiscal year, as set forth in our operating
plan for that year, 50% of the option shares will become exercisable and vested
as of December 31, 1999 and if we attain our annual financial target established
for the 2000 fiscal year, as set forth in our operating plan for that
year, the remaining 50% of the option shares will become exercisable and
vested as of December 31, 2000. Our annual financial target for the 1999
fiscal year is $13.7 million in bookings. Our annual financial target for
the 2000 fiscal year will be determined at the time our operating plan for
that year is finalized. Should we be acquired by merger or asset sale
before December 31, 2000, the 50% of the option shares allocated to the
year in which the acquisition occurs will immediately accelerate and
become fully exercisable and the options will terminate with respect to
any option shares which are not otherwise exercisable at that time.
In October 1999, we granted to the following named executive officers
options to purchase up to the following numbers of shares of common stock at an
exercise price of $2.50 per share:
- John A. Hewitt, Jr. received an option to purchase up to 400,000 shares
of common stock;
- Val Huber received an option to purchase up to 75,000 shares of common
stock;
- Peter Harrison received an option to purchase up to 75,000 shares of
common stock;
- Michael DeVries received an option to purchase up to 75,000 shares of
common stock; and
- Michael Stangl received an option to purchase up to 75,000 shares of
common stock.
The options are immediately exercisable, but any shares purchased under
these options that are not vested are subject to our right to repurchase the
shares at the shares' option exercise price. This repurchase right lapses with
respect to 12.5% of the option shares on April 19, 2000 and with respect to the
remaining shares in equal monthly installments over the 42-month period
following that date. All of the options will expire on October 19, 2009.
In November 1999, Mr. Ferrell was appointed Chief Financial Officer and we
granted Mr. Ferrell two stock options, each at an exercise price of $3.00 per
share. The first option, for 400,000 shares, is immediately exercisable but any
shares purchased under the option that are not vested are subject to our right
to repurchase the shares at the shares' option exercise price. This repurchase
right will lapse with respect to 12% of the option shares on May 28, 2000 and
with respect to the remaining shares in equal monthly installments over the
44-month period following that date. The second option, for 50,000 shares, will
become exercisable in full on January 28, 2005 but will be subject to
acceleration and will become exercisable and vested as of December 31, 2000 if
we attain our annual financial target for the 2000 fiscal year, as set forth in
our operating plan for that year. Should we be acquired by merger or asset sale
before December 31, 2000, the 50,000 option shares will immediately accelerate
and become fully exercisable. The options will expire on November 28, 2009.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth information concerning the number and value
of shares of common stock underlying the unexercised options held by the named
executive officers as of December 31, 1998. No options or stock appreciation
rights were exercised during 1998 and no stock appreciation rights were
outstanding as of December 31, 1998. The value of unexercised in-the-money
options at December 31, 1998 is calculated on the basis of the assumed initial
public offering price of $ , less the aggregate exercise price of the
options, multiplied by the number of shares underlying those options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John A. Hewitt, Jr.................. 805,625 285,000
Val Huber........................... 340,000 135,000
Peter Harrison...................... 214,600 170,400
Michael DeVries..................... 180,000 250,000
Michael Stangl...................... 300,000 75,000
</TABLE>
STOCK PLANS
2000 STOCK INCENTIVE PLAN
The 2000 stock incentive plan is intended to serve as the successor program
to our 1997 stock option plan. The 2000 plan was adopted by the board on
November 16, 1999 and approved by the stockholders in 2000. The 2000 plan
will become effective when the underwriting agreement for this offering is
signed. At that time, all outstanding options under our 1997 plan, including
options previously granted under our 1994 employee, consultant and director
stock option plan and our amended and restated 1996 stock option plan which were
incorporated into our 1997 stock option plan, will be transferred to the 2000
plan, and no further option grants will be made under the 1997 plan. The
transferred options will continue to be governed by their existing terms, unless
our compensation committee decides to extend one or more features of the 2000
plan to those options. Except as otherwise noted below, the transferred options
have substantially the same terms as will be in effect for grants made under the
discretionary option grant program of our 2000 plan.
We have authorized shares of our common stock for issuance
under the 2000 plan. This share reserve consists of the number of shares we
estimate will be carried over from the 1997 plan. The share reserve under our
2000 plan will automatically increase on the first trading day of the second
fiscal quarter each year, beginning with the year 2000, by an amount equal to
three percent (3%) of the total number of shares of our common stock outstanding
on the last trading day of the immediately preceding first fiscal quarter, but
in no event will this annual increase exceed 3,000,000 shares. In addition, no
participant in the plan may be granted stock options or direct stock issuances
under the 2000 plan for more than 1,000,000 shares of common stock in total in
any calendar year.
Our 2000 plan has five separate programs:
- the discretionary option grant program;
- the stock issuance program;
- the salary investment option grant program;
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- the automatic option grant program; and
- the director fee option grant program.
The individuals eligible to participate in our 2000 plan include our
officers and other employees, our board members and any consultants we retain.
Our compensation committee will determine which eligible individuals are to
receive option grants or stock issuances under the discretionary option grant
and stock issuance programs, the time or times when the grants or issuances are
to be made, the number of shares subject to each grant or issuance, the status
of any granted option as either an incentive stock option or a non-statutory
stock option under the federal tax laws, the vesting schedule to be in effect
for the option grant or stock issuance and the maximum term for which any
granted option is to remain outstanding. The exercise price for options granted
under the discretionary option grant program may not be less than the fair
market value of our shares of common stock on the grant date.
Our 2000 plan will include the following features:
- The exercise price for any options granted under the plan may be paid in
cash or in shares of our common stock valued at fair market value on the
exercise date or through a same-day sale program without any cash outlay
by the optionee.
- The compensation committee may cancel outstanding options under the
discretionary option grant program, including any options transferred
from our 1994, 1996 and 1997 plans, in return for the grant of new
options for the same or different number of option shares with an
exercise price per share based upon the fair market value of our common
stock on the new grant date.
- Stock appreciation rights may be issued under the discretionary option
grant program which will provide the holders with the election to
surrender their outstanding options for a payment from us equal to the
fair market value of the shares, subject to the surrendered options less
the exercise price payable for those shares. We may make the payment in
cash or in shares of our common stock. None of the options under our
1994, 1996, or 1997 plans have any stock appreciation rights.
The 2000 plan will include the following change in control provisions which
may result in the accelerated vesting of outstanding option grants and stock
issuances:
- In the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation will immediately become
exercisable for all the option shares, and all outstanding unvested
shares will immediately vest, except to the extent our repurchase rights
with respect to those shares are to be assigned to the successor
corporation.
- The compensation committee will have complete discretion to grant one or
more options which will become exercisable for all the option shares in
the event those options are assumed in the acquisition but the optionee's
service with us or the acquiring entity is subsequently terminated. The
vesting of any shares issued under our 2000 plan may be accelerated upon
similar terms and conditions.
- The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than 50% of our outstanding voting stock or a change in the majority
of our board through one or more contested elections. Such accelerated
vesting may
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occur either at the time of such transaction or upon the subsequent
termination of the individual's service.
- In the event we are acquired by merger or asset sale, and the acquiring
entity assumes the outstanding options under our 1994, 1996 and 1997
plans, those options will accelerate and become exercisable and vested in
full, and any unvested option shares will immediately vest in full, if
the optionee's employment with us is involuntarily terminated within 12
months following the acquisition. If the options are not so assumed, they
will accelerate and become exercisable for fully vested shares
immediately before the acquisition and will terminate upon the completion
of the acquisition.
In the event the compensation committee decides to put the salary
investment option grant program into effect for one or more calendar years, each
of our executive officers and other highly compensated employees selected by the
compensation committee may elect to reduce his or her base salary for the
calendar year by an amount not less than $10,000 nor more than $50,000. Each
individual who makes such an election will automatically be granted, on the
first trading day in January of the calendar year for which his or her salary
reduction is to be in effect, an option to purchase that number of shares of
common stock determined by dividing the salary reduction amount by two-thirds of
the fair market value per share of our common stock on the grant date. The
option will have an exercise price per share equal to one-third of the fair
market value of the option shares on the grant date. The option will become
exercisable in a series of 12 equal monthly installments over the calendar year
for which the salary reduction is to be in effect.
Under the automatic option grant program, each individual who first becomes
a non-employee board member at any time after the effective date of this
offering will receive an option grant to purchase 24,000 shares of common stock
on the date such individual joins the board. In addition, on the date of each
annual stockholders meeting held after the effective date of this offering, each
non-employee board member who is to continue to serve as a non-employee board
member, including each of our current non-employee board members, will
automatically be granted an option to purchase 8,000 shares of common stock,
provided such individual has served on the board for at least six months.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. The shares subject to each initial
24,000-share automatic option grant will vest in a series of three successive
annual installments upon the optionee's completion of each year of board service
measured from the grant date. The shares subject to each 8,000-share annual
option grant will vest upon optionee's completion of one year of board service
measured from the grant date. The shares subject to each option will immediately
vest in full upon the optionee's death or disability while a board member.
If the director fee option grant program is put into effect in the future,
then each non-employee board member may elect to apply all or a portion of any
cash retainer fee for the year to the acquisition of a below-market option
grant. The option grant will automatically be made on the first trading day in
January in the year for which the non-employee board member would otherwise be
paid the cash retainer fee in the absence of his or her election. The option
will have an exercise price per share equal to one-third of the fair market
value of the option shares on the grant date, and the number of shares subject
to the option will be determined by dividing the amount of the retainer fee
applied to the program by two-thirds of the fair market value per share of our
common stock on the
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grant date. The option will become exercisable in a series of 12 equal monthly
installments over the calendar year for which the election is in effect.
However, the option will become immediately exercisable for all the option
shares upon the death or disability of the optionee while serving as a board
member.
Our 2000 plan will also have the following features:
- Outstanding options under the salary investment option grant program and
the automatic and director fee option grant programs will immediately
vest if we are acquired by a merger or asset sale or if there is a
successful tender offer for more than 50% of our outstanding voting stock
or a change in the majority of our board through one or more contested
elections.
- Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program and
the automatic and director fee option grant programs, and these rights
may also be granted to one or more officers as part of their option
grants under the discretionary option grant program. Options with this
feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to a
cash distribution from us in an amount per surrendered option share based
upon the highest price per share of our common stock paid in that tender
offer.
The board may amend or modify the 2000 plan at any time, subject to any
required stockholder approval. The 2000 plan will terminate no later than
November 15, 2009.
EMPLOYEE STOCK PURCHASE PLAN
Our employee stock purchase plan was adopted by the board on November 16,
1999 and approved by the stockholders in 2000. The plan will
become effective immediately upon the signing of the underwriting agreement for
this offering. The plan is designed to allow our eligible employees and the
eligible employees of our participating subsidiaries to purchase shares of
common stock, at semi-annual intervals, with their accumulated payroll
deductions.
500,000 shares of our common stock will initially be reserved for issuance
under the plan. The reserve will automatically increase on the first trading day
of the second fiscal quarter each year, beginning in the year 2000, by an amount
equal to one percent (1%) of the total number of shares of our common stock
outstanding on the last trading day of the immediately preceding first fiscal
quarter. In no event will any such annual increase exceed 1,000,000 shares.
The plan will have a series of successive overlapping offering periods,
with a new offering period beginning on the first business day of February and
August each year. Each offering period will continue for a period of 24 months,
unless otherwise determined by our compensation committee. However, the initial
offering period will start on the date the underwriting agreement for this
offering is signed and will end on the last business day of January 2002. The
next offering period will start on the first business day of August 2000.
Employees who do not (or would not as a result of participation in the
employee stock purchase plan) own, or hold options to purchase, 5% of our
company or a parent or subsidiary of our company and who are scheduled to work
more than 20 hours per week for more than five calendar months per year may
participate in the plan and may join an offering period on the start date of
that period. Employees may participate in only one offering period at any time.
A participant may contribute up to 15% of his or her cash earnings through
payroll deductions, and the accumulated deductions will be applied to the
purchase of shares on each semi-annual
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purchase date. Semi-annual purchase dates will occur on the last business day of
January and July each year, with the first purchase to occur on the last
business day of July 2000. The purchase price per share on each semi-annual
purchase date will be equal to 85% of the fair market value per share on the
start date of the offering period or, if lower, 85% of the fair market value per
share on the semi-annual purchase date. However, a participant may not purchase
more than 2,500 shares on any purchase date, and not more than 125,000 shares
may be purchased in total by all participants on any purchase date. Our
compensation committee will have the authority to change these limitations for
any subsequent offering period.
If the fair market value per share of our common stock on any purchase date
is less than the fair market value per share on the start date of the 24-month
offering period, then that offering period will automatically terminate, and all
participants in the terminated offering period will automatically be transferred
to the new offering period commencing immediately thereafter.
Should we be acquired by merger or sale of substantially all of our assets
or more than 50% of our voting securities, then all outstanding purchase rights
will automatically be exercised immediately prior to the effective date of the
acquisition. The purchase price will be equal to 85% of the market value per
share on the start date of the offering period in which the acquisition occurs
or, if lower, 85% of the fair market value per share immediately prior to the
acquisition.
The following provisions will also be in effect under the plan:
- The plan will terminate no later than the last business day of January
2010.
- The board may at any time amend, suspend or discontinue the plan.
However, certain amendments may require stockholder approval.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our amended and restated certificate of incorporation eliminates, to the
maximum extent allowed by the Delaware General Corporation Law, directors'
personal liability to Versata or its stockholders for monetary damages or
breaches of fiduciary duties. The amended and restated certificate of
incorporation of Versata does not, however, eliminate or limit the personal
liability of a director for the following:
- any breach of the director's duty of loyalty to Versata or its
stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that we shall indemnify our directors and executive
officers to the fullest extent permitted under the Delaware General Corporation
Law and may indemnify our other officers, employees and other agents as set
forth in the Delaware General Corporation Law. In addition, we plan to enter
into indemnification agreements with each of our directors and executive
officers. The indemnification agreements will contain provisions that require
us, among other things, to indemnify our directors and executive officers
against liabilities (other than liabilities arising from intentional or knowing
and culpable violations of law) that may arise by reason of their status or
service as directors or executive officers of Versata or other entities to which
they provide service at our request and to advance expenses they may incur as a
result of any proceeding against them as to which they could
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be indemnified. We believe that these bylaw provisions and indemnification
agreements are necessary to attract and retain qualified directors and officers.
Prior to the consummation of the offering, we expect to obtain an insurance
policy covering directors and officers for claims they may otherwise be required
to pay or for which we are required to indemnify them.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted, and we are not aware of any threatened litigation or
proceeding that may result in a claim for indemnification.
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RELATED PARTY TRANSACTIONS
SERIES F FINANCING
On November 30, 1999, we issued an aggregate of 2,877,698 shares of Series
F preferred stock at a purchase price of $5.56 per share. Of the 2,877,698
shares of Series F preferred stock sold by us, an aggregate of 2,701,319 shares
were sold to the following executive officers, directors and greater than 5%
stockholders of Versata and persons associated with them for an aggregate
purchase price of approximately $15.0 million:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
PURCHASER SHARES PURCHASE PRICE
--------- --------- --------------
<S> <C> <C>
Rekhi Family Trust.......................................... 53,696 $ 298,550
Kevin Ferrell............................................... 100,000 556,000
Entities affiliated with Alta V Limited Partnership......... 127,747 710,273
Charles River Partnership VII............................... 140,164 779,312
Vulcan Ventures, Inc........................................ 147,852 822,057
Entities affiliated with The Goldman Sachs Group............ 182,720 1,015,923
Morgenthaler Venture Partners IV, L.P....................... 408,533 2,271,443
Entities affiliated with Sigma Partners..................... 1,540,607 8,565,775
</TABLE>
Donald Feddersen, one of our directors, was a general partner of the
Charles River Partnership VII. Gary Morgenthaler, our Chairman, is a general
partner of Morgenthaler Venture Partners IV, L.P. Robert Davoli, one of our
directors, is a partner of Sigma Partners.
SERIES E FINANCING
On July 8, 1999, August 8, 1999 and October 8, 1999, we issued an aggregate
of 4,481,593 shares of Series E preferred stock at a purchase price of $3.50 per
share. Of the 4,481,593 shares of Series E preferred stock sold by us, an
aggregate of 3,382,191 shares were sold to the following executive officers,
directors and greater than 5% stockholders of Versata and persons associated
with them for an aggregate purchase price of approximately $11.8 million:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
PURCHASER SHARES PURCHASE PRICE
--------- --------- --------------
<S> <C> <C>
Val Huber................................................... 4,360 $ 15,260
Brobeck, Phleger & Harrison LLP............................. 7,143 25,000
Robert Davoli............................................... 14,538 50,882
John Larson................................................. 14,539 50,887
Michael Stangl.............................................. 14,857 52,000
H&W Development Corp........................................ 18,835 65,922
Wong Family Trust........................................... 29,685 103,896
H&R Development Corp........................................ 31,902 111,657
Entities affiliated with Hambrecht & Quist.................. 36,137 126,480
Rekhi Family Trust.......................................... 73,661 257,812
Entities affiliated with Alta V Limited Partnership......... 115,164 403,174
Charles River Partnership VII............................... 126,324 442,133
Vulcan Ventures............................................. 156,943 549,301
Morgenthaler Venture Partners IV, L.P....................... 452,389 1,583,362
Entities affiliated with The Goldman Sachs Group............ 2,285,714 7,999,999
</TABLE>
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Eugene Wong, one of our directors, is trustee of the Wong Family Trust.
John A. Hewitt, Jr., our President, Chief Executive Officer, Secretary and one
of our directors, is general partner of H&W Development Corp. and H&R
Development Corp. Kanwal Rekhi, one of our directors, is trustee of the Rekhi
Family Trust. John Larson, one of our directors, is a partner of Brobeck,
Phleger & Harrison LLP.
1999 BRIDGE FINANCING
On April 21, 1999, we issued promissory notes to certain purchasers in the
aggregate principal amount of $3,000,000 bearing interest at the rate per annum
equal to the Bank of America prime rate, as it exists from time to time, plus
2%, compounded annually. We also issued warrants to purchase an aggregate of
218,407 shares of Series E preferred stock at an exercise price of $3.50
exercisable on or prior to April 21, 2004. Immediately upon closing of the
Series E preferred stock financing, the principal amount under the notes and
accrued interest thereon automatically converted into shares of Series E
preferred stock at $3.50 per share.
Of the $3,000,000 principal amount of notes issued by us, an aggregate
principal amount of $1,446,800 and warrants to purchase an aggregate of 105,345
shares of Series E preferred stock were issued to the following executive
officers, directors and greater than 5% stockholders of Versata and persons
associated with them:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL
PURCHASER WARRANTS AMOUNT OF NOTES
--------- ----------- -------------------
<S> <C> <C>
Val Huber................................................. 1,090 $ 15,000
Wong Family Trust......................................... 2,906 40,000
Robert Davoli............................................. 3,634 50,000
H&W Development Corp...................................... 3,637 50,000
H&R Development Corp...................................... 6,540 89,900
Rekhi Family Trust........................................ 7,301 100,000
Charles River Partnership VII............................. 20,479 280,859
Morgenthaler Venture Partners IV, L.P..................... 59,758 821,041
</TABLE>
SERIES D FINANCING
From September 1998 to December 1998, we issued an aggregate of 6,983,129
shares of Series D preferred stock at a purchase price of $1.61 per share. Of
the 6,983,129 shares of Series D preferred stock sold by us, an aggregate of
4,305,277 shares were sold to the following executive
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officers, directors and greater than 5% stockholders of Versata and persons
associated with them for an aggregate purchase price of approximately $6.9
million:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
PURCHASER SHARES PURCHASE PRICE
--------- --------- --------------
<S> <C> <C>
Kanwal Rekhi................................................ 6,211 $ 10,000
John W. Larson.............................................. 6,357 10,235
H&W Development Corp........................................ 18,905 30,438
Robert Davoli............................................... 25,932 41,750
Brobeck, Phleger & Harrison LLP............................. 31,055 49,999
Benjamin Rekhi Trust........................................ 62,111 100,000
Raj-Ann Kaur Rekhi Trust.................................... 62,111 100,000
Wong Family Trust........................................... 155,000 249,550
Rekhi Family Trust.......................................... 250,141 402,727
Entities affiliated with Alta V Limited Partnership......... 467,814 753,181
Charles River Partnership VII............................... 513,024 825,969
Vulcan Ventures, Inc........................................ 532,536 857,383
Entities affiliated with Hambrecht & Quist.................. 559,451 900,716
Morgenthaler Venture Partners IV, L.P....................... 1,614,629 2,599,552
</TABLE>
Kanwal Rekhi, one of our directors, is trustee of the Benjamin Rekhi Trust
and the Raj-Ann Kaur Rekhi Trust.
1998 BRIDGE FINANCING
Between March 1998 to September 1998, we issued promissory notes to certain
purchasers in the aggregate principal amount of $2,875,809 bearing interest at
the rate per annum equal to the Bank of America prime rate, as it exists from
time to time, plus 2%, compounded annually. We also issued warrants to purchase
an aggregate of 465,061 shares of common stock at an exercise price of $.20
exercisable on or prior to September 24, 2003. Immediately upon closing of the
Series D preferred stock financing, the principal amount under the notes and
accrued interest thereon automatically converted into shares of Series D
preferred stock at $1.61 per share.
Of the $2,875,809 principal amount of the notes issued by us, an aggregate
principal amount of $2,263,809 and warrants to purchase an aggregate of 366,380
shares of common stock were issued to the following executive officers,
directors and greater than 5% stockholders of Versata and persons associated
with them:
<TABLE>
<CAPTION>
NUMBER AGGREGATE PRINCIPAL
PURCHASER OF WARRANTS AMOUNT OF NOTES
--------- ----------- -------------------
<S> <C> <C>
John W. Larson............................................ 1,589 $ 10,000
H&W Development Corp...................................... 2,397 15,000
Robert Davoli............................................. 4,930 30,803
John A. Hewitt, Jr........................................ 9,317 60,000
Rekhi Family Trust........................................ 15,951 100,000
Entities affiliated with Alta V Limited Partnership....... 45,795 281,506
Charles River Partnership VII............................. 50,159 308,843
Vulcan Ventures, Inc...................................... 51,810 321,607
Entities affiliated with Hambrecht & Quist................ 47,472 292,297
Morgenthaler Venture Partners IV, L.P. ................... 136,960 843,753
</TABLE>
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SERIES C FINANCING
From January 1997 to May 1997, we issued an aggregate of 6,204,880 shares
of Series C preferred stock at a purchase price of $1.61 per share. Of the
6,204,880 shares of Series C preferred stock sold by us, an aggregate of
4,903,788 shares were sold to the following executive officers, directors and
greater than 5% stockholders of Versata and persons associated with them for an
aggregate purchase price of approximately $7.9 million:
<TABLE>
<CAPTION>
NUMBER AGGREGATE
PURCHASER OF SHARES PURCHASE PRICE
--------- --------- --------------
<S> <C> <C>
John A. Hewitt, Jr.......................................... 4,460 $ 7,180
Val Huber................................................... 6,200 9,982
H&W Development Corp........................................ 18,634 30,000
John W. Larson.............................................. 22,716 36,572
Rekhi Family Trust.......................................... 25,426 40,936
Peter Harrison.............................................. 32,000 51,520
Entities affiliated with Alta V Limited Partnership......... 366,904 590,715
Vulcan Ventures, Inc........................................ 419,318 675,102
Charles River Partnership VII............................... 465,870 750,050
Entities affiliated with Hambrecht & Quist.................. 498,780 803,035
Morgenthaler Venture Partners IV, L.P. ..................... 3,043,480 4,900,002
</TABLE>
SERIES B FINANCING
From November 1995 to March 1996, we issued an aggregate of 4,402,628
shares of Series B preferred stock at a purchase price of $2.70 per share. Of
the 4,402,628 shares of Series B preferred stock sold by us, an aggregate of
2,750,741 shares were sold to the following executive officers, directors and
greater than 5% stockholders of Versata and persons associated with them for an
aggregate purchase price of approximately $7.4 million:
<TABLE>
<CAPTION>
NUMBER AGGREGATE
PURCHASER OF SHARES PURCHASE PRICE
--------- --------- --------------
<S> <C> <C>
Robert Davoli............................................... 111,111 $ 300,000
Entities affiliated with Hambrecht & Quist.................. 555,556 1,500,001
Entities affiliated with Alta V Limited Partnership......... 648,148 1,750,000
Charles River Partnership VII............................... 648,148 1,750,000
Vulcan Ventures, Inc........................................ 740,741 2,000,001
John W. Larson.............................................. 10,000 27,000
Rekhi Family Trust.......................................... 37,037 100,000
</TABLE>
1995 BRIDGE FINANCING
From May 1995 to September 1995, certain of our stockholders provided us
bridge loans totalling $700,000. These loans bore interest at the rate per annum
equal to the Bank of America prime rate, as it exists from time to time, plus
2%, compounded annually. In connection with these loans, we issued warrants to
purchase 42,000 shares of our Series B preferred stock at $2.70 per share.
Immediately upon closing of the Series B preferred stock financing, the
principal amount under these notes automatically converted into shares of Series
B preferred stock at $2.70 per share.
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<PAGE> 76
Of the $700,000 principal amount of notes issued by us, an aggregate
principal amount of $100,000 and warrants to purchase an aggregate of 6,000
shares of Series B preferred stock were issued to the following executive
officers, directors and greater than 5% stockholders of Versata and persons
associated with them:
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
NUMBER AMOUNT
PURCHASER OF WARRANTS OF NOTES
--------- ----------- ---------
<S> <C> <C>
Rekhi Family Trust.......................................... 6,000 $100,000
</TABLE>
SERIES A FINANCING
From August 1994 to November 1995, we issued an aggregate of 1,480,000
shares of Series A preferred stock at purchase prices ranging from $1.50 to
$2.00 per share. Of the 1,480,000 shares of Series A preferred stock sold by us,
50,000 shares were sold to Kanwal Rekhi for an aggregate purchase price of
$75,000, 50,000 shares were sold to John A. Hewitt, Jr. for an aggregate
purchase price of $100,000 and 15,259 shares were sold to H&W Development Corp.
for an aggregate purchase price of $30,518.
These Series A preferred shares were issued in connection with a private
placement memorandum dated July 1, 1994. In connection with this financing, we
issued to each investor a warrant to purchase that number of additional shares
of Series A preferred stock calculated as 50% of the number of shares purchased
by such investor. The warrants were exercisable at exercise prices ranging from
$1.50 per share to $2.00 per share, depending on the time they were exercised
until they expired in December 1995.
AGREEMENTS WITH OFFICERS AND DIRECTORS
In November 1999, Kevin Ferrell delivered a full-recourse promissory note
to us in payment of 100,000 shares of Series F preferred stock we issued to him.
The principal amount secured under the note is $556,000. The note bears interest
at the rate of 7.00% per annum, compounded annually, and is secured by the
purchased shares. The principal balance will become due and payable in one lump
sum on the third anniversary of the signing of the note. One half of Mr.
Ferrell's base compensation is applied to servicing the note until paid in full.
In December 1999, Mr. Ferrell delivered a full-recourse promissory note to
us in payment of the exercise price of 400,000 outstanding stock options under
our 1997 stock option plan which he received upon joining us. The principal
amount secured under the note is $1,200,000. In June 1999, each of Messrs.
Hewitt, Huber, Harrison, DeVries and Stangl delivered a full-recourse promissory
note to us in payment of the exercise price of certain outstanding stock options
they held under our 1994, 1996 and 1997 stock option plans. The principal amount
secured under each note is as follows: Mr. Hewitt -- $189,663; Mr.
Huber -- $77,500; Mr. DeVries -- $71,000; Mr. Harrison -- $29,780; Mr.
Stangl -- $60,000. Each note has a term of three years, bears interest at the
rate of 7.00% per annum, compounded annually. The notes are each secured by
pledges of the purchased shares to us and pledges of collateral which, together
with the shares, have a value of twice the principal amount of each note. The
shares and collateral underlying the pledges will be released from the pledges
only as the principal balance of each note is paid down. Accrued interest
becomes due on each anniversary of the signing of each note and the principal
balance will become due and payable in one lump sum on the third anniversary of
the signing of each note. However, the entire unpaid balance of the note will
become due and payable upon termination of employment, failure to pay any
installment of principal or interest when due or in the event we are acquired
and receive cash or freely tradeable
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securities for our shares in the acquisition. None of the shares serving as
security for the note may be sold unless the principal portion of the note
attributable to those shares, together with the accrued interest on that
principal portion, is paid to us.
In September 1997, we entered into an associate services agreement with
Eugene Wong, one of our directors. The agreement, pursuant to which Mr. Wong
agreed to become a technology advisor to the company, was amended in March 1998
and is scheduled to terminate in March 2000. Under this agreement, for each day
he works with us, Mr. Wong earns a fee of $500 and vests 800 stock options, at
an option price of $0.20. As of December 1, 1999, Mr. Wong had received
approximately $33,125 in fees and 53,000 stock options pursuant to this
agreement.
In November, 1995, we entered into a consulting services agreement with
Robert Davoli. The agreement, pursuant to which Mr. Davoli agreed to provide us
with consulting services, went into effect in December 1995 and was renewable
each year for one year. In connection with Mr. Davoli's consulting agreement, we
issued Mr. Davoli various options and warrants. On December 1, 1995, we issued
Mr. Davoli a warrant to purchase up to 10,000 shares of Series A preferred stock
at an exercise price of $2.00 per share. On July 11, 1996, we issued options to
purchase 20,000 shares of common stock at $0.30 per share. On December 1, 1996,
April 1, 1998, and April 1, 1999 we issued Mr. Davoli warrants to purchase up to
37,779 shares of Series C preferred stock at an exercise price of $1.61 per
share. On June 5, 1998, we issued a warrant to purchase 4,930 shares of common
stock at $0.20 per share. The warrants issued to Mr. Davoli on April 1, 1998
continue to vest at the rate of 1,050 shares per month.
In 1995, we established a loan facility to Naren Bakshi, a director, under
which he may borrow up to $100,000. Interest accrues under the loan at a rate of
6% per annum. In addition, in March 1998 and September 1998, Mr. Bakshi
exercised options to purchase an aggregate of 234,000 shares of our common stock
and payment of the exercise price on each such date was made through delivery of
full-recourse promissory notes, in the amounts of $36,400 and $7,200,
respectively. The notes are secured by the purchased shares. Interest accrues at
a rate of 6% per annum, compounded semi-annually, and becomes due every six
months. With respect to all of the promissory notes delivered by Mr. Bakshi,
accrued and unpaid interest and principal were scheduled to become due in full
on November 1999. However, in September 1999, the board extended the term for an
additional year under the same terms and conditions.
In September 1994, we entered into a software development services
agreement with Duet Technologies, Inc. (Duet, formerly known as Software and
Technologies, Inc.), which is owned by Prabhu Goel, a former member of the board
of directors, pursuant to which Duet would provide us with assistance in the
development of two products at discounted hourly rates. In accordance with the
services agreement, we recorded a liability of $554,000, representing the total
obligation to Duet in consideration for discounts granted to us for the services
performed under the services agreement. This amount is to be paid in the form of
a royalty equal to 10% of our revenues on certain of our products. Since
December 31, 1995, there has been no expense related to the services agreement
as no Duet services have been used. At September 30, 1999, a net balance of
$225,000 (unaudited) was outstanding and is recorded in current liabilities.
We have granted options and issued common stock to our executive officers
and directors. See "Management -- Executive Compensation" and "Principal
Stockholders."
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been otherwise obtained from
unaffiliated third parties. All future transactions, including loans, if any,
between us and our officers, directors and principal stockholders and their
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<PAGE> 78
affiliates and any transactions between us and any entity with which our
officers, directors or 5% stockholders are affiliated will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested outside directors of the board of directors and will be on terms
no less favorable to us than could be obtained from unaffiliated third parties.
RELATIONSHIPS WITH OFFICERS AND DIRECTORS
Naren Bakshi, one of our directors, is a co-founder, Chairman of the Board,
Executive Vice President and a greater than 10% owner of Xpede, Inc., one of our
customers. From January 1, 1999 to September 30, 1999, Xpede made purchases from
us of approximately $450,000.
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<PAGE> 79
PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership
of our common stock as of December 1, 1999, and as adjusted for this offering
assuming no exercise of the underwriters' overallotment option, by:
- each person or entity who is known by us to own beneficially more than 5%
of our outstanding stock;
- each of the named executive officers;
- each of our directors; and
- all directors and executive officers as a group.
Each stockholder's percentage ownership in the following table is based on
32,964,516 shares of common stock outstanding as of December 1, 1999, as
adjusted to reflect the conversion of all outstanding shares of preferred stock
upon the closing of this offering into 26,516,434 shares of common stock. For
purposes of calculating each stockholder's percentage ownership, all options and
warrants exercisable within 60 days of December 1, 1999 held by the particular
stockholder and that are included in the first column are treated as outstanding
shares. The numbers shown in the table below assume no exercise by the
underwriters of their over-allotment option.
Unless otherwise indicated, the principal address of each of the
stockholders below is c/o Versata, Inc., 2101 Webster Street, Oakland,
California 94612. Except as otherwise indicated, and subject to applicable
community property laws, except to the extent authority is shared by both
spouses under applicable law, we believe the persons named in the table have
sole voting and investment power with respect to all shares of common stock held
by them.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER BENEFICIALLY OWNED
OF SHARES ---------------------------
BENEFICIALLY PRIOR AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED TO OFFERING THE OFFERING
------------------------------------ ------------ ----------- ------------
<S> <C> <C> <C>
Morgenthaler Venture Partners IV, L.P.(1)........... 5,715,749 17.24%
Entities affiliated with The Goldman Sachs
Group(2).......................................... 2,468,434 7.49%
Vulcan Ventures, Inc.(3)............................ 2,070,510 6.27%
Charles River Partnership VII(4).................... 1,964,168 5.95%
Entities affiliated with Alta V Limited
Partnership(5).................................... 1,790,241 5.42%
Entities affiliated with Hambrecht & Quist(6)....... 1,697,396 5.14%
John A. Hewitt, Jr.(7).............................. 1,520,511 4.55%
Val Huber(8)........................................ 486,650 1.47%
Peter Harrison(9)................................... 432,000 1.30%
Michael DeVries(10)................................. 430,000 1.30%
Michael Stangl(11).................................. 389,857 1.18
Kevin Ferrell(12)................................... 500,000 1.50%
Naren Bakshi(13).................................... 774,000 2.35%
Donald W. Feddersen(4).............................. 1,964,168 5.95%
John W. Larson(14).................................. 93,399 *
Gary Morgenthaler(1)................................ 5,715,749 17.24%
Kanwal Rekhi(15).................................... 664,795 2.02%
Eugene Wong(16)..................................... 240,591 *
Robert Davoli(17)................................... 1,781,124 5.40%
All directors and executive officers as a group (13
persons)(18)...................................... 14,992,844 43.37%
</TABLE>
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<PAGE> 80
- -------------------------
* Less than one percent.
(1) Principal address is 2730 Sand Hill Road, Suite 280, Menlo Park, CA 94025.
Includes warrants to purchase 136,960 shares of common stock at an exercise
price of $0.20 and 59,758 shares of Series E preferred stock at an exercise
price of $3.50. Mr. Morgenthaler disclaims beneficial ownership of all of
these shares except to the extent of his pecuniary interest in these
shares.
(2) Principal address is 85 Broad Street, New York, NY 10004. Represents
2,221,591 shares of Series E preferred stock held by The Goldman Sachs
Group and 246,843 shares of Series E preferred stock held by Stone Street
Fund 1999, L.P.
(3) Principal address is 110 110th Avenue, N.E., Suite 550, Bellevue, WA 98004.
Includes warrants to purchase 51,810 shares of common stock at an exercise
price of $0.20 and 21,310 shares of Series E preferred stock at an exercise
price of $3.50.
(4) Principal address is 83 Walnut Street, Wellesley, MA 02481. Includes
warrants to purchase 50,159 shares of common stock at an exercise price of
$0.20 and 20,479 shares of Series E preferred stock at an exercise price of
$3.50. Mr. Feddersen disclaims beneficial ownership of the shares except to
the extent of his pecuniary interest in these shares.
(5) Principal address is One Embarcadero Center, Suite 4050, San Francisco, CA
94111. Represents 1,707,829 shares of stock held by Alta V Limited
Partnership and 17,948 shares of stock held by Customs House Partners.
Includes warrants held by Alta V Limited Partnership to purchase 45,319
shares of common stock at an exercise price of $0.20 and 18,475 shares of
Series E preferred stock at an exercise price of $3.50, and warrants held
by Customs House Partners to purchase 476 shares of common stock at an
exercise price of $0.20 and 194 shares of Series E preferred stock an
exercise price of $3.50.
(6) Principal address is One Bush Street, San Francisco, CA 94104. Includes
warrants to purchase 47,472 shares of common stock at an exercise price of
$0.20.
(7) Includes 400,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of December 1, 1999. Also
includes 71,633 shares held by H&W Development Corp. and 31,902 shares held
by H&R Development Corp. Mr. Hewitt disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in these shares.
Includes warrants to purchase 9,317 shares of common stock at an exercise
price of $0.20, and 718,000 shares of common stock, subject to Versata's
right of repurchase. Also includes warrants held by H&W Development Corp.
to purchase 2,397 shares of common stock at an exercise price of $0.20 and
3,637 shares of Series E preferred stock an exercise price of $3.50, and
warrants held by H&R Development Corp. to purchase 6,540 shares of Series E
preferred stock at an exercise price of $3.50. Subject to certain
conditions, Mr. Hewitt's right to exercise all of his options free of the
company's right of repurchase will accelerate and the company's right to
repurchase any shares Mr. Hewitt has previously purchased upon exercise of
stock options will terminate effective upon the appointment of a new Chief
Executive Officer of the company.
(8) Includes 75,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of December 1, 1999. Also
includes warrants to purchase 1,090 shares of Series E preferred stock at
an exercise price of $3.50 and 300,000 shares of common stock, subject to
Versata's right of repurchase.
(9) Includes 251,100 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of December 1, 1999.
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<PAGE> 81
(10) Includes 75,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of December 1, 1999. Also
includes 355,000 shares of common stock, subject to Versata's right of
repurchase.
(11) Includes 75,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of December 1, 1999. Also
includes 300,000 shares of common stock, subject to Versata's right of
repurchase.
(12) Includes 400,000 shares of common stock, issuable upon exercise of
immediately exercisable options within 60 days of December 1, 1999.
(13) Includes 20,000 shares of common stock, subject to Versata's right of
repurchase.
(14) Includes 38,198 shares held by Brobeck, Phleger & Harrison LLP. Mr. Larson
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in these shares. Also includes warrants to purchase
1,589 shares of common stock at an exercise price of $0.20.
(15) Includes 377,498 shares held by the Rekhi Family Trust, 62,111 shares held
by the Benjamin Rekhi Trust and 62,111 shares of the Raj-Ann Kaur Rekhi
Trust of which Mr. Rekhi is a trustee. Mr. Rekhi disclaims beneficial
ownership except to the extent of his pecuniary interest in these shares.
Also includes warrants to purchase 15,951 shares of common stock at an
exercise price of $0.20, warrants to purchase 7,301 shares of common stock
at an exercise price of $3.50, and 25,000 shares of common stock, subject
to Versata's right of repurchase.
(16) Includes 7,000 shares of common stock issuable upon exercise of immediately
exercisable options within 60 days of December 1, 1999. Also includes
warrants to purchase 2,906 shares of Series E preferred stock at an
exercise price of $3.50.
(17) Includes 1,540,607 shares held by entities affiliated with Sigma Partners.
Mr. Davoli disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest in these shares. Also includes 25,186
shares of preferred stock, subject to Versata's right of repurchase.
(18) Includes 487,610 shares of common stock issuable upon exercise of options
and warrants.
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<PAGE> 82
DESCRIPTION OF SECURITIES
GENERAL
At the closing of this offering, we will be authorized to issue 150,000,000
shares of common stock, $0.001 par value, and 5,000,000 shares of undesignated
preferred stock, $0.001 par value, after giving effect to the amendment of our
certificate of incorporation to delete references to the existing preferred
stock following conversion of that stock. Immediately following the completion
of this offering, and assuming no exercise of the underwriters' over-allotment
option, an aggregate of shares of common stock will be issued and
outstanding, and no shares of preferred stock will be issued and outstanding.
The following description of our securities is subject to and qualified by
our amended and restated certificate of incorporation and bylaws, which are
included as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of the applicable Delaware law.
COMMON STOCK
As of December 1, 1999, we had 293 holders of record of our common stock,
assuming the conversion of all shares of preferred stock into common stock. The
holders of our common stock are entitled to one vote per share on all matters to
be voted upon by our stockholders. Subject to preferences that may apply to any
outstanding preferred stock that we may issue, the holders of common stock are
entitled to receive ratably those dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available for
dividends. See "Dividend Policy." In the event of our liquidation, dissolution
or winding up, the holders of our common stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock, if any, then outstanding. Our common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock outstanding upon completion of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
Our board of directors is authorized to issue from time to time, without
stockholder authorization, in one or more designated series, any or all of our
authorized but unissued shares of preferred stock with any dividend, redemption,
conversion and exchange provisions as may be provided in the particular series.
Any series of preferred stock may possess voting, dividend, liquidation and
redemption rights superior to those of the common stock.
The rights of the holders of our 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. Issuance of a new series of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of entrenching our board of
directors and making it more difficult for a third-party to acquire, or
discourage a third-party from acquiring, a majority of our outstanding voting
stock. We have no present plans to issue any shares of or designate any series
of preferred stock.
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<PAGE> 83
WARRANTS
At December 1, 1999, there were warrants outstanding to purchase a total of
605,531 shares of our common stock and 198,773 shares of our preferred stock.
Warrants exercisable for shares of our common stock will remain
outstanding after the completion of this offering and have various expiration
dates. The warrants contain antidilutive provisions providing for adjustments of
the exercise price and the number of shares of common stock underlying the
warrants upon the occurrence of any recapitalization, reclassification, stock
dividend, stock split, stock combination or similar transaction. The shares of
common stock issuable upon exercise of the warrants carry registration rights,
as discussed below. Some of these warrants have net exercise provisions under
which the holder may, in lieu of payment of the exercise price in cash,
surrender the warrant and receive a net amount of shares based on the fair
market value of our common stock at the time of exercise of the warrant after
deduction of the aggregate exercise price.
REGISTRATION RIGHTS
Upon completion of the offering, the holders of an aggregate of
approximately 24,838,736 shares of common stock and warrants to purchase up to
approximately shares of our preferred stock will be entitled to certain
rights with respect to the registration of the shares under the Securities Act.
These rights are provided under the terms of agreements between us and the
holders of these securities. If we propose to register any of our securities
under the Securities Act, either for our own account or for the account of other
security holders exercising registration rights, these holders are entitled to
notice of the registration and are entitled to include shares of common stock in
the registration. The rights are subject to conditions and limitations, among
them the right of the underwriters of an offering to limit the number of shares
included in the registration. At any time following 180 days after this
offering, holders of these rights may also require us to file up to two
registration statements under the Securities Act at our expense with respect to
their shares of common stock, and we are required to use our best efforts to
effect the registrations, subject to conditions and limitations. Furthermore,
stockholders with registration rights may require us to file additional
registration statements on Form S-3, subject to conditions and limitations. Upon
registration, these shares will be freely tradable in the public market without
restriction.
COMPLIANCE WITH CALIFORNIA LAW
We are currently subject to Section 2115 of the California General
Corporation Law. Section 2115 provides that, regardless of a company's legal
domicile, certain provisions of California corporate law will apply to that
company if more than 50% of its outstanding voting securities are held of record
by persons having addresses in California and the majority of the company's
operations occur in California. For example, while we are subject to Section
2115, stockholders may cumulate votes in electing directors. This means that
each stockholder may vote the number of votes equal to the number of candidates
multiplied by the number of votes to which the stockholder's shares are normally
entitled in favor of one candidate. This potentially allows minority
stockholders to elect some members of the board of directors. When we are no
longer subject to Section 2115, cumulative voting will not be allowed and a
holder of 50% or more of our voting stock will be able to control the election
of all directors. In addition to this difference, Section 2115 has the following
additional effects:
- enables removal of directors with or without cause with majority
stockholder approval;
- places limitations on the distribution of dividends;
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<PAGE> 84
- extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of shares;
and
- provides for information rights and required filings in the event we
effect a sale of assets or complete a merger.
We anticipate that our common stock will be qualified for trading as a
national market security on the Nasdaq National Market and that we will have at
least 800 stockholders of record by the record date for our 2000 annual meeting
of stockholders. If these two conditions occur, then we will no longer be
subject to Section 2115 as of the record date for our 2000 annual meeting of
stockholders.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
Some provisions of our amended and certificate of incorporation and our
bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control. These provisions also may have the effect of
preventing changes in the management of the company. Our amended and restated
certificate of incorporation authorizes our board to establish one or more
series of undesignated preferred stock, the terms of which can be determined by
our board at the time of issuance. Our amended and restated certificate of
incorporation also provides that all stockholder action must be effected at a
duly called meeting of stockholders and not by written consent. In addition, our
amended and restated certificate of incorporation and bylaws do not permit our
stockholders to call a special meeting of stockholders. Only our Chief Executive
Officer, President, Chairman of the Board or a majority of the board of
directors are permitted to call a special meeting of stockholders. Our amended
and restated certificate of incorporation also provides that the board of
directors is divided into three classes, with each director assigned to a class
with a term of three years, and that the number of directors may only be
determined by the board of directors. Our bylaws require that stockholders give
advance notice to our secretary of any nominations for director or other
business to be brought by stockholders at any stockholders' meeting, and that
the chairman of the board has the authority to adjourn any meeting called by the
stockholders. Our bylaws also require a supermajority vote of members of the
board of directors and/or stockholders to amend certain bylaw provisions.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder, unless:
- prior to that date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by:
(i) persons who are directors and also officers; and
(ii) 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
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<PAGE> 85
- on or subsequent to that date, the business combination is approved by
the board of directors of the corporation 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 that
is not owned by the interested stockholder.
Section 203 defines "business combination" to include the following:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
- 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;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar for our common stock is Equiserve L.P. Its
telephone number is (781) 575-2469.
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<PAGE> 86
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot predict the effect, if any, that sales of shares of our common
stock or the availability of shares of our common stock for sale will have on
the market price of common stock prevailing from time to time. Sales of
substantial amounts of our common stock in the public market could adversely
affect the market price of our common stock and could impair our future ability
to raise capital through the sale of our equity securities.
Upon the completion of this offering, we will have a total of
shares of common stock outstanding, shares if the
underwriters exercise their over-allotment option in full, assuming in each case
no exercise of options or warrants.
Of the outstanding shares, all of the shares sold in this offering will be
freely tradable, except that any shares held by our affiliates, as that term is
defined in Rule 144 promulgated under the Securities Act, may only be sold in
compliance with the limitations described below. The remaining
shares of common stock will be deemed "restricted securities" as
defined under Rule 144. Restricted shares may be sold in the public market only
if they are registered under the Securities Act or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 promulgated under the
Securities Act, which rules are summarized below. Subject to the lock-up
agreements described below and the provisions of Rules 144, 144(k) and 701,
shares will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES DATE
- --------- ----
<C> <S>
After the date of this prospectus, freely tradable shares
sold in this offering and shares eligible for resale under
Rule 144(k) that are not subject to the 180-day
lock-up agreement.
After 180 days from the date of this prospectus, the 180-day
lock-up is released and these shares are saleable under Rule
144 (subject, in some cases, to volume limitations) or
Rule 144(k).
After 180 days from the date of this prospectus, the 180-day
lock-up is released and these shares are saleable under Rule
701 (subject to repurchase by the Company).
After 180 days from the date of this prospectus, restricted
securities that are held for less than one year and are not
yet saleable under Rule 144.
</TABLE>
RULE 144
In general, under Rule 144 as currently in effect, a person, or group of
persons whose shares are required to be aggregated, including an affiliate who
has beneficially owned shares for at least one year, including the holding
period of any prior owner who is not an affiliate, is entitled to sell within
any three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of:
- 1% of the then-outstanding shares of our common stock, which will be
approximately shares immediately after this offering; or
- the average weekly trading volume in our common stock during the four
calendar weeks preceding the date on which notice of such sale is filed
with the Commission, subject to restrictions.
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<PAGE> 87
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. In addition, a person who is not deemed to have been an affiliate at any
time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years, including the holding period
of any prior owner who is not an affiliate, would be entitled to sell these
shares under Rule 144(k) without regard to the requirements described above. To
the extent that shares were acquired from one of our affiliates, a person's
holding period for the purpose of effecting a sale under Rule 144 would commence
on the date of transfer from the affiliate. The foregoing summary of Rule 144 is
not a complete description.
STOCK OPTIONS
As of September 30, 1999, options to purchase a total of 3,049,322 shares
of common stock were outstanding, 228,918 of which were vested and/or
exercisable. Following the closing of the offering, we intend to file a Form S-8
registration statement under the Securities Act to register for resale all
shares of common stock issuable under our 2000 stock incentive plan and our
employee stock purchase plan. Accordingly, shares of common stock underlying
these options will be eligible for sale in the public markets from time to time,
subject to vesting restrictions or the lock-up agreements described below and,
in the case of our affiliates, the volume limitations of Rule 144 described
above. See "Management -- Stock Plans."
LOCK-UP AGREEMENTS
Directors, officers and securityholders of Versata holding an aggregate of
shares of common stock have agreed, subject to specified exceptions,
not to, without the prior written consent of Thomas Weisel Partners LLC, offer,
sell, otherwise dispose of any shares of our common stock or any securities
convertible into or exercisable or exchangeable for shares of common stock or
take any action to do any of the foregoing during the 180-day period following
the date of this prospectus. Thomas Weisel Partners LLC may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. We have agreed not to offer, sell or
otherwise dispose of any shares of our common stock during the 180-day period
following the date of this prospectus, other than the grant of options under our
stock plans and the issuance of common stock under those options.
REGISTRATION RIGHTS
Following this offering, under specified circumstances and subject to
customary conditions, holders of approximately 24,838,736 shares of our
outstanding common stock and warrants to purchase up to shares of
our common stock will have registration rights with respect to their shares of
common stock, subject to the 180-day lock-up arrangement described above, to
require us to register their shares of common stock under the Securities Act,
and rights to participate in any future registrations of securities. If the
holders of these registrable securities request that we register their shares,
and if the registration is effected, these shares will become freely tradable
without restriction under the Securities Act. Any sales of securities by these
stockholders could have a material adverse effect on the trading price of our
common stock. See "Description of Securities -- Registration Rights."
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<PAGE> 88
UNDERWRITING
GENERAL
Subject to the terms and conditions set forth in an agreement among the
underwriters and us, each of the underwriters named below, through their
representatives, Thomas Weisel Partners LLC, Dain Rauscher Incorporated, and SG
Cowen Securities Corporation, has severally agreed to purchase from us the
aggregate number of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Thomas Weisel Partners LLC..................................
Dain Rauscher Incorporated..................................
SG Cowen Securities Corporation.............................
Total.....................................................
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to various conditions. The nature of the underwriters'
obligations commits them to purchase and pay for all of the shares of common
stock listed above if any are purchased.
The underwriting agreement provides that we will indemnify the underwriters
against liabilities specified in the underwriting agreement under the Securities
Act or will contribute to payments that the underwriters may be required to make
relating to these liabilities.
OVER-ALLOTMENT OPTION
We have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of additional shares of our common
stock from us at the initial public offering price, less the underwriting
discounts and commissions, as set forth on the cover page of this prospectus. If
the underwriters exercise such option in whole or in part, then each of the
underwriters will be severally committed, subject to conditions described in the
underwriting agreement, to purchase the additional shares of our common stock in
proportion to their respective commitments set forth in the table above.
COMMISSIONS AND DISCOUNTS
The underwriters propose to offer the shares of common stock directly to
the public at the public offering price set forth on the cover page of this
prospectus, and at such price less a concession not in excess of $ per share
of common stock to other dealers specified in a master agreement among
underwriters who are members of the National Association of Securities Dealers,
Inc. The underwriters may allow, and such dealers may reallow, concessions, not
in excess of $ per share of common stock to these other dealers. After this
offering, the offering price, concessions and other selling terms may be changed
by the underwriters. Our common stock is offered subject to receipt and
acceptance by the underwriters and to other conditions, including the right to
reject orders in whole or in part.
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<PAGE> 89
The following table summarizes the compensation to be paid to the
underwriters by us and the expenses payable by us:
<TABLE>
<CAPTION>
TOTAL
---------------------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by
us........................................... $ $ $
Expenses payable by us......................... $ $ $
</TABLE>
RESERVED SHARES
The underwriters, at our request, have reserved for sale at the initial
public offering price up to shares of common stock to be sold in this
offering for sale to our employees and other persons designated by us. The
number of shares available for sale to the general public will be reduced to the
extent that any reserved shares are purchased. Any reserved shares not purchased
in this manner will be offered by the underwriters on the same basis as the
other shares offered in this offering.
NO SALES OF SIMILAR SECURITIES
Our directors, officers and securityholders holding an aggregate of
shares of common stock have agreed that they will not offer, sell,
agree to sell, directly or indirectly, or otherwise dispose of any shares of
common stock or any securities convertible into or exchangeable for shares of
common stock without the prior written consent of Thomas Weisel Partners LLC for
a period of 180 days after the date of this prospectus.
We have agreed that for a period of 180 days after the date of this
prospectus we will not, without the prior written consent of Thomas Weisel
Partners LLC, offer, sell, or otherwise dispose of any shares of common stock,
except for the shares of common stock offered in the offering and the shares of
common stock issuable upon exercise of outstanding options and warrants on the
date of this prospectus.
INFORMATION REGARDING THOMAS WEISEL PARTNERS LLC
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners LLC has been named as a lead or co-manager on 93
filed public offerings of equity securities, of which 74 have been completed,
and has acted as a syndicate member in an additional 48 public offerings of
equity securities. Thomas Weisel Partners LLC does not have any material
relationship with us or any of our officers, directors or controlling persons,
except with respect to its contractual relationship with us under the
underwriting agreement entered into in connection with this offering.
NASDAQ NATIONAL MARKET LISTING
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock was
determined through negotiations between us and representatives of the
underwriters. Some of the factors considered in these negotiations included our
results of operations in recent periods, estimates of our prospects and the
industry in which we compete, an assessment of our management, the general state
of the securities markets at the time of this offering and the prices of similar
securities of generally comparable companies. We have applied to have our common
stock quoted on the Nasdaq National Market under the symbol "VATA." We
85
<PAGE> 90
cannot assure you that an active or orderly trading market will develop for our
common stock or that our common stock will trade in the public markets
subsequent to this offering at or above the initial offering price.
The underwriters do not expect sales of shares of common stock offered by
this prospectus to any accounts over which they exercise discretionary authority
to exceed five percent of the shares offered.
MARKET STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
In order to facilitate this offering, persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of our common stock during and after this offering. Specifically, the
underwriters may over-allot or otherwise create a short position in our common
stock for their own account by selling more shares of common stock than we have
sold to them. The underwriters may elect to cover any short position by
purchasing shares of common stock in the open market or by exercising the
over-allotment option granted to the underwriters. In addition, the underwriters
may stabilize or maintain the price of the common stock by bidding for or
purchasing shares of common stock in the open market and may impose penalty
bids. Under these penalty bids, selling concessions that are allowed to
syndicate members or other broker-dealers participating in this offering are
reclaimed if shares of common stock previously distributed in this offering are
repurchased, usually in order to stabilize the market. The effect of these
transactions may be to stabilize or maintain the market price at a level above
that which might otherwise prevail in the open market. No representation is made
as to the magnitude or effect of any such stabilization or other transactions.
These transactions may be effected on the Nasdaq National Market or otherwise
and may be discontinued at any time after they are commenced.
OTHER MATTERS
On July 8, 1999, Dain Rauscher Wessels Investors, LLC, an affiliate of Dain
Rauscher Wessels, one of the representatives, purchased 142,857 shares of Series
E preferred stock at a price of $3.50 per share, for an aggregate purchase price
of $500,000.
LEGAL MATTERS
The validity of the common stock offered will be passed upon for us by
Brobeck, Phleger & Harrison LLP, San Francisco, California. Attorneys at the
firm of Brobeck, Phleger & Harrison LLP beneficially own an aggregate of 91,810
shares of our preferred stock. John Larson, one of our directors, is a senior
partner of Brobeck, Phleger & Harrison LLP and owns warrants to purchase 1,589
shares of our common stock. Orrick, Herrington & Sutcliffe LLP is acting as
counsel for the underwriters in connection with selected legal matters relating
to the shares of common stock offered by this prospectus.
EXPERTS
The consolidated financial statements of Versata, Inc. (formerly "Vision
Software Tools, Inc.") as of December 31, 1997 and 1998 and for each of the
three years in the period ended December 31, 1998 included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given upon the authority of said firm as experts in
auditing and accounting.
86
<PAGE> 91
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, under the Securities Act a registration statement on Form S-1 relating to
the common stock offered. This prospectus does not contain all of the
information set forth in the registration statement and its exhibits and
schedules. For further information with respect to us and the shares we are
offering pursuant to this prospectus, you should refer to the registration
statement and its exhibits and schedules. Statements contained in this
prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete, and you should refer to the copy of
that contract or other document filed as an exhibit to the registration
statement. You may read or obtain a copy of the registration statement,
including exhibits, at the commission's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Each statement in this prospectus relating
to a contract or document filed as an exhibit is qualified in all respects by
the filed exhibit. You may obtain information on the operation of the public
reference room by calling the commission at 1-800-SEC-0330. The commission
maintains a Web site that contains reports, proxy information statements and
other information regarding registrants that file electronically with the
commission. The address of this Web site is http://www.sec.gov.
As a result of the offering, the information and reporting requirements of
the Securities Exchange Act of 1934 will apply to us. We intend to furnish
holders of our common stock with annual reports containing, among other
information, audited financial statements certified by an independent public
accounting firm and quarterly reports containing unaudited condensed financial
information for the first three quarters of each fiscal year. We intend to
furnish other reports as we may determine or as may be required by law.
87
<PAGE> 92
VERSATA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 93
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Versata, Inc.
The reincorporation described in Note 14 to the consolidated financial
statements had not been consummated at December 1, 1999. When it has been
consummated, we will be in a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and
of cash flows present fairly, in all material respects, the financial
position of Versata, Inc. (formerly Vision Software Tools, Inc.) and its
subsidiaries at December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above."
PricewaterhouseCoopers LLP
San Jose, California
December 1, 1999
F-2
<PAGE> 94
VERSATA, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
-------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
-------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,338 $ 5,767 $ 8,340
Accounts receivable, net of allowance for doubtful
accounts................................................ 536 1,511 6,355
Unbilled receivable....................................... -- -- 1,510
Prepaid expenses and other current assets................. 132 214 502
-------- -------- --------
Total current assets.................................. 3,006 7,492 16,707
Property and equipment, net................................. 1,091 853 1,354
Notes receivable from officers.............................. 100 100 137
Other assets................................................ 38 23 55
-------- -------- --------
$ 4,235 $ 8,468 $ 18,253
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 488 $ 804 $ 1,686
Accrued liabilities....................................... 1,006 1,504 3,089
Equipment loan, current portion........................... 316 333 312
Capital lease obligations, current portion................ 105 63 72
Deferred revenue.......................................... 256 910 4,117
-------- -------- --------
Total current liabilities............................. 2,171 3,614 9,276
Equipment loan, non current................................. 632 298 69
Capital lease obligations, non current...................... 146 88 71
Other long-term liabilities................................. 397 112 --
-------- -------- --------
3,346 4,112 9,416
-------- -------- --------
Commitments (Note 4 and 13)
Stockholders' equity:
Convertible preferred stock, issuable in series, $0.001
par value; 30,580,000 shares authorized; 24,751,180
shares designated; 12,087,508, 19,070,637 and 23,395,334
(unaudited) shares issued and outstanding, respectively,
actual; no shares issued and outstanding, pro forma..... 12 19 23 $ --
Common stock, $0.001 par value: 40,000,000 shares
authorized; 1,729,586, 2,243,699 and 6,407,682
(unaudited) shares issued and outstanding, respectively,
actual; 150,000,000 shares authorized, 29,803,016 shares
issued and outstanding, pro forma....................... 1 1 5 28
Additional paid-in capital................................ 24,317 37,059 56,957 56,957
Notes receivable from stockholders........................ -- (44) (697) (697)
Unearned stock-based compensation......................... -- (1,104) (2,965) (2,965)
Accumulated deficit....................................... (23,441) (31,575) (44,486) (44,486)
-------- -------- -------- --------
Total stockholders' equity............................ 889 4,356 8,837 $ 8,837
-------- -------- -------- ========
$ 4,235 $ 8,468 $ 18,253
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 95
VERSATA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Software license.............. $ 872 $ 526 $ 1,924 $ 1,353 $ 3,733
Services.................... 252 880 2,026 1,356 3,683
---------- ---------- ----------- ---------- -----------
Total revenue.......... 1,124 1,406 3,950 2,709 7,416
---------- ---------- ----------- ---------- -----------
Cost of revenue:
Software license............ 84 127 234 170 375
Services.................... 825 1,184 2,248 1,428 3,780
---------- ---------- ----------- ---------- -----------
Total cost of
revenue............. 909 1,311 2,482 1,598 4,155
---------- ---------- ----------- ---------- -----------
Gross profit.................. 215 95 1,468 1,111 3,261
---------- ---------- ----------- ---------- -----------
Operating expense:
Sales and marketing......... 4,583 4,779 4,495 2,905 9,064
Product development......... 3,486 3,547 3,275 2,466 3,033
General and
administrative........... 1,349 1,781 1,379 883 1,967
Stock-based compensation.... -- -- 202 -- 1,659
---------- ---------- ----------- ---------- -----------
Total operating
expense............. 9,418 10,107 9,351 6,254 15,723
---------- ---------- ----------- ---------- -----------
Loss from operations.......... (9,203) (10,012) (7,883) (5,143) (12,462)
Interest expense.............. -- (96) (365) (342) (636)
Other income (expense), net... 190 264 114 52 187
---------- ---------- ----------- ---------- -----------
Net loss...................... $ (9,013) $ (9,844) $ (8,134) $ (5,433) $ (12,911)
========== ========== =========== ========== ===========
Net loss per share:
Basic and diluted........... $ (6.05) $ (5.72) $ (3.99) $ (2.82) $ (4.12)
========== ========== =========== ========== ===========
Weighted average shares
outstanding.............. 1,489,294 1,720,649 2,038,393 1,926,744 3,131,586
========== ========== =========== ========== ===========
Unaudited pro forma net loss
per share:
Basic and diluted........... $ (0.52) $ (0.55)
=========== ===========
Weighted average shares
outstanding.............. 15,703,882 23,350,909
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 96
VERSATA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE UNEARNED
------------------- ------------------ PAID-IN FROM STOCK-BASED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
---------- ------ --------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996......... 3,905,926 $ 4 1,357,512 $ 1 $ 9,018 $ (3) $ --
Payments from stockholders on notes
receivable......................... -- -- -- -- -- 3 --
Series B convertible preferred
stock issued for cash, net
issuance costs of $2.............. 1,976,702 2 -- -- 5,333 -- --
Common stock issued upon exercise
of options........................ -- -- 405,748 -- 69 (9) --
Net loss........................... -- -- -- -- -- -- --
---------- --- --------- --- ------- ----- -------
Balance at December 31, 1996....... 5,882,628 6 1,763,260 1 14,420 (9) --
Series C convertible preferred
stock issued for cash, net of
issuance costs of $90............. 5,729,110 6 -- -- 9,128 -- --
Series C convertible preferred
stock issued upon conversion and
cancellation of bridge loans and
accrued interest.................. 478,920 -- -- -- 771 -- --
Series C first closing convertible
preferred stock converted to
common stock due to non-
participation of an investor in
the second closing................ (3,150) -- 3,150 -- -- -- --
Payments from and recission of
notes receivable from
stockholders, net................. -- -- (55,000) -- (6) 9 --
Common stock issued for cash upon
exercise of stock options......... -- -- 18,176 -- 4 -- --
Net loss........................... -- -- -- -- -- -- --
---------- --- --------- --- ------- ----- -------
Balance at December 31, 1997....... 12,087,508 12 1,729,586 1 24,317 -- --
Series D convertible preferred
stock issued for cash, net of
issuance costs of $38............. 5,160,116 5 -- -- 8,265 -- --
Series D convertible preferred
stock issued upon conversion and
cancellation of bridge loans and
accrued interest.................. 1,823,013 2 -- -- 2,933 -- --
Warrants issued in connection with
Series D convertible preferred
stock financing................... -- -- -- -- 137 -- --
Common stock issued for cash upon
exercise of stock options and
warrants.......................... -- -- 514,113 -- 101 (44) --
Unearned stock-based
compensation...................... -- -- -- -- 1,306 -- (1,306)
Amortization of unearned
stock-based compensation.......... -- -- -- -- -- -- 202
Net loss........................... -- -- -- -- -- -- --
---------- --- --------- --- ------- ----- -------
Balances at December 31, 1998...... 19,070,637 19 2,243,699 1 37,059 (44) (1,104)
Series C convertible preferred
stock issued upon exercise of
warrants (unaudited).............. 22,500 -- -- -- 36 -- --
Series E convertible preferred
stock issued for cash, net of
issuance costs of $70
(unaudited)....................... 3,428,571 3 -- -- 11,927 -- --
Series E convertible preferred
stock issued upon conversion and
cancellation of bridge loans and
accrued interest (unaudited)...... 873,626 1 -- -- 3,057 -- --
Stock-based compensation expense... -- -- -- -- 410 -- --
Warrants issued in connection with
Series E convertible preferred
stock financing (unaudited)....... -- -- -- -- 521 -- --
Common stock issued upon exercise
of stock options and warrants
(unaudited)....................... -- -- 4,172,413 4 837 (653) --
Common stock repurchased........... -- -- (8,430) -- -- -- --
Issuance of restricted common stock
in exchange for notes receivable
on exercise of options
(unaudited)....................... -- -- -- -- -- -- --
Unearned stock-based compensation
(unaudited)....................... -- -- -- -- 3,110 -- (3,110)
Amortization of unearned
stock-based compensation
(unaudited)....................... -- -- -- -- -- -- 1,249
Net loss (unaudited)............... -- -- -- -- -- -- --
---------- --- --------- --- ------- ----- -------
Balance at September 30, 1999
(unaudited)....................... 23,395,334 $23 6,407,682 $ 5 $56,957 $(697) $(2,965)
========== === ========= === ======= ===== =======
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
----------- --------
<S> <C> <C>
Balance at January 1, 1996......... $ (4,584) $ 4,436
Payments from stockholders on notes
receivable......................... -- 3
Series B convertible preferred
stock issued for cash, net
issuance costs of $2.............. -- 5,335
Common stock issued upon exercise
of options........................ -- 60
Net loss........................... (9,013) (9,013)
-------- --------
Balance at December 31, 1996....... (13,597) 821
Series C convertible preferred
stock issued for cash, net of
issuance costs of $90............. -- 9,134
Series C convertible preferred
stock issued upon conversion and
cancellation of bridge loans and
accrued interest.................. -- 771
Series C first closing convertible
preferred stock converted to
common stock due to non-
participation of an investor in
the second closing................ -- --
Payments from and recission of
notes receivable from
stockholders, net................. -- 3
Common stock issued for cash upon
exercise of stock options......... -- 4
Net loss........................... (9,844) (9,844)
-------- --------
Balance at December 31, 1997....... (23,441) 889
Series D convertible preferred
stock issued for cash, net of
issuance costs of $38............. -- 8,270
Series D convertible preferred
stock issued upon conversion and
cancellation of bridge loans and
accrued interest.................. -- 2,935
Warrants issued in connection with
Series D convertible preferred
stock financing................... -- 137
Common stock issued for cash upon
exercise of stock options and
warrants.......................... -- 57
Unearned stock-based
compensation...................... -- --
Amortization of unearned
stock-based compensation.......... -- 202
Net loss........................... (8,134) (8,134)
-------- --------
Balances at December 31, 1998...... (31,575) 4,356
Series C convertible preferred
stock issued upon exercise of
warrants (unaudited).............. -- 36
Series E convertible preferred
stock issued for cash, net of
issuance costs of $70
(unaudited)....................... -- 11,930
Series E convertible preferred
stock issued upon conversion and
cancellation of bridge loans and
accrued interest (unaudited)...... -- 3,058
Stock-based compensation expense... -- 410
Warrants issued in connection with
Series E convertible preferred
stock financing (unaudited)....... -- 521
Common stock issued upon exercise
of stock options and warrants
(unaudited)....................... -- 188
Common stock repurchased........... -- --
Issuance of restricted common stock
in exchange for notes receivable
on exercise of options
(unaudited)....................... -- --
Unearned stock-based compensation
(unaudited)....................... -- --
Amortization of unearned
stock-based compensation
(unaudited)....................... -- 1,249
Net loss (unaudited)............... (12,911) (12,911)
-------- --------
Balance at September 30, 1999
(unaudited)....................... $(44,486) $ 8,837
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 97
VERSATA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows used in operating activities:
Net loss.................................................. $(9,013) $(9,844) $(8,134) $(5,433) $(12,911)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 365 547 537 410 360
Provision for doubtful accounts....................... -- (15) 223 29 530
Warrants issued in connection with bridge loans
recorded as interest expense........................ -- -- 137 137 521
Stock-based compensation expense...................... -- -- 202 -- 1,659
Change in operating assets and liabilities:
Increase in accounts receivable..................... (480) (18) (1,198) (1,433) (6,884)
Increase (decrease) in prepaid expenses and other
current assets................................... (69) 34 (68) (204) (357)
Increase in accounts payable and accrued
liabilities...................................... 536 552 933 683 2,526
Increase in deferred revenue........................ 95 145 654 543 3,207
Increase (decrease) in other long-term
liabilities...................................... (186) 30 (285) (5) (113)
------- ------- ------- ------- --------
Net cash used in operating activities............ (8,752) (8,569) (6,999) (5,273) (11,462)
------- ------- ------- ------- --------
Cash flows used in investing activities:
Issuance of note receivable from officer................ (100) -- -- -- --
Purchase of property and equipment...................... (642) (402) (299) (223) (812)
------- ------- ------- ------- --------
Net cash used in investing activities............ (742) (402) (299) (223) (812)
------- ------- ------- ------- --------
Cash flows from financing activities:
Principal payments under capital lease obligations...... (86) (111) (100) (81) (57)
Net proceeds from issuance of convertible preferred
stock................................................. 5,335 9,134 8,270 3,473 11,930
Net proceeds from (principal payments on) equipment
loan.................................................. -- 947 (316) (233) (250)
Proceeds from issuance of common stock.................. 60 4 57 48 174
Proceeds from exercise of warrants...................... -- -- -- -- 36
Payments from stockholders on notes receivable.......... 3 3 -- -- 14
Proceeds from bridge loans.............................. 750 -- 2,816 2,816 3,000
------- ------- ------- ------- --------
Net cash provided by financing activities........ 6,062 9,977 10,727 6,023 14,847
------- ------- ------- ------- --------
Net increase (decrease) in cash and cash
equivalents.................................... (3,432) 1,006 3,429 527 2,573
Cash and cash equivalents at beginning of the year........ 4,764 1,332 2,338 2,338 5,767
------- ------- ------- ------- --------
Cash and cash equivalents at end of the year.............. $ 1,332 $ 2,338 $ 5,767 $ 2,865 $ 8,340
======= ======= ======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest.................. $ 51 $ 96 $ 110 $ 84 $ 53
======= ======= ======= ======= ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Common stock issued for notes receivable from
stockholders............................................ $ 44 $ -- $ 44 $ 44 $ 667
======= ======= ======= ======= ========
Issuance of preferred stock upon conversion and
cancellation of bridge loans and accrued interest....... $ -- $ 771 $ 2,935 $ 2,935 $ 3,058
======= ======= ======= ======= ========
Property and equipment obtained through capital lease..... $ 215 $ -- $ -- $ -- $ 49
======= ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 98
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION:
Versata, Inc. (the "Company") (formerly Vision Software Tools, Inc.) was
incorporated on August 27, 1991. The Company's software product and related
services enable customers to create and deploy e-business applications than can
be modified to meet changing e-business requirements. The Company's software
product utilizes technology that change how companies deploy and modify
e-business applications.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Such estimates include the allowance for doubtful accounts,
valuation of deferred tax assets and the value of the Company's common stock.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are stated at cost and consist primarily
certificates of deposits and money market funds. The Company includes in cash
and cash equivalents all highly liquid investments which mature within three
months of their purchase date.
The portfolio of cash and cash equivalents consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
Cash........................................................ $ 223 $ 157
Money market funds.......................................... 5,544 3,683
Certificate of deposits..................................... -- 4,500
------ ------
$5,767 $8,340
====== ======
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The reported amounts of certain of the Company's financial instruments
including cash and cash equivalents, receivables, accounts payable and accrued
liabilities approximate fair value due to their short maturities. The reported
amounts of loans payable and capital lease obligations approximate fair value
due to the market interest rates which these debts bear.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments,
certificates of deposits, money market accounts, and billed and unbilled
accounts receivable. The Company places its temporary cash investments with one
F-7
<PAGE> 99
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
major financial institution. At December 31, 1997 and 1998 and at September 30,
1999, the Company had deposits in excess of federally insured limits of
$2,238,000, $5,667,000 and $8,240,000 (unaudited), respectively.
The Company performs ongoing customer credit evaluations within the context
of the industry in which it operates, does not require collateral, and maintains
reserves for potential credit losses on customer accounts when deemed necessary.
To date, such losses have been within management's expectations.
The following table sets forth customers comprising 10% or more of the
Company's total revenue for each of the period presented:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- --------------
CUSTOMER 1996 1997 1998 1998 1999
-------- ---- ---- ---- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
A................................................... -- 14% -- -- --
B.............................................. -- 10% -- 12% --
C.............................................. -- -- 18% 19% --
D.............................................. -- -- 13% 12% --
E.............................................. -- -- -- -- 12%
</TABLE>
At December 31, 1997, ten customers accounted for 69% of accounts
receivable. At December 31, 1998, four customers accounted for 37% of accounts
receivable. At September 30, 1999 (unaudited), no customer accounts for more
than 10% of accounts receivable.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is depreciated using the
straight-line method over the estimated useful lives of the related assets which
range from two to five years. Leasehold improvements are amortized on a
straight-line basis over the life of the lease or the estimated useful life of
the asset, whichever is shorter. Equipment under capital lease is amortized
using the straight-line method over the lesser of the lease term or their
estimated useful lives.
Major additions and improvements are capitalized, while replacements,
maintenance, and repairs that do not improve or extend the life of the assets
are charged to expense. In the period assets are retired or otherwise disposed
of, the cost and related accumulated depreciation and amortization are removed
from the accounts, and any gain or loss on disposal is included in results of
operations.
LONG-LIVED ASSETS
The Company accounts for long-lived assets under Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, which requires
the Company to review for impairment of long-lived assets, whenever events or
changes in circumstances indicate that the carrying amount of an asset might not
be recoverable. When such an event occurs, the Company estimates the future cash
flows expected to result from the use of the asset and its eventual disposition.
If the undiscounted expected future cash flows is less than the carrying amount
of the asset, an impairment loss is recognized. To date, no impairment loss has
been recognized.
F-8
<PAGE> 100
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
REVENUE RECOGNITION
The Company derives revenue from software licenses and related services,
which include consulting, training services and customer support. Effective
January 1, 1998, the Company adopted SOP 97-2, Software Revenue Recognition,
with the exception of the provision deferred by SOP 98-4, Deferral of the
Effective Date of a Provision of SOP 97-2. In accordance with the adopted
provisions of SOP 97-2, the Company records revenue from software licenses when
a license agreement is signed by both parties, the fee is fixed and
determinable, collection is probable and delivery of the product has occurred.
The Company's business practice is to provide payment terms that range from
thirty days to ninety days from the invoice date. Accordingly, payment terms
that exceed ninety days are not considered fixed and determinable and revenue is
recognized as payments become due. When contracts contain multiple elements, the
fee for the arrangement is allocated to each element based on objective evidence
of its fair value which is specific to the Company. If objective evidence of
fair value does not exist, all revenue is deferred until sufficient objective
evidence exists or all elements have been delivered except if the only
undelivered elements are customer support. In such circumstances, the entire fee
is recognized over the customer support period. The Company recognizes revenue
allocated to maintenance and support ratably over the period of the maintenance
and the support contracts, respectively, which is generally twelve months. For
revenue allocated to consulting services, such as training, the Company
recognizes revenue as the related services are performed.
In December 1998, the American Institute of Certified Public Accountants
issued SOP 98-9, Modifications of SOP 97-2, Software Revenue Recognition, and
the Company adopted the statement for all transactions entered into in fiscal
1999. The adoption of this statement did not have a material impact on the
Company's operating results, financial position or cash flows.
UNBILLED RECEIVABLE
Fees from arrangements which provide for extended payment terms are
recognized as revenue when payments become due. The portion of fees related to
either products delivered or services rendered which are not due under the
Company's standard payment terms are reflected in deferred revenue and in
unbilled receivable until payments become due.
SOFTWARE DEVELOPMENT COSTS
Software development costs are included in product development and are
expensed as incurred. After technological feasibility is established, material
software development costs are capitalized in accordance with SFAS No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed. The capitalized cost is then amortized on a straight-line basis over
the estimated product life, or in the ratio of current revenues to total
projected product revenues, whichever is greater. To date, the period between
achieving technological feasibility, which the Company has defined as the
establishment of a working model, and typically occurs when the beta testing
commences, and the general availability of such software has been short and
software development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any software
development costs.
INCOME TAXES
The Company has accounted for income taxes using an asset and liability
approach which requires the recognition of taxes payable or refundable for the
current year and deferred tax liabilities
F-9
<PAGE> 101
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and assets for the future tax consequences of events that have been recognized
in the Company's financial statements or tax returns. The measurement of current
and deferred tax liabilities and assets are based on provisions of the enacted
tax law. The measurement of deferred tax assets is reduced, if necessary, by the
amount of any tax benefits that, based on available evidence, are not expected
to be realized.
COMPREHENSIVE INCOME
The Company adopted the provisions of SFAS No. 130, Reporting Comprehensive
Income, effective January 1, 1998. This statement requires companies to classify
items of comprehensive income by their nature in the financial statements and
display the accumulated balance of comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. For the year ended December 31, 1998 and for the nine month period ended
September 30, 1999, foreign currency translation adjustments included in
comprehensive income were insignificant. There were no other items of
comprehensive income.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations where the functional currency
is the local currency, are translated into U.S. dollars at the balance sheet
date exchange rate. Revenues and expenses are translated at the average rate
prevailing during the period. The related gains and losses from translation are
recorded as a translation adjustment in a separate component of stockholders'
equity, which were not significant for the years ended December 31, 1996, 1997
and 1998 and for the nine months ended September 30, 1999. Foreign currency
transaction gains and losses have been immaterial to date.
CERTAIN RISKS AND UNCERTAINTIES
The Company's products are concentrated in the industry segment for
internet infrastructure software which is characterized by rapid technological
advances, changes in customer requirements and evolving regulatory requirements
and industry standards. These products depend in part on third-party technology
which the Company licenses from a limited number of suppliers. Also, the Company
has depended on a limited number of products and customers for substantially all
revenue to date. Failure by the Company to anticipate or to respond adequately
to technological developments in its industry, changes in customer or supplier
requirements or changes in regulatory requirements or industry standards, or any
significant delays in the development or introduction of products or services,
could have a material adverse effect on the Company's business and operating
results.
NET LOSS PER SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
Earnings per Share and SEC Staff Accounting Bulletin ("SAB") No. 98. Under the
provisions of SFAS No. 128 and SAB No. 98, basic and diluted net loss per share
is computed by dividing the net loss available to holders of common stock for
the period by weighted average number of shares of common stock outstanding
during the period. The calculation of diluted net loss per share excludes
potential common stock if their effect is antidilutive. Potential common stock
consists of unvested restricted common stock, incremental common or preferred
shares issuable upon the exercise of stock options
F-10
<PAGE> 102
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and warrants and shares issuable upon conversion of the Series A, Series B,
Series C, Series D, and Series E convertible preferred stock.
The following table sets forth the computation of basic and diluted net
loss per share of the period indicated (in thousands, except per share and per
share data):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss........................ $ (9,013) $ (9,844) $ (8,134) $ (5,433) $ (12,911)
========== ========== ========== ========== ==========
Denominator:
Weighted average shares
outstanding................ 1,489,294 1,720,649 2,038,393 1,979,807 4,087,557
Weighted average unvested
shares of common stock
subject to repurchase...... -- -- -- (53,063) (955,971)
========== ========== ========== ========== ==========
Denominator for basic and
diluted calculation........ 1,489,294 1,720,649 2,038,393 1,926,744 3,131,586
========== ========== ========== ========== ==========
Net loss per share:
Basic and diluted............. $ (6.05) $ (5.72) $ (3.99) $ (2.82) $ (4.12)
========== ========== ========== ========== ==========
</TABLE>
F-11
<PAGE> 103
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth potential shares of common stock that are
not included in the diluted net loss per share calculation above because to do
so would be anti-dilutive for the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------- -----------------------
1996 1997 1998 1998 1999
--------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average effect of common
stock equivalents:
Unvested common stock subject to
repurchase....................... -- -- -- 53,063 955,971
Options outstanding............ 1,228,650 2,624,001 3,440,635 2,986,935 4,556,236
Shares resulting from the
conversion of the:
Series A convertible
preferred stock........... 1,480,000 1,480,000 1,480,000 1,480,000 1,480,000
Series B convertible
preferred stock........... 4,107,349 4,402,628 4,402,628 4,402,628 4,402,628
Series C convertible
preferred stock........... -- 2,967,354 6,204,880 6,204,880 6,206,130
Series D convertible
preferred stock........... -- -- 1,577,981 205,961 6,983,129
Series E convertible
preferred stock........... -- -- -- -- 1,147,436
Warrants to purchase
convertible preferred
stock....................... 25,212 55,093 58,010 63,344 220,400
Warrants to purchase common
stock....................... 54,375 137,850 226,332 410,571 614,836
--------- ---------- ---------- ---------- ----------
Total common stock
equivalents excluded from
the computation of
earnings per share as
their effect was
antidilutive.............. 6,895,586 11,666,926 17,390,466 15,807,382 26,566,766
========= ========== ========== ========== ==========
</TABLE>
F-12
<PAGE> 104
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Upon consummation of the offering, the conversion rate for all outstanding
shares of Series A, Series B, Series C, Series D and Series E preferred stock
will be a ratio of one share of common stock for each share of preferred stock.
Concurrent with the effectiveness of the offering, the shares of preferred stock
will convert into shares of common stock at such one-for-one conversion rate.
The pro forma effects of these transactions are unaudited and have been
reflected in the accompanying pro forma Stockholders' Equity at September 30,
1999.
SEGMENT INFORMATION
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information. The
Company identifies its operating segments based on business activities,
management responsibility and geographical location. For all periods presented,
the Company operated in a single business segment, primarily in the United
States. Through December 31, 1998, foreign operations have not been significant
in either revenue or investment in long-lived assets. Revenue from international
sales, predominantly Europe, represented approximately 14.6% (unaudited) of the
Company's total revenue for the nine months ended September 30, 1999.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion ("APB") No.
25, Accounting for Stock Issued to Employees, and Financial Accounting Standards
Board Interpretation ("FIN") No. 28, Accounting for Stock Appreciation Rights
and Other Variable Stock Option or Award Plans, and complies with the disclosure
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB
No. 25, compensation expense is based on the difference, if any, on the date of
grant, between the fair value of the Company's common stock and the exercise
price. SFAS 123 defines a "fair value" based method of accounting for an
employee stock option or similar equity investment. The pro forma disclosures of
the difference between the compensation expense included in net loss and the
related cost measured by the fair value method are presented in Note 10. The
Company accounts for equity instruments issued to nonemployees in accordance
with the provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF")
96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling Goods or Services.
INTERIM RESULTS
The unaudited interim financial statements as of September 30, 1999 and for
the nine months ended September 30, 1998 and 1999 have been prepared on the same
basis as the annual financial statements as of December 31, 1998 and, in the
opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the Company's financial
position as of September 30, 1999 and its results of operations and cash flows
for the nine months ended September 30, 1998 and 1999. The results for the nine
months ended September 30, 1999 are not necessarily indicative of the results to
be expected for the year ending December 31, 1999.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and the 1998 financial
statements to conform to the 1999 presentation.
F-13
<PAGE> 105
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities
and supercedes and amends a number of existing accounting standards. SFAS No.
133 requires that all derivatives be recognized in the balance sheet at their
fair market value and the corresponding derivative gains or losses be either
reported in the statement of operations or as a deferred item depending on the
type of hedge relationship that exists with respect to such derivatives. In July
1999, the Financial Accounting Standards Board issued SFAS No. 137, Accounting
for Derivative Instruments and Hedging Activities -- Deferral of the Effective
Date of FASB Statement No. 133. SFAS No. 137 deferred the effective date until
the quarter ending June 30, 2000. The Company will adopt SFAS No. 133 in its
quarter ending June 30, 2000 and has not determined whether the adoption of this
pronouncement will have a material impact on its financial condition or results
of operations.
NOTE 3 -- BALANCE SHEET COMPONENTS (IN THOUSANDS):
ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable............................. $ 613 $ 1,811 $ 7,185
Less allowance for doubtful accounts............ (77) (300) (830)
------- ------- -------
$ 536 $ 1,511 $ 6,355
======= ======= =======
</TABLE>
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED ------------------- SEPTEMBER 30,
USEFUL LIFE 1997 1998 1999
----------- ------- ------- -------------
(YEARS) (UNAUDITED)
<S> <C> <C> <C> <C>
Equipment........................... 3 $ 1,365 $ 1,640 $ 2,335
Furniture and fixtures.............. 5 216 238 325
Leasehold improvements.............. 2 47 49 79
Equipment under capital leases...... 3 - 5 476 476 525
----- ------- ------- -------
2,104 2,403 3,264
Less: Accumulated depreciation and
amortization...................... (1,013) (1,550) (1,910)
------- ------- -------
$ 1,091 $ 853 $ 1,354
======= ======= =======
</TABLE>
Accumulated amortization related to equipment under capital leases at
December 31, 1997 and 1998 and at September 30, 1999 totaled approximately $250,
$356, and $407 (unaudited), respectively.
F-14
<PAGE> 106
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll and related liabilities......... $ 390 $ 603 $ 1,523
Accrued royalties............................... 92 365 356
Accrued professional fees....................... 84 166 523
Other accrued liabilities....................... 440 370 687
------- ------- -------
$ 1,006 $ 1,504 $ 3,089
======= ======= =======
</TABLE>
NOTE 4 -- RELATED PARTY TRANSACTIONS:
In September 1994, the Company entered into a Software Development Services
Agreement ("Services Agreement") with Duet Technologies, Inc. (DT, formerly
known as Software and Technologies, Inc.), which is owned by a former member of
the Board of Directors, whereby DT would provide the Company with assistance in
the development of two products at discounted hourly rates. In accordance with
the Services Agreement, the Company recorded a liability of $554,000,
representing the total obligation to DT in consideration for discounts granted
for the services performed. This amount is to be paid in a form of a royalty
equal to 10% of the Company's revenues from certain products. At September 30,
1999, a net balance of $225,000 (unaudited) was outstanding and is recorded in
current liabilities.
In 1995, the Company established a loan facility to the then President
pursuant to which he may borrow on an evergreen revolving basis, up to $100,000.
Amounts drawn under such facility are subject to a 6.0% interest rate. Any
amounts borrowed are secured by 200,000 shares of common stock pledged by the
individual as collateral. In September 1999, the loan facility was extended for
an additional year under the same terms and conditions. At September 30, 1999,
the principal amount outstanding on this facility was $100,000 (unaudited).
In March 1999, the Company loaned to an officer a sum of $45,000 for
relocation costs, repayable in three installments of $15,000 each in March 2000,
March 2001 and March 2002. The principal of the note and any unpaid interest
bear interest at a rate of 5.0% per annum. The principal and any accrued
interest will be forgiven ratably over a three year period subject to continued
employment of the officer. The note is collateralized by all stock options
granted to the officer. At September 30, 1999, a balance of $37,000 (unaudited)
was outstanding.
NOTE 5 -- BORROWINGS
BANK LINE-OF-CREDIT
In January 1997, the Company entered into an Equipment Loan Facility
Arrangement (the "Facility") which provides for the purchase of fixed assets of
up to $1,000,000, with any amounts borrowed generally due within 42 months of
the date of the agreement. Borrowings under the line of credit bear interest at
the bank's prime rate plus 0.75% (8.5% at December 31, 1998 and 9% at September
30, 1999). In connection with this line of credit, the Company is required to
meet certain financial covenants, the most restrictive of which is the
maintenance of tangible net worth of at least $1,000,000. At September 30, 1998,
the terms of the facility were amended and the bank agreed to waive the
Company's non compliance with certain covenants. In consideration for the
waiver, the
F-15
<PAGE> 107
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company issued a warrant to purchase 10,000 shares of Series D preferred stock
at an exercise price of $1.61 per share, expiring five years from the date of
issuance. The value of the warrant as determined using the Black-Scholes option
pricing model was not significant (see Note 9.) At September 30, 1999
(unaudited), the Company was in compliance with all financial covenants. Under
the terms of the Facility, the Company is prohibited from paying dividends while
any amounts are outstanding or while the bank is committed to fund any advances
under the facility.
Future minimum payments under the Facility at December 31, 1998 and
September 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
YEAR ENDING DECEMBER 31,
1999................................. $ 333 $ --
2000................................. 281 312
2001................................. 18 69
----- -----
Total principal amounts due........ 632 381
Less: Current portion................ (333) (312)
===== =====
$ 298 $ 69
===== =====
</TABLE>
EQUIPMENT LINE
In August 1999, the Company obtained a capital financing line (the
"Equipment Line") which provides for the purchase of up to $1,000,000 in fixed
assets with any amounts borrowed due within 36 months of the date of the
agreement. Any borrowings under the Equipment Line are payable over 36 months,
with an effective interest rate of approximately 17%. Borrowings are
collateralized by the equipment being financed. There was no borrowing
outstanding under this line at September 30, 1999 (unaudited). In October 1999,
the Company increased the borrowing limit under this line to a total of
$2,000,000 and extended the effective date of the equipment line to September
30, 2000.
UNSECURED CONVERTIBLE BRIDGE LOAN
In April 1999, certain existing shareholders and other new investors
provided unsecured convertible bridge loans to the Company totaling $3,000,000.
Borrowings bear interest at the prime rate plus 2% per annum. In July 1999, the
principal and accrued interest outstanding were converted into 873,626 shares of
Series E convertible preferred. In connection with these loans, the Company
issued warrants to purchase 218,407 shares of Series E preferred stock at $3.50
per share. The warrants expire five years from the date of issuance. The fair
market value of the warrants was approximately $521,000 as determined using the
Black-Scholes option pricing model (see Note 9) and was recognized as interest
expense during the period prior to the conversion of the loan into Series E
preferred stock.
F-16
<PAGE> 108
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- INCOME TAXES:
The primary components of the net deferred tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Net operating loss carryforwards..................... $ 8,037 $ 11,181 $ 15,242
Research and experimentation credit carryforwards.... 395 822 1,050
Other long-term liabilities.......................... 213 322 493
Deferred revenue..................................... 113 7 (32)
Property and equipment............................... (47) (127) 77
------- -------- --------
8,711 12,205 16,830
Less: Valuation allowance............................ (8,711) (12,205) (16,830)
------- -------- --------
$ -- $ -- $ --
======= ======== ========
</TABLE>
Due to uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has recorded a valuation allowance
against its net deferred tax asset. The valuation allowance increased by
$3,494,000 in 1998 and $4,625,000 during the nine months ended September 30,
1999, respectively.
Differences between the federal statutory and effective tax rates are
primarily due to the nonrealizability of net operating losses and the resulting
increase in the valuation allowance.
At December 31, 1998 and September 30, 1999 (unaudited), the Company has
the following approximate net operating loss carryforwards and research and
experimentation credit carryforwards available to reduce future taxable income,
if any (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------------ ------------------
FEDERAL STATE FEDERAL STATE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net operating loss carryforwards............... $29,060 $22,313 $38,501 $30,999
Research and experimentation credit
carryforwards.................................. 500 322 635 415
</TABLE>
The federal net operating loss and research and experimentation credit
carryforwards expire through 2019 (through 2004 for state net operating loss
carryforwards) if not used beforehand to offset taxable income or tax
liabilities. For federal and state tax purposes, the Company's net operating
loss and research and experimentation credit carryforwards may be subject to
certain limitations on annual utilization in the event of changes in ownership,
as defined by federal and state tax laws.
F-17
<PAGE> 109
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- CONVERTIBLE PREFERRED STOCK:
At December 31, 1998, convertible preferred stock is comprised of the
following:
<TABLE>
<CAPTION>
NUMBER OF SHARES
-------------------------
ISSUED AND LIQUIDATION
SERIES DESIGNATED OUTSTANDING AMOUNT VALUE
------ ---------- ----------- ------- -----------
(THOUSANDS)
<S> <C> <C> <C> <C>
A....................................... 1,500,000 1,480,000 $ 2,391 $ 2,220
B....................................... 4,540,000 4,402,628 11,859 11,887
C....................................... 6,711,180 6,204,880 9,900 9,990
D....................................... 7,000,000 6,983,129 11,205 11,243
---------- ---------- ------- -------
19,751,180 19,070,637 $35,355 $35,340
========== ========== ======= =======
</TABLE>
At September 30, 1999 (unaudited), convertible preferred stock is comprised
of the following:
<TABLE>
<CAPTION>
NUMBER OF SHARES
-------------------------
ISSUED AND LIQUIDATION
SERIES DESIGNATED OUTSTANDING AMOUNT VALUE
------ ---------- ----------- ------- -----------
(THOUSANDS)
<S> <C> <C> <C> <C>
A....................................... 1,500,000 1,480,000 $ 2,391 $ 2,220
B....................................... 4,540,000 4,402,628 11,859 11,887
C....................................... 6,711,180 6,227,380 9,936 10,026
D....................................... 7,000,000 6,983,129 11,205 11,243
E....................................... 5,000,000 4,302,197 14,988 15,058
---------- ---------- ------- -------
24,751,180 23,395,334 $50,379 $50,434
========== ========== ======= =======
</TABLE>
DIVIDENDS
The holders of the outstanding preferred stock are entitled to receive in
any fiscal year, when and if declared by the Board of Directors, out of any
funds legally available, cash dividends at the annual rate of $0.15 per share
for Series A, $0.27 per share for Series B, $0.16 per share for Series C, $0.16
per share for Series D and $0.35 per share for Series E, payable in preference
and priority to any payment of any dividend on common stock. The right to
dividends on the preferred stock is not cumulative, and no right will accrue to
holders of preferred stock by reason of the fact that dividends on such shares
are not declared or paid in any prior year.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holders of the preferred stock are entitled
to receive, prior and in preference to any distribution of any assets or surplus
funds of the Company to holders of the common stock, the amount of $1.50 per
share for each share of Series A then held by them, $2.70 per share for each
share of Series B then held by them, $1.61 per share for each share of Series C
then held by them, $1.61 per share for each share of Series D then held by them
and $3.50 per share for each share of Series E then held by them, and, in
addition, an amount equal to all declared but unpaid dividends on the preferred
stock (the "Liquidation Preference"). If, upon occurrence of such event, the
assets and funds distributed among the holders of the preferred stock are
insufficient to permit the payment
F-18
<PAGE> 110
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
to such holders of the full preferential amount to which each series is
entitled, then the entire assets and funds of the Company legally available for
distribution are to be distributed among the holders of the preferred stock in
proportion to the full liquidation preference to which each such holder is
entitled.
After payment has been made to the holders of the preferred stock of the
Liquidation Preference, the holders of the preferred stock and common stock are
entitled to receive the remaining assets of the Company in proportion to the
number of shares of common stock which would be held by each such holder if all
shares of preferred stock then held by each such holder were converted into
common stock at the then effective conversion prices (as defined).
CONVERSION
Each share of preferred stock is convertible, at the option of the holder,
at any time after the date of issuance of such shares, into the number of fully
paid and nonassessable shares of common stock as is determined by dividing the
original issuance price by the conversion price, determined at the time of
conversion. The conversion rate is one share of common stock for each share of
preferred stock.
Each share of preferred stock will automatically convert into shares of
common stock at the then effective conversion price in the event of the
effectiveness of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
(the "Securities Act") or at the election of the holders of a majority of the
outstanding shares of preferred stock, voting together as a class on an
as-converted basis or in the event that less than 20% of the preferred stock
outstanding on the purchase date (as defined) remains outstanding.
VOTING RIGHTS
Except as otherwise required by law, the holders of preferred stock and the
holders of common stock are entitled to notice of any stockholders' meeting and
to vote as a single class upon any matter submitted to the shareholders for a
vote, as follows: (i) each holder of preferred stock have one vote for each full
share of common stock into which its respective shares of preferred stock would
be convertible on the record date for the vote and (ii) the holders of common
stock have one vote per share.
For so long as at least 750,000 shares of Series A are outstanding, the
holders of shares of Series A voting as a class, are entitled to elect two
directors. For so long as at least 2,201,000 shares of Series B are outstanding,
the holders of shares of Series B voting as a class are entitled to elect two
directors. For so long as the number of shares of Series C, Series D and Series
E and any subsequently issued Series of preferred stock that remain outstanding
is greater than or equal to the sum of (i) 3,105,590 shares and (ii) one half
the number of shares of any subsequent series of preferred stock outstanding on
the final purchase date (as defined), the holders of shares of Series C and
Series D and any subsequently issued Series of preferred stock then outstanding
voting as a class are entitled to elect two directors.
NOTE 8 -- COMMON STOCK
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 40,000,000 shares of common stock.
F-19
<PAGE> 111
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has granted restricted stock to certain employees. At December
31, 1998, the Company had no shares of restricted common stock outstanding. As
of September 30, 1999 (unaudited), the Company had 3,647,599 shares of
restricted common stock outstanding. The Company has the right to repurchase
these shares at the original issue price. The Company's right to repurchase such
shares declines on a percentage basis, usually over 50 months, based on the
length of the employees' continued employment with the Company. At September 30,
1999 (unaudited), 1,792,809 of such shares were subject to repurchase.
Certain of these shares were issued in exchange for notes receivable, which
are full recourse and additionally collateralized by the underlying shares of
common stock. These notes receivable are payable on various dates through March
2004 and bear interest at a fixed rate of 7.0% per annum. These notes receivable
have been included in stockholder's equity.
At December 31, 1998 and September 30, 1999, the Company had reserved
shares of common stock for future issuance as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
Conversion of Series A preferred
stock.............................. 1,500,000 1,500,000
Conversion of Series B preferred
stock................................ 4,402,628 4,402,628
Conversion of Series C preferred
stock.............................. 6,252,566 6,265,159
Conversion of Series D preferred
stock.............................. 6,993,129 6,993,129
Conversion of Series E preferred
stock.............................. -- 4,520,604
Exercise of options under stock
option plans....................... 6,433,427 3,386,138
---------- ----------
25,581,750 27,067,658
========== ==========
</TABLE>
NOTE 9 -- WARRANTS:
In connection with certain services rendered by consultants and certain
equipment and bridge loans, the Company issued warrants to purchase shares of
the Company's preferred stock and common stock as follows:
<TABLE>
<CAPTION>
FISCAL
YEAR FISCAL
OF NUMBER NUMBER EXERCISE YEAR OF
GRANT OUTSTANDING EXERCISABLE PRICE EXPIRATION VALUE
------- ----------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Series A preferred stock warrants......... 1995 20,000 20,000 $2.00 2000 de minimus
Series C preferred stock warrants......... 1996 12,593 12,593 $1.61 2001 de minimus
Series C preferred stock warrants......... 1998 12,593 12,593 $1.61 2003 de minimus
Series C preferred stock warrants......... 1999 12,593 6,300 $1.61 2004 de minimus
Series D preferred stock warrants......... 1998 10,000 10,000 $1.61 2003 de minimus
Series E preferred stock warrants......... 1999 218,407 218,407 $3.50 2004 $521,000
Common stock warrants..................... 1994 4,375 4,375 $1.50 1999 de minimus
Common stock warrants..................... 1995 50,000 50,000 $1.50 1999 de minimus
Common stock warrants..................... 1997 95,400 95,400 $1.50 2002 de minimus
Common stock warrants..................... 1998 465,061 465,061 $0.20 2003 $137,000
</TABLE>
F-20
<PAGE> 112
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company calculated the minimum fair value of all warrants on the date
of grant using the Black-Scholes options model as prescribed by SFAS No. 123
with the following underlying assumptions: expected volatility of 80%, risk free
interest rates ranging from 4.7% to 6.3%, zero dividends, and terms of five
years.
NOTE 10 -- STOCK OPTIONS:
The Company's original stock option plan was the Vision Software, Inc. 1994
Employee, Director and Consultant Stock Option Plan ("the 1994 Plan"), pursuant
to which key employees, directors and consultants of the Company were granted
options to purchase shares of common stock. Options granted under the Plan
include incentive stock options and nonqualified stock options. Stock options
granted under the 1994 Plan generally vest over fifty months.
In July 1996, the Board of Directors of the Company approved the Vision
Software Tools, Inc. 1996 Stock Option Plan ("the 1996 Plan"). The 1996 Plan, as
amended, provides for the grant of options to purchase shares of the Company's
common stock to key employees, non-employee directors and consultants. These
options have terms similar to that of options granted under the 1994 Plan. Under
the 1994 and 1996 Plans, options granted were immediately exercisable and
unvested shares were subject to repurchase by the Company.
In November 1996, the Board of Directors of the Company approved the Vision
Software Tools, Inc. 1997 Stock Option Plan ("the 1997 Plan"). The 1997 Plan
provides for the issuance of shares (includes options granted and available for
grant) of the Company's common stock to key employees, non-employee directors
and consultants. The 1997 Plan was the successor to the Company's existing 1994
and 1996 Plans ("the Predecessor Plans"). All options outstanding under the
Predecessor Plans were incorporated into the 1997 Plan and were treated as
outstanding options under the 1997 Plan. However, each outstanding option so
incorporated continued to be governed solely by the terms of the documents
evidencing such option, and no provisions of the 1997 Plan were deemed to affect
or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of common
stock. These options have terms similar to options granted under the Predecessor
Plans.
F-21
<PAGE> 113
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes activity under the Company's stock option
plans:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------
WEIGHTED
AVERAGE
OPTIONS EXERCISE
AVAILABLE PRICE PER
FOR GRANT SHARES SHARE
---------- ---------- ---------
<S> <C> <C> <C>
Balance at December 31, 1995......................... 317,914 1,397,809 $0.24
Additional options authorized........................ 952,251 -- --
Options granted.................................... (1,417,940) 1,417,940 0.23
Options exercised.................................. -- (405,748) 0.17
Options canceled................................... 211,170 (211,170) 0.18
---------- ----------
Balance at December 31, 1996......................... 63,395 2,198,831 0.21
Additional options authorized...................... 931,677 -- --
Options granted.................................... (1,437,373) 1,437,373 0.20
Options exercised.................................. -- (22,176) 0.22
Options canceled................................... 659,590 (659,590) 0.22
---------- ----------
Balance at December 31, 1997......................... 217,289 2,954,438 0.20
Additional options authorized...................... 3,759,813 -- --
Options granted.................................... (1,159,200) 1,159,200 0.20
Options granted below intrinsic value.............. (2,253,135) 2,253,135 0.20
Options exercised.................................. -- (498,113) 0.20
Options canceled................................... 459,451 (459,451) 0.21
---------- ----------
Balance at December 31, 1998......................... 1,024,218 5,409,209 0.20
Additional options authorized (unaudited).......... 1,116,694 -- --
Repurchase of common stock (unaudited)............. 8,430 -- --
Options granted below intrinsic value
(unaudited)..................................... (2,012,375) 2,012,375 0.84
Options exercised (unaudited)...................... -- (4,172,413) 0.20
Options canceled (unaudited)....................... 199,849 (199,849) 0.20
---------- ----------
Balance at September 30, 1999 (unaudited)............ 336,816 3,049,322 0.62
========== ==========
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options as of December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS VESTED AND
OPTIONS OUTSTANDING EXERCISABLE
------------------------------------ ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE EXERCISE
CONTRACTUAL PRICE PER PRICE PER
RANGE OF EXERCISE PRICES SHARES LIFE (YEARS) SHARE SHARES SHARE
- ------------------------ --------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$0.10 - $0.25 5,035,579 8.3 $0.19 1,236,869 $0.17
$0.25 - $0.50 373,630 6.9 0.30 277,164 0.30
--------- ---------
5,409,209 8.2 0.20 1,514,033 0.20
========= =========
</TABLE>
F-22
<PAGE> 114
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information concerning outstanding and
exercisable options as of September 30, 1999 (unaudited):
<TABLE>
<CAPTION>
OPTIONS VESTED AND
OPTIONS OUTSTANDING EXERCISABLE
------------------------------------ -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE EXERCISE
CONTRACTUAL PRICE PER PRICE PER
RANGE OF EXERCISE PRICES SHARES LIFE (YEARS) SHARE SHARES SHARE
- ------------------------ --------- ------------ --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$0.10 - $0.25 2,280,262 8.6 $0.20 215,658 $0.20
$0.25 - $0.50 10,460 5.4 0.30 10,460 0.30
$1.00 - $1.25 366,800 9.8 1.25 2,800 1.25
$2.25 - $2.50 391,800 10.0 2.50 --
--------- -------
3,049,322 8.9 0.62 228,918 0.22
========= =======
</TABLE>
FAIR VALUE DISCLOSURES
Pro forma information regarding net loss and net loss per share is required
by SFAS No. 123, which also requires that the information be determined as if
the Company has accounted for its employee stock options granted under the fair
value method. The fair value for these options was estimated using the
Black-Scholes option pricing model.
The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes option pricing method as prescribed by
SFAS No. 123 using the following assumptions:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------ SEPTEMBER 30,
1996 1997 1998 1999
---- ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Risk-free rates....................... 6.75% 5.80% - 6.77% 4.18% - 5.63% 4.55% - 5.88%
Expected lives (in years)............. 5.0 5.0 5.0 5.0
Dividend yield........................ 0.0% 0.0% 0.0% 0.0%
Expected volatility................... 0.0% 0.0% 0.0% 0.0%
</TABLE>
The weighted average fair value of these options granted in 1996, 1997 and
1998 and during the nine months ended September 30, 1999 was $0.17, $0.047,
$0.044 and $0.047, respectively.
F-23
<PAGE> 115
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Had compensation costs been determined based upon the fair value at the
grant date for awards under these plans, consistent with the methodology
prescribed under SFAS No. 123, the Company's pro forma net loss attribute to
common stockholders and pro forma basic and diluted net loss per share under
SFAS No. 123 would have been:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------- SEPTEMBER 30,
1996 1997 1998 1999
------- ------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss
As reported................................. $(9,013) $(9,844) $(8,134) $(12,911)
Pro forma................................. $(9,059) $(9,897) $(8,214) $(13,092)
Net loss per share
As reported............................... $ (6.05) $ (5.72) $ (3.99) $ (4.12)
Pro forma................................. $ (6.08) $ (5.75) $ (4.03) $ (4.18)
</TABLE>
UNEARNED STOCK-BASED COMPENSATION
In connection with certain stock option grants, the Company recognized
unearned compensation which is being amortized over the vesting periods of the
related options, usually 50 months, using an appropriate accelerated basis. The
total unearned compensation recorded by the Company from January 1, 1996 through
September 30, 1999 was $4,416,000. Amortization expense recognized during the
year ended December 31, 1998 and the nine months ended September 30, 1999 was
$202,000 and $1,249,000 (unaudited), respectively.
During October and November 1999, the Company granted options to purchase
1,892,400 shares of common stock to existing and new employees at a weighted
average exercise price of $2.71 per share. In connection with these grants, the
Company recognized approximately $4.8 million in unearned compensation that will
be recognized over the related vesting period.
NOTE 11 -- EMPLOYEE BENEFIT PLANS:
In May 1995, the Company established a 401(k) Profit Sharing Plan (the
"Plan") which covers substantially all employees. Under the Plan, employees are
permitted to contribute up to 20% of gross compensation not to exceed the annual
402(g) limitation for any Plan year. Discretionary contributions may be made by
the Company. No contributions were made by the Company during the years ended
December 31, 1996, 1997 and 1998 and for the nine months ended September 30,
1999.
Effective September 1, 1998, the Company adopted a nonqualified deferred
compensation plan which permits eligible officers and key employees to defer a
portion of their compensation. At December 31, 1998 and at September 30, 1999,
the deferred compensation amounts together with accumulated interest, which are
distributable in cash after retirement or termination of employment, amounted to
approximately $50,000 and $246,000, respectively.
NOTE 12 -- PRO FORMA NET LOSS PER SHARE (UNAUDITED):
Pro forma net loss per share for the year ended December 31, 1998 and the
nine months ended September 30, 1999 is computed using the weighted average
number of common shares outstanding,
F-24
<PAGE> 116
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
including the pro forma effects of the conversion of the Company's Series A,
Series B, Series C, Series D and Series E convertible preferred stock into
shares of the Company's common stock effective upon the closing of the Company's
initial public offering as if such conversion occurred on January 1, 1998, or at
date of original issuance, if later. The resulting pro forma adjustment includes
an increase in the weighted average shares used to compute basic and diluted net
loss per share of 13,665,489 and 20,219,323 for the year ended December 31, 1998
and the nine months ended September 30, 1999, respectively. The calculations of
pro forma diluted net loss per share excludes potential common shares as the
effect would be anti-dilutive. Pro forma common equivalent shares are composed
of unvested restricted common stock and incremental common shares issuable upon
the exercise of stock options and warrants.
NOTE 13 -- COMMITMENTS:
The Company has entered into leases for certain office space and equipment
with original terms ranging from 36 to 60 months. The lease for office space
includes scheduled base rent increases over the term of the lease. The total
amount of the base rent payments is charged to expense over the term of the
lease using the straight-line method. In addition, the lease for office space
contains an escalation clause to recover increases in future operating costs and
real estate taxes over the base year. The future minimum lease payments shown
below are exclusive of such escalation.
Future minimum lease payments under all noncancelable leases at December
31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
YEAR ENDING DECEMBER 31,
1999........................................................ $ 83 $458
2000........................................................ 68 $432
2001........................................................ 27 --
2002........................................................ -- --
---- ----
Total minimum lease payments.............................. 178 $890
----
Less interest............................................... (27)
----
Present value of minimum lease payments..................... 151
Less current portion........................................ (63)
----
$ 88
====
</TABLE>
Rent expense for the years ended December 31, 1996, 1997 and 1998 and for
the nine months ended September 30, 1999 was approximately $342,000, $303,000,
$477,000, and $436,000 (unaudited), respectively.
NOTE 14 -- SUBSEQUENT EVENTS:
INITIAL PUBLIC OFFERING
In November 1999, the Company's Board of Directors authorized management to
file a registration statement with the Securities and Exchange Commission to
permit the Company to sell shares of its common stock to the public.
F-25
<PAGE> 117
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
REINCORPORATION
The Company intends to reincorporate in the State of Delaware prior to the
effectiveness of the offering referred to above. In addition, the Company
changed its name to Versata, Inc. All references to the Company and share and
par value information included in these consolidated financial statements have
been adjusted to reflect these changes.
OFFERING OF SERIES E PREFERRED STOCK
In October 1999, the Company completed an additional offering of Series E
preferred stock. Pursuant to this offering, a total of 179,396 additional shares
of Series E preferred stock were sold at a price of $3.50 per share, for net
proceeds to the Company of $628,000. The holders of these Series E preferred
stock have the same rights as those holders of the Series E shares issued prior
to September 30, 1999 as discussed in Note 7.
OFFERING OF SERIES F PREFERRED STOCK
On November 30, 1999, the Company completed an offering of Series F
preferred stock. Pursuant to this offering, a total of 2,877,698 shares of
Series F preferred stock were sold at a price of $5.56 per share, for a net
proceeds to the Company of approximately $16,000,000.
The voting, dividends, liquidation and conversion rights with respect to
Series F are as follows:
DIVIDENDS
The holders of Series F preferred stock shall be entitled to receive
dividends, in parity with the Series A, Series B, Series C, Series D and
Series E preferred stock, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend
(payable other than in common stock or other securities and rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of common stock of the Company) on the common
stock of the Company, at the rate of $0.556 per share per annum or if
greater (as determined on a per annum basis and on as converted basis), an
amount equal to that paid on any other outstanding shares of the Company,
payable quarterly when, as and if declared by the Board of Directors. Such
dividends shall not be cumulative.
CONVERSION
Each share of Series F preferred stock shall be convertible, at the
option of the holder thereof, at any time after the date of issuance of
such share, into such number of fully paid and nonassessable shares of
common stock as is determined by dividing the Original Issue Price by the
Conversion Price at the time in effect. The initial Conversion Price per
share for the Series F preferred stock shall be the Original Issue Price.
Each share of Series F preferred stock shall automatically be
converted into shares of common stock at the Conversion Price at the time
in effect upon the earlier of (i) the closing of a firm commitment
underwritten public offering pursuant to an effective registration
statement under the Act covering the offer and sale of common stock of the
Company at a price per share of at least $10.00 and an aggregate offering
amount of at least $25 million, or (ii) the date upon which this Company
obtains the consent of the holders of at least a majority of the then
outstanding shares of preferred stock (voting on an as-converted basis).
F-26
<PAGE> 118
VERSATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIQUIDATION
In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the holders of Series F preferred
stock shall be entitled to receive, an amount per share equal to the sum of
(i) $5.56 for each outstanding share of Series F preferred stock (the
"Original Issue Price"), and (ii) an amount equal to declared but unpaid
dividends on such share. If upon the occurrence of such event, the assets
and funds distributed among the Series A, Series B, Series C, Series D and
Series E preferred stock as specified in the Articles of Incorporation of
the Company and the Series F preferred stock as specified above, are
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the Company
legally available for distribution shall be distributed ratably among the
holders of the Series A, Series B, Series C, Series D and Series E
preferred stock in proportion to the preferential amount each such holder
is otherwise entitled to.
After the distributions as described above, the remaining assets of
the Company available for distribution to shareholders shall be distributed
among the holders of Series A, Series B, Series C, Series D, Series E and
Series F preferred stock and common stock pro rata based on the number of
shares of common stock held by each (assuming full conversion of all such
Series A, Series B, Series C, Series D, Series E and Series F preferred
stock).
VOTING
The holder of each share of Series F preferred stock shall have the
right to one vote for each share of common stock into which such Series F
preferred stock could then be converted, and with respect to such vote,
such holder shall have full voting rights and powers equal to the voting
rights and powers of the holders of common stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the bylaws of this Company, and shall be
entitled to vote, together with holders of common stock, with respect to
any question upon which holders of common stock have the right to vote.
F-27
<PAGE> 119
PROSPECTUS
[VERSATA LOGO]
Shares
Common Stock
THOMAS WEISEL PARTNERS LLC
DAIN RAUSCHER WESSELS
SG COWEN
- --------------------------------------------------------------------------------
NEITHER WE NOR ANY OF THE UNDERWRITERS HAVE AUTHORIZED ANYONE TO PROVIDE
INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WHEN YOU MAKE A
DECISION ABOUT WHETHER TO INVEST IN OUR COMMON STOCK, YOU SHOULD NOT RELY UPON
ANY INFORMATION OTHER THAN THE INFORMATION IN THIS PROSPECTUS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR THE SALE OF OUR COMMON STOCK MEANS THAT
INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF THIS
PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN OFFER
TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH THE OFFER
OR SOLICITATION IS UNLAWFUL.
UNTIL , 2000 (25 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
AN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 120
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 15,180
NASD Filing Fee............................................. 6,250
Nasdaq National Market Listing Fee.......................... *
Printing and Engraving Expenses............................. 200,000
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Blue Sky Fees and Expenses.................................. 3,000
Transfer Agent Fees......................................... 10,000
Miscellaneous............................................... *
--------
Total............................................. *
</TABLE>
- -------------------------
* To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit the indemnification
under certain circumstances for liabilities (including reimbursement for
expenses incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VII, Section 6 of our bylaws provides for mandatory
indemnification of our directors and officers and permissible indemnification of
employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. Our certificate of incorporation provides that, subject
to Delaware law, our directors will not be personally liable for monetary
damages for breach of the directors' fiduciary duty as directors to Versata,
Inc. and its stockholders. This provision in the certificate of incorporation
does not eliminate the directors' fiduciary duty, 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 company or our stockholders for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for actions leading to improper personal benefit to the director, 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 law, such as the federal securities laws or
state or federal environmental laws.
Prior to the consummation of the offering, we plan to enter into
indemnification agreements with our officers and directors, a form of which will
be filed with the Securities and Exchange Commission as an exhibit to our
registration statement on Form S-1 (No. 333- ). The indemnification agreements
provide our officers and directors with further indemnification to the maximum
extent permitted by the Delaware General Corporation Law. We also expect to
obtain an insurance policy covering directors and officers for claims they may
otherwise be required to pay or for which we are required to indemnify them.
Reference is also made to the underwriting agreement contained in exhibit 1.1
hereto, indemnifying our officers and directors against certain liabilities, and
our Fourth Amended and
II-1
<PAGE> 121
Restated Registration Rights Agreement contained in exhibit 10.3 hereto,
indemnifying the parties thereto, including controlling stockholders, against
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the registrant has issued unregistered
securities to a limited number of persons as described below:
1. From November 1994 to February 1997, we issued warrants to purchase
150,775 shares of common stock at an exercise price of $1.50 per share to
various advisors and consultants.
2. From August 1994 to November 1995, we issued 1,480,000 shares of
Series A preferred stock to accredited investors for an aggregate cash
consideration of $2,403,239.
3. From May to September 1995, we issued convertible promissory notes
in the principal amount of $1,450,000 and warrants to purchase 64,500
shares of Series B preferred stock at an exercise price of $2.70 to
accredited investors. The notes were cancelled and converted into shares of
Series B preferred stock on November 21, 1995.
4. From November 1995 to March 1996, we issued 4,402,628 shares of
Series B preferred stock to accredited investors for an aggregate cash
consideration of $11,887,096, which includes conversion of the convertible
promissory notes described in Item 3 above into a total of 537,037 shares
of Series B preferred stock.
5. On December 1, 1995, we issued warrants to purchase 10,000 shares
of Series A preferred stock to Robert Davoli as compensation for consulting
services at an exercise price of $2.00 per share.
6. On December 1, 1995, we issued warrants to purchase 10,000 shares
of Series A preferred stock to Sippl MacDonald as compensation for
consulting services at an exercise price of $2.00 per share.
7. In October 1996, we issued convertible promissory notes in the
principal amount of $750,000 to an accredited investor. The note and
accrued interest thereon was cancelled and converted into shares of Series
C preferred stock on January 28, 1997.
8. In October 1996, we issued warrants to purchase 22,500 shares of
Series C preferred stock to an accredited investor in connection with a
drawdown under a facility at an exercise price of $1.61 per share.
9. From December 1996 to April 1999, we issued warrants to purchase
37,779 shares of Series C preferred stock to Robert Davoli as compensation
for consulting services at an exercise price of $1.61 per share.
10. From January 1997 to May 1997, we issued 6,204,880 shares of
Series C preferred stock to accredited investors for an aggregate cash
consideration of $9,989,856, which includes conversion of the convertible
promissory notes and accrued interest thereon described in Item 7 above
into a total of 478,920 shares of Series C preferred stock.
11. From March 1998 to September 1998, we issued convertible
promissory notes in the principal amount of $2,875,809 and warrants to
purchase 465,061 shares of common stock at an exercise price of $0.20 per
share to accredited investors. The notes and accrued interest thereon were
cancelled and converted into a total of 1,823,013 shares of Series D
preferred stock on September 22, 1998.
II-2
<PAGE> 122
12. In September 1998, we issued a warrant to purchase 10,000 shares
of Series D preferred stock to a financial institution in connection with a
working line of credit at an exercise price of $1.61 per share.
13. From September 1998 to December 1998, we issued 6,983,129 shares
of Series D preferred stock to accredited investors for an aggregate cash
consideration of $11,242,868, which includes conversion of the convertible
promissory notes and accrued interest thereon described in Item 11 above
into a total 1,748,949 shares of Series D preferred stock.
14. On April 21, 1999, we issued convertible promissory notes in the
principal amount of $3,000,000 and warrants to purchase 218,407 shares of
Series E preferred stock at an exercise price of $3.50 per share to
accredited investors. The notes and accrued interest thereon were cancelled
and converted into shares of Series E preferred stock on August 8, 1999.
15. From July 1999 to October 1999, we issued 4,481,593 shares of
Series E preferred stock to accredited investors for an aggregate cash
consideration of $15,685,583, which includes conversion of the convertible
promissory notes and accrued interest thereon described in Item 14 above
into a total of 873,628 shares of Series E preferred stock.
16. On November 30, 1999, we issued 2,877,698 shares of Series F
preferred stock to accredited investors for an aggregate cash consideration
of $16,000,000.
17. Since inception through December 1, 1999, we have granted a total
of 9,939,114 options to purchase our common stock, excluding options
returned to our stock plans, with a weighted average price of $0.62 to a
number of our employees, directors and consultants.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and we believe that each
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule
701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients in each transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates and instruments
issued in these transactions. All recipients had adequate access, through their
relationships with us, to information about us.
II-3
<PAGE> 123
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C> <C>
1.1 Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of
Versata, to be effective upon consummation of this offering.
3.2* Amended and Restated Bylaws of Versata, to be effective upon
consummation of this offering.
4.1* Form of Specimen Common Stock Certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP regarding the
legality of the common stock being registered.
10.1* 2000 Stock Incentive Plan of Versata.
10.2* Employee Stock Purchase Plan of Versata.
10.3 Fourth Amended and Restated Investors' Rights Agreement,
among Versata and certain of its stockholders, dated
November 30, 1999.
10.4* Form of Indemnification Agreement to be entered into between
Versata and each of its directors and executive officers.
10.5 Office Lease dated June 17, 1997, between Versata and
Webster Street Partners, Ltd., for 2101 Webster.
10.6 Agreement of Sublease dated October 18, 1999, between
Versata and ICF Kaiser International, Inc.
10.7 Loan and Security Agreement, dated January 23, 1997, between
Versata and Venture Banking Group, a division of Cupertino
National Bank, as amended September 22, 1998.
10.8 Senior Loan and Security Agreement, dated August 20, 1999,
between Versata and Phoenix Leasing Incorporated, as amended
on October 1, 1999.
10.9*+ Joint Product and Marketing Agreement, dated September 27,
1999, between Versata and IBM.
21.1 Subsidiaries of Versata.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.2* Consent of Brobeck, Phleger & Harrison LLP (contained in
their opinion filed as Exhibit 5.1).
24.1 Power of Attorney. (see Page II-6.)
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment
+ Confidential treatment requested as to certain portions of this exhibit.
(b) FINANCIAL STATEMENT SCHEDULE
ITEM 17. UNDERTAKINGS
We hereby undertake to provide to the underwriters at the closing specified
in the underwriting agreement, certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the Delaware General Corporation Law, our certificate of incorporation or our
bylaws, indemnification agreements entered into between the company and our
officers and directors, the underwriting agreement, or otherwise, we have been
II-4
<PAGE> 124
advised that in the opinion of the commission such indemnification is against
public policy as expressed in the Securities Act, and is, therefore,
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by any of our directors,
officers or controlling persons 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, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by us is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective;
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 125
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on December 10, 1999.
VERSATA, INC.
By: /s/ JOHN A. HEWITT, JR.
------------------------------------
John A. Hewitt, Jr.
President, Chief Executive Officer
and Secretary
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, John A. Hewitt,
Jr. and Kevin Ferrell, and each one of them, his true and lawful
attorneys-in-fact and agents, each with full power of substitution, 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 to sign any Registration Statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming that each of said attorneys-in-fact and agents or any of them, or his
or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN A. HEWITT, JR. President, Chief Executive December 10, 1999
- ----------------------------------------------------- Officer, Secretary and
John A. Hewitt, Jr. Director (Principal
Executive Officer)
/s/ KEVIN FERRELL Chief Financial Officer December 10, 1999
- ----------------------------------------------------- (Principal Accounting
Kevin Ferrell Officer)
/s/ VAL HUBER Vice President, December 10, 1999
- ----------------------------------------------------- Development and Chief
Val Huber Technology Officer
/s/ PETER HARRISON Vice President, Sales December 10, 1999
- -----------------------------------------------------
Peter Harrison
</TABLE>
II-6
<PAGE> 126
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL DEVRIES Vice President, Marketing December 10, 1999
- -----------------------------------------------------
Michael DeVries
/s/ MICHAEL STANGL Vice President, December 10, 1999
- ----------------------------------------------------- Professional Services
Michael Stangl
/s/ GARY MORGENTHALER Chairman of the Board December 10, 1999
- -----------------------------------------------------
Gary Morgenthaler
/s/ NAREN BAKSHI Director December 10, 1999
- -----------------------------------------------------
Naren Bakshi
/s/ ROBERT DAVOLI Director December 10, 1999
- -----------------------------------------------------
Robert Davoli
/s/ DONALD W. FEDDERSEN Director December 10, 1999
- -----------------------------------------------------
Donald W. Feddersen
/s/ JOHN W. LARSON Director December 10, 1999
- -----------------------------------------------------
John W. Larson
Director December 10, 1999
- -----------------------------------------------------
Kanwal Rekhi
/s/ EUGENE WONG Director December 10, 1999
- -----------------------------------------------------
Eugene Wong
</TABLE>
II-7
<PAGE> 127
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
DESCRIPTION BEGINNING OF YEAR ADDITIONS DEDUCTIONS END OF YEAR
----------- ----------------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts for the
years ended:
December 31, 1996........................... $ -- 92 -- $ 92
December 31, 1997......................... 92 -- (15) 77
December 31, 1998......................... 77 223 -- 300
Allowance for deferred tax asset accounts
for the years ended:
December 31, 1996......................... $1,863 3,244 -- $ 5,107
December 31, 1997......................... 5,107 3,604 -- 8,711
December 31, 1998......................... 8,711 3,494 -- 12,205
</TABLE>
II-8
<PAGE> 128
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C> <C>
1.1 Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of
Versata, to be effective upon consummation of this offering.
3.2* Amended and Restated Bylaws of Versata, to be effective upon
consummation of this offering.
4.1* Form of Specimen Common Stock Certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP regarding the
legality of the common stock being registered.
10.1* 2000 Stock Incentive Plan of Versata.
10.2* Employee Stock Purchase Plan of Versata.
10.3 Fourth Amended and Restated Investors' Rights Agreement,
among Versata and certain of its stockholders, dated
November 30, 1999.
10.4* Form of Indemnification Agreement to be entered into between
Versata and each of its directors and executive officers.
10.5 Office Lease dated June 17, 1997, between Versata and
Webster Street Partners, Ltd., for 2101 Webster.
10.6 Agreement of Sublease dated October 18, 1999, between
Versata and ICF Kaiser International, Inc.
10.7 Loan and Security Agreement, dated January 23, 1997, between
Versata and Venture Banking Group, a division of Cupertino
National Bank, as amended September 22, 1998.
10.8 Senior Loan and Security Agreement, dated August 20, 1999,
between Versata and Phoenix Leasing Incorporated, as amended
on October 1, 1999.
10.9*+ Joint Product and Marketing Agreement, dated September 27,
1999, between Versata and IBM.
21.1 Subsidiaries of Versata.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.2* Consent of Brobeck, Phleger & Harrison LLP (contained in
their opinion filed as Exhibit 5.1).
24.1 Power of Attorney. (see Page II-6)
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment
+ Confidential treatment requested as to certain portions of this exhibit.
<PAGE> 1
EXHIBIT 1.1
DECEMBER 7, 1999
_______________ SHARES
VERSATA, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED ____________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................................2
(a) Effective Registration Statement...............................................................2
(b) Contents of Registration Statement.............................................................2
(c) Distribution of Offering Material By the Company...............................................2
(d) Due Incorporation..............................................................................2
(e) Subsidiaries...................................................................................3
(f) Underwriting Agreement.........................................................................3
(g) Description of Capital Stock and Other Capital Stock Matters...................................3
(h) Authorized Stock...............................................................................3
(i) Validly Issued Shares..........................................................................3
(j) No Default.....................................................................................3
(k) No Conflict....................................................................................4
(l) No Material Adverse Change.....................................................................4
(m) Independent Accountants........................................................................4
(n) Preparation of the Financial Statements........................................................4
(o) Legal Proceedings; Exhibits....................................................................4
(p) Compliance with Securities Act.................................................................4
(q) Not an Investment Company......................................................................5
(r) Compliance with Laws...........................................................................5
(s) No Environmental Costs.........................................................................5
(t) No Registration Rights.........................................................................5
(u) Cuban Business Statute.........................................................................5
(v) Absence of Material Charges....................................................................5
(w) Good Title to Properties.......................................................................6
(x) Intellectual Property Rights...................................................................6
(y) No Labor Disputes..............................................................................6
(z) Insurance......................................................................................6
(aa) Governmental Permits...........................................................................6
(bb) Accounting Controls............................................................................6
(cc) Stock Exchange Listing.........................................................................7
(dd) Year 2000 Compliance...........................................................................7
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
(ee) [Directed Share Program........................................................................7
(ff) Tax Law Compliance.............................................................................7
(gg) Related Party Transactions.....................................................................7
(hh) Reincorporation................................................................................8
2. PURCHASE AND SALE AGREEMENTS...............................................................8
(a) Firm Shares....................................................................................8
(b) Additional Shares..............................................................................8
(c) Market Standoff Provision......................................................................8
(d) Terms of Public Offering.......................................................................9
3. PAYMENT AND DELIVERY.......................................................................9
(a) Firm Shares....................................................................................9
(b) Additional Shares..............................................................................9
(c) Delivery of Certificates.......................................................................9
4. COVENANTS OF THE COMPANY...................................................................9
(a) Furnish Copies of Registration Statement and Prospectus........................................9
(b) Notification of Amendments or Supplements......................................................9
(c) Filings of Amendments or Supplements..........................................................10
(d) Blue Sky Laws.................................................................................10
(e) Earnings Statement............................................................................10
(f) Use of Proceeds...............................................................................10
(g) Transfer Agent................................................................................10
(h) Periodic Reporting Obligations................................................................10
(i) [Directed Share Program.......................................................................10
(j) Exchange Act Compliance.......................................................................11
5. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS...............................................11
(a) Effective Registration Statement..............................................................11
(b) Rule 462 Registration Statement...............................................................11
(c) Prospectus Filed with Commission..............................................................11
(d) No Stop Order.................................................................................11
(e) No NASD Objection.............................................................................11
(f) No Debt Downgrading...........................................................................11
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
(g) No Material Adverse Change....................................................................12
(h) Officer's Certificate.........................................................................12
(i) Opinion of Company Counsel....................................................................12
(j) Opinion of Underwriters Counsel...............................................................12
(k) Accountant's Comfort Letter...................................................................12
(l) Lock-Up Agreements............................................................................13
(m) Additional Documents..........................................................................13
6. EXPENSES..................................................................................13
7. INDEMNITY AND CONTRIBUTION................................................................14
(a) Indemnification of the Underwriters...........................................................14
(b) Indemnification by the Underwriters...........................................................14
(c) Indemnification Procedures....................................................................15
(d) [Indemnification for Directed Share Program...................................................16
(e) Contribution Agreement........................................................................16
(f) Contribution Amounts..........................................................................17
(g) Survival of Provisions........................................................................17
8. EFFECTIVENESS.............................................................................17
9. TERMINATION...............................................................................17
10. DEFAULTING UNDERWRITERS...................................................................18
11. COUNTERPARTS..............................................................................19
12. HEADINGS; TABLE OF CONTENTS...............................................................19
13. NOTICES...................................................................................19
14. SUCCESSORS................................................................................19
15. PARTIAL UNENFORCEABILITY..................................................................19
16. GOVERNING LAW.............................................................................19
17. ENTIRE AGREEMENT..........................................................................20
18. AMENDMENTS................................................................................20
19. SOPHISTICATED PARTIES.....................................................................20
</TABLE>
SCHEDULE A
List of Underwriters
-iii-
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
EXHIBITS
Exhibit A - Form of Legal Opinion of Company Counsel
Exhibit B - Form of Lockup Agreement
</TABLE>
-iv-
<PAGE> 6
An extra section break has been inserted above this paragraph. Do not delete
this section break if you plan to add text after the Table of
Contents/Authorities. Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following the
Table of Contents/Authorities.
-iii-
<PAGE> 7
___________________, 1999
Thomas Weisel Partners LLC
Dain Rauscher Wessels
SG Cowen Securities Corporation
As representatives of the several Underwriters
c/o Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
Ladies and Gentlemen:
Introduction. Versata, Inc., a Delaware corporation (the
"COMPANY"), proposes to issue and sell to the several underwriters named in
Schedule A hereto (the "UNDERWRITERS") an aggregate of ____________ shares of
the common stock, par value $0.001 per share, of the Company (the "FIRM
SHARES").
The Company also proposes to issue and sell to the several
Underwriters not more than an additional ____________ shares of its common
stock, $0.001 par value per share (the "ADDITIONAL SHARES"), if and to the
extent that you shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 3 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "SHARES". The shares of common
stock, $0.001 par value per share, of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
"COMMON STOCK". Thomas Weisel Partners LLC, Dain Rauscher Wessels and SG Cowen
Securities Corporation have agreed to act as representatives of the several
Underwriters (in such capacity, the "REPRESENTATIVES") in connection with the
offering and sale of the Shares.
The Company has filed with the Securities and Exchange
Commission (the "COMMISSION") a registration statement on Form S-1 (file no.
333-_____), including a prospectus, relating to the Shares. The registration
statement as amended at the time it becomes effective, including the information
(if any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), is hereinafter referred to as the "REGISTRATION
STATEMENT"; the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "PROSPECTUS". If the Company has filed a
registration statement to register additional shares of Common Stock pursuant to
Rule 462(b) under the Securities Act (the "RULE 462 REGISTRATION STATEMENT"),
then any reference herein to the term "REGISTRATION STATEMENT" shall be deemed
to include such Rule 462 Registration Statement. All references in this
Agreement to the Registration Statement, the Rule 462 Registration Statement, a
preliminary prospectus, the Prospectus, or any amendments
<PAGE> 8
or supplements to any of the foregoing, shall include any copy thereof filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR").
[As part of the offering contemplated by this Agreement,
Thomas Weisel Partners has agreed to reserve out of the Shares set forth
opposite its name on Schedule A to this Agreement, up to ______________ shares,
for sale to the Company's employees, officers, and directors and other parties
associated with the Company (collectively, "PARTICIPANTS"), as set forth in the
Prospectus under the heading "Underwriting" (the "DIRECTED SHARE PROGRAM"). The
Shares to be sold by Thomas Weisel Partners pursuant to the Directed Share
Program (the "DIRECTED SHARES") will be sold by Thomas Weisel Partners pursuant
to this Agreement at the public offering price. Any Directed Shares not orally
confirmed for purchase by any Participants by the end of the first business day
after the date on which this Agreement is executed will be offered to the public
by Thomas Weisel Partners as set forth in the Prospectus.]
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) Effective Registration Statement. The Registration
Statement has become effective; no stop order suspending the effectiveness of
the Registration Statement is in effect, and no proceedings for such purpose are
pending before or threatened by the Commission.
(b) Contents of Registration Statement. (i) The Registration
Statement, when it became effective, did not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, (ii) the Registration Statement
and the Prospectus comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Securities Act and the applicable rules
and regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) Distribution of Offering Material By the Company. The
Company has not distributed and will not distribute, prior to the later of the
Option Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) Due Incorporation. Each of the Company and its
subsidiaries, Vision Software (Europe) Ltd. in the U.K., Vision Software GmbH in
Germany, and Vision Software Tools BVBA in Belgium, (such subsidiaries are
hereinafter referred to as the "Subsidiaries") has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
respective jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described in the
Prospectus and is duly qualified to
2
<PAGE> 9
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and the
Subsidiaries, taken as a whole.
(e) Subsidiaries. The Company owns, directly or indirectly,
one hundred percent (100%) of the outstanding capital stock or other ownership
interests of each of the Subsidiaries, and all of such share or other ownership
interests have been validly issued, are fully paid and non-assessable, were not
issued in violation of any preemptive rights and are owned free and clear of any
liens, charges, claims, encumbrances, pledges, security interests, defects or
other restrictions or equities of any kind whatsoever. Except as described in
the Prospectus, neither of the Company nor the Subsidiaries owns an interest in
any other corporation, partnership, joint venture, trust or other business
entity.
(f) Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by the Company, and is a valid and binding
agreement of the Company, enforceable in accordance with its terms, except as
rights to indemnification hereunder may be limited by applicable law and except
as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles.
(g) Description of Capital Stock and Other Capital Stock
Matters. The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus. There are no
outstanding subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale or liens granted or issued by the Company or the
Subsidiaries relating to or entitling any person to purchase or otherwise to
acquire any shares of the capital stock of the Company or the Subsidiaries,
except as otherwise disclosed in the Registration Statement.
(h) Authorized Stock. All of the outstanding shares of capital
stock of the Company prior to the issuance of the Shares to be sold by the
Company have been duly authorized and are validly issued, fully paid,
non-assessable and not subject to any preemptive or similar rights.
(i) Validly Issued Shares. The Shares to be sold by the
Company have been duly authorized and, when issued and delivered in accordance
with the terms of this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(j) No Default. Neither the Company nor its Subsidiaries is in
violation of its respective charter or by-laws or in default in the performance
of any obligation, agreement, covenant or condition contained in any indenture,
loan agreement, mortgage, lease or other agreement or instrument that is
material to the Company and the Subsidiaries, taken as a whole, to which the
Company or the Subsidiaries is a party or by which the Company or the
Subsidiaries or its property is bound.
3
<PAGE> 10
(k) No Conflict. The execution and delivery by the Company of,
and the performance by the Company of its obligations under, this Agreement will
not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or the Subsidiaries or any agreement or
other instrument binding upon the Company or the Subsidiaries that is material
to the Company and the Subsidiaries, taken as a whole, or any judgment, order or
decree of any governmental body, agency or court having jurisdiction over the
Company or the Subsidiaries, and no consent, approval, authorization or order
of, or qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except such
as may be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(l) No Material Adverse Change. There has not occurred any
material adverse change, or any development involving a prospective material
adverse change, in the condition, financial or otherwise, or in the earnings,
business, operations or prospects of the Company or Subsidiaries from that set
forth in the Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement).
(m) Independent Accountants. PricewaterhouseCoopers LLP, who
have expressed their opinion with respect to the consolidated financial
statements (which term as used in this Agreement includes the related notes
thereto) [and supporting schedules] filed with the Commission as a part of the
Registration Statement and included in the Prospectus, are independent public or
certified public accountants as required by the Securities Act.
(n) Preparation of the Financial Statements. The consolidated
financial statements filed with the Commission as a part of the Registration
Statement and included in the Prospectus present fairly the financial position
of the Company and the Subsidiaries as of and at the dates indicated and the
results of its operations and cash flows for the periods specified. [The
supporting schedules included in the Registration Statement present fairly the
information required to be stated therein.] Such consolidated financial
statements [and supporting schedules] have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial data set
forth in the Prospectus under the captions "Prospectus Summary-Summary Financial
Information," "Selected Financial Data" and "Capitalization" fairly present the
information set forth therein on a basis consistent with that of the audited
financial statements contained in the Registration Statement.
(o) Legal Proceedings; Exhibits. There are no legal or
governmental proceedings pending or threatened to which the Company or the
Subsidiaries is a party or to which any of the properties of the Company or the
Subsidiaries is subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or any statutes,
regulations, contracts or other documents that are required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(p) Compliance with Securities Act. Each preliminary
prospectus filed as part of the Registration Statement as originally filed or as
part of any amendment thereto, or filed
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pursuant to Rule 424 under the Securities Act, complied when so filed in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(q) Not an Investment Company. The Company is not and, after
giving effect to the offering and sale of the Shares and the application of the
proceeds thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended.
(r) Compliance with Laws. Each of the Company and the
Subsidiaries (i) is in compliance with any and all applicable foreign, federal,
state and local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) has received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) is in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
individually or in the aggregate, have a material adverse effect on the Company
and the Subsidiaries, taken as a whole.
(s) No Environmental Costs. There are no costs or liabilities
associated with Environmental Laws (including, without limitation, any capital
or operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties) which would, individually or in the aggregate, have a material
adverse effect on the Company and the Subsidiaries, taken as a whole.
(t) No Registration Rights. There are no contracts, agreements
or understandings between the Company or the Subsidiaries and any person
granting such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the Company
or to require the Company to include such securities with the Shares registered
pursuant to the Registration Statement other than as described in the
Registration Statement and as have been waived in writing in connection with the
offering contemplated hereby.
(u) Cuban Business Statute. Each of the Company and the
Subsidiaries has complied with all provisions of Section 517.075, Florida
Statutes relating to doing business with the Government of Cuba or with any
person or affiliate located in Cuba.
(v) Absence of Material Charges. Subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus, (i) neither the Company nor the Subsidiaries has incurred any
material liability or obligation, direct or contingent, nor entered into any
material transaction not in the ordinary course of business; (ii) neither the
Company nor the Subsidiaries has purchased any of its outstanding capital stock,
nor declared, paid or otherwise made any dividend or distribution of any kind on
its capital stock other than ordinary and customary dividends; and (iii) there
has not been any material change in the capital stock, short-term debt or
long-term debt of the Company or the Subsidiaries, except in each case as
described in the Prospectus.
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(w) Good Title to Properties. Each of the Company and the
Subsidiaries has good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned by it which is
material to the business of the Company and the Subsidiaries, taken as a whole,
in each case free and clear of all liens, encumbrances and defects except such
as are described in the Prospectus or such as do not materially affect the value
of such property and do not interfere with the use made and proposed to be made
of such property by the Company or the Subsidiaries; and any real property and
buildings held under lease by the Company or the Subsidiaries are held under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company or the Subsidiaries.
(x) Intellectual Property Rights. Each of the Company and the
Subsidiaries owns or possesses, or can acquire on reasonable terms, all material
patents, patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks and
trade names currently employed by it in connection with the business now
operated by it, and neither the Company nor the Subsidiaries has received any
notice of infringement of or conflict with asserted rights of others with
respect to any of the foregoing which, individually or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a material
adverse effect on the Company and the Subsidiaries, taken as a whole.
(y) No Labor Disputes. No material labor dispute with the
employees of the Company or the Subsidiaries exists, or, to the knowledge of the
Company or Subsidiaries, is imminent; and neither the Company nor the
Subsidiaries is aware of any existing, threatened or imminent labor disturbance
by the employees of any of its principal suppliers, manufacturers or contractors
that could have a material adverse effect on the Company and the Subsidiaries,
taken as a whole.
(z) Insurance. Each of the Company and the Subsidiaries is
insured by the insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary in the
businesses in which it is engaged; and neither the Company nor the Subsidiaries
has reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a material adverse effect on the Company and the Subsidiaries,
taken as a whole.
(aa) Governmental Permits. Each of the Company and the
Subsidiaries possesses all certificates, authorizations and permits issued by
the appropriate federal, state or foreign regulatory authorities necessary to
conduct its business, and neither the Company nor the Subsidiaries has received
any notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, individually or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would have a material
adverse effect on the Company and the Subsidiaries, taken as a whole.
(bb) Accounting Controls. Each of the Company and the
Subsidiaries maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations;
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(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(cc) Stock Exchange Listing. The Common Stock has been
approved for listing on the Nasdaq National Market System, subject only to
official notice of issuance.
(dd) Year 2000 Compliance. The Company has reviewed its
operations, the operations of its Subsidiaries, and that of any third parties
with which the Company or the Subsidiaries has a material relationship to
evaluate the extent to which the business or operations of the Company or the
Subsidiaries will be affected by the Year 2000 Problem. As a result of such
review, the Company has no reason to believe, and does not believe, that the
Year 2000 Problem will have a material adverse effect on the Company or the
Subsidiaries or result in any material loss or interference with the Company's
or the Subsidiaries' business or operations. The "YEAR 2000 PROBLEM" as used
herein means any significant risk that computer hardware or software used in the
receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of mechanical or
electrical systems of any kind will not, in the case of dates or time periods
occurring after December 31, 1999, function at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000.
(ee) [Directed Share Program. The Company represents and
warrants to Thomas Weisel Partners that (i) the Registration Statement, the
Prospectus and any preliminary prospectus comply, and any further amendments or
supplements thereto will comply, with any applicable laws or regulations of
foreign jurisdictions in which the Prospectus or any preliminary prospectus, as
amended or supplemented, if applicable, are distributed in connection with the
Directed Share Program, and that (ii) no authorization, approval, consent,
license, order, registration or qualification of or with any government,
governmental instrumentality or court, other than such as have been obtained, is
necessary under the securities laws and regulations of foreign jurisdictions in
which the Directed Shares are offered outside the United States.]
(ff) Tax Law Compliance. Each of the Company and the
Subsidiaries has filed all necessary federal, state and foreign income and
franchise tax returns or has properly requested extensions thereof and has paid
all taxes required to be paid by it and, if due and payable, any related or
similar assessment, fine or penalty levied against it. Each of the Company and
the Subsidiaries has made adequate charges, accruals and reserves in the
applicable financial statements referred to in Section 1(n) above in respect of
all federal, state and foreign income and franchise taxes for all periods as to
which the tax liability of the Company or the Subsidiaries has not been finally
determined.
(gg) Related Party Transactions. There are no business
relationships or related-party transactions involving the Company or its
Subsidiaries or any other person required to be described in the Prospectus
which have not been described as required.
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(hh) Reincorporation The reincorporation of the Company in the
State of Delaware, including the Agreement of Merger, has been duly authorized,
is effective as of the date hereof, and the Certificates of Approval of Merger
and all other necessary agreements, documents and instruments have been executed
and, where necessary, filed with the appropriate governmental entities
including, without limitation, the Secretary of State of the State of California
and the Secretary of State of the State of Delaware.
2. Purchase and Sale Agreements.
(a) Firm Shares. The Company hereby agrees to sell to the
several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company at $______ a share (the "PURCHASE PRICE") the number of Firm Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) set forth opposite the name of such Underwriter in Schedule A hereto.
(b) Additional Shares. On the basis of the representations and
warranties contained in this Agreement, and subject to its terms and conditions,
the Company agrees to sell to the Underwriters the Additional Shares, and the
Underwriters shall have a one-time right to purchase, severally and not jointly,
up to _______________ Additional Shares at the Purchase Price. If you, on behalf
of the Underwriters, elect to exercise such option, you shall so notify the
Company in writing not later than thirty (30) days after the date of this
Agreement, which notice shall specify the number of Additional Shares to be
purchased by the Underwriters and the date on which such shares are to be
purchased. Such date may be the same as the Closing Date (as defined below) but
not earlier than the Closing Date nor later than ten (10) business days after
the date of such notice. Additional Shares may be purchased as provided in
Section 3 hereof solely for the purpose of covering over-allotments made in
connection with the offering of the Firm Shares. If any Additional Shares are to
be purchased, each Underwriter agrees, severally and not jointly, to purchase
the number of Additional Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion to the
total number of Additional Shares to be purchased as the number of Firm Shares
set forth in Schedule A hereto opposite the name of such Underwriter bears to
the total number of Firm Shares.
(c) Market Standoff Provision. The Company hereby agrees that,
without the prior written consent of Thomas Weisel Partners, it will not, during
the period ending 180 days after the date of the Prospectus, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase,
lend, 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 (ii) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of the Common Stock, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Shares to be sold hereunder or (B) the issuance by the Company of shares of
Common Stock upon the exercise of options or warrants or the conversion of a
security outstanding on the date hereof of which the Underwriters have been
advised in writing and which is described in the Prospectus.
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<PAGE> 15
(d) Terms of Public Offering. The Company is advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable.
3. Payment and Delivery.
(a) Firm Shares. Payment for the Firm Shares to be sold by the
Company shall be made to the Company in immediately available funds against
delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on ____________, 1999, or at
such other time on the same or such other date, not later than _________, 1999,
as shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "CLOSING DATE".
(b) Additional Shares. Payment for any Additional Shares shall
be made to the Company in immediately available funds in New York City against
delivery of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 2(b) or at such other time on the same or on such
other date, in any event not later than ____________, 1999, as shall be
designated in writing by you. The time and date of such payment are hereinafter
referred to as the "OPTION CLOSING DATE".
(c) Delivery of Certificates. Certificates for the Firm Shares
and Additional Shares shall be in definitive form and registered in such names
and in such denominations as you shall request in writing not later than one (1)
full business day prior to the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and Additional Shares
shall be delivered to you on the Closing Date or the Option Closing Date, as the
case may be, for the respective accounts of the several Underwriters, with any
transfer taxes payable in connection with the transfer of the Shares to the
Underwriters duly paid, against payment of the Purchase Price therefor.
4. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) Furnish Copies of Registration Statement and Prospectus.
To furnish to you, without charge, four (4) signed copies of the Registration
Statement (including exhibits thereto) and for delivery to each other
Underwriter a conformed copy of the Registration Statement (without exhibits
thereto) and to furnish to you in New York City, without charge, prior to 10:00
a.m. New York City time on the business day next succeeding the date of this
Agreement and during the period mentioned in Section 4(c) below, as many copies
of the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) Notification of Amendments or Supplements. Before amending
or supplementing the Registration Statement or the Prospectus, to furnish to you
a copy of each such proposed amendment or supplement and not to file any such
proposed amendment or supplement to which you reasonably object, and to file
with the Commission within the
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applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such rule.
(c) Filings of Amendments or Supplements. If, during such
period after the first date of the public offering of the Shares as in the
opinion of counsel for the Underwriters the Prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer (the "PROSPECTUS
DELIVERY PERIOD"), any event shall occur or condition exist as a result of which
it is necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if, in the opinion of counsel for
the Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the Commission and
furnish, at its own expense, to the Underwriters and to the dealers (whose names
and addresses you will furnish to the Company) to which Shares may have been
sold by you on behalf of the Underwriters and to any other dealers upon request,
either amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus, as amended or supplemented, will comply with law.
(d) Blue Sky Laws. To endeavor to qualify the Shares for offer
and sale under the securities or Blue Sky laws of such jurisdictions as you
shall reasonably request.
(e) Earnings Statement. To make generally available to its
securityholders as soon as practicable, but in any event not later than eighteen
(18) months after the effective date of the Registration Statement (as defined
in Rule 158(c) under the Securities Act), an earnings statement of the Company
(which need not be audited) complying with Section 11(a) of the Securities Act
and the rules and regulations thereunder (including, at the option of the
Company, Rule 158).
(f) Use of Proceeds. The Company shall apply the net proceeds
from the sale of the Shares sold by it in the manner described under the caption
"Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at
its expense, a registrar and transfer agent for the Common Stock.
(h) Periodic Reporting Obligations. During the Prospectus
Delivery Period, the Company shall file, on a timely basis, with the Commission
and the Nasdaq National Market all reports and documents required to be filed
under the Exchange Act. Additionally, the Company shall file with the Commission
such information on Form 10-Q or Form 10-K as may be required by Rule 463 under
the Securities Act.
(i) [Directed Share Program. That in connection with the
Directed Share Program, the Company will ensure that the Directed Shares will be
restricted to the extent required by the National Association of Securities
Dealers, Inc. (the "NASD") or the NASD rules from sale, transfer, assignment,
pledge or hypothecation for a period of three (3) months following the date of
the effectiveness of the Registration Statement. Thomas Weisel Partners
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will notify the Company as to which Participants will need to be so restricted.
The Company will direct the transfer agent to place stop transfer restrictions
upon such securities for such period of time. Furthermore, the Company covenants
with Thomas Weisel Partners that the Company will comply with all applicable
securities and other applicable laws, rules and regulations in each foreign
jurisdiction in which the Directed Shares are offered in connection with the
Directed Share Program.]
(j) Exchange Act Compliance. During the Prospectus Delivery
Period, the Company will file all documents required to be filed with the
Commission pursuant to Section 13, 14 or 15 of the Exchange Age in the manner
and within the time periods required by the Exchange Act.
5. Conditions to the Underwriters' Obligations. The obligations of the
Company to sell the Shares to the several Underwriters and the several
obligations of the Underwriters to purchase and pay for the Shares on the
Closing Date are subject to the following conditions:
(a) Effective Registration Statement. The Registration
Statement shall have become effective not later than [__________] (New York City
time) on the date hereof.
(b) Rule 462 Registration Statement. If the Company elects to
rely upon Rule 462(b), the Company shall file a Rule 462 Registration Statement
with the Commission in compliance with Rule 462(b) by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement, and the Company shall at the time of
filing either pay to the Commission the filing fee for the Rule 462 Registration
Statement or give irrevocable instructions for the payment of such fee pursuant
to Rule 111(b) under the Securities Act.
(c) Prospectus Filed with Commission. The Company shall have
filed the Prospectus with the Commission (including the information required by
Rule 430A under the Securities Act) in the manner and within the time period
required by Rule 424(b) under the Securities Act; or the Company shall have
filed a post-effective amendment to the Registration Statement containing the
information required by such Rule 430A, and such post-effective amendment shall
have become effective; or, if the Company elected to rely upon Rule 434 under
the Securities Act and obtained the Representative's consent thereto, the
Company shall have filed a Term Sheet with the Commission in the manner and
within the time period required by such Rule 424(b).
(d) No Stop Order. No stop order suspending the effectiveness
of the Registration Statement, any Rule 462 Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in effect and
no proceedings for such purpose shall have been instituted or threatened by the
Commission.
(e) No NASD Objection. The NASD shall have raised no objection
to the fairness and reasonableness of the underwriting terms and arrangements.
(f) No Debt Downgrading. There shall not have occurred any
downgrading, nor shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not indicate the
direction of the possible change, in the rating
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accorded any of the Company's securities by any "nationally recognized
statistical rating organization," as such term is defined for purposes of Rule
436(g)(2) under the Securities Act.
(g) No Material Adverse Change. There shall not have occurred
any change, or any development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business, operations or prospects of
the Company or the Subsidiaries from that set forth in the Prospectus (exclusive
of any amendments or supplements thereto subsequent to the date of this
Agreement) that, in your judgment, is material and adverse and that makes it, in
your judgment, impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(h) Officer's Certificate. The Underwriters shall have
received on the Closing Date a certificate, dated the Closing Date and signed by
the Chief Executive Officer and President of the Company, to the effect set
forth in Sections 5(d) and 5(g) above and to the effect that the representations
and warranties of the Company contained in this Agreement are true and correct
as of the Closing Date and that the Company has complied with all of the
agreements and satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date.
(i) Opinion of Company Counsel. The Underwriters shall have
received on the Closing Date an opinion of Brobeck, Phleger & Harrison LLP,
counsel for the Company, dated the Closing Date, the form of which is attached
hereto as Exhibit A. The opinion shall be rendered to the Underwriters at the
request of the Company and shall so state therein. The opinion shall state that
Underwriters Counsel is entitled to rely thereon. Such opinion shall not state
that it is to be governed or qualified by, or that it is otherwise subject to,
any treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991) or any comparable state bar accord.
(j) Opinion of Underwriters Counsel. The Underwriters shall
have received on the Closing Date an opinion of Orrick, Herrington & Sutcliffe
LLP, counsel for the Underwriters, dated the Closing Date, covering the matters
referred to in Exhibit A, paragraphs (vi), (vii), (ix) (but only as to the
statements in the Prospectus under "Description of Capital Stock" and
"Underwriters") and (xv). With respect to paragraph (xv) of Exhibit A, such
counsel may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification, except as
specified.
(k) Accountant's Comfort Letter. The Underwriters shall have
received, on each of the date hereof and the Closing Date, a letter dated the
date hereof or the Closing Date, as the case may be, in form and substance
satisfactory to the Underwriters, from Pricewaterhouse Coopers LLP, independent
public accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
consolidated financial statements and certain financial information contained in
the Registration Statement and the Prospectus; provided that the letter
delivered on the Closing Date shall use a "cut-off date" not earlier than the
date hereof.
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(l) Lock-Up Agreements. The "lock up" agreements, each
substantially in the form of Exhibit B hereto, between you and certain
stockholders, officers and directors of the Company, delivered to you on or
before the date hereof, shall be in full force and effect on the Closing Date.
(m) Additional Documents. On the Closing Date, the
Representatives and counsel for the Underwriters shall have received such
information, documents and opinions as they may reasonably require for the
purposes of enabling them to pass upon the issuance and sale of the Shares as
contemplated herein, or in order to evidence the accuracy of any of the
representations and warranties, or the satisfaction of any of the conditions or
agreements, herein contained.
The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the satisfaction of each of the above
conditions on or prior to the Option Closing Date and to the delivery to you on
the Option Closing Date of such documents as you may reasonably request with
respect to the good standing of the Company, the due authorization and issuance
of the Additional Shares and other matters related to the issuance of the
Additional Shares.
6. Expenses. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees to
pay or cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel and the Company's accountants in connection
with the registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof to the
Underwriters and dealers, in the quantities hereinabove specified, (ii) all
costs and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iii) the
cost of printing or producing any Blue Sky or legal investment memorandum in
connection with the offer and sale of the Shares under state securities laws and
all expenses in connection with the qualification of the Shares for offer and
sale under state securities laws as contemplated by Section 4(d) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection with such qualification and in connection with
the Blue Sky or legal investment memorandum, (iv) all filing fees and the
reasonable fees and disbursements of counsel to the Underwriters incurred in
connection with the review and qualification of the offering of the Shares by
the NASD, (v) all fees and expenses in connection with the preparation and
filing of the registration statement on Form 8-A relating to the Common Stock
and all costs and expenses incident to listing the Shares on the Nasdaq National
Market, (vi) the cost of printing certificates representing the Shares, (vii)
the costs and charges of any transfer agent, registrar or depositary, (viii) the
costs and expenses of the Company relating to investor presentations on any
"road show" undertaken in connection with the marketing of the offering of the
Shares, including, without limitation, expenses associated with the production
of road show slides and graphics, fees and expenses of any consultants engaged
in connection with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and officers of the
Company and any such consultants, (ix) all expenses in connection with any offer
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and sale of the Shares outside of the United States, including filing fees and
the reasonable fees and disbursements of counsel for the Underwriters in
connection with offers and sales outside of the United States, [(x) all
reasonable fees and disbursements of counsel incurred by the Underwriters in
connection with the Directed Share Program and stamp duties, similar taxes or
duties or other taxes, if any, incurred by the Underwriters in connection with
the Directed Share Program] and (xi) all other costs and expenses incident to
the performance of the obligations of the Company hereunder for which provision
is not otherwise made in this Section. It is understood, however, that except as
provided in this Section, Section 7 entitled "Indemnity and Contribution", and
the last paragraph of Section 10 below, the Underwriters will pay all of their
costs and expenses, including fees and disbursements of their counsel and any
advertising expenses connected with any offers they may make.
7. Indemnity and Contribution.
(a) Indemnification of the Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except (i) insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein and (ii) that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the benefit of
any Underwriter from whom the person asserting any loss, claim, damage or
liability purchased Shares, or any person controlling such Underwriter, if
copies of the Prospectus were timely delivered to the Underwriter pursuant to
Section 4 and a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expense.
(b) Indemnification by the Underwriters. Each Underwriter
agrees, severally and not jointly, to indemnify and hold harmless the Company,
the directors of the Company, the officers of the Company who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented
14
<PAGE> 21
if the Company shall have furnished any amendments or supplements thereto), or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only with reference to information relating to such Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
(c) Indemnification Procedures. In case any proceeding
(including any governmental investigation) shall be instituted involving any
person in respect of which indemnity may be sought pursuant to this Section 7,
such person (the "INDEMNIFIED PARTY") shall promptly notify the person against
whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and (ii) the fees and expenses
of more than one separate firm (in addition to any local counsel) for the
Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters and such
control persons of any Underwriters, such firm shall be designated in writing by
Thomas Weisel Partners. In the case of any such separate firm for the Company,
and such directors, officers and control persons of the Company, such firm shall
be designated in writing by the Company. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement
15
<PAGE> 22
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
Notwithstanding anything contained herein to the contrary, if
indemnity may be sought pursuant to Section 7(d) hereof in respect of such
action or proceeding, then in addition to such separate firm for the indemnified
parties, the indemnifying party shall be liable for the reasonable fees and
expenses of not more than one separate firm (in addition to any local counsel)
for Thomas Weisel Partners for the defense of any losses, claims, damages and
liabilities arising out of the Directed Share Program, and all persons, if any,
who control Thomas Weisel Partners within the meaning of either Section 15 of
the Act or Section 20 of the Exchange Act.
(d) [Indemnification for Directed Share Program. The Company
agrees to indemnify and hold harmless Thomas Weisel Partners and each person, if
any, who controls Thomas Weisel Partners within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act ("THOMAS WEISEL PARTNERS
ENTITIES"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) (i)
caused by any untrue statement or alleged untrue statement of a material fact
contained in the prospectus wrapper material prepared by or with the consent of
the Company for distribution in foreign jurisdictions in connection with the
Directed Share Program attached to the Prospectus or any preliminary prospectus,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein, when
considered in conjunction with the Prospectus or any applicable preliminary
prospectus, not misleading; (ii) caused by the failure of any Participant to pay
for and accept delivery of the shares which, immediately following the
effectiveness of the Registration Statement, were subject to a properly
confirmed agreement to purchase; or (iii) related to, arising out of, or in
connection with the Directed Share Program, provided that, the Company shall not
be responsible under this subparagraph (iii) for any losses, claim, damages or
liabilities (or expenses relating thereto) that are finally judicially
determined to have resulted from the bad faith or gross negligence of Thomas
Weisel Partners Entities.]
(e) Contribution Agreement. To the extent the indemnification
provided for in this Section 7 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party or parties on the one hand
and the indemnified party or parties on the other hand from the offering of the
Shares or (ii) if the allocation provided by clause 7(e) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 7(e) above but also the relative fault
of the indemnifying party or parties on the one hand and of the indemnified
party or parties on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net
16
<PAGE> 23
proceeds from the offering of the Shares (before deducting expenses) received by
the Company and the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover of the
Prospectus, bear to the aggregate price to the public of the Shares. The
relative fault of the Company on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Underwriters' respective obligations to contribute pursuant to this Section
7 are several in proportion to the respective number of Shares they have
purchased hereunder, and not joint.
(f) Contribution Amounts. The Company and the Underwriters
agree that it would not be just or equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in
Section 7(e). The amount paid or payable by an indemnified party as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 7 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(g) Survival of Provisions. The indemnity and contribution
provisions contained in this Section 7 and the representations, warranties and
other statements of the Company contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter or the Company, its officers or directors or
any person controlling the Company and (iii) acceptance of and payment for any
of the Shares.
8. Effectiveness. This Agreement shall become effective upon the
execution and delivery hereof by the parties hereto.
9. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the
17
<PAGE> 24
Company shall have been suspended on any exchange or in any over-the-counter
market, (iii) a general moratorium on commercial banking activities in New York,
Delaware or California shall have been declared by either federal or New York,
Delaware or California state authorities or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in your judgment, is material and adverse, or (v) in
the judgment of the Representatives, there shall have occurred any material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
Subsidiaries, taken as a whole, and (b) in the case of any of the events
specified in clauses 9(a)(i) through 9(a)(v), such event, individually or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
10. Defaulting Underwriters. If, on the Closing Date or the Option
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares that it has or they have agreed to purchase
hereunder on such date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the aggregate number of the Shares to be purchased on such
date, the other Underwriters shall be obligated severally in the proportions
that the number of Firm Shares set forth opposite their respective names in
Schedule A bears to the aggregate number of Firm Shares set forth opposite the
names of all such non-defaulting Underwriters, or in such other proportions as
you may specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 10 by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you and the Company for the purchase of such Firm
Shares are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case either you or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven (7) days, in
order that the required changes, if any, in the Registration Statement and in
the Prospectus or in any other documents or arrangements may be effected. If, on
the Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
Additional Shares or (ii) purchase not less than the number of Additional Shares
that such non-defaulting Underwriters would have been obligated to purchase in
the absence of such default. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill
18
<PAGE> 25
any of the conditions of this Agreement, or if for any reason the Company shall
be unable to perform its obligations under this Agreement, the Company will
reimburse the Underwriters or such Underwriters as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket expenses
(including the fees and disbursements of their counsel) reasonably incurred by
such Underwriters in connection with this Agreement or the offering contemplated
hereunder.
11. Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
12. Headings; Table of Contents. The headings of the sections of this
Agreement and the table of contents have been inserted for convenience of
reference only and shall not be deemed a part of this Agreement.
13. Notices. All communications hereunder shall be in writing and shall
be mailed, hand delivered or telecopied and confirmed to the parties hereto as
follows:
If to the Representatives:
Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
Facsimile: (415) 364-2694
Attention:
with a copy to:
Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
Facsimile: (415) 364-2694
Attention: David A. Baylor, Esq.
Any party hereto may change the address for receipt of
communications by giving written notice to the others.
14. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 10 hereof, and to the benefit of the officers and directors and
controlling persons referred to in Section 7, and in each case their respective
successors, and no other person will have any right or obligation hereunder. The
term "successors" shall not include any purchaser of the Shares as such from any
of the Underwriters merely by reason of such purchase.
15. Partial Unenforceability. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the validity
or enforceability of any other Section, paragraph or provision hereof. If any
Section, paragraph or provision of this
19
<PAGE> 26
Agreement is for any reason determined to be invalid or unenforceable, there
shall be deemed to be made such minor changes (and only such minor changes) as
are necessary to make it valid and enforceable.
16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
17. Entire Agreement. This Agreement constitutes the entire agreement
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof.
18. Amendments. This Agreement may only be amended or modified in
writing, signed by all of the parties hereto, and no condition herein (express
or implied) may be waived unless waived in writing by each party whom the
condition is meant to benefit.
19. Sophisticated Parties. Each of the parties hereto acknowledges that
it is a sophisticated business person who was adequately represented by counsel
during negotiations regarding the provisions hereof, including, without
limitation, the indemnification and contribution provisions of Section 7, and is
fully informed regarding said provisions. Each of the parties hereto further
acknowledges that the provisions of Section 7 hereto fairly allocate the risks
in light of the ability of the parties to investigate the Company, its affairs
and its business in order to assure that adequate disclosure has been made in
the Registration Statement, any preliminary prospectus and the Prospectus (and
any amendments and supplements thereto), as required by the Securities Act and
the Exchange Act.
20
<PAGE> 27
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
Versata, Inc.
By:
--------------------------------------
John A. Hewitt, Jr.
President, Chief Executive Officer
Accepted as of the date hereof
Thomas Weisel Partners LLC
Dain Rauscher Wessels
SG Cowen Securities Corporation
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule A hereto.
By: Thomas Weisel Partners LLC
By:
----------------------------------
Name:
Title:
21
<PAGE> 28
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
FIRM SHARES
UNDERWRITER TO BE PURCHASED
- ----------- ---------------
<S> <C>
Thomas Weisel Partners LLC..............................................................
Dain Rauscher Wessels
SG Cowen Securities Corporation.........................................................
TOTAL........................................................................
</TABLE>
<PAGE> 29
EXHIBIT A
FORM OF LEGAL OPINION OF COMPANY COUNSEL
(i) Each of the Company and the Subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its respective jurisdiction of its incorporation, has the corporate
power and authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company or the Subsidiaries.
(ii) The reincorporation of the Company in the State of
Delaware, including the Agreement of Merger, has been duly authorized, is
effective on or before the date of the Underwriting Agreement and the date of
this Closing, and Certificates of Approval of Agreement of Merger and all other
necessary agreements, documents and instruments have been executed and, where
necessary, filed with appropriate governmental entities including, without
limitation, the Secretary of State of the State of California and the Secretary
of State of the State of Delaware.
(iii) The authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the Prospectus.
(iv) All of the outstanding shares of capital stock of the
Company prior to the issuance of the Shares to be sold by the Company have been
duly authorized and are validly issued, fully paid, non-assessable and not
subject to any preemptive or similar rights.
(v) The Company owns, directly or indirectly, one hundred
percent (100%) of the outstanding capital stock of each of Vision Software
(Europe), Ltd. in the U.K., Vision Software GmbH in Germany and Vision Software
Tools BVBA in Belgium, and all of such shares have been duly authorized, validly
issued, are fully paid and non-assessable, were not issued in violation of any
preemptive rights, and are owned free and clear of any liens, changes, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever. Except as described in the Prospectus, neither
the Company nor the Subsidiaries owns an interest in any other corporation,
partnership, joint venture, trust or other business entity.
(vi) The Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms of the
Underwriting Agreement, will be validly issued, fully paid and non-assessable,
and the issuance of such Shares will not be subject to any preemptive or similar
rights.
(vii) The Underwriting Agreement has been duly authorized,
executed and delivered by the Company.
(viii) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, the Underwriting Agreement
will not contravene any
A-1
<PAGE> 30
provision of applicable law or the certificate of incorporation or by-laws of
the Company or the Subsidiaries or, to the best of such counsel's knowledge, any
agreement or other instrument binding upon the Company or any of its
Subsidiaries that is material to the Company and its Subsidiaries, taken as a
whole, or, to the best of such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having jurisdiction over the
Company or the Subsidiaries, and no consent, approval, authorization or order
of, or qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except such
as may be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(ix) The statements (A) in the Prospectus under the captions
"Business-Intellectual Property and Licensing Rights," "Description of Capital
Stock," "Shares Eligible for Future Sale" and "Underwriting" and (B) in the
Registration Statement in Items 14 and 15, in each case insofar as such
statements constitute summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for with respect to
such legal matters, documents and proceedings and fairly summarize the matters
referred to therein.
(x) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened to which the Company or any of
its Subsidiaries is a party or to which any of the properties of the Company or
any of its Subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or of any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required.
(xi) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(xii) The Registration Statement has been declared effective
by the Commission under the Securities Act. No stop order suspending the
effectiveness of the Registration Statement has been issued under the Securities
Act and no proceedings for such purpose have been instituted or, to the best
knowledge of such counsel, are pending or are contemplated or threatened by the
Commission. Any required filing of the Prospectus and any supplement thereto
pursuant to Rule 424(b) under the Securities Act has been in the manner and
within the time period required by such Rule 424(b).
(xiii) Except as disclosed in the Prospectus, there are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by the Underwriting Agreement, except for such rights
as have been duly waived.
(xiv) Neither the Company nor the Subsidiaries is in violation
of its respective charter or by-laws or any law, administrative regulation or
administrative or court decree applicable to the Company or the Subsidiaries or
is in default in the performance or observance of any obligation, agreement,
covenant or condition contained in any indenture, loan agreement,
A-2
<PAGE> 31
mortgage, lease or other agreement that is material to the Company and the
Subsidiaries, taken as a whole, except in each such case for such violations or
defaults as would not, individually or in the aggregate, result in a material
adverse effect on the Company and the Subsidiaries, taken as a whole.
(xv) Such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and schedules and
other financial and statistical data included therein as to which such counsel
need not express any opinion) comply as to form in all material respects with
the Securities Act and the applicable rules and regulations of the Commission
thereunder, (B) has no reason to believe that (except for financial statements
and schedules and other financial and statistical data as to which such counsel
need not express any belief) the Registration Statement and the prospectus
included therein at the time the Registration Statement became effective
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading and (C) has no reason to believe that (except for financial
statements and schedules and other financial and statistical data as to which
such counsel need not express any belief) the Prospectus contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
With respect to paragraph (xiii) of Exhibit A, such counsel
may state that their opinion and belief are based upon their participation in
the preparation of the Registration Statement and Prospectus and any amendments
or supplements thereto and review and discussion of the contents thereof, but
are without independent check or verification, except as specified.
A-3
<PAGE> 32
EXHIBIT B
November , 1999
Thomas Weisel Partners LLC
Dain Rauscher Wessels
SG Cowen Securities Corporation
As Representatives of the several Underwriters
c/o Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
RE: LOCK-UP AGREEMENT (THIS "AGREEMENT")
Ladies and Gentlemen:
The undersigned is an owner of record or beneficially of certain shares
of Common Stock, par value $0.001 per share (the "Common Stock"), of Versata,
Inc. (f.k.a. Vision Software Tools, Inc.), a California corporation (the
"Company"), or securities convertible into or exchangeable or exercisable for
Common Stock. The undersigned understands that you, as representatives (the
"Representatives"), propose to enter into an Underwriting Agreement on behalf of
the several Underwriters named in Schedule A to such agreement (collectively,
the "Underwriters"), with the Company providing for a public offering of the
Common Stock of the Company pursuant to a Registration Statement on form S-1 to
be filed with the Securities and Exchange Commission (the "Public Offering").
The undersigned recognizes that the Public Offering will be of benefit to the
undersigned and will benefit the Company by, among other things, raising
additional capital for its operations. The undersigned acknowledges that you and
the other Underwriters are relying on the representations and agreements of the
undersigned contained in this letter in carrying out the Public Offering and in
entering into underwriting arrangements with the Company with respect to the
Public Offering.
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Thomas
Weisel Partners (which consent may be withheld in its sole discretion), it will
not, during the period commencing on the date hereof and ending 180 days after
the date of the final prospectus relating to the Public Offering (the
"Prospectus"), (1) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or (2) enter into any swap or other arrangement
that transfers to another, in whole or in party, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise. In addition, the
undersigned agrees that, without the prior written consent of Thomas Weisel
Partners (which consent may be withheld in its sole discretion), it will not,
during the period commencing on the date hereof and ending 180 days after the
date of the Prospectus,
B-1
<PAGE> 33
make any demand for or exercise any right with respect to, the registration of
any shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock. With respect to the Public Offering, the
undersigned waives any registration rights relating to registration under the
Securities Act of any Common Stock owned either of record or beneficially by the
undersigned, including any rights to receive notice of the Public Offering.
The foregoing restrictions are expressly agreed to preclude the
undersigned from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a sale or disposition of the
Common Stock even if such Common Stock would be disposed of by someone other
than the undersigned. Such prohibited hedging or other transactions would
include without limitation any short sale or any purchase, sale or grant of any
right (including without limitation any put option or put equivalent position or
call option or call equivalent position) with respect to any of the Common Stock
or with respect to any security that includes, relates to, or derives any
significant part of its value from such Common Stock.
Notwithstanding the foregoing, the undersigned may transfer shares of
Common Stock (i)) as a bona fide gift or gifts, provided that the donee or
donees thereof agree to be bound by the restrictions set forth herein, (ii) to
any trust for the direct or indirect benefit of the undersigned or the immediate
family of the undersigned, provided that the trustee of the trust agrees to be
bound by the restrictions set forth herein, and provided further that any such
transfer shall not involve a disposition for value, or (iii) to the Underwriters
pursuant to the Underwriting Agreement. For purposes of this Agreement,
"immediate family" shall mean any relationship by blood, marriage or adoption,
not more remote than first cousin. In addition, notwithstanding the foregoing,
if the undersigned is a corporation, the corporation may transfer the capital
stock of the Company to any wholly-owned subsidiary of such corporation;
provided, however, that in any such case, it shall be a condition to the
transfer that the transferee execute an agreement stating that the transferee is
receiving and holding such capital stock subject to the provisions of this
Agreement and there shall be no further transfer of such capital stock except in
accordance with this Agreement, and provided further that any such transfer
shall not involve a disposition for value.
The undersigned understands that whether or not the Public Offering
actually occurs depends on a number of factors, including stock market
conditions. The Public Offering will only be made pursuant to an Underwriting
Agreement, the terms of which are subject to negotiation among the Company and
the Underwriters.
The undersigned agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent and registrar against the
transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
B-2
<PAGE> 34
This Agreement is irrevocable and will be binding on the undersigned
and the respective successors, heirs, personal representatives, and assigns of
the undersigned.
Very truly yours,
-----------------------------------
(Name)
-----------------------------------
(Address)
B-3
<PAGE> 1
Exhibit 10.3
FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
VISION SOFTWARE TOOLS, INC.
NOVEMBER 30, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Registration Rights.......................................................1
1.1 Definitions........................................................1
1.2 Request for Registration...........................................2
1.3 Company Registration...............................................4
1.4 Obligations of the Company.........................................4
1.5 Furnish Information................................................5
1.6 Expenses of Demand Registration....................................6
1.7 Expenses of Company Registration...................................6
1.8 Underwriting Requirements..........................................6
1.9 Delay of Registration..............................................7
1.10 Indemnification....................................................7
1.11 Reports Under Securities Exchange Act of 1934......................9
1.12 Form S-3 Registration..............................................9
1.13 Assignment of Registration Rights.................................10
1.14 Limitations on Subsequent Registration Rights.....................10
1.15 "Market Stand-Off"Agreement.......................................11
1.16 Amendment of Registration Rights..................................11
1.17 Termination of Registration Rights................................11
2. Covenants of the Company.................................................12
2.1 Delivery of Financial Statements..................................12
2.2 Inspection........................................................12
2.3 Termination of Information and Inspection Covenants...............13
2.4 Right of First Offer..............................................13
2.5 Negative Covenants................................................14
3. Miscellaneous............................................................15
3.1 Successors and Assigns............................................15
3.2 Governing Law.....................................................15
3.3 Counterparts......................................................15
3.4 Titles and Subtitles..............................................15
3.5 Notices...........................................................15
3.6 Amendments and Waivers............................................16
3.7 Severability......................................................16
3.8 Aggregation of Stock..............................................16
3.9 Amendment and Restatement of Prior Agreement......................16
4. Covenants of the Founders................................................16
</TABLE>
Table of Contents
2
<PAGE> 3
Table of Contents
3
<PAGE> 4
FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of the 30th day of
November, 1999, by and between Vision Software Tools, Inc., a California
corporation (the "Company"), the investors listed on Schedule A hereto (each an
"Investor" and together "Investors") and, as to certain sections hereof, the
founders listed on Schedule B hereto (each a "Founder" and together the
"Founders").
RECITALS
WHEREAS, the Company and those Investors who hold shares of the
Company's Series A Preferred Stock (the "Series A Preferred Stock"), Series B
Preferred Stock (the "Series B Preferred Stock"), Series C Preferred Stock (the
"Series C Preferred Stock"), Series D Preferred Stock (the "Series D Preferred
Stock") and Series E Preferred Stock (the "Series E Preferred Stock") are
parties to that certain Third Amended and Restated Investors' Rights Agreement
dated July 8, 1999 (the "Prior Agreement");
WHEREAS, the Company wishes to sell shares of its Series F
Preferred Stock (the "Series F Preferred Stock") to certain of the Investors
and, in connection therewith, desires to grant certain rights to such Investors,
as set forth in this Agreement, and such Investors wish to receive such rights;
WHEREAS, the undersigned holders now desire to amend and restate
the Prior Agreement;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as
follows:
1.1 Definitions. For purposes of this Agreement:
(a) The term "Act" means the Securities Act of 1933,
as amended.
(b) The term "1934 Act" shall mean the Securities
Exchange Act of 1934, as amended.
(c) The term "SEC" shall mean the Securities and
Exchange Commission.
(d) The term "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration statement or
document;
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<PAGE> 5
(e) The term "Registrable Securities" means (i) the
Common Stock issuable or issued upon conversion of the Series A Preferred Stock,
(ii) the Common Stock issuable or issued upon conversion of the Series B
Preferred Stock, (iii) the Common Stock issuable or issued upon conversion of
the Series C Preferred Stock, (iv) the Common Stock issuable or issued upon
conversion of the Series D Preferred Stock, (v) the Common Stock issuable or
issued upon conversion of the Series E Preferred Stock, (vi) the Common Stock
issuable or issued upon conversion of the Series F Preferred Stock, (vii) the
shares of Common Stock issued to the Founders in the amounts set forth on
Schedule B attached hereto; provided, however, that such shares of Common Stock
shall not be deemed Registrable Securities and the aforementioned individuals
shall not be deemed Holders for the purposes of Section 1.2, 1.12, 1.13(i) and
1.14 and (vii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of the shares referenced in (i), (ii), (iii), (iv), (v), (vi) and
(vii) above, excluding in all cases, however, any Registrable Securities sold by
a person in a transaction in which his rights under this Section 1 are not
assigned.
(f) The number of shares of "Registrable Securities
then outstanding" shall be determined by the number of shares of Common Stock
outstanding that are Registrable Securities, and the number of shares of Common
Stock issuable pursuant to then exercisable or convertible securities that are
Registrable Securities.
(g) The term "Holder" means any person owning or
having the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.13 hereof; and
(h) The term "Form S-3" means such form under the
Act as in effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC that permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(i) The term "Affiliate" shall refer to any person
or entity controlling, controlled by or under common control with such
Investors.
1.2 Request for Registration.
(a) If the Company shall receive at any time after
180 days after the effective date of the first registration statement for a
public offering of securities of the Company (other than a registration
statement relating either to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145
transaction), a written request from the Holders of at least thirty percent
(30%) of the Registrable Securities then outstanding that the Company file a
registration statement under the Act covering the registration of at least
twenty percent (20%) of the Registrable Securities then outstanding (or a lesser
percentage if the anticipated aggregate offering price, net of underwriting
discounts and commissions, would exceed $30,000,000), then the Company shall,
within ten (10) days of the receipt thereof, give written notice of such request
to all Holders and shall, subject to the limitations of this subsection 1.2,
effect as soon as practicable, and in any event shall use its best efforts to
effect within 60 days of the receipt of such request, the registration under the
Act of all Registrable Securities that
5
<PAGE> 6
the Holders request to be registered within twenty (20) days of the mailing of
such notice by the Company in accordance with paragraph 3.5.
(b) If the Holders initiating the registration
request hereunder ("Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 1.2
and the Company shall include such information in the written notice referred to
in subsection 1.2(a). The underwriter will be selected by a majority in interest
of the Initiating Holders and shall be reasonably acceptable to the Company. In
such event, the right of any Holder to include his or her Registrable Securities
in such registration shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Holder) to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 1.2, if the underwriter advises the Initiating Holders
in writing that marketing factors require a limitation of the number of shares
to be underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities that would otherwise be underwritten pursuant hereto, and
the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders (electing to include shares in
the offering) thereof, including the Initiating Holders, in proportion (as
nearly as practicable) to the amount of Registrable Securities of the Company
owned by each such Holder; provided, however, that the number of shares of
Registrable Securities to be included in such underwriting shall not be reduced
unless all other securities are first entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company
shall furnish to Holders requesting a registration statement pursuant to this
Section 1.2, a certificate signed by the Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, the Company shall have the
right to defer taking action with respect to such filing for a period of not
more than 90 days after receipt of the request of the Initiating Holders.
(d) In addition, the Company shall not be obligated
to effect, or to take any action to effect, any registration pursuant to this
Section 1.2:
(i) After the Company has effected two
registrations pursuant to this Section 1.2 and such registrations have been
declared or ordered effective;
(ii) During the period starting with the date
sixty (60) days prior to the Company's good faith estimate of the date of filing
of, and ending on a date one hundred eighty (180) days after the effective date
of, a registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
6
<PAGE> 7
(iii) If the Initiating Holders propose to
dispose of shares of Registrable Securities that may be immediately registered
on Form S-3 pursuant to a request made pursuant to Section 1.12 below.
1.3 Company Registration. If (but without any obligation to
do so) the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Holders)
any of its stock or other securities under the Act in connection with the public
offering of such securities (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, or a registration on
any form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities or the
Company's initial public offering), the Company shall, at such time, promptly
give each Holder written notice of such registration. Upon the written request
of each Holder given within twenty (20) days after mailing of such notice by the
Company in accordance with Section 3.5, the Company shall, subject to the
provisions of Section 1.8, cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for a period of up to one
hundred twenty (120) days or until the distribution contemplated in the
Registration Statement has been completed; provided, however, that (i) such
120-day period shall be extended for a period of time equal to the period the
Holder refrains from selling any securities included in such registration at the
request of an underwriter of Common Stock (or other securities) of the Company;
and (ii) in the case of any registration of Registrable Securities on Form S-3
which are intended to be offered on a continuous or delayed basis, such 120-day
period shall be extended, if necessary, to keep the registration statement
effective until all such Registrable Securities are sold, provided that Rule
415, or any successor rule under the Act, permits an offering on a continuous or
delayed basis, and provided further that applicable rules under the Act
governing the obligation to file a post-effective amendment permit, in lieu of
filing a post-effective amendment which (I) includes any prospectus required by
Section 10(a)(3) of the Act or (II) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference in the registration statement of
information required to be included in (I) and (II) above from periodic reports
filed pursuant to Section 13 or 15(d) of the 1934 Act.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by
7
<PAGE> 8
such registration statement.
(c) Furnish to the Holders such numbers of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
1.5 Furnish Information.
(a) It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
(b) The Company shall have no obligation with
respect to any registration requested pursuant to Section 1.2 or Section 1.12
if, due to the operation of subsection 1.5(a), the number of shares or the
anticipated aggregate offering price of the Registrable Securities to be
included in the registration does not equal or exceed the number of shares or
the anticipated aggregate offering price required to originally trigger the
Company's obligation to initiate such registration as specified in subsection
1.2(a) or subsection 1.12(b)(2), whichever is applicable.
8
<PAGE> 9
1.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company
(including the reasonable fees and disbursements of one counsel for the selling
Holders), shall be borne by the Company; provided, however, that the Company
shall not be required to pay for any expenses of any registration proceeding
begun pursuant to Section 1.2 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered (in which case all participating Holders shall bear
such expenses), unless the Holders of a majority of the Registrable Securities
agree to forfeit their right to one demand registration pursuant to Section 1.2.
1.7 Expenses of Company Registration. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the reasonable fees and disbursements of one counsel for the selling
Holders selected by them, but excluding underwriting discounts and commissions
relating to Registrable Securities.
1.8 Underwriting Requirements. In connection with any
offering involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it, and then
only in such quantity as the underwriters determine in their sole discretion
will not jeopardize the success of the offering by the Company. If the total
amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, that the underwriters determine in
their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling shareholders
according to the total amount of securities entitled to be included therein
owned by each selling shareholder or in such other proportions as shall mutually
be agreed to by such selling shareholders); but in no event shall (i) the amount
of securities of the selling Holders included in the offering be reduced below
twenty percent (20%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities, in which case the selling Holders may be excluded if the
underwriters make the determination described above and no other shareholder's
securities are included, or (ii) notwithstanding (i) above, any shares being
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<PAGE> 10
sold by a shareholder exercising a demand registration right similar to that
granted in Section 1.2 be excluded from such offering. For purposes of the
preceding parenthetical concerning apportionment for any selling shareholder
which is a holder of Registrable Securities and which is a partnership or
corporation, the partners, retired partners and shareholders of such holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "selling shareholder", and any pro rata reduction with respect to such
"selling shareholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling shareholder".
1.9 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act or the 1934 Act insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Act, the 1934 Act, or any rule or regulation promulgated under
the Act or the 1934 Act, and the Company will pay to each such Holder,
underwriter or controlling person, as incurred, any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 1.10(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon a Violation that occurs in reliance upon and
in conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the registration statement,
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<PAGE> 11
each person, if any, who controls the Company within the meaning of the Act, any
underwriter, any other Holder selling securities in such registration statement
and any controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act or the 1934 Act, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for use
in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity or contribution under this subsection 1.10
exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party
under this Section 1.10 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.10,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof; provided, however, that
an indemnified party (together with all other indemnified parties that may be
represented without conflict by one counsel) shall have the right to retain one
separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party of the commencement of any such action, if
materially prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this
Section 1.10 is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement
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<PAGE> 12
of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
(f) The obligations of the Company and Holders under
this Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a
view to making available to the Holders the benefits of Rule 144 promulgated
under the Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, at all times after the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports
and other documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon request (i) a written statement
by the Company that it has complied with the reporting requirements of SEC Rule
144 (at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive
from Holders of at least ten percent (10%) of the Registrable Securities then
outstanding a written request that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or
12
<PAGE> 13
compliance, to all other Holders; and
(b) as soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within 15 days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this section 1.12: (1) if
Form S-3 (or any equivalent successor form) is not available for such offering
by the Holders; (2) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public (net of any underwriters' discounts or commissions) of less
than $5,000,000; (3) if the Company shall furnish to the Holders a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental to
the Company and its shareholders for such Form S-3 Registration to be effected
at such time, in which event the Company shall have the right to defer the
filing of the Form S-3 registration statement for a period of not more than 90
days after receipt of the request of the Holder or Holders under this Section
1.12; provided, however, that the Company shall not utilize this right more than
once in any twelve month period; (4) if the Company has, within the six (6)
month period preceding the date of such request, already effected one
registration on Form S-3 for the Holders pursuant to this Section 1.12; or (5)
in any particular jurisdiction in which the Company would be required to qualify
to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file
a registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. All expenses incurred in connection with
the first two (2) registrations requested pursuant to Section 1.12, including
(without limitation) all registration, filing, qualification, printer's and
accounting fees and the reasonable fees and disbursements of counsel for the
selling Holder or Holders and counsel for the Company, but excluding any
underwriters' discounts or commissions associated with Registrable Securities,
shall be borne by the Company, while all such expenses incurred in connection
with all subsequent registrations pursuant to Section 1.12 shall be borne pro
rata by the Holder or Holders participating in the Form S-3 Registration.
Registrations effected pursuant to this Section 1.12 shall not be counted as
demands for registration or registrations effected pursuant to Section 1.2.
1.13 Assignment of Registration Rights. The rights to cause
the Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who either (i) after such assignment or transfer,
holds at least 25,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations) or (ii) is a partner, shareholder, subsidiary,
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<PAGE> 14
affiliate, family member, family trust, or the estate of the Holder making such
assignment or transfer, provided the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if (i) immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Act and (ii) transferee or assignee executes and becomes a
party to this Agreement. For the purposes of determining the number of shares of
Registrable Securities held by a transferee or assignee, the aggregation rules
of Section 3.8 hereof shall apply; provided that all assignees and transferees
who would not qualify individually for assignment of registration rights shall
have a single attorney-in-fact for the purpose of exercising any rights,
receiving notices or taking any action under this Section 1.
1.14 Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to 180 days after the effective date of any registration
effected pursuant to subsection 1.2(a).
1.15 "Market Stand-Off" Agreement. Each Investor and Founder
hereby agrees that, during the period of duration specified by the Company and
an underwriter of common stock or other securities of the Company, following the
date of the first sale to the public pursuant to a registration statement of the
Company filed under the Act, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it at any
time during such period except common stock included in such registration and
any common stock of the Company purchased by such investor in such first
underwritten sale of securities to the public or purchased subsequent to such
sale in an open market transaction; provided, however, that:
(a) all executive officers and directors of the
Company and shareholders owning more than two percent (2%) of the Company's
capital stock enter into similar agreements; and
(b) such market stand-off time period shall not
exceed 180 days.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Investor and Founder
14
<PAGE> 15
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.15 shall not apply to a registration relating solely to employee
benefit plans on Form S-l or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction.
1.16 Amendment of Registration Rights. Any provision of this
Section 1 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities (excluding Registrable Securities held
by the Founders) then outstanding; provided, however, that in the event such
amendment or waiver adversely affects the rights and/or obligations of the
Founders under this Section 1 in a different manner than the other Holders, such
amendment or waiver shall also require the written consent of the Founders. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any Registrable Securities then outstanding, each future
holder of all such Registrable Securities, and the Company.
1.17 Termination of Registration Rights. (a) No Holder shall
be entitled to exercise any right provided for in this Section 1 after five (5)
years following the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
initial firm commitment underwritten offering of its securities to the general
public.
(b) In addition, the right of any Holder to request
registration or inclusion in any registration pursuant to Section 1.3 shall
terminate on the closing of the first Company-initiated registered public
offering of Common Stock of the Company if all shares of Registrable Securities
held or entitled to be held upon conversion by such Holder may immediately be
sold under Rule 144 during any 90-day period, or on such date after the closing
of the first Company-initiated registered public offering of Common Stock of the
Company as all shares of Registrable Securities held or entitled to be held upon
conversion by such Holder may immediately be sold under Rule 144 during any
90-day period.
2. Covenants of the Company.
2.1 Delivery of Financial Statements.
(a) The Company shall deliver to each Investor
holding Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock as soon as
practicable, but in any event within ninety (90) days after the end of
15
<PAGE> 16
each fiscal year of the Company, an income statement for such fiscal year, a
balance sheet of the Company and statement of shareholder's equity as of the end
of such year, and a statement of cash flows for such year, such year-end
financial reports to be in reasonable detail, prepared in accordance with
generally accepted accounting principles ("gaap"), and audited and certified by
independent public accountants of nationally recognized standing selected by the
Company.
(b) The Company shall deliver to each Investor that
holds at least 50,000 shares of Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred
Stock (or Common Stock issued upon conversion thereof, and as adjusted for
subsequent stock splits, recombinations or reclassifications), within thirty
(30) days of the end of each quarter, an unaudited income statement and
statement of cash flows and balance sheet for and as of the end of such quarter,
in reasonable detail; and within fifteen (15) days prior to the end of each
fiscal year, a budget for the next fiscal year.
(c) Each Investor agrees that information obtained
by such Investor pursuant to this Section 2.1 that is or would reasonably be
perceived to be proprietary to the Company will not be disclosed by such
Investor without the prior written consent of the Company.
2.2 Inspection. So long as any Investor holds any shares of
Preferred Stock (or Common Stock issued upon conversion thereof), the Company
shall permit such Investor, at such Investor's expense, to visit and inspect the
Company's properties, to examine its books of account and records, and to
discuss the Company's affairs, finances and accounts with its officers, all at
such reasonable times as may be requested by the Investor. Each Investor agrees
that information obtained by such Investor pursuant to this Section 2.2 that is
or would reasonably be perceived to be proprietary to the Company will not be
disclosed by such Investor without the prior written consent of the Company.
2.3 Termination of Information and Inspection Covenants. The
covenants set forth in Sections 2.1 and 2.2 shall terminate as to Investors and
be of no further force or effect when the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
underwritten offering of its securities to the general public is consummated, or
when the Company first becomes subject to the periodic reporting requirements of
Sections 12(g) or 15(d) of the 1934 Act, whichever event shall first occur.
2.4 Right of First Offer. Subject to the terms and
conditions specified in this paragraph 2.4, the Company hereby grants to each
Investor a right of first offer with respect to future sales by the Company of
its Shares (as hereinafter defined). For purposes of this Section 2.4, Investor
shall mean any holder of (i) the Company's Series B Preferred Stock or the
Common Stock into which it converts, (ii) the Company's Series C Preferred Stock
or the Common Stock into which it converts, (iii) the Company's Series D
Preferred Stock or the Common Stock into which it
16
<PAGE> 17
converts, (iv) the Company's Series E Preferred Stock or the Common Stock into
which it converts, or (v) the Company's Series F Preferred Stock or the Common
Stock into which it converts. For purposes of this Section 2.4, Investor
includes any general partners and affiliates of an Investor. An Investor shall
be entitled to apportion the right of first offer hereby granted it among itself
and its partners and affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified
mail ("Notice") to the Investors stating (i) its bona fide intention to offer
such Shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.
(b) By written notification received by the Company
within 20 calendar days after giving of the Notice, the Investor may elect to
purchase or obtain, at the price and on the terms specified in the Notice, up to
that portion of such Shares which equals the proportion that the number of
shares of Common Stock issued and held, or issuable upon conversion of the
Preferred Stock then held, by such Investor bears to the total number of shares
of Common Stock issued and held, or issuable upon conversion of the Preferred
Stock then held, by all the Investors. The Company shall promptly, in writing,
inform each Investor which purchases all the shares available to it
("Fully-Exercising Investor") of any other Investor's failure to do likewise.
During the ten-day period commencing after such information is given, each
Fully-Exercising Investor shall be entitled to obtain that portion of the Shares
for which Investors were entitled to subscribe but which were not subscribed for
by the Investors which is equal to the proportion that the number of shares of
Common Stock issued and held, or issuable upon conversion of the Preferred Stock
then held, by such Fully-Exercising Investor bears to the total number of shares
of Common Stock issued and held, or issuable upon conversion of the Preferred
Stock then held, by all Fully-Exercising Investors who wish to purchase some of
the unsubscribed shares.
(c) If all Shares which Investors are entitled to
obtain pursuant to subsection 2.4(b) are not elected to be obtained as provided
in subsection 2.4(b) hereof, the Company may, during the 30-day period following
the expiration of the period provided in subsection 2.4(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within 30 days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Shares shall not be offered unless first reoffered
to the Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.4
shall not be applicable (i) to the issuance or sale of common stock (or options
therefor) to employees, directors or consultants for the primary purpose of
soliciting or retaining their employment or services, (ii) to or after
consummation of an underwritten public offering of shares of common stock,
registered under the Act, (iii) the
17
<PAGE> 18
issuance of securities pursuant to the conversion or exercise of convertible or
exercisable securities, (iv) the issuance of securities in connection with a
bona fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise, (v) the
issuance of stock, warrants or other securities or rights to persons or entities
with which the Company has business relationships provided such issuances are
determined by the Board of Directors to be for other than primarily equity
financing purposes, (vi) the issuance and sale of up to 5,000,000 shares of
Series E Preferred Stock, or (vii) the issuance and sale of up to 4,000,000
shares of Series F Preferred Stock.
(e) The right of first offer set forth in this
Section 2.4 may be assigned (but only with all related obligations) by an
Investor to a transferee or assignee of such securities who either (i) after
such assignment or transfer, holds at least 25,000 shares of Registrable
Securities (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations) or (ii) is a partner, shareholder,
subsidiary, affiliate, family member, family trust, or the estate of the
Investor making such assignment or transfer, provided the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such rights are being assigned; and provided, further, that such
assignment shall be effective only if (i) immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Act and (ii) transferee or assignee agrees to be bound by
the terms of this Agreement. For the purposes of determining the number of
shares of Registrable Securities held by a transferee or assignee, the
aggregation rules of Section 3.8 hereof shall apply; provided that all assignees
and transferees who would not qualify individually for assignment of
registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking any action under this
Section 2.4.
2.5 Negative Covenants. So long as not less than fifty
percent (50%) of each of the Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock
is still outstanding, the Company shall not, without the approval of the Board
of Directors of the Company or a committee of such Board of Directors:
(a) hire or establish the compensation of any
officers including any vice presidents of the Company;
(b) adopt any stock option or stock issuance plan;
(c) issue any capital stock of the Company or
options to purchase such capital stock;
(d) adopt the Company's annual budget and business
and financial plan;
(e) enter into any material real estate leases or
purchase any real estate; or
(f) subject the Company to any obligation or
commitment, including capital
18
<PAGE> 19
equipment leases or purchases, that exceeds $50,000 and is not set forth in the
most recent business plan or annual budget approved by the Board of Directors.
The covenants set forth in this Section 2.5 shall terminate and
be of no further force or effect when the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
underwritten offering of its securities to the general public is consummated.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any Securities). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
3.3 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. All notices and other communications required
or permitted under this Agreement shall be in writing and shall be delivered to
the parties at the address set forth on the signature pages hereto, or at such
other address that they designate by notice to all other parties in accordance
with this Section 3.5. All notices and communications shall be deemed to have
been received: (i) in the case of personal delivery, on the date of such
delivery; (ii) in the case of telex or facsimile transmission, on the date on
which the sender receives confirmation by telex or facsimile transmission that
such notice was received by the addressee, provided that a copy of such
transmission is additionally sent by mail as set forth in (iv) below; (iii) in
the case of
19
<PAGE> 20
overnight air courier, on the second business day following the day sent, with
receipt confirmed by the courier; and (iv) in the case of mailing by first class
certified or registered mail, postage prepaid, return receipt requested, on the
fifth business day following such mailing.
3.6 Amendments and Waivers. Except as otherwise provided in
Section 1.16, any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of at least a majority of the Common
Stock issued or issuable upon conversion of the Series A, Series B, Series C,
Series D, Series E Preferred Stock or Series F Preferred Stock; provided,
however, that to the extent a Founder's rights under this Agreement, would be
adversely affected by such amendment, such Founder must by written consent
approve such amendment.
3.7 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement, and the balance of the Agreement shall be
interpreted as if such provision were so excluded, and shall be enforceable in
accordance with its terms.
3.8 Aggregation of Stock. All shares of the Preferred Stock
or Common Stock of the Company held or acquired by affiliated shareholders shall
be aggregated together for the purpose of determining the availability of any
rights under this Agreement. For purposes of the foregoing, the shares held by
any shareholder that (i) is a partnership or corporation shall be deemed to
include shares held by the partners, retired partners and shareholders of such
holder or members of the "immediate family" (as defined below) of any such
partners, retired partners and shareholders, and any custodian or trustee for
the benefit of any of the foregoing persons and (ii) is an individual shall be
deemed to include shares held by any members of the shareholder's immediate
family ("immediate family" shall include any spouse, father, mother, brother,
sister, lineal descendant of spouse or lineal descendant) or to any custodian or
trustee for the benefit of any of the foregoing persons.
3.9 Amendment and Restatement of Prior Agreement. The
parties to the Prior Agreement hereby agree that this Agreement amends and
restates the Prior Agreement and that the rights and covenants provided herein
set forth the sole and entire agreement between the Company and the Investors
with respect to the subject matter hereof.
4. Covenants of the Founders. Subject to the terms and conditions
specified in this Section 4, each time a
20
<PAGE> 21
Founder proposes to sell any shares of capital stock of the Company held by such
Founder, including any securities convertible into or exercisable for any shares
of the Company's capital stock ("Founder Stock"), such Founder shall first
receive the written consent of the holders of two-thirds (2/3) of the Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, voting together on an as-converted to Common Stock basis.
Notwithstanding the foregoing, the restrictions of this
Section 4 shall not apply to (i) the sale of any shares of Founder Stock (A) to
the public pursuant to a registration statement filed with, and declared
effective by, the SEC under the Act, (B) to the Company or (C) in connection
with the acquisition of the Company by another entity by means of any
transaction or series of related transactions (including, without limitation,
any reorganization, merger or consolidation) provided, however, that immediately
after such acquisition the shareholders of the acquiring entity hold at least
50% of the voting power of the surviving or acquiring entity, or (ii) the sale
by a Founder of up to a total of 10% of his Founder Stock, which in the case of
Naren Bakshi shall be no more than a total of 80,000 shares of Common Stock and
in the case of Kevin Tweedy shall be no more than a total of 70,000 shares of
Common Stock.
The provisions of this Section 4 shall terminate upon the
earlier of (i) the closing of a public offering pursuant to an effective
registration statement under the Act, covering the offer and sale of the
Company's Common Stock or (ii) the closing of the Company's sale of all or
substantially all of its assets or the acquisition of the Company by another
entity by means of merger or consolidation resulting in the exchange of the
outstanding shares of the Company's capital stock for securities or
consideration issued, or caused to be issued, by the acquiring entity or its
subsidiary provided, however, that immediately after such acquisition the
shareholders of the acquiring entity hold at least 50% of the voting power of
the surviving or acquiring entity.
21
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Amended and
Restated Investors' Rights Agreement as of the date first above written.
COMPANY:
VISION SOFTWARE TOOLS, INC.
---------------------------------------
John A. Hewitt, Jr., President and
Chief Executive Officer
2101 Webster Street, 8th Floor
Oakland, CA 94612
---------------------------------------
FOUNDERS:
---------------------------------------
Naren Bakshi
---------------------------------------
Kevin Tweedy
SIGNATURE PAGE TO VISION SOFTWARE TOOLS, INC.
FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
22
<PAGE> 23
IN WITNESS WHEREOF, the parties have executed this Amended and
Restated Investors' Rights Agreement as of the date first above written.
Print Name of Investor: ____________________________________
AUTHORIZED SIGNATURE: ______________________________________
Print Title (if applicable): _______________________________
Print name of any joint investor
or other person whose
signature is required: _____________________________________
SIGNATURE: _________________________________________________
Title (if applicable): _____________________________________
Address: ___________________________________________________
___________________________________________________
SIGNATURE PAGE TO VISION SOFTWARE TOOLS, INC.
FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
23
<PAGE> 24
SCHEDULE A
Investors
Alta V Limited Partnership
Attractor Institutional LP
Attractor LP
Attractor Offshore Ltd.
Attractor QP LP
Attractor Ventures LLC
BancBoston Capital Inc.
Brobeck, Phleger & Harrison LLP
Charles River Partnership VII
Customs House Partners
CP Ships Holdings Inc.
Robert Davoli
Lee Decker
Heinz-Dieter Dietrich
DRW Investors L.L.C.
Michael & Judith Elam Trustees for Elam
Properties Inc. Defined Benefit Plan
Kevin B. Ferrell
Galleon Omni Fund
The Goldman Sachs Group, Inc.
Elliot Gordon
H& Q Vision Investors, L.P.
H&R Development Corp
H&W Development Corp
Hambrecht & Quist Employee Venture
Fund, L.P., II
Val and Gloria Huber, Joint Tenants
Surendra V. Jain and Kala S. Jain
John W. Larson
Paul H. Levine Family Limited Partnership
Mehta Family Partners, L.P.
Michael Mohr, Trustee Andreessen 1996
Living Trust dtd 2/1/96
Morgenthaler Venture Partners IV, LP
Needham Emerging Growth Partners, L.P.
James Noak
Online Enterprises Inc.
Ian Osbourne
Hira N. Patel
Ravi Pather
Schedule A
24
<PAGE> 25
Dr. Hasso Plattner
Roy Prasad
Raj Rajaratnam
Kanwal S. Rekhi and Ann H. Rekhi as Trustees
of the Rekhi Family Trust DTD 12/15/1989
J.F. Shea Co., Inc., as Nominee 1994-35
Sigma Associates V, L.P.
Sigma Investors V, L.P.
Sigma Partners V, L.P.
Prithipal Singh and Rajinder Kaur Singh
Trustees, Singh Family Trust, UDT 4/7/86
C.V. Sofinnova Ventures Partners III
Stone Street Fund 1999, L.P.
Vijay Vashee
Vasteras Systemkonsult AB
Vulcan Ventures Inc.
Jeffrey Williams
R.H. Williams
Schedule A
25
<PAGE> 26
SCHEDULE B
Founders
<TABLE>
<CAPTION>
Name Registrable Securities
<S> <C>
Naren Bakshi 600,000 shares of Common Stock
Kevin Tweedy 600,000 shares of Common Stock
</TABLE>
Schedule B
26
<PAGE> 1
EXHIBIT 10.5
[2101 WEBSTER LOGO]
OFFICE LEASE
WEBSTER STREET PARTNERS, LTD.,
A California Limited Partnership
"LANDLORD"
VISION SOFTWARE TOOLS, INC.
A California Corporation
"TENANT"
Dated for reference purposes as of:
June 17, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
BASIC LEASE TERMS .............................................................4
1. PREMISES AND COMMON AREAS LEASED ..........................................7
2. TERM ......................................................................8
3. POSSESSION ................................................................8
4. MONTHLY BASIC RENT ........................................................8
5. RENTAL ADJUSTMENT .........................................................8
6. SECURITY DEPOSIT .........................................................11
7. USE ......................................................................12
8. PAYMENTS AND NOTICES .....................................................12
9. BROKERS ..................................................................12
10. HOLDING OVER .............................................................12
11. TAXES ON TENANT'S PROPERTY ...............................................13
12. CONDITION OF PREMISES ....................................................13
13. ALTERATIONS ..............................................................13
14. REPAIRS ..................................................................15
15. LIENS ....................................................................16
16. ENTRY BY LANDLORD ........................................................16
17. UTILITIES AND SERVICES ...................................................16
18. INDEMNIFICATION ..........................................................18
19. DAMAGE TO TENANT'S PROPERTY ..............................................18
20. INSURANCE ................................................................19
21. DAMAGE OR DESTRUCTION ....................................................20
22. EMINENT DOMAIN ...........................................................21
23. DEFAULTS AND REMEDIES ....................................................22
24. ASSIGNMENT AND SUBLETTING ................................................23
25. QUIET ENJOYMENT ..........................................................25
26. SUBORDINATION ............................................................25
27. ESTOPPEL CERTIFICATE .....................................................26
28. BUILDING PLANNING ........................................................26
29. RULES AND REGULATIONS ....................................................26
30. CONFLICT OF LAWS .........................................................26
31. SUCCESSORS AND ASSIGNS ...................................................26
32. SURRENDER OF PREMISES ....................................................27
</TABLE>
-------------
June 16, 1997
2
<PAGE> 3
<TABLE>
<S> <C>
33. PROFESSIONAL FEES ........................................................27
34. PERFORMANCE BY TENANT ....................................................27
35. MORTGAGE AND SENIOR LESSOR PROTECTION ....................................27
36. DEFINITION OF LANDLORD ...................................................28
37. WAIVER ...................................................................28
38. IDENTIFICATION OF TENANT .................................................28
39. PARKING AND TRANSPORTATION ...............................................28
40. OFFICE AND COMMUNICATIONS SERVICES .......................................29
41. TERMS AND HEADINGS .......................................................30
42. EXAMINATION OF LEASE .....................................................30
43. TIME .....................................................................30
44. PRIOR AGREEMENT; AMENDMENTS ..............................................30
45. SEPARABILITY .............................................................30
46. RECORDING ................................................................30
47. LIMITATION ON LIABILITY ..................................................31
48. RIDERS ...................................................................31
49. SIGNS ....................................................................31
50. MODIFICATION FOR LENDER ..................................................31
51. ACCORD AND SATISFACTION ..................................................31
52. FINANCIAL STATEMENTS .....................................................31
53. TENANT AS CORPORATION ....................................................31
54. NO PARTNERSHIP OR JOINT VENTURE ..........................................31
55. AMERICANS WITH DISABILITIES ACT ..........................................32
56. HAZARDOUS MATERIALS ......................................................32
57. ARBITRATION OF DISPUTES ..................................................35
58. NOTICES ..................................................................35
RIDER NO. 1 TO OFFICE LEASE ..................................................37
EXHIBITS
A. OUTLINE OF FLOOR PLAN OF PREMISES ........................................40
B. SITE PLAN ................................................................41
C. LANDLORD'S WORK ..........................................................42
D. SAMPLE FORM OF NOTICE OF LEASE COMMENCEMENT ..............................43
E. SAMPLE FORM OF TENANT ESTOPPEL CERTIFICATE ...............................44
F. RULES AND REGULATIONS ....................................................46
G. NON DISTURBANCE ..........................................................51
</TABLE>
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<PAGE> 4
2101 WEBSTER STREET
BASIC LEASE TERMS
This Office Lease (the "Lease") is made and entered into as of the date
hereinafter set forth between Landlord and Tenant (as such parties are
hereinafter defined). For and in consideration of the payment of all rent to be
paid by Tenant hereunder (including, but not limited to, Tenant's Percentage
Share of Operating Expense and Tenant's Percentage Share of Real Property Taxes
[as hereinafter defined] and of the covenants and agreements hereinafter set
forth to be kept and performed by Tenant, Landlord hereby leases to Tenant the
Premises for the Term beginning on the Commencement Date (as such terms are
hereinafter defined), at the rent and subject to and upon all of the terms and
agreements hereinafter set forth.
The Standard Office Lease Provisions ("Standard Provisions") attached
hereto are incorporated herein by this reference.
1. Landlord: WEBSTER STREET PARTNERS, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP.
2. Landlord's Address: Copy To:
WEBSTER STREET PARTNERS, LTD. WEBSTER STREET PARTNERS, LTD.
Attn: Mark J. Perniconi Attn: Building Manager
2476 North Lake Avenue 2101 Webster Street
Altadena, California 91001 Suite 1475
Oakland, California 94612
3. Tenant:
VISION SOFTWARE TOOLS, INC., A CALIFORNIA CORPORATION.
4. Tenant's Address: Copy To:
VISION SOFTWARE TOOLS, INC. BROBECK, PHLEGER & HARRISON LLP
2101 WEBSTER STREET, 8TH FLOOR SPEAR STREET TOWER
OAKLAND, CA 94612 ONE MARKET
ATTN: MR. JACK HEWITT, CFO SAN FRANCISCO, CA 94105
ATTN: LINDA ROSS JONES, ESQ.
5. Addresses:
(a) Office Building (b) Multi-Story Parking
and Basement Garage: Facility:
2101 Webster Street 2353 Webster Street
Oakland, California Oakland, California
94612 94612
6. Suite Number: 800
7. Floor(s) upon which the Premises are located: 8TH FLOOR
8. Premises: Those certain premises defined in Subparagraph 1(a)
of the Standard Provisions.
9. Site: The parcel or parcels of real property defined in
Subparagraph 1(a) of the Standard Provisions.
10. Rentable Square Feet within Premises: 23,470 RENTABLE SQUARE
FEET
11. Landlord's Work: Tenant improvements with respect to the
Premises as more particularly defined in Exhibit "C".
12. Tenant Improvement Allowance: $-0- per unsable square foot of
Premises.
13. Commencement Date: DECEMBER 1, 1997
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June 16, 1997
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<PAGE> 5
14. Commencement Date: [INTENTIONALLY DELETED]
15. Expiration Date: NOVEMBER 30, 2000
16. Monthly Basic Rent: YEAR 1 $1.55/RENTABLE SQUARE FOOT
YEAR 2 $1.60/RENTABLE SQUARE FOOT
YEAR 3 $1.65/RENTABLE SQUARE FOOT
17. Operating Expense Stop: THE ACTUAL OPERATING EXPENSES INCURRED
IN CALENDAR YEAR 1998. THE OPERATING EXPENSES WILL BE ADJUSTED FOR THE LARGER OF
ACTUAL LEASING LEVELS OR NINETY-FIVE PERCENT (95%) LEASING LEVELS.
18. Real Property Taxes Stop: THE ACTUAL REAL PROPERTY TAXES
INCURRED IN CALENDAR YEAR 1998. THE BUILDING IS CURRENTLY 100% ASSESSED.
19. Tenant's Percentage Share: 5.10%
20. Security Deposit: Waived.
21. Permitted Use: General Office Use.
22. Brokers: SHELDON CRANDALL OF CB COMMERCIAL IS RECOGNIZED AS
TENANT'S BROKER IN THIS TRANSACTION AND WILL BE PAID A COMMISSION BY THE
LANDLORD PURSUANT TO A LEASING COMMISSION AGREEMENT. LANDLORD IS REPRESENTED BY
RICK STEFFENS AND PEGGY ROTH OF GRUBB & ELLIS AND WILL BE PAID A COMMISSION BY
THE LANDLORD PURSUANT TO A LISTING SERVICES AGREEMENT
23. Landlord's Construction Representative: RALPH HEMPHILL
24. Tenant's Construction Representative: FERN KRUGER
25. Parking: 2 standard automobile parking spaces in the Basement
Garage and 35 standard automobile parking spaces in the Multi-Story Parking
Facility. ALL PARKING IS OFFERED AT PREVAILING MARKET RATES.
CURRENT MONTHLY RATES: 2101 WEBSTER VALET PARK $177.00
2353 WEBSTER VALET PARK $100.00
2353 WEBSTER SELF PARK $83.00**
**(PAY FOR 4 MONTHS, GET
ONE MONTH FREE)
RATES INCLUDE CITY OF
OAKLAND PARKING TAXES.
26. Riders: 1 through 1 inclusive, which Riders are attached to this
Lease and are incorporated herein by this reference.
27. Lease Year: A period of 12 consecutive calendar months
commencing on the Commencement Date or any anniversary of the Commencement Date.
28. Basement Garage: That certain basement garage defined in
subparagraph 2(a) of the Standard Provisions.
29. Multi-Story Parking Facility: That certain multi-story parking
facility defined in Subparagraph 1(a) of the Standard Provisions.
30. Exhibits: A through G inclusive, which Exhibits are attached to
this Lease and are incorporated herein by this reference.
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June 16, 1997
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<PAGE> 6
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
this 17th day of June, 1997
TENANT: LANDLORD:
VISION SOFTWARE TOOLS, INC. WEBSTER STREET PARTNERS, LTD.
a California corporation a California limited partnership
By: J.A. HEWITT JR. By: CHASKOW FOUR ASSOCIATES, LTD.
---------------------------------- a California limited partnership
its general partner
Its: VP & CFO By: CHASKOW FOUR,
-------------------------------- a California limited partnership
its general partner
Print Name: J.A. Hewitt Jr. By: PANKOW HOLDINGS, INC.
------------------------- a California corporation
its general partner
By: /s/ MARK J. PERNICONI
-------------------------------------
Mark J. Perniconi
Vice President
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June 16, 1997
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<PAGE> 7
2101 WEBSTER
STANDARD OFFICE LEASE PROVISIONS
The following Standard Office Lease Provisions are attached to and are
made a part of that certain Office Lease between Webster Street Partners, Ltd.,
a California limited partnership, as Landlord, and Vision Software Tools, Inc.,
a California limited partnership, as Tenant, dated as of this 17th day of June,
1997.
1. PREMISES AND COMMON AREAS LEASED
(a) Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord, the premises contained within the suite designated in the
Basic Lease Terms, outlined on the Floor Plan attached hereto and marked
Exhibit "A" (the "Premises"), of that certain twenty story office
building ("Office Tower") and basement garage ("Basement Garage")
located at 2101 Webster Street, Oakland, California, "Multi-Story
Parking Facility" (exclusive of the YMCA facility) located at 2353
Webster Street, Oakland, California. Said Office Tower and the Basement
Garage are collectively referred to as the "Building" and are located on
the parcels of real property (the "Site") described in the legal
descriptions and outlined on the site plans attached hereto and marked
Exhibit "B-1". The Multi-Story Parking Facility is located on the
parcels of real property (the "Parking Site") described in the legal
descriptions and outlined on the site plans attached hereto and marked
Exhibit "B-2". The Building, Site, Multi-Story Parking Facility and
Parking Site are collectively referred to as the "Property". The
Premises are to be improved by Landlord with the Landlord's Work
described in Exhibit "C" attached hereto and incorporated herein by this
reference. Said Premises being agreed, for the purposes of this Lease,
to have the number of rentable square feet designated in Paragraph 10 of
the Basic Lease Terms.
The parties hereto agree that said letting and hiring is upon
and subject to the terms, covenants and conditions herein set forth and
Tenant covenants as a material part of the consideration for this Lease
to keep and perform each and all of said terms, covenants and conditions
by it to be kept and performed and that this Lease is made upon the
condition of such performance.
(b) Tenant shall have the nonexclusive right to use in common
with other tenants in the Building and subject to the Rules and
Regulations referred to in Paragraph 30 below, the following areas
("Common Areas") appurtenant to the Premises.
(i) The common entrances, lobbies, restrooms, elevators,
stairways and accessways, and passageways and serviceways
thereto, any the common pipes, conduits, wires and appurtenant
equipment serving the Premises;
(ii) Parking areas (subject to the provisions of
Paragraph 40 hereinbelow), roadways, sidewalks, walkways, and
driveways appurtenant to the Building.
(c) Landlord shall make all commercially reasonable efforts to
avoid any action under the provisions of this paragraph which would
materially or unreasonably interfere with Tenant's access to or use of
the Premises:
(i) To install, use, maintain, repair and replace pipes,
ducts, conduits, wires and appurtenant meters and equipment for
service to other parts of the Building above the ceiling
surfaces, below the floor surfaces, within the walls and in the
central core areas, and to relocate any pipes, ducts, conduits,
wires, and appurtenant meters and equipment included in the
Premises which are located in the Premises or located elsewhere
outside the Premises, and to expand the Building;
(ii) To make changes to the Common Areas, including,
without limitation, changes in the location, size, shape and
number of driveways, entrances, loading and unloading areas,
ingress, egress, direction of traffic, landscaped areas and
walkways and, subject to Paragraph 40, parking spaces and
parking areas;
(iii) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the
Premises remains available;
(iv) To use the Common Areas while engaged in making
additional improvements, repairs or alterations to the Building,
or any portion thereof;
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June 16, 1997
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<PAGE> 8
(v) To do and perform such other acts and make such
other changes in, to or with respect to the Site, Common Areas
and Building as Landlord may, in the exercise of sound business
judgment, deem to be appropriate.
2. TERM.
The term of this Lease shall be for the period commencing on the
Commencement Date designated in Paragraph 13 of the Basic Lease Terms, and
ending on the Expiration Date designated in Paragraph 15 of the Basic Lease
Terms; unless the term hereby demised shall be sooner terminated as hereinafter
provided.
3. POSSESSION.
Landlord shall deliver possession of the Premises to Tenant on the
Commencement Date regardless of whether Landlord has completed Landlord's Work
by the Commencement Date. If Landlord has not completed Landlord's Work by the
Commencement Date, Landlord shall provide Tenant, upon the Commencement Date,
with a list of incomplete and/or corrective items, which list shall be approved
and acknowledged by Tenant and which items Landlord shall complete and/or
correct promptly thereafter. Landlord and Tenant agree that if Landlord has not
completed Landlord's Work by the Commencement Date, this Lease shall not be void
or voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting therefrom; provided, however, in the event any portion of the Premises
is rendered unusable (meaning Tenant is unable to conduct its normal course of
business for physical reasons) by Tenant as a result of Landlord's completion of
Landlord's Work after the Commencement Date, rent shall be abated, commencing on
the Commencement Date, in proportion to the portion of the Premises rendered
unusable, until the portion is again usable by Tenant.
4. MONTHLY BASIC RENT.
Tenant agrees to pay Landlord as Monthly Basic Rent for the Premises the
Monthly Basic Rent designated in Paragraph 16 of the Basic Lease Terms (subject
to adjustment as hereinafter provided) in advance on the first day of each and
every calendar month during said term. In the event the term of this Lease
commences or ends on a day other than the first day of a calendar month, then
the rental for the first and last months of the Term shall be prorated in the
proportion that the number of days this Lease is in effect during the first and
last months of the Term bears to thirty (30), and such rental shall be paid at
the commencement of such periods. In addition to said Monthly Basic Rent, Tenant
agrees to pay the amount of the rental adjustments as and when hereinafter
provided in this Lease. Said Monthly Basic Rent, additional rent, and rental
adjustments shall be paid to Landlord, without any prior demand therefor and
without any deduction or offset whatsoever in lawful money of the United States
of America, which shall be legal tender at the time of payment, at the address
of Landlord designated in Paragraph 2 of the Basic Lease Terms or to such
other person or at such other place as Landlord may from time to time designate
in writing. Further, all charges to be paid by Tenant hereunder, including,
without limitation, payments for real property taxes, insurance, repairs, and
parking shall be considered additional rent for the purposes of this Lease, and
the word "rent" in this Lease shall include such additional rent unless the
context specifically or clearly implies that only the Monthly Basic Rent is
referenced.
5. RENTAL ADJUSTMENT.
(a) For the purposes of this Paragraph 5, the following terms
are defined as follows:
Tenant's Percentage Share: Tenant's Percentage Share shall mean
that portion of the total rentable area of the Building (exclusive of
parking areas and based on 456,187 rentable square feet the Building)
occupied by Tenant as set forth as a percentage in Paragraph 19 of the
Basic Lease Terms. In the event the Premises are either reduced or
expanded, Tenant's Percentage Share shall be adjusted to reflect that
portion of the total rentable area of the Building (exclusive of
parking areas) occupied by Tenant as fairly determined by Landlord.
Operating Expense Stop: The meaning given in Paragraph 17 of the
Basic Lease Terms shall apply.
Real Property Taxes Stop: The meaning given in Paragraph 18 of
the Basic Lease Terms shall apply.
Operating Expenses: Operating Expenses shall consist of all
direct costs of operation and maintenance of the Building, the Common
Areas and the Site, as determined by standard accounting practices,
calculated assuming the Building is at least ninety-five percent (95%)
leased including the following costs by way of illustration, but not
limitation: water and sewer charges; the net cost and expense of
insurance for which Landlord is responsible hereunder or which Landlord
or any first mortgagee with a lien affecting the Premises reasonably
deems necessary in
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June 16, 1997
8
<PAGE> 9
connection with the operation of the Building; utilities; janitorial
services; security; labor; utilities surcharges, or any other costs
levied, taxed or assessed or imposed by, or at the direction of, or
resulting from statutes or regulations or interpretations thereof,
promulgated by any federal, state, regional, municipal or local
government authority in connection with the use, occupancy, or the
collection of revenue of the Building or the Premises; the cost
(amortized on a straight line basis over the useful life of the
applicable capital item together with interest at the prime rate as
quoted in the Wall Street Journal from time to time plus 2% on the
unamortized balance) of (i) any capital improvements made to the
Building by the Landlord after the first year of the term of the Lease
that reduce other Operating Expenses, or made to the Building by
Landlord after the date of the Lease that are required under any
governmental law or regulation that was not applicable to the Building
at the time it was constructed, or (ii) replacement of any building
equipment reasonably necessary to enable Landlord to operate the
Building at the same quality levels as prior to the replacement; costs
incurred in the management of the Building if any (including supplies,
wages and salaries of employees used in the management, operation and
maintenance of the Building, and payroll taxes and similar governmental
charges with respect thereto, Building management office rental if said
office is located in the Building, and Landlord's and the property
manager's reasonable management fees); air-conditioning; waste disposal;
heating; ventilating; elevator maintenance; supplies; materials;
equipment; tools; except as expressly excluded below, repair and
maintenance of the structural portions of the Building; the plumbing,
heating, ventilating, air-conditioning and electrical systems installed
or furnished by Landlord; and maintenance, costs of upkeep and
operations of the Basement Garage and common areas; rental of personal
property used in maintenance; costs and expenses of gardening and
landscaping; maintenance of signs (other than Tenant owned signs); audit
or verification fees; and costs and expenses of repairs, resurfacing,
repairing, maintenance, painting, lighting, cleaning, refuse removal,
security and similar items, including appropriate reserves (other than
repairs that are capital in nature, except to the extent expressly
permitted hereunder). Operating Expenses shall not include depreciation,
amortization and other non-cash charges (except as expressly permitted
above); real estate brokers' commissions or leasing agents and other
costs related to leasing the Building; interest expense on Building
financing; ground rent; franchise taxes, taxes imposed on (or measured
by) Landlord's income (other than Real Property Taxes and business and
parking taxes imposed by the City and County), and other taxes that do
not constitute Real Property Taxes including, without limitation,
estate, succession, inheritance, profit, capital gains, capitol stock,
transfer and income taxes imposed upon Landlord or the Building; all
costs related to renovating or otherwise altering, improving, decorating
or redecorating space for tenants or other occupants of the Building, or
incurred in renovating or otherwise altering, improving, decorating or
redecorating vacant rentable space of the Building; the cost (including
attorneys' fees and disbursements) of any judgment, settlement, or
arbitration award resulting from tort liability; the cost of defects in
the construction, design, or equipping of the Building or the Building
systems (including electrical, plumbing, heating, ventilation, and air
conditioning systems) or with respect to any of the structural
components of the Building; the cost of or expenditures for any repairs
in accordance with Articles 21 and 22 of this Lease (except as provided
for in Article 21 (e); any Operating Expense related to the
Multi-Story Parking Facility or any other parking facility other than
the Basement Garage; attorneys' fees and expenses which are not related
to the operation of the Building; losses covered by insurance or that
are required to be insured against or that are capital in nature (except
as expressly permitted above); expenses reimbursed to Landlord from
Tenant or other tenants of the Building; improvements, alterations,
additions, changes, equipment, replacements, repairs and other items
that constitute capital expenses under generally accepted accounting
principles (except as expressly permitted above); costs of repair,
abatement, removal or clean-Up of any Hazardous Materials; and any costs
or expenses that are incurred to make any of Landlord's representations
or warranties under this Lease true or correct.
In the event that the Building is less than ninety-five (95%)
leased, the portion of the Operating Expenses considered variable
expenses shall be adjusted proportionately from their actual amounts to
what they would have been if the Building was 95% leased for the
period. Variable costs shall include: utility costs, janitorial costs,
the cost of paper supplies and trash disposal costs.
Real Property Taxes: Real Property Taxes shall be calculated
assuming the Building is at least ninety-five percent (95%) occupied for
any period during which the Building is less than ninety-five percent
(95%) occupied and shall include any form of assessment, license fee,
license tax, business license fee, commercial rental tax, levy, charge,
penalty, tax or similar imposition, imposed by any authority having the
direct power to tax, including any city, county, state or federal
government, or any school, agricultural, lighting, drainage or other
improvement or special assessment district thereof, as against any legal
or equitable interest of Landlord in the Building and/or the Site of
which the Building and Premises form a part, including, but not limited
to, the following:
(i) Any tax on Landlord's "right" to rent or "right" to
other income from the Premises or as against Landlord's
business of leasing the Premises;
(ii) Any assessment, tax, fee, levy or charge in
substitution, partially or totally, of any assessment, tax,
fee, levy or charge previously included within the definition of
real estate tax, it being
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June 16, 1997
9
<PAGE> 10
acknowledged by Tenant and Landlord that Proposition 13 was
adopted by the voters of the State of California in the June,
1978 Election and that assessments, taxes, fees, levies and
charges may be imposed by governmental agencies for such
services as fire protection, street, sidewalk and road
maintenance, refuse removal and for other governmental services
formerly provided without charge to property owners or
occupants. It is the intention of Tenant and Landlord that all
such new or adjusted assessments, taxes, fees, levies and
charges be included within the definition of "Real Property
Taxes" for the purposes of this Lease;
(iii) Any assessment, tax, fee, levy or charge allocable
to or measured by the area of the Premises or the rent payable
hereunder, including, without limitation, any gross income tax
or excise tax levied by the State, city or federal government,
or any political subdivision thereof, with respect to the
receipt of such rent, or upon or with respect to the possession,
leasing, operating, management, maintenance, alteration, repair,
use or occupancy by Tenants of the Premises, or any portion
thereof;
(iv) [Intentionally Deleted]
(v) Any assessment, tax, fee, levy or charge by any
governmental agency related to any transportation plan, fund or
system instituted within the geographic area of which the
Building is a part;
(vi) Reasonable legal, consultants' and other
professional fees, costs and disbursements incurred in
connection with proceedings to contest, determine or reduce real
property taxes;
(vii) Any personal property taxes levied on or
attributable to personal property used in connection with the
entire Building, or Common Areas.
Notwithstanding any provision of this Subparagraph 5(a)
expressed or implied to the contrary, "Real Property Taxes"
shall not include Landlord's federal or state income, franchise,
inheritance or estate taxes.
(b) [Intentionally Deleted]
(c) As soon as reasonably practicable, during each calendar year
during the term of this Lease after the first calendar year of the term
of this Lease, Landlord shall deliver to Tenant statements wherein
Landlord shall estimate the Operating Expenses and Real Property Taxes
for the current calendar year (individually, the "Estimated Operating
Expense Statement" and the "Estimated Real Property Taxes Statement" and
sometimes referred to collectively as the "Estimated Statement"), and
the amount by which Tenant's Percentage Share of the (i) Operating
Expenses on account of the operation or maintenance of the Building is
in excess of the Operating Expense Stop and (ii) Real Property Taxes on
account of Tenant's occupation of the Building is in excess of the Real
Property Taxes Stop. Provided, however, if Landlord determines that
Tenant's Percentage Share of the Operating Expenses or Real Property
Taxes for such current calendar year is greater than that set forth in
the applicable Estimated Statement, then Landlord may deliver on the
first day of June, September, or December, as appropriate, a revised
Estimated Statement and Tenant shall pay to Landlord, within ten (10)
business days of the delivery of such revised Estimated Statement, the
difference between such revised Estimated Statement for such item and
the original Estimated Statement for such item for the portion of the
current calendar year which has then expired, and Tenant shall pay
during the balance of such current calendar year through February of the
succeeding calendar year a fraction of the balance of such difference as
would fully amortize such excess over the remaining months of the then
current calendar year through and including February of the succeeding
calendar year.
(d) If Tenant's Percentage Share of the Operating Expenses or
Real Property Taxes estimated in the applicable Estimated Statement
exceeds the Operating Expense Stop or Real Property Taxes Stop then such
excess amount shall be divided into twelve (12) equal monthly
installments and Tenant shall pay to Landlord, concurrently with the
regular monthly rent payment next due following the receipt of such
statement, an amount equal to one (1) monthly installment multiplied by
the number of months from January in the calendar year in which said
statement is submitted to the month of such payment, both months
inclusive. Subsequent installments shall be paid concurrently with the
regular monthly rent payments for the balance of the calendar year and
shall continue until the next calendar year's Estimated Statement is
rendered.
(e) As soon as reasonably practicable during each succeeding
calendar year during the term of this Lease, Landlord shall deliver to
Tenant a statement ("Actual Statement") wherein Landlord shall state the
actual Operating Expenses and Real Property Taxes for the preceding
calendar year. If the Actual Statement reveals a greater increase in
Tenant's Percentage Share of Operating Expenses and/or Tenant's
Percentage Share of Real Property Taxes than was estimated by Landlord
in any Estimated Statement delivered as provided herein, then within
twenty (20)
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June 16, 1997
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<PAGE> 11
business days following receipt of the Actual Statement from Landlord,
Tenant shall pay a lump sum equal to said total increase over the
Operating Expense Stop and/or Real Property Taxes Stop, less the total
of the monthly installments of increases set forth on the Estimated
Statement which were paid in the previous calendar year.
(f) If, in any calendar year, Tenant's Percentage Share of
Operating Expenses and/or Real Property Taxes is less than the preceding
calendar year, then upon receipt of Landlord's Actual Statement, any
overpayment made by Tenant on the monthly installment basis provided
above shall be credited toward the next monthly rent failing due and the
monthly installment of Tenant's Percentage Share of Operating Expenses
and/or Real Property Taxes to be paid pursuant to the then current
Estimated Statement shall be adjusted to reflect such lower expenses or
real property taxes for the most recent calendar year, or if this Lease
has been terminated, such excess shall be credited against any amount
which Tenant owes Landlord pursuant to this Lease, and if such amounts
have been paid, Landlord shall promptly pay such excess to Tenant. Any
delay or failure by Landlord in delivering any estimate or statement
pursuant to this Paragraph shall not constitute a waiver of its right to
require an increase in rent nor shall it relieve Tenant of its
obligations pursuant to this Paragraph, except that Tenant shall not be
obligated to make any payments based on such estimate or statement until
ten (10) business days after receipt of such estimate or statement.
(g) In the event Tenant shall dispute the amount set forth in
the Actual Statement described above; Tenant shall have the right not
later than sixty (60) calendar days following receipt of such Actual
Statement to review Landlord's books and records and such review shall
be conducted during the hours and at the location in the Bay Area
designated by Landlord. Tenant shall have the right not later than ten
(10) business days following such review to cause Landlord's books and
records with respect to the preceding calendar year to be audited by a
certified public accountant mutually acceptable to Landlord and Tenant.
If such audit discloses an amount payable by Landlord such amount shall
be credited to Tenant as provided in Subparagraph 5(f) above. If such
audit discloses an amount payable by Tenant to Landlord, Tenant shall
pay a lump sum equal to such amount upon receipt of the results of the
audit. If such audit discloses a liability for further refund by
Landlord to Tenant in excess of ten percent (10%) of the payments
previously made by Tenant for such calendar year, the cost of such audit
shall be borne by Landlord; otherwise the cost of such audit shall be
borne by Tenant. If Tenant fails to request an audit within ten (10)
business days following such review, such Actual Statement shall be
conclusively binding upon Landlord to Tenant.
(h) Even though the term has expired and Tenant has vacated the
Premises, when the final determination is made of Tenant's Percentage
Share of Operating Expenses and Tenant's Percentage Share of Real
Property Taxes for the year in which this Lease terminates, and subject
to Tenant's audit rights described above, Tenant shall within twenty
(20) business days following the receipt of the final determination, pay
any increase due over the estimated expense paid and conversely any
overpayments made in the event said expenses decrease immediately shall
be rebated by Landlord to Tenant.
6. SECURITY DEPOSIT.
Tenant has deposited with Landlord the Security Deposit designated in
Paragraph 20 of the Basic Lease Terms. Said deposit shall be held by Landlord as
security for the faithful performance by Tenant of all of the terms, covenants,
and conditions of this Lease to be kept and performed by Tenant during the term
hereof. If Tenant defaults with respect to any provision of this Lease,
including but not limited to the provisions relating to the payment of rent,
Landlord may (but shall not be required to) use, apply or retain all or any part
of this Security Deposit for the payment of any rent or any other sum in
default, or for the payment of any other amount which Landlord may spend or
become obligated to spend by reason of Tenant's default or to compensate
Landlord for any loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of said deposit is so used or applied, Tenant shall,
within ten (10) days after demand therefor, deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to its original amount and
Tenant's failure to do so shall be a material breach of this Lease. Landlord
shall not be required to keep this Security Deposit separate from its general
funds, and Tenant shall not be entitled to interest on such Security Deposit. If
Tenant shall fully and faithfully perform every provision of this Lease to be
performed by it, the Security Deposit or any balance thereof shall be returned
to Tenant (or at Landlord's option, to the last assignee of Tenant's interests
hereunder) at the expiration of the Lease term, provided that Landlord may
retain the Security Deposit until such time as any amount due from Tenant in
accordance with Paragraph 4 and 5 hereof has been determined and paid in full.
Should Landlord sell its interest in the Premises during the term hereof or if
Landlord deposits with purchaser thereof the then unappropriated funds deposited
by Tenant as aforesaid, thereupon Landlord shall be discharged from any further
liability with respect to such Security Deposit.
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7. USE.
Tenant shall use the Premises for general office purpose, including
without limitation software development (but excluding a computer processing
center facility) and purposes incident thereto, and shall not use or permit the
Premises to be used for any other purpose without the prior written consent of
the Landlord, not to be unreasonably withheld or delayed). Tenant shall not use
or occupy the premises in violation of any recorded covenants, conditions and
restrictions affecting the Site or of any law or of the Certificate of Occupancy
or temporary Certificate of Occupancy issued for the Building of which the
Premises are a part, and shall, upon five (5) days written notice from Landlord,
discontinue any use of the Premises which is declared by any governmental
authority having jurisdiction to be a violation of any recorded covenants and
restrictions affecting the Site or of any law or of said Certificate of
Occupancy or temporary Certificate of Occupancy. Tenant may not offer shared
tenant services, such as but not limited to word processing, to any unaffiliated
tenant in the Building without Landlord's prior written consent, which consent
may be withheld by Landlord at its sole and absolute discretion. Tenant shall
comply with any direction of any governmental authority having jurisdiction
which shall, by reason of the nature of Tenant's use or occupancy of the
Premises, impose any duty upon Tenant or Landlord with respect to the Premises
or with respect to the use or occupation thereof. Tenant shall not do or
knowingly permit anything to be done in or about the Premises which will in any
way obstruct or interfere with the rights of other tenants or occupants of the
Building, or injure or annoy them, or use or knowingly allow the Premises to be
used for any improper, immoral, unlawful or objectionable purpose, nor shall
Tenant cause, maintain or knowingly permit any nuisance in, or about the
Premises. Tenant shall not commit or suffer to be committed any waste in or upon
the Premises and shall keep the Premises in first class repair and appearance.
Landlord reserves the right to prescribe the weight and position of all safes,
files and heavy equipment which Tenant desires to place in the Premises so as
to distribute properly the weight thereof. Tenant shall be responsible for the
cost of all structural engineering required to determine the structural load of
all safes, files and heavy equipment which Tenant desires to place in the
Premises.
8. PAYMENTS AND NOTICES.
All rents and other sums payable by Tenant to Landlord hereunder shall
be paid to Landlord at the address designated by Landlord in Paragraph 2 of the
Basic Lease Terms above or at such other places as Landlord may hereafter
designate in writing. Any notice required or permitted to be given hereunder
must be in writing and may be given by personal delivery or by mail, and if
given by mail shall be deemed sufficiently given if sent by registered or
certified mail addressed to Tenant at the Building of which the Premises are a
part or if delivered personally to Tenant at the Premises or to Landlord at both
of the addresses designated in Paragraph 2 of the Basic Lease Terms. Either
party may by written notice to the other specify a different address for notice
purposes. If more than one person or entity constitutes the "Tenant" under this
Lease, service of any notice upon any one of said persons or entities shall be
deemed as service upon all of said persons or entities.
9. BROKERS.
The parties recognize that the brokers who negotiated this Lease are the
brokers whose names are stated in Paragraph 22 of the Basic Lease Terms, and
agree that Landlord shall be solely responsible for the payment of brokerage
commissions to said brokers, and that Tenant shall have no responsibility
therefor. As part of the consideration for the granting of this Lease, Tenant
represents and warrants to Landlord that to Tenant's knowledge no other broker,
agent or finder negotiated or was instrumental in negotiating or consummating
this Lease and that Tenant knows of no other real estate broker, agent or finder
who is, or might be, entitled to a commission or compensation in connection with
this Lease. Any broker, agent or finder of Tenant whom Tenant has failed to
disclose herein shall be paid by Tenant. Tenant shall hold Landlord harmless
from all damages and indemnify Landlord for all said damages paid or incurred by
Landlord resulting from any claims that may be asserted against Landlord by any
broker, agent or finder undisclosed by Tenant herein.
10. HOLDING OVER.
(a) With Landlord's Consent: If Tenant, with Landlord's written
consent, remains in possession of all or any portion of the Premises
after the Expiration Date or earlier termination (collectively
"Termination") of this lease and if Landlord and Tenant have not
executed a written agreement as to the terms of such holding over, then
Tenant's continued occupancy shall be a tenancy from month to month.
With respect to such month to month tenancy, the monthly rent payable
shall be of the Monthly Basic Rent in effect immediately prior to
Expiration Date or earlier termination together with additional rent in
the form of such other payments required of Tenant under the provisions
of this lease including, without limitations the provisions of Section 5
of this Lease.
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(b) Without Landlord's Consent: If Tenant remains in possession
all or any portion of the Premises after the Termination of this Lease
without Landlord's consent, Tenant shall be deemed a tenant at
sufferance only. Landlord and Tenant agree that as to such tenancy at
sufferance, the fair market rental value of the Premises shall be deemed
to be One Hundred and Thirty-Five percent (135%) of the Monthly Basic
Rent in effect immediately prior to Termination together with additional
rent in the form of such other payments required of Tenant under the
provisions of this Lease including, without limitation, the provisions
of Section 5 of this Lease (the "Sufferance Rent"). Tenant shall be
obligated to pay the Sufferance Rent to Landlord until the Premises are
delivered back into Landlord's possession and control. The provisions of
this paragraph are in addition to and do not affect Landlord's right of
re-entry or any other rights of Landlord conferred by this Lease or
provided by law.
(c) Compliance with Tenant's Obligations as Defined by this
Lease: In the event Tenant remains in possession all or any portion of
the Premises after the Termination of this Lease, with or without
Landlord's consent, such possession by Tenant shall obligate Tenant to
satisfy each, all and every one of the Tenant's obligations under the
provisions of this lease for the duration of such occupancy the
provisions of this Lease shall remain in effect for the duration of the
month to month tenancy.
(d) Indemnity: If Tenant fails to surrender the Premises upon
the Termination of this Lease or remains in possession of the Premises
for any period without Landlord's written consent, Tenant shall
indemnify and hold Landlord harmless from all expense (including
reasonable attorneys fees), loss and liability including without
limitation, any claim made by any succeeding tenant founded on or
resulting from such failure to surrender.
11. TAXES ON TENANT'S PROPERTY.
Tenant shall be liable for and shall pay prior to delinquency: (1) all
taxes levied against any personal property or trade fixtures placed by Tenant in
or about the Premises; and (2) any improvements installed in the Premises by
Landlord in excess of the allowance as specified in paragraph 12 of the Basic
Lease Terms; and (3) any Changes (as defined in Section 13 of this Lease. The
matters referred to as items (1), (2) and (3) in the preceding sentence are
collectively referred to as the "Taxable Items". If any such taxes on the
Taxable Items are levied against Landlord or Landlord's property or if the
assessed value of the Premises is increased by the inclusion of a value placed
upon all or any portion of the Taxable Items, Landlord, after written notice to
Tenant, shall have the right, but not the obligation to pay any taxes levied
upon the Taxable Items without regard to the validity of the levy. If Landlord
pays the taxes based upon such assessments and/or increased assessments, Tenant
shall, upon demand, repay to Landlord the taxes levied against Landlord or the
portion of such taxes resulting from such increase in the assessment together
with interest at the rate of two per cent higher than the Bank of America
Reference Rate from the date of advancement until the date of repayment.
Tenant, at Tenant's sole cost and expense, shall have the right to bring suit in
Landlord's name in any court of competent jurisdiction to recover the amount of
any such taxes paid by Landlord. Landlord shall cooperate with respect to such
suit. Tenant will hold Landlord harmless from all cost, loss and expense in
connection with the suit.
12. CONDITION OF PREMISES.
Tenant acknowledges that, except as set forth in this Lease, neither
Landlord nor any agent of Landlord has made any representation or warranty with
respect to the Premises or the Building or with respect to the suitability of
either for the conduct of Tenant's business. The taking of possession of the
Premises by Tenant shall conclusively establish that the Premises and the
Building were at such time in satisfactory condition.
13. ALTERATIONS.
(a) Tenant may, at any time and from time to time during the
term of this Lease, at its sole cost and expense, make alterations,
additions, installations, substitutions, improvements and decorations
(hereinafter collectively called "Changes") in and to the Premises,
excluding structural changes, on the following conditions, and providing
such Changes will not result in a violation of or require a change in
the Certificate of Occupancy or temporary Certificate of Occupancy
applicable to the Premises;
(i) The outside appearance, character or use of the
Building shall not be affected, and no Changes shall weaken or
impair the structural strength or, in the reasonable opinion of
Landlord, materially lessen the value of the Building or create
the potential for unusual expenses to be incurred by Landlord or
any future tenant of the Premises upon the removal of Changes
and the restoration of the Premises upon the termination of this
Lease;
(ii) No part of the Building outside of the Premises
shall be physically affected;
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(iii) The proper functioning of any of the mechanical,
electrical, sanitary and other service systems or installations
of the Building ("Service Facilities") shall not be adversely
affected and there shall be no construction which might
materially interfere with Landlord's free access to the Service
Facilities or materially interfere with the moving of Landlord's
equipment to or from the enclosures containing the Service
Facilities;
(iv) In performing the work involved in making such
Changes, Tenant shall be bound by and observe all of the
conditions and covenants contained in this Paragraph;
(v) All work shall be done at such times and in such
manner as Landlord from time to time may reasonably designate;
(vi) Tenant shall not be permitted to install and make
part of the Premises or Building any materials, fixtures or
articles which are subject to liens, conditional sales,
contracts or chattel mortgages.
(vii) Unless approved in writing by Landlord in
accordance with Section 13(I) below, at the date upon which the
term of this Lease shall end, or the date of any earlier
termination of this Lease, Tenant shall on Landlord's written
request restore the Premises to their condition prior to the
making of any Changes permitted by this Paragraph 13, reasonable
wear and tear, casualty and condemnation excepted.
(b) Before proceeding with any Change (exclusive of changes to
items constituting Tenant's personal property) either in excess of
$25,000 or that may effect the structural integrity of or the mechanical
systems in the Building, Tenant shall submit to Landlord plans and
specifications for the work to be done, which shall require Landlord's
written approval not to be unreasonably withheld, conditioned or
delayed. Landlord shall have seven (7) working days to review the
proposed Changes and either approve the Changes as submitted or state
its reasons for not approving such Changes.
(c) If the proposed Change requires approval by or notice to the
lessor of a superior lease or the holder of a mortgage, no Change shall
be proceeded with until such approval has been received, or such notice
has been given, as the case may be, and all applicable conditions and
provisions of said superior lease or mortgage with respect to the
proposed Change or alteration have been met or complied with at Tenant's
expense; and Landlord, if it approves the Change, will request such
approval or give such notice, as the case may be.
(d) After Landlord's written approval has been sent to Tenant
and the approval by or notice to the lessor of a superior lease or the
holder of a superior mortgage has been received or given, as the case
may be, Tenant shall enter into an agreement for the performance of the
work to be done pursuant to this Paragraph 13 with Landlord's
contractor. All costs and expenses incurred in connection with Changes
shall be paid by Tenant within seven (7) business days after each
billing by Landlord or any such contractor or contractors. Tenant shall
in all cases comply with the provisions of Paragraph 15 hereof in
performing hereunder. If Landlord approves the construction of specific
interior improvements in the Premises by other contractors chosen by
Tenant from a list prepared by Landlord at Tenant's request, then
Tenant's contractors shall obtain on behalf of Tenant and at Tenant's
sole cost and expense, (i) all necessary governmental permits and
certificates for the commencement and prosecution of Tenant's Changes
and for final approval thereof upon completion, and (ii) a completion
and lien indemnity bond, or other surety, satisfactory to Landlord, for
the Changes. In the event Tenant shall request any changes in the work
to be performed after the submission of the plans referred to in this
Paragraph 13, such additional changes shall be subject to the same
approvals and notices as the changes initially submitted by Tenants.
(e) All Changes and the performance thereof shall at all times
comply with (i) all laws, rules, order, ordinances, directions,
regulations and requirements of all governmental authorities, agencies,
offices, departments, bureaus and boards having jurisdiction thereof,
(ii) all rules, order, directions, regulations and requirements of the
Pacific Fire Rating Bureau, or of any similar insurance body or bodies,
and (iii) all rules and regulations of Landlord, and Tenant shall cause
Changes to be performed in compliance therewith and in good and first
class workmanlike manner, using materials and equipment at least equal
in quality and class to the original installations of the building.
Changes shall be performed in such manner as not to materially interfere
with the occupancy of any other tenant in the Building nor delay, or
impose any additional expense upon Landlord in construction, maintenance
or operation of the Building, and shall be performed by contractors or
mechanics approved by Landlord and submitted to Tenant pursuant to this
Paragraph, who shall coordinate their work in cooperation with any other
work being performed with respect to the Building. Throughout the
performance of Changes, Tenant, at its expense, shall carry, or cause to
be carried, workmen's compensation insurance in statutory limits, and
general liability insurance for any occurrence in or about the Building,
of which Landlord and its managing agent shall be
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June 16, 1997
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<PAGE> 15
named as parties insured, in such limits as Landlord may reasonably
prescribe, with insurers reasonably satisfactory to Landlord all in
compliance with Paragraph 20(b) hereof;
(f) Tenant further covenants and agrees that any mechanic's lien
filed against the Premises or against the Building for work claimed to
have been done for, or materials claimed to have been furnished to
Tenant, will be discharged by Tenant, by bond or otherwise, within ten
(10) days after the filing thereof, at the cost and expense of Tenant.
All alterations, decorations, additions or improvements upon the
Premises, made by either party, including (without limiting the
generality of the foregoing) all wallcovering, built-in cabinet work,
paneling and the like, shall, unless Landlord elects otherwise, become
the property of Landlord, and shall remain upon, and be surrendered with
the Premises, as a part thereof, at the end of the term hereof, except
that Landlord may by written notice to Tenant, given at least thirty
(30) days prior to the end of the term, require Tenant to remove all
Changes installed by Tenant, and Tenant shall repair any damage to the
Premises arising from such removal or, at Landlord's option, shall pay
to the Landlord all of Landlord's actual reasonable costs of such
removal and repair, unless approved in writing by Landlord in accordance
with Section 13(i) below,
(g) All articles of personal property and all business and trade
fixtures, machinery and equipment, furniture and movable partitions
owned by Tenant or installed by Tenant at its expense in the Premises
shall be and remain the property of Tenant and may be removed by Tenant
at any time during the lease term provided Tenant is not in default
hereunder, and provided further that Tenant shall repair any damage
caused by such removal. If Tenant shall fail to remove all of its
effects from said Premises upon termination of this Lease for any cause
whatsoever, Landlord shall choose, and store said effects without
liability to Tenant for loss thereof, and Tenant agrees to pay Landlord
upon demand any and all expenses incurred in such removal, including
court costs and reasonable attorney's fees and storage charges on such
effects for any length of time that the same shall be in Landlord's
possession.
(h) Landlord reserves the right at any time and from time to
time without the same constituting an actual or constructive eviction
and without incurring any liability to Tenant therefor or otherwise
affecting Tenant's obligations under this Lease, to make such changes,
alterations, additions, improvements, repairs or replacements in or to
the Site or the Building (including the Premises if required so to do by
any law or regulation) and the fixtures and equipment thereof, as well
as in or to the street entrances, halls, passages and stairways thereof,
provided Tenant's access to or use of the Premises is not materially
affected thereby, to change the name by which the Building is commonly
known, as Landlord may deem necessary or desirable. Nothing contained in
this Paragraph 13 shall be deemed to relieve Tenant of any duty,
obligation or liability of Tenant with respect to making any repair,
replacement or improvement or complying with any law, order or
requirement of any government or other authority and nothing contained
in this Paragraph 13 shall be deemed or construed to impose upon
Landlord any obligation, responsibility or liability whatsoever, for the
care, supervision or repair of the Building or any part thereof other
than as otherwise provided in this Lease.
(i) At the time Tenant elects to make any Changes to the
Premises, Tenant shall have the right to notify Landlord in writing of
tile proposed Changes and to request that Landlord notify Tenant whether
Landlord will require Tenant to remove the Changes upon expiration or
earlier termination of this Lease. Landlord agrees that if it receives
the such written notice from Tenant, Landlord will notify Tenant in
writing, within ten (10) business days after receiving Tenant's notice
as to whether Landlord will waive its rights herein to require Tenant to
remove said Changes upon the expiration or earlier termination of this
Lease.
14. REPAIRS.
(a) By entry hereunder, Tenant accepts the Premises as being in
good and sanitary order, condition and repair. Tenant shall, when and if
needed or whenever requested by Landlord to do so, at Tenant's sole cost
and expense, maintain and make all repairs to the interior of the
Premises and every part thereof, to keep, maintain and preserve the
Premises in first class condition, excepting ordinary wear and tear, and
repair. Any such maintenance and repairs shall be performed by
Landlord's contractor, or at Landlord's option, by such contractor or
contractors as Tenant may choose from an approved list to be submitted
by Landlord. All costs and expenses incurred in such maintenance and
repair shall be paid by Tenant within seven (7) business days after
billing by Landlord or such contractor or contractors unless such repair
is necessitated by the act, neglect, fault or emission of any duty of
Landlord, its agents, servants or employees. Tenant shall upon the
expiration or sooner termination of the term hereof surrender the
Premises to Landlord in the same condition as when received, reasonable
wear and tear, casualty and condemnation excepted and subject to Section
13(i) above. Except as set forth in Exhibit "C" herein, Landlord shall
have no obligation to alter, remodel, improve, repair, decorate or paint
the Premises or any part thereof and the parties hereto affirm that
Landlord has made no representations to Tenant respecting the condition
of the Premises or the Building except as specifically herein set forth.
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(b) Landlord shall repair and maintain the structural portions
of the Building, including the basic plumbing, heating, ventilating, air
conditioning and electrical systems installed or furnished by Landlord,
unless such maintenance and repairs are caused in part or in whole by
the act, neglect, fault of or omission of any duty by Tenant, its
agents, servants, employees or invitees, in which case Tenant shall pay
to Landlord as additional rent, the actual reasonable cost of such
maintenance and repairs. Landlord shall not be liable for any failure to
make any such repairs, or to perform any maintenance unless such failure
shall persist for an unreasonable time after written notice of the need
of such repairs or maintenance is given to Landlord by Tenant. Except as
provided in Paragraph 21 hereof there shall be no abatement of rent and
no liability of Landlord by reason of any injury to or interference with
Tenant's business arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises or in
or to fixtures, appurtenances and equipment therein unless such repair
is necessitated by the act, neglect, fault or omission of any duty of
Landlord or its agents, servants or employees, in which case, if Tenant
is unable to use the Premises, or any portion of it, during the period
of such repairs, rent shall be abated in proportion to the portion of
the Premises rendered unusable until Tenant is again able to use the
entire Premises. Tenant shall maintain and repair at its sole cost and
expense, and with maintenance contractors approved by Landlord, all
special non-base building facilities installed by or on behalf of Tenant
including but not limited to lavatory, shower, toilet, washbasin and
kitchen facilities and special heating and air conditioning systems,
including all plumbing connected to said facilities or systems,
15. LIENS.
Tenant shall not permit any mechanic's, materialmen's, or other liens to
be filed against the Multi-Story Parking Facility or the Site or any portion
thereof of which the Premises form a part nor against the Tenant's leasehold
interest in the Premises. Landlord shall have the right at all reasonable times
to post and keep posted on the Premises any notices which it deems necessary for
protection from such liens. If any such liens are filed, Landlord may, without
waiving its rights and remedies based on such breach of Tenant and without
releasing Tenant from any of its obligations, cause such liens to be released by
any means it shall deem proper, including payment in satisfaction of the claim
giving rise to such lien. Tenant shall pay to Landlord at once, upon notice by
Landlord, any sum paid or expense incurred by Landlord to remove such liens,
together with interest at the prime rate as quoted in the Wall Street Journal
from time to time plus 4% from the date of such payment by Landlord.
16. ENTRY BY LANDLORD
Landlord reserves the right to enter the Premises for purposes of
inspection, maintenance, repair and alteration of the Premises and the Building.
Landlord further reserves the right to enter the Premises to show them to
prospective purchasers or, during the last twelve months of the lease, to
prospective tenants. Except in the case of an emergency, Landlord will restrict
its entry to normal business hours and will provide such advanced notice of the
intended entry as is reasonably possible under the circumstances. Landlord shall
make commercially reasonable efforts to perform all such inspections, showings,
maintenance and repairs expeditiously and shall make commercially reasonable
efforts to minimize interference with Tenant's normal business operations.
Tenant agrees that Landlord and Landlord's manager shall retain a key to all
doors (excluding doors to safes and vaults) in the Premises to facilitate such
access as Landlord may require. Tenant shall not change or add any locks to any
doors in the Premises without Landlord's advance permission. Should Tenant
violate the provisions of the preceding sentence, Landlord shall have the right
to use such means as may be required to gain entry to the Premises and Tenant
shall be responsible for all costs, expenses and repairs required as a result.
No entry by Landlord pursuant to the provisions of this Lease shall be deemed or
construed as a violation of Tenant's right of quiet enjoyment, an eviction of
Tenant or a violation of any other right claimed by Tenant.
17. UTILITIES AND SERVICES.
(a) Landlord agrees, during the Lease term, to furnish to the
Premises during those hours set forth in the Rules and Regulations as
defined in Exhibit "F" hereof, as may be amended in writing by Landlord
from time to time during the term of this Lease and delivered to Tenant,
(i) electrical current in amounts described below, which amounts
Landlord and Tenant have specifically considered and hereby acknowledge
as representing the normal demands of general office space and hereby
conclusively deem to represent a reasonable quantity of electric current
for normal lighting and fractional horsepower office machines for the
use as described herein: (ii) heating, ventilation and air conditioning
("HVAC") in amounts consistent with amounts provided for general office
space which, by way of illustration, shall be considered to be HVAC
necessary to provide adequate heating, cooling and ventilation for up to
one (1) person per 175 rentable square feet during normal business hours
(as more fully described in the Rules and Regulations) assuming the
absence of heat generating equipment or devices and the absence of an
excessive concentration of equipment or devices which individually would
generate a normal amount
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<PAGE> 17
of heat but together generate an excessive amount of heat; (iii)
standard janitorial service (including washing of windows with
reasonable frequency as determined by Landlord), generally consistent
with janitorial service furnished in other first-class office buildings
in the City of Oakland; (iv) water in reasonable quantities,
reasonableness being determined with reference to the typical usage of
office tenants within the Building for the use as described herein, for
lavatory and drinking purposes not in the Premises and (v) passenger
elevator service by non-attended automatic elevators.
(b) In its use of the Premises, Tenant shall strictly adhere to
all of the following electric demand and consumption levels:
(i) Tenant's use of electricity shall be consistent with
other tenants in the Building and shall not exceed that of other
typical office tenants in the Oakland Central Business District.
(ii) Except as approved by the Landlord, the Tenant
shall at no time permit the electrical current used in the
Premises to violate any restrictions imposed by any governmental
authority, including the requirements with respect to lighting
devices set forth in the California Administrative Code, Title
24, Part 6, Division T-20, Chapter 2, Subchapter 4.
(iii) If at any time after the Commencement Date, Tenant
requires additional electrical capacity, such additional
capacity may result in the imposition of additional rent to
Tenant pursuant to Subparagraph (e) below, if such additional
electrical capacity is available and Landlord in its reasonable
discretion agrees to provide same.
(c) Landlord makes no guarantees or representations to Tenant
that the level of HVAC provided to the Premises pursuant to
Subparagraph (a) above will be adequate for Tenant's business purposes.
If (i) Tenant's business use, or (ii) Tenant's occupancy of the Premises
(if such occupancy exceeds one person per one hundred seventy-five
(175) square feet of rentable area), requires additional HVAC above the
level provided for general office space in the Building or affects the
HVAC level otherwise maintained in the Building, Landlord shall have the
right in its sole discretion to install any machinery and equipment that
Landlord reasonably deems necessary to provide Tenant with additional
HVAC or to restore the HVAC level otherwise maintained in the Building,
including, without limitation, modifications or alterations to the
Building's HVAC system or the installation of a separate HVAC system to
service the Premises.
(d) Landlord shall not be liable for, and Tenant shall not be
entitled to any abatement or reduction of rent by reason of Landlord's
failure to furnish any of the foregoing when such failure is caused by
accident, breakage, repairs, strikes, lockouts or other labor
disturbances of any character, or for any other causes.
(e) If Tenant requires or utilizes more water, HVAC or
electricity than is permitted by the standards set forth above, then
such amounts will conclusively be deemed to be excess usage. Landlord
may at its option (i) require Tenant to pay, as additional rent, the
reasonable actual cost, incurred by Landlord to provide such excess
usage, including but not limited to, any and all costs incurred in
connection with the purchase, installation, operation and maintenance of
additional systems and transformers and any other equipment required to
handle such extraordinary capacity and any and all fees required to
governmental authorities resulting from such extraordinary capacity, or
(ii) Landlord shall install separate meter(s) for the Premises, at
Tenant's sole expense, and Tenant shall pay all charges of the utility
providing service.
(f) Landlord may charge as additional rent such reasonable fees
or charges established by Landlord for any additional or unusual
janitorial services required because of the carelessness of Tenant, the
nature of Tenant's business (including the operation of Tenant's
business other than from 8:00 a.m. to 6:00 p.m., Monday through Friday)
and the removal of any refuse or rubbish from the Premises except for
discarded material placed in wastepaper baskets and left for emptying as
an incident to Landlord's normal cleaning of the Premises. Landlord
shall have no responsibility for providing janitorial service to any
portion of the Premises used for preparing, selling or consuming food or
beverages, for storage, for a mail room, or for a bathroom, shower, or
similar function. Tenant shall also be responsible for the cost of
maintaining non-standard improvements including but not limited to
metallic trim, wood floor covering, glass panels, partitions, kitchens
and executive washrooms in the Premises.
(g) Tenant specifically undertakes to install within the
Premises and maintain at Tenant's cost such nonbase building standard
fire protection and life safety equipment as required by any
governmental authority or insurer, and if so required, Tenant shall
appoint one of Tenant's personnel to coordinate with the fire protection
facilities and personnel of Landlord. With respect to fire
extinguishers, Landlord shall be responsible for the
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maintenance of fire extinguishers in the Common Areas
only. Tenant shall maintain all fire extinguishers
installed in the Premises by or on behalf of the Tenant.
(h) Landlord shall furnish and replace all
Building Standard Lamps, as defined herein, only. For
the purpose of this Lease, Building Standard Lamps shall
be defined as four foot (4') long fluorescent tubes
installed in the building standard 2'x 4', 2-lamp and
3-lamp fixtures. Landlord shall, as all Operating
Expense of the Building, replace non-Building Standard
Lamps furnished at the sole cost of the Tenant.
(i) Without the prior written consent of
Landlord, which Landlord may refuse in its sole
discretion, Tenant shall connect no equipment,
apparatus, machine, or other device to any of the
Building's systems that would exceed the design capacity
of such systems. Tenant may connect standard office
machines which consume comparable amounts of electricity
to the electrical system in the Premises but only
through electrical outlets in the Premises which have
been installed in accordance with the local building
codes.
(j) Without the prior written consent of
Landlord, which Landlord may refuse in Landlord's sole
discretion, Tenant shall not place or install in the
Premises any machine, equipment, storage, or shelving
the weight of which exceeds the normal load bearing
capacity of the floors of the Building. If Landlord
consents to the placement or installation of any such
machine, equipment, storage, or shelving in the Premises
which exceeds such weight allowance, Tenant at its sole
expense shall reinforce the floor of the Premises in the
area of such placement or installation, pursuant to
plans and specifications approved by Landlord and
otherwise in compliance with Paragraph 13, to the
extent necessary to assure that no damage to the
Premises or the Building or weakening of any structural
supports will be caused.
18. INDEMNIFICATION.
(a) Tenant's Indemnity. To the fullest extent permitted by law
Tenant hereby agrees to defend, indemnify and hold Landlord harmless
against and from any and all claims arising from Tenant's use of the
Premises or the conduct of its business or from any activity, work, or
thing done, permitted or suffered by Tenant, its agents, contractors,
employees or invitees (collectively "Tenant and its Agents") in or about
the Premises or elsewhere, and hereby agrees to further indemnify and
hold harmless Landlord against and from any and all claims arising from
any breach or default in the performance of any obligation on Tenant's
part to be performed under the terms of this Lease, or arising from any
act, neglect, fault or omission of Tenant, or of its agents, employees
or invitees, and from and against all costs, attorneys' fees, expenses
and liabilities incurred in or about such claim or any action or
proceeding brought thereon; [and in case any action or proceeding
brought against Landlord by reason of any such claim] except for
Landlord's willful misconduct or negligence of Landlord or its agents or
employees in connection with the Premises, Building or Site. Tenant, as
a material part of the consideration to Landlord, hereby assumes all
risk of damage to property or injury to persons in, upon or about the
Premises caused by the condition of the Premises except that which is
caused by the failure of Landlord to observe any of the terms and
conditions of this Lease and such failure has persisted for an
unreasonable period of time after written notice of such failure.
(b) Landlord's Indemnity. To the fullest extent permitted by law
Landlord hereby agrees to defend, indemnify and hold Tenant harmless
against and from any and all claims arising from Landlord's conduct of
its business or from any activity, work, or thing done, permitted or
suffered by Landlord, its agents, contractors, employees or invitees
(collectively Landlord and its Agents) in or about the Premises,
Building or Site, and hereby agrees to further indemnify and hold
harmless Tenant against and from any and all claims arising from any
breach or default in the performance of any obligation, on Landlord's
part to be performed under the terms of this Lease, or arising from any
act, neglect, fault or omission of Landlord, or of its agents, employees
or invitees, and from and against all costs, attorneys' fees, expenses
and liabilities incurred in or about such claim or any action or
proceeding brought thereon; [and in case any action or proceeding
brought against Tenant by reason of any such claim] except for Tenant's
willful misconduct or negligence of Tenant or its agents or employees in
connection with the Premises, Building or Site.
19. DAMAGE TO TENANT'S PROPERTY.
Notwithstanding any other provision of this Lease, Landlord and its
Agents shall have no liability for any injury or damage to Tenant's personal
property resulting from any cause including but not limited to; fire, explosion,
falling plaster, steam, gas, electricity, water or rain which may leak from any
part of the Property or from the pipes, appliances or plumbing works located
within any structure constructed upon the Property or from the roof, street or
sub-surface or from any other place or resulting from dampness or any other
patent or latent cause whatsoever. Landlord and its agents shall have no
liability to Tenant for interference with the light or other rights or benefits
associated with the use of the Premises or the Property. Tenant shall give
prompt notice to Landlord in case of fire or accidents on or in the Property or
of defects in the Property, any structure located upon the Property and all
fixtures and equipment located within the Property.
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<PAGE> 19
20. INSURANCE.
(a) Tenant's Insurance. During the term of this lease and any
extension of the term, Tenant at his sole cost and expense shall,
obtain, maintain and keep in full force and effect, the insurance
described below with respect to the Property.
(i) Property insurance covering the risks of physical
damage or loss as provided under the Standard Causes of Loss
Form, or other equivalent form, upon property of every
description and kind located in or upon the Property: (1) owned
by Tenant; (2) for which Tenant is legally liable; (3) installed
by or on behalf of Tenant including, without limitation,
furniture, fittings, installations, including tenant
improvements and betterments, fixtures and any other personal
property; and (4) all improvements installed by Landlord within
the Premises which are in excess of the allowance as specified
in paragraph 12 of the Basic Lease Terms. All insurance acquired
by Tenant pursuant to the provisions of this paragraph shall be
in an amount not less than ninety percent (90%) of the full
replacement cost of the items described as (1) through (4)
above, inclusive. Notwithstanding any other provision of this
Lease, in event of a dispute as to the amount which comprises
full replacement cost, Landlord's decision shall be conclusive.
(ii) A policy of Commercial General Liability Insurance
coverage including personal injury, bodily injury, broad form
property damage, premises/operations, owner's protective
coverage, blanket contractual liability, products and completed
operations liability, host liquor liability and owned/nonowned
auto liability, in an amount not less than $2,000,000 per
occurrence. The policy shall name Landlord, Landlord's managing
agent and all lenders secured by the Property ("Lenders") as
additional insureds, and shall also be endorsed to contain the
following provision:
"Insurance afforded by this policy for Landlord's
benefit and protection shall be primary with respect to all
claims, losses or liabilities arising out Tenant's use of the
Premises or from Tenant's operation. Any insurance carried by
Landlord shall be excess and non contributing."
(iii) Loss of income and extra expense insurance in such
amounts as will reimburse Tenant for direct or indirect loss of
earnings attributable to all perils commonly insured against by
prudent tenants or attributable to prevention of access to the
Premises or to the Building as a result of such perils.
(iv) Worker's compensation insurance and other insurance
to comply with all applicable regulations.
(v) Any other form or forms of insurance as Landlord may
reasonably require from time to time in form, in amounts and for
insurance risks against which a prudent tenant would protect
itself.
(b) Qualified Insurers. All insurance policies required pursuant
to the provisions of this Section shall be maintained with insurers with
a Best's rating of A-VI or better, unless otherwise approved in writing
by the Landlord and in form satisfactory from time to time to Landlord.
Tenant will cause Landlord to receive certificates of insurance on the
Landlord's standard form, or, at Landlord's option, certified copies of
each insurance policy and endorsement (collectively the "Insurance
Certifications"). Tenant will deliver the Insurance Certifications to
Landlord as soon as practicable after placing the required insurance,
but in no event later than ten (1O) business days after the Commencement
Date. Each insurance policy obtained by Tenant shall include an
endorsement requiring the insurer to notify Landlord and the Lenders in
writing at least thirty (30) days prior to any material change,
reduction in coverage, cancellation, or other termination of the policy.
(c) Insurance Proceeds on Termination. In the event of damage to
or destruction of the Property entitling Landlord to terminate this
Lease pursuant to Paragraph 21 of this Lease, if the Premises have also
been damaged, and if Landlord terminates this Lease, Tenant will
immediately pay to Landlord all of its insurance proceeds, if any,
relating to the Landlord's Work and alterations made by Landlord (but
not to Tenant's trade fixtures, equipment, furniture or other personal
property of Tenant) in the Premises. Upon termination of this Lease,
Tenant will deliver to Landlord, in accordance with the provisions of
this Lease, the Landlord's Work, the alterations and the Premises.
(d) Landlord's Insurance, Throughout the term of this Lease,
Landlord shall insure the Building (excluding any property which Tenant
is obligated to insure pursuant to the provisions of subparagraph 29(a)
above), which insurance shall be an Operating Expense of the Property
and the Site, against damage by fire and other perils insured under the
standard Special Causes of Loss Form, or other equivalent form, and
Commercial General Liability and Umbrella Liability in such reasonable
amounts with such reasonable deductibles as would be carried by a
prudent owner of a similar Class A office building in Northern
California. Landlord may take out and carry any other form
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June 16, 1997
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<PAGE> 20
or forms of insurance as it may reasonably determine advisable.
Notwithstanding any contribution by Tenant to the cost of insurance
premiums, with respect to the Building or any alterations of the
Premises, as provided herein, Tenant acknowledges that it has no right
to receive any proceeds from any such insurance policies carried by
Landlord. Landlord shall use such insurance proceeds in the repair and
reconstruction of the Building and the Premises unless the provisions of
Subparagraph 20(c) above shall apply. Landlord will not carry insurance
of any kind on Tenant's furniture or furnishings, or on any fixtures,
equipment, improvements or appurtenances of Tenant under this Lease; or
on any tenant improvements constructed in the Premises by Landlord in
excess of the allowance as specified in paragraph 12 of the Basic Lease
Terms; and Landlord shall not be obligated to repair any damage thereto
or replace the same.
(e) Conditional Waiver. Landlord and Tenant hereby release each
other and their respective Agents from any and all claims or demands of
damage, loss, expense or injury to the Premises, the Property, the
furnishings and fixtures and equipment or inventory or other property of
either Landlord or Tenant in, about or upon the Property, which is
caused by or results from perils or events which are the subject of
insurance carried by the parties in force at the time of such loss;
provided, however, that such waiver shall be effective only to the
extent permitted by the insurance covering such loss and to the extent
insurance coverage is not prejudiced thereby. Each party shall cause
each insurance policy it obtains to provide that the insurer waives all
right of recovery by way of subrogation against either party in
connection with damage covered by such policy,
(f) Compliance with Policy Requirements. Tenant agrees that it
will not keep, use, sell or offer for sale in or upon the Premises any
article which may be prohibited by any insurance policy in force from
time to time covering the Property or any portion of the Property or any
personal property located within the Property (collectively the "Insured
Property"). Tenant shall not do or permit to be done anything which will
invalidate or increase the cost of any insurance covering the "Insured
Property" and shall comply with all rules, orders, regulations and
requirements of the Pacific Fire Rating bureau or any other organization
performing a similar function. In the event Tenant's occupancy or
conduct of business in or on the Premises, whether or not Landlord has
consented to the same, results in any increase in premiums for the
insurance carried from time to time by Landlord with respect to the
Insured Property, Tenant shall pay any such increase in premiums as
additional rent within ten (10) days after being billed therefor by
Landlord. In determining whether increased premiums are a result of
Tenant's use or occupancy of the Premises, a schedule issued by the
organization computing the insurance rate on the Insured Property or the
Landlord's Work showing the various components of such rate, shall be
conclusive evidence of the several items and charges which make up such
rate. Tenant shall promptly comply with all requirements of the
insurance authority or of any insurer now or hereafter in effect
relating to the Insured Property.
(g) Cure of Matters Negatively Impacting Insurance Coverage. If
any insurance policy carried by Landlord, as provided by Subparagraph
20(d) above, shall be canceled or cancellation shall be threatened or
the coverage thereunder reduced or threatened to be reduced, in any way
be reason of the use or occupation of the Premises or any part thereof
by Tenant or by any assignee or sub-tenant or Tenant or by anyone
permitted by Tenant to be upon the Premises and, if Tenant fails to
remedy the condition giving rise to cancellation, threatened
cancellation or reduction of coverage within forty-eight (48) hours
after notice thereof, Tenant shall be in default of its obligations
hereunder and Landlord may, at its option, either terminate this Lease
or enter upon the Premises and attempt to remedy such condition and
Tenant shall forthwith pay the cost thereof to Landlord as additional
rent. Landlord shall not be liable for any damage or injury caused to
any property of Tenant or of others located in the Premises as a result
of such entry. In the event that Landlord shall be unable to remedy such
condition, then Landlord shall have all of the remedies provided for in
this Lease in the event of a default by Tenant. In no event shall
Landlord be obligated to attempt to remedy such default.
(h) Ownership. Nothing in this Section shall be construed as
affecting the ownership or right to possession of fixtures, personal
property, the Landlords Work or other tenant improvements constructed in
the Premises by Landlord in excess of the allowance as specified in
paragraph 12 of the Basic Lease Terms.
21. Damage or Destruction.
(a) In the event the Building and/or the Premises or any insured
alterations are damaged by fire or other perils covered by Landlord's
extended coverage insurance to an extent not exceeding twenty-five
percent (25%) of the full insurable value thereof and if the damage
thereto is such that the Building and/or the Premises and any insured
alterations may be repaired, reconstructed or restored within a period
of one-hundred eighty (180) days from the date of the happening of such
casualty and Landlord will receive insurance proceeds sufficient to
cover the cost of such repairs, Landlord shall commence and proceed
diligently with the work or repair, reconstruction and restoration and
the Lease shall continue in full force and effect. If such work or
repair, reconstruction and restoration is such as to require a period
longer than one-hundred eighty (180) days or exceeds twenty-five (25%)
of the full insurable value
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<PAGE> 21
thereof, or if said insurance proceeds will not be sufficient to cover
the cost of such repairs, Landlord either may elect to so repair,
reconstruct or restore the Building and/or Premises and any insured
alterations and the Lease shall continue in full force and effect or
Landlord may elect not to repair, reconstruct or restore the Building
and/or Premises and any insured alterations and the Lease shall in such
event terminate. Under any of the conditions of this Subparagraph
21(a), Landlord shall give written notice to Tenant of its intention
within thirty (30) days from the date of such event of damage or
destruction. In the event Landlord elects not to restore said Building
and/or Premises and any insured alterations, this Lease shall be deemed
to have terminated as of the date of such partial destruction.
(b) Upon any termination of this Lease under any of the
provisions of this Paragraph 21, the parties shall be released thereby
without further obligation to the other from the date possession of the
Premises is surrendered to Landlord except for items which have
theretofore accrued and are then unpaid.
(c) In the event of repair, reconstruction and restoration by
Landlord as herein provided, the rent provided to be paid under this
Lease shall be abated proportionately with the degree to which Tenant's
use of the Premises is impaired during the period of such repair,
reconstruction or restoration. Tenant shall not be entitled to any
compensation or damages for loss in the use of the whole or any part of
the Premises and/or any inconvenience or annoyance occasioned by such
damage, repair, reconstruction or restoration.
(d) Tenant shall not be released from any of its obligations
under this Lease except to the extent and upon the conditions expressly
stated in this Paragraph 21. Notwithstanding anything to the contrary
contained in this Paragraph 21, should Landlord be delayed or prevented
from repairing or restoring the damaged Premises within six (6) months
after the occurrence of such damage or destruction by reason of acts of
God, war, governmental restrictions, inability to procure the necessary
labor or materials, or other cause beyond the control of Landlord,
Landlord shall be relieved of its obligation to make such repairs or
restoration and Tenant shall be released from its obligations under this
Lease as of the end of said six (6) months period.
(e) It is hereby understood that if Landlord is obligated to or
elects to repair or restore as herein provided, (i) Landlord shall be
obligated to make repairs or restoration only of those portions of the
Building and the Premises which were originally provided at Landlord's
expense or which were insured by either party and approved by Landlord
and the proceeds of such insurance have been received by Landlord, and
the repair and restoration of items not provided at Landlord's expense
shall be the obligation of Tenant and (ii) the deductible amount
required to be paid in connection with the recovery of proceeds under
any insurance policy covering the Building and/or the Premises shall be
included as an Operating Expense of the Site to the extent such damage
or destruction occurs to the exterior and/or structural portion of the
Building and/or the Common Areas, as reasonably determined by Landlord.
To the extent such damage or destruction occurs to the Premises, as
reasonably determined by Landlord, Tenant shall reimburse Landlord for
such deductible amount.
(f) In the event that damage in excess of the deductible amount
of insurance is due to any cause other than fire or other peril covered
by extended coverage insurance, Landlord may elect to terminate this
Lease.
(g) Notwithstanding anything to the contrary contained in this
Paragraph 21, Landlord shall not have any obligations whatsoever to
repair, reconstruct or restore the Premises when the damage resulting
from any casualty covered under this Paragraph 21 occurs during the last
twelve (12) months of the term of this Lease or any extension hereof.
(h) The provisions of California Civil Code SS 1932, Subsection
2, and SS 1933, Subsection 4, are hereby waived by Tenant.
(i) In the event it becomes necessary for Landlord to terminate
the Lease in accordance with the terms of this Section 21, Landlord's
treatment of Tenant shall be consistent with the treatment of other
tenants in the Building.
22. EMINENT DOMAIN.
(a) In case the whole of the Premises, the Building or the Site
or such part of the Premises, Building or the Site as shall
substantially interfere with Tenant's use and occupancy thereof, shall
be taken for any public or quasipublic purpose by any lawful power or
authority by exercise of the right of appropriation, condemnation or
eminent domain, or sold to prevent such taking, either party shall have
the right to terminate this Lease effective as of the date possession is
required to be surrendered to said authority. Tenant shall not assert
any claim against Landlord or the taking authority for any compensation
because of such taking and Landlord shall be entitled to receive the
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<PAGE> 22
entire amount of any award without deduction for any estate or interest
of Tenant. In the event the amount of property or the type of estate
taken shall not substantially interfere with the conduct of Tenant's
business, Landlord shall be entitled to the entire amount of the award
without deduction for any estate or interest of Tenant, and Landlord at
his option may terminate this Lease; provided, however, Landlord's
treatment of Tenant shall be consistent with the treatment of other
tenants in the Building. If Landlord does not so elect, Landlord shall
promptly proceed to restore the Premises to Substantially their same
condition prior to such partial taking, and a proportionate allowance
shall be made to Tenant for the rent corresponding to the time during
which, and to the part of the Premises of which, Tenant shall be so
deprived on account of such taking and restoration. Nothing contained in
this Paragraph 22 shall be deemed to give Landlord any interest in any
award separately made to Tenant for the taking of personal property and
trade fixtures belonging to Tenant or for moving costs incurred by
Tenant in relocating Tenant's business or for interference with Tenant's
business.
(b) In the event of taking of the Premises or any part thereof
for temporary use, (i) this Lease shall be and remain unaffected thereby
and rent shall be abated only for the portion of the Premises affected,
and (ii) Tenant shall be entitled to receive for itself such portion or
portions of any award made for such use with respect to the period of
the taking which is within the term, provided that if such taking shall
remain in force at the expiration or earlier termination of this Lease,
Tenant shall then pay to Landlord a sum equal to the reasonable cost of
performing Tenant's obligations under Paragraph 14 with respect to
surrender of the Premises and upon such payment shall be excused from
such obligations. For purpose of this Subparagraph 22(b), a temporary
taking shall be defined as a taking for a period of fifty (50) days or
less.
(c) Tenant waives the provisions of California Code of Civil
Procedure Section 1265.130.
23. DEFAULTS AND REMEDIES.
1. Default Conditions. Each of the following events constitutes a
default and breach of this Lease by Tenant:
(a) Tenant's failure to pay any rent or charges required to be
paid by Tenant under this Lease where such failure continues for five
(5) days after written notice from Landlord to Tenant of such failure to
perform (the notice period respecting the existence of a default shall
not modify the obligation to pay a late charge provided for below);
(b) Tenant's failure to promptly and fully perform any other
covenant, condition or agreement contained in this Lease where such
failure continues for 10 Days after written notice from Landlord to
Tenant of such failure to perform with respect to the payment of money
or 30 Days after written notice from Landlord to Tenant of such failure
to perform with respect to failures to perform of a non monetary nature;
(c) the levy of a writ of attachment or execution on this Lease
or on any of Tenant's property located in the Premises which is not
stayed within 90 days after the date upon which it is filed;
(d) a general assignment for the benefit of Tenant's creditors
or an arrangement, composition, extension or adjustment with Tenant's
creditors, the filing by or against Tenant of a petition for relief or
other proceeding under the federal bankruptcy laws or state or other
insolvency laws, or the assumption by any court or administrative
agency, or by a receiver, trustee or custodian appointed by either, of
jurisdiction, custody or control of the Premises or of Tenant or any
substantial part of its assets or property which remains under such
control 90 days following the date of the assumption of control.
If a non monetary default occurs which Tenant cannot reasonably cure
within the above time period but Tenant commences corrective action within that
period and prosecutes the corrective action diligently and continuously to
completion, Tenant's rights under the lease shall remain in good standing and
Tenant shall be subject to no further monetary penalty for such default.
2. Landlord's Remedies. If Tenant defaults under this Lease, in addition
to other rights or remedies Landlord may have under this Lease or the law,
Landlord may elect either of the remedies set forth in paragraphs 2.1 and 2.2 of
this Lease.
For purposes of this Paragraph (inclusive of all subparagraphs), "worth
at the time of award" of the amounts referred to in parts 2.1(i) and 2.2(ii)
shall be computed by allowing interest at the highest rate allowable by law, and
"worth at time of award" of the amount referred to in part 11.2.1(iii) shall be
computed by discounting such amount at the rate specified in California Civil
Code Section 1951.2(b) or any successor statute. In such computations, the rent
due hereunder shall include Monthly Basic Rent plus the aggregate amount of all
other rents, charges, Operating Expenses and other amounts payable by Tenant
hereunder.
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2.1. Landlord, at its option, shall have the right to
immediately terminate this Lease and Tenant's right to possession of the
Premises by giving written notice to Tenant and to recover from Tenant
an award of damages equal to the sum of,
(i) the worth at the time of award of the unpaid rental
which had been earned at the time of termination,
(ii) the worth at the time of award of the amount by
which the unpaid rental which would have been earned after
termination until the time of award exceeds the amount of such
rental loss that Tenant affirmatively proves could have been
reasonably avoided,
(iii) the worth at the time of award of the amount by
which the unpaid rental for the balance of the Term after the
time of award exceeds the amount of such rental loss that Tenant
affirmatively proves could be reasonably avoided, and
(iv) any other amount necessary to compensate Landlord
for all the detriment either proximately caused by Tenant's
failure to perform Tenant's obligations under this Lease or
which in the ordinary course of things would be likely to result
therefrom, and
(v) all such other amounts in addition to or in lieu of
the foregoing as may be permitted from time to time under
applicable law; or;
2.2. Notwithstanding any other provision of this Lease, Landlord
has the remedy described in California Civil Code Section 1951.4
(Landlord may continue this Lease in effect after Tenant's breach and
abandonment and recover rent as it becomes due, if Tenant has the right
to sublet or assign, subject only to reasonable limitations). Tenant
agrees that this Lease confers upon tenant the right to sublet or assign
its interest in this lease subject to reasonable limitations. Tenant
acknowledges that such reasonable limitations and the right to sublet or
assign as conferred by this Lease comply with the requirements imposed
by California Civil Code Section 1951.4. This right shall continue in
effect for so long as Landlord does not terminate this Lease and
Tenant's right to possession of the Premises, in which event, Landlord
shall retain the right to enforce all rights and remedies provided by
this Lease and by law, including the right to recover all rent and other
charges payable by Tenant under this Lease as they become due.
3. Landlord's Default Except as otherwise provided by this Lease,
Landlord's failure to perform any obligation required of Landlord (other than a
delay in delivery of possession) within 30 Days after Tenant's delivery to
Landlord of written notice, specifying the obligation Landlord has failed to
perform shall constitute a default. Notwithstanding the preceding sentence, if
the nature of the obligation is such that more than 30 Days are required for
performance, then Landlord shall not be in default if it commences performance
within such 30 Day period and diligently prosecutes the same to completion. If
Landlord has not timely commenced to cure the default (or subsequently does not
diligently pursue the cure), Tenant may perform Landlord's obligation(s) with
respect to the default and bill Landlord for the reasonable cost of performance.
Should Landlord dispute the claim for any reason, the matter will be resolved
pursuant to the arbitration provisions of this Lease.
24. ASSIGNMENT AND SUBLETTING.
(a) Required Approval. Without first obtaining Landlord's
written consent, Tenant shall not directly or indirectly: (1) assign
this Lease in whole or in part; (2) sublet all or any part of the
Premises; (3) license the use of all or any part of the Premises; (4)
license all or any part of any business conducted on the Premises; (5)
encumber or hypothecate this Lease (items (1) through (5) are
collectively referred to as a "Transfer"). Landlord shall not
unreasonably withhold or delay Landlord's consent to any requested
Transfer. As used in this Section, "Transferee" refers to the person(s)
or entity(ies) intended to receive any use or occupancy rights to the
Premises as the result of a proposed Transfer.
(b) Request for Consent. Tenant's request for consent to any
Transfer shall be in writing and shall include the following: (a) the
name and legal composition of the proposed Transferee; (b) the nature of
the proposed Transferee's business to be carried on in the Premises; (c)
the Terms and provisions of the proposed Transfer including, without
limitation the proposed commencement and termination dates (respectively
the "Scheduled Commencement" and the "Scheduled Termination"); and (d)
such financial and other information as Landlord may reasonably request
concerning the proposed Transferee, the proposed Transfer and any
transaction contemplated to occur in connection with the proposed
Transfer. Within fifteen (15) days of receipt of such written notice,
and additional information requested by Landlord concerning the proposed
assignee's or Transferee's financial responsibility, Landlord shall
elect one of the following options And notify Tenant in writing of its
election;
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(i) Consent to the proposed Transfer;
(ii Conditionally consent to the proposed Transfer,
requiring that Tenant and/or the proposed Transferee agree to
specific reasonable terms and provisions as a condition of
approval of the Transfer.
(iii) Refuse to consent to the Transfer on reasonable
grounds.
(iv) Elect to terminate this Lease, or in the case of a
request for approval of Transfer of a portion of the Premises,
terminate this Lease as to the portion of the Premises subject
to the proposed Transfer. If Tenant requests Landlord's consent
to any Transfer of all or a portion of the Premises, Landlord
shall have the right, to be exercised by giving written notice
to Tenant within thirty (30) days of receipt by Landlord of the
financial responsibilities information required by this Section
to terminate this Lease, in whole or as to the affected portion
of the Premises, effective as of the Scheduled Commencement.
(v) Landlord's failure to give written notice of its
approval or disapproval of the proposed subletting or assignment
within such period shall be deemed Landlord's consent to the
proposed assignment or subletting. If Landlord disapproves of
any proposed assignment or subletting, Landlord shall state the
reason for the disapproval in Landlord's response to Tenant.
(c) Voidable Transfers. Any Transfer without Landlord's prior
written consent shall be voidable at Landlord's election and shall
constitute a default under the provisions of this Lease entitling
Landlord to exercise all rights and remedies provided by this Lease for
Tenant's default.
(d) Consent Does Not Constitute Waiver. Landlord's consent to
any Transfer shall not constitute a waiver of the necessity for such
consent to any subsequent Transfer by Tenant and/or by any Transferee of
Tenant. The prohibition against assignment and subletting contained in
this paragraph includes a prohibition against assignment or subletting
by operation of law.
(e) Change in Tenant's Composition. Except as set forth to the
contrary in Paragraph 3 of the Rider attached hereto, in the event that
Tenant is a partnership, a withdrawal or change of partners or a change
of interests of partners or if Tenant is a corporation, other than a
publicly traded corporation, any transfer of stock which collectively
modifies 50% or more of the ownership shall constitute a Transfer
requiring Landlord's advance approval.
(f) Tenant's Liability. Unless Landlord expressly agrees to the
contrary in writing, notwithstanding any approved Transfer, Tenant shall
remain fully liable on this Lease and shall not be released from the
obligations imposed upon Tenant by this Lease.
(g) Grounds for Withholding Consent to Transfer. Without
limiting other reasons or circumstances, Landlord and Tenant agree that
it is reasonable for Landlord to withhold consent to Transfer, if (i)
the financial strength of the proposed Transferee is not, in Landlord's
reasonable judgment, commensurate with the obligations of the Lease;
(ii) the proposed Transferee's use would, in Landlord's reasonable
judgment, be incompatible with the then current tenants, or the use of
the rest of the Property; (iii) the proposed Transferee's use would
generate traffic, parking and/or wear and tear on the Premises or
Property materially in excess of that generated by Tenant's use; (iv)
the proposed terms of the Transfer do not expressly require compliance
by the Transferee with each, all and every one of the provisions of this
Lease; or (v) the proposed Transferee is a current tenant of the
Building or a Prospective Tenant. As used in this Section, "Prospective
Tenant" means a person or entity with which Landlord has negotiated for
space in the Building within four months prior to the date of delivery
to Landlord of the request for approval of the Transfer and any
partnership, association or corporation owned 50% or more by any such
persons and/or entities with whom Landlord has negotiated with the same
time period. As used in this Section, "Property" refers to the Building
and the Multi-Story Parking Facility and the Site.
(h) Reasonable Limitations. Tenant expressly agrees that the
provisions of this Lease respecting subletting, assignment and any
Transfer are subject only to reasonable limitations in compliance with
the requirements of California Civil Code Section 1951.4.
(i) Landlord's Fees and Expenses. Tenant shall pay Landlord's
reasonable processing costs and attorneys' fees incurred in reviewing
and processing all requests for approval of a proposed Transfer whether
or not, Landlord consents to the proposed Transfer.
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(j) Excess Rents. Tenant shall pay Landlord 50% of all Excess
Rent received by Tenant directly or indirectly in connection with any
Transfer respecting this Lease. As used in this Lease, "Excess Rent"
means, subject to the adjustments provided below and allocated on a pro
rata basis in the event of a Transfer of a portion of the Premises, in
the case of an assignment, all consideration received and, in the case
of a sublease or license, all consideration received in excess of rents
and charges reserved under this Lease. The adjustments allowed pursuant
to the provisions of this paragraph are: the cost of broker's
commissions paid by Tenant with regard to the Transfer, legal fees
incurred by Tenant respecting the Transfer, the unamortized portions of
improvements made in the subleased area by Tenant for Tenant's use
during the original tenancy (except those paid for by Landlord or by any
Allowance from Landlord for such improvements) and other expenses
reasonably incurred by Tenant in effectuating the Transfer including
improvements constructed by Tenant for the Transferee as a condition of
the Transfer). Notwithstanding the foregoing language, no broker's
commissions, legal fees and other expenses so charged against receipts
from the Transfer may exceed the fair market value for such services and
all such services shall be strictly related to the Transfer.
Tenant shall not receive any adjustment for its moving or
relocation expenses and may not deduct them from compensation received.
Tenant shall submit an accounting of all such expenses to Landlord
within 60 days of the effective date of the Transfer. Such accounting
shall be certified as accurate by a Certified Public Accountant or
signed and certified as accurate by Tenant. All amortization of
improvements shall be calculated in a manner which complies with
generally accepted United States accounting practices consistently
applied, Landlord shall have the right to-dispute any charges included
in the accounting. In the event of any such dispute, Tenant shall, upon
Landlord's request, provide reasonable documentation to substantiate all
disputed items.
(k) Transferee's Direct Payment. Landlord may require that the
Transferee remit directly to Landlord on a monthly basis, all moneys due
to Tenant by said Transferee. Landlord's imposition of such a
requirement shall not relieve Tenant of any responsibilities or
obligations under the provisions of this Lease, nor shall it obligate
Landlord to undertake collection actions on Tenant's behalf. Landlord
shall pay to Tenant any moneys remaining from the Transferee's payments
after deducting all moneys due to Landlord under the terms of this
Lease.
(1) Restriction on Exercise of Options. To the extent Tenant
possesses any option or options to expand into additional space within
the Building or to extend the term of this Lease, such options may not
be exercised nor will the time limits in which Tenant must exercise such
options be extended, so long as any portion of the Premises are subject
to a Transfer, whether or not Landlord has consented to the Transfer.
Except with respect to the transferees described in Section 3 of the
Rider attached hereto, but specifically excluding the transferees
described in Subsection 3(c) of the Rider attached hereto, no Transferee
shall acquire the right to extend the term of this Lease or to expand
into additional space unless Landlord expressly consents in writing to
the Transferee's acquisition of such right.
(m) Restoration of Premises. Notwithstanding anything to the
contrary in paragraphs 13 or 24, Landlord, at its sole discretion, may
require Tenant, at Tenant's sole expense, to restore the Premises to the
condition and configuration that existed in the Premises prior to any
approved Transfer, normal wear and tear excepted unless approved
otherwise in writing by Landlord.
25. QUIET ENJOYMENT.
Landlord covenants and agrees with Tenant that upon Tenant paying the
rent required under this Lease and paying all other charges and performing all
of the covenants and provisions aforesaid on Tenant's part to be observed and
performed under this Lease, Tenant shall and may peaceably and quietly have,
hold and enjoy the Premises in accordance with this Lease.
26. SUBORDINATION.
Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, and at the election of
Landlord or any first mortgagee with a lien on the Building or any ground lessor
with respect to the Building, this Lease shall be subject and subordinate at all
times to: (a) all ground leases or underlying leases which may now exist or
hereafter be executed affecting the Building or the Site, (b) the lien of any
mortgage or deed of trust which may now exist or hereafter be executed in any
amount for which the Building, Site, ground leases or underlying leases, or
Landlord's interest or estate in any of said items is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or underlying leases or any such
liens to this Lease. In the event that any ground lease or underlying lease
terminates for any reason or any mortgage or deed of trust is foreclosed or a
conveyance in lieu Of foreclosure a made for any reason, Tenant shall, if
requested by the ground lessor, mortgages or beneficiary as applicable attorn
to and become the Tenant of the successor in Interest to Landlord and in
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such event Tenant's right to possession of the Premises shall not be disturbed
if Tenant is not in default and so long as Tenant shall pay the rent and all
other amounts required to be paid to Landlord pursuant to the terms hereof and
observe and perform all of the provisions of this Lease, unless the Lease is
otherwise terminated pursuant to its terms. Tenant covenants and agrees to
execute and deliver, upon demand by Landlord and in the form requested by
Landlord and reasonably acceptable to Tenant, any additional documents
evidencing the priority or subordination of this Lease with respect to any such
ground leases or underlying leases or the lien of any such mortgage or deed of
trust. Should Tenant fail to sign and return any such documents within ten (10)
business days of receipt of a second notice thereof, Tenant shall be in default,
and Landlord may, at Landlord's option, terminate this Lease provided written
notice of such termination is received by Tenant prior to Landlord's receipt of
such documents.
27. ESTOPPEL CERTIFICATE.
(a) Within ten (10) days following any written request which
either party may make from time to time, the other party shall execute
and deliver to the requesting party a statement, in a form substantially
similar to the form of Exhibit "E" attached hereto, certifying (i) the
Commencement Date of this Lease; (ii) the fact that this Lease is
unmodified and in full force and effect (or, if there have been
modifications hereto, that this Lease is in full force and effect, as
modified, and stating the date and nature of such modifications); (iii)
the date to which the rental and other sums payable under this Lease
have been paid; and (iv) the fact that there are no current defaults
under this Lease by either Landlord or Tenant except as specified in
Tenant's statement; Landlord and Tenant intend that any statement
delivered pursuant to this Paragraph 28 may be relied upon by any
mortgagee, beneficiary, purchaser or prospective purchaser of the
Building or any interest therein,
(b) The non-requesting party's failure to deliver such statement
within such time shall be conclusive upon such party (i) that this Lease
is in full force and effect, without modification except as may be
represented by the requesting party; (ii) that there are no uncured
defaults in the requesting party's performance; and (iii) that not more
than one (1) month's rent has been paid in advance. In the event that
Landlord is the requesting party, Tenant's failure to deliver said
statement to Landlord within ten (10) working days of receipt of a
second notice thereof shall constitute a default under this Lease, and
Landlord may, at Landlord's option, terminate the Lease, provided
written notice of such termination is received by Tenant prior to
Landlord's receipt of said statement.
28. BUILDING PLANNING.
In the event Landlord requires the Premises for use in conjunction with
another suite or for other reasons connected with the Building planning program,
upon notifying Tenant in writing a minimum of sixty (60) days in advance,
Landlord shall have the right to move Tenant to other space in the Building of
which the Premises forms a part, provided such space is comparable in size and
design to the Premises, can in Tenant's reasonable determination, accommodate
Tenant's permitted use hereunder, and is located on a floor above the Premises,
at Landlord's sole cost and expense, including all of Tenant's moving expenses,
telephone installation, electrical wiring and cabling, and stationary reprinting
charges, and the terms and conditions of the original Lease shall remain in full
force and effect, save and excepting that a revised Exhibit "A" shall become
part of this Lease and shall reflect the location of the New space and the Basic
Lease Terms shall be amended to include and state all correct data as to the new
space.
29. RULES AND REGULATIONS.
Tenant shall faithfully observe and comply with the "Rules and
Regulations", a copy of which is attached hereto and marked Exhibit F", and all
reasonable and nondiscriminatory modifications thereof and additions thereto
from time to time put into effect by Landlord. Landlord shall not be responsible
to Tenant for the violation or non-performance by any other tenant or occupant
of the Building of any of said Rules and Regulations.
30. CONFLICT OF LAWS.
This Lease shall be governed by and construed pursuant to the laws of
the State of California.
31. SUCCESSORS AND ASSIGNS.
Except as otherwise provided in this Lease, all of the covenants,
conditions and provisions of this Lease shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
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32. SURRENDER OF PREMISES.
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord, operate as an assignment to it of any or all subleases or
subtenancies. Upon the expiration or termination of this Lease, Tenant shall
peaceably surrender the Premises and all alterations and additions thereto broom
clean, in good order, repair and condition, reasonable wear and tear, casualty
and condemnation excepted, and shall comply with the provisions of Subparagraphs
13(f) and 13(g). The delivery of keys to any employee of Landlord or to
Landlord's agent or any employee thereof shall not be sufficient to constitute a
termination of this Lease or a surrender of the Premises.
33. PROFESSIONAL FEES.
(a) Should either party bring suit against the other with
respect to matters arising from or growing out of this Lease, then all
costs and expenses, including without limitation, its actual reasonable
professional fees and expenses such as appraisers', accountants' and
attorneys' fees and expenses, incurred by the prevailing party therein
shall be paid by the other party, which obligation on the part of the
other party shall be deemed to have accrued on the date of the
commencement of such action and shall be enforceable whether or not the
action is prosecuted to judgment.
(b) Should Landlord be named as a defendant in any suit brought
against Tenant in connection with or arising out of Tenant's occupancy
hereunder, Tenant shall pay to Landlord its costs and expenses incurred
in such suit, including without limitation, its reasonable actual
professional fees such as appraisers', accountants' and attorneys' fees
and expenses. As used in this paragraph, references to "suit" include
arbitration proceedings as well as actions commenced in court.
34. PERFORMANCE BY TENANT.
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of rent. Tenant acknowledges that the late
payment by Tenant to Landlord of any sums due under this Lease will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of such
cost being extremely difficult and impractical to fix. Such costs include,
without limitation, processing and accounting charges, and late charges that may
be imposed on Landlord by the terms of any encumbrance and note secured by an
encumbrance covering the Premises or the Building of which the Premises are a
part. Therefore, if any monthly installment of Monthly Basic Rent is not
received by Landlord within five (5) days following the due date therefor, or if
Tenant fails to pay any other sum of money due hereunder and such failure
continues for five (5) days after notice thereof by Landlord, Tenant shall pay,
as additional rent, as liquidated damages for Landlord's costs an amount equal
to four percent (4%) of the overdue amount, plus such overdue amount shall bear
interest at the lesser of fifteen percent (15%) or the maximum rate permissible
by law, calculated from the date the monthly installment of Annual Basic Rent is
due until the date of payment to Landlord. Landlord's acceptance of any late
charge or interest shall not constitute a waiver of Tenant's default with
respect to the overdue amount or prevent Landlord from exercising any of the
other rights and remedies available to Landlord under this Lease or any law now
or hereafter in effect. Further, in the event such late charge is imposed by
Landlord for two (2) consecutive months for whatever reason, Landlord shall have
the option to require that, beginning with the first payment of rent due
following the imposition of the second consecutive late charge, rent shall no
longer be paid in monthly installments but shall be payable three (3) months in
advance,
35. MORTGAGE AND SENIOR LESSOR PROTECTION.
No act or failure to act on the part of Landlord which would entitle
Tenant under the terms of this Lease, or by law, to be relieved of Tenant's
obligations hereunder or to terminate this Lease, shall result in a release of
such obligations or a termination of this Lease unless (a) Tenant has given in
accordance with Section 58, which notice is concurrent with notice to Landlord,
to any beneficiary of a deed of trust or mortgage covering the Premises and to
the Lessor under any master or ground Lease covering the Building, the Site or
any interest therein whose identity and address shall have been furnished to
Tenant, and (b) Tenant offers such beneficiary, mortgagee or Lessor a reasonable
opportunity to cure the default, including time to obtain possession of the
Premises by power of sale or of judicial foreclosure, if such should prove
necessary to effect a cure.
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36. DEFINITION OF LANDLORD.
The term "Landlord" as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only the owner or owners, at the time in question, of the fee title to,
or a lessee's interest in a ground lease of the Site or master lease of the
Building. In the event of any transfer, assignment or other conveyance or
transfers of any such title or interest, Landlord herein named (and in case of
any subsequent transfers or conveyances the then grantor) shall be automatically
freed and relieved from and after the date of such transfer, assignment or
conveyance of all liability as respects the performance of any covenants or
obligations on the part of Landlord contained in this Lease thereafter to be
performed and, without further agreement, the transferee of such title or
interest shall be deemed to have assumed and agreed to observe and perform any
and all obligations of Landlord hereunder, during its ownership of the Premises.
Landlord may transfer its interest in the Premises without the consent of Tenant
and such transfer or subsequent transfer shall not be deemed a violation on
Landlord's part of any of the terms and conditions of this Lease.
37. WAIVER.
The failure of Landlord to seek redress for violation of, or to insist
upon strict performance of, any term, covenant or condition of this Lease or the
Rules and Regulations attached hereto as Exhibit F", shall not be deemed a
waiver of such violation or prevent a subsequent act which would have originally
constituted a violation from having all the force and effect of an original
violation, nor shall the failure of Landlord to enforce any of said Rules and
Regulations against any other tenant of the Building be deemed a waiver of any
such Rule or Regulation, nor shall any custom or practice which may become
established between the parties in the administration of the terms hereof be
deemed a waiver of, or in any way affect, the right of Landlord to insist upon
the performance by Tenant in strict accordance with said terms. The subsequent
acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of
any preceding breach by Tenant of any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the particular rent so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rent.
38. IDENTIFICATION OF TENANT.
Unless the provisions of Paragraph 53 hereinbelow are applicable to this
Lease, then if more than one person executes this Lease as Tenant, (a) each of
them is jointly and severally liable for the keeping, observing and performing
of all of the terms, covenants, conditions, provisions and agreements of this
Lease to be kept, observed and performed by Tenant, and (b) the term "Tenant" as
used in this Lease shall mean and include each of them jointly and severally and
the act of or notice from, or notice or refund to, or the signature of, any one
or more of them, with respect to the tenancy or this Lease, including, but not
limited to, any renewal, extension, expiration, termination or modification of
this Lease, shall be binding upon each and all of the persons executing this
Lease as Tenant with the same force and effect as if each and all of them had so
acted or so given or received such notice or refund or so signed.
39. PARKING AND TRANSPORTATION.
(a) Provided no event of default has occurred and is continuing
hereunder, Tenant shall have the right to lease the number of parking
spaces designated in Paragraph 25 of the Basic Lease Terms. Parking
rates for the parking designated in Paragraph 25 of the Basic Lease
Terms shall be Landlord's prevailing market rates then in effect for the
applicable parking facility. Landlord, in the exercise of its sound
business judgment, shall have the right to change the mode of parking in
both the Basement Garage and the Multi-Store Parking Facility at any
time. Tenant shall not use more parking spaces than said number. In the
event Landlord has not assigned specific spaces to Tenant, Tenant shall
not use any spaces which have been so specifically assigned by Landlord
to other tenants or for such other uses as visitor parking or which have
been designated by governmental entities with competent jurisdiction as
being restricted to certain uses.
(i) Tenant shall not permit or allow any vehicles that
belong to or are controlled by Tenant or Tenant's employees,
suppliers, shippers, customers, or invitees to be loaded,
unloaded, or parking in areas other than those designated by
Landlord for such activities.
(ii) If Tenant permits or allows any of the prohibited
activities described in this Paragraph 40, then Landlord shall
have the right, without notice, in addition to such other rights
and remedies that it may have, to remove or tow away the vehicle
involved and charge the cost to Tenant, which cost shall be
immediately payable upon demand by Landlord.
(iii) Landlord reserves the right at any time to
relocate such spaces and to substitute an equivalent number of
parking spaces in a parking structure or subterranean parking
facility or in a surface parking area
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reasonably equivalent to the affected parking area and within a
reasonable distance of the Premises or to change or modify the
manner or mode of parking, including, but not limited to,
changing any reserved spaces to valet parking and or re-striping
such spaces.
(iv) Tenant shall submit a written notice in a form
reasonably specified by Landlord, containing the names, home and
office addresses and telephone numbers of those persons who are
authorized by Tenant to use the parking spaces on a monthly
basis (the "Authorized Users") and shall use its best efforts to
identify each automobile by make, model and license number. Such
notice shall be served upon Landlord prior to the beginning of
the term of this Lease. Such notice, as amended from time to
time, is hereafter referred to as the "Parking Notice". No
person whose name and address is not contained in the Parking
Notice shall have any right to park an automobile in the area of
the Building parking facilities designated for monthly parking
and no person whether or not his name is included in the Parking
Notice shall have any right to park an automobile not identified
in the Parking Notice without (in either case) paying the
parking charge then applicable for daily parking in the Building
parking facilities and parking in the area designated for daily
parking.
(v) Tenant and Authorized Users shall comply with all
rules and regulations as set forth in the Parking Rules and
Regulations portion of Exhibit "F" hereto. Landlord reserves the
right to modify, add to, or delete from time to time such
Parking Rules and Regulations as it deems reasonably necessary
for the operation of said parking. Landlord may refuse to permit
any person who violates with unreasonable frequency the Parking
Rules and Regulations to parking in the Building Garage and
Multi-Story Parking Facility, and any violation of the rules
shall subject the car to removal. Tenant agrees to use its
reasonable best efforts to acquaint all Authorized Users and
visitors with the Parking Rules and Regulations.
(vi) All responsibility for damage to cars is assumed by
Authorized Users. Tenant shall repair or cause to be repaired at
its sole cost and expense any and all damage to the Basement
Garage and MultiStore Parking Facility or any part thereof
caused by Tenant or its Authorized Users or resulting from
vehicles of Authorized Users.
(b) Tenant agrees that it will use its reasonable best efforts
to cooperate in programs which may be undertaken by Landlord
independently, or in cooperation with local municipalities or
governmental agencies or other property owners in the vicinity of the
Building, to reduce peak levels of commuter traffic. Such programs may
include, but shall not be limited to, carpools, vanpools and other ride
sharing programs, public and private transit, and flexible work hours.
(c) Tenant shall be entitled to the number of standard
automobile parking spaces designated in Paragraph 25 of the Basic Lease
Terms. In the event that any of the spaces Tenant is entitled to are not
purchased by the Tenant for four (4) consecutive months, Tenant shall
have no further rights to these spaces and Landlord may offer these
spaces to other parties as it so chooses.
(d) Tenant's parking rights hereunder shall extend to any
permitted assignee or sublessee of this Lease.
40. OFFICE AND COMMUNICATIONS SERVICES.
(a) Landlord has advised Tenant that certain office and
communications services may be offered to tenants of the building by a
concessionaire under contract or license to Landlord ("Provider").
Tenant shall be permitted to contract with Provider for the provision of
any or all of such services on such terms and conditions as Tenant and
Provider may agree. Tenant shall also be permitted to obtain office and
communications services from any other reputable person or entity in the
business of providing the same (herein called an "Alternate Provider"),
provided that Landlord shall not be required thereby to make any
alterations in or to any part of the Building or the use of any
facilities or equipment of the Building, and provided further that no
such services provided by an Alternate Provider, or any equipment or
facilities used or to be used in connection therewith, shall be
incompatible in any respect with, or shall interfere with or otherwise
impair or adversely affect, the operation, reliability or quality of
tile Building systems or any services, equipment or facilities used or
operated by Provider or ally tenant in the Building.
(b) Tenant acknowledges and agrees that: (i) Landlord has made
no warranty or representation to Tenant with respect to the availability
of any such services, whether provided by Provider or any Alternate
Provider, or the quality, reliability or suitability thereof; (ii)
neither Provider nor any Alternate Provider is acting as the agent or
representative of Landlord in the provision of such services, and
Landlord shall have no liability or responsibility
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for any failure or inadequacy of such services, or any equipment or
facilities used in the furnishing thereof, or any act or omission of
Provider or any Alternate Provider, or their agents, employees,
representatives, officers or contractors: (iii) Landlord shall have no
responsibility or liability for the installation, alteration, repair,
maintenance, furnishing, operation, adjustment or removal of any such
services, equipment or facilities; and (iv) any contract or other
agreement between Tenant and Provider or any Alternate Provider shall be
independent of this Lease, the obligations of Tenant hereunder, and the
rights of Landlord hereunder, and, without limiting the foregoing, no
default or failure of Provider or any Alternate Provider with respect to
any such services, equipment or facilities, or under any contract or
agreement relating thereto, shall have any effect on this Lease or give
to Tenant any offset or defense to the full and timely performance of
its obligations hereunder, or entitle Tenant to any abatement of rent or
additional rent or any other payment required to be made by Tenant
hereunder, or constitute any actual or constructive eviction of Tenant,
or otherwise give rise to any claim of any nature against Landlord.
(c) The Landlord shall maintain, as an Operating Expense of the
Building, the vertical telephone riser cables terminating at the
Building telephone room located in the central core on each floor. All
telephone cabling from the Building telephone room located in the
central core on each floor to the Premises and within the Premises shall
be maintained at the Tenant's expense regardless of who paid for the
initial installation. Landlord shall have no responsibility for the
maintenance of any dedicated data cabling or special wiring
installations installed for the exclusive use of a tenant in the
Building.
41. TERMS AND HEADINGS.
The words "Landlord" and "Tenant" as used herein shall include the
plural as well as the singular. Words used in any gender include other genders.
If there be more than one Tenant, i.e., if two or more persons or entities are
jointly referred to in this Lease as "Tenant", the obligations hereunder imposed
upon Tenant shall be joint and several. The Paragraph headings of this Lease are
not a part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
42. EXAMINATION OF LEASE.
Submission of this instrument for examination or signature by Tenant
does not constitute a reservation of or option for Lease, and it is not
effective as a Lease or otherwise until execution by and delivery to both
Landlord and Tenant.
43. TIME.
Time is of the essence with respect to the performance of every
provision of this Lease in which time or performance is a factor.
44. PRIOR AGREEMENT; AMENDMENTS.
This Lease contains all of the agreements of the parties hereto with
respect to any matter covered or mentioned in this Lease, and no prior agreement
or understanding, oral or written, express or implied, pertaining to any such
matter shall be effective for any purpose. No provision of this Lease may be
amended or added to except by an agreement in writing signed by the parties
hereto or their respective successors in interest. The parties acknowledge that
all prior agreements, representations and negotiations are deemed superseded by
the execution of this Lease to the extent they are not incorporated herein.
45. SEPARABILITY.
Any provision of this Lease which shall prove to be invalid, void or
illegal in no way affects, impairs or invalidates any other provision hereof,
and such other provisions shall remain in full force and effect.
46. RECORDING.
Neither Landlord nor Tenant shall record this Lease nor a short form
memorandum thereof without the consent of the other and if such recording
occurs, it shall be at the sole cost and expense of the party requesting the
recording.
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47. LIMITATION ON LIABILITY.
The obligations of Landlord under this Lease do not constitute personal
obligations of the individual partners, directors, officers or shareholders of
Landlord, and Tenant shall not seek recourse against the individual partners,
directors, officers or shareholders of Landlord or any of their personal assets
for satisfaction of any liability in respect to this Lease. The individual
directors and officers of Tenant shall not be personally liable for the
obligations of Tenant under this Lease and Landlord shall not seek recourse
against the individual officers and directors of Tenant or their personal assets
for satisfaction of any liability of Tenant hereunder.
48. RIDERS.
Clauses, plats and riders, if any, signed by Landlord and Tenant and
affixed to this Lease are a part hereof.
49. SIGNS.
Tenant shall not place any sign upon the Premises or the Building
without Landlord's prior written consent not to be unreasonably withheld,
conditioned or delayed with respect to the Premises. Landlord may at any time
place on or about the Building any ordinary "For Sale" signs and Landlord may at
any time during the last one hundred eighty (180) days of the Term hereof place
on or about the Premises any ordinary "For Lease" signs, all without rebate of
rent or liability to Tenant.
50. MODIFICATION FOR LENDER.
If in connection with obtaining construction, interim or permanent
financing for the Building, the lender shall request reasonable modifications in
this Lease as a condition to such financing, Tenant will not unreasonably
withhold, delay or, defer its consent thereto, provided that such modifications
do not increase the obligations of Tenant hereunder or materially or adversely
affect the leasehold interest hereby created or Tenant's rights hereunder.
51. ACCORD AND SATISFACTION.
No payment by Tenant or receipt by Landlord of a lesser amount than the
rent payment herein stipulated shall be deemed to be other than on account of
the rent, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as rent be deemed an accord and satisfaction
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such rent or pursue any other remedy provided in
this Lease. Tenant agrees that each of the foregoing covenants and agreements
shall be applicable to any covenant or agreement either expressly contained in
this Least or imposed by a statute or at common law.
52. FINANCIAL STATEMENTS.
At any time during the term of this Lease, but not more than one (1)
time per annum, Tenant shall, upon ten (10) days prior written notice from
Landlord, provide Landlord with a current financial statement and financial
statements of the two (2) years prior to the current financial statement year.
Such statement shall be prepared in accordance with generally accepted
accounting principles and, if such is the normal practice of Tenant, shall be
audited by an independent certified public accountant.
53. TENANT AS CORPORATION.
If Tenant executes this Lease as a corporation, then Tenant and the
persons executing this Lease on behalf of Tenant represent and warrant that the
individuals executing this Lease on Tenant's behalf are duly authorized to
execute and deliver this Lease on its behalf in accordance with a duly adopted
resolution of the board of directors of Tenant, a copy of which is to be
delivered to Landlord on execution hereof, and in accordance with the By-Laws of
Tenant and that this Lease is binding upon Tenant in accordance with its terms.
54. NO PARTNERSHIP OR JOINT VENTURE.
Nothing in this Lease shall be deemed to constitute Landlord and Tenant
as partners or joint venturers. It is the express intent of the parties hereto
that their relationship with regard to this Lease be and remain that of Landlord
and Tenant.
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<PAGE> 32
55. AMERICANS WITH DISABILITIES ACT.
Landlord shall be responsible for compliance with the American with
Disabilities Act ("ADA") in all Common Areas of the Building. Commencing on the
Commencement Date, it shall be the Tenant's responsibility for compliance with
ADA within the boundaries of the Premises, except for Landlord's Work as
described in Exhibit "C" .
56. HAZARDOUS MATERIALS.
(a) Tenant's Obligations.
(i) Restrictions on Hazardous Materials, Tenant, its
agents, servants, employees, officers, directors, invitees,
guests, clients, contractors and their respective
representatives (hereafter collectively referred to as "Agents"
shall not cause or knowingly permit "Hazardous Material" (as
defined below) to be brought upon, used, handled, disposed of
transported, kept, manufactured, generated or stored (hereafter
collectively "Handled" or "Handling") in, on, or about the
Property without Landlord's prior written consent. As used in
this Section, "Property" refers to the Building and the
Multi-Story Parking Facility and the Site.
As used in this lease, "Hazardous Material" includes,
without limitation, (1) petroleum or petroleum products; (2)
hydrocarbon substances of any kind; (3) asbestos in any form;
(4) formaldehyde; (5) radioactive substances; (6) industrial
solvents; (7) flammables; (8) explosives; (9) leakage from
underground storage tanks; (10) substances defined as "hazardous
substances", "hazardous material", or "toxic substances" in (A)
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986 or as otherwise amended, 42
U.S.C. Section 9601, et seq., (B) the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et seq. and any
amendments thereto, or (C) the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq. and any amendments
thereto; (11) those substances defined as "hazardous wastes",
"extremely hazardous wastes" or "restricted hazardous wastes" in
Sections 25115, 25117, and 25122.7 or listed pursuant to Section
25140 of the California Health & Safety Code and any amendments
thereto; (12) those substances defined as "hazardous substances"
in Section 25316 of the California Health & Safety Code and any
amendments thereto; (13) those substances defined as "hazardous
material", "hazardous wastes" or "hazardous substances" in
Section 25501 and Section 25501.1 of the California Health &
Safety Code and any amendments thereto; (14) those substances
defined as "hazardous substances" under Section 25281 of the
California Health & Safety Code and any amendments thereto; (15)
those substances causing "pollution" or "contamination" or
constituting "hazardous substances" within the meaning of (A)
the Clean Water Act, 33 U.S.C. Section 1251 et seq. and any
amendments thereto, (B) the Porter-Cologne Water Quality Control
Act, Section 13050 of the California Water Code and any
amendments thereto, and (C) the Safe Drinking Water Act, 42
U.S.C. Section 300f et seq.; (16) such chemicals as are
identified on the list published from time to time as provided
in Chapter 6.6 of the California Health and Safety Code, as
amended, as causing cancer or reproductive toxicity; (17)
polychlorinated biphenyls (PCBs) set forth in the Federal Toxic
Substance Control Act, as amended, 15 U.S.C. Section 2601 et
seq.; (18) "toxic air contaminant" as defined in California
Health and Safety Code Section 39655; (19) the wastes,
substances, materials, contaminants and pollutants identified
pursuant to or set forth in the Regulations adopted or judicial
or administrative orders, decisions or decrees promulgated
pursuant to any of the foregoing laws; and (20) all receptacles
and containers for any and all materials referred to above. The
foregoing list of definitions and statutes is intended to be
illustrative and not exhaustive and such list shall be deemed to
include all definitions, rules, regulations and laws applicable
to the subject matter of this paragraph as such rules, laws,
regulations and definitions may be amended, modified, or changed
from time to time. Notwithstanding the foregoing, "Hazardous
Materials" shall not include reasonable and customary amounts of
cleaning and maintenance materials normally used in the
operation and maintenance of an office building provided they
are stored and used in accordance with applicable laws, provided
however, that Tenant shall be responsible for the cleanup and
remediation of such materials.
(ii) Applicable Regulations. If any Hazardous Material
is Handled in, on, about or under the Property by Tenant and/or
its Agents, Tenant shall bear all financial and other
responsibility for ensuring that the Handling of such Hazardous
Material complies with all Regulations respecting the Handling
of such Hazardous Material and with the highest standards
prevailing in the industry for Handling of such Hazardous
Material. Without limiting Tenant's other obligations as set
forth in this Lease, Tenant shall, at its own cost and expense,
procure, maintain in effect and comply with all conditions and
requirements of
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32
<PAGE> 33
any and all permits, licenses and other governmental and
regulatory approvals or authorizations required under any and
all applicable Regulations relating to the Handling of such
Hazardous Material. Tenant will provide Landlord copies of all
permits, licenses, or other regulatory approvals or
authorizations within five days of receipt thereof. As used in
this Section, "Regulation" includes all laws, statutes,
regulations and requirements adopted by duly constituted public
authorities now in force or hereafter adopted together with all
orders, judgments, decrees and rules promulgated by any local,
regional, state or federal governmental agency, court, judicial
or quasi-judicial body or legislative or quasi-legislative body
which relates to matters of the environment, health, industrial
hygiene or safety.
(iii) Restoration. If, as a result of actions caused or
permitted by Tenant and/or its Agents, the presence of Hazardous
Material in, on, about or under the Property or any adjoining
property results in any contamination of the Property or the
surrounding environment. Tenant shall promptly take, at its sole
cost and expense, all actions required to restore the Property
and/or the other affected properties to their precontamination
condition ("Restoration"). Notwithstanding the foregoing, Tenant
shall undertake no Restoration respecting the Property without
first obtaining Landlord's written approval. Tenant shall carry
out any approved Restoration in compliance with all Regulations.
Tenant shall not undertake any Restoration, nor enter into any
settlement agreement, consent decree or other compromise with
respect to any claims, relating to any Hazardous Material in any
way connected with the Property without first notifying Landlord
of Tenant's intention to do so and affording Landlord ample
opportunity to appear, intervene or otherwise appropriately
assert and protect Landlord's interests.
(iv) Removal. Upon the termination of this Lease for any
reason, Tenant shall remove from the Property all Hazardous
Material Handled by Tenant and/or its Agents and shall cause
such Hazardous Material to be stored, treated, transported
and/or disposed of in compliance with all applicable
Regulations. Any Hazardous Material which Tenant removes from
the Property shall be removed solely by duly licensed haulers
and transported to and disposed of at duly licensed facilities
for the final disposal of such Hazardous Material. Tenant shall
deliver to Landlord copies of all manifests and other
documentation relating to the Handling of any Hazardous Material
reflecting its legal and proper removal, storage, treatment,
transportation and/or disposal. Tenant shall, at its sole cost
and expense, repair any and all damage to the Property resulting
from Tenant and/or its Agents' removal of Hazardous Material.
Tenant's obligation to pay rent shall continue until Tenant
completes such removal and effects such repairs.
(v) Tenant's Written Confirmation. Tenant shall, from
time to time throughout the term of this Lease, execute such
certificates or other documents as Landlord may request
concerning Tenant's best knowledge and belief regarding the
presence of Hazardous Material in, on, about or under the
Property.
(vi) Tenant's Duty to Notify Landlord. Tenant shall
notify Landlord in writing immediately on becoming aware of: (1)
any action threatened, instituted or completed by any
governmental or regulatory agency or private person with respect
to the Property or any adjoining property relating to Hazardous
Material; (2) any claim threatened or made by any person or
entity against Tenant, Landlord, the Property or any adjoining
landowner or property for personal injury, compensation or any
other matter relating to Hazardous Material; and (3) any reports
made by or to any governmental or regulatory agency with respect
to the Property or any adjoining property relating to Hazardous
Material, including without limitation, any complaints, notices
or asserted violations. Tenant shall supply to Landlord within
five Days after Tenant first receives or sends the same, copies
of all claims, reports, complaints, notices, warnings, asserted
violations or other documents relating in any way to the
Property.
(b) Landlord's Rights. Landlord and its Agents and
representatives shall have the right to communicate, verbally or in
writing, with any governmental or regulatory agency or any environmental
consultant on any matter with respect to the Property relating to
Hazardous Material. Landlord shall be entitled to copies of any and all
notices, inspection reports or other documents issued by or to any such
governmental or regulatory agency or consultant with respect to the
Property relating to Hazardous Material.
(c) Tenant's Duty to Indemnify. If the Handling by Tenant and/or
its Agents of Hazardous Material on or about the Property results in
contamination of the Property and/or the surrounding environment, or if
any lender or governmental agency requires an investigation to determine
whether there has been any contamination of the Property or any
adjoining property as a result of Tenant and/or its Agents Handling of
Hazardous Material, then Tenant shall indemnify, defend and hold
Landlord all partners or other affiliates of Landlord, and all
directors, officers, shareholders, employees, Agents, contractors,
attorneys and/or partners of any of the foregoing harmless from any and
all claims, damages, penalties, fines, costs, liabilities and losses
(including, without limitation, diminution in value of the Property,
damages for the loss or restriction on use of rental or usable space or
of any
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33
<PAGE> 34
other amenity of the Property, damages arising from any adverse impact
on marketing of space in the Property, other consequential damages and
sums paid in settlement of claims, attorneys' fees, consultants' fees
and experts' fees) which arise during or after the lease term as a
result of such contamination. Tenant's indemnification of Landlord
includes, without limitation, costs incurred in connection with removal
or Restoration required by any governmental or regulatory agency and/or
private persons because of the presence of Hazardous Material in the
soil or ground water in, on, about or under the Property or any
adjoining property as a result of the acts of Tenant and/or its Agents
and any and all reasonable legal fees and expenses incurred by Landlord
with respect to such claims, demands, investigations and responses.
(d) Right of Entry. If contamination of the Property by
Hazardous Material occurs or if any lender or governmental agency
requires an investigation to determine whether there has been any
contamination of the Property or any adjoining property, Landlord and
its Agents shall have the right, at any reasonable time following notice
to Tenant and from time to time to enter upon the Premises to perform
monitoring, testing or other analyses, and to review all applicable
documents, notices, correspondence or other materials. If contamination
resulted from the conduct of Tenant and/or its Agents, Tenant shall pay
all costs and expenses reasonably incurred by Landlord in connection
with such investigation, monitoring, and testing. Such sums shall be due
and payable by Tenant when Landlord delivers its invoice to Tenant for
such charges.
(e) Allocation of Responsibilities. ALL LIABILITIES ARISING FROM
THE HANDLING OF HAZARDOUS MATERIAL IN, ON, UNDER, AND/OR ABOUT THE
PROPERTY OR ANY ADJOINING PROPERTY BY TENANT AND/OR ITS AGENTS, SHALL
REMAIN TENANT'S SOLE RESPONSIBILITY. NOTWITHSTANDING ANYTHING IN THIS
LEASE, NO ACT BY LANDLORD OR ITS AGENTS SHALL BE CONSTRUED TO TRANSFER
TO LANDLORD ANY OBLIGATIONS, DUTIES, LIABILITIES OR RESPONSIBILITIES
PERTAINING TO TENANT'S COMPLIANCE WITH ANY REGULATION RELATING TO THE
HANDLING OF HAZARDOUS MATERIALS. NOTWITHSTANDING THE EXPIRATION OR
TERMINATION OF THIS LEASE AND NOTWITHSTANDING ANY OTHER PROVISION OF
THIS LEASE, TENANT SHALL RETAIN ALL LIABILITY AND RESPONSIBILITY FOR
COMPLIANCE WITH REGULATIONS CONCERNING TENANT AND ITS AGENT'S HANDLING
OF HAZARDOUS MATERIAL. TENANT SHALL INDEMNIFY, DEFEND AND HOLD LANDLORD
AND ITS AGENTS, REPRESENTATIVES, PARTNERS, EMPLOYEES, SUCCESSORS AND
ASSIGNS HARMLESS FROM ALL SUCH COSTS AND EXPENSES AS MAY BE ASSOCIATED
WITH SUCH COMPLIANCE.
(f) Inspections. Tenant warrants that Tenant will cooperate as
reasonably necessary and not interfere with completion of any and all
governmental inspections of the Property as required by applicable
Regulation. Tenant shall provide to Landlord a copy of the reports for
each such inspection within 15 Days of Tenant's receipt of such reports.
(g) Survival. Tenant's and Landlord's covenants, agreements and
indemnities set forth in this Section shall survive the expiration or
termination of this Lease and shall not be affected by any
investigation, or information obtained as a result of any investigation,
by or on behalf of Landlord or any prospective Tenant.
(h) Landlord's Obligations.
(i) Restrictions on Hazardous Material. Landlord shall
not cause or permit Hazardous Material to be Handled on, about
or under the Property except in compliance with all Regulations
respecting such Hazardous Material.
(ii) Compliance With Regulations. If any Hazardous
Material is Handled on or about the Property by Landlord,
Landlord shall bear all financial and other responsibility for
ensuring that the Handling of such material complies with all
Regulations respecting such Hazardous Material and with the
highest standards prevailing in the industry for the Handling of
such Hazardous Material.
(iii) Restoration. If, as a result of Landlord's
Handling Hazardous Material upon the Property or any adjoining
property, prior to or during the Term, any contamination of the
Property occurs, Landlord shall promptly take all actions as are
necessary to return the Property and/or the surrounding
environment to their pre-contamination condition.
(iv) Duty to Notify Tenant. Landlord shall notify Tenant
in writing within ten days of becoming aware of: (1) any
enforcement, cleanup, remediation or other action threatened,
instituted or completed by any governmental or regulatory agency
or private person with respect to the Property relating to
Hazardous
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<PAGE> 35
Material; (2) any claim threatened or made against Landlord with
respect to the Property, Tenant or the Property for personal
injury, compensation or any other matter relating to Hazardous
Material; and (3) any reports made by or to any governmental Or
regulatory agency respecting the Property, any complaints,
notices or asserted violations in connection therewith. Landlord
shall also supply to Tenant copies of all claims, reports,
complaints, notices, warnings, asserted violations or other
documents relating to the foregoing.
(v) Landlord's Indemnity of Tenant. If, as a result of
Landlord's or its Agent's acts, the presence of Hazardous
Material on the Property results in contamination of the
Property, or if any contamination of the Property exists as of
the date of the commencement of this lease, then Landlord shall
indemnify, defend and hold Tenant, its Agents and
representatives harmless from and against any and all claims,
damages, penalties, fines, costs, liabilities and losses,
damages for the loss of or restriction on the use of space or
of any other amenity of the Property and sums paid in settlement
of claims, attorneys' fees, consultants' fees and experts' fees)
paid by Tenant as a result of such contamination.
Notwithstanding any other provision of this Agreement, no
indemnification imposed by this paragraph shall be effective to
the extent that such indemnification violates the provisions of
any insurance policy obtained by Landlord or Tenant with respect
to the Property.
(vi) Landlord represents and warrants that as of the
date hereof, (which warranty and representation shall be deemed
to be remade as of the Commencement Date) to the best of
Landlord's knowledge, no known Hazardous Materials exist on,
under or about the Property.
57. Arbitration of Disputes.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS LEASE, THE PROVISIONS OF
THIS SECTION APPLY TO ALL DISPUTES ARISING OUT OF THE LEASE SAVE AND EXCEPT
UNLAWFUL DETAINER PROCEEDINGS; NOTHING IN THIS AGREEMENT SHALL BE INTERPRETED TO
REQUIRE LANDLORD TO SUBMIT UNLAWFUL DETAINER PROCEEDINGS TO ARBITRATION. IF A
CONTROVERSY, CLAIM OR DISPUTE OTHER THAN UNLAWFUL DETAINER PROCEEDINGS AND
ISSUES RAISED IN CONNECTION THEREWITH (COLLECTIVELY "DISPUTE") BETWEEN THE
PARTIES ARISES OUT OF THIS LEASE, THE DISPUTE SHALL BE SUBMITTED TO BINDING
ARBITRATION TO BE CONDUCTED UNDER THE COMMERCIAL ARBITRATION RULES OF THE
AMERICAN ARBITRATION ASSOCIATION; JUDGMENT ON THE ARBITRATOR'S AWARD MAY BE
ENTERED IN ANY COURT OF COMPETENT JURISDICTION. CALIFORNIA CODE OF CIVIL
PROCEDURE Section 1283.05 SHALL APPLY TO SUCH ARBITRATION.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISIONS DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU
ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A
COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR
JUDICIAL RIGHTS TO DISCOVERY AND APPEAL UNLESS THOSE RIGHTS ARE SPECIFICALLY
INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO
ARBITRATION AFTER AGREEING TO THIS PROVISION YOU MAY BE COMPELLED TO ARBITRATE
UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO
THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION
TO NEUTRAL ARBITRATION.
------- -------
Initial Initial
58. Notices.
All notices or demands of any kind required or desired to be given
hereunder shall be in writing and mailed postage prepaid by certified or
registered mail, return receipt requested, by personal delivery, or by overnight
delivery via a nationally recognized courier, to the appropriate address
indicated in Paragraph 2 of the Basic Lease Terms or at such other place or
places as either Landlord or Tenant may, from time to time, designate in a
written notice given to the other. Notice shall be
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<PAGE> 36
deemed to be delivered four (4) days after the date of mailing thereof, or upon
earlier receipt, if sent by certified or registered mail, upon delivery or
attempted delivery, if sent by personal delivery, and one (1) business day after
delivery to a nationally recognized courier, if sent by overnight delivery.
TENANT: LANDLORD:
VISION SOFTWARE TOOLS, INC. WEBSTER STREET PARTNERS, LTD.
a California corporation a California limited partnership
BY: /s/ J. A. HEWITT, JR. By: CHASKOW FOUR ASSOCIATES, LTD.
--------------------------------- a California limited partnership
its general partner
Its: VP & CFO By: CHASKOW FOUR,
------------------------------- a California limited partnership
its general partner
Print Name: J. A. Hewitt, Jr. By: PANKOW HOLDINGS, INC.
------------------------ a California corporation
its general partner
By: /s/ MARK J. PERNICONI
-------------------------------------
Mark J. Perniconi
Vice President
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<PAGE> 37
RIDER NO. 1 TO OFFICE LEASE
This Rider No. 1 To Office Lease ("Rider No. 1") is made and entered into
by and between Webster Street Partners, Ltd. a California limited partnership
("Landlord") and Vision Software Tools, Inc. a California corporation
("Tenant"), and is dated as of the date set forth on the cover page of the
Office Lease between Landlord and Tenant ("Lease") of which Rider No. 1 is
attached. The promises, covenants, agreements and declarations made and set
forth herein are intended to have the same force and effect as if set forth at
length in the body of the Lease. To the extent that the provisions of this Rider
are inconsistent with the terms and conditions of the Lease, the terms and
conditions hereof shall control.
1. Extension Options. Provided Tenant is not in default hereof, Tenant
shall have one (1) option to renew the Lease for the entire Premises for three
(3) years subject to the following terms and conditions:
A. Notice. Tenant shall give written notice to the Landlord no less than
twelve (12) months in advance of the expiration of the Term, or any
extension thereof, of its intention to exercise this Extension Option.
Tenant shall then have three (3) months to negotiate, on an exclusive
basis, the terms of the extension. Landlord and Tenant shall negotiate
in good faith the terms of the Extension Option. If the parties are
unable to agree on the terms of the extension during said three (3)
month period, the initial term shall terminate as provided for in this
Lease and the parties shall have no further obligations to one
another.
B. Monthly Basic Rent. The Monthly Basic Rent for the Extension Option
term shall be the then prevailing market rates for comparable space in
the Building (but, if no comparable space exists in the Building, in
similar buildings located in downtown Oakland). In no event shall the
Monthly Basic Rent be less than the rent being paid in the last month
of the initial term of the Lease.
C. Tenant Improvements. Landlord shall make available up to three
dollars ($3.00) per rentable square foot for tenant improvement
refurbishment at the commencement of the extended term.
2. Expansion Option. Provided Tenant is not in default hereof, Tenant
shall have the Right of First Offer to lease expansion space on floors 2
through 11, subordinated only to tenants with a priority right. Tenant shall
have ten (10) working days after receipt of Landlord's notice to respond. In
the event of an expansion of the Premises, the parking allotment shall be
increased proportionately. Terms of the expansion premises shall be the then
prevailing market conditions at the time the space is leased and subject to the
following terms and conditions:
A. If the expansion premises is less than 5,500 rentable square feet and
can be accommodated on an existing multiple-tenant floor, the term of
the expansion premises shall be co-terminus with the initial premises.
B. If the expansion premises can be accommodated on an existing
multiple-tenant floor and is greater than 5,501 rentable square feet
and less than the smaller of 11,500 rentable square feet or the
balance of the remaining space available on a multiple-tenant floor,
the term of the initial premises shall be extended by three (3) years
and the term of the expansion premises shall be co-terminus with the
extended term of the initial premises. The rental rate for the
extended portion of the term for the initial premises shall be the
same as the expansion premises.
C. If the expansion premises is greater than 11,501 rentable square feet
or the expansion premises is located on an available full floor, the
term of the expansion premises shall be for five (5) years and the
term of the initial premises shall extended to be co-terminus with the
expansion premises. The rental rate for the extended portion of the
term of the initial premises shall be the same as the expansion
premises.
3. Special Sublease and Assignment Rights. Provided Tenant is not in
default hereof, and notwithstanding anything to the contrary contained in
section 24 of the Lease, Tenant shall have the right to assign in its entirety
or sublease all or any portion of the Premises without consent of the Landlord
to (a) any entity resulting from a merger or consolidation with Tenant, or (b)
any subsidiary or affiliate of Tenant, and (c) any subcontractor performing
duties related to a contract with Tenant subject to the following terms and
conditions:
A. In case of an assignment, the assignee shall demonstrate to Landlord
financial strength of at lease equal to that of Tenant at the time of
the assignment.
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<PAGE> 38
B. In the case of a sublease, the use of the sublessee shall be
reasonably the same as Tenant and falls under the classification
of General Office Use and will be subject to section 24(m) of
the Lease.
C. All other assignments and subleasing shall be subject to section
24 of the Lease.
4. Non-Disturbance Agreement. Within sixty (60) days following the
Commencement Date of the Lease, Landlord shall deliver to Tenant
Non-Disturbance, Attornment and Subordination Agreements in the form of Exhibit
G, attached hereto from all lenders and ground lessors of the Property.
5. Parking.
A. To the extent Landlord is operating a valet service from the
2101 Webster Basement Garage to the Multi-Story Parking
Structure, Tenant may lease up to seven (7) of the spaces
allocated to the Multi-Story Parking Structure in paragraph 25
of the Basic Lease Terms for the valet spaces from the 2101
Webster Basement Garage to the Multi-Story Parking Structure at
prevailing market rates.
B. Notwithstanding anything to the contrary in Section 39(c) of the
Lease, on an annual basis, Landlord will offer to Tenant any
available parking in the Multi-Story Parking Facility at
prevailing market rates.
C. Secured bicycle parking is available at no charge to Tenant on
the first deck of the Multi-Story Parking Facility.
D. To the extent such services are available, Tenant may purchase
up to two (2) parking passes to access the Basement Garage
during off-hours and weekends at prevailing market rates. The
current prevailing market rate for this service is $25.00 per
month.
6. Courtesy Shuttle. Landlord will operate a Courtesy Shuttle
between the Multi-Story Parking Facility and the Building between the hours of
7:00am to 9:00am on normal workdays. In addition, Landlord will operate the
Courtesy Shuttle between the Building, the 19th Street BART Station and the
Multi-Story Parking Facility between 4:00pm and 8:00pm on normal workdays.
7. Landlord Warranties. Landlord warrants that the Building, Site
and Multi-Story Parking Facility comply with governmental laws and regulations
that are applicable to the Building, Site and Multi-Story Parking Facility, and
except for Tenant's obligations described in Section 55 of the Lease, Landlord
shall be responsible for the costs of compliance with such laws and regulations.
8. Existing Improvements. Reference is made to the improvements
existing in the Premises as of the Commencement Date plus the improvements to be
installed by Landlord as Landlord's Work (collectively hereinafter referred to
as the "Existing Improvements"). Notwithstanding anything to the contrary in
this Lease, Tenant shall have no obligation to remove any portion of the
Existing Improvements upon the termination of this Lease.
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<PAGE> 39
IN WITNESS WHEREOF, Landlord and Tenant have executed this Rider
No. 1 as of the date first above written.
TENANT: LANDLORD:
VISION SOFTWARE TOOLS, INC. WEBSTER STREET PARTNERS, LTD.
a California corporation a California limited partnership
BY: /s/ J. A. HEWITT, JR. By: CHASKOW FOUR ASSOCIATES, LTD.
--------------------------------- a California limited partnership
its general partner
Its: VP & CFO By: CHASKOW FOUR,
------------------------------- a California limited partnership
its general partner
Print Name: J. A. Hewitt, Jr. By: PANKOW HOLDINGS, INC.
------------------------ a California corporation
its general partner
By: /s/ MARK J. PERNICONI
-------------------------------------
Mark J. Perniconi
Vice President
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39
<PAGE> 40
EXHIBIT A
OUTLINE OF FLOOR PLAN OF PREMISES
(Attached)
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40
<PAGE> 41
EXHIBIT "A"
VISION SOFTWARE TOOLS, INC.
[FLOOR PLAN]
<PAGE> 42
EXHIBIT B
SITE PLAN
(To Be Provided - Including 2101 Webster and Multi-Story Parking Facility)
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41
<PAGE> 43
EXHIBIT "B-l"
LEGAL DESCRIPTION AND SITE PLAN
OF OFFICE BUILDING AND BASEMENT GARAGE
CITY OF OAKLAND, COUNTY OF ALAMEDA, STATE OF CALIFORNIA
PARCEL ONE:
Beginning at the point or intersection of the southern line of 21st, formerly
Walnut or 22nd, Street, with the western line of Webster Street; running thence
southerly along said line of Webster Street 145 feet; thence at right angles
westerly 100 feet; thence at right angles northerly 145 feet to said line of
21st Street, and thence easterly along said line of 21st Street 100 feet to the
point of beginning.
Being a portion of Lots 1 and 4, Block 3, Map of the Pacific Homestead situated
in Oakland, Alameda Co., recorded July 23, 1886, in Book "W" of Deeds, Page 2,
in the office of the County Recorder of Alameda County.
PARCEL TWO:
Beginning at a point on the western line of Webster Street distant thereon 145
feet southerly from the point of intersection thereof, with the southern line of
21st Street, formerly 22nd or Walnut Street, running thence at right angles
westerly, 100 feet; thence at right angles southerly, 137 feet, more or less, to
the northern line of Hobart Street, as now opened; thence easterly along said
northern line of Hobart Street, as now opened, 100 feet, more or less, to the
western line of Webster Street, and thence northerly along said last named
line, 125 feet to the point of beginning.
Being portions of Lots 4, 5 and 8, Block 3, Map of the Pacific Homestead,
situated in Oakland, Alameda Co., surveyed by W.F. Boardman, Esq., recorded July
23; 1866, in Book "W" of Deeds, Page 2, in the office of the County Recorder of
Alameda County.
<PAGE> 44
[MAP OF THE PACIFIC HOMESTEAD]
<PAGE> 45
EXHIBIT "B-2"
LEGAL DESCRIPTION AND SITE PLAN
OF MULTI-STORY PARKING FACILITY
CITY OF OAKLAND, COUNTY OF ALAMEDA, STATE OF CALIFORNIA
PARCEL ONE:
BEGINNING AT A POINT ON THE EASTERN LINE OF BROADWAY, WHERE THE SAME IS
INTERSECTED BY THE DIVIDING LINE BETWEEN LOTS 6 AND 7 IN BLOCK 13, AS SAID LOTS
AND BLOCK ARE SHOWN ON THE MAP HEREINAFTER REFERRED TO; WHICH SAID POINT IS
DISTANT ON SAID LINE OF BROADWAY 179.60 FEET, MORE OR LESS, NORTHERLY FROM THE
NORTHERN LINE OF 23RD, FORMERLY LOCUST, STREET; RUNNING THENCE EASTERLY ALONG
THE NORTHERN BOUNDARY LINE OF LOTS 7 AND 8 IN SAID BLOCK 13, AS SAID LOTS AND
BLOCK ARE SHOWN ON THE MAP HEREINAFTER REFERRED TO PARALLEL WITH SAID LINE OF
23RD STREET 59 FEET; THENCE AT RIGHT ANGLES SOUTHERLY 43 FEET; 6 INCHES; THENCE
AT RIGHT ANGLES WESTERLY 15 FEET; THENCE AT RIGHT ANGLES SOUTHERLY 43 FEET, 6
INCHES; THENCE WESTERLY ALONG THE SOUTHERN BOUNDARY LINE OF LOTS 7 AND 8 IN
BLOCK 13, PARALLEL WITH SAID LINE OF 23RD STREET 66 FEET, MORE OR LESS, TO THE
EASTERN LINE OF BROADWAY; AND THENCE NORTHERLY ALONG SAID LAST NAMED LINE 89.80
FEET TO THE POINT OF BEGINNING.
BEING THAT PORTION OF LOT 7 LYING EASTERLY OF THE EASTERN LINE OF BROADWAY, AND
A PORTION OF LOT 8 IN BLOCK 13, AS SAID LOTS AND BLOCK ARE SHOWN ON THE "MAP OF
THE PACIFIC HOMESTEAD, SITUATED IN OAKLAND, ALAMEDA COUNTY, SURVEYED BY W.F.
BROADMAN, ESQ." RECORDED JULY 23, 1866, IN BOOK "W" OF DEEDS AT PAGE 2 AND 3, IN
THE OFFICE OF THE COUNTY RECORDER OF ALAMEDA COUNTY.
PARCEL TWO:
BEGINNING AT A POINT ON THE WESTERN LINE OF WEBSTER STREET, DISTANT THEREON 130
FEET, 6 INCHES, NORTHERLY FROM THE POINT OF INTERSECTION THEREOF, WITH THE
NORTHERN LINE OF 23RD STREET, FORMERLY CALLED LOCUST STREET, AS SAID STREETS ARE
SHOWN ON THE MAP HEREINAFTER REFERRED TO; RUNNING THENCE NORTHERLY ALONG SAID
LINE OF WEBSTER STREET 43 FEET, 6 INCHES; THENCE AT RIGHT ANGLES WESTERLY 110
FEET; THENCE AT RIGHT ANGLES SOUTHERLY 43 FEET, 6 INCHES; AND THENCE AT RIGHT
ANGLES EASTERLY 110 FEET TO THE POINT OF BEGINNING.
BEING A PORTION OF LOT 8 IN BLOCK 13, AS SAID LOT AND BLOCK ARE SHOWN ON THE
"MAP OF THE PACIFIC HOMESTEAD SITUATED IN OAKLAND, ALAMEDA CO.," FILED JULY 23,
1866, IN BOOK "W" OF DEEDS AT PAGES 2 AND 3, IN THE OFFICE OF THE COUNTY
RECORDER OF ALAMEDA COUNTY.
<PAGE> 46
PARCEL THREE:
COMMENCING AT A POINT ON THE WESTERLY LINE OF WEBSTER STREET, DISTANT THEREON,
ONE HUNDRED AND SEVENTY-FOUR (174) FEET NORTHERLY FROM THE POINT OF
INTERSECTION OF SAID LINE OF WEBSTER STREET WITH THE NORTHERLY LINE OF LOCUST
STREET, OR 23RD STREET; RUNNING THENCE NORTHERLY ALONG SAID LINE OF WEBSTER
STREET, TWO HUNDRED AND SIXTY-ONE (261) FEET, MORE OR LESS TO THE SOUTHERLY LINE
OF TWENTY-FOURTH STREET (FORMERLY ELM STREET) THENCE WESTERLY ALONG SAID LINE OF
TWENTY-FOURTH STREET (FORMERLY ELM STREET), ONE HUNDRED AND THREE (103) FEET OR
THEREABOUTS TO THE EASTERLY LINE OF BROADWAY STREET, THENCE SOUTHERLY ALONG SAID
EASTERLY LINE OF SAID BROADWAY STREET, TWO HUNDRED AND SIXTY-NINE AND FORTY-ONE
ONE HUNDREDTHS (269.41) FEET MORE OR LESS TO A POINT ON SAID EASTERLY LINE OF
BROADWAY STREET FROM WHICH A LINE DRAWN EASTERLY AND PARALLEL WITH SAID LOCUST
OR 23RD STREET WILL STRIKE THE POINT OF COMMENCEMENT; THENCE EASTERLY AND
PARALLEL WITH SAID LOCUST STREET OR 23RD STREET, ONE HUNDRED AND SIXTY-NINE
(169) FEET AND SIX (6) INCHES MORE OR LESS, TO THE WESTERLY LINE OF WEBSTER
STREET AND THE POINT OF COMMENCEMENT.
BEING A PORTION OF BLOCK NO. THIRTEEN (13) AS SAID BLOCK IS LAID DOWN AND
DELINEATED UPON A CERTAIN MAP ENTITLED "MAP OF THE PACIFIC HOMESTEAD, SITUATED
IN OAKLAND, ALAMEDA CO." RECORDED JULY 23RD, 866 IN LIBER "W" OF DEEDS AT PAGES
2 AND 3 THEREOF IN THE OFFICE OF THE COUNTY RECORDER OF SAID ALAMEDA COUNTY.
<PAGE> 47
[MAP OF THE PACIFIC HOMESTEAD]
<PAGE> 48
EXHIBIT C
LANDLORD'S WORK
This EXHIBIT "C" supplements the Office Lease (the "Lease") and is dated
as of the date set forth on the cover page of the Office Lease between Landlord
and Tenant of which this Exhibit "C" is attached covering certain premises
described in the Lease (the "Premises"). All terms not defined herein shall have
the same meaning as set forth in the Lease.
Tenant hereby accepts the Premises in as-is condition except that
Landlord shall be responsible for the cost of making the following modifications
to the existing condition of the Premises as of the execution date of this
Lease:
1. Install visual exit devices ("strobes") throughout the Premises.
2. Modify selected existing sinks so that upon completion, access to the
existing sinks within the Premises will be in compliance with ADA.
3. Repair the plumbing deficiencies to the existing private restroom at
the south end of the Premises.
4. Paint and patch as required for items 1 through 3 above and spot
painting as directed by Tenant for an aggregate total of two (2) man days.
Immediately following execution of this Lease, Landlord shall commence
and diligently prosecute the completion of Landlord's Work with a completion
target on the Commencement Date. All work is to be performed during normal work
hours and Tenant shall reasonably cooperate with Landlord's contractors to
execute Landlord's Work.
Tenant Landlord
----------- -----------
42
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<PAGE> 49
EXHIBIT D
SAMPLE FORM OF NOTICE OF LEASE COMMENCEMENT
[Intentionally Deleted)
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<PAGE> 50
EXHIBIT E
SAMPLE FORM OF TENANT ESTOPPEL CERTIFICATE
The undersigned, WEBSTER STREET PARTNERS, LTD., A CALIFORNIA LIMITED PARTNERSHIP
("Landlord"), with a mailing address c/o Pankow Development Corp., 2476 North
Lake Avenue, Altadena, California 91001, and, ("Tenant"), hereby certify to
________________________________________________________________________________
a_______________________________________________________________________________
as follows:
1. Attached hereto is a true, correct and complete copy of that certain
lease dated ________________, 19___, between Landlord and Tenant (the "Lease"),
which demised premises located at 2101 Webster, Oakland, California. The Lease
is now in full force and effect and has not been amended, modified or
supplemented, except as set forth in Paragraph 4 below:
2. The term of the Lease commended on ________________, 19_____.
3. The term of the Lease shall expire on ________________, 19_____.
4. The Lease has (Initial One)
( ) not been amended, modified, supplemented, extended, renewed
or assigned.
( ) been amended, modified, supplemented, extended, renewed or
assigned by the following described agreements, copies of which are
attached hereto:
_________________________________________________________________
_________________________________________________________________
5. Tenant has accepted and is now in possession of said premises.
6. Tenant and Landlord acknowledge that the Lease will be assigned to
and that no modification, adjustment, revision or cancellation of the Lease or
amendments thereto shall be effective unless written consent of _____________ is
obtained, and that until further notice, payments under the Lease may continue
as heretofore.
7. The amount of fixed monthly rent is $__________.
8. The amount of security deposits (if any) is $_________. No other
security deposits have been made.
9. Tenant is paying the full lease rental, which has been paid in full
as of the date hereof. No rent under the Lease has been paid for more than
thirty (30) days in advance of its due date.
10. All work required to be performed by Landlord under the Lease has
been completed.
11. There are no defaults on the part of the Landlord or Tenant under
the Lease.
12. Tenant has no defense as to its obligations under the Lease and
claims no set-off or counterclaim against Landlord.
13. Tenant has no right to any concession (rental or otherwise) or
similar compensation in connection with renting the space it occupies, except as
provided in the Lease.
All provisions of the Lease and the amendments thereto (if any) referred
to above are hereby ratified.
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<PAGE> 51
The foregoing certification is made with the knowledge that
_____________ is about to fund a loan to Landlord, and that _____________ is
relying upon the representations herein made in funding such loan.
DATED:________, 19___
TENANT: LANDLORD:
___________________________________ WEBSTER STREET PARTNERS, LTD.
___________________________________ a California limited partnership
By:________________________________ By: CHASKOW FOUR ASSOCIATES, LTD.
a California limited partnership
Its:_______________________________ its general partner
Print Name:________________________ By: CHASKOW FOUR,
a California limited partnership
its general partner
By:________________________________ By: PANKOW HOLDINGS, INC.
a California corporation
Its:_______________________________ its general partner
Print Name_________________________
By:_________________________________
Mark J. Perniconi
Vice President
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<PAGE> 52
EXHIBIT F
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the Building
without the prior written consent of Landlord. Landlord shall have the right to
remove, at Tenant's expense and without notice, any sign installed or displayed
in violation of this rule. All approved signs or lettering on doors, windows and
walls shall be printed, painted, affixed or inscribed at the expense of Tenant
by a person approved by Landlord, using materials of Landlord's choice and in a
style and format approved by Landlord.
2. Tenant must use Landlord's window coverings on all exterior windows.
No awning shall be permitted on any part of the Premises except as approved by
Landlord. Tenant shall not place anything against or near glass partitions or
doors or windows which may appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators or stairways of the Building. The halls, passages, exits,
entrances, elevators, and stairways are not for the general public, and Landlord
shall in all cases retain the right to control and prevent access thereto of all
persons whose presence in the judgment of Landlord would be prejudicial to the
safety, character, reputation and interests of the Building and its tenants;
provided that nothing herein contained shall be construed to prevent such access
to persons with whom any tenant normally deals in the ordinary course of its
business, unless such persons are engaged in illegal activities. No tenant and
no employee or invitee of any tenant shall go upon the roof of the Building
without Landlord's consent.
4. The directory of the Building will be provided exclusively for the
display of the name and location of tenants only, and Landlord reserves the
right to exclude any other names therefrom.
5. All cleaning and janitorial services for the Building and the
Premises generally consistent with cleaning and janitorial sources furnished in
other first-class office buildings in the City of Oakland shall be provided
exclusively through Landlord, and except with the written consent of Landlord,
no person or persons other than those approved by Landlord shall be employed by
Tenant or permitted to enter the Building for the purpose of cleaning the same.
Tenant shall not cause any unnecessary labor by carelessness or indifference to
the good order and cleanliness of the Premises. Landlord shall not in any way be
responsible to any Tenant for any loss of property on the Premises, however
occurring, or for any damage to any Tenant's property by the janitor or any
other employee or any other person.
6. Landlord may make a reasonable charge for any additional keys. If
Tenant alters any lock or installs a new lock or bolt on any door of its
Premises, such lock shall comply with Building standards and Tenant will furnish
Landlord a key to the new lock. Tenant, upon the termination of its tenancy,
shall deliver to Landlord the keys of all doors which have been furnished to
Tenant, and in the event of loss of any keys so furnished, shall pay Landlord
its actual reasonable cost therefore.
7. Tenant shall not install any radio or television antenna, loudspeaker
or other device on the roof or exterior walls of the Building. Tenant shall not
interfere with radio or television broadcasting or reception from or in the
Building or elsewhere. If Tenant requires telegraphic, telephonic, burglar alarm
or similar services, it shall first obtain, and comply with, Landlord's
instructions in their installation.
8. Elevators shall be available for special uses by all tenants in the
Building, subject to such reasonable scheduling as Landlord in its discretion
shall deem appropriate. No equipment, materials, furniture, packages, supplies,
merchandise or other property will be received in the Building or carried in the
elevators except between such hours and in such elevators as may be designated
by Landlord. The removal of any equipment, materials, furniture, packages,
supplies, merchandise or other property from the Building must be accompanied by
a signed Building Pass authorizing the removal of same.
9. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Building. Heavy objects, if such objects are considered
necessary by Tenant, as determined by Landlord, shall stand on such platforms as
determined by Landlord to be necessary to properly distribute the weight.
Business machines and mechanical equipment belonging to Tenant, which cause
noise or vibration that may be transmitted to the structure of the Building or
to any space therein to such a degree as to be
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<PAGE> 53
objectionable to Landlord (in its sole discretion) or to any tenants in the
Building, shall be placed and maintained by Tenant, at Tenant's expense, on
vibration eliminators or other devices sufficient to eliminate noise or
vibration. The persons employed to move such equipment in or out of the Building
must be acceptable to Landlord. Landlord will not be responsible for loss of, or
damage to, any such equipment or other property from any cause, and all damage
done to the Building or maintaining or moving such equipment or other property
shall be repaired at the expense of Tenant.
10. Tenant shall not use or keep in the Premises any kerosene, gasoline
or inflammable or combustible fluid or material other than those limited
quantities necessary for the operation or maintenance of office equipment, with
the prior written approval of Landlord. Tenant shall not use or permit to be
used in the Premises any foul or noxious gas or substance, or permit or allow
the Premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Building by reason of noise, odors or
vibrations, nor shall Tenant bring into or keep in or about the Premises any
birds or animals, except seeing-eye dogs when accompanied by their masters.
11. Tenant shall not use any method of heating or air-conditioning other
than that supplied or approved by Landlord.
12. Tenant shall not waste electricity, water or air-conditioning and
agrees to cooperate fully with Landlord to assure the most effective operation
of the Building's heating and air-conditioning and to comply with any
governmental energy-saving rules, laws or regulations of which Tenant has actual
notice, and shall refrain from attempting to adjust controls other than room
thermostats specifically installed for Tenant's use. Tenant shall keep corridor
doors closed, and shall close window coverings at the end of each business day.
Heat and air-conditioning shall be provided during ordinary business hours of
generally recognized business days, but not less than the hours of 8:00 A.M. to
6:00 P.M. on Monday through Friday (excluding in any event Saturdays, Sundays
and legal holidays, it being understood that legal holidays shall mean and refer
to those holidays of which Landlord provides Tenant with reasonable prior
written notice which shall in any event include those holidays on which the New
York Stock Exchange is closed). Requests for overtime heating and
air-conditioning must be submitted to the office of the Building by 12:00 noon
the prior day on normal weekdays and by 9:00 am on Friday for Saturday and
Sunday use and by 12:00 noon two days in advance of a holiday. Tenant agrees to
pay for said overtime services at the currently determined rate as set by
Building based on the actual cost for such services.
13. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and address of the Building.
14. Landlord reserves the right to exclude from the Building between the
hours of 6:00 P.M. and 8:00 A.M. the following day, or such other hours as may
be established from time to time by Landlord, and on Saturdays, Sundays and
legal holidays, any person unless that person is known to the person or employee
in charge of the Building and has a pass or is properly identified. Tenant shall
be responsible for all persons for whom it requests passes and shall be liable
to Landlord for all acts of such persons. Landlord shall not be liable for
damages for any error with regard to the admission to or exclusion from the
Building of any person. Landlord reserves the right to prevent access to the
Building in case of invasion, mob, riot, public excitement or other commotion by
closing the doors or by other appropriate action.
15. Tenant shall close and lock the doors of its Premises and entirely
shut off all water faucets or other water apparatus, and, except with regard to
Tenant's computers and other equipment which requires utilities on a 24-hour
basis, all electrical appliances and equipment before Tenant and its employees
leave the Premises. Tenant shall be responsible for any damage or injuries
sustained by other tenants or occupants of the Building or by Landlord for
noncompliance with this rule.
16. (Intentionally Deleted]
17. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees or
invitees, shall have caused it.
18. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises. Tenant shall not make any room-to-room
solicitation of business from other tenants in the Building. Canvassing,
soliciting and distribution of handbills or any other written material, and
peddling in the Building or the Site are prohibited, and each tenant shall
cooperate to prevent same. Tenant shall not use the Premises for any business or
activity other than that specifically provided for in Tenant's Lease.
19. Tenant shall not mark, drive nails, screw or drill into the
partitions, woodwork or plaster or in any way deface the Premises or any part
thereof, except to install normal wall hangings. Landlord reserves the right to
direct electricians as to where and how telephone and telegraph wires are to be
introduced to the Premises. Tenant shall not cut or
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<PAGE> 54
bore holes for wires. Tenant shall not affix any floor covering to the floor of
the Premises in any manner except as approved by Landlord. Tenant shall repair
any damage resulting from noncompliance with this rule.
20. Tenant shall not install, maintain or operate upon the Premises any
vending machine without the written consent of Landlord.
21. Landlord reserves the right to exclude or expel from the Building
any person who, in Landlord's judgment, is intoxicated or under the influence of
liquor or drugs or who is in violation of any of the Rules and Regulations of
the Building.
22. Tenant shall store all its trash and garbage within its Premises.
Tenant shall not place in any trash box or receptacle any material which cannot
be disposed of in the ordinary and customary manner of trash and garbage
disposal. All garbage and refuse disposal shall be made in accordance with
directions issued from time to time by Landlord.
23. The Premises shall not be used for the storage of merchandise held
for sale to the general public, or for lodging or for manufacturing of any kind,
nor shall the Premises be used for any improper, immoral or objectionable
purpose. No cooking shall be done or permitted by any tenant on the Premises,
except that used by Tenant of Underwriters' Laboratory-approved equipment for
brewing coffee, tea, hot chocolate and similar beverages shall be permitted, and
the use of a microwave oven shall be permitted, provided that such equipment and
use is in accordance with all applicable federal, state, county and city laws,
codes, ordinances, rules and regulations.
24. Tenant shall not use in any space or in the public halls of the
Building any mailcarts or hand trucks except those equipped with rubber tires
and side guards or such other material handling equipment as Landlord may
approve. Tenant shall not bring any other vehicles of any kind into the
Building.
25. Without the written consent of Landlord, Tenant shall not use the
name of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
26. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
27. Tenant assumes any and all responsibility for protecting its
Premises from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed.
28. The requirements of Tenant will be attended to only upon appropriate
application to the office of the Building by an authorized individual. Employees
of Landlord shall not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord, and no employee of
Landlord will admit any person (Tenant or otherwise) to any office without
specific instructions from Landlord.
29. Landlord may waive any one or more of these Rules and Regulations
for the benefit of Tenant or any other tenant, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of Tenant
or any other tenant, nor prevent Landlord from thereafter enforcing any such
Rules and Regulations against any or all of the tenants of the Building.
30. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the Building.
In the event these Rules and Regulations conflict with any provision of the
Lease, the Lease shall control.
31, Landlord reserves the right to make such other and reasonable Rules
and Regulations as, in its judgment, may from time to time be needed for safety
and security, for care and cleanliness of the Building and for the preservation
of good order therein. Tenant agrees to abide by all such Rules and Regulations
hereinabove stated and any additional rules and regulations which are adopted.
32. [Intentionally Deleted]
33. Tenant shall be responsible for the observance of all of the
foregoing rules by Tenant's employees, agents, clients, customers, invitees and
guests.
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<PAGE> 55
PARKING RULES AND REGULATIONS
1. Tenant and Authorized Users shall not park vehicles in any parking
areas designated by Landlord as areas for parking by visitors to the Building.
Tenant and Authorized Users shall not leave vehicles in the Building parking
areas overnight nor park any vehicles in the Building parking areas other than
automobiles, motorcycles, motor driven or non-motor driven bicycles or
four-wheeled trucks. Landlord may, in its sole discretion, designate separate
areas for bicycles and motorcycles.
2. Cars must be parked entirely within the stall lines painted on the
floor.
3. All directional signs and arrows must be observed.
4. The speed limit shall be 5 miles per hour.
5. Parking is prohibited:
(a) In areas not striped for parking;
(b) In aisles;
(c) Where "No Parking" or "Handicap" signs are posted;
(d) On ramps;
(e) In crosshatched areas;
(f) In such other areas as may be designated by Landlord, its
agent, lessee, or licensee.
6. Parking stickers or any other device or form of identification
supplied by Landlord shall remain the property of Landlord. Such parking
identification device must be displayed as requested and may not be mutilated in
any manner. The serial number of the parking identification device may not be
obliterated. Devices are not transferable, and any device in the possession of
an unauthorized holder will be void. There will be a replacement charge to the
Tenant or Authorized User of $10.00 for loss of any magnetic parking card or
other parking identification device. Landlord acknowledges that Tenant shall be
entitled to a greater number of parking stickers or other devices or forms of
identification than parking spaces allotted to Tenant.
7. Garage managers or attendants are not authorized to make or allow any
exceptions to these Rules and Regulations.
8. Every Authorized User is requested to park and lock his own car. All
responsibility for damage to cars to be repaired is assumed by Authorized Users.
Tenant shall repair or cause to be repaired at its sole cost and expense any and
all damage to the Building parking facility or any part thereof caused by Tenant
or its Authorized Users or resulting from vehicles of Authorized Users.
9. Loss or theft of parking identification devices from automobiles must
be reported to the garage manager immediately. Any parking identification
devices found on any unauthorized car will be confiscated and the illegal holder
will be subject to prosecution. Lost or stolen devices previously reported and
then found must be reported found to the office of the garage immediately.
10. Spaces are for the express purpose of one automobile per space.
Washing, waxing, cleaning or servicing of any vehicle by the Authorized User
and/or his agents is prohibited. Storage of vehicles for periods exceeding one
week is prohibited and said vehicles shall be subject to towing.
11. The garage management reserves the right to refuse the issuance of
monthly stickers or other parking identification devices to any Tenant,
Authorized User, or person and/or his agents or representatives who willfully
refuse to comply with the above Rules and Regulations or any City, State or
Federal ordinance, law or agreement.
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<PAGE> 56
12. Authorized Users shall not load or unload in areas other than those
designated by Landlord for such activities.
13. Authorized Users and unauthorized users parked in prohibited areas
are subject to towing at their own expense.
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<PAGE> 57
EXHIBIT G
FORM OF NON DISTURBANCE, ATTORNMENT AND SUBORDINATION AGREEMENT
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51
<PAGE> 58
SUBORDINATION, ATTORNMENT AND
NON-DISTURBANCE AGREEMENT
This Subordination, Attornment and Non-Disturbance Agreement
("Agreement") is made as of _______________________, 1997, by and among
_______________________, a _______________________, whose address is
_______________________, Suite _____, _______________________ California
_____________ ("Tenant") WEBSTER STREET PARTNERS, LTD., a California limited
partnership, whose address is 2101 Webster Street, Suite 1475, Oakland,
California 94612 ("Landlord"), CEP INVESTORS VI, LP., a Delaware limited
partnership, whose address is c/o Ellis Partners, Inc., 351 California Street,
Suite 1150, San Francisco, CA 94104 ("Lender") and Fleet National Bank, a
national banking association organized under the laws of the United States, as
agent for itself and certain other lenders, whose address is 111 Westminster
Street, Suite 800, Providence, Rhode Island 02903 ("Lender's Assignee").
RECITALS
A. Landlord (or its predecessor-in-interest) and Tenant (or its
predecessor-in-interest) entered into a written lease agreement dated
_______________________, ___________ (hereafter referred to collectively with
all addenda, modifications, and amendments thereto existing as of
_______________, 1997 as the "Lease") covering certain real-property (the
"Premises") located in the City of Oakland, County of Alameda, State of
California, commonly known as Suite ____, 2101 Webster Street, Oakland,
California, and constituting a portion of the real property described in Exhibit
A to this Agreement (the "Property"), for the term and on the conditions set
forth in the Lease.
B. Lender and Lender's Assignee each have an interest in a loan made to
Landlord which is evidenced by a promissory note (hereinafter referred to
collectively with all modifications and amendments thereto as the "Note") and
secured by that certain Deed of Trust, Assignment of Rents and Security
Agreement dated April 1, 1984, recorded on April 16, 1984 as Instrument No.
84-072545 together with all amendments and modifications thereto and
consolidations with other mortgages or deeds of trust heretofore or hereafter
made (collectively the "Deed of Trust").
C. The parties desire to expressly subordinate the Lease to the lien of
the Deed of Trust and make the representations and enter into the agreements set
forth below.
1
<PAGE> 59
AGREEMENT
NOW, THEREFORE, in consideration of the Recitals and other valuable
consideration, the parties agree as follows:
1. SUBORDINATION. Effective as of the date hereof, Tenant hereby agrees
that its leasehold interest in the Premises and all of Tenant's rights under the
Lease shall be subordinate to the Deed of Trust and to all terms, conditions and
provisions thereof, and to all extensions, renewals, amendments, modifications,
consolidations and replacements of the Note and the Deed of Trust.
2. NO RENT PREPAYMENT OR AMENDMENTS TO LEASE WITHOUT CONSENT OF LENDER.
Tenant agrees to pay any rent or other charges due under the Lease not more than
one month in advance of the date the same are due. No agreement between Landlord
and Tenant assigning, amending, modifying, renewing, extending or terminating
the Lease shall be binding upon any Successor Owner (as defined below) including
Lender or Lender's Assignee, without the prior written consent of Lender and
Lender's Assignee, which consent shall not be unreasonably withheld.
3. LENDER'S RIGHT TO CURE DEFAULTS. Tenant shall not be entitled to
exercise any rights or remedies it may have reason of any default or alleged
default by the lessor under the Lease (including without limitation any alleged
right to as abatement of rent or to cancel the Lease) unless and until (a)
Tenant has delivered to Lender, Lender's Assignee and to Landlord a written
notice describing with reasonable specificity each event of default claimed by
tenant to exist, and (b) such event of default is not cured within thirty (30)
days after the date of delivery of such written notice or, if the default cannot
reasonably be cured within such 30-day period, such longer period of time as may
be reasonably necessary to cure such default, so long as Lender commences
efforts to cure such default and prosecutes such efforts with reasonable
diligence. Nothing in this paragraph shall be deemed to obligate either Lender
or Lender's Assignee to cure any such defaults or to create any rights or
remedies upon the lessor's default.
4. ATTORNMENT AND NON-DISTURBANCE: LIMITED LIABILITY OF LENDER. In the
event Lender, Lender's Assignee or any other purchaser at a foreclosure sale or
under private power contained in the Deed of Trust succeeds to the interest of
the lessor under the Lease by reason of any foreclosure of the Deed of Trust or
the acceptance by Lender or Lender's Assignee of a deed in lieu of foreclosure
or by any other method (the "Successor Owner), it is agreed that:
2
<PAGE> 60
(a) Tenant shall be bound to the Successor Owner under all the
terms, covenants and conditions of the Lease for the remaining balance of the
term of the Lease, with the same force and effect as if the Successor Owner were
the lessor under the Lease, and Tenant does hereby agree to attorn to the
Successor Owner as its lessor; and such attornment shall be effective and
self-operative without the execution of any further instruments on the part of
any parties to this Agreement, immediately upon the Successor Owner's succeeding
to the interest of the lessor under the Lease;
(b) Subject to the observance and performance by Tenant of all of
the terms, covenants and conditions of the Lease to be observed and performed on
the part of the Tenant, the Successor Owner, shall recognize the leasehold
estate of Tenant under all of the terms, covenants and conditions of the Lease
for the remaining balance of the term with the same force and effect as if the
Successor Owner were the original lessor under the Lease;
(c) The Successor Owner succeeding to the interest of the lessor
under the Lease shall not interfere or otherwise interrupt Tenant in its use and
quiet enjoyment of the Premises pursuant to the Lease so long as Tenant is
current in the payment of all rentals and charges required under the Lease and
is otherwise not in default under the Lease;
(d) Any liability of the Successor Owner as the owner of the
Property shall be limited to the interests of the Successor Owner in the Lease
and Tenant shall look exclusively to such interest, if any, of Successor Owner
in the Lease and/or the Premises for the payment and discharge of any obligation
imposed upon Successor Owner under the Lease;
(e) The Successor Owner shall not be liable for (i) any rent or
additional rent that might have been paid in advance to Landlord for a period in
excess of one month; (ii) any act or omission of any prior landlord (including
Landlord); (iii) the return of any security deposit not actually received by the
Successor Owner; or (iv) the cost of or payment for any construction for
Tenant's occupancy; and
(f) The Successor Owner shall not be subject to any off-sets or
defenses by Tenant, which Tenant may have against any prior landlord (including
Landlord).
5. NOTICES. All notices expressly provided hereunder and all notices and
demands of any kind or nature whatsoever which any party may desire to give to
or serve shall be in writing and shall be served in person or by first class or
certified mail, return receipt requested, postage prepaid and addressed to the
party so to be served at its address above stated or at such other address of
which said party shall have theretofore notified In writing, as provided above,
the part giving such notice. Service of any such
3
<PAGE> 61
notice or demand so made shall be deemed effective on the day of actual delivery
as shown by the addressee's return receipt or the expiration of three (3)
business days after the date of mailing, whichever is the earlier in time,
except that service of any notice of default or notice of sale provided or
required by law shall, if mailed, be deemed effective on the date of mailing.
6. HEIRS, REPRESENTATIVE, SUCCESSORS AND ASSIGNS. The provisions of
this Agreement shall be binding upon and shall inure to the benefit of the
parties to this agreement and their respective heirs, representative, successors
and assigns.
7. AGREEMENT SATISFIES LEASE. Tenant agrees that this Agreement
satisfies any requirements in the Lease relating to the granting of a
non-disturbance agreement.
8. TENANT'S EXECUTION AND DELIVERY OF AGREEMENT DULY CERTIFIED. The
execution and delivery of this Agreement by tenant has been duly authorized and
does not require any consent, vote or approval which has not been given or
taken.
9. PROVISIONS APPLICABLE TO LENDER'S ASSIGNEE. The provisions of
this Agreement with respect to the Lender's Assignee shall be binding upon and
shall inure to the benefit of Lender's Assignee only during such period that
Lender's Assignee has an interest in the Note and Deed of Trust. The provision
hereof with respect to the Lender's Assignee shall automatically cease at such
time as Lender's Assignee assigns its interest in the Note and Deed of Trust to
Lender or Lender's successor-in-interest.
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Agreement as of the day and year first written above.
[SIGNATURES APPEAR ON PAGE 5]
4
<PAGE> 62
LENDER: LANDLORD:
CEP INVESTORS VI, L.P. WEBSTER STREET
a Delaware limited partnership PARTNERS, LTD.,
a California limited partnership
By: EPI Investors VI, a By: CHASKOW FOUR
California limited partnership ASSOCIATES, LTD.,
General Partner a California limited partnership,
Its: General Partner
By: Ellis Partners, Inc., a By: CHASKOW FOUR,
California Corporation a California limited
General Partner partnership,
Its: General Partner
By: By: PANKOW HOLDINGS
----------------------------- INC., a California
Its: corporation,
---------------------------- Its: General Partner
LENDER'S ASSIGNEE:
By:
-----------------------------
FLEET NATIONAL BANK, Mark Perniconi
As Agent Vice President
By:
-----------------------------
Its:
----------------------------
[ALL SIGNATURES MUST BE ACKNOWLEDGED BY A NOTARY PUBLIC]
5
<PAGE> 63
NOTICE TO
PARTIES EXECUTING THIS DOCUMENT ON BEHALF OF
TENANT: PLEASE, EXECUTE THIS DOCUMENT BEFORE A NOTARY
PUBLIC AND ATTACH THE APPROPRIATE NOTARIAL
ACKNOWLEDGMENT(S)
TENANT:
- -----------------------------------
a
----------------------------------
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
6
<PAGE> 64
EXHIBIT A
(PROPERTY DESCRIPTION)
The Property referred to in this Agreement is located in the City of
____________, County of, State of California, and is more particularly described
as follows:
7
<PAGE> 65
STATE OF CALIFORNIA )
) ss.
COUNTY OF _____________________ )
On ____________________________, _________, before me, ________________
____________________________, Notary Public, personally appeared
______________________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) ______________
subscribed to within the instrument and acknowledged to me that
___________________ executed the same in ______________________ authorized
capacity(ies), and that by ________________________ signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
- -------------------------------------
Notary Public
My Commission Expires
----------------
8
<PAGE> 66
STATE OF CALIFORNIA )
) ss.
COUNTY OF _____________________ )
On ____________________________, _________ before me, __________________
____________________________ Notary Public, personally appeared
______________________ personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) ______________
subscribed to within the instrument and acknowledged to me that
___________________ executed the same in ______________________ authorized
capacity(ies), and that by ________________________ signature(s) on the
instrument(s), or the person(s) or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
- -------------------------------------
Notary Public
My Commission Expires
----------------
9
<PAGE> 67
STATE OF CALIFORNIA )
) ss.
COUNTY OF _____________________ )
On ____________________________, _________ before me, __________________
____________________________ Notary Public, personally appeared
______________________ personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) ______________
subscribed to within the instrument and acknowledged to me that
___________________ executed the same in ______________________ authorzed
capacity(ies), and that by ________________________ signature(s) on the
instrument(s), or the person(s) or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
- -------------------------------------
Notary Public
My Commission Expires
----------------
10
<PAGE> 68
STATE OF CALIFORNIA )
) ss.
COUNTY OF _____________________ )
On ____________________________, _________ before me, __________________
____________________________ Notary Public, personally appeared
______________________ personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) ______________
subscribed to within the instrument and acknowledged to me that
___________________ executed the same in ______________________ authorzed
capacity(ies), and that by ________________________ signature(s) on the
instrument(s), or the person(s) or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
- -------------------------------------
Notary Public
My Commission Expires
----------------
11
<PAGE> 1
EXHIBIT 10.6
AGREEMENT OF SUBLEASE
AGREEMENT OF SUBLEASE (this "Sublease") made this 18th day of October
1999, by and between ICF Kaiser International, Inc., a Delaware corporation,
which has its principal office and place of business at 9300 Lee Highway,
Fairfax, Virginia 22031 (referred to herein as "ICF" or "Sublessor"), and Vision
Software Tools, Inc., a California corporation qualified to do business in the
State of California; having its principal office and place of business at 2101
Webster Street, 8th Floor, Oakland, CA 94612 ("Sublessee").
WITNESSETH
WHEREAS, ICF is the tenant under a certain Office Lease Agreement (as
amended) by and between Webster Street Partners, Ltd., as landlord ("Lessor")
and ICF, as tenant, dated May 16, 1997 and amended December 8, 1997 (the "Prime
Lease");
WHEREAS, pursuant to the Prime Lease, ICF is leasing space containing
approximately 46,940 square feet on the tenth (10th) and eleventh (11th) floors
of the office building commonly known as 2101 Webster Street, Oakland,
California (the "Building");
WHEREAS, Sublessee desires to sublease a portion of the space covered by
the Prime Lease, as hereinafter set forth.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
Section 1. SUBLEASED PREMISES.
Upon the terms and conditions set forth herein, Sublessor hereby sublets
to Sublessee, and Sublessee hereby hires and takes from the Sublessor, the
premises shown on Exhibit A attached hereto and made a part hereof, and
consisting of approximately 14,315 total rentable square feet, located on the
eleventh (11th) floor of the Building (the "Subleased Premises"). Tenant shall
have the right, at its sole cost and expense, to have the space measurement
confirmed according to standard BOMA method of measurement by an architect
approved by Sublessor. If said architect determined in writing that the space
measurement according to the standard BOMA method differs from 14,315 rentable
square feet, then, the Base Rent and Sublessee's Percentage (as defined in
Section 6 hereof, applicable to payment of additional rent hereunder) and all
other similar charges and amounts as set forth in this Sublease which are
calculated on square footage basis shall be adjusted in proportion to such
difference. Upon the written request of either party, Sublessor and Sublessee
shall in good faith mutually join in the execution of a written agreement
stipulating the adjustments as set forth by the foregoing sentence, if
necessary.
Section 2. TERM OF SUBLEASE.
This Sublease and all of the parties' respective rights, obligations and
liabilities hereunder shall commence on the full execution hereof by both
parties. The term of this Sublease ("Term") shall commence on October 11, 1999
(the "Rent Commencement Date"), and end on November 30, 2003 (the "Expiration
Date") or such earlier date upon which the Term
<PAGE> 2
shall expire or be canceled or terminated pursuant to any of the conditions or
covenants of this Sublease or pursuant to law.
SECTION 3. EARLY TERMINATION OF SUBLEASE
Provided that this Sublease is in full force and effect, and there
exists no uncured default of Sublessee hereunder, Sublessee shall have the
right, at its option, exercisable one time only, upon no less than six (6)
months prior written notice, to terminate this Sublease on November 30, 2000
("Early Termination Right"). In consideration of the Early Termination Right,
Sublessee shall pay to Sublessor, on or before the date on which Sublessee
vacates the Subleased Premises, an early termination payment ("Early Termination
Payment") in cash or cash equivalent calculated as set forth below in this
Section 3. The Early Termination Payment shall be paid by Sublessee in addition
to all other rents and sums due under the Sublease to and until the date on
which the Sublease terminates pursuant to the Early Termination Right. In the
event that the Sublessee exercises the Early Termination Right, the amount of
the Early Termination Payment shall be the total of any and all unamortized.
costs and expenses (including, without limitation, Brokers' fees and commissions
in the amount of Fifty-One Thousand Five Hundred Sixty-Eight Dollars
($51,568.00) and attorneys' fees and costs) paid in connection with the Sublease
Agreement. Sublessor shall notify Sublessee of the amount of the Early
Termination Payment on or before November 1, 2000. In consideration of the Early
Termination Right, Sublessee shall also automatically forfeit the entire
Security Deposit described in Section 10 hereof, which shall be retained by
Sublessor in the event that Sublessor has not, on or before January 30, 2001,
subleased the Subleased Premises to a third party subtenant through at least
November 30, 2003, on the same economic terms and conditions as set forth in
this Sublease. If Sublessor, on or before January 30, 2001, subleases the
Subleased Premises to a third party subtenant through at least November 30,
2003, the Security Deposit or such portion thereof, which is not used, applied
or retained by Sublessor pursuant to Section 10 hereof, shall be returned to
Sublessee. If Sublessor does not reoccupy the premises, Sublessor shall use
commercially reasonable efforts to attempt to sublease the Subleased Premises on
economic terms and conditions equal to or greater than set forth in this
Sublease, in the event Sublessee exercises the Early Termination Right.
SECTION 4. OPTION TO EXTEND SUBLEASE
(a) Provided that this Sublease is in full force and effect, and
there exists no uncured default by Sublessee hereunder, Sublessee shall have the
right, at its option, exercisable one time only, by written notice from
Sublessee to Sublessor provided no less than one hundred and eighty (180) days
prior to November 30, 2003, ("Option Notice") to extend the term of this
Sublease of the Subleased Premises (including any Additional Space subleased
pursuant to Section 18 hereof) in "as-is" condition through January 14, 2008,
commencing on December 1, 2003 (the "Option Period"). Upon the exercise of such
extension option by such Option Notice, the term of the Sublease shall
automatically be extended to include the Option Period, which Option Period
shall be governed by all of the terms, covenants and conditions set forth in
this Sublease; provided, however, that the Base Rent shall be determined and
established as set forth below in this Section 4, effective as of the first day
of the Option Period. In the event that all of the conditions precedent set
forth above are not satisfied at the time hereunder specified for the exercise
of the extension option, or, in the event that Sublessee fails to exercise such
option strictly within the time period set forth above, time being of the
essence herein, then, in either of
2
<PAGE> 3
such events, the option granted to Sublessee herein shall automatically be null
and void and of no further force and effect.
(b) In the event the term of this Sublease is extended to include
the Option Period, the Base Rent for the Option Period shall be an amount equal
to the fair market rental rate per square foot of the Subleased Premises (as of
the commencement of the Option Period) for office space of comparable size in
first class office buildings of comparable quality, design, age, tenant mix and
location. In no event, however, shall the Base Rent for the Option Period be
less than the previous year's escalated rent. In determining fair market rent,
factors which may affect Sublessor's return, but not Sublessee's expenditure,
such as downtime, commissions, and tenant concessions will not be taken into
account. In the event Sublessee exercises its option to extend the term of the
Sublease, the parties hereto shall forthwith execute an amendment to this
Sublease, which shall provide that such extension shall be governed by all of
the aforesaid terms and conditions.
(c) Sublessor shall give Sublessee within ten (10) days after the
exercise of the extension option by Sublessee, a statement setting forth
Sublessor's determination of the fair market rent determined on the basis of the
criteria set forth in Section 4(b) above. Sublessee shall give Sublessor written
notice within ten (10) days after its receipt of Sublessor's statement, whether
it accepts Sublessor's determination. If Sublessee does not in good faith accept
Sublessor's determination, then, the Sublessor and Sublessee, for a period of
ten (10) days thereafter, shall in good faith diligently negotiate the fair
market rent for the Subleased Premises for the Option Period.
(d) If, after the negotiation period described in Section 4(c)
above, the parties have failed to agree on a determination of such fair market
rent, then the fair market rent for the Option Period shall be determined by a
board of three (3) licensed real estate brokers, one of whom shall be named by
Sublessor, one by Sublessee, and the two so appointed shall select a third who
shall have no material direct conflict of interest with then current business
interests of either Sublessor or Sublessee. If the brokers are unable to appoint
the third broker, then Sublessor and Sublessee shall jointly request the local
board or association of realtors to appoint a third broker. The board of brokers
shall determine the fair market rental of the Subleased Premises for the
extension term in accordance with the criteria set forth in Section 4(b) above.
Each member of the board of brokers shall be licensed in the State of California
as a real estate broker, specializing in the field of commercial office leasing
in Oakland, California and its environs, with not less than ten (10) years of
relevant experience, and recognized as ethical and reputable within the field.
Sublessor and Sublessee agree to make their appointments promptly within five
(5) days after the expiration of the thirty (30) day period, or sooner if
mutually agreed upon. The two brokers selected by Sublessor and Sublessee shall
promptly select a third broker within ten (10) days after they both have been
appointed, and each broker, within fifteen (15) days after the third broker is
selected, shall submit his or her determination of said current market rental
rate. The current fair market rental rate shall be the mean of the two closest
rental rate determinations. Sublessor and Sublessee shall each pay the fee of
the broker selected by it, and they shall equally share the payment of the fee
of the third broker.
(e) Notwithstanding anything in this Sublease to the contrary, in
the event" that Sublessor exercises its right, pursuant to Section 8 of Rider
No. 1 to Office Lease of even date as the Prime Lease, to terminate the Prime
Lease at the end of the seventh year thereof, that is as of January. 14, 2005,
or to reduce the Premises (as defined in the Prime Lease) it is leasing pursuant
3
<PAGE> 4
to the Prime Lease at such time, then, Sublessor shall have the right, at its
sole option, without penalty, payment, or liability whatsoever, also to
terminate this Sublease early, coterminous therewith on January 14, 2005 by
written notice to Sublessee provided on or before the Termination Notice Date or
Reduction Notice Date (as such terms are defined in the Prime Lease). Sublessor
shall use commercially reasonable efforts, at Sublessee's sole cost and expense,
to assist Sublessee to obtain for the benefit of Sublessee, the consent and
agreement of Lessor, that if Sublessor elects to terminate this Sublease early,
Sublessee shall have the right to elect to have this Sublease continue in full
force and effect as a direct lease between Lessor and Sublessee, upon and
subject to all of the terms, conditions and covenants of this Sublease for the
balance of the Option Period.
SECTION 5. BASE RENT
Commencing on the Rent Commencement Date, Sublessee covenants and agrees
to pay to Sublessor, in currency which at the time of payment is legal tender
for public and private debts in the United States of America, as fixed base rent
("Base Rent") throughout the Term, the following sums, payable in monthly
installments:
<TABLE>
<S> <C>
Months 1-12: $1.90 per square foot per month,
Months 13-24: $1.95 per square foot per month,
Months 25-36 $2.00 per square foot per month, and
Months 37-50: $2.05 per square foot per month.
</TABLE>
Each monthly installment following the first shall be due and payable not later
than the first (1st) day of each month during the Term.
SECTION 6. ADDITIONAL RENT
(a) Notwithstanding the provisions of Section 5 above, Sublessee
also agrees for each year throughout the Term, to pay to Sublessor, as
additional rent under this Sublease, an amount equal to Sublessee's "Percentage"
(as hereinafter defined) of the amount by which "Operating Expenses" and "Real
Estate Taxes" (as defined in the Prime Lease) exceed the actual Operating
Expenses and Real Estate Taxes during the 1999 calendar year. Sublessee's
Percentage for this purpose shall be deemed to be 3.05% (being the Subleased
Premises divided by the rentable area of the Building of 456,187 square feet).
All such amounts payable to Sublessor pursuant hereto shall be apportioned
during the year in which this Sublease Term shall end, such that Sublessee shall
be obligated to pay a proportionate share of such additional rental which is
attributable to the number of days of the Term hereof. Sublessor shall provide
to Sublessee copies of all relevant statements and bills received by Sublessor
pursuant to the applicable provisions of the Prime Lease and pursuant hereto,
together with a statement of the amount of additional rent, if any, which
Sublessee is required to pay under this Section 6(a). Notwithstanding the
foregoing, Sublessee's Percentage share of the total increases, if any, in
Operating Expenses and Real Estate Taxes for each calendar year shall be limited
in accordance with Section 6 of Rider No. 1 of the Prime Lease.
(b) Sublessee's proportionate share of the additional rent payments
described in Section 6(a) shall be paid on an estimated basis in accordance with
the terms of the procedures described in Section 5 of the Prime Lease and shall
be reconciled in accordance with the procedures set forth in said section of the
Prime Lease; (to the extent said provisions are
4
<PAGE> 5
consistent with the provisions hereof), provided that Sublessee shall make all
payments of additional rent in the same manner of payment of Base Rent, not
later than the first day of each month during the Term. Sublessee shall also pay
to Sublessor, as additional rent, all reasonable and customary charges for any
additional services provided to Sublessee hereunder in accordance with the
provisions hereof, including, without limitation, charges and fees for
alterations and after-hours heating and air-conditioning services. Sublessee's
obligation to pay additional rent shall survive the termination of this
Sublease. For purposes of this Sublease, all Base Rent and additional rent shall
be referred to collectively as "Rental".
SECTION 7. THE PRIME LEASE
(a) Sublessee acknowledges that it has reviewed and is familiar with
all of the terms, covenants, and conditions of the Prime Lease, a copy of which
is attached hereto as Exhibit B and made a part hereof. Except as otherwise
expressly provided in, or otherwise inconsistent with this Sublease, or to the
extent not applicable to the Subleased Premises, all of the terms, covenants,
conditions, stipulations, rights, obligations, remedies, and agreements of the
Prime Lease are incorporated herein and made a part hereof as if set forth
herein at length. Sublessee assumes and agrees, except as otherwise provided
herein, to perform, observe, and comply with all of the terms, covenants, and
conditions to be performed, observed, and complied with by the tenant under the
Prime Lease and on the part of Sublessor to be performed, observed and complied
with under the Lease, as the same may or shall relate to the occupancy of the
Subleased Premises, and except as modified by this Sublease. Sublessee hereby
makes all waivers and grants all rights, for the benefit of Sublessor and
Lessor, made or granted by Sublessor as tenant under the Prime Lease.
Notwithstanding anything herein to the contrary, and without limitation to the
generality of the foregoing provisions, the parties hereto specifically
acknowledge and agree that the provisions of Rider No. 1 to Office Lease, except
for Sections 4, 6, 12, 14, 15 and 16, and except with respect to the rights of
Sublessor under Section 8 of said Rider as described in Section 3 hereof, are
personal to Sublessor and inconsistent with this Sublease, and that the
provisions of the First Amendment to Office Lease related to storage space, are
personal to Sublessor and inconsistent with this Sublease.
(b) This Sublease is expressly made subject to all of the terms,
covenants, and conditions of the Prime Lease, except as otherwise expressly
provided herein. Subject to the Consent to Sublease annexed hereto as Exhibit C,
this Sublease shall terminate upon the expiration or termination of the Prime
Lease, whereupon all covenants and agreements made by Sublessor herein shall
cease without prejudice to the right of Sublessor to recover all Rental accrued
to the latter of termination or recovery of the Subleased Premises.
(c) Except as otherwise specified in this Sublease, the time limits
set forth in the Prime Lease for the giving of notices, making demands,
performance of any act, condition or covenant, or the exercise of any right,
remedy or option, are changed for the purpose of this Sublease, by lengthening
or shortening the same in each instance, as appropriate, so that notices may be
given, demand made, or any act, condition or covenant performed or any right,
remedy, or option hereunder exercised, by Sublessor or Sublessee, as the case
may be, (and each party covenants that it will do so) within three (3) days
prior to the expiration of the time limit, taking into account the maximum grace
period, if any, relating thereto contained in the Prime Lease.
5
<PAGE> 6
SECTION 8. OCCUPANCY
(a) Sublessee shall use and occupy the Subleased Premises solely for
the purposes set forth in, and at all time in accordance with the requirements
of, Section 7 of the Prime Lease. Notwithstanding the foregoing, in addition to
general office use, Sublessee shall have the right to use the Subleased Premises
for the operation of equipment and facilities in connection with Sublessee's
software related business, subject to Lessor's prior written consent to such use
as required by the Prime Lease, and subject to the other provisions hereof. In
its use of the Subleased Premises for such purpose, Sublessee shall strictly
adhere to the provisions of the Prime Lease applicable to "Tenant's" use of the
Subleased Premises and the services thereto which shall apply fully to
Sublessee. Without limitation to the generality of the foregoing, Sublessee
shall strictly adhere to the provisions of Section 17 of the Prime Lease,
including, without limitation the electric demand and consumption levels set
forth in Section 17(b) thereof. Sublessee shall be solely responsible for the
payment of any additional rent, and any and all other costs and charges arising
out of Sublessee's installation, operation, maintenance, and repair of equipment
and facilities in the Subleased Premises in connection with its software
business. In addition to all other indemnities hereunder, Sublessee shall
indemnify and hold harmless Sublessor from and against any and all costs,
expenses, claims, and other liability arising out of the foregoing. The
Subleased Premises shall not be used for any other purpose without the prior
written consent of Lessor and Sublessor.
(b) Sublessee covenants that it shall occupy the Subleased Premises
in accordance with the terms hereof, including the Prime Lease, and shall not
suffer to be done or omit to do any act which results in a default under any of
the terms and conditions hereof or of the Prime Lease. Any other provision in
this Sublease to the contrary notwithstanding, Sublessee shall indemnify and
hold harmless Sublessor, and upon any such violation or default, shall also pay
to Sublessor, as additional rent, any and all sums which Sublessor may be
required to pay to the Lessor arising out of, by reason of, or resulting from
Sublessee's failure to perform or observe one or more of the terms and
conditions of the Sublease pertaining to the Subleased Premises and any other
related costs, except to the extent resulting from Sublessor's negligence or
willful misconduct. Without limitation to the foregoing whatsoever, if Sublessee
is a holdover tenant under this Sublease and causes Sublessor to be deemed a
holdover by the Lessor under the Prime Lease, Sublessee shall be liable to
Sublessor for and indemnify and hold harmless Sublessor from and against any and
all damages including consequential damages, resulting therefrom, and including,
without limitation, any and all claims made by any other sublessee or
prospective tenant or Lessor against Sublessor for delay by Sublessor in
delivering possession of the Subleased Premises. Sublessor, at its option, may
remove Sublessee and all its possessions from the Subleased Premises without any
liability whatsoever to the Sublessor.
(c) In the event Sublessee continues to occupy the Subleased
Premises after the termination of its right of possession pursuant to the terms
of this Sublease, then, in addition to other liabilities as set forth herein,
Sublessee shall, throughout the entire holdover period, pay rent equal to one
hundred fifty percent (150%) of the sum of the most recent amount of total
Rental which would have been applicable had the Term of this Sublease continued
through the period of such holding over by Sublessee. No holding over by
Sublessee or payments of money by Sublessee to Sublessor after expiration of the
term of this Sublease shall be construed to extend the Term of this Sublease or
to prevent the recovery of immediate possession of the Subleased Premises by
summary proceedings or otherwise as permitted pursuant to applicable
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law, unless Sublessor has sent written notice to Sublessee that Sublessor has
elected to extend the term of the Sublease.
(d) Notwithstanding anything to the contrary contained in this Sublease,
Sublessor shall not be required to perform any of the covenants and obligations
of the Lessor under the Prime Lease including, but without limitation
whatsoever, to provide any of the services that Lessor has agreed to provide,
whether or not specified in the Prime Lease (or required by law), or to furnish
any other services of any nature whatsoever to the Subleased Premises, or to
comply with any law or requirement of any governmental authorities, or take any
action that Lessor has agreed to provide, furnish, make, comply with, or take
under the Lease; but, Sublessor agrees to use all diligent efforts, at
Sublessee's sole cost and expense, upon Sublessee's request to obtain the same
from the Lessor, (provided, however, that Sublessor shall not be obligated to
use such efforts or take any action which might give rise to a default under the
Prime Lease or Sublease), and Sublessee shall rely upon, and look solely to
Lessor for the provision, furnishing, or making thereof or compliance therewith.
If Lessor shall default in the performance of any of its obligations under the
Prime Lease, as applicable, Sublessor shall, upon request and at the expense of
Sublessee, institute and prosecute any action or proceeding which Sublessee in
its reasonable judgment, deems meritorious, in order to have Lessor make such
repairs, furnish such services, or comply with any other obligations of Lessor
under the Prime Lease or as required by law, Sublessee shall indemnify and hold
Sublessor harmless from and against any and all such claims arising from or in
connection with such request, action or proceeding, except to the extent of
negligence or willful misconduct on the part of Sublessor. This indemnity and
hold harmless agreement shall include indemnity from and against any and all
liability, fines, suits, demands, costs, and expenses of any kind or nature,
including without limitation, reasonable attorneys' fees and disbursements,
incurred in connection with any such claim, action or proceeding brought
thereon. Sublessee shall not make any claim against Sublessor for any damage
which may arise, nor shall Sublessee's obligations hereunder be diminished, by
reason of (i) the failure of Lessor to keep, observe, or perform any of its
obligations pursuant to the Lease, as applicable, unless such failure is due to
Sublessor's negligence or willful misconduct, or (ii) the acts or omissions of
Lessor, their agents, contractors, servants, employees, invitees or licensees,
except to the extent of the negligence or willful misconduct of Sublessor. The
provisions of this section shall survive the expiration or earlier termination
of the Term hereof.
(e) If any event described in Paragraph 23 (Defaults and Remedies) of
the Prime Lease shall occur in respect of Sublessee or Sublessee's property, or
if Sublessee shall default in the payment of Base Rent or other Rental
hereunder, or in the performance or observance of any of the terms, covenants,
and conditions of this Sublease or the Prime Lease on the part of Sublessee to
be performed or observed, which default continues uncured following written
notice and the expiration of all applicable cure periods, Sublessor shall be
entitled to the rights, remedies, and indemnifications herein provided and/or
reserved by the Lessor in the Prime Lease, as applicable in addition to all
other rights and remedies herein specified.
SECTION 9. LEASEHOLD IMPROVEMENTS AND ALLOWANCES
(a) Sublessor subleases the Subleased Premises to Sublessee and
Sublessee accepts the Subleased Premises in "as-is" condition on the date
hereof, reasonable wear and tear between the date hereof and the Rent
Commencement Date excepted. Sublessor has not made and does
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not make any representations or warranties as to the physical condition of the
Subleased Premises, the use to which the Subleased Premises may be put, or any
other matter or thing affecting or relating to the Subleased Premises, except as
specifically set forth in this Sublease. Sublessor shall have no obligation
whatsoever to alter, improve, decorate or otherwise prepare the Subleased
Premises for Sublessee's occupancy.
(b) Notwithstanding anything herein to the contrary: (i) Sublessee shall
not make any alterations, installations, improvements, additions, or other
physical changes in or about the Subleased Premises, structural or otherwise,
(collectively, "Changes") without the prior written consent of both the Lessor
and Sublessor, which consent of Sublessor shall not be unreasonably withheld,
conditioned or delayed; provided, however, no consent shall be required for
Sublessee's reconfiguration of any Kaiser Assets (as hereinafter defined). In
addition, any Changes performed by Sublessee shall be performed in accordance
with Section 13 of the Prime Lease. If any Changes are made without said
required consent or not in accordance with said Section, then, without limiting
or waiving other available remedies, Sublessor may remove the same and correct,
repair and restore the Subleased Premises, and Sublessee shall be liable for any
and all costs and expenses incurred directly or indirectly, by Sublessor. Lessor
and Sublessor may condition their consents upon, among other things, Sublessee's
written agreement to restore the Subleased Premises satisfactory to Lessor and
Sublessor; both Lessor's and Sublessor's prior written approval of plans,
specifications, contractors and subcontractors; satisfaction of all insurance
obligations, and similar matters; and Sublessor's sole obligation under the
sections of the Prime Lease which are incorporated herein shall be to request
that Lessor comply with the terms of the Prime Lease.
SECTION 10. SECURITY DEPOSIT
(a) Upon execution of this Sublease, Sublessee shall deposit with
Sublessor a sum equal to two (2) months Base Rent as security for the prompt,
full, and faithful performance by Sublessee of each and every provision of this
Agreement of Sublease and of all obligations of Sublessee hereunder (the
"Security Deposit"). In the event that, Sublessee does not exercise the Early
Termination Right described in Section 3 hereof, then, if the Sublease is then
in full force and effect and there exists no uncured default by Sublessee
hereunder, the Security Deposit shall be reduced, and Sublessor shall refund to
Sublessee the difference between the Security Deposit paid and an amount equal
to the scheduled Base Rent for the last month of the Term on or before June 30,
2000, and shall retain the balance as security hereunder. Said Security Deposit
may be commingled with other funds of Sublessor and no interest or income from
said security deposit shall be due Sublessee. In the event of default that is
not cured within any applicable notice and cure periods, Sublessor may use,
apply, or retain all or any part of the Security Deposit for payment of any (i)
Base Rent or additional Rental; (ii) any sum expended by Sublessor on
Sublessee's behalf in accordance with the provisions of this Sublease; (iii) any
sum which Sublessor may expend or be required to expend by reason of Sublessee's
default, including damages or deficiency in the reletting of the Subleased
Premises; (iv) failure of Sublessee to indemnify or hold harmless Sublessor as
required under this Sublease. The use, application, or retention of the Security
Deposit, or any portion thereof, by Sublessor shall not prevent Sublessor from
exercising any other right or remedy provided by this Agreement of Sublease or
by law; and, shall not operate as a limitation on any recovery to which
Sublessor may otherwise be entitled. If any portion of the Security Deposit is
used, applied, or retained by Sublessor for a purpose set forth above, Sublessee
agrees that within five (5) days after a written demand
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therefor is made by Sublessor he will deposit with the Sublessor an amount
sufficient to restore the Security Deposit to its original amount.
(b) If Sublessee shall fully and faithfully comply with all of the
provisions of this Sublease, the Security Deposit, or any balance thereof, shall
be returned to Sublessee after the expiration of the Tenn. Sublessee shall
notify Sublessor in writing of Sublessee's request for the return of the
Security Deposit or balance thereof. Upon receipt of said written request
Sublessor shall refund the Security Deposit or balance thereof to Sublessee
within thirty (30) days from the written request. Upon return of the Security
Deposit or balance thereof to the Sublessor, the Sublessee shall be completely
relieved of liability under this Section.
SECTION 11. EMINENT DOMAIN; LOSS BY CASUALTY
Notwithstanding any contrary provision of this Sublease or the
provisions of the Prime Lease, Sublessee shall not have the right to terminate
this Sublease as to all or any part of the Subleased Premises, and shall not be
entitled to any abatement of Base Rent, additional rent or any other item of
Rental, by reason of a casualty or condemnation affecting the Subleased Premises
unless Sublessor is entitled to terminate the Prime Lease or be entitled to a
corresponding abatement with respect to its corresponding obligation under the
Prime Lease. If Sublessor is entitled to terminate the Prime Lease for all or
any portion of the Subleased Premises by reason of casualty or condemnation,
Sublessee may terminate this Sublease as to any corresponding part of the
Subleased Premises by written notice to Sublessor given at least five (5)
business days prior to the date(s) Sublessor is required to give notice to
Lessor of such termination under the terms of the Prime Lease. In the event of
any damage by fire or other casualty to the Subleased Premises rendering the
Subleased Premises wholly or in part untenantable, Sublessee shall acquiesce in
and be bound by any action taken by or agreement with respect thereto entered
into by Lessor pursuant to Section 21 of the Prime Lease, and Sublessee shall be
entitled to its proportionate share of the rent abatement to the extent actually
received by Sublessor for the Subleased Premises, as described therein.
SECTION 12. INTENTIONALLY DELETED
SECTION 13. ASSIGNMENT OR SUBLETTING
(a) Sublessee shall not assign, sell, transfer (whether by operation of
law or otherwise), pledge, mortgage or otherwise encumber this Sublease or any
portion of its interest in the Subleased Premises, nor sublet all or any portion
of the Subleased Premises, nor permit any other person or entity to use or
occupy all or any portion of the Subleased Premises, without the prior written
consent of Sublessor, and Lessor. It is further agreed that, except as provided
in Section 13(c) below, any sale, assignment or other disposition of a majority
of the capital stock, or other controlling interest in the capital stock, and/or
all or substantially all of the assets of the Sublessee to any person or entity
shall constitute a prohibitive transfer for purposes hereof, which shall require
the prior written consent of Sublessor pursuant hereto; provided, however, in no
event shall the transfer or sale of any publicly traded stock of Sublessee
require Sublessor's consent. Provided that Sublessee shall comply with the
provisions of this Sublease and the Prime Lease with respect to subletting, and
provided that Sublessee pay for the reasonable processing cost and attorneys'
fees of Sublessor and Lessor incurred in connection with any such sublease,
Sublessor agrees that it shall not unreasonably withhold its consent to a
subletting of all or any portion of the Subleased Premises, provided that Lessor
shall consent to such subletting.
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Upon the written request of Sublessee, Sublessor, at Sublessee's sole cost and
expense, shall request the consent of the Lessor and shall use commercially
reasonable efforts to cooperate with Sublessee in obtaining any such consents.
(b) If this Sublease shall be assigned, or, if the Subleased Premises or
any part thereof be sublet or occupied by any person, firm, or corporation other
than Sublessee, Sublessor may, after default by Sublessee in its obligations
hereunder, collect rent from the assignee, subtenant, or occupant and apply the
net amount collected to the rent payments and additional rent payable hereunder;
but, no such assignment, subletting, occupancy, or collection shall be deemed a
waiver of this covenant or the acceptance of the assignee, sublessee, or
occupant as tenant, or a release of Sublessee from the future performance by it
of the covenants on the part of it herein contained. The consent by Sublessor to
an assignment or a subletting shall not, in any way, be construed to relieve
Sublessee from obtaining the express consent in writing of Sublessor to any
further assignment or subletting. Any attempt to mortgage, or encumber this
Sublease, or to sublet, or to suffer or permit the Subleased Premises or any
part thereof to be used by others, without the prior written consent of
Sublessor and Lessor will constitute a default under this Sublease. To do so
will subject Sublessee to all remedies and liabilities set forth herein.
(c) Provided the Sublessee is not in default hereof, notwithstanding
anything to the contrary contained in this Section 13 or in the Prime Lease,
Sublessee shall have the right to assign this Sublease in its entirety or
sub-sublease all or any portion of the Subleased Premises without the prior
written consent of Sublessor to (i) any entity resulting from a merger or
consolidation with Sublessee, (ii) any subsidiary or affiliate of Sublessee, and
(iii) any subcontractor performing duties relating to a contract with Sublessee
(collectively, the "Permitted Transferees") subject to the following terms and
conditions.
A. In the case of an assignment, the assignee shall demonstrate to
Sublessor and Lessor financial strength of at least equal to that of Sublessee
at the time of the assignment.
B. In the case of a sub-sublease, the use of the sub-sublessee shall
be reasonably the same as Sublessee and falls under the classification of
General Office Use and shall be subject to Section 24(m) of the Prime Lease.
SECTION 14. "SUBLESSOR"
The term "Sublessor" as used in this Sublease means only the tenant
under the Prime Lease at the time in question, so that if the Prime Lease shall
be assigned, such assignor shall be thereupon released and discharged from all
covenants, conditions, and agreements of Sublessor hereunder, provided that such
covenants, conditions, and agreements shall be binding upon each successor
assignee until thereafter assigned.
SECTION 15. INSURANCE
Sublessee, at its sole expense, shall insure the Subleased Premises
against all risks and in such amounts and with carriers as required of "Tenant"
under Section 20 of the Prime Lease, shall maintain a loss payable endorsement
in favor of Sublessor and Lessor affording to Sublessor and/or Lessor such
additional protection as Sublessor and/or Lessor reasonably require, and shall
maintain liability insurance satisfactory to Sublessor and/or Lessor.
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Notwithstanding anything herein to the contrary, however, such policies shall
also afford protection to the limit of $1,000,000 with respect to bodily injury
or death to any one person, to the limit of $1,000,000 with respect to bodily
injury or death to any number of persons in any one accident, and to the limit
of $1,000,000 with respect to damage to the property of any one owner from one
occurrence. All such insurance policies must name both Sublessor and Lessor as
additional insureds and loss payees, and must provide that such insurance
policies may not be canceled or altered without at least thirty (30) days prior
written notice to Sublessor. This Sublease is not effective unless and until
Sublessee delivers copies of certificates of all such insurance to Sublessor.
The waivers of subrogation contained in Section 20(e) of the Prime Lease shall
be expressly applicable to Sublessee and Sublessor under this Sublease.
SECTION 16. INDEMNITY
In addition to all other indemnities hereunder, Sublessee agrees to
indemnify and hold harmless each of Sublessor and Lessor from and against any
and all claims, losses, actions, damages, liabilities, and expenses (including
attorneys' fees) that (i) arise from or are in connection with Sublessee's
possession, use, occupancy, management, repair, maintenance, or control of the
Subleased Premises and the Kaiser Assets (defined in Section 19 hereof), or any
portion thereof, (ii) arise from or are in connection with any willful or
negligent act or omission of Sublessee or Sublessee's agents, employees,
subtenants or other "Agents" (as hereinafter defined), (iii) result from any
default, breach, violation, or nonperformance of Sublessee hereunder, (iv) arise
from injury or death to persons or damage to property sustained on or about the
Subleased Premises, including, without limitation, to the Kaiser Assets; and (v)
without in any way limiting the breadth of the scope of the foregoing
indemnities, arise directly or indirectly from the obligations and liabilities
with respect to Hazardous Materials (as defined in Section 56 of the Prime
Lease) pursuant to Section 56 of the Prime Lease incorporated herein pursuant to
Section 7 hereof as the same hereby apply to Sublessee, its agents, servants,
employees, subtenants, officers, directors, invitees, guests, clients,
contractors and their respective representatives (collectively, the "Agents");
to the extent the matters referenced in (i) through (v) above are not caused by
the negligence or willful misconduct of Sublessor. Sublessee shall, at its own
cost and expense, defend any and all actions, suits, and proceedings which may
be brought against Sublessor and/or Lessor with respect to the foregoing or in
which Sublessor and/or Lessor may be impleaded. Sublessee shall pay, satisfy,
and discharge any all money judgments, which may be recovered against Sublessor
and/or Lessor in connection with the foregoing. Sublessee's obligations
hereunder shall survive the expiration of this Sublease with respect to acts or
events occurring or alleged to have occurred prior to the end of the Term.
SECTION 17. PARKING
Sublessor will provide Sublessee the right to one (1) standard
automobile parking space in the Basement Garage (as defined in the Prime Lease)
and twenty-one (21) parking spaces in the Multi-Story Parking Facility (as
defined in the Prime Lease) for the Term of the Sublease. Sublessor shall be
fully responsible for the payment of said parking at prevailing market rates
pursuant to the terms set forth in Section 25 of the Basic Lease Terms of the
Prime Lease, and shall comply otherwise with the provisions of, and shall be
subject to the restrictions, terms, and conditions regarding parking
specifically set forth in, Paragraph 39 of the Prime Lease as well as Exhibit F
thereto. If Sublessee, pursuant to Section 18, leases any Additional Space,
Sublessee
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shall have the right to the pro rata parking rights under the Prime Lease that
are attributable to the Additional Space.
SECTION 18. ADDITIONAL SPACE
(a) Sublessee shall have the first right to negotiate for office space
contiguous to the Subleased Premises on the eleventh (11th) floor of the
Building occupied by Sublessor on the Commencement Date and as it becomes
available in the event Sublessor determines to sublease such space during the
term hereof (such space, as it becomes available, referred to herein as, the
"Additional Space"). This right of first negotiation shall be effective from and
after the expiration, without exercise, of the Early Termination Right.
Sublessor shall not make any Additional Space available for sublease by
unrelated third parties prior to expiration of the Early Termination Right and
Sublessor's compliance with this Section 18. This right of first negotiation is
personal to the Sublessee and may not be transferred to any assignee or
sub-subtenant hereunder (other than a Permitted Transferee) without the prior
written approval of Sublessor. Sublessor shall provide Sublessee from time to
time with written notice of the availability of Additional Space and the date
Sublessor determines, in its sole discretion, that it shall become available for
subleasing (the "Sublessor Additional Space Notice"). If Sublessee desires to
sublease such Additional Space, Sublessee shall provide notice (the "Sublessee
Additional Space Notice") to Sublessor, within fifteen (15) days after its
receipt of the Sublessor Additional Space Notice and the parties shall
thereafter negotiate diligently and in good faith, in an effort to agree upon
the terms for the sublease of the Additional Space. A sublease of Additional
Space shall be governed by all of the terms, covenants and conditions set forth
in this Sublease, and shall be coterminous herewith, except for the amount of
the base rent and additional rent payable by Sublessee, which shall be the
prevailing fair market rent for space comparable to the Additional Space in
buildings of comparable design, age, tenant mix, and location. The determination
of fair market rent shall be made in accordance with the criteria and procedures
set forth in Section 4 above for the Term extension option, which shall apply to
Additional Space expansion. In the event the parties have not agreed upon the
fair market rent for such Additional Space and executed an amendment to this
Sublease for such Additional Space within thirty (30) days of the date of
Sublessor's receipt of the Sublessee Additional Space Notice, and/or in the
event Sublessee does not timely deliver to Sublessor the Sublessee Additional
Space Notice, the right of first negotiation provided herein shall automatically
terminate and expire with respect to such Additional Space and Sublessor may
thereafter lease such Additional Space to such parties and upon such terms and
conditions as Sublessor may determine in its sole discretion. In the event any
Additional Space becomes available, which such Additional Space has been
previously offered to Sublessee and Sublessee has not elected to sublease such
Additional Space, then in such event Sublessee shall not again have any rights
with respect to such Additional Space. Nothing contained herein shall require
Sublessor to subdivide any such Additional Space or any portion thereof.
(b) The rights granted to Sublessee hereinabove in this Section 18 shall
be void and of no force and effect unless at the time specified in Section 18(a)
above for exercising such right of first negotiation all of the following
conditions precedent shall have been fully satisfied: (i) this Sublease shall be
in full force and effect; (ii) there shall be no uncured default hereunder; and
(iii) Sublessee must in good faith intend to occupy and use this Additional
Space within six (6) months from the date such Additional Space becomes a part
of the Subleased Premises.
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SECTION 19. FURNITURE, FIXTURES AND EQUIPMENT
(a) Sublessor hereby agrees to lease to Sublessee and Sublessee hereby
agrees to lease from Sublessor throughout the Term of the Sublease and any
extensions thereof; all of that furniture, fixtures and equipment presently
located in the Subleased Premises as detailed in Exhibit D hereto ("Kaiser
Assets"). In the event that Sublessee expands its Subleased Premises pursuant to
Section 18 hereof, Sublessee shall also lease the furniture, fixtures and
equipment located therein on the terms and conditions set forth in this Section
19. Sublessee shall pay to Sublessor monthly rent for the lease of the Kaiser
Assets in the amount of $0.34 per rentable square foot of the Subleased Premises
per month. Sublessee shall not directly or indirectly remove any of the Kaiser
Assets on or from the Subleased Premises during the Term, or pledge, assign,
sublease, encumber or otherwise transfer any of the Kaiser Assets or any
interest therein, without the prior written consent of Sublessor. Sublessee
shall, during the Term, at its sole cost and expense, keep and maintain the
Kaiser Assets in good working order, condition, and repair, ordinary wear and
tear excepted. Sublessee shall maintain such insurance on the Kaiser Assets of
types and in amounts as Sublessor may reasonably request, and Sublessor shall be
named as an additional insured and loss payee on said policies of insurance, and
such policies must provide that they may not be canceled or altered without at
least thirty (30) days prior written notice to Sublessor. Promptly upon the
expiration or termination of this Sublease, Sublessee shall deliver the Kaiser
Assets to Sublessor in the same condition as on the date hereof, ordinary wear
and tear excepted. Without limiting any other rights or remedies of Sublessor
hereunder, Sublessee agrees to pay promptly to Sublessor fifty percent of the
original value of any Kaiser Asset not so delivered, as a penalty.
(b) Throughout the Term of this Sublease, provided that and as long as
Sublessee occupies office space on the eighth (8th) floor of the Building
pursuant to its separate lease agreement in effect on the date hereof, Sublessor
shall permit Sublessee to utilize space in Telephone Data Hub Room, located on
the tenth (10th) floor of the Building for Sublessee to interconnect its
communication systems between the eighth (8th) and eleventh (11th) floors of the
Building. The final location and method of the pathway between premises shall be
subject to the prior written approval of Sublessor, which approval shall not be
unreasonably withheld, conditioned or delayed, and Lessor. Sublessee shall
submit detailed plans to the Sublessor and the Lessor for their review and
written approval prior to the commencement of any work.
SECTION 20. CONSENT OF LESSOR UNDER PRIME LEASE
Sublessee hereby acknowledges and agrees that this Sublease is subject
to and conditioned upon Sublessor obtaining the written consent of Lessor
pursuant to that certain Consent to Sublease and Recognition Agreement annexed
hereto as Exhibit C ("Consent") as provided in the Prime Lease. Promptly
following the execution and delivery hereof, Sublessor shall submit this
Sublease and this Consent to Lessor. Sublessee hereby agrees that it shall
cooperate in good faith with Sublessor and shall comply with any reasonable
requests made of Sublessee by Sublessor in the procurement of the Consent. In no
event shall Sublessor be obligated to make any payment to Lessor in order to
obtain the Consent or the consent to any provision hereof, other than as
expressly set forth in this Sublease. In the event that Lessor shall not have
executed and delivered the Consent within five (5) business days after the date
of the full execution hereof, either party shall have the right to cancel this
Sublease by five (5) business days prior written notice given to the other at
any time thereafter prior to the execution and
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delivery of the Consent, and with the expiration of such notice period (except
if such Consent is obtained prior thereto) this Sublease shall be deemed
canceled and of no further force or effect, and neither party shall have any
liability or obligation to the other in respect thereof.
SECTION 21. NOTICES
Any notice or demand required or permitted to be given by the provisions
hereof must be in writing and will be conclusively deemed to have been received
by a party hereto on the day it is delivered to such party at the address
indicated below or, if sent by registered or certified U.S. mail, on the fifth
business day after the day on which mailed, or if sent by recognized commercial
courier service, on the second day after the day delivered to the service,
addressed to such party at such address:
If to Sublessor: ICF Kaiser International, Inc.
9300 Lee Highway
Fairfax, VA 22031-1207
ATTN: Terry O'Connor
with a copy to: Squire, Sanders & Dempsey L.L.P.
1201 Pennsylvania Avenue, NW Suite 500
Washington, DC 20004
ATTN: Susan Bierman
If to Sublessee: Vision Software Tools, Inc.
2101 Webster Street, Suite 1100
Oakland, CA 94612
ATTN: Chief Financial Officer
The person to receive notices or the address for such notices may be
changed from time to time by written notice in accordance with this Section.
Section 22. BINDING EFFECT
The covenants, conditions, and agreements contained herein shall be
binding upon and inure to the benefit of Sublessor and Sublessee and their
respective heirs, executors, administrators, successors, and/or assigns, as
permitted hereby.
SECTION 23. APPLICABLE LAW/SEVERABILITY
This Sublease is entered into in the State of California, and its
validity and interpretation shall be construed in accordance with the laws of
that state (without giving effect to the doctrine of conflict of laws). Any
provision of this Sublease prohibited by, or unlawful or unenforceable under any
applicable law shall be ineffective only to the extent invalid without
invalidating the remaining provisions of this Sublease. For purposes of
California law, this Sublease shall be deemed to be a deed of lease executed
under seal. Neither this Sublease nor any memorandum thereof shall be recorded
without the prior written consent of Sublessor and Lessor.
14
<PAGE> 15
SECTION 24. PRIORITY
In the event of conflict or ambiguity with the Prime Lease, the terms of
this Sublease shall control the rights and obligations of the parties hereto.
SECTION 25. BROKERAGE
Except for CB Richard Ellis, the procuring broker, and LOH Realty &
Investments, the listing broker, Sublessor and Sublessee represent and warrant
each to the other that each has dealt with no broker, agent or other person in
connection with this transaction. Sublessee and Sublessor each agrees to
indemnify and hold harmless the other from and against any claim by any other
broker, agent or other person claiming a commission or other form of
compensation by virtue of having dealt with Sublessee or Sublessor, as
applicable, with regard to this leasing transaction. Sublessor shall be
responsible for all commissions payable to Brokers in connection with this
Sublease. The provisions of this Section shall survive the termination of this
Sublease.
SECTION 26. SUBLESSOR'S REPRESENTATIONS, WARRANTIES AND CONSENT.
Sublessor hereby represents and warrants to Sublessee that (i) to its
knowledge, the Prime Lease is in full force and effect and neither Lessor nor
Sublessor is in default thereunder; and (ii) to its knowledge, the Subleased
Premises, including any tenant improvements made by Sublessor, and the Kaiser
Assets are in good working order and condition. Sublessor shall perform its
obligations as tenant under the Prime Lease and to the extent such obligations
are not assumed by Sublessee hereunder. In the event Sublessor fails to perform
said obligations, Sublessee's sole remedy shall be to seek recovery of its
actual damages directly resulting from such failure; Sublessee shall have no
right to terminate this Sublease.
SECTION 27. CONSENT OF LENDER.
Sublessee shall use all diligent efforts to have Lessor obtain for the
benefit of Sublessee the full execution of Non-Disturbance, Attornment and
Subordination Agreements in substantially the same form as the agreements
attached as Exhibit E from all lenders and ground lessors of the property
("Lender Agreements") upon execution of such Lender Agreements by Sublessee
(provided, however, that Sublessor shall not be obligated to use such efforts or
take any action which might give rise to a default under the Prime Lease).
Sublessee agrees that it shall cooperate in good faith with Sublessor and Lessor
and shall comply with any reasonable requests made of Sublessee in the
procurement of the full execution of the Lender Agreements. In no event shall
Sublessor be obligated to make any payment to any party to said Lender
Agreements to obtain the same for the benefit of Sublessee.
SECTION 28. EXISTING IMPROVEMENTS AND KAISER ASSETS.
Reference is made to the Improvements existing in the Subleased Premises
as of the commencement of the Term of this Sublease ("Existing Improvements").
Notwithstanding anything in this Sublease to the contrary, Sublessee shall have
no obligation to remove the Existing Improvements upon the expiration or
termination of this Sublease. Upon the expiration or termination of this
Sublease, if requested by Sublessor, in addition to all other obligations
hereunder, Sublessee shall have the obligation to restore the Existing
Improvements and Kaiser
15
<PAGE> 16
Assets to the layout and configuration existing as of the commencement of the
Term of this Sublease.
SECTION 29. ENTIRE AGREEMENT
Sublessor and Sublessee acknowledge that there are no agreements or
understandings, written or oral, between Sublessor and Sublessee with respect to
the Subleased Premises, other than as set forth in this Sublease and the
Exhibits hereto, including the Prime Lease, incorporated herein by reference,
and that this Sublease and the Exhibits hereto may not be altered, modified,
terminated or discharged except by a writing signed by the party against whom
such alteration, modification or discharge is sought. This Sublease is offered
to Sublessee for signature with the express understanding and agreement that
this Sublease shall not be binding upon Sublessor unless and until the Lessor
shall have executed and delivered a fully executed copy of the Consent to
Sublessor and Sublessee.
IN WITNESS WHEREOF, Sublessor and Sublessee have caused this Sublease to
be executed by their duly authorized representatives all as of the day and year
first above written.
SUBLESSOR:
WITNESS: ICF KAISER INTERNATIONAL, INC.
/s/ [Signature Illegible] By: /s/ [Signature Illegible]
- ------------------------------- ---------------------------------
Title: SENIOR VICE PRESIDENT
------------------------------
SUBLESSEE:
WITNESS: VISION SOFTWARE TOOLS, INC.
/s/ [Signature Illegible] By: JOHN A. HEWITT JR
- ------------------------------- ---------------------------------
Title: John A. Hewitt Jr
------------------------------
16
<PAGE> 17
EXHIBIT A
"Subleased Premises" - Approximately 14,315 (plus or minus) Rentable Square Feet
[FLOOR PLAN]
<PAGE> 1
EXHIBIT 10.7
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. DEFINITIONS AND CONSTRUCTION .......................................................1
1.1 Definitions...............................................................1
1.2 Accounting Terms..........................................................5
2. LOAN AND TERMS OF PAYMENT...........................................................5
2.1 Equipment Advances........................................................5
2.2 Interest Rates, Payments, and Calculations................................6
2.3 Crediting Payments........................................................6
2.4 Fees......................................................................7
2.5 Additional Costs..........................................................7
2.6 Term......................................................................7
3. CONDITIONS OF LOANS.................................................................7
3.1 Conditions Precedent to Initial Advance...................................7
3.2 Conditions Precedent to all Advances......................................8
4. CREATION OF SECURITY INTEREST.......................................................8
4.1 Grant of Security Interest................................................8
4.2 Delivery of Additional Documentation Required ............................8
4.3 Right to Inspect .........................................................8
5. REPRESENTATIONS AND WARRANTIES......................................................9
5.1 Due Organization and Qualification........................................9
5.2 Due Authorization; No Conflict............................................9
5.3 No Prior Encumbrances.....................................................9
5.4 Merchantable Inventory....................................................9
5.5 Name; Location of Chief Executive Office..................................9
5.6 Litigation................................................................9
5.7 No Material Adverse Change in Financial Statements........................9
5.8 Solvency..................................................................9
5.9 Regulatory Compliance.....................................................9
5.10 Environmental Condition...................................................10
5.11 Taxes.....................................................................10
5.12 Subsidiaries..............................................................10
5.13 Government Consents.......................................................10
5.14 Full Disclosure...........................................................10
6. AFFIRMATIVE COVENANTS ..............................................................10
6.1 Good Standing.............................................................10
6.2 Government Compliance.....................................................10
6.3 Financial Statements, Reports, Certificates...............................10
6.4 Inventory; Returns........................................................11
6.5 Taxes.....................................................................11
6.6 Insurance.................................................................11
6.7 Principal Depository......................................................11
6.8 Debt-Service Ratio........................................................12
6.9 Debt-Net Worth Ratio......................................................12
6.10 Tangible Net Worth........................................................12
6.11 Registration of Intellectual Property Rights..............................12
6.12 Further Assurances........................................................12
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
7. NEGATIVE COVENANTS .................................................................12
7.1 Dispositions..............................................................12
7.2 Change in Business........................................................12
7.3 Mergers or Acquisitions...................................................12
7.4 Indebtedness..............................................................13
7.5 Encumbrances..............................................................13
7.6 Distributions.............................................................13
7.7 Advances to Employees or Shareholders.....................................13
7.8 Investments...............................................................13
7.9 Transactions with Affiliates..............................................13
7.10 Subordinated Debt.........................................................13
7.11 Inventory.................................................................13
7.12 Compliance................................................................13
8. EVENTS OF DEFAULT...................................................................14
8.1 Payment Default...........................................................14
8.2 Covenant Default..........................................................14
8.3 Material Adverse Change...................................................14
8.4 Attachment................................................................14
8.5 Insolvency................................................................14
8.6 Other Agreements..........................................................14
8.7 Subordinated Debt.........................................................15
8.8 Judgments.................................................................15
8.9 Misrepresentations........................................................15
9. BANK'S RIGHTS AND REMEDIES..........................................................15
9.1 Rights and Remedies.......................................................16
9.2 Power of Attorney.........................................................16
9.3 Accounts Collection.......................................................16
9.4 Bank Expenses.............................................................16
9.5 Bank's Liability for Collateral...........................................16
9.6 Remedies Cumulative.......................................................16
9.7 Demand; Protest...........................................................17
10. NOTICES.............................................................................17
11. CHOICE OF LAWAND VENUE; JURY TRIAL WAIVER...........................................17
12. GENERAL PROVISIONS..................................................................17
12.1 Successors and Assigns....................................................17
12.2 Indemnification...........................................................18
12.3 Time of Essence...........................................................18
12.4 Severability of Provisions................................................18
12.5 Amendments in Writing, Integration .......................................18
12.6 Counterparts..............................................................18
12.7 Survival..................................................................18
12.8 Confidentiality...........................................................18
</TABLE>
ii
<PAGE> 4
This LOAN AND SECURITY AGREEMENT ("Agreement") is entered into as of
January 23, 1997, by and between Venture Lending, a Division of Cupertino
National Bank & Trust ("Bank" and Vision Software Tools, Inc. ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1 . DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means an Equipment Advance made pursuant
to Section 2.1.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls
or is controlled by or is under common control with such Person, and each of
such Person's senior executive officers, directors, and partners.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, whether or not suit is
brought.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
hereto.
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<PAGE> 5
"Committed Line" means One Million Dollars ($1,000,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person, against fluctuation in
interest rates, currency exchange rates or commodity prices: provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Current Assets" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Advances
made under this Agreement, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt, and excluding non-refundable deferred revenue.
"Daily Balance" means the amount of the Obligations owed at the
end of a given day.
"Debt Service Ratio" means, as measured quarterly as of the last
day of each fiscal quarter of Borrower, the ratio of (a) an amount equal to the
sum of (i) net income, plus (ii) depreciation, amortization of intangible
assets, interest, taxes and other non-cash charges to income to (b) an amount
equal to the sum of all scheduled repayment for such quarter and mandatory
prepayments, if any, for the next quarter of principal on account of long-term
debt.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"Indebtedness' means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
2
<PAGE> 6
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note
or notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means July 23, 2000.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other documents relating to this credit, whether absolute or contingent, due or
to become due, now existing or hereafter arising, including any interest that
accrues after the commencement of an Insolvency Proceeding and including any
debt, liability, or obligation owing from Borrower to others that Bank may have
obtained by assignment or otherwise.
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
3
<PAGE> 7
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business;
(e) Indebtedness with respect to capital lease obligations and
Indebtedness secured by Permitted Liens; and
(f) Extension, renewals, refundings, refinancings,
modifications, amendments and restatements of any of the items of Permitted
Indebtedness (a) through (e) above, provided that the principal amount thereof
is not increased or the terms thereof are not modified to impose more materially
burdensome terms upon Borrower.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank.
(c) Investments resulting from any merger, consolidation or
acquisition permitted under Section 7.3.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Bank's
security interests;
(c) Liens (i) upon or in any equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) and (c) above, provided that any extension, renewal or replacement
Lien shall be limited to the property encumbered by the existing Lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase.
4
<PAGE> 8
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently published in The Wall Street Journal, as the "prime rate," whether
or not such published rate is the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the amount thereof
shall be determined, the consolidated cash, cash-equivalents, accounts
receivable and investments, with maturities not to exceed 90 days, of Borrower
determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer,
the Chief Financial Officer and the Controller of Borrower.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which (i)
any general partnership interest or (ii) more than 50% of the stock of which by
the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity shall, at the time as of which any
determination is being made, be owned by Borrower, either directly or through an
Affiliate.
"Tangible Net Worth" means at any date as of which the amount
thereof shall be determined, the consolidated total assets of Borrower and its
Subsidiaries minus, without duplication, (i) the sum of any amounts attributable
to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, and (ii) Total Liabilities.
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt, and excluding non-refundable deferred revenue.
1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
made hereunder shall be made in accordance with GAAP. When used herein, the
terms "financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
2.1 Equipment Advances.
(a) At any time from the date hereof through July 23, 1997
and January 23, 1998 (each an "Equipment Availability Date"), Borrower may from
time to time request advances (each an "Equipment Advance" and, collectively,
the "Equipment Advances") from Bank in an aggregate principal amount of up to
One Million Dollars ($1,000,000). The Equipment Advances shall be only used to
finance the purchase price of or to purchase Equipment approved from time to
time by Bank and shall not exceed One Hundred percent (100%) of the cost of such
Equipment, excluding installation expense, freight discounts, warranty charges
and taxes.
5
<PAGE> 9
(b) Interest shall accrue from the date of each Equipment
Advance at the rate specified in Section 2.2(a), and shall be payable monthly
for each month through the month in which the Equipment Availability Date falls.
The Equipment Advance or Equipment Advances that are outstanding on the
Equipment Availability Date will be payable in thirty six (36) equal monthly
installments of principal, plus accrued interest, beginning on the 15th day of
the month following the Equipment Availability Date.
(c) When Borrower desires to obtain an Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by facsimile
transmission received no later than 3:00 p.m. California time one (1) Business
Day before the day on which the Equipment Advance is to be made. Such notice
shall be in substantially the form of Exhibit B. The notice shall be signed by a
Responsible Officer and include a copy of the invoice for the Equipment to be
financed.
2.2 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section 2.3(b), any
Advances shall bear interest, on the average Daily Balance, at a rate equal to
three-quarters (0.75) percentage points above the Prime Rate. If Borrower fails
to receive at least Five Million Dollars ($5,000,000) in new equity proceeds by
January 31, 1997, and a total of at least Ten Million Dollars ($10,000,000) in
new equity proceeds by June 15, 1997, the interest rate shall be adjusted
retroactively to one percentage point (1.0) above the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from and
during the continuance of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on the
15th calendar day of each month during the term hereof. Bank shall, at its
option, charge such interest, all Bank Expenses, and all Periodic Payments to
the extent such interest, Bank Expenses, and all Periodic Payments are then due
against any of Borrower's deposit accounts or against the Committed Line, in
which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m., on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.3 Crediting Payments. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. During the
continuation of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 12:00 noon California time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
6
<PAGE> 10
2.4 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to Five Thousand Dollars
($5,000), which fee shall be due on the Closing Date and shall be fully earned
and nonrefundable:
(b) Financial Examination and Appraisal Fees. In regards to
Section 4.3, Bank's customary fees and out-of-pocket expenses for Bank's audits
of Borrower's Accounts and each appraisal of Collateral and financial analysis
and examination of Borrower performed from time to time by Bank or its agents;
(c) Bank Expenses. Upon the date hereof, all reimbursable Bank
Expenses incurred through the Closing Date, including up to Two Thousand Dollars
($2,000) in attorneys' fees and expenses, and, after the date hereof, all Bank
Expenses, including reasonable attorneys' fees and expenses, as and when they
become due.
2.5 Additional Costs. In case any change in any law, regulation,
treaty or official directive or the interpretation or application thereof by any
court or any governmental authority charged with the administration thereof or
the compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.6 Term. This Agreement shall become effective on the Closing Date
and, subject to Section 12.7, shall continue in full force and effect for a term
ending on the Maturity Date. Notwithstanding the foregoing, Bank shall have the
right to terminate its obligation to make Advances under this Agreement
immediately and without notice upon the occurrence and during the continuance of
an Event of Default. Notwithstanding termination, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Advance. The obligation of Bank
to make the initial Advance is subject to the condition precedent that Bank
shall have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
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(b) a certificate of the Secretary of Borrower with
respect to incumbency and resolutions authorizing the execution and delivery of
this Agreement:
(c) financing statements (Forms UCC-1);
(d) insurance certificate;
(e) payment of the fees and Bank Expenses then due
specified in Section 2.4 hereof,
(f) a collateral assignment and patent mortgage; and
(g) such other documents, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances. The obligation of
Bank to make each Advance, including the initial Advance, is further subject to
the following conditions:
(a) timely receipt by Bank of the Payment/Advance
Form as provided in Section 2.1;
(b) the representations and warranties contained in
Section 5 shall be true and correct in all material respects on and as of the
date of such Payment/Advance Form and on the effective date of each Advance as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Advance. The making of
each Advance shall be deemed to be a representation and warranty by Borrower on
the date of such Advance as to the accuracy of the facts referred to in this
Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and pledges
to Bank a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof.
4.2 Delivery of Additional Documentation Required. Borrower
shall from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Upon the occurrence and during the
continuance of Event of Default, Bank (through any of its officers, employees,
or agents) shall have the right, upon reasonable prior notice, during Borrower's
usual business hours, to inspect Borrower's Books and to make copies thereof and
to check, test, and appraise the Collateral in order to verify Borrower's
financial condition or the amount, condition of, or any other matter relating
to, the Collateral.
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5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each
Subsidiary is a corporation duly existing and in good standing under the laws of
its state of incorporation and qualified and licensed to do business in, and is
in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution, delivery,
and performance of the Loan Documents are within Borrower's powers, have been
duly authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and
indefeasible title to the Collateral, free and clear of Liens, except for
Permitted Liens.
5.4 Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.5 Name; Location of Chief Executive Office. Except as
disclosed in the Schedule, Borrower has not done business under any name other
than that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.6 Litigation. Except as set forth in the Schedule, there
are no actions or proceedings pending by or against Borrower or any Subsidiary
before any court or administrative agency in which an adverse decision could
have a Material Adverse Effect or a material adverse effect on Borrower's
interest or Bank's security interest in the Collateral. Borrower does not have
knowledge of any such pending or threatened actions or proceedings.
5.7 No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank.
5.8 Solvency. Borrower is solvent and able to pay its debts
(including trade debts) as they mature.
5.9 Regulatory Compliance. Borrower and each Subsidiary has
met the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from Borrower's
failure to comply with ERISA that is reasonably likely to result in Borrower's
incurring any liability that could have a Material Adverse Effect. Borrower is
not an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940. Borrower is not
engaged principally, or as one of the important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
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5.10 Environmental Condition. None of Borrowers or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment.
5.11 Taxes. Borrower and each Subsidiary has filed or caused
to be filed all tax returns required to be filed, and has paid, or has made
adequate provision for the payment of, all taxes reflected therein.
5.12 Subsidiaries. Borrower does not own any stock,
partnership interest or other equity securities of any Person, except for
Permitted Investments.
5.13 Government Consents. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all governmental authorities that are
necessary for the continued operation of Borrower's business as currently
conducted.
5.14 Full Disclosure. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of
its Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall
cause each Subsidiary to meet, the minimum funding requirements of ERISA with
respect to any employee benefit plans subject to ERISA. Borrower shall comply,
and shall cause each Subsidiary to comply, with all statutes, laws, ordinances
and government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower
shall deliver to Bank: (a) as soon as available, but in any event within thirty
(30) days after the end of each month, a company prepared consolidated balance
sheet and income statement covering Borrower's consolidated operations during
such period, certified by a Responsible Officer; (b) as soon as available, but
in any event within
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one hundred and twenty (120) days after the end of Borrowers fiscal year,
audited consolidated financial statements of Borrower prepared in accordance
with GAAP, consistently applied, together with an unqualified opinion on such
financial statements of an independent certified public accounting firm
reasonably acceptable to Bank; (c) within five (5) days upon becoming available,
copies of all statements. reports and notices sent or made available generally
by Borrower to its security holders or to any holders of Subordinated Debt and
all reports on Form 1O-K and 10-Q filed with the Securities and Exchange
Commission, (d) promptly upon receipt of notice thereof, a report of any legal
actions pending or threatened against Borrower or any Subsidiary that could
result in damages or costs to Borrower or any Subsidiary of One Hundred Thousand
Dollars ($100,000) or more; and (e) such budgets, sales projections, operating
plans or other financial information as Bank may reasonably request from time to
time.
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit C hereto.
6.4 Inventory: Returns. Borrower shall keep all Inventory in
good and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement. Borrower
shall promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes, Borrower shall make, and shall cause each
Subsidiary to make, due and timely payment or deposit of all material federal,
state, and local taxes, assessments, or contributions required of it by law, and
will execute and deliver to Bank, on demand, appropriate certificates attesting
to the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the
Collateral insured against loss or damage by fire, theft, explosion, sprinklers,
and all other hazards and risks, and in such amounts, as ordinarily insured
against by other owners in similar businesses conducted in the locations where
Borrowers business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's,
(b) All such policies of insurance shall be in such
form, with such companies, and in such amounts as reasonably satisfactory to
Bank. All such policies of property insurance shall contain a lender's loss
payable endorsement, in a form satisfactory to Bank, showing Bank as an
additional loss payee thereof and all liability insurance policies shall show
the Bank as an additional insured, and shall specify that the insurer must give
at least twenty (20) days notice to Bank before canceling its policy for any
reason. Upon Bank's request, Borrower shall deliver to Bank certified copies of
such policies of insurance and evidence of the payments of all premiums
therefor. All proceeds payable under any such policy shall, at the option of
Bank, be payable to Bank to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its
principal depository and operating accounts with Bank,
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6.8 Debt Service Ratio. Borrower shall maintain, as of the
last day of each fiscal quarter, a Debt Service Ratio of at least 1.5 to 1.0. If
Borrower maintains, as of the last day of each fiscal quarter, a ratio of Quick
Assets to Current Liabilities of at least 1.5 to 1.0, then this Section 6.8 is
not required.
6.9. Debt-Net Worth Ratio. Borrower shall maintain, as of the
last day of each calendar month, a ratio of Total Liabilities less Subordinated
Debt to Tangible Net Worth plus Subordinated Debt of not more than 2.0 to 1.0.
6.10 Tangible Net Worth. Borrower shall maintain, as of the
last day of each calendar month, a Tangible Net Worth of not less than One
Million Dollars ($1,000,000).
6.11 Registration of Intellectual Property Rights. Borrower
shall register or cause to be registered (to the extent not already registered)
with the United States Patent and Trademark Office or the United States
Copyright Office, as applicable, those intellectual property rights listed on
Exhibits A, B and C to the Collateral Assignment, Patent Mortgage and Security
Agreement delivered to Bank by Borrower in connection with this Agreement within
thirty (30) days of the date of this Agreement. Borrower shall register or cause
to be registered with the United States Patent and Trademark Office or the
United States Copyright Office, as applicable, those additional intellectual
property rights developed or acquired by Borrower from time to time in
connection with any product prior to the sale or licensing of such product to
any third party, including without limitation revisions or additions to the
intellectual property rights listed on such Exhibits A, B and C. Borrower shall
execute and deliver such additional instruments and documents from time to time
as Bank shall reasonably request to perfect Bank's security interest in such
additional intellectual property rights.
6.12 Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise
dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than: (i) Transfers
of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive
licenses or licenses granted for territorial exclusivity and similar
arrangements for the use of the property of Borrower or its Subsidiaries; (iii)
Transfers of worn-out or obsolete Equipment; or (iv) Transfers resulting from
any mergers, consolidation or acquisition permitted under Section 7.3. Upon
merger collateral assets cannot be transferred to a subsidiary outside of the
United States.
7.2 Change in Business. Engage in any business, or permit
any of its Subsidiaries to engage in any business, other than the businesses
currently engaged in by Borrower and any business substantially similar or
related thereto (or incidental thereto), or suffer a material change in
Borrower's ownership. Borrower will not, without thirty (30) days prior written
notification to Bank, relocate its chief executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit
any of its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person, except
that:
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(a) any of Borrower's Subsidiaries may merge with,
consolidate into or transfer all or substantially all of its assets to another
of Borrower's Subsidiaries or to Borrower and in connection therewith such
Subsidiary may be liquidated or dissolved, provided that (i) if the transaction
involves Borrower, Borrower shall be the surviving Person, and (ii) if any
transaction shall be between a non-wholly owned Subsidiary and a wholly owned
Subsidiary, the wholly owned Subsidiary shall be the continuing or surviving
Person, and provided further that no Event of Default shall result therefrom;
(b) Borrower may merge with or consolidate into, or
acquire all or substantially all of the capital stock or property of any other
Person, provided that (i) Borrower is the surviving Person, and (ii) no such
merger, consolidation or acquisition shall be made while there exists an Event
of Default or if an Event of Default would occur as a result thereof; and
(c) Borrower or any of its Subsidiaries may
otherwise merge with or consolidate into, or acquire all or substantially all of
the capital stock or property of any other Person with the prior written consent
of Bank.
7.4 Indebtedness. Create, incur, assume or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist
any Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock.
7.7 Advances to Employees or Shareholders. Advance after
closing date by way of payment, credit or other manner, any unearned funds to
employees or shareholders of Borrower in excess of Twenty Thousand Dollars
($20,000).
7.8 Investments. Directly or indirectly acquire or own, or
make any Investment in or to any Person, or permit any of its Subsidiaries so to
do, other than Permitted Investments.
7.9 Transactions with Affiliates. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a nonaffiliated
Person.
7.10 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.11 Inventory. Store the Inventory with a bailee,
warehouseman, or similar party unless Bank has received a pledge of the
warehouse receipt covering such inventory. Except for Inventory sold in the
ordinary course of business and except for such other locations as Bank may
approve in writing, Borrower shall keep the Inventory only at the location set
forth in Section 10 hereof and such other locations of which Borrower gives Bank
prior written notice and as to which Borrower signs and files a financing
statement where needed to perfect Bank's security interest.
7.12 Compliance. Become an "Investment company" controlled by
an "Investment company," within the meaning of the investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose. Fail
to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as
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defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards
Act or violate any law or regulation, which violation could have a Material
Adverse Effect or a material adverse effect on the Collateral or the priority of
Bank's Lien on the Collateral, or permit any of its Subsidiaries to do any of
the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay the principal
of, or any interest on, any Advances when due and payable; or fails to pay any
portion of any other Obligations not constituting such principal or interest,
including without limitation Bank Expenses, within thirty (30) days of receipt
by Borrower of an invoice for such other Obligations;
8.2 Covenant Default. If Borrower fails to perform any
obligation under Sections 6.8, 6.9, 6.10 or violates any of the covenants
contained in Article 7 of this Agreement, or fails or neglects to perform, keep,
or observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after Borrower
receives notice thereof or any officer of Borrower becomes aware thereof:
provided, however, that if the default cannot by its nature be cured within the
ten (10) day period or cannot after diligent attempts by Borrower be cured
within such ten (10) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed thirty (30) days) to attempt to cure such default,
and within such reasonable time period the failure to have cured such default
shall not be deemed an Event of Default (provided that no Advances will be
required to be made during such cure period);
8.3 Material Adverse change. If there occurs a material
adverse change in Borrower's business or financial condition, or if there is a
material impairment of the prospect of repayment of any portion of the
Obligations or a material impairment of the value or priority of Bank's security
interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets
is attached, seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any trustee, receiver or person acting in a
similar capacity and such attachment, seizure, writ or distress warrant or levy
has not been removed, discharged or rescinded within ten (10) days, or if
Borrower is enjoined, restrained, or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs, or if a
judgment or other claim becomes a lien or encumbrance upon any material portion
of Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrowers assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives, notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Advances will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding
is commenced against Borrower and is not dismissed or stayed within ten (10)
days (provided that no Advances will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement
to which Borrower is a party with a third party or parties resulting in a right
by such third party or parties, whether or not
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exercised, to accelerate the maturity of any Indebtedness in an amount in excess
of One Hundred Thousand Dollars ($100,000) or that could have a Material
Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on
account of Subordinated Debt, except to the extent such payment is allowed under
any subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of
money in an amount, Individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no
Advances will be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of Default
described in Section 8.5 all Obligations shall become immediately due and
payable without any action by Bank);
(b) Cease advancing money or extending credit to or
for the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Bank;
(c) Settle or adjust disputes and claims directly
with account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(d) Without notice to or demand upon Borrower, make
such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or Compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned premises Borrower hereby grants Bank a
license to enter into possession of such premises and to occupy the same,
without charge, for up to one hundred twenty (120) days in order to exercise any
of Bank's rights or remedies provided herein, at law, in equity, or otherwise;
(e) Without notice to Borrower set off and apply to
the Obligations any and all (i) balances and deposits of Borrower held by Bank,
or (ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral, Bank is hereby granted a license or other right,
solely pursuant to the provisions of this Section 9.1, to use, without charge,
Borrowers labels, patents, copyrights, rights of use of any name, trade secrets,
trade names, trademarks, service marks, and advertising matter, or any property
of a similar nature, as it pertains to the Collateral, in completing production
of, advertising for sale, and selling any Collateral and, in
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connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit:
(g) Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including Borrower's premises)
as Bank determines is commercially reasonable, and apply any proceeds to the
Obligations in whatever manner or order Bank deems appropriate;
(h) Bank may credit bid and purchase at any public
sale; and
(i) Any deficiency that exists after disposition of
the Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence
and during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as Borrowers
true and lawful attorney to: (a) send requests for verification of Accounts or
notify account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. At any time from the date of this
Agreement, Bank may upon five (5) business days' prior written notice to
Borrower notify any Person owing funds to Borrower of Bank's security interest
in such funds and verify the amount of such Account. Upon and during the
continuance of an Event of Default and if requested to do so by Bank, Borrower
shall collect all amounts owing to Borrower for Bank, receive in trust all
payments as Bank's trustee, and immediately deliver such payments to Bank in
their original form as received from the account debtor, with proper
endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or
furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of the
following: (a) make payment of the same or any part thereof; (b) obtain and
maintain insurance policies of the type discussed in Section 6.6 of this
Agreement, and take any action with respect to such policies as Bank deems
prudent. Any amounts so paid or deposited by Bank shall constitute Bank
Expenses, shall be immediately due and payable, and shall bear interest at the
then applicable rate hereinabove provided, and shall be secured by the
Collateral. Any payments made by Bank shall not constitute an agreement by Bank
to make similar payments in the future or a waiver by Bank of any Event of
Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank
complies with reasonable banking practices, Bank shall not in any way or manner
be liable or responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage thereto occurring or arising in any manner or fashion from any
cause; (c) any diminution in the value thereof; or (d) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other person whomsoever.
All risk of loss, damage or destruction of the Collateral shall be borne by
Borrower.
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<PAGE> 20
9.6 Remedies Cumulative. Bank's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Bank shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by Bank
of one right or remedy shall be deemed an election, and no waiver by Bank of any
Event of Default on Borrower's part shall be deemed a continuing waiver. No
delay by Bank shall constitute a waiver, election or acquiescence by it. No
waiver by Bank shall be effective unless made in a written document signed on
behalf of Bank and then shall be effective only in the specific instance and for
the specific purpose for which it was given.
9.7 Demand: Protest. Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, certified mail, postage prepaid; return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:
If to Borrower: Vision Software Tools, Inc.
2101 Webster Street, 8th Floor
Oakland, CA 94612
Attn: Prakash Bhaskaran
FAX: (510) 238-4101
If to Bank: Venture Lending
Three Palo Alto Square, Suite 150
Palo Alto, California 94306
Attn: David Sousa
FAX: (415) 843-6969
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE: JURY TRIAL WAIVER
This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
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<PAGE> 21
12.1 Successors and Assigns. This Agreement shall bind and
inure to the benefit of the respective successors and permitted assigns of each
of the parties; provided, however, that neither this Agreement nor any rights
hereunder may be assigned by Borrower without Bank's prior written consent,
which consent may be granted or withheld in Bank's sole discretion. Bank shall
have the right without the consent of or notice to Borrower to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall defend, indemnify and
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the
performance of all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement
cannot be amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
12.7 Survival. All covenants, representations and warranties
made in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
12.8 Confidentiality. In handling any confidential
information Bank shall exercise the same degree of care that it exercises with
respect to its own proprietary information of the same types to maintain the
confidentiality of any non-public information thereby received or received
pursuant to this Agreement except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Bank in connection with their
present or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Loans, provided that they have
entered into a comparable confidentiality agreement in favor of Borrower and
have delivered a copy to Borrower, (iii) as required by law, regulations, rule
or order, subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Bank and (v)
as Bank may determine in connection with the enforcement of any remedies
hereunder. Confidential information hereunder shall not include information that
either: (a) is in the public domain or in the knowledge or possession of Bank
when disclosed to Bank, or becomes part of the public domain after disclosure to
Bank through no fault of Bank; or (b) is disclosed to Bank by a third party,
provided Bank does not have actual knowledge that such third party is prohibited
from disclosing such information.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
VISION SOFTWARE TOOLS, INC.
By: /s/ J. A. HEWITT, JR.
-------------------------------------
Title: Vice President & CFO
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
VENTURE LENDING, a division of
CUPERTINO NATIONAL BANK & TRUST
By:/s/ [Signatures Illegible]
-------------------------------------
Title: AVP AVP
----------------------------------
19
<PAGE> 23
BORROWER: Vision Software Tools, Inc.
SECURED PARTY: Cupertino National Bank & Trust
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
All goods and equipment now owned or hereafter acquired,
including, without limitation, all machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
All contract rights and general intangibles now owned or
hereafter acquired, including, without limitation, goodwill, trademarks,
servicemarks, trade styles, trade names, patents, patent applications, leases,
license agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract
rights, royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Borrower, whether or not earned by performance,
and any and all credit insurance, guaranties, and other security therefor, as
well as all merchandise returned to or reclaimed by Borrower and Borrower's
Books relating to any of the foregoing;
All documents, cash, deposit accounts, securities, letters of
credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions,
know-how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
Any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof.
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<PAGE> 24
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This First Amendment to Loan and Security Agreement, dated as of
September 22, 1998, (the "Amendment"), is entered into by and between VISION
SOFTWARE TOOLS, INC. ("Borrower") and VENTURE BANKING GROUP, A DIVISION OF
CUPERTINO NATIONAL BANK (formerly known as Venture Lending) ("Bank").
Capitalized terms used herein without definition shall have the same meanings as
is given to them in the Agreement (defined below).
RECITALS
A. The Borrower and the Bank have entered into that certain Loan
and Security Agreement dated as of January 23, 1997, (as amended or modified
from time to time, the "Agreement") pursuant to which the Bank has agreed to
extend and make available to the Borrower certain advances of money.
B. Borrower has disclosed to Bank a breach of Sections 6.3, 6.8,
6.9, and 6.10, entitled Financial Statements, Report, Certificates; Debt Service
Ratio; Debt-Net Worth Ratio; and Tangible Net Worth, respectively.
C. Subject to the representations and warranties of the Borrower
herein and upon the terms and conditions set forth in this Amendment, the Bank
is willing to amend the Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and intending
to be legally bound, the parties hereto agree as follows:
SECTION 1. THE BORROWER'S REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants that:
(a) the execution, delivery, and performance of the Loan
Documents are within Borrower's powers, have been duly authorized, and are not
in conflict with nor constitute a breach of any provision contained in
Borrower's Amended and Restated Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default is reasonably expected to have a Material Adverse Effect; and
(b) Immediately before and immediately after giving effect
to this Amendment, no event shall have occurred and be continuing which
constitutes an Event of Default that has not be disclosed to Bank.
SECTION 2. AMENDMENTS TO THE LOAN AND SECURITY AGREEMENT.
2.1 Bank hereby waives Borrower's breach of Sections 6.3,
6.8, 6.9, and 6.10, entitled Financial Statements, Report, Certificates; Debt
Service Ratio; Debt-Net Worth Ratio; and Tangible Net Worth, respectively, of
the Loan Agreement, as the waiver through the calendar month ending October 31,
1998. Any further breach of these covenants after October 31, 1998, is not
waived.
Except as waived hereby, the Loan Agreement, as the same may have
previously been waived, shall remain unaltered and in full force and effect.
This Amendment shall not be a waiver of any existing default or breach of a
covenant unless specified herein.
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<PAGE> 25
2.2 Section 6.3 entitled Financial Statements, Report,
Certificates is hereby amended to allow Borrower until October 31, 1998, to
provide Bank with Borrower's December 31, 1997, CPA Audited financial statement.
2.3 A new Section 6.13 is hereby added to read in its
entirety:
6.13 Equity Infusion. The Equity Infusion (Series D)
shall occur on or prior to October 31, 1998. Equity Infusion means the receipt
by Borrower of not less than Six Million Dollars ($6,000,000) of proceeds from
the sale of its capital stock or Subordinated Debt, other than in a nonfinancing
transaction to employees, officers, directors or consultants of the Borrower. As
part of the Equity Infusion, the existing Two Million Eight Hundred Sixteen
Thousand Dollars ($2,816,000) in aggregate subordinated debt shall be converted
to equity.
SECTION 3. LIMITATION. The amendments and waivers set forth in this
Amendment shall be limited precisely as written and shall not be deemed (a) to
be a modification of any other term or condition of the Agreement or of any
other instrument or agreement referred to therein or to prejudice any right or
remedy which the Bank may now have or may have in the future under or in
connection with the Agreement or any instrument or agreement referred to
therein; or (b) to be a consent to any future amendment or waiver to any
instrument or agreement the execution and delivery of which is consented to
hereby, or to any waiver of any of the provisions thereof. Except as expressly
amended hereby, the Agreement shall continue in full force and effect.
SECTION 4. EFFECTIVENESS. This Amendment shall become effective upon:
(1) The execution and delivery of a copy hereof by Borrower
to the Bank;
(2) The execution and delivery of a certificate of the
Secretary of Borrower with respect to incumbency and resolutions authorizing the
execution and delivery of this Amendment;
(3) The execution and delivery of a Warrant for 10,000
shares of Series D Preferred Stock, priced at the average of the previous and
upcoming equity rounds;
(4) The payment Of the amendment fee in the amount of Four
Thousand ($4,000) by Borrower to the Bank;
(5) Copies of executed subordinated notes shall be delivered
by Borrower to Bank no later than October 13, 1998; and
(6) Bank shall have received, in form and substance
satisfactory to Bank, such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
SECTION 5. RELEASE AND WAIVER. BORROWER HEREBY REPRESENTS AND WARRANTS
TO THE BANK THAT IT HAS NO KNOWLEDGE OF ANY FACTS THAT WOULD SUPPORT A CLAIM,
COUNTERCLAIM, DEFENSE OR RIGHT OF SET-OFF, AND HEREBY RELEASES BANK FROM ALL
LIABILITY ARISING UNDER OR WITH RESPECT TO AND WAIVES ANY AND ALL CLAIMS,
COUNTERCLAIMS, DEFENSES AND RIGHTS OF SET-OFF, AT LAW OR IN EQUITY, THAT
BORROWER MAY HAVE AGAINST BANK EXISTING AS OF THE DATE OF THIS AMENDMENT ARISING
UNDER OR RELATED TO THIS AMENDMENT, THE AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS OR TO THE LOANS CONTEMPLATED HEREBY OR THEREBY OR TO ANY ACT OR
OMISSION TO ACT BY THE BANK WITH RESPECT HERETO OR THERETO.
SECTION 6. COUNTERPARTS. This Amendment may be signed in any number of
counterparts, and by different parties hereto in separate counterparts, with the
same effect as if the
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<PAGE> 26
signatures to each such counterpart were upon a single Instrument. All
counterparts shall be deemed an original of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
BORROWER VISION SOFTWARE TOOLS, INC.
By: J. A. Hewitt, Jr.
--------------------------------------
Title: 10/31/98
-----------------------------------
BANK VENTURE BANKING GROUP, a division of
Cupertino National Bank
By: /s/ [SIGNATURE ILLEGIBLE]
--------------------------------------
Title: V.P.
-----------------------------------
3
<PAGE> 27
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED (THE
"ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO SUCH WARRANT OR SECURITIES, OR DELIVERY OF AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE WITH THE ACT OR UNLESS SOLD IN FULL COMPLIANCE WITH RULE 144
UNDER THE ACT.
VISION SOFTWARE TOOLS, INC.
SERIES D PREFERRED STOCK PURCHASE WARRANT
September 22, 1998
THIS CERTIFIES THAT, for value received, Greater Bay Bancorp,
and its successors ("Warrantholder"), is entitled to subscribe for and purchase
from Vision Software Tools, Inc., a California corporation (the "Company"), ten
thousand (10,000) fully-paid and nonassessable shares (the "Shares") of the
Company's Series D Preferred Stock, such number of shares being subject to
adjustment upon the occurrence of the contingencies set forth in this Warrant.
The price per share for each Share received upon exercise of the Warrant is
$1.61 (the "Warrant Price"), such price being subject to adjustment upon the
occurrence of the contingencies set forth in this Warrant.
As used herein, the term "Series D Preferred Stock" shall mean
that series of Preferred Stock which shall be authorized in connection with the
Company's anticipated private placement of shares of Series D Preferred Stock
(the "Series D Private Placement"), and any stock into or for which such Series
D Preferred Stock may hereafter by converted or exchanged pursuant to the
Company's Second Amended and Restated Articles of Incorporation (the "Restated
Articles") that is to be filed in connection with the Series D Private
Placement, as amended from time to time. The designations, preferences and
limitations of the Series D Preferred Stock, and the terms and conditions of the
Series D Private Placement have yet to be determined. Any amendment to the
Restated Articles to designate the rights, preferences and privileges of the
Series D Preferred Stock shall be approved by the Company's stockholders, as
required by the Restated Articles and California law. The term "Grant Date"
shall mean the date set forth above after the title of the Warrant.
1. TERM. Subject to the terms hereof, the purchase right
represented by this Warrant is exercisable, in whole or in part, at any time and
from time to time the Grant Date to the earlier of (i) the date five (5) years
after the Grant Date, or (ii) the 90th day following the closing of the
Company's initial public offering under the Act.
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<PAGE> 28
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. The
purchase right represented by this Warrant may be exercised by the holder
hereof, in whole or in part and from time to time after the Grant Date, by the
surrender of this Warrant (together with the notice of exercise form attached
hereto as Exhibit A, duly executed) at the principal office of the Company and
by the payment to the Company, by check or bank draft, of an amount equal to the
then applicable Warrant Price per share multiplied by the number of Shares then
being purchased. The person or persons in whose name(s) any certificate(s)
representing Shares shall be issuable upon exercise of this Warrant shall be
deemed to have become the holder(s) of record of, and shall be treated for all
purposes as the record holder(s) of, the shares represented thereby (and such
shares shall be deemed to have been issued) immediately prior to the close of
business on the date or dates upon which this Warrant is exercised. In the event
of any exercise of the rights represented by this Warrant, certificates for the
shares of stock so purchased shall be delivered to the holder hereof as soon as
possible and in any event within 30 days of receipt of such notice and, unless
this Warrant has been fully exercised or expired, a new Warrant representing the
portion of the Shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the holder hereof as soon as
possible and in any event within such 30-day period.
3. NET ISSUANCE.
a. Right to Convert. In addition to and without limiting
the rights of the Warrantholder under the terms of the Warrant, the
Warrantholder shall have the right to convert the Warrant or any portion thereof
(the "Conversion Right") into shares of Series D Preferred Stock as provided in
this Paragraph 3 at any time or from time to time during the term of the
Warrant. Upon exercise of the Conversion Right with respect to a particular
number of shares subject to the Warrant (the "Converted Warrant Shares"), the
Company shall deliver to the Warrantholder (without payment by the Warrantholder
of any exercise price or any cash or other consideration) that number of shares
of fully paid and nonassessable Series D Preferred Stock computed using the
following formula:
X = Y(A - B)
--------
A
Where X= the number of shares of Series D Preferred Stock to be
issued to the Warrantholder
Y = the number of Converted Warrant Shares
A = the fair market value of one share of the Company's Series D
Preferred Stock on the Conversion Date (as defined below)
B = the per share exercise price of the Warrant (as adjusted to
the Conversion Date)
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other
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<PAGE> 29
than a whole number, the Company shall pay to the Warrantholder an amount in
cash equal to the fair market value of the resulting fractional share on the
Conversion Date. Shares issued pursuant to the Conversion Right shall be treated
as if they were issued upon the exercise of the Warrant.
b. Method of Exercise. The Conversion Right may be
exercised by the Warrantholder by the surrender of the Warrant at the principal
office of the Company together with a written statement specifying that the
Warrantholder thereby intends to exercise the Conversion Right and indicating
the number of shares subject to the Warrant which are being surrendered
(referred to in Paragraph 3(a) hereof as the Converted Warrant Shares) in
exercise of the Conversion Right. Such conversion shall be effective upon
receipt by the Company of the Warrant together with the aforesaid written
statement, or on such later date as is specified therein (the "Conversion
Date"). Certificates for the shares issuable upon exercise of the Conversion
Right and, if applicable, a new warrant evidencing the balance of the shares
remaining subject to the Warrant, shall be issued as of the Conversion Date and
shall be delivered to the Warrantholder promptly following the Conversion Date.
c. Determination of Fair Market Value. For purposes of
this Paragraph 3, fair market value of a share of Series D Preferred Stock shall
be equal to the fair market value of a share of the Company's Common Stock that
such Series D Preferred Stock is convertible into multiplied by the number of
shares of Common Stock such Series D Preferred Stock is convertible into as of
the Conversion Date, as provided under the Restated Articles. For the purposes
of this Paragraph 3, the fair market value of a share of Common Stock on the
Conversion Date shall mean:
(i) If traded on a stock exchange, the fair market value
of the Common Stock shall be deemed to be the average of the closing selling
prices of the Common Stock on the stock exchange determined by the Company's
Board of Directors to be the primary market for the Common Stock over the ten
(10) trading day period ending on the date prior to the Conversion Date, as such
prices are officially quoted in the composite tape of transactions on such
exchange;
(ii) If traded over-the-counter, the fair market value of
the Common Stock shall be deemed to be the average of the closing bid prices
(or, if such information is available, the closing selling prices) of the Common
Stock over the ten (10) trading day period ending on the date prior to the
Conversion Date, as such prices are reported by the National Association of
Securities Dealers through its NASDAQ system or any successor system; and
(iii) If there is no public market for the Common Stock,
then the fair market value shall be determined by the Board of Directors of the
Company in good faith.
4. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof. During the period within which the
rights represented by the Warrant may be exercised, the Company will at all
times have authorized and reserved for the purpose of issuance upon exercise of
the purchase rights evidenced by this Warrant, a sufficient number of shares of
its
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<PAGE> 30
Series D Preferred Stock and Common Stock to provide for the exercise of the
rights represented by this Warrant.
5. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number
and kind of securities purchasable upon the exercise of the Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
a. In case of (i) any reclassification of or similar
change in the Series D Preferred Stock; (ii) any merger of the Company with or
into another corporation (other than a merger with another corporation in which
the Company is a continuing corporation and which does not result in any
reclassification of or similar change in the Series D Preferred Stock); or (iii)
any sale of all or substantially all of the assets of the Company, the Company,
or such successor or purchasing corporation, as the case may be, shall execute a
new Warrant having substantially similar terms and providing that the holder of
this Warrant shall have the right to exercise such new Warrant for the kind and
number of shares of stock, other securities, money or property receivable upon
such reclassification, change, merger or sale by a holder of shares of Series D
Preferred Stock.
b. In case of (i) any subdivision or combination of the
Series D Preferred Stock or (ii) at any time or from time to time after the
issuance date of this Warrant, any declaration or payment, without
consideration, any dividend on the Series D Preferred Stock payable in shares of
its capital stock or in any right to acquire shares of its capital stock without
consideration, the number of shares of Series D Preferred Stock or other
security issuable upon exercise hereof shall be proportionately increased or
decreased, as appropriate.
c. No Impairment. The Company will not, by amendment of
its Restated Articles or 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 Company, but
will at all times in good faith assist in the carrying out of all the provisions
of this Paragraph 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
impairment.
6. NOTICE OF ADJUSTMENTS. Whenever the Warrant Price shall be
adjusted pursuant to the provisions hereof, the Company shall within 30 days of
such adjustment deliver a certificate signed by its chief financial officer to
the holder(s) hereof setting forth, in reasonable detail, the event requiring
the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Warrant Price after giving effect to such
adjustment.
7. NOTICE OF CERTAIN EVENTS. The Company shall deliver to the
Warrantholder notice of any events that any of the shareholders of the Company
are entitled to receive notice of. The Warrantholder shall receive the same
notice as the shareholders receive and notice to the Warrantholder shall be
delivered according to the same terms as any notice provided to the
shareholders.
8. INFORMATION RIGHTS. The Company shall deliver to the
Warrantholder the same financial and other information that it provides to any
of its shareholders. Such
4
<PAGE> 31
information shall be delivered to the Warrantholder in accordance with the
provisions governing the delivery of such information to the shareholders of the
Company.
9. FRACTIONAL SHARES. No fractional shares of Series D Preferred
Stock will be issued in connection with any exercise hereunder, but in lieu of
such fractional shares the Company shall make a cash payment therefor upon the
basis of the Warrant Price then in effect.
10. TRANSFERS AND EXCHANGES. This warrant shall not be
transferable except to partners, shareholders, family members and trusts of the
Warrantholder.
11. RIGHTS AS STOCKHOLDERS. No holder of this Warrant, as such,
shall be entitled to vote or receive dividends or be deemed the holder of Series
D Preferred Stock, nor shall anything contained herein be construed to confer
upon the holder of this Warrant, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until this
Warrant shall have been exercised and the Shares shall have become deliverable,
as provided herein.
12. MODIFICATION AND WAIVER. This Warrant and any provision
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
13. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered, or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address indicated on the signature page of this Warrant.
14. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding
upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company relating to the Shares shall survive the exercise and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof. The Company will, at the time of the exercise of this Warrant, in whole
or in part, upon request of the holder hereof but at the Company's expense,
acknowledge in writing its continuing obligation to the holder hereof in respect
of any rights to which the holder hereof shall continue to be entitled after
such exercise in accordance with this Warrant; provided, that the failure of the
holder hereof to make any such request shall not affect the continuing
obligation of the Company to the holder hereof in respect of such rights.
15. LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to
the holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, or like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
5
<PAGE> 32
16. GOVERNING LAW. This Warrant shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the laws
of the State of California.
17. COUNTERPARTS. This Series D Preferred Stock Purchase Warrant
may be executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
6
<PAGE> 33
IN WITNESS WHEREOF, this Series D Preferred Stock Purchase Warrant
is executed effective as of the date first above written,
VISION SOFTWARE TOOLS, INC.
By: [SIGNATURE ILLEGIBLE]
-------------------------------------
Address: 2101 Webster Street, 8th Floor
Oakland, California 94612
Accepted and Agreed:
WARRANTHOLDER:
GREATER BAY BANCORP
Signed: /s/ [SIGNATURE ILLEGIBLE]
--------------------------------------
Name: [ILLEGIBLE]
Title: V.P
7
<PAGE> 34
EXHIBIT A
NOTICE OF EXERCISE
To: Vision Software Tools, Inc.
2101 Webster Street, 8th Floor
Oakland, California 94612
Attn: Jack Hewitt
1. The undersigned hereby elects to purchase shares of Series D
Preferred Stock of Vision Software Tools, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name or names as are specified
below:
Name: ---------------------------------------
Address: ------------------------------------
------------------------------------
------------------------------------
3. The undersigned represents that the aforesaid shares being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares.
(Signature)
(Date)
8
<PAGE> 35
DISBURSEMENT REQUEST AND AUTHORIZATION
BORROWER: Vision Software Tools, Inc. BANK: Venture Banking Group
- --------------------------------------------------------------------------------
LOAN TYPE. This is a Variable Rate, Term Loan that had an original principal
amount up to $ 1,000,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: to finance past and
future equipment purchases.
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
<TABLE>
<S> <C>
Prepaid Finance Charges Paid In Cash: $ 4,000
$4,000 Amendment Fee ---------
Total Charges Paid in Cash $ 4,000 (automatic payment
--------- see below)
</TABLE>
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct from
Borrower's account numbered #3103838 the amount of any loan payment. If the
funds in the account are insufficient to cover any payment, Bank shall not be
obligated to advance funds to cover the payment.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF SEPTEMBER 22, 1998.
BORROWER: VISION SOFTWARE TOOLS, INC
-----------------------------
BY: /s/ J.A. HEWITT, JR.
------------------------------------
<PAGE> 36
CORPORATE RESOLUTIONS TO BORROW
- --------------------------------------------------------------------------------
Borrower: VISION SOFTWARE TOOLS, INC.
- --------------------------------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of Vision Software
Tools, Inc. (the "Corporation"), HEREBY CERTIFY that the Corporation is
organized and existing under and by virtue of the laws of the State of
California.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true
and complete copies of the Certificate of Incorporation and Bylaws of the
Corporation, each of which is in full force and effect on the date hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation,
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that any one (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
<TABLE>
<CAPTION>
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
<S> <C> <C>
Jack Hewitt President & CEO, & Corp. Sec'y /s/ J.A. HEWITT, JR.
- --------------------------------- ---------------------------------- ----------------------------------
- --------------------------------- ---------------------------------- ----------------------------------
- --------------------------------- ---------------------------------- ----------------------------------
- --------------------------------- ---------------------------------- ----------------------------------
- --------------------------------- ---------------------------------- ----------------------------------
</TABLE>
acting for and on behalf of this Corporation and as its act and deed be, and
they hereby are, authorized and empowered:
Borrow Money. To borrow from time to time from Venture Banking Group, a
division of Cupertino National Bank ("Bank"), on such terms as may be agreed
upon between the officers, employees, or agents and Bank, such sum or sums of
money as in their judgment should be borrowed, without limitation, including
such sums as are specified in that certain Loan and Security Agreement dated as
of January 23, 1997, as amended or modified from time to time (the "Loan
Agreement").
Execute Notes. To execute and deliver to Bank the promissory note or
notes of the Corporation, on Lender's forms, at such rates of interest and on
such terms as may be agreed upon, evidencing the sums of money so borrowed or
any indebtedness of the Corporation to Bank, and also to execute and deliver to
Lender one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, or any portion of
the notes.
<PAGE> 37
Grant Security. To grant a security interest to Bank in the Collateral
described In the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
Negotiate Items. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
Letters of Credit, Foreign Exchange. To execute letters of credit
applications, foreign exchange agreements and other related documents pertaining
to Bank's issuance of letters of credit and foreign exchange contracts.
Issue Warrants. To issue warrants to purchase the Corporation's capital
stock, for such series and number, and on such terms, as an officer of the
Corporation shall deem appropriate.
Further Acts. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to
these resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full force
and effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above
are duly elected, appointed, or employed by or for the Corporation, as the case
may be, and occupy the positions set forth opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Corporation;
and that the Resolutions are in full force and effect and have not been modified
or revoked In any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on September 22, 1998
and attest that the signatures set opposite the names listed above are their
genuine signatures.
CERTIFIED TO AND ATTESTED BY:
/s/ J.A. HEWITT, JR.
-----------------------------------------
<PAGE> 1
EXHIBIT 10.8
SENIOR LOAN AND SECURITY AGREEMENT NO. 6262
THIS SENIOR LOAN AND SECURITY AGREEMENT NO. 6262 (this "Security Agreement") is
dated as of August 20, 1999 between VISION SOFTWARE TOOLS, INC., a California
corporation ("Borrower") and PHOENIX LEASING INCORPORATED, a California
corporation ("Lender").
RECITALS
A. Borrower desires to borrow from Lender in one or more borrowings the
Commitment amount as defined in Section 3(a)(ii) below, and Lender desires to
loan, subject to the terms and conditions herein set forth, such amount to
Borrower (each, a "Loan" and collectively, the "Loans"). Such borrowings shall
be evidenced by one or more Senior Secured Promissory Notes (each, a "Note" and
collectively, the "Notes"), in the form attached hereto.
B. As security for Borrower's obligations to Lender under this Security
Agreement, the Notes and any other agreement between Borrower and Lender,
Borrower will grant to Lender hereunder a first priority security interest in
certain of its equipment, machinery, fixtures, other items and intangibles and
also certain custom use equipment, installation and delivery costs, purchase
tax, toolings, software and other items generally considered fungible or
expendable ("Soft Costs") whether now owned by Borrower or hereafter acquired,
and all substitutions and replacements of and additions, improvements,
accessions and accumulations to said equipment, machinery and fixtures and other
items, together with all rents, issues, income, profits and proceeds therefrom,
in each case, which is described on the Note attached hereto or any
subsequently-executed Note entered into by Lender and Borrower and which
incorporates this Security Agreement by reference (collectively, the
"Collateral").
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
SECTION 1. TERM OF AGREEMENT. The term of this Security Agreement begins on the
date set forth above and shall continue thereafter and be in effect so long as
and at any time any Note entered into pursuant to this Security Agreement is in
effect. The Term and monthly payment amount payable with respect to each item of
Collateral shall be as set forth in and as stated in the respective Note(s). The
terms of each Note hereto are subject to all conditions and provisions of this
Security Agreement as it may at any time be amended. Each Note shall constitute
a separate and independent Loan and contractual obligation of Borrower and shall
incorporate the terms and conditions of this Security Agreement and any
additional provisions contained in such Note. In the event of a conflict between
the terms and conditions of this Security Agreement and any provisions of such
Note, the provisions of such Note shall prevail with respect to such Note only.
SECTION 2. NON-CANCELABLE LOAN. This Security Agreement and each Note cannot be
canceled or terminated except as expressly provided herein. Borrower agrees that
its obligations to pay all monthly payment amounts and other sums payable
hereunder (and under any Note) and the rights of Lender and any assignee in and
to such monthly payment amounts and other sums, are absolute and unconditional
and are not subject to any abatement, reduction, setoff, defense, counterclaim
or recoupment due or alleged to be due to, or by reason of, any past, present or
future claims which Borrower may have against Lender, any assignee, the
manufacturer or seller of the Collateral, or against any person for any reason
whatsoever.
SECTION 3. LENDER COMMITMENT. (a) General Terms. Subject to the terms and
conditions of this Security Agreement, Lender hereby agrees to make one or more
senior secured Loans to Borrower, subject to the following conditions: (i) each
Loan shall be evidenced by a Note; (ii) the total principal amount of the Loans
shall not exceed $1,000,000 in the aggregate (the "Commitment") provided that no
more than 20% of
1
<PAGE> 2
the amount of the utilized Commitment may be used to finance Soft Costs; (iii)
the amount of each Loan shall be at least $25,000 except for a final Loan which
may be less than $25,000; (iv) Lender shall not be obligated to make any Loan
after March 31, 2000 provided that the funding period may be extended to April
30, 2000 if Lender has received and approved in its sole discretion Borrower's
new monthly business plan (all quarterly figures will be prorated monthly); (v)
at the time of each Loan, no Event of Default or event which with the giving of
notice or passage of time, or both, would become an Event of Default shall have
occurred, as reasonably determined by Lender, and certified by Borrower; (vi) at
the time of each Loan, Borrower has reimbursed Lender for all UCC filing and
search costs, inspection and labeling costs, and appraisal fees, if any; (vii)
for each Loan, Borrower shall present to Lender a list of proposed Collateral
for approval by Lender in its sole discretion; (viii) for each Loan, Borrower
shall have provided Lender with each of the closing documents described in
Exhibit A hereto (which documents shall be in form and substance reasonably
acceptable to Lender); (ix) Borrower is performing substantially in accordance
with its business plan referred to as "Vision Software Tools, Inc. Revised 1999
Operating Plan, 1998 (actual) and 1999 (planned) Statement of Operations
($ thousands)" dated 5/4/99 3:02PM and "1999 Balance Sheets (actual through
February 1999) Revised Plan" dated 4/15/99 6:19PM, only viable through March 31,
2000 (all quarterly figures will be prorated to monthly), as may be supplemented
and amended from time to time in form and substance acceptable to Lender
(collectively, the "Financial Plan"); (x) there shall be no material adverse
change in Borrower's condition, financial or otherwise, that would materially
impair the ability of Borrower to meet its payment and other obligations under
this Loan (a "Material Adverse Effect") as reasonably determined by Lender, and
Borrower so certifies, from (yy) the date of the most recent financial
statements delivered by Borrower to Lender to (zz) the date of the proposed
Loan; (xi) prior to payment in full of all Notes, Borrower shall not after the
date hereof offer any loan secured by any equipment, furniture or fixtures to
any other person or entity other than Lender, unless Lender declines to finance
such transaction or Borrower and Lender are unable to agree on the terms of such
financing; (xii) Borrower shall use the proceeds of all Loans hereunder to
purchase or reimburse the purchase of Collateral; (xiii) all Collateral has been
marked and labeled by Lender or Lender's agent; and (xiv) Lender has received in
form and substance acceptable to Lender: (a) Intercreditor Agreements or UCC
releases; (b) Borrower's interim financial statements signed by a financial
officer of Borrower, (c) prior to the first funding, evidence of Borrower's
$3,431,000 cash position as of April 30, 1999; (d) prior to each funding,
evidence that Borrower's cash balance is at least equal to that shown in the
Financial Plan or $1,000,000, whichever is greater, and (e) complete copies of
the Borrower's audit reports for its most recent fiscal year, which shall
include at least Borrower's balance sheet as of the close of such year, and
Borrower's statement of income and retained earnings and of changes in financial
position for such year, prepared on a consolidated basis and certified by
independent public accountants. Such certificate shall not be qualified or
limited because of restricted or limited examination by such accountant of any
material portion of the company's records. Such reports shall be prepared in
accordance with generally accepted accounting principles and practices
consistently applied.
(b) The Notes. Each Loan shall be evidenced by a Note. Each Note shall
bear interest and be payable at the times and in the manner provided therein.
Following payment of the Indebtedness related to each Note, Lender shall return
such Note, marked "cancelled," to Borrower. Borrower has the ability to prepay
all, but not fewer than all, outstanding Notes in whole but not in part. The
prepayment amount shall be the sum of (i) and (ii) below, discounting the
amounts in (ii) at a rate of 6% per annum compounded monthly on the basis of a
360 day year: (i) all amounts which may be then due or accrued to the payment
date for all outstanding Notes; (ii) as of such payment date, an amount equal
to: (A) all remaining monthly payments due under all outstanding Notes, and (B)
15% of the original principal amount of each outstanding Note calculated in
accordance with Election No. 1 in Section 28. The prepayment conditions are as
follows: (a) Borrower must provide Lender with at least five (5) days advance
written notice of its intention to prepay; and (b) the prepayment date must fall
on a regular monthly payment date.
2
<PAGE> 3
SECTION 4. SECURITY INTERESTS. (a) Borrower hereby grants to Lender a first
security interest in all Collateral; (b) This Security Agreement secures (i) the
payment of the principal of and interest on the Notes and all other sums due
thereunder and under this Security Agreement (the "Indebtedness") and (ii) the
performance by Borrower of all of its other covenants now or hereafter existing
under the Notes, this Security Agreement and any other obligation owed by
Borrower to Lender (the "Obligations").
SECTION 5. BORROWER'S REPRESENTATIONS, WARRANTIES, AND COVENANTS. Borrower
represents and warrants that (a) it is in good standing under the laws of the
state of its formation, duly qualified to do business and will remain duly
qualified during the term of each Loan in each state where necessary to carry on
its present business and operations, including the jurisdiction(s) where the
Collateral will be located as specified on each Exhibit A to each Note, except
where failure to be so qualified would not have a Material Adverse Effect; (b)
it has full authority to execute and deliver this Security Agreement and the
Notes and perform the terms hereof and thereof, and this Security Agreement and
the Notes have been duly authorized, executed and delivered and constitute valid
and binding obligations of Borrower enforceable in accordance with their terms;
(c) the execution and delivery of this Security Agreement and the Notes will not
contravene any law, regulation or judgment affecting Borrower or result in any
breach of any material agreement or other instrument binding on Borrower; (d) no
consent of Borrower's shareholders or holder of any indebtedness, or filing
with, or approval of, any governmental agency or commission, which has not
already been obtained or performed, as appropriate, is a condition to the
performance of the terms of this Security Agreement or the Notes; (e) there is
no action or proceeding pending or threatened against Borrower before any court
or administrative agency which could reasonably be expected to have a Material
Adverse Effect on the business, financial condition or operations of Borrower;
(f) at the time any Loan is made hereunder, Borrower owns, has good and
marketable title to the Collateral, and will keep all of the Collateral free and
clear of all liens, claims and encumbrances other than Permitted Liens, and,
except for this Security Agreement, there is no deed of trust, mortgage,
security agreement or other third party interest against any of the Collateral
other than Permitted Liens (as defined below); (g) at the time any Loan is made
hereunder, all Collateral related to such Loan has been received, installed and
is ready for use and is satisfactory in all respects for the purposes of this
Security Agreement; (h) the Collateral is, and will remain at all times under
applicable law, removable personal property, which is free and clear of any lien
or encumbrance except in favor of Lender other than Permitted Liens (as defined
below), notwithstanding the manner in which the Collateral may be attached to
any real property; (i) all Credit and financial information submitted by
Borrower to Lender herewith or at any other time is and will at the time given
be true and correct in all material respects; and (j) the security interest
granted to Lender hereunder is a first priority security interest subject only
to Permitted Liens, and (k) on or before January 1, 2000, Borrower's computer
system shall be Year 2000 performance compliant and will thus be able to
accurately process date data from, into and between the twentieth and
twenty-first centuries including leap year calculations. "Permitted Liens" shall
mean and include: (i) liens for taxes or other governmental charges not at the
time delinquent or thereafter payable without penalty or being contested in good
faith; and (ii) liens of carriers, warehousemen, mechanics, materialmen,
vendors, landlords and other liens arising by operation of law incurred in the
ordinary course of business.
SECTION 6. METHOD AND PLACE OF PAYMENT. Borrower shall pay to Lender, at such
address as Lender specifies in writing, all amounts payable to it under this
Security Agreement and the Notes.
SECTION 7. LOCATION; INSPECTION; LABELS. All of the Collateral shall be located
at the address (the "Collateral Location") shown on Exhibit A to each Note and
shall not be moved without Lender's prior written consent which location shall
in all events be within the United States. All of the records regarding the
Collateral shall be located at 2101 Webster Street, 8th Floor, Oakland, CA
94612, or such other location of which Borrower has given notice to Lender in
accordance with this Security Agreement. Lender shall have the right to inspect
Collateral, including records relating thereto, and Borrower's books and records
at any time (upon reasonable notification) during regular business hours, such
books and records to be
3
<PAGE> 4
maintained in accordance with generally accepted accounting principles. Borrower
shall be responsible for all labor, material and freight charges incurred in
connection with any removal or relocation of Collateral which is requested by
Borrower and consented to by Lender, as well as for any charges due to the
installation or moving of the Collateral. Payments under the Notes and under
this Security Agreement shall continue during any period in which the Collateral
is in transit during a relocation. During Borrower's regular business hours and
upon at least two days' notice to Borrower, Lender or its agent shall mark and
label Collateral, which labels (to be provided by Lender) shall state that such
Collateral is subject to a security interest of Lender, and Borrower shall keep
such labels on the Collateral as so labeled.
SECTION 8. COLLATERAL MAINTENANCE. (a) General. Upon reasonable notice, Borrower
will permit Lender to inspect each item of Collateral and its maintenance
records during Borrower's regular business hours. Borrower will at its sole
expense comply with all applicable laws, rules, regulations, requirements and
orders of any applicable governmental authority with respect to the use,
maintenance, repair, condition, storage and operation of each item of
Collateral. Any addition or improvement that is so required or cannot be so
removed will immediately become Collateral of Lender. (b) Service and Repair.
With respect to computer equipment, other than personal computers and related
equipment, Borrower has entered into, and will maintain in effect, vendor's
standard maintenance contract or another contract satisfactory to Lender for a
period equal to the term of each Loan and extensions thereto which provides for
the maintenance of the Collateral in good condition and working order and
repairs and replacement of parts thereof, all in accordance with the terms of
such maintenance contract. With respect to any other Collateral, Borrower will
at its sole expense maintain and service and repair any damage to each item of
Collateral in a manner consistent with prudent industry practice and Borrower's
own practice so that such item of Collateral is at all times (i) in the same
condition as when delivered to Borrower, except for ordinary wear and tear, and
(ii) in good operating order for the function intended by its manufacturer's
warranties and recommendations.
SECTION 9. LOSS OR DAMAGE. Borrower assumes the entire risk of loss to the
Collateral through use, operation or otherwise. Borrower hereby indemnifies and
holds harmless Lender from and against all claims, loss of Loan payments, costs,
damages, and expenses relating to or resulting from any loss, damage or
destruction of the Collateral, any such occurrence being hereinafter called a
"Casualty Occurrence." Notwithstanding any Casualty Occurrence, the Loan to
which such casualtied item of Collateral is subject shall continue in full force
and effect without any abatement in the monthly payment due. Borrower shall, at
its election, (a) no later than thirty (30) days after such Casualty Occurrence
repair the Collateral returning it to good operating condition, (b) no later
than thirty (30) days after such Casualty Occurrence replace the Collateral with
Collateral acceptable to Lender in its reasonable discretion, in good condition
and repair taking all steps required by Lender to perfect Lender's first
priority security interest therein (subject to Permitted Liens), which
replacement Collateral shall be subject to the terms of this Security Agreement,
or (c) on the next regular monthly payment date which falls after such thirty
(30) days, or if there is no such payment date, thirty (30) days after such
Casualty Occurrence pay to Lender an amount equal to the Balance Due (as defined
below) for each lost or damaged item of Collateral. The Balance Due for
each such item is the sum of: (i) all amounts for each item which may be then
due or accrued to the payment date, plus (ii) as of such payment date, an amount
equal to the product of the fraction specified below times the sum of all
remaining payments under the respective Note, including the amount of any
mandatory or optional payment required or permitted to be paid by Borrower to
Lender at the maturity of the Note discounting to present value the amounts in
(ii) at a rate of 6% per annum, compounded monthly on the basis of a 360 day
year "Discount Rate"). The numerator of the fraction shall be the collateral
value (as set forth on the applicable Note) of the item and the denominator
shall be the aggregate collateral value of all items under the Note. Upon the
making of such payments, Lender shall release such item of Collateral from its
lien hereunder.
Subject to Permitted Liens, all insurance proceeds from policies required to be
maintained hereunder received by or payable to Lender on account of a Casualty
Occurrence shall be released to the vendor of the replacement item of Collateral
upon Borrower's request if (i) no Event of Default has occurred and is
4
<PAGE> 5
continuing hereunder, and (ii) Lender has received an invoice from the vendor
describing the replacement item of Collateral.
If Lender has received from Borrower the Balance Due and all other payments due
with respect to the item Of Collateral which has suffered a Casualty Occurrence,
all insurance proceeds received by Lender thereafter or payable on account of
the Casualty Occurrence shall be paid to Borrower as it may direct.
SECTION 10. INSURANCE. Borrower at its expense shall keep the Collateral insured
against all risks of physical loss for at least the replacement value of the
Collateral and in no event for less than the amount payable following a Casualty
Occurrence (as provided in Section 9). Such insurance shall provide for a loss
payable endorsement to Lender and/or any assignee of Lender. Borrower shall
maintain commercial general liability insurance, including products liability
and completed operations coverage, with respect to loss or damage for personal
injury, death or property damage in an amount not less than $1,000,000 in the
aggregate, naming Lender and/or Lender's assignee as additional insured. Such
insurance shall contain insurer's agreement to give thirty (30) days' advance
written notice to Lender before cancellation or material change of any policy of
insurance. Borrower will provide Lender and any assignee of Lender with a
certificate of insurance from the insurer evidencing Lender's or such assignee's
interest in the policy of insurance. Such insurance shall cover any Casualty
Occurrence to any unit of Collateral. Notwithstanding anything in Section 9 or
this Section 10 to the contrary, this Security Agreement and Borrower's
obligations hereunder shall remain in full force and effect with respect to any
unit of Collateral which is not subject to a Casualty Occurrence. If Borrower
fails to provide or maintain insurance as required herein, Lender shall have the
right, but shall not be obligated, to obtain such insurance. In that event,
Borrower shall pay to Lender the cost thereof.
SECTION 11. MISCELLANEOUS AFFIRMATIVE COVENANTS. So long as any portion of the
Indebtedness is unpaid and as long as any of the Obligations are outstanding
Borrower will: (a) duly pay all governmental taxes and assessments at the time
they become due and payable; provided, however, Borrower may contest the same in
good faith so long as no payment default by Borrower has occurred and is
continuing; (b) comply with all applicable material governmental laws, rules and
regulations relating to its business and the Collateral where a failure to
comply would have a Material Adverse Effect; (c) take no action to adversely
affect Lender's security interest in the Collateral as a first and prior
perfected security interest subject to Permitted Liens; (d) furnish Lender with
its annual audited financial statements within one hundred twenty (120) days
following the end of Borrower's fiscal year, unaudited quarterly financial
statements within forty-five (45) days after the end of each fiscal quarter, and
within thirty (30) days of the end of each month a financial statement for that
month prepared by Borrower, and including an income statement and balance sheet,
all of which shall be certified by an officer of Borrower as fairly presenting,
in all material respects, the financial position of Borrower for the periods
indicated, and shall be prepared in accordance with generally accepted
accounting principles consistently applied, and such other information as Lender
may reasonably request; and (e) promptly (but in no event more than five (5)
days after the occurrence of such event) notify Lender of any change in
Borrower's condition during the commitment period which constitutes a Material
Adverse Effect, and of the occurrence of any Event of Default.
SECTION 12. INDEMNITIES. Borrower will protect, indemnify and save harmless
Lender and any assignees of Lender from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including reasonable attorneys' fees and expenses), imposed upon or incurred by
or asserted against Lender or any assignee of Lender by Borrower or any third
party by reason of the occurrence or existence (or alleged occurrence or
existence) of any act or event relating to or caused by any portion of the
Collateral, or its purchase, acceptance, possession, use, maintenance or
transportation, including without limitation, consequential or special damages
of any kind, any failure on the part of Borrower to perform or comply with any
of the terms of this Security Agreement or any Note, claims for latent or other
defects, claims for patent, trademark or copyright infringement and claims for
personal injury, death or property
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<PAGE> 6
damage, including those based on Lender's negligence, provided that Borrower
shall not be required to indemnify Lender for any of such liabilities,
obligations, claims, damages, penalties, causes of action, or costs and expenses
resulting from Lender's bad faith, gross negligence or willful misconduct. In
the event that any action, suit or proceeding is brought against Lender by
reason of any such occurrence, Borrower, upon Lender's request, will, at
Borrower's expense, resist and defend such action, suit or proceeding or cause
the same to be resisted and defended by counsel approved by Lender. Borrower's
obligations under this Section 12 shall survive the payment in full of all the
Indebtedness and the performance of all Obligations with respect to acts or
events occurring or alleged to have occurred prior to the payment in full of all
the Indebtedness and the performance of all Obligations.
SECTION 13. TAXES. Borrower agrees to reimburse Lender (or pay directly if
instructed by Lender) and any assignee of Lender for, and to indemnify and hold
Lender and any assignee harmless from, all fees (including, but not limited to,
license, documentation, recording and registration fees), and all sales, use,
gross receipts, personal property, occupational, value added or other taxes,
levies, imposts, duties, assessments, charges, or withholdings of any nature
whatsoever, together with any penalties, fines, additions to tax, or interest
thereon (the foregoing collectively "Impositions"), except same as may be
attributable to Lender's income, arising at any time prior to or during the term
of any Notes or of this Security Agreement, or upon termination or early
termination of this Security Agreement and levied or imposed upon Lender
directly or otherwise by any Federal, state or local government in the United
States or by any foreign country or foreign or international taxing authority
upon or with respect to (a) the Collateral, (b) the exportation, importation,
registration, purchase, ownership, delivery, leasing, financing, possession,
use, operation, storage, maintenance, repair, return, sale, transfer of title,
or other disposition thereof, (c) the rentals, receipts, or earnings arising
from the Collateral, or any disposition of the rights to such rentals, receipts,
or earnings, (d) any payment pursuant to this Security Agreement or the Notes,
or (e) this Security Agreement, the Notes or any transaction or any part hereof
or thereof.
SECTION 14. RELEASE OF LIENS. Upon payment of all of the Indebtedness, Lender
shall release its liens in the Collateral and shall execute UCC termination
statements and such other documents as Borrower shall reasonably request to
evidence the release of Lender's lien relating to the Collateral.
SECTION 15. ASSIGNMENT. WITHOUT LENDER'S PRIOR WRITTEN CONSENT WHICH CONSENT
WILL NOT BE UNREASONABLY WITHHELD OR DELAYED, BORROWER SHALL NOT EXCEPT AS
OTHERWISE PERMITTED UNDER THIS SECURITY AGREEMENT: (a) ASSIGN, TRANSFER, PLEDGE,
HYPOTHECATE OR OTHERWISE DISPOSE OF THIS SECURITY AGREEMENT, ANY NOTE, ANY
COLLATERAL, OR ANY INTEREST THEREIN, (b) LEASE OR LEND COLLATERAL OR PERMIT IT
TO BE USED BY ANYONE OTHER THAN BORROWER OR BORROWER'S EMPLOYEES, CONTRACTORS
AND AGENTS OR (c) MERGE INTO, CONSOLIDATE WITH OR CONVEY OR TRANSFER ITS
PROPERTIES SUBSTANTIALLY AS AN ENTIRETY TO ANY OTHER PERSON OR ENTITY EXCEPT TO
A SUCCESSOR IN INTEREST TO ALL OR SUBSTANTIALLY ALL OF THE BUSINESS OF BORROWER;
PROVIDED, HOWEVER, THAT, THE FINANCIAL CONDITION OF SUCH SUCCESSOR IS GREATER
THAN OR EQUAL TO BORROWER AS DETERMINED IN GOOD FAITH BY LENDER AND THE
SUCCESSOR'S BUSINESS AND ITS MAJOR INVESTORS ARE REASONABLY ACCEPTABLE TO
LENDER. LENDER MAY ASSIGN ANY OF THE NOTES, THIS SECURITY AGREEMENT OR ITS
SECURITY INTEREST IN ANY OR ALL COLLATERAL, OR ANY OR ALL OF THE ABOVE, IN WHOLE
OR IN PART TO ONE OR MORE ASSIGNEES OR SECURED PARTIES WITHOUT NOTICE TO
BORROWER. If Borrower is given notice of such assignment it agrees to
acknowledge receipt thereof in writing and Borrower shall execute such
additional documentation as Lender's assignee and/or secured party shall
reasonably require to evidence such assignment at Lender's expense. Each such
assignee and/or secured party shall have all of the rights, but (except as
provided in this Section 15) none of the obligations, of Lender under this
Security Agreement, unless such assignee or secured party expressly agrees to
assume such obligations in writing. Borrower shall
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<PAGE> 7
not assert against any assignee and/or secured party any defense, counterclaim
or offset that Borrower may have against Lender. Notwithstanding any such
assignment, and providing no Event of Default has occurred and is continuing,
Lender, or its assignees, secured parties, or their agents or assigns, shall not
interfere with Borrower's right to quietly enjoy use of the Collateral subject
to the terms and conditions of this Security Agreement. Subject to the
foregoing, the Notes and this Security Agreement shall inure to the benefit of,
and are binding upon, the successors and assignees of the parties hereto.
Borrower acknowledges that any such assignment by Lender will not change
Borrower's duties or obligations under this Security Agreement and the Notes or
increase any burden or risk on Borrower.
SECTION 16. DEFAULT. (a) Events of Default. Any of the following events or
conditions shall constitute an "Event of Default" hereunder: (i) Borrower's
failure to pay any monies due to Lender hereunder or under any Note beyond the
tenth (10th) day after the same is due; (ii) Borrower's failure to comply with
its obligations under Section 10 or Section 15; (iii) any representation or
warranty of Borrower made in this Security Agreement or the Notes or in any
other agreement, statement or certificate furnished to Lender in connection with
this Security Agreement or the Notes shall prove to have been incorrect in any
material respect when made or given; (iv) Borrower's failure to comply with or
perform any material term, covenant or condition of this Security Agreement or
any Note or under any other agreement between Borrower and Lender or under any
lease or mortgage of real property covering the location of the Collateral if
such failure to comply or perform is not cured by Borrower within thirty (30)
days after Borrower knows of the noncompliance or nonperformance or notice from
Lender or such longer period that Borrower is diligently attempting to effect
such cure; (y) seizure of any of the Collateral under legal process; (vi) the
filing by or against Borrower or any guarantor under any guaranty executed in
connection with this Security Agreement ("Guarantor") of a petition for
reorganization or liquidation under the Bankruptcy Code or any amendment thereto
or under any other insolvency law providing for the relief of debtors; (vii) the
voluntary or involuntary making of an assignment of a substantial portion of its
assets by Borrower or by any Guarantor for the benefit of its creditors, the
appointment of a receiver or trustee for Borrower or any Guarantor or for any of
Borrower's or Guarantor's assets, the institution by or against Borrower or any
Guarantor of any formal or informal proceeding for dissolution, liquidation,
settlement of claims against or winding up of the affairs of Borrower or any
Guarantor provided that in the case of all such involuntary proceedings, same
are not dismissed within sixty (60) days after commencement; (viii) the making
by Borrower or by any Guarantor of a transfer of all or a material portion of
Borrower's or Guarantor's assets or inventory not in the ordinary course of
business; or (ix) any default or breach by any Guarantor of any of the terms of
its guaranty to Lender in connection with this Security Agreement.
(b) Remedies. If any Event of Default has occurred and such Event of
Default is continuing to occur, provided, however, for no period longer than the
applicable cure period under this Agreement, Lender may in its sole discretion
exercise one or more of the following remedies with respect to any or all of the
Collateral: (i) declare due any or all of the aggregate sum of all remaining
payments under the Notes, including the amount of any mandatory or optional
payment required or permitted to be paid by Borrower to Lender at the maturity
of the Notes ("Remaining Payments"); (ii) proceed by appropriate court action or
actions either at law or in equity to enforce Borrower's performance of the
applicable covenants of the Notes and this Security Agreement or to recover all
damages and expenses incurred by Lender by reason of an Event of Default; (iii)
except as provided by law, without court order or prior demand, enter upon the
premises where the Collateral is located and take immediate possession of and
remove it without liability of Lender to Borrower or any other person or entity;
(iv) terminate this Security Agreement and sell the Collateral at public or
private sale, or otherwise dispose of, hold, use or lease any or all of the
Collateral in a commercially reasonable manner; or (v) exercise any other right
or remedy available to it under applicable law. If Lender has declared due any
or all of the Remaining Payments, Borrower will pay immediately to Lender,
without duplication, (A) the Remaining Payments discounted to present value at
the Discount Rate, (B) all amounts which may be then already due or accrued, and
(C) all other amounts due under this Security Agreement and under the Notes
(Lender's Return, as referred to below, means the amounts described in
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<PAGE> 8
clauses (A), (B) and (C) above). The net proceeds of any sale or lease of such
Collateral will be credited against Lender's Return. The net proceeds of a sale
of the Collateral pursuant to this Section 16(b) is defined as the sales price
of the Collateral less reasonable selling expenses, including, without
limitation, reasonable costs of remarketing the Collateral and all reasonable
refurbishing costs and commissions paid with respect to such remarketing. The
net proceeds of a lease of the Collateral pursuant to this Section 16(b) is
defined as the amount equal to the monthly payments due under such lease
(discounted to present value at the Discount Rate) plus the residual value of
the Collateral at the end of the basic term of such lease, as reasonably
determined by Lender, and discounted at the Discount Rate.
At Lender's request, Borrower shall assemble the Collateral and make it
available to Lender at such time and location as Lender may reasonably
designate. Borrower waives any right it may have to redeem the Collateral.
Declaration that any or all amounts under this Security Agreement and/or the
Notes are immediately due and payable and Lender's taking possession of any or
all Collateral shall not terminate this Security Agreement or any of the Notes
unless Lender so notifies Borrower in writing. None of the above remedies is
intended to be exclusive but each is cumulative and may be enforced separately
or concurrently.
(c) Application of Proceeds. The proceeds of any sale of all or any part
of the Collateral and the proceeds of any remedy afforded to Lender by this
Security Agreement shall be paid to and applied as follows:
First, to the payment of reasonable costs and expenses of suit
or foreclosure, if any, and of the sale of Collateral, if any, including,
without limitation, refurbishing costs, costs of remarketing and commissions
related to remarketing, and all Remedy Expenses (defined in Section 22 below)
and taxes, assessments or liens on Collateral superior to Lender's security
interest granted by this Security Agreement;
Second, to the payment of all other amounts not described in
item Third below due under this Security Agreement and all Notes;
Third, to pay Lender an amount equal to Lender's Return, to the
extent not previously paid by Borrower; and
Fourth, to the payment of any surplus to Borrower or to whomever
may lawfully be entitled to receive it.
(d) Effect of Delay; Waiver; Foreclosure on Collateral. No delay or
omission of Lender, in exercising any right or power arising from any Event of
Default shall prevent Lender from exercising that right or power if the Event of
Default continues. No waiver of an Event of Default, whether full or partial, by
Lender shall be taken to extend to any subsequent Event of Default, or to impair
the rights of Lender in respect of any damages suffered as a result of the Event
of Default. The giving, taking or enforcement of any other or additional
security, collateral or guaranty for the payment or discharge of the
Indebtedness and performance of the Obligations shall in no way operate to
prejudice, waive or affect the security interest created by this Security
Agreement or any rights, powers or remedies exercised hereunder or thereunder.
Lender shall not be required first to foreclose on the Collateral prior to
bringing an action against Borrower for sums owed to Lender under this Security
Agreement or under any Note.
SECTION 17. LATE PAYMENTS. Borrower shall pay Lender a late charge of 8% of any
payment owed Lender by Borrower which is not paid when due (taking into account
applicable grace periods), for every month such payment is not paid when due. If
such amounts have not been received by Lender at Lender's place of business or
by Lender's designated agent by the date such amounts are due under this
Security
8
<PAGE> 9
Agreement or the Notes, Lender shall bill Borrower for such charges. Borrower
acknowledges that invoices for amounts due hereunder or under the Notes are sent
by Lender for Borrower's convenience only. Borrower's non-receipt of an invoice
will not relieve Borrower of its obligation to make payments hereunder or under
the Notes.
SECTION 18. PAYMENTS BY LENDER. If Borrower shall fail to make any payment or
perform any act required hereunder (including, but not limited to, maintenance
of any insurance required by Section 10), then Lender may, but shall not be
required to, after such notice to Borrower as is reasonable under the
circumstances, make such payment or perform such act with the same effect as if
made or performed by Borrower. Borrower will upon demand reimburse Lender for
all sums paid and all reasonable costs and expenses incurred in connection with
the performance of any such act.
SECTION 19. FINANCING STATEMENTS. Borrower hereby appoints Lender (and each of
Lender's officers, employees or agents designated by Lender) with fall power of
substitution by Lender, as Borrower's attorney, with power to execute and
deliver on Borrower's behalf, financing statements and other documents necessary
to perfect and/or give notice of Lender's security interest in any of the
Collateral. Notwithstanding the above, Borrower will, upon Lender's request,
execute all financing statements pursuant to the Uniform Commercial Code and all
such other documents reasonably requested by Lender to perfect Lender's security
interests hereunder. Borrower authorizes Lender to file financing statements
signed only by Lender (where such authorization is permitted by law) at all
places where Lender deems necessary to perfect Lender's security interests
hereunder.
SECTION 20. NATURE OF TRANSACTION Lender makes no representation whatsoever,
express or implied, concerning the legal character of the transaction evidenced
hereby, for tax or any other purpose.
SECTION 21. LENDER'S EXPENSE. Borrower shall pay Lender all reasonable costs and
expenses including but not limited to reasonable attorney's fees, litigation
expenses and the fees of collection agencies, incurred by Lender (a) in
enforcing any of the terms, conditions or provisions hereof and related to the
exercise of its remedies ("Remedy Expenses"), and (b) in connection with any
bankruptcy or post-judgment proceeding, whether or not suit is filed and, in
each and every action, suit or proceeding, including any and all appeals and
petitions therefrom.
SECTION 22. ALTERATIONS; ATTACHMENTS. No material alterations or attachments
shall be made to the Collateral without Lender's prior written consent, which
consent shall not be given for changes that will adversely affect the
reliability and utility of the Collateral or which cannot be removed without
damage to the Collateral, or which in any way decrease the value of the
Collateral for purposes of resale or lease. All attachments and improvements to
the Collateral shall be deemed to be "Collateral" for purposes of the Security
Agreement, and a first priority security interest therein (subject to Permitted
Liens) shall immediately vest in Lender.
SECTION 23. CHATTEL PAPER. (a) One executed copy of the Security Agreement will
be marked "Original" and all other counterparts will be duplicates. To the
extent, if any, that this Security Agreement constitutes chattel paper (as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in the Security Agreement may be created in
any documents other than the "Original." (b) There shall be only one original of
each Note and it shall be marked "Original," and all other counterparts will be
duplicates. To the extent, if any, that any Notes to this Security Agreement
constitutes chattel paper (or as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction) no security interest in any
Note(s) may be created in any documents other than the "Original."
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<PAGE> 10
SECTION 24. COMMITMENT FEE. Borrower has paid to Lender a commitment fee ("Fee")
of $10,000. The Fee shall be applied by Lender first to reimburse Lender for all
out-of-pocket UCC and other search costs, inspections and labeling costs and
appraisal fees, if any, incurred by Lender, and then proportionally to the first
monthly payment for each Note hereunder in the proportion that the Collateral
value for such Note bears to Lender's entire commitment. However, the portion of
the Fee which is not applied to such monthly payments shall be non-refundable
except if Lender defaults in its obligation to fund Loans pursuant to Section 3.
SECTION 25. NOTICES. All notices hereunder shall be in writing, by registered
mail, or reliable messenger or delivery service (including overnight service)
and shall be directed, as the case may be, to Lender at 2401 Kerner Boulevard,
San Rafael, California 94901, Attention: Asset Management and to Borrower at
2101 Webster Street, 8th Floor, Oakland, CA 94612, Attention: Mr. Jon Bond, CFO,
or at such other address as the parties may notify one another of in writing
from time to time.
SECTION 26. MISCELLANEOUS. (a) Borrower shall provide Lender with such corporate
resolutions, financial statements and other documents as Lender shall reasonably
request from time to time. (b) Borrower represents that the Collateral hereunder
is used solely for business purposes. (c) Time is of the essence with respect to
this Security Agreement. (d) Borrower acknowledges that Borrower has read this
Security Agreement and the Notes, understands them and agrees to be bound by
their terms and further agrees that this Security Agreement and the Notes
constitute the entire agreement between Lender and Borrower with respect to the
subject matter hereof and supersede all previous agreements, promises, or
representations. (e) This Security Agreement and the Notes may not be changed,
altered or modified except by an instrument signed by an officer or authorized
representative of Lender and Borrower. (f) Any failure of Lender to require
strict performance by Borrower or any waiver by Lender of any provision herein
or in a Note shall not be construed as a consent or waiver of any other breach
of the same or any other provision. (g) If any provision of this Security
Agreement or any Note is held invalid, such invalidity shall not affect any
other provisions hereof or thereof. (h) The obligations of Borrower to pay the
Indebtedness and perform the Obligations shall survive the expiration or earlier
termination of this Security Agreement and each Note until all Obligations of
Borrower to Lender have been met and all liabilities of Borrower to Lender and
any assignee have been paid in full. (i) Borrower will notify Lender at least 30
days before changing its name, principal place of business or chief executive
office. (j) Borrower will, at its expense, promptly execute and deliver to
Lender such documents and assurances (including financing statements) and take
such further action as Lender may reasonably request in order to carry out the
intent of this Security Agreement and Lender's rights and remedies.
SECTION 27. JURISDICTION AND WAIVER OF JURY TRIAL. This Security Agreement and
each Note shall be deemed to have been made under and shall be governed by the
laws of the State of California in all respects, including matters of
construction, validity and performance. At Lender's sole discretion, option and
election, jurisdiction and venue for any legal action between the parties
arising out of or relating to this Security Agreement or any Note shall be in
the Superior Court of Marin County, California, or, in cases where federal
diversity jurisdiction is available, in the United States District Court for the
Northern District of California located in San Francisco, California. BORROWER,
TO THE EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS RIGHT TO TRIAL BY JURY IN
ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS SECURITY AGREEMENT, ANY NOTE, ANY
SECURITY DOCUMENTS, OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION HEREWITH.
SECTION 28. END OF LOAN POSITION. (a) General. Borrower shall be required to
choose a final payment or Note extension election under subsection (b) below
("End of Loan Position") at the expiration of the first Note's term. Borrower
shall provide written notice of its election to Lender at least 90 days prior to
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the end of the term of the first Note. That choice shall be an election of
Borrower's End of Loan Position election for all, but not less than all, of the
Collateral under all Notes under the Security Agreement.
In the event Borrower does not provide 90 days' prior written notice of its
election, Borrower shall be deemed to have elected Election No. 2.
(b) End of Loan Position Elections. As its End of Loan Position, Borrower shall
be required to:
Election No. 1: Make a final payment equal to 15% of the Note's original
principal amount.
Election No. 2: Extend the Note's term for an additional 12 months ("Extended
Term") for a monthly rate of 1.67% of the Note's original principal amount.
IN WITNESS WHEREOF, Borrower and Lender have caused this Security Agreement to
be executed as of the date and year first above written.
PHOENIX LEASING INCORPORATED VISION SOFTWARE TOOLS, INC.
By: /s/ SHARON LITWIN By: /s/ JOHN A. HEWITT JR.
--------------------------------- -------------------------------------
Name: Sharon Litwin Name (Print): John A. Hewitt Jr.
------------------------------- ---------------------------
Title: Vice President Title: President & CEO
------------------------------ ----------------------------------
HEADQUARTERS LOCATION:
2101 Webster Street, 8th Floor
Oakland, CA 94612
County of Alameda
EXHIBITS AND SCHEDULES:
Exhibit A -- Closing Memorandum
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EXHIBIT A TO
SENIOR LOAN AND SECURITY AGREEMENT NO. 6262
DATED AUGUST 20, 1999
CLOSING MEMORANDUM
1* Duly executed Senior Loan and Security Agreement.
2. Duly executed Senior Secured Promissory Note with Exhibit A Collateral
description attached.
3. Insurance certificates reflecting coverage required under Section 10 of
the Senior Loan and Security Agreement.
4.* Resolutions of Borrower's board of directors.
5. Real Property Waiver.**
6. UCC-1 Financing Statements with respect to the Collateral.
7. UCC search (Lender will obtain).
8. Officer's Certificate stating that (i) there are no liens, charges,
security interests or other encumbrances that may affect Lender's right,
title and interest in the Collateral and there are no UCC-1 financing
statements filed or in the process of being filed against any of the
Collateral, other than Permitted Liens, (ii) Borrower is performing
according to Borrower's business plan, (iii) no change which is a
Material Adverse Effect has occurred in the financial condition of
Borrower, (iv) no Event of Default has occurred and is continuing, and
(v) the representations and warranties in Section 5 of the Senior Loan
and Security Agreement are true and correct in all material respects as
if made on the date of the Loan.
9.* Certificate from the Secretary of State of Borrower's state of
incorporation, and from the state in which Borrower's chief executive
office is located, if different, stating the Borrower is in good
standing or is authorized to transact business, as the case may be,
dated not more than thirty days prior to the first Loan (Lender will
obtain).
10. Borrower's Financial Plan.
11. Borrower's most recent financial statements.
12. List of proposed Collateral.
13. Purchase documentation verifying Borrower's ownership of equipment.
14. See Section 3 of the Senior Loan and Security Agreement for additional
conditions to closing.
15. Intercreditor Agreement, if applicable.
16. Subordination Agreement(s).
* First Loan only.
** Required if any Equipment is a fixture, i.e., attached to real property,
or located in certain states.
<PAGE> 13
CORPORATE RESOLUTION TO BORROW
RESOLVED: That this corporation, VISION SOFTWARE TOOLS, INC., borrow funds from
PHOENIX LEASING INCORPORATED, a California corporation, ("Lender") and grant as
collateral for such borrowings such items of personal property and fixtures, and
upon such terms and conditions, as the officer or officers hereinafter
authorized, in their discretion, may deem necessary or advisable; and that the
aggregate principal amount of borrowings hereunder shall not exceed in principal
amount the sum of $1,000,000 which amount may be exceeded in the future.
RESOLVED FURTHER: That:
John A. Hewitt Jr. President & CEO /s/ JOHN A. HEWITT, JR.
- -------------------- ---------------------------- -----------------------
(Print or type name) (Title of Corporate Officer) (specimen signature)
or
Prakash Bhaskaran Director of Finance /s/ PRAKASH BHASKARAN
- -------------------- ---------------------------- -----------------------
(Print or type name) (Title of Authorized individual) (specimen signature)
of this corporation (this officer or officers authorized to act pursuant hereto
being hereinafter designated as "authorized officers"), are individually
authorized, directed and empowered, in the name of this corporation, to execute
and deliver to Lender, and Lender is requested to accept, any notes, security
agreements, and other documents or agreements that may be required by Lender in
connection with such borrowings.
RESOLVED FURTHER: That the authorized officers are individually authorized,
directed and empowered, in the name of this corporation, to do or cause to be
done all such further acts and things as they shall deem necessary, advisable,
convenient, or proper in connection with the execution and delivery of any such
notes, security agreements, and other documents or agreements and in connection
with or incidental to the carrying of the same into effect, including without
limitation, the execution, acknowledgment, and delivery of all instruments and
documents which may reasonably be required by Lender under or in connection with
any such borrowing.
RESOLVED FURTHER: That Lender is authorized to act upon these resolutions until
written notice of their revocation is delivered to Lender, and that the
authority hereby granted shall apply with equal force and effect to the
successors in office of the officers herein named.
I, John A. Hewitt, Jr., Officer of VISION SOFTWARE TOOLS, INC., a corporation
incorporated under the laws of the State of California, do hereby certify that
the foregoing is a full, true and correct copy of resolutions of the Board of
Directors of the said corporation, duly and regularly passed or adopted by the
Board of Directors of said corporation as required by law and by the by-laws of
the said corporation on the 21st day of September, 1999.
I further certify that said resolutions are still in full force and effect and
have not been amended or revoked and that the specimen signatures appearing
above are the signatures of the officers authorized to sign for this corporation
by virtue of the said resolutions.
IN WITNESS WHEREOF, I have hereunto set my hand as such Officer, and affixed the
corporate seal of the said corporation, this 8th day of October, 1999
AFFIX CORPORATE /s/ JOHN A. HEWITT, JR.
SEAL HERE ----------------------------------------
OFFICER OF VISION SOFTWARE TOOLS.
[PERSON WHO SIGNS HERE MUST BE DIFFERENT
FROM PERSON(S) WHO SIGNED ABOVE.]
<PAGE> 14
NOTE NO. 02
TO SENIOR LOAN AND SECURITY AGREEMENT NO. 6262
DATED AS OF AUGUST 20, 1999
BETWEEN VISION SOFTWARE TOOLS, INC. AS BORROWER AND
PHOENIX LEASING INCORPORATED AS LENDER
SENIOR SECURED PROMISSORY NOTE
$134,571.60 October 29, 1999
FOR VALUE RECEIVED, the undersigned, VISION SOFTWARE TOOLS, INC., a California
corporation ("Borrower"), hereby promises to pay to the order of PHOENIX LEASING
INCORPORATED, or its assigns (the "Lender") the principal sum of One Hundred
Thirty-four Thousand Five Hundred Seventy-one and 60/100 Dollars ($134,571.60),
together with interest thereon until the principal is fully repaid. On the last
day of the thirty-sixth (36th) month the entire remaining unpaid principal
balance, together with interest accrued and unpaid, shall be due and payable.
Principal and interest shall be payable in consecutive monthly installments,
each of which shall be equal to the percentage specified below of the principal
sum and in the amounts each month specified below.
<TABLE>
<CAPTION>
Month Payment Amount Percentage
----- -------------- ----------
<S> <C> <C>
1-36 $4,299.56 3.195%
</TABLE>
The first and last monthly installments shall be due immediately prior to the
date of this Note. An interim payment will be due on the first day of the month
immediately following the date of this Note (unless the date of this Note is the
first day of the month in which case no interim payment is due on that day), for
the period from (and including) the date Lender funds the principal amount of
this Note until (but not including) the first day of the following month and
shall be equal to 1/30th of the monthly payment multiplied by the number of
days, if any, between (and including) the funding date and the first day of the
following month. The second monthly payment shall be due on the first day of the
second month following the date of this Note and each succeeding payment shall
be made on the first day of each succeeding month.
Borrower's End of Loan Position payment shall be due on the first day of the
thirty-seventh (37th) month as provided below: (a) General. Borrower shall be
required to choose a final payment or Note extension election ("End of Loan
Position") at the expiration of the first Note's term. Borrower shall provide
written notice of its election to Lender at least 90 days prior to the end of
the term of the first Note. That choice shall be an election of Borrower's End
of Loan Position election for all, but not less than all, of the Collateral
under all Notes under the Security Agreement.
In the event Borrower does not provide 90 days' prior written notice of its
election, Borrower shall be deemed to have elected Election No. 2.
(b) End of Loan Position Elections. As its End of Loan Position, Borrower shall
be required to:
Election No. 1: Make a final payment equal to 15% of the Note's original
principal amount.
Election No. 2: Extend the Note's term for an additional 12 months ("Extended
Term") for a monthly rate of 1.67% of the Note's original principal amount.
Borrower has the ability to prepay all, but not fewer than all, outstanding
Notes in whole but not in part. The prepayment amount shall be the sum of (i)
and (ii) below, discounting the amounts in (ii) at a rate of
1
<PAGE> 15
NOTE NO, 02
TO SENIOR LOAN AND SECURITY AGREEMENT
NO. 6262
DATED AS OF AUGUST 20,1999
BETWEEN VISION SOFTWARE TOOLS, INC.
AS BORROWER AND
PHOENIX LEASING INCORPORATED AS LENDER
6% per annum. compounded monthly on the basis of a 360 day year: (i) all amounts
which may be then due or accrued to the payment date for all outstanding Notes;
(ii) as of such payment date, an amount equal to: (A) all remaining monthly
payments due under all outstanding Notes, and (B) twelve (12) additional monthly
payments for this Note all outstanding Notes, the amount of which will be
calculated in accordance with Election No. 2 in Section 28. The prepayment
conditions are as follows: (a) Borrower must provide Lender with at least five
(5) days' advance written notice of its intention to prepay; and (b) the
prepayment date must fall on a regular monthly payment date.
Borrower shall pay Lender a late charge of 8% of any payment owed Lender by
Borrower which is not paid when due (taking into account applicable grace
periods), for every month such payment is not paid when due, but in no event an
amount greater than the highest rate permitted by applicable law.
Payments of principal and interest hereunder shall be made in lawful money of
the United States of America at the offices of Lender at 2401 Kerner Boulevard,
San Rafael, California 94901, or such other place as the Lender shall designate
to the Borrower in writing.
This Note is secured by a Senior Loan and Security Agreement, dated as of August
20, 1999 between Borrower and Lender (the "Security Agreement") and is entitled
to the benefits of the Security Agreement which contains, among other things,
provisions for (i) events of default and the Lender's rights and remedies
following an event of default (which include, but are not limited to,
acceleration of this Note), (ii) Collateral which secures the repayment of this
Note and is more particularly described on Exhibit A, and (iii) other rights and
remedies of Lender,
This Note may be declared due prior to its expressed maturity date only in the
events, on the terms and in the manner provided in the Security Agreement.
This Note shall be deemed to have been made under and shall be governed by the
laws of the State of California in all respects, including matters of
construction, validity and performance. At Lender's sole discretion, option and
election, jurisdiction and venue for any legal action between the parties
arising out of or relating to this Note shall be in the Superior Court of Marin
County, California, or, in cases where federal diversity jurisdiction is
available, in the United States District Court for the Northern District of
California located in San Francisco, California.
The Borrower hereby expressly waives presentment for payment, demand for
payment, notice of dishonor, protest, notice of protest, notice of nonpayment,
and all lack of diligence or delays in collection or enforcement of this Note.
BORROWER:
VISION SOFTWARE TOOLS, INC.
BY: /S/ PRAKASH BHASKARAN
-------------------------------------
Name (Print): Prakash Bhaskaran
---------------------------
Title: Director of Finance
----------------------------------
2
<PAGE> 16
Phoenix Leasing Incorporated
Funding Request
Exhibit A
Borrower: Vision Software Tools, Inc.
2101 Webster Street, 8th Floor
Master Loan: 6262 Note: 02
<TABLE>
<CAPTION>
L TOTAL TAX PD No Entry Required
ITEM INVOICE DESCRIPTION EQ QTY SERIAL o INVOIC'D $ $ PD BY VNDR? CHK TRANSACT Net $ Due Net $ Due
NO VENDOR NAME NO. OF ITEM CD NUMBER c Net of Sis Tx BORROWER (Y/N) NO. DATE Borrower Vendor
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Insight 5277891 IBM Thinkpad 1 2 1 7,160.00 7,160.00 N 108211 7/22/99 $ 7,160.00 $0.00
770 PII
2 Insight 5277887 IBM Thinkpad 1 3 1 10,827.00 10,827.00 N 108211 7/22/99 $10,827.00 $0.00
770 PII
3 Insight 5269429 IBM Thinkpad 1 2 1 8,800.00 8,800.00 N 108211 7/22/99 $ 8,800.00 $0.00
770 PII
4 Dell Direct 253529440 Dell 1 17 1JD6R, 1 33,728.00 33,728.00 Y 108402 8/2/99
Dimension 1JD6V,
XPS T 450 1JD6X,
1JD6Z,
1JD72,
1JD75,
1JD77,
1JD7B,
1JD7F,
1JD7H,
1JD7J,
1JD7M,
1JD7S,
1JD7W,
1JD7X,
1JD7Z
1JDYS
$33,728.00 $0.00
5 253529440 Tax 29 1 2,859.72 2,859.72 Y 108402 8/2/99 $ 2,859.72 $0.00
6 253529440 Shipping 27 1 935.00 935.00 Y 108402 8/2/99 $ 935.00 $0.00
& Handling
7 Insight 5307707 Simplet Tech 1
128 MB IBM 16 N/A 1 5,600.00 5,600.00 N 108310 8/18/99 $ 5,600.00 $0.00
8 5307707 Shipping 27 1 105.00 105.00 N 108310 8/18/99 $ 105.00 $0.00
& Handling
9 Insight 5356783 Zip 100 MB 1 25 N/A 1 2,375.00 2,375.00 N 108310 8/18/99 $ 2,375.00 $0.00
Parallel
Port
10 5356783 WD 9.1GB 1 2 N/A 1 372.00 372.00 N 108310 8/18/99 $ 372.00 $0.00
EIDE
7200RPM
11 5356783 Intellimouse 24 2 N/A 1 352.00 352.00 108310 8/18/99 $ 352.00 $0.00
12 5356783 Shipping 1 N/A 1 221.96 221.96 N 108310 8/18/99 $ 221.96 $0.00
& Handling
</TABLE>
<PAGE> 17
Phoenix Leasing Incorporated
Funding Request
Exhibit A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
13 Insight 5302135 IBM Thinkpad 1 8 1S954981U78 1 35,632.00 35,632.00 Y 108310 8/18/99
MT138,
1S954981U78
MT338,
1S954981U78
MT417,
1S954981U78
MT439,
1S954981U78
MT486,
1S954981U78
MT582,
1S954981U78
MT707,
??????????? $ 35,632.00 $ 0.00
14 5302135 Shipping 1 1 183.96 183.96 Y 108310 8/18/99 $ 183.96 $ 0.00
& Handling
15 Insight 5365871 Versa SX NB 1 1 N/A 1 3,346.00 3,346.00 108310 8/18/99 $ 3,346.00 $ 0.00
16 Insight 5329674 IBM Thinkpad 1 5 1S26454AU78 1 17,045.00 17,045.00 N 108310 8/18/99 $ 17,045.00 $ 0.00
600E PII VHK99,
1S26454AU78
VKC05,
1S26454AU78
VKD61,
1S26454AU78
VKD77,
1S26454AU78 $ 17,045.00 $ 0.00
17 5329674 Shipping 27 1 178.96 178.96 N 108310 8/18/99 $ 178.96 $ 0.00
& Handling
18 Insight 5325014 Toshiba 1 5 9071368A, 1 4,850.00 4,850.00 N 108311 8/18/99 $ 4,850.00 $ 0.00
Equium 7100D 9071435A,
PII 9071439A,
9071441A,
907?????, $ 4,850.00 $ 0.00
TOTAL AMOUNT DUE TO BORROWER $134,571.60
TOTAL AMOUNT DUE TO VENDOR $ 0.00
TOTAL DRAW $134,571.60
</TABLE>
Borrower Signature: /s/ Prakash Bhaskaran Date: 10/20/99
<PAGE> 18
OFFICER'S CERTIFICATE
The undersigned, Prakash Bhaskaran, hereby certifies that:
(i) I am the Director of Finance of VISION SOFTWARE TOOLS, INC., a
California corporation (the "Borrower");
(ii) as such officer, I am familiar with the terms and conditions of that
certain Senior Loan and Security Agreement (the "Security Agreement")
dated as of August 20, 1999 between Borrower and PHOENIX LEASING
INCORPORATED ("Lender");
(iii) the equipment, machinery, furniture, fixtures and other items on the
attached list are free and clear of any and all liens, charges,
security interests or other encumbrances that may affect Lender's
right, title or interest in and to the equipment and other items, and
no UCC-1 financing statements or other grants of security interests
have been or are in the process of being filed against any of such
equipment or other items, other than Permitted Liens (as such term is
defined in the Security Agreement);
(iv) Borrower is performing according to Borrower's business plan described
in Section 3 of the Security Agreement, a true copy of which business
plan has been delivered to Lender;
(v) there has been no material adverse change in the financial condition of
Borrower from the date of its most recent financial statements, true
copies of which have been delivered to Lender;
(vi) as of the date hereof, no Event of Default (as defined in the Security
Agreement) or event which with the giving of notice or passage of time,
or both, could become an Event of Default has occurred and is
continuing; and
(vii) the representations and warranties in Section 5 of the Security
Agreement are true and correct as if made on the date of the Loan.
IN WITNESS WHEREOF, I hereby execute this certificate on this 20th day of
October, 1999.
/s/ PRAKASH BHASKARAN
----------------------------------------
Prakash Bhaskaran
<PAGE> 19
NOTE NO. 01
TO SENIOR LOAN AND SECURITY AGREEMENT
NO. 6262
DATED AS OF AUGUST 20, 1999
BETWEEN VISION SOFTWARE TOOLS, INC.
AS BORROWER AND
PHOENIX LEASING INCORPORATED AS LENDER
SENIOR SECURED PROMISSORY NOTE
$246,049.42 October 29, 1999
FOR VALUE RECEIVED, the undersigned, VISION SOFTWARE TOOLS, INC., a California
corporation ("Borrower"), hereby promises to pay to the order of PHOENIX LEASING
INCORPORATED, or its assigns (the "Lender") the principal sum of Two Hundred
Forty-six Thousand Forty-nine and 42/100 Dollars ($246,049.42), together with
interest thereon until the principal balance, together with interest accrued and
unpaid, shall be due and payable. Principal and interest shall be payable in
consecutive monthly installments, each of which shall be equal to the percentage
specified below of the principal sum and in the amounts each month specified
below.
Month Payment Amount Percentage
1-36 $7,861.28 3.195%
The first and last monthly installments shall be due immediately prior to the
date of this Note. An interim payment will be due on the first day of the month
immediately following the date of this Note (unless the date of this Note is the
first day of the month in which case no interim payment is due on that day), for
the period from (and including) the date Lender funds the principal amount of
this Note until (but not including) the first day of the following month and
shall be equal to 1/30th of the monthly payment multiplied by the number of
days, if any, between (and including) the funding date and the first day of the
following month. The second monthly payment shall be due on the first day of the
second month following the date of this Note and each succeeding payment shall
be made on the first day of each succeeding month.
Borrower's End of Loan Position payment shall be due on the first day of the
thirty-seventh (37th) month as provided below: (a) General. Borrower shall be
required to choose a final payment or Note extension election ("End of Loan
Position") at the expiration of the first Note's term. Borrower shall provide
written notice of its election to Lender at least 90 days prior to the end of
the term of the first Note. That choice shall be an election of Borrower's End
of Loan Position election for all, but not less than all, of the Collateral
under all Notes under the Security Agreement.
In the event Borrower does not provide 90 days' prior written notice of its
election, Borrower shall be deemed to have elected Election No. 2.
(b) End of Loan Position Elections. As its End of Loan Position, Borrower shall
be required to:
Election No. 1: Make a final payment equal to 15% of the Note's original
principal amount.
Election No. 2: Extend the Note's term for an additional 12 months ("Extended
Term") for a monthly rate of 1.67% of the Note's original principal amount.
Borrower has the ability to prepay all, but not fewer than all, outstanding
Notes in whole but not in part. The prepayment amount shall be the sum of (i)
and (ii) below, discounting the amounts in (ii) at a rate of
1
<PAGE> 20
NOTE NO. 01
TO SENIOR LOAN AND SECURITY AGREEMENT
NO. 6262
DATED AS OF AUGUST 20, 1999
BETWEEN VISION SOFTWARE TOOLS, INC.
AS BORROWER AND
PHOENIX LEASING INCORPORATED AS LENDER
6% per annum compounded monthly on the basis of a 360 day year: (i) all amounts
which may be then due or accrued to the payment date for all outstanding Notes;
(ii) as of such payment date, an amount equal to: (A) all remaining monthly
payments due under all outstanding Notes, and (B) twelve (12) additional monthly
payments for this Note all outstanding Notes, the amount of which will be
calculated in accordance with Election No. 2 in Section 28. The prepayment
conditions are as follows: (a) Borrower must provide Lender with at least five
(5) days' advance written notice of its intention to prepay; and (b) the
prepayment date must fall on a regular monthly payment date.
Borrower shall pay Lender a late charge of 8% of any payment owed Lender by
Borrower which is not paid when due (taking into account applicable grace
periods), for every month such payment is not paid when due, but in no event an
amount greater than the highest rate permitted by applicable law.
Payments of principal and interest hereunder shall be made in lawful money of
the United States of America at the offices of Lender at 2401 Kerner Boulevard,
San Rafael, California 94901, or such other place as the Lender shall designate
to the Borrower in writing.
This Note is secured by a Senior Loan and Security Agreement, dated as of
August 20, 1999 between Borrower and Lender (the "Security Agreement") and is
entitled to the benefits of the Security Agreement which contains, among other
things, provisions for (i) events of default and the Lender's rights and
remedies following an even of default (which include, but are not limited to,
acceleration of this Note), (ii) Collateral which secures the repayment of this
Note and is more particularly described on Exhibit A, and (iii) other rights
and remedies of Lender.
This Note may be declared due prior to its expressed maturity date only in the
events, on the terms and in the manner provided in the Security Agreement.
This Note shall be deemed to have been made under and shall be governed by the
laws of the State of California in all respects, including matters of
construction, validity and performance. At Lender's sole discretion, option and
election, jurisdiction and venue for any legal action between the parties
arising out of or relating to this Note shall be in the Superior Court of Marin
County, California, or, in cases where federal diversity jurisdiction is
available, in the United States District Court for the Northern District of
California located in San Francisco, California.
The Borrower hereby expressly waives presentment for payment, demand for
payment, notice of dishonor, protest, notice of protest, notice of nonpayment,
and all lack of diligence or delays in collection or enforcement of this Note.
BORROWER:
VISION SOFTWARE TOOLS, INC.
By: /s/ PRAKASH BHASKARAN
------------------------------------
Name (Print): Prakash Bhaskaran
--------------------------
Title: Director of Finance
---------------------------------
2
<PAGE> 21
Phoenix Leasing Incorporated
Funding Request
Exhibit A
Borrower: Vision Software Tools, Inc.
2101 Webster Street, 8th Floor
Master Loan: 6262 Note: 01
<TABLE>
<CAPTION>
L TOTAL
ITEM INVOICE DESCRIPTION EQ SERIAL O INVOICED $ $ PD BY
NO VENDOR NAME NO. OF ITEM CD QTY NUMBER C NET OF SLS TX BORROWER
- ---- ----------- ------- ----------- -- --- ------- - -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1 Vanguard Legato 303323 Teknion telemarketing 6 1 1 7,350.00 7,350.00
area cubicles
- ------------------------------------------------------------------------------------------------------------------------------------
2 303323 Consultant stations 6 1 1 13,356.00 13,356.00
- ------------------------------------------------------------------------------------------------------------------------------------
3 303323 Consultant cubes 6 1 1 20,020.00 20,020.00
- ------------------------------------------------------------------------------------------------------------------------------------
4 303323 Mobile box file 6 22 1 3,740.00 3,740.00
pedestal
- ------------------------------------------------------------------------------------------------------------------------------------
5 303323 Installation 27 1 1 7,995.00 7,995.00
- ------------------------------------------------------------------------------------------------------------------------------------
6 303323 Design service 26 1 1 1,000.00 1,000.00
- ------------------------------------------------------------------------------------------------------------------------------------
7 303323 Sales Tax 29 1 1 4,328.03 4,328.03
- ------------------------------------------------------------------------------------------------------------------------------------
8 Comp View 38883 LCD Projector LP750 7 1 SN2YW90901220 1 6,385.00 6,385.00
- ------------------------------------------------------------------------------------------------------------------------------------
9 38883 Sales Tax 29 1 1 542.73 542.73
- ------------------------------------------------------------------------------------------------------------------------------------
10 38883 Transportation charge 27 1 1 73.00 73.00
- ------------------------------------------------------------------------------------------------------------------------------------
11 Insight 4841645 IBM Thinkpad 770E, 1 4 1S954851U78FN647, 1 9,016.00 9,016.00
266MMX 1S954851U78FP318,
1S954851U78FP344,
1S954851U78FY426
- ------------------------------------------------------------------------------------------------------------------------------------
12 4841645 Realport Ethernet PC 1 3 N/A 1 933.00 933.00
Card
- ------------------------------------------------------------------------------------------------------------------------------------
13 4841645 Toshiba Equium 7100D 1 2 Z8043019A, 1 1,666.00 1,666.00
PII 333 Z8043043A
- ------------------------------------------------------------------------------------------------------------------------------------
14 4841645 MAG 17" 720V2 Monitor 1 2 HD58IA005925, 1 480.00 480.00
HD581A005935
- ------------------------------------------------------------------------------------------------------------------------------------
15 4841645 Shipping & Handling 27 1 277.16 277.16
- ------------------------------------------------------------------------------------------------------------------------------------
16 Insight 4912638 Exchange server, 18200 1 N/A 1 2,909.00 2,909.00
Seagate misc
- ------------------------------------------------------------------------------------------------------------------------------------
17 4912638 Intellimouse 3.0 24 1 1 195.00 195.00
- ------------------------------------------------------------------------------------------------------------------------------------
18 Insight 4910532 IBM Thinkpad 770PII 1 1 N/A 1 3,825.00 3,825.00
- ------------------------------------------------------------------------------------------------------------------------------------
19 4910532 IBM keyboard 1 5 N/A 1 130.00 130.00
- ------------------------------------------------------------------------------------------------------------------------------------
20 4910532 5.1 GB, IDE ATA-3 1 3 N/A 1 2,025.00 2,025.00
- ------------------------------------------------------------------------------------------------------------------------------------
21 Insight 4637583 IBM Thinkpad 600PII 1 2 N/A 1 5,351.80 5,351.80
- ------------------------------------------------------------------------------------------------------------------------------------
22 Insight 4844219 IBM Thinkpad 600PII 1 3 1S264535U78YZ370, 1 6,525.00 6,525.00
1S264535U78ZA180,
1S264535U78ZA212
- ------------------------------------------------------------------------------------------------------------------------------------
23 Dell Direct 229642863 PowerEdge 4300 1 1 3RH61 1 15,525.24 15,525.24
Redundant base
- ------------------------------------------------------------------------------------------------------------------------------------
24 229642863 Tax 29 1 1 1,289.07 1,289.07
- ------------------------------------------------------------------------------------------------------------------------------------
25 229642863 Shipping & handling 27 1 1 100.00 100.00
- ------------------------------------------------------------------------------------------------------------------------------------
26 Dell Direct 229641873 Dimension XPS T450 1 5 3R34E 1 9,710.00 9,710.00
3R34U
3R35E
3R35U
3R3CA
- ------------------------------------------------------------------------------------------------------------------------------------
27 229641873 Tax 29 1 838.22 838.22
- ------------------------------------------------------------------------------------------------------------------------------------
28 229641873 Shipping & Handling 27 1 450.00 450.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
No entry required
TAX PD ------------------------
ITEM VNDR? CHK TRANSACT. Net $ Due Net $ Due
NO (Y/N) NO. DATE Borrower Vendor
- ---- ------ --- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------
1 Y 104990 6/16/99
$ 7,350.00 $0.00
- --------------------------------------------------------------------------
2 Y 104990 6/16/99 $13,356.00 $0.00
- --------------------------------------------------------------------------
3 Y 104990 6/16/99 $20,020.00 $0.00
- --------------------------------------------------------------------------
4 Y 104990 6/16/99
$ 3,740.00 $0.00
- --------------------------------------------------------------------------
5 Y 104990 6/16/99 $ 7,995.00 $0.00
- --------------------------------------------------------------------------
6 Y 104990 6/16/99 $ 1,000.00 $0.00
- --------------------------------------------------------------------------
7 Y 104990 6/16/99 $ 4,328.03 $0.00
- --------------------------------------------------------------------------
8 Y 104714 5/7/99 $ 6,385.00 $0.00
- --------------------------------------------------------------------------
9 Y 104714 5/7/99 $ 542.73 $0.00
- --------------------------------------------------------------------------
10 Y 104714 5/7/99 $ 73.00 $0.00
- --------------------------------------------------------------------------
11 N 104321 3/18/99
$ 8,294.72 $0.00
- --------------------------------------------------------------------------
12 N 104321 3/18/99
$ 858.36 $0.00
- --------------------------------------------------------------------------
13 N 104321 3/18/99
$ 1,532.72 $0.00
- --------------------------------------------------------------------------
14 N 104321 3/18/99
$ 441.60 $0.00
- --------------------------------------------------------------------------
15 N 104321 3/18/99 $ 277.16 $0.00
- --------------------------------------------------------------------------
16 N 104588 4/20/99
$ 2,909.00 $0.00
- --------------------------------------------------------------------------
17 N 104588 4/20/99 $ 195.00 $0.00
- --------------------------------------------------------------------------
18 N 104588 4/20/99 $ 3,825.00 $0.00
- --------------------------------------------------------------------------
19 N 104588 4/20/99 $ 130.00 $0.00
- --------------------------------------------------------------------------
20 N 104588 4/20/99 $ 2,025.00 $0.00
- --------------------------------------------------------------------------
21 N 104476 4/5/99 $ 5,351.80 $0.00
- --------------------------------------------------------------------------
22 N 104448 3/30/99
$ 6,003.00 $0.00
- --------------------------------------------------------------------------
23 Y 104779 5/24/99
$15,525.24 $0.00
- --------------------------------------------------------------------------
24 Y 104779 5/24/99 $ 1,289.07 $0.00
- --------------------------------------------------------------------------
25 Y 104779 5/24/99 $ 100.00 $0.00
- --------------------------------------------------------------------------
26 Y 104779 5/24/99
$ 9,710.00 $0.00
- --------------------------------------------------------------------------
27 Y 104779 5/24/99 $ 838.22 $0.00
- --------------------------------------------------------------------------
28 Y 104779 5/24/99 $ 450.00 $0.00
- --------------------------------------------------------------------------
</TABLE>
Page 1 of 3
Property of Phoenix Leasing Incorporated
<PAGE> 22
Phoenix Leasing Incorporated
Funding Request
Exhibit A
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C><C> <C> <C><C> <C> <C><C> <C> <C> <C>
29 Insight 4999598 IBM Thinkpad 770 1 3 1S954972U78FW912, 1 10,785.00 10,785.00 N 104725 5/10/99
1S954972U78FW999,
1S954972U78FX352 $10,785.00 $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
30 4999598 IBM Thinkpad 600E 1 2 1S26453AU78NAC61, 1 5,600.00 5,600.00 N 104725 5/10/99
1S26453AU78NCG44 $5,600.00 $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
31 4999598 Realport Ethernet PC 1 6 N/A 1 798.00 798.00 N 104725 5/10/99
Card $798.00 $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
32 4999598 Shipping & 27 1 96.55 96.55 N 104725 5/10/99 $96.55 $0.00
handling
- ------------------------------------------------------------------------------------------------------------------------------------
33 Insight 5046789 HP Officejet 710 1 2 SSG91EA80H9, 1 954.00 954.00 104878 6/2/99
SSG91EA81HZ $954.00 $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
34 5046789 Toshiba Equium 7100D 1 3 49052566A, 1 2,670.00 2,670.00 104878 6/2/99
49052567A,
49052916A $2,670.00 $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
35 Insight 5088421 IBM Thinkpad 600E PII 1 3 1S26453AU78NGB26, 1 8,400.00 8,400.00 N 104894 6/3/99
1S26453AU78NGH42,
1S26453AU78NGN82 $8,400.00 $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
36 5088421 Toshiba 7100D 1 3 49054348A, 1 4,295.00 4,295.00 N 104894 6/3/99
49054421A,
49054425A,
49054525A,
49054527A $4,295.00 $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
37 5088421 MAG17" Monitor 1 6 HD58J3001669, 1 1,440.00 1,440.00 N 104894 6/3/99
HD58J3001675,
HD58J3001763,
HD58J3001778,
HD58J3001830,
HD58J3001867 $1,440.00 $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
38 5088421 Shipping & 27 1 638.47 638.47 N 104894 6/3/99 $638.47 $0.00
handling
- ------------------------------------------------------------------------------------------------------------------------------------
39 Dell 241778265 Dimension XPS T450 1 5 ORRJG 1 9,355.00 9,355.00 Y 105070 6/23/99
Direct ORRJM
ORRJS
ORRJW
ORRK1 $9,355.00 $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
40 241778265 Tax 29 1 794.49 794.49 Y 105070 6/23/99 $794.49 $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
41 241778265 Shipping & 27 1 450.00 450.00 Y 105070 6/23/99 $450.00 $0.00
handling
- ------------------------------------------------------------------------------------------------------------------------------------
42 Insight 5103187 IBM Thinkpad 770 PII 1 2 1S954972U78FW628, 1 7,190.00 7,190.00 N 104974 6/16/99
1S954972U78FX247 $7,190.00 $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
43 Insight 5123761 IBM Thinkpad 770 PII 1 4 1S954971U78HF978, 1 14,960.00 14,960.00 N 104974 6/16/99
1S954971U78HF987,
1S954971U78HG010,
1S954971U78HG026 $14,960.00 $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
44 5123761 HP Officejet 1 2 SMY92PA11JJ, 1 954.00 954.00 N 104974 6/16/99
SMY938B10HT $954.00 $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
45 5123761 Shipping & 1 1 147.36 147.36 N 104974 6/16/99 $147.36 $0.00
handling
- ------------------------------------------------------------------------------------------------------------------------------------
46 Insight 5152826 IBM Thinkpad 770 1 1 1S954971U78HF243 1 3,740.00 3,740.00 N 105073 6/23/99 $3,740.00 $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
47 5152826 Shipping & 27 1 1 28.64 28.64 N 105073 6/23/99 $28.64 $0.00
handling
- ------------------------------------------------------------------------------------------------------------------------------------
48 Insight 5130405 IBM Thinkpad 770 PII 1 1 N/A 1 3,595.00 3,595.00 N 105073 6/23/99
300 ADP $3,595.00 $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2 of 3
Property of Phoenix Leasing Incorporated
<PAGE> 23
Phoenix Leasing Incorporated
Funding Request
Exhibit A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
49 Insight 5127491 Toshiba Equiurn 7100D 1 5 49054512A, 1 4,295.00
PII 49054513A,
49054517A,
49054518A,
49054519A
- -----------------------------------------------------------------------------------------------
50 5127491 Shipping & handling 1 1 193.21
- -----------------------------------------------------------------------------------------------
51 Insight 5190747 IBM Thinkpad 770 PII 1 3 N/A 1 11,010.00
- -----------------------------------------------------------------------------------------------
52 Insight 5195928 5.1 GB IDE 1 2 1S11J89477814545, 1 1,354.00
1S11J89477814548
- -----------------------------------------------------------------------------------------------
53 5195928 NEC Superscript Printer 1 2 U613652398CH, 1 638.00
U613652398CI
- -----------------------------------------------------------------------------------------------
54 5195928 Software 24 4 1 2,792.00
- -----------------------------------------------------------------------------------------------
55 Insight 5192107 Realport Cardbus 1 2 N/A 1 578.00
Ethernet
- -----------------------------------------------------------------------------------------------
56 5192107 Toshiba Equiurn 7100D 1 5 49053040A, 1 3,995.00
PII 49053042A,
49053046A,
49053049A,
49053050A
- -----------------------------------------------------------------------------------------------
57 5192107 Shipping & handling 27 1 507.10
- -----------------------------------------------------------------------------------------------
58 Insight 5221826 IBM Thinkpad 600E PII 1 2 1S264555U78CKB00, 1 7,272.00
1S264555U78CKG95
- -----------------------------------------------------------------------------------------------
59 Insight 5242130 IBM Thinkpad 600E PII 1 1 1S26453AU78NHH80 1 2,780.00
- -----------------------------------------------------------------------------------------------
60 5242130 Ultraslim 56 W AC 1 5 N/A 1 335.00
- -----------------------------------------------------------------------------------------------
61 Insight 5264882 IBM Thinkpad 770z PII 1 2 1S954982U78NG609, 1 8,800.00
1S954982U78NG700
- -----------------------------------------------------------------------------------------------
62 5264882 Shipping & Handling 27 1 62.95
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
49 4,295.00 N 105073 6/23/99
$4,295.00 $0.00
- ------------------------------------------------------------------
50 193.21 N 105073 6/23/99 $193.21 $0.00
- ------------------------------------------------------------------
51 11,010.00 N 105217 7/12/99 $11,010.00 $0.00
- ------------------------------------------------------------------
52 1,354.00 N 105217 7/12/99
$1,354.00 $0.00
- ------------------------------------------------------------------
53 638.00 N 105217 7/12/99
$638.00 $0.00
- ------------------------------------------------------------------
54 2,792.00 N 105217 7/12/99 $2,792.00 $0.00
- ------------------------------------------------------------------
55 578.00 N 105217 7/12/99
$578.00 $0.00
- ------------------------------------------------------------------
56 3,995.00 N 105217 7/12/99
$3,995.00 $0.00
- ------------------------------------------------------------------
57 507.10 N 105217 7/12/99 $507.10 $0.00
- ------------------------------------------------------------------
58 7,272.00 N 108210 7/22/99
$7,272.00 $0.00
- ------------------------------------------------------------------
59 2,780.00 N 108210 7/22/99 $2,780.00 $0.00
- ------------------------------------------------------------------
60 335.00 N 108210 7/22/99
$335.00 $0.00
- ------------------------------------------------------------------
61 8,800.00 N 108210 7/22/99
$8,800.00 $0.00
- ------------------------------------------------------------------
62 62.95 N 108210 7/22/99 $62.95 $0.00
- ------------------------------------------------------------------
----------------------------
TOTAL AMOUNT DUE TO BORROWER $246,049.42
----------------------------
TOTAL AMOUNT DUE TO VENDOR $0.00
------------
TOTAL DRAW $246,049.42
------------
</TABLE>
Borrower Signature: /s/ Prakash Bhaskaran Date: 10/20/99
<PAGE> 24
OFFICER'S CERTIFICATE
The undersigned, Prakash Bhaskaran, hereby certifies that:
(i) I am the Director of Finance of VISION SOFTWARE TOOLS, INC., a California
corporation (the "Borrower");
(ii) as such officer, I am familiar with the terms and conditions of that
certain Senior Loan and Security Agreement (the "Security Agreement")
dated as of August 20, 1999 between Borrower and PHOENIX LEASING
INCORPORATED ("Lender");
(iii) the equipment, machinery, furniture, fixtures and other items on the
attached list are free and clear of any and all liens, charges, security
interests or other encumbrances that may affect Lender's right, title or
interest in and to the equipment and other items, and no UCC-1 financing
statements or other grants of security interests have been or are in the
process of being filed against any of such equipment or other items,
other than Permitted Liens (as such term is defined in the Security
Agreement);
(iv) Borrower is performing according to Borrower's business plan described in
Section 3 of the Security Agreement, a true copy of which business plan
has been delivered to Lender;
(v) there has been no material adverse change in the financial condition of
Borrower from the date of its most recent financial statements, true
copies of which have been delivered to Lender;
(vi) as of the date hereof, no Event of Default (as defined in the Security
Agreement) or event which with the giving of notice or passage of time,
or both, could become an Event of Default has occurred and is continuing;
and
(vii) the representations and warranties in Section 5 of the Security Agreement
are true and correct as if made on the date of the Loan.
IN WITNESS WHEREOF, I hereby execute this certificate on this 20th day of
October 1999.
/s/ Prakash Bhaskaran
-------------------------------
<PAGE> 25
[PHOENIX LEASING
INCORPORATED LETTERHEAD]
October 1, 1999
Mr. Prakash Bhaskaran
Director of Finance & Administration
Vision Software Tools, Inc.
2101 Webster Street, 8th Floor
Oakland, CA 94612
Dear Prakash:
I enjoyed touching base with you yesterday and am pleased to offer this
proposal to both increase and extend the existing equipment finance commitment.
Al terms and conditions of the Senior Loan and Security Agreement ("Loan")
remain in effect with the following changes:
o Line increase of $1,000,000 for a Total Line of $2,000,000.
o Commitment period extended to September 30, 2000.
I have attached the current commitment letter for your convenience. Upon formal
credit approval, documentation would consist of a one-page amendment letter
essentially similar to this letter.
If you are in agreement with the aforementioned, please have a person
authorized to sign on behalf of your company sign and date this letter as
indicated below and return to me along with the requested items outlined below.
PHOENIX LEASING INCORPORATED VISION SOFTWARE TOOLS, INC.
By: /s/ BOB BORGES By: /s/ PRAKASH BHASKARAN
-------------------------- ----------------------
Title: Director, Business Dev't. Title: Director of Finance
----------------------- -------------------
Date: 10-1-99 Date: 10/18/99
------------------------ --------------------
Items needed to process this request:
o Most recent interim financial statements.
o Post Series E capitalization table.
o Most current version of financial plan through 9-30-00. (If the current
credit approved plan is still in effect, we can work with this plan-See
attached commitment letter).
o Commitment fee replenishment of $10,000 payable to Phoenix Leasing, Inc.
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
<S> <C>
1. Vision Software (Europe) Limited United Kingdom
2. Vision Software Tools Europe BVBA Belgium
3. Vision Software GmbH Germany
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated December 1, 1999, relating to the financial statements and
financial statement schedules of Versata, Inc. (formerly Vision Software Tools,
Inc.), which appears in such Registration Statement. We also consent to the
references to us under the headings "Experts" and "Selected Financial Data" in
such Registration Statement.
San Francisco, California
December 9, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,340
<SECURITIES> 0
<RECEIVABLES> 8,695
<ALLOWANCES> (830)
<INVENTORY> 0
<CURRENT-ASSETS> 16,707
<PP&E> 3,264
<DEPRECIATION> (1,910)
<TOTAL-ASSETS> 18,253
<CURRENT-LIABILITIES> 9,276
<BONDS> 140
0
23
<COMMON> 5
<OTHER-SE> 8809
<TOTAL-LIABILITY-AND-EQUITY> 18,253
<SALES> 7,416
<TOTAL-REVENUES> 7,416
<CGS> 4,155
<TOTAL-COSTS> 4,155
<OTHER-EXPENSES> 15,723
<LOSS-PROVISION> 830
<INTEREST-EXPENSE> 636
<INCOME-PRETAX> (12,911)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,911)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,911)
<EPS-BASIC> (4.12)
<EPS-DILUTED> (4.12)
</TABLE>
