<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 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
SILVERSTREAM SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------------
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DELAWARE 7372 04-3318325
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
-------------------------
ONE BURLINGTON WOODS, SUITE 200
BURLINGTON, MASSACHUSETTS 01803
(781) 238-5400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------------
DAVID A. LITWACK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SILVERSTREAM SOFTWARE, INC.
ONE BURLINGTON WOODS, SUITE 200
BURLINGTON, MA 01803
(781) 238-5400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
-------------------------
COPIES TO:
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MARK G. BORDEN, ESQ. JOHN A. MELTAUS, ESQ.
JOHN H. CHORY, ESQ. TESTA, HURWITZ & THIBEAULT, LLP
HALE AND DORR LLP 125 HIGH STREET
60 STATE STREET BOSTON, MASSACHUSETTS 02110
BOSTON, MASSACHUSETTS 02109 TELEPHONE: (617) 248-7000
TELEPHONE: (617) 526-6000 TELECOPY: (617) 248-7100
TELECOPY: (617) 526-5000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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(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. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE(2)
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<S> <C> <C>
Common Stock, $.001 par value per share..................... $40,250,000 $11,189.50
- ------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
as amended.
(2) Calculated pursuant to Rule 457(a) based on an estimate of the proposed
maximum aggregate offering price.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
The information in this 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 prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS (Subject to Completion)
Issued , 1999
Shares
[LOGO][LOGO]
COMMON STOCK
------------------------
SILVERSTREAM SOFTWARE, INC. IS OFFERING SHARES OF COMMON STOCK.
THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR
OUR SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$ AND $ PER SHARE.
------------------------
WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "SSSW."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
------------------------
PRICE $ A SHARE
------------------------
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS SILVERSTREAM
-------- ------------- ------------
<S> <C> <C> <C>
Per Share........................ $ $ $
Total............................ $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
SilverStream has granted the underwriters the right to purchase up to an
additional shares of common stock to cover over-allotments.
Morgan Stanley & Co. Incorporated expects to deliver the shares of common stock
to purchasers on , 1999.
------------------------
MORGAN STANLEY DEAN WITTER
BANCBOSTON ROBERTSON STEPHENS
SG COWEN
, 1999
<PAGE> 3
[Narrative description of graphic material omitted in electronically filed
document:
The following text is at the top of the page and spans the front cover foldout:
SILVERSTREAM: ENABLING POWERFUL BUSINESS APPLICATIONS FOR THE WEB.
The following text appears on the inside front cover foldout:
Organizations around the world are focusing on how the Web will impact their
businesses, and are starting to develop A NEW GENERATION OF WEB-BASED
APPLICATIONS that allow them to take advantage of the power of the Web.
Previously a company's Web site would simply involve publishing static marketing
documents. However, it was not long before the world realized that the Web could
be used for FAR MORE POWERFUL APPLICATIONS SUCH AS E-COMMERCE, CUSTOMER SERVICE
AND SUPPLY CHAIN MANAGEMENT.
Web-based applications are transforming the way we do business. These
applications have the following characteristics:
- They use the Web to reach a much broader audience, bringing businesses
closer to their customers, partners, suppliers and employees.
- They integrate data from existing applications, including relational
databases, enterprise resource planning systems, legacy mainframe systems,
document management systems and external data sources.
Application servers are the platforms that allow organizations to build this
new generation of applications. Furthermore, the Web architecture offers
significant cost benefits over traditional computing architectures because
it avoids the need to install and maintain software on the user's remote
computer. Instead, a Web browser or 'thin client' is used to run the
application. As a result, many organizations are integrating future
application development to a Web architecture based on application servers.
The inside front cover contains a graphic that consists of a large disk entitled
"Web." On the left side of the large disk are several groups of human figures
labeled "customers," "suppliers," "employees," "consumers" and "partners." On
the right side of the disk are several three-dimensional cylinders under the
heading "Data Sources." The cylinders are labeled "Lotus Notes," "SAP," "DB/2,"
"Oracle" and "PeopleSoft."
In the center of the large disk are two smaller disks, stacked one on top of the
other. The bottom disk is entitled "Customer-Written Applications" and includes
several icons labeled "E-commerce," "Transaction Processing," "Decision
Support," "Demand & Supply Chain Management," "Customer Support" and "Enterprise
Portals."
The top disk is entitled "SilverStream Application Server" and contains a
detailed graphic outlining the fundamental components of the SilverStream
Application Server architecture:
1. At the bottom is a horizontal three-dimensional rectangle entitled
"Enterprise Deployment Services," which rectangle includes four boxes
entitled "Scalability," "Reliability," "Security" and "Manageability."
2. On top of the rectangle are three vertical three-dimensional rectangles:
a. The vertical rectangle on the left is entitled "Presentation Layer,"
and includes two boxes entitled "HTML" and "Java"
b. The vertical rectangle in the middle is entitled "Business Logic
Layer," and includes three boxes entitled "Distributed Objects,"
"Transactions" and "Content Management"
c. The vertical rectangle on the right is entitled "Data Access Layer,"
and includes two boxes entitled "Data Access Objects" and "Enterprise
Data Connectors"
3. Above the three rectangles and connected to each by thin lines is a
horizontal three-dimensional rectangle entitled "Development Tools."
4. To the left of the rectangle entitled "Presentation Layer" are two
computer icons under the title "Users." There is a two-way arrow between
the rectangle and the icons.
5. To the right of the rectangle entitled "Data Access Layer" are three
three-dimensional cylinders under the title "Data." There is a two-way
arrow between the rectangle and the cylinders.]
The following text appears below the graphic:
The SilverStream Application Server is a comprehensive platform that allows
developers to:
- Increase productivity using powerful integrated development tools that
shorten time-to-market
- Access and integrate data and applications from multiple diverse sources
- Incorporate custom business logic by building reusable business objects
- Create the presentation layer using Java or HTML as the user interface
- Develop sophisticated applications with high transaction processing
capabilities
- Deploy applications that scale to handle high volumes of users and
transactions with high reliability
- Secure applications and data from unwanted access
- Integrate and manage rich content required for applications such as
product catalogs
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 5
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS.......................... 14
USE OF PROCEEDS....................... 15
DIVIDEND POLICY....................... 15
CAPITALIZATION........................ 16
DILUTION.............................. 17
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 19
BUSINESS.............................. 29
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PAGE
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MANAGEMENT............................ 42
CERTAIN TRANSACTIONS.................. 47
PRINCIPAL STOCKHOLDERS................ 49
DESCRIPTION OF CAPITAL STOCK.......... 51
SHARES ELIGIBLE FOR FUTURE SALE....... 54
UNDERWRITERS.......................... 56
LEGAL MATTERS......................... 58
EXPERTS............................... 58
WHERE YOU CAN FIND MORE INFORMATION... 58
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
------------------------
We are a Delaware corporation. Our principal executive offices are located
at One Burlington Woods, Suite 200, Burlington, Massachusetts 01803 and our
telephone number is (781) 238-5400. Our World Wide Web site address is
www.silverstream.com. The information in the Web site is not incorporated by
reference into this prospectus.
SilverStream(R) is our registered trademark and SilverStream Application
Server and the SilverStream logo are our trademarks. This prospectus also
contains trademarks and trade names of other companies.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock and
seeking offers to buy shares of common stock only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS THAT BUY, SELL OR TRADE THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
Except as set forth in the Consolidated Financial Statements and Notes
thereto or as otherwise indicated, all information in this prospectus:
- assumes no exercise of the underwriters' over-allotment option;
- reflects the conversion of all outstanding shares of our convertible
preferred stock into shares of common stock;
- reflects the filing, as of the closing of the offering, of our amended
and restated certificate of incorporation and the adoption of our amended
and restated by-laws implementing certain provisions described below
under "Description of Capital Stock -- Delaware Law and Certain Charter
and By-Law Provisions; Anti-Takeover Effects;" and
- reflects a -for-1 stock split of our common stock to be effected
prior to the offering.
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<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding SilverStream and the common stock being sold in this
offering and our Consolidated Financial Statements and Notes thereto appearing
elsewhere in this prospectus.
SILVERSTREAM SOFTWARE, INC.
SilverStream is a leading global provider of application server software
and services that enable businesses and other large organizations to create,
deploy and manage software applications for intranets, extranets and the
Internet. The advantages of Web-based technology are driving the creation of a
new generation of business-transforming software applications. These powerful
Web-based applications link a broad universe of customers, vendors, employees
and partners with multiple, diverse data sources. Using our products and
services, organizations can rapidly develop scalable, reliable and secure Web
applications in diverse areas such as e-commerce, employee self-service, supply
chain management, customer service and work flow management.
Organizations are using Web applications to conduct "e-business," which
encompasses business-to-business, business-to-employee and business-to-consumer
transactions. These organizations recognize that if they are able to offer
easy-to-access, compelling, real-time applications as a means of transacting
business and interacting with business partners and customers, they can create
closer and more enduring business relationships, new efficiencies and
significant competitive and strategic advantages. To date, organizations have
been required to use many different development tools, programming languages and
technologies, often from different vendors, and have had to rely on custom
programming and complex integration activities to develop their Web
applications. These applications have often been difficult and expensive to
create, deploy and manage. In order to compete in this dynamic e-business
environment, organizations need scalable, reliable and secure solutions that
shorten the time-to-market for powerful new Web applications.
SilverStream's products and services are designed to help our customers
meet the new challenges posed by Web-based technology and applications. Our
products consist of an application server, an integrated set of development
tools and enterprise data connectors. Our products reduce the complexity of
developing Web applications and enable customers to extend the reach of these
applications, access multiple information sources and simplify administration.
We also offer comprehensive consulting, education and technical support services
to help ensure the successful development and implementation of Web applications
by our customers.
We market our products and services globally through our direct sales force
and a network of independent software vendors, value-added resellers and
consulting and training partners. To date, we have licensed the SilverStream
Application Server to over 500 customers in a wide variety of industries,
including communication, financial services, government, manufacturing, oil and
gas, pharmaceutical, technology and transportation. Our customers include ARCO,
Bankers Trust, Enron, Federal Express, Hewlett-Packard, Johnson & Johnson, MCI
WorldCom, NASA, Pfizer, Raytheon, Samsung, SBC Communications, Siemens,
StorageTek, The Chicago Stock Exchange, The United States Army, UPS and The Walt
Disney Company.
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THE OFFERING
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Common stock offered........................ shares
Common stock to be outstanding after this
offering.................................. shares
Use of proceeds............................. For general corporate purposes, including
working capital and capital expenditures.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol...... SSSW
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SUMMARY CONSOLIDATED FINANCIAL DATA
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<CAPTION>
PERIOD FROM
MAY 8, 1996 YEARS ENDED THREE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, MARCH 31,
DECEMBER 31, ---------------------- -----------------------
1996 1997 1998 1998 1999
-------------- --------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Software license.................. $ -- $ 249 $ 5,983 $ 579 $ 2,607
Services.......................... -- -- 825 104 867
--------- --------- ---------- ---------- ----------
Total revenue....................... -- 249 6,808 683 3,474
Cost of revenue:
Software license.................. -- 90 695 118 254
Services.......................... -- 282 1,414 252 1,330
--------- --------- ---------- ---------- ----------
Total cost of revenue............... -- 372 2,109 370 1,584
--------- --------- ---------- ---------- ----------
Gross profit (loss)................. -- (123) 4,699 313 1,890
Total operating expenses............ 1,005 8,437 18,059 4,077 6,237
--------- --------- ---------- ---------- ----------
Loss from operations................ (1,005) (8,560) (13,360) (3,764) (4,347)
Net loss............................ $ (952) $ (8,335) $ (12,885) $ (3,722) $ (4,307)
========= ========= ========== ========== ==========
Basic and diluted net loss per
share............................. $ (.45) $ (1.71) $ (2.52) $ (.73) $ (.83)
Weighted-average common shares used
in computing basic and diluted net
loss per share.................... 2,103,535 4,882,996 5,122,480 5,106,947 5,215,648
Pro forma basic and diluted net loss
per share......................... $ (.34)
Weighted-average common shares used
in computing pro forma basic and
diluted net loss per share........ 12,759,943
</TABLE>
Shares used in computing pro forma basic and diluted net loss per share
above include the 8,659,208 shares of common stock issuable upon conversion of
our outstanding preferred stock upon the closing of this offering.
The pro forma as adjusted column in the consolidated balance sheet data
below gives effect to the conversion of our outstanding preferred stock into
common stock upon the closing of this offering and the sale of the
shares of common stock in this offering at an assumed initial public offering
price of $ , after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us. See "Use of Proceeds"
and "Capitalization."
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AS OF
MARCH 31, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $12,448 $
Working capital............................................. 12,994
Total assets................................................ 20,764
Long-term debt, less current portion........................ 250
Redeemable convertible preferred stock...................... 11,638 --
Total stockholders' equity.................................. 3,075
</TABLE>
4
<PAGE> 7
RISK FACTORS
You should consider carefully the risks described below before you decide
to buy our common stock. The risks and uncertainties described below are not the
only ones facing us. If any of the following risks actually occur, our business,
financial condition or results of operations would likely suffer. In such case,
the trading price of our common stock could fall, and you may lose all or part
of the money you paid to buy our common stock.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR FUTURE
PROSPECTS
SilverStream was founded in May 1996 and has a limited operating history.
We began shipping our first products, the SilverStream Application Server 1.0
and related software development tools, in November 1997. Our limited operating
history makes an evaluation of our future prospects very difficult. The revenue
and income potential of our business and market are unproven. We will encounter
risks and difficulties frequently encountered by early-stage companies in new
and rapidly evolving markets. These risks include our:
- Limited number of customers that have implemented and are using our
products;
- Substantial dependence on our SilverStream Application Server;
- Need to enhance our SilverStream Application Server and introduce new
products;
- Need to expand our sales and professional services organizations;
- Need to build strategic partnerships and relationships;
- Need to compete in a highly competitive market;
- Need to manage rapidly expanding operations; and
- Need to attract and retain key personnel.
If we do not successfully address these risks, our business would be seriously
harmed.
THE MARKET FOR OUR PRODUCTS IS EMERGING AND OUR BUSINESS WILL SUFFER IF IT
DOES NOT DEVELOP
AS WE EXPECT
The market for Web application server software has only recently begun to
develop, is rapidly evolving and will likely have an increasing number of
competitors. We cannot be certain that a viable market for our products will
emerge or be sustainable. If the application server market fails to develop, or
develops more slowly than expected, our business and operating results would be
seriously harmed.
OUR SUCCESS DEPENDS ON WIDESPREAD MARKET ACCEPTANCE OF OUR APPLICATION SERVER
We expect to continue to derive substantially all of our revenue from our
SilverStream Application Server and related products and services. Failure to
achieve broad market acceptance of the SilverStream Application Server, or a
decline in the price of, or demand for, our Application Server would seriously
harm our business and operating results. We cannot predict the level of market
acceptance that will be achieved or maintained by our products and services.
OUR BUSINESS WILL SUFFER IF WE DO NOT SUCCESSFULLY INTRODUCE ENHANCEMENTS TO
OUR APPLICATION SERVER
Our future financial performance will depend significantly on revenue from
future enhancements to the SilverStream Application Server that we are currently
developing and plan to develop. There are significant risks inherent in product
development, enhancement and introduction. We are currently developing Version
3.0 of our Application Server, which we expect will include functionality that
we do not currently have, including improvements to the programming environment
as well as support for
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<PAGE> 8
computing standards, such as Enterprise JavaBeans and Java2, and third-party
development tools. Version 3.0 will require significant additional development
and we cannot predict the time required to complete development and testing or
the date of commercial release. Any delay or difficulties in completing such
development would seriously harm our business and operating results. In
addition, we cannot be certain that enhanced versions of the SilverStream
Application Server will meet customer performance needs or expectations when
shipped or that new versions will be free of significant software defects or
bugs.
WE HAVE INCURRED LOSSES AND WE EXPECT FUTURE LOSSES
Our failure to significantly increase our revenue would seriously harm our
business and operating results. 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 $952,000 for the period ended
December 31, 1996, $8.3 million for the year ended December 31, 1997, $12.9
million for the year ended December 31, 1998 and $4.3 million for the quarter
ended March 31, 1999. As of March 31, 1999, we had an accumulated deficit of
$26.5 million. We expect to significantly increase our research and development,
sales and marketing and general and administrative expenses in future periods.
As a result, we will need to significantly increase our quarterly revenue to
achieve and maintain profitability. We may not be able to sustain our recent
revenue growth rates or achieve sufficient revenue for profitability. In fact,
we may not have any future revenue growth, and our revenue could decline.
OUR QUARTERLY OPERATING RESULTS ARE VOLATILE, AND IF WE FAIL TO MEET THE
EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, THE MARKET PRICE OF OUR
COMMON STOCK MAY DECREASE SIGNIFICANTLY
Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future. We believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of future performance. Our operating results will
likely fall below the expectations of securities analysts or investors in some
future quarter or quarters. Our failure to meet these expectations would likely
adversely affect the market price of our common stock.
Our quarterly operating results may vary depending on a number of factors,
including:
- Demand for our SilverStream Application Server and related products and
services;
- Our ability to help our customers achieve success in their initial use of
our products;
- Actions taken by our competitors, including new product introductions and
enhancements;
- Our success in, and continued penetration of, international markets and
the economic conditions of these markets;
- Delays or reductions in spending for, or the implementation of,
application server software by our potential customers as companies
attempt to stabilize their computer systems in order to reduce the risk
of computer system problems associated with the Year 2000;
- Our ability to develop, introduce and market new products and
enhancements to our existing products on a timely basis;
- Deferral of customer orders in anticipation of product enhancements or
new products;
- Our ability to expand our sales and marketing operations, including
hiring additional sales personnel, and to expand indirect sales channels;
- Our ability to expand our service operations, including hiring additional
services personnel, and to attract additional third-party service
providers; and
- The mix of software license and services revenue.
In addition, we anticipate that the size of customer orders may increase as
we focus on larger business accounts. As a result, a delay in recognizing
revenue, even from just one account, could have a significant negative impact on
our operating results. In the past, a significant portion of our sales have been
6
<PAGE> 9
recognized near the end of a quarter. As a result, a delay in anticipated sales
past the end of a particular quarter could negatively impact our operating
results.
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, slow summer purchasing patterns in Europe and our compensation policies
that tend to compensate sales personnel, typically in the latter half of the
year, for achieving annual quotas.
WE DEPEND ON INCREASED BUSINESS FROM OUR CURRENT AND NEW CUSTOMERS
If we fail to grow our customer base or generate repeat and expanded
business from our current and new customers, our business and operating results
would be seriously harmed. Most of our customers initially make a limited
purchase of our products and services for pilot programs. Many of these
customers may not choose to purchase additional licenses to expand their use of
our products. Many of these customers have not yet 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. Our business model
depends on the expanded use of our products within our customers' organizations.
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 ultimately license these products. Because the total amount of
maintenance and support fees we receive in any period depends in large part on
the size and number of licenses that we have previously sold, any downturn in
our software license revenue would negatively impact our future services
revenue. In addition, if customers elect not to renew their maintenance
agreements, our services revenue could be significantly adversely affected.
WE HAVE A LONG SALES CYCLE THAT DEPENDS UPON FACTORS OUTSIDE OUR CONTROL
A customer's decision to purchase our products typically involves a
significant decision by the prospective customer's senior information technology
managers, as the customer applications to be built and deployed using our
products are generally critical to the customer's business. In addition, we
generally need to educate potential customers on the use and benefits of an
application server and on the performance features of the SilverStream
Application Server. As a result, our products have a long sales cycle which can
take over six months. We face difficulty predicting the quarter in which sales
to expected customers may occur. The sale of our products is also subject to
delays from the 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. Customers may
also defer orders as a result of anticipated releases of new products or
enhancements by us or our competitors.
FAILURE TO DEVELOP AND EXPAND OUR SALES, MARKETING AND DISTRIBUTION
CAPABILITIES WOULD HARM OUR BUSINESS
We need to expand our sales and marketing operations in order to increase
market awareness of our products, market the SilverStream Application Server to
a greater number of organizations and generate increased revenue. However,
competition for qualified sales personnel is intense and we may not be able to
hire enough qualified individuals in the future. Our products and services
require a sophisticated sales effort targeted at senior information technology
management of our prospective customers. New hires require extensive training
and typically require at least six months to achieve full productivity. We have
limited experience managing a large, expanding and geographically dispersed
direct sales force. In addition, we have limited experience marketing our
products broadly to a large number of potential customers.
We have a limited number of third-party distribution agreements and we may
not be able to increase the number of our distribution relationships or maintain
our existing relationships. Our current agreements
7
<PAGE> 10
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 generally 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
to our current or future distribution partners could seriously harm our revenue
and operating results, and a significant increase in sales through these
channels could also negatively impact our gross margins. In addition, sales
through these channels generally have a lower price than direct sales.
FAILURE TO EXPAND OUR SERVICES OFFERINGS WOULD HARM OUR BUSINESS
We believe that growth in our product sales depends on our ability to
provide our customers with comprehensive services, including application
engineering, implementation, training and support, and to educate third-party
resellers, instructors and consultants on how to provide similar services. As a
result, 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 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, education and technical support services that complement
our products and as our installed base of customers grows. To date, our cost of
services revenue has been significantly higher than our services revenue, and we
expect to continue to incur losses from our services business in the future. If
our services business becomes profitable, an increase in services revenue in
absolute dollars could negatively impact our total gross margin because margins
on revenue derived from services are generally lower than margins on revenue
derived from software licenses.
OUR MARKETS ARE HIGHLY COMPETITIVE AND WE MAY NOT CONTINUE TO COMPETE
SUCCESSFULLY
Our markets are new, rapidly evolving and highly competitive, and we expect
this competition to persist and intensify in the future. Our failure to maintain
and enhance our competitive position could seriously harm our business and
operating results. We encounter current or potential competition from a number
of sources, including:
- Vendors of application server products and services;
- Internally developed applications; and
- Companies that market business application software.
Our Application Server competes with application server products from other
vendors, including: IBM's WebSphere and Domino server solutions; Sun
Microsystems' NetDynamics and Netscape Application Server; Microsoft's Internet
Information Server, Active Server pages, Transaction Server and COM technology;
BEA Systems' Weblogic and Oracle's Application Server. In addition, we compete
with various methods of application distribution and management, including the
web browser, and with application server vendors and others that have introduced
software distribution capabilities into their products.
Potential competitors may bundle their products or incorporate an
application server component into existing products in a manner that discourages
users from purchasing our products. Furthermore, new competitors or alliances
among competitors may emerge and rapidly acquire significant market share. Our
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements than we can.
Some of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do. Many of
these companies have more extensive customer bases, broader customer
relationships and broader industry alliances that they could leverage, including
relationships with many of our current and potential customers. These companies
also have significantly
8
<PAGE> 11
more established customer support and professional services organizations. In
addition, these companies may adopt aggressive pricing policies or may bundle
their competitive products with broader product offerings.
OUR BUSINESS IS INCREASINGLY SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH
INTERNATIONAL OPERATIONS
To be successful, we believe we must expand our international operations.
Therefore, we expect to commit significant resources to expand our international
sales and marketing activities. We are increasingly subject to a number of risks
associated with international business activities. These risks generally
include:
- Expenses associated with customizing products for foreign countries;
- Currency exchange rate fluctuations;
- Seasonal fluctuations in purchasing patterns;
- Unexpected changes in regulatory requirements;
- Tariffs, export controls and other trade barriers;
- Longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;
- Difficulties in managing and staffing international operations;
- Potentially adverse tax consequences, including restrictions on the
repatriation of earnings; and
- The risks related to the recent global economic turbulence and adverse
economic circumstances in Asia.
WE DEPEND ON CONTINUED USE OF THE INTERNET AND GROWTH OF ELECTRONIC BUSINESS
Rapid growth in the use of and interest in the Internet has occurred only
recently. As a result, acceptance and use may not continue to develop at
historical rates, and a sufficiently broad base of consumers and enterprises may
not adopt, and continue to use, the Internet and other online services as a
medium of commerce. Risks include potentially inadequate development of the
necessary network infrastructure or delayed development of enabling technologies
and performance improvements. Demand and market acceptance for recently
introduced services and products available over the Internet are subject to a
high level of uncertainty, and there exist few proven services and products. Our
success will depend, in large part, upon third parties maintaining the Internet
infrastructure required to provide a reliable network backbone with the speed,
data capacity, security and hardware necessary for reliable Internet access and
services. Further, the use of our products for corporate or enterprise intranets
and extranets is subject to similar risks and uncertainties.
WE MUST RESPOND TO RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS
The markets for our products and services are marked 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 can quickly render
existing products obsolete and unmarketable. Any delays in our ability to
develop and release enhanced or new products could seriously harm our business
and operating results. Our technology is complex, and new products and product
enhancements can require long development and testing periods. Our failure to
conform to prevailing standards could have a negative effect on our business and
operating results.
WE MUST MANAGE OUR GROWTH AND EXPANSION
We have expanded our operations rapidly since inception. We intend to
continue to expand in the foreseeable future to pursue existing and potential
market opportunities. This rapid growth places a significant demand on
management and operational resources. To be successful, we will need to
implement
9
<PAGE> 12
additional management information systems, improve our operating,
administrative, financial and accounting systems, procedures and controls, train
new employees and maintain close coordination among our executive, engineering,
professional services, accounting, finance, marketing, sales and operations
organizations. In addition, our growth has resulted, and any future growth will
result, in increased responsibilities for management personnel.
In addition, our principal executive office lease is due to expire in July
2000. We may move our headquarters to new office space or expand into additional
office space. We cannot be certain that office space will be available on
reasonable terms. We would likely experience significant costs, and we could
experience a disruption in the development or marketing of our products, in
connection with an expansion or move.
FAILURE TO RETAIN AND ATTRACT 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, including our
Chairman, David Skok, and our President and Chief Executive Officer, David
Litwack. We may not be successful in attracting, assimilating or retaining
qualified personnel in the future. None of our senior management or other key
personnel is bound by an employment agreement. 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 attracting, training, motivating
and retaining highly skilled personnel. Like other software companies in the
Boston, Massachusetts area, we face intense competition for qualified personnel
including software engineering, service and support, and sales and marketing
personnel.
WE RELY ON THIRD-PARTY SOFTWARE AND TECHNOLOGY
Our products integrate third-party text search, object middleware,
compiler, encryption, transaction processing and monitoring, Java virtual
machine and database technology and products. There are inherent limitations in
the use and capabilities of much 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 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 certain components of our products from limited or sole source
suppliers, including encryption technology which we license from RSA Data
Security. 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. Either
alternative could seriously harm our business and operating results.
Almost all of our products are written in Java and require a Java virtual
machine made available by Sun Microsystems in order to operate. Sun may not
continue to make the Java virtual machines available at commercially reasonable
terms or at all. Furthermore, if Sun were to make significant changes to the
Java language or its Java virtual machines, 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.
SOFTWARE DEFECTS WOULD HARM OUR BUSINESS
Complex software products like ours can contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. We have in the past discovered software errors in our new releases and
new products after their introduction and expect that this will continue. We
could experience delays in release, lost revenue and customer frustration during
the period required to correct any such errors. Despite internal testing and
testing by current and potential customers, our current and
10
<PAGE> 13
future products may contain serious defects, including Year 2000 errors. Defects
or errors in current or future products, including the planned SilverStream
Application Server Version 3.0, could result in lost revenue or a delay in
market acceptance, which would seriously harm our business and operating
results.
As many of our customers use our products for business-critical
applications, errors, defects or other performance problems could result in
financial or other damage to our customers and could significantly impair their
operations. Our customers could seek damages for losses related to any of these
issues. A product liability claim brought against us, even if not successful,
would likely be time consuming and costly to defend and could adversely affect
our marketing efforts.
YEAR 2000 ISSUES COULD ADVERSELY AFFECT OUR BUSINESS
We are in the process of assessing any Year 2000 issues with the computer,
communications and software systems that we use to deliver our products and to
manage our internal operations. We have not finalized our assessment or
formulated a final plan or budget to remedy our Year 2000 issues. If our systems
do not operate properly with respect to date calculations involving the Year
2000 and subsequent dates, we could incur unanticipated expenses to remedy any
problems, which could seriously harm our business. We may also experience
reduced sales of our products as current or potential customers reduce their
budgets for enterprise software and Internet products due to increased
expenditures on their own Year 2000 compliance efforts.
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 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 our other business partners, including third-party
distributors and consultants, also are heavily dependent on information
technology systems and on their own and third-party vendor systems. Year 2000
problems experienced by us or any of these third parties could materially
adversely affect our business. Prior versions of our products may contain
technology from third parties that is not Year 2000 compliant. Additionally, the
Internet could face serious disruptions arising from the Year 2000 problem.
Many of our customers and potential customers have implemented policies
that prohibit or strongly discourage making changes or additions to their
internal computer systems until after January 1, 2000. We will experience fewer
sales if potential customers delay the purchase and implementation of our
products until after January 1, 2000. Purchasing decisions may be delayed as
potential customers stabilize their internal computer systems or divert their
information technology budgets to address Year 2000 issues. If our potential
customers delay purchasing or implementing our products in preparation for the
Year 2000 problem, our business would be seriously harmed.
Given the pervasive nature of the Year 2000 problem, we cannot guarantee
that disruptions in other industries and market segments will not adversely
affect our business. Moreover, our costs related to Year 2000 compliance, which
thus far have not been material, could ultimately be significant. In the event
that we experience disruptions as a result of the Year 2000 problem, our
business could be seriously harmed. Our efforts to address Year 2000 issues are
described in more detail in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Compliance."
PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED
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. These legal protections afford only
limited protection. 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
11
<PAGE> 14
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.
We obtain a major portion of our software license revenue from licensing
our products under standardized "shrink wrap" agreements that our customers do
not sign. If any of these agreements were deemed unenforceable, those customers
may seek to use and copy our technology without appropriate limitations.
We have no patents, and none may be issued from our existing patent
applications. Our future patents, if any, may be successfully challenged or may
not provide us with any competitive advantages.
WE MAY BE FOUND TO INFRINGE PROPRIETARY RIGHTS OF OTHERS
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. Furthermore, companies in the software market and
the Internet market are increasingly bringing suits alleging infringement of
their proprietary rights, particularly patent rights. We have been subject to
such claims in the past. Any litigation or 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.
In the event of a successful claim of infringement against us and our
failure or inability to license the infringed technology, our business and
operating results would be significantly harmed.
OUR BUSINESS COULD BE AFFECTED AS A RESULT OF ANY FUTURE ACQUISITIONS
In order to remain competitive, we may find it necessary to acquire
additional businesses, products or technologies. If we identify an appropriate
acquisition candidate, we may not be able to negotiate the terms of the
acquisition successfully, finance the acquisition, or integrate the acquired
business, products or technologies into our existing business and operations.
Further, completing a potential acquisition and integrating an acquired business
will cause significant diversions of management time and resources. If we
consummate one or more significant acquisitions in which the consideration
consists of stock or other securities, your equity could be significantly
diluted. If we were to proceed with one or more significant acquisitions in
which the consideration included cash, we could be required to use a substantial
portion of our available cash, including proceeds from this offering, to
consummate any acquisition. Acquisition financing may not be available on
favorable terms, or at all. In addition, we may be required to amortize
significant amounts of goodwill and other intangible assets in connection with
future acquisitions, which would seriously harm our operating results.
RISKS RELATED TO THIS OFFERING
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS
We expect 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. Further, 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 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
12
<PAGE> 15
advantage of future opportunities, grow our business or respond to competitive
pressures or unanticipated requirements, which could seriously harm our
business.
OUR STOCK PRICE MAY BE VOLATILE
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. This price may vary from the market price of the common stock
after this offering. You may be unable to sell your shares of common stock at or
above the initial public offering price. The market price of the common stock
may fluctuate significantly in response to the following factors, some of which
are beyond our control:
- Variations in our quarterly operating results;
- Changes in securities analysts' estimates of our financial performance;
- Changes in market valuations of similar companies;
- Announcements by us or our competitors of new or enhanced products or
significant contracts, acquisitions or strategic partnerships;
- Additions or departures of key personnel;
- Future sales of our common stock or other securities; and
- Fluctuations in stock market price and volume, which are particularly
common among securities of software and Internet-based companies.
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED STOCK
PRICE VOLATILITY
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 AFFECTED BY SHARES BECOMING AVAILABLE FOR SALE
Sales of a substantial number of shares of our common stock in the public
market after this offering could depress the market price of our common stock
and could impair our ability to raise capital through the sale of additional
equity securities. For a description of shares of our common stock that are
available for future sale, see "Shares Eligible for Future Sale."
PURCHASERS IN THIS OFFERING WILL INCUR IMMEDIATE, 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, investors purchasing common stock in this offering will
incur immediate and substantial dilution. In the past, we issued options to
acquire common stock at prices significantly below the initial public offering
price. To the extent these outstanding options are ultimately exercised, there
will be further dilution to investors in this offering. See "Dilution."
WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS
Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our
stockholders. For more information regarding these provisions, see "Description
of Capital Stock -- Delaware Law and Certain Charter and By-Law Provisions;
Anti-Takeover Effects."
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<PAGE> 16
OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS CONTROL
SILVERSTREAM
Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own, in the aggregate, approximately
% of our outstanding common stock. 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 SilverStream. See "Principal Stockholders."
WE HAVE BROAD DISCRETION TO USE THE PROCEEDS FROM THIS OFFERING
We plan to use the proceeds from this offering for general corporate
purposes. Therefore, we will have broad discretion as to how we will spend the
proceeds, and stockholders may not agree with the ways in which we use the
proceeds. We may not be successful in investing the proceeds from this offering,
in our operations or external investments, to yield a favorable return.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. In some cases you can identify these
statements by forward-looking words such as "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "should," "will" and "would" or similar
words. You should read statements that contain these words carefully because
they discuss our future expectations, contain projections of our future results
of operations or of our financial position or state other "forward-looking"
information. We believe that it is important to communicate our future
expectations to our investors. However, there may be events in the future that
we are not able to accurately predict or control. The factors listed above in
the section captioned "Risk Factors," as well as any cautionary language in this
prospectus, provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our common stock, you should be
aware that the occurrence of the events described in these risk factors and
elsewhere in this prospectus could have a material adverse effect on our
business, results of operations and financial position.
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<PAGE> 17
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of
common stock will be approximately $ , assuming an initial public
offering price of $ per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us. If the
over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $ .
The principal purposes of this offering are to establish a public market
for our common stock, to increase our visibility in the marketplace, to
facilitate future access to public capital markets, to provide liquidity to
existing stockholders and to obtain additional working capital.
We expect to use the net proceeds for working capital, capital expenditures
and general corporate purposes. Although we may use a portion of the net
proceeds to acquire businesses, products or technologies that are complementary
to our business, we have no specific acquisitions planned. Pending these uses,
we plan to invest the net proceeds in short-term, investment grade,
interest-bearing securities.
DIVIDEND POLICY
We have never paid or declared any cash dividends on our common stock or
other securities and do not anticipate paying cash dividends in the foreseeable
future. We currently intend to retain all future earnings, if any, for use in
the operation of our business. Our existing equipment line of credit and term
loans prohibit the payment of dividends without the consent of the lender.
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<PAGE> 18
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999. The
pro forma information gives effect to the conversion of all of our outstanding
preferred stock into common stock upon the closing of this offering and assumes
the filing of an amended and restated certificate of incorporation after the
closing of this offering authorizing 2,000,000 shares of preferred stock and
100,000,000 shares of common stock. The pro forma as adjusted information gives
effect to the foregoing as well as the issuance and sale of the
shares of common stock in this offering at an assumed initial public offering
price of $ per share, after deducting the estimated underwriting discounts
and commissions and estimated offering expenses payable by us. The outstanding
share information excludes: (1) 1,043,642 shares of common stock issuable on
exercise of outstanding options as of March 31, 1999 with a weighted average
exercise price of $1.76 per share, (2) 532,319 shares of common stock reserved
for future issuance under our stock plans as of March 31, 1999 and (3) an
additional 1,844,281 shares of common stock reserved for issuance under our
stock plans after March 31, 1999.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ --------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Long-term debt, less current portion...................... $ 250 $ 250 $ 250
Redeemable convertible preferred stock, $.001 par value;
5,283,050 shares authorized; 5,183,988 shares issued and
outstanding, actual; no shares authorized, issued and
outstanding, pro forma and pro forma as adjusted........ 11,638 -- --
Stockholders' equity:
Convertible preferred stock, $.001 par value; 3,600,000
shares authorized; 3,235,746 shares issued and
outstanding, actual; no shares authorized, issued and
outstanding, pro forma and pro forma as adjusted........ 29,319 -- --
Preferred stock, $.001 par value; no shares authorized,
issued and outstanding, actual; 2,000,000 shares
authorized, pro forma and pro forma as adjusted; no
shares issued and outstanding, pro forma and pro forma
as adjusted............................................. -- -- --
Common stock, $.001 par value; 21,000,000 shares
authorized, 5,220,258 shares issued and outstanding,
actual; 100,000,000 shares authorized, pro forma and pro
forma as adjusted; 13,639,992 shares issued and
outstanding, pro forma; shares issued and
outstanding, pro forma as adjusted...................... 5 13
Additional paid-in capital................................ 373 41,322
Accumulated deficit....................................... (26,479) (26,479)
Other comprehensive loss.................................. (41) (41)
Notes receivable from stockholders........................ (104) (104)
-------- -------- --------
Total stockholders' equity...................... 3,073 14,711
-------- -------- --------
Total capitalization............................ $ 14,961 $ 14,961 $
======== ======== ========
</TABLE>
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DILUTION
SilverStream's pro forma net tangible book value as of March 31, 1999,
after giving effect to the conversion of all outstanding shares of convertible
preferred stock into common stock upon the closing of this offering, was
approximately $14.7 million, or $1.08 per share of common stock. Pro forma net
tangible book value per share represents our tangible net worth (tangible assets
less total liabilities) divided by the 13,639,992 shares of common stock
outstanding after giving effect to the conversion of all outstanding shares of
convertible preferred stock into common stock. After giving effect to the
issuance and sale of the shares of common stock in this offering
(at an assumed initial public offering price of $ per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us), SilverStream's pro forma net tangible book
value as of March 31, 1999 would have been $ , or $ per share. This
represents an immediate increase in pro forma net tangible book value to
existing stockholders of $ per share and an immediate dilution to new
investors of $ per share. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of March
31, 1999............................................... $1.08
Increase in pro forma net tangible book value per share
attributable to new investors..........................
-----
Pro forma net tangible book value per share after this
offering..................................................
----
Dilution per share to new investors......................... $
====
</TABLE>
The following table summarizes on a pro forma basis, giving effect to the
conversion of all outstanding shares of convertible preferred stock into common
stock upon the closing of this offering, as of March 31, 1999, the difference
between the number of shares of common stock purchased from SilverStream, the
total consideration paid to SilverStream, and the average price per share paid
by existing stockholders and by new investors (at an assumed initial public
offering price of $ per share, before deduction of estimated underwriting
discounts and commissions and estimated offering expenses payable by us):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 13,639,992 % $41,336,000 % $3.03
New investors.........................
---------- ----- ----------- ------
Total....................... 100.0% $ 100.0%
========== ===== =========== ======
</TABLE>
The table above assumes no exercise of stock options outstanding at March
31, 1999. As of March 31, 1999, there were options outstanding to purchase
1,043,642 shares of common stock with a weighted average exercise price of $1.76
per share and 532,319 shares reserved for future grant or award under
SilverStream's stock plans. To the extent any of these options are exercised,
there will be further dilution to new investors. To the extent all of such
outstanding options had been exercised as of March 31, 1999, pro forma net
tangible book value per share after this offering would be $ and total
dilution per share to new investors would be $ . After March 31, 1999, we
increased the number of shares reserved for issuance under our stock plans by an
additional 1,844,281 shares of common stock.
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will increase to shares, or
% of the total number of shares of common stock outstanding after this
offering.
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<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
operations data for the period ended December 31, 1996 and the years ended
December 31, 1997 and 1998 and the consolidated balance sheet data as of
December 31, 1997 and 1998 are derived from our Consolidated Financial
Statements that have been audited by Ernst & Young LLP, independent auditors,
and are included elsewhere in this prospectus. The consolidated balance sheet
data as of December 31, 1996 are derived from our audited consolidated financial
statements not included in this prospectus. The consolidated financial data as
of March 31, 1998 and 1999 and for the three-month periods ended March 31, 1998
and 1999 are derived from our unaudited Consolidated Financial Statements
included elsewhere in this prospectus and include all adjustments, consisting
only of normal, recurring adjustments, that SilverStream considers necessary for
a fair presentation of our consolidated financial position and our consolidated
results of operations for those periods. Operating results for the three-month
period ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 1999.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1996 YEARS ENDED THREE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, MARCH 31,
DECEMBER 31, ---------------------- -----------------------
1996 1997 1998 1998 1999
-------------- --------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Software license...................................... $ -- $ 249 $ 5,983 $ 579 $ 2,607
Services.............................................. -- -- 825 104 867
--------- --------- ---------- ---------- ----------
Total revenue................................... -- 249 6,808 683 3,474
Cost of revenue:
Software license...................................... -- 90 695 118 254
Services.............................................. -- 282 1,414 252 1,330
--------- --------- ---------- ---------- ----------
Total cost of revenue........................... -- 372 2,109 370 1,584
--------- --------- ---------- ---------- ----------
Gross profit (loss)..................................... -- (123) 4,699 313 1,890
Operating expenses:
Sales and marketing................................... 35 3,854 10,848 2,305 4,037
Research and development.............................. 850 2,622 5,070 1,240 1,503
General and administrative............................ 120 1,961 2,141 532 697
--------- --------- ---------- ---------- ----------
Total operating expenses........................ 1,005 8,437 18,059 4,077 6,237
--------- --------- ---------- ---------- ----------
Loss from operations.................................... (1,005) (8,560) (13,360) (3,764) (4,347)
Other income, net....................................... 53 225 475 42 40
--------- --------- ---------- ---------- ----------
Net loss................................................ $ (952) $ (8,335) $ (12,885) $ (3,722) $ (4,307)
========= ========= ========== ========== ==========
Basic and diluted net loss per share.................... $ (.45) $ (1.71) $ (2.52) $ (.73) $ (.83)
========= ========= ========== ========== ==========
Weighted-average common shares used in computing basic
and diluted net loss per share........................ 2,103,535 4,882,996 5,122,480 5,106,947 5,215,648
========= ========= ========== ========== ==========
Pro forma basic and diluted net loss per share.......... $ (.34)
==========
Weighted-average common shares used in computing pro
forma basic and diluted net loss per share............ 12,759,943
==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
------ ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $2,734 $16,649 $ 1,220 $ 9,638 $12,448
Working capital............................................. 2,591 16,349 5,119 14,783 12,994
Total assets................................................ 3,056 18,974 10,245 18,151 20,764
Long-term debt, less current portion........................ 189 295 325 836 250
Redeemable convertible preferred stock...................... 3,658 11,638 11,638 11,638 11,638
Total stockholders' equity (deficit)........................ (947) 5,944 (5,048) 3,947 3,075
</TABLE>
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this prospectus.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those indicated in such
forward-looking statements. See "Special Note Regarding Forward-Looking
Statements."
OVERVIEW
SilverStream is a leading global provider of application server software
and services that enable businesses and other large organizations to create,
deploy and manage software applications for intranets, extranets and the
Internet. From our incorporation in May 1996 through December 1997, we were
considered a development stage enterprise and our activities were primarily
focused on raising capital, conducting research and development, and
establishing markets and distribution channels for our products. In November
1997, we began commercial shipment of the initial version of our Application
Server. Today, we have licensed the SilverStream Application Server to more than
500 customers around the world.
We derive our revenue from the sale of software product licenses and from
professional consulting, education and technical support services. We recognize
our software license revenue in accordance with Statement of Position 97-2,
"Software Revenue Recognition." Statement of Position 97-2 generally requires
revenues earned on software arrangements involving multiple elements to be
allocated to each element based on the relative fair values of the elements. We
generally recognize revenue allocated to software licenses upon delivery of the
software products, provided that we have no remaining significant obligations
with regard to implementation, the license fee is fixed or determinable and
collection of the fee is probable. Our customers often contract for maintenance
which provides them with new releases of software and various technical support
and services for a period of typically one year. We recognize maintenance
revenue ratably over this 12-month period. We license our software to
independent software vendors who pay us a prepayment at the beginning of their
contract. We recognize this revenue ratably over the period of the contract,
typically one year. Revenue derived from arrangements with resellers of our
products is not recognized until the software is sold to the end-user. We
recognize revenue from the sale of technical support services ratably over the
maintenance term and revenue from the sale of consulting and education services
as the services are performed.
We record cash receipts from customers and billed amounts due from
customers in excess of recognized revenue as deferred revenue. The timing and
amount of cash receipts from customers can vary significantly depending on
specific contract terms and can therefore have a significant impact on the
amount of deferred revenue in any given period.
Our cost of software license revenue includes royalties due to third
parties for technology included in our products, the cost of manuals and product
documentation, media used to deliver our products and shipping and fulfillment
costs. Our cost of services revenue includes salaries and related expenses for
our consulting, education and technical support services organizations, costs of
third parties contracted to provide consulting services to customers and an
allocation of our facilities, communications and depreciation expenses.
Our operating expenses are classified into three general categories: sales
and marketing, research and development and general and administrative. Sales
and marketing expenses consist primarily of salaries and other related costs for
sales and marketing personnel, sales commissions, travel, public relations and
marketing materials and tradeshows. Research and development expenses consist
primarily of personnel costs to support product development. General and
administrative expenses consist primarily of salaries and other related costs
for operations and finance employees, legal and accounting services and certain
facilities-related expenses.
19
<PAGE> 22
Since our inception, we have incurred substantial costs to develop our
technology and products, to recruit and train personnel for our engineering,
sales and marketing and professional services departments, and to establish an
administrative organization. As a result, we have incurred net losses in each
fiscal quarter since inception and had an accumulated deficit of $22.2 million
as of December 31, 1998 and $26.5 million as of March 31, 1999. We anticipate
that our operating expenses will increase substantially in future quarters as we
increase sales and marketing operations, expand distribution channels, increase
research and development, broaden professional services, expand facilities and
support, and improve operational and financial systems. Accordingly, we expect
to incur additional losses for the foreseeable future. In addition, our limited
operating history 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.
RESULTS OF OPERATIONS
The following table presents selected consolidated financial data for the
periods indicated as a percentage of total revenue. Data for the period from
inception through December 31, 1996 is not presented because we had no revenue
during that period.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Software license................................ 100.0% 87.9% 84.8% 75.0%
Services........................................ 0.0 12.1 15.2 25.0
-------- -------- -------- --------
Total revenue........................... 100.0 100.0 100.0 100.0
-------- -------- -------- --------
Cost of revenue:
Software license................................ 36.2 10.2 17.3 7.3
Services........................................ 113.4 20.8 36.9 38.3
-------- -------- -------- --------
Total cost of revenue................... 149.6 31.0 54.2 45.6
-------- -------- -------- --------
Gross profit (loss)............................... (49.6) 69.0 45.8 54.4
Operating expenses:
Sales and marketing............................. 1,550.7 159.4 337.7 116.2
Research and development........................ 1,055.1 74.5 181.6 43.3
General and administrative...................... 789.1 31.5 77.9 20.0
-------- -------- -------- --------
Total operating expenses................ 3,394.9 265.3 597.2 179.5
-------- -------- -------- --------
Loss from operations.............................. (3,444.5) (196.2) (551.4) (125.1)
Other income, net................................. 90.7 7.0 6.2 1.1
-------- -------- -------- --------
Net loss.......................................... (3,353.8)% (189.3)% (545.3)% (124.0)%
======== ======== ======== ========
</TABLE>
QUARTERS ENDED MARCH 31, 1998 AND 1999
REVENUE
Total revenue increased by approximately $2.8 million from $683,000 in the
quarter ended March 31, 1998 to $3.5 million in the quarter ended March 31,
1999. This increase was attributable to an increase in our customer base
resulting in substantial growth in software license and services revenue.
Revenue from international sales increased by approximately $976,000 from
$124,000 in the quarter ended March 31, 1998 to $1.1 million in the quarter
ended March 31, 1999 primarily due to increased selling and related activities
in Germany, Belgium, The Netherlands, Singapore, Hong Kong and Taiwan.
Software License. Software license revenue increased by approximately $2.0
million from $579,000 in the quarter ended March 31, 1998 to $2.6 million in the
quarter ended March 31, 1999. This increase is
20
<PAGE> 23
attributable to increased unit sales of our products following the release of
Version 2.0 in October 1998 and higher prices realized for our products in 1999
as compared to 1998.
Services. Services revenue increased by approximately $763,000 from
$104,000 in the quarter ended March 31, 1998 to $867,000 in the quarter ended
March 31, 1999. This increase is attributable to increases in the number of our
customers and support contracts as well as the creation and expansion of our
professional consulting organization and the provision of a wider range of
services to customers.
We believe that growth in our software license sales depends on our ability
to provide our customers with support, education, and consulting services and
educate third-party consulting partners on how to use our products. As a result,
we intend to expand our services organizations in 1999 and we believe that
services revenue will continue to increase as a percentage of total revenue. We
expect that revenue from professional consulting services will increase in the
future to the extent that additional customers license our products and as we
expand both our capacity for the delivery of these services as well as the scope
of our services offerings. We expect that services revenue from support
agreements will increase in the future as a result of new and existing license
agreements.
COST OF REVENUE
Software License. Cost of software license revenue increased by
approximately $136,000 from $118,000 in the quarter ended March 31, 1998 to
$254,000 in the quarter ended March 31, 1999. This increase is attributable to
third-party royalties, packaging costs for shipments to new customers and
shipments of product updates to existing customers. We expect software license
costs to increase in the future due to additional customers licensing our
products and the licensing of additional third-party technology that we may
choose to embed in our product offerings.
Services. Cost of services revenue increased by approximately $1.1 million
from $252,000 in the quarter ended March 31, 1998 to $1.3 million in the quarter
ended March 31, 1999. This increase in cost of services revenue is primarily due
to the creation and rapid expansion of our consulting services organization in
late 1998 and, to a lesser extent, an increase in the number of our education
and technical support personnel. To date, our services costs have been higher
than our services revenue, and we expect that trend to continue for the next
several quarters as we continue to expand all of our services organizations. We
expect services costs to increase in the future to the extent that we continue
to generate new customers and associated software license and services revenue.
Services costs as a percentage of services revenue can be expected to vary
significantly from period to period depending on the mix of services we provide,
whether such services are provided by us or third-party contractors, and overall
utilization rates.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased by
approximately $1.7 million from $2.3 million in the quarter ended March 31, 1998
to $4.0 million in the quarter ended March 31, 1999. The increase in sales and
marketing expenses is attributable to increases in sales commissions, the number
of sales and marketing employees in North America, the number of our
international offices and marketing program spending. We believe these expenses
will increase significantly in future periods as we expect to continue to expand
our sales and marketing efforts. We also anticipate that sales and marketing
expenses may fluctuate as a percentage of a total revenue from period to period
as new sales personnel are hired and begin to achieve productivity.
Research and Development. Research and development expenses increased by
approximately $263,000 from $1.2 million in the quarter ended March 31, 1998 to
$1.5 million in the quarter ended March 31, 1999. The increase in research and
development expenses is primarily attributable to increases in the number of
research and development personnel to support the Company's product development
activities. We believe that continued investment in research and development is
critical to attaining our strategic objectives, and, as a result, we expect
research and development expenses to increase significantly in future periods.
To date, all software development costs have been expensed in the period
incurred.
21
<PAGE> 24
General and Administrative. General and administrative expenses increased
by approximately $165,000 from $532,000 in the quarter ended March 31, 1998 to
$697,000 in the quarter ended March 31, 1999. This increase is attributable to a
growing number of administrative employees, increased facility costs, increased
professional fees and an increase in the bad debt reserve as our revenue and
accounts receivable grew. We believe general and administrative expenses will
increase, as we expect to add personnel to support our expanding operations,
incur additional costs related to the growth of our business, and assume the
responsibilities of a public company.
OTHER INCOME, NET
Other income, net decreased from $42,000 in the quarter ended March 31,
1998 to $40,000 in the quarter ended March 31, 1999. This decrease is
attributable to increases in interest expense during the quarter ended March 31,
1999 over the same period in the previous year. This interest expense results
from capital equipment loans used to purchase computer equipment.
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUE
Total revenue increased by approximately $6.6 million from $249,000 in 1997
to $6.8 million in 1998 due to the release of our initial products in November
1997 and the ensuing increase in our customer base. Revenue from international
sales increased by approximately $1.7 million from $67,000 in 1997 to $1.8
million in 1998. We had no revenue during the period from inception until
December 31, 1996.
Software License. Software license revenue increased by approximately $5.7
million from $249,000 in 1997 to $6.0 million in 1998. We first began shipping
our products in November 1997. The increase in software license revenue was due
primarily to an increase in the number of customers resulting from a full year
of selling in 1998 and the release of Version 2.0 of our products in October
1998.
Services. We had no services revenue in 1997 and services revenue of
$825,000 in 1998. Services revenue in 1998 resulted primarily from education and
support services delivered to an increasing customer base and, to a lesser
extent, from the sale of professional consulting services.
COST OF REVENUE
Software License. Cost of software license revenue increased by
approximately $605,000 from $90,000 in 1997 to $695,000 in 1998. The increase is
attributable to increases in software license revenue and the royalties we pay
on third-party software incorporated into Version 2.0 of our products which
began shipping in October 1998.
Services. Cost of services revenue increased by approximately $1.1 million
from $282,000 in 1997 to $1.4 million in 1998. The increase was primarily due to
the creation of our professional consulting services organization, the planned
hiring of additional consultants in 1998 and the increase in the number of
software license customers, who generally require our professional services.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses in 1996 amounted to
$35,000 and increased by approximately $7.0 million from $3.9 million in 1997 to
$10.8 million in 1998. The increase in these periods was due to increases in
sales and marketing personnel and marketing program expenditures. During 1998,
we expanded international sales and marketing operations in Germany, Belgium,
The Netherlands, Hong Kong, Singapore and Taiwan and we increased the number of
personnel and offices in North America.
Research and Development. Research and development expenses in 1996
amounted to $850,000 and increased by approximately $2.4 million from $2.6
million in 1997 to $5.1 million in 1998. The increase in these periods was
primarily due to the hiring of more engineering personnel.
22
<PAGE> 25
General and Administrative. General and administrative expenses in 1996
amounted to $120,000 and increased by approximately $180,000 from $2.0 million
in 1997 to $2.1 million in 1998. The increase in these periods was due to the
hiring of more personnel, increases in facility costs, professional fees and our
bad debt reserve as our revenue and accounts receivable grew.
OTHER INCOME, NET
Other income, net in 1996 amounted to $53,000 and increased by
approximately $250,000 from $225,000 in 1997 to $475,000 in 1998. The increase
was due primarily to an increase in interest income earned from cash balances on
hand in 1998 compared to 1997. Proceeds from the private sale of equity
securities in 1997 and 1998 caused cash and short-term investment balances in
1998 to be higher than those in 1997.
23
<PAGE> 26
QUARTERLY RESULTS
The following table presents our unaudited quarterly operating results for
each of the six quarters ended March 31, 1999 both in absolute dollars and as a
percentage of our total revenue for each quarter. This information has been
derived from our unaudited consolidated financial statements. The unaudited
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements contained in this prospectus and
include all adjustments, consisting only of normal recurring adjustments, that
we consider necessary for a fair presentation of such information. You should
read this information in conjunction with our Consolidated Financial Statements
and Notes thereto appearing elsewhere in this prospectus. You should not draw
any conclusions about our future results from the results of operations for any
quarter.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1997 1998 1998 1998 1998 1999
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenue:
Software license.............. $ 249 $ 579 $ 948 $ 1,916 $ 2,539 $ 2,607
Services...................... -- 104 113 115 494 867
------- ------- ------- ------- ------- -------
Total revenue......... 249 683 1,061 2,031 3,033 3,474
Cost of revenue:
Software license.............. 90 118 84 138 355 254
Services...................... 282 252 267 361 534 1,330
------- ------- ------- ------- ------- -------
Total cost of
revenue............. 372 370 351 499 889 1,584
------- ------- ------- ------- ------- -------
Gross profit (loss)............. (123) 313 710 1,532 2,144 1,890
Operating expenses:
Sales and marketing........... 1,283 2,305 2,148 2,678 3,716 4,037
Research and development...... 647 1,240 1,190 1,336 1,304 1,503
General and administrative.... 1,123 532 462 489 659 697
------- ------- ------- ------- ------- -------
Total operating
expenses............ 3,053 4,077 3,800 4,503 5,679 6,237
------- ------- ------- ------- ------- -------
Loss from operations............ (3,176) (3,764) (3,090) (2,971) (3,535) (4,347)
Other income, net............... 216 42 210 200 23 40
------- ------- ------- ------- ------- -------
Net loss........................ $(2,960) $(3,722) $(2,880) $(2,771) $(3,512) $(4,307)
======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL
REVENUE:
Revenue:
Software license.............. 100% 85% 89% 94% 84% 75%
Services...................... -- 15 11 6 16 25
------- ------- ------- ------- ------- -------
Total revenue......... 100 100 100 100 100 100
Cost of revenue:
Software license.............. 36 17 8 7 11 8
Services...................... 113 37 25 18 18 38
------- ------- ------- ------- ------- -------
Total cost of
revenue............. 149 54 33 25 29 46
------- ------- ------- ------- ------- -------
Gross profit (loss)............. (49) 46 67 75 71 54
Operating expenses:
Sales and marketing........... 516 337 203 132 123 116
Research and development...... 260 182 112 65 43 43
General and administrative.... 451 78 43 24 22 20
------- ------- ------- ------- ------- -------
Total operating
expenses............ 1,227 597 358 221 188 179
------- ------- ------- ------- ------- -------
Loss from operations............ (1,276) (551) (291) (146) (117) (125)
Other income, net............... 87 6 20 10 1 1
------- ------- ------- ------- ------- -------
Net loss........................ (1,189)% (545)% (271)% (136)% (116)% (124)%
======= ======= ======= ======= ======= =======
</TABLE>
24
<PAGE> 27
Our total revenue has increased in each quarter following the commercial
release of our products in November 1997. The increase in each quarter is due to
the increase in the number of our customers resulting from increased market
awareness and acceptance of our software, expansion of our sales organization
and increased services revenue reflecting the growth in the installed base of
product licenses. Growth in software license revenue accelerated in the last two
quarters of 1998 as we increased our direct sales force in North America and
expanded direct European operations in Germany, Belgium and The Netherlands.
Services revenue increased in the fourth quarter of 1998 and the first quarter
of 1999 following the release of Version 2.0 of our Application Server and the
expansion of our professional consulting services organization and our services
offerings.
Cost of software license revenue has increased in conjunction with our
increases in software license revenue. Software license costs were higher in the
quarter ended March 31, 1998 due to the increased number of releases following
the release of Version 1.0 of our Application Server in November 1997 and in the
quarter ended December 31, 1998 following the release of Version 2.0 in October
1998.
Cost of services revenue has increased as we have increased the size of our
support, education and professional consulting organizations. Cost of services
revenue increased during the quarters ended December 31, 1998 and March 31, 1999
due to increased usage of third-party consultants as well as salaries and
related costs for increased professional services personnel following the
release of Version 2.0.
Operating expenses have generally increased in absolute dollars each
quarter as we have increased staffing in sales and marketing, product
development and general and administrative functions. Sales and marketing
expenses increased in the quarters ended September 30, 1998 and December 31,
1998 due to an increase in the number of direct sales staff in North America and
the expansion of sales operations in Germany, Belgium and The Netherlands. Sales
and marketing expenses further increased in the quarter ended December 31, 1998
with the expansion of sales operations in Hong Kong, Singapore and Taiwan. Sales
and marketing expenses increased in the quarter ended March 31, 1999 due to
increases in salaries, the number of direct sales personnel and sales
commissions and incentives paid in the quarter. Research and development
expenses increased in the quarter ended March 31, 1999 due to an increase in
personnel and the creation of a performance and tuning laboratory which resulted
in increased depreciation and equipment lease costs.
As a result of our limited operating history, we cannot forecast operating
expenses based on historical results. Accordingly, we base our expenses in part
on future revenue projections. Most of these expenses are fixed in the short
term, and we may not be able to quickly reduce spending if revenue is lower than
we have projected. Our ability to forecast accurately our quarterly revenue is
limited due to the long sales and deployment cycle of our software products,
which makes it difficult to predict the quarter in which license sales will
occur, and the early nature of the market for application servers. If our
revenue does not meet projections, our business, operating results and financial
condition could be materially adversely affected and net losses in a given
quarter would be even greater than expected.
We plan to increase our operating expenses to expand sales and marketing
operations, develop new distribution channels, fund greater levels of research
and development, broaden professional services, expand our facilities and
support and improve operational and financial systems. If our revenue does not
increase along with these expenses, our business, operating results and
financial condition could be materially adversely affected and net losses in a
given quarter would be even greater than expected.
Although we have a limited operating history, we believe that quarterly
operating results may experience seasonal fluctuations. For instance, quarterly
results may fluctuate based on customer calendar year budgeting cycles, and slow
summer purchasing patterns in Europe.
NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS
As of December 31, 1998, we had net operating losses and research and
development carryforwards of approximately $22.3 million and $350,000,
respectively. The net operating loss and credit carryforwards will expire at
various dates, beginning 2012, if not utilized. Under the provisions of the
Internal Revenue Code, certain substantial changes in our ownership may limit
the amount of net operating loss carry-forwards that could be utilized annually
in the future to offset taxable income. A valuation allowance has
25
<PAGE> 28
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 $41.0 million. We have also funded our operations through
equipment financings. As of December 31, 1998, we had $4.5 million in cash, cash
equivalents and marketable securities, and $5.1 million in working capital. As
of March 31, 1999, we had $12.7 million in cash, cash equivalents and marketable
securities, and $13.0 million in working capital. We have three term loans for
amounts borrowed to finance equipment. These term loans are from the same bank
and bear interest at the bank's prime rate plus 0.5%. At March 31, 1999, we had
a total of $636,000 outstanding under these term loans. We also have a $750,000
equipment line of credit with a bank that bears interest at the bank's prime
rate plus 0.5%. At March 31, 1999, nothing was outstanding under this line of
credit. Borrowings under these term loans and the line of credit is secured by
substantially all of our tangible assets.
Net cash used in operating activities was $8.0 million in 1997, $13.0
million in 1998 and $3.7 million in the quarter ended March 31, 1999. Net cash
flows from operating activities in each period reflect increasing net losses
and, to a lesser extent, accounts receivable offset in part by increases in
accounts payable, accrued expenses and deferred revenue.
Net cash used in investing activities was $1.6 million in 1997 and $4.3
million in 1998, while investing activities provided $2.7 million in the quarter
ended March 31, 1999. Cash used in investing activities reflects purchases of
property and equipment in each period, purchases of short-term investments in
1998, and proceeds from the sale of short-term investments in the quarter ended
March 31, 1999.
Net cash provided by financing activities was $23.4 million in 1997, $1.9
million in 1998 and $12.3 million in the quarter ended March 31, 1999. Cash
provided by financing activities includes proceeds from the issuance of
preferred and common stock, offset by the payments on long-term debt in each
period, as well as proceeds from equipment financings in 1997 and 1998.
Capital expenditures were $1.6 million in 1997, $1.0 million in 1998 and
$410,000 in the quarter ended March 31, 1999. 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. Since inception, we have generally funded capital expenditures
either through the use of working capital or with equipment bank loans.
We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that such operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. In addition,
we may utilize 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
requirements for at least the next 12 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
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 is 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.
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 our participating
resellers also are heavily dependent on information technology systems
26
<PAGE> 29
and on their own third-party vendor systems. Year 2000 problems experienced by
us or any of these third parties could materially adversely affect our business.
We have conducted a review of the Year 2000 state of readiness for the
current version of our products. This review included assessment, implementation
(including remediation, upgrading and replacement of certain product versions),
validation and testing. We have not yet, however, completed contingency
planning. We continue to respond to customer questions about prior versions of
our products on a case-by-case basis. Based on our review, we believe the
current versions of our products are Year 2000 compliant, when configured and
used in accordance with the related documentation and provided that 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.
We have defined Year 2000 compliant as the ability to:
- Correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
- Function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
- Where appropriate, respond to two-digit date input in a way that resolves
the ambiguity as to century in a disclosed, defined and predetermined
manner;
- Store and provide output of date information in ways that are unambiguous
as to century if the date elements in interfaces and data storage specify
the century; and
- Recognize year 2000 as a leap year.
We have tested software obtained from third parties that is incorporated
into our products, and are seeking assurances from our vendors that licensed
software is Year 2000 compliant. Despite testing by us and by current and
potential clients, and assurances from developers of products incorporated into
our products, our products may contain undetected errors or defects associated
with Year 2000 date functions. Known or unknown errors or defects in our
products could result in delay or loss of 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, operating results, or financial condition. Some commentators have
predicted significant litigation regarding Year 2000 compliance issues. Because
of the unprecedented nature of such litigation, it is uncertain whether or to
what extent we may be affected by it.
We have initiated an assessment of our material internal information
technology systems, including both our own software products and third-party
software and hardware technology. We have also initiated an assessment of our
non-information technology systems. We expect to complete testing of our
information and non-information technology systems in 1999. To the extent that
we are not able to test the technology provided by third-party vendors, we are
seeking assurances from these vendors that their systems are Year 2000
compliant. We are not currently aware of any material operational issues or
costs associated with preparing our internal information technology and
non-information technology systems for the Year 2000. However, we may experience
material unanticipated problems and costs caused by undetected errors or defects
in the technology used in our internal information technology and non-
information technology systems.
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 delay those purchases. As a result,
our business, results of operations or financial condition could be materially
adversely affected.
We have funded our Year 2000 plan 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 the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer
satisfaction. We may experience
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material problems and costs with Year 2000 compliance that could adversely
affect our business, results of operations and financial condition.
We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations. The cost of developing and implementing such 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 failure interruptions.
CONVERSION TO EURO
Certain of the common member countries of the European Union have agreed to
adopt the Euro as their legal currency. We have established plans and begun
developing the necessary modifications for the technical adaptation of our
internal information technology and other systems to accommodate Euro-
denominated transactions. We expect to be able to process Euro-denominated
transactions on a timely basis. 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. 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.
MARKET RISK
SilverStream does not currently use derivative financial instruments. We
generally place our marketable security investments in high credit quality
instruments, primarily U.S. Government and Federal Agency obligations,
tax-exempt municipal obligations and corporate obligations with contractual
maturities of ten years or less. We do not expect any material loss from our
marketable security investments and therefore believe that our potential
interest rate exposure is not material.
Internationally, SilverStream invoices customers primarily in local
currency. We are exposed to foreign exchange rate fluctuations from when
customers are invoiced in local currency until collection occurs. We do not
currently enter into foreign currency hedge transactions. Through March 31,
1999, foreign currency fluctuations have not had a material impact on our
financial position or results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance for accounting for costs of software products developed or
purchased for internal use, including when costs should be capitalized. The
adoption of this standard did not have a material effect on our financial
condition or results of operations.
In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5, which is effective for fiscal years
beginning after December 15, 1998, provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start up
activities and organization costs to be expensed as incurred. The adoption of
this standard did not have a material effect on our financial condition or
results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"), which
establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
We are presently analyzing the impact, if any, that the adoption of SFAS No. 133
will have on our financial condition or results of operations.
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BUSINESS
OVERVIEW
SilverStream is a leading global provider of application server software
and services that enable businesses and other large organizations to create,
deploy and manage software applications for intranets, extranets and the
Internet. The advantages of Web-based technology are driving the creation of a
new generation of business-transforming software applications. These powerful
Web-based applications link a broad universe of customers, vendors, employees
and partners with multiple, diverse data sources. Our products and services help
our customers to rapidly develop Web applications that are scalable, reliable
and secure. Using our products and services, organizations can create and deploy
robust Web applications in diverse areas such as e-commerce, employee
self-service, supply chain management, customer service and work flow
management.
Our products consist of an application server, an integrated set of
development tools and enterprise data connectors. The SilverStream Application
Server tightly integrates data sources, business logic and presentation of
content to the user. Using our Application Server, our customers can seamlessly
access information and data from diverse sources. Our customers can design their
applications to include the rules that govern the way the application operates,
the business logic, that are consistent with their business policies. Our
products allow the business logic to be maintained centrally and therefore
easily changed and instantly implemented. The SilverStream Application Server
maintains the presentation, or look and feel, of the application centrally and
presents content to the user locally, without the need to install application
software on the user's remote computer. Our development tools shorten the time
to market by simplifying the development process required to build complex Web
applications. We also offer comprehensive application engineering,
implementation, training and support services to help ensure the successful
development and implementation of Web applications by our customers.
We market our products and services globally through our direct sales force
and a network of independent software vendors, value-added resellers and
consulting and training partners. To date, we have licensed the SilverStream
Application Server to over 500 customers in a wide variety of industries,
including communication, financial services, government, manufacturing, oil and
gas, pharmaceutical, technology and transportation. Our customers include ARCO,
Bankers Trust, Enron, Federal Express, Hewlett-Packard, Johnson & Johnson, MCI
WorldCom, NASA, Pfizer, Raytheon, Samsung, SBC Communications, Siemens,
StorageTek, The Chicago Stock Exchange, The United States Army, UPS and The Walt
Disney Company.
INDUSTRY BACKGROUND
During the last 40 years, computer-based business applications have evolved
through three fundamental architectures: mainframe, client/server, and, now,
Web-based computing. The introduction of each of these architectures has created
opportunities to develop new applications for businesses. Business application
computing began with the mainframe, which enabled centralized control of these
applications, but gave limited access to users. The development of personal
computers and the widespread adoption of local area networks provided the
foundation for client/server computing, which gave more users greater access to
information and applications, but sacrificed centralized control.
Web-based computing combines the benefits of prior computing architectures
with far greater accessibility for networked, mobile and remote users. Today,
organizations are extending their enterprises by using the Internet to connect
their customers, vendors, employees and partners. To link their constituencies
across these extended enterprises, organizations are creating Web applications
that enable the dynamic delivery of information and transactional capabilities.
The increasing use of Web-based computing by organizations reflects the ability
of these powerful Web applications to fundamentally transform the way these
organizations operate. Application servers enable organizations to create,
deploy and manage these Web applications. Forrester Research, an independent
research firm, estimates that the market for application server software will
grow from $412 million in 1998 to $2.2 billion by 2002.
Organizations often employ Web applications to conduct "e-business," which
refers to business-to-business, business-to-employee and business-to-consumer
transactions and communications conducted through the use of Internet
technology. These organizations recognize that if they are able to offer
easy-to-
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access, compelling, real-time applications as a means of transacting business,
they can create closer and more enduring business relationships, new
efficiencies and significant competitive and strategic advantages. As a result
of these benefits, the e-business market is large and growing rapidly. Forrester
Research estimates that Internet-based business-to-business trade, the subset of
e-business that encompasses the trade of goods and services in which the final
order is placed over the Internet, will grow from $43 billion in 1998 to over $1
trillion in 2003.
In order to compete in this dynamic e-business environment, organizations
need comprehensive, integrated solutions that enable the creation of powerful
Web-based applications, shorten the time-to-market for initial deployment and
allow rapid updates and changes. To capitalize on the new opportunities afforded
by Web applications, organizations must overcome several challenges:
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
CHALLENGE CUSTOMER NEED
- --------------------------------------------------------------------------------------------------------
Data stored in multiple diverse data - Ability to aggregate and manipulate data from
sources multiple diverse sources
- Ability to present seamless, easy-to-use interface
to data
Heterogeneous, incompatible legacy - Standards-based, open Web development environment
software applications and computer - Interoperability of Web applications among legacy
platforms applications and platforms
- Preservation of investment in legacy resources
Availability of business-critical Web - Rapid response time for users
applications - Secure, controlled access
- Reliable performance and up time
Accessibility by unknown and unpredictable - Scalability
user community - Compatibility with various popular user interfaces
Ability to manage and update Web - Centralized business logic
applications - Centralized command and control functionality
Time to market in an environment with - Integrated, powerful and easy-to-use development
limited information technology resources environment
- Rapid development, deployment and modification of
Web applications
- --------------------------------------------------------------------------------------------------------
</TABLE>
To meet these challenges, organizations have been required to use multiple
development tools, programming languages and applications from different
vendors. As a result, organizations have typically had to rely on custom
programming and complex integration activities to develop their Web
applications, which have often been difficult and expensive to create, deploy
and manage.
THE SILVERSTREAM SOLUTION
SilverStream is a leading global provider of application server software
and services that enable businesses and other large organizations to create,
deploy and manage software applications for intranets, extranets and the
Internet. Organizations use our products for such diverse Web applications as e-
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commerce, employee self-service, supply chain management, customer service and
workflow management. Our products and services provide the following benefits:
Enable Creation and Deployment of Business-Focused Web
Applications. Business-focused Web applications enable the dynamic delivery of
information and transactional capabilities to a broad group of users. Our
products provide a scalable, reliable, secure and manageable platform for Web
applications that addresses the unpredictable traffic volumes and patterns and
other challenges faced by Web applications. By addressing performance,
connectivity and security issues, our products allow customers to focus their
resources on the business elements of their Web applications such as reaching
new customers, developing new businesses, providing superior customer service,
shortening supply cycles and improving the flow of information.
Extend Reach of Applications and Simplify Administration. The SilverStream
Application Server allows organizations to leverage the advantages of thin
client computing, which eliminates the need for application software to be
installed on the user's computer. Our Application Server allows users to access
Web applications through common, easy-to-use Web browsers and other graphical
interfaces. The central location of Web applications permits organizations to
rapidly modify and deploy applications, enabling organizations to respond
quickly to evolving business requirements. These benefits allow organizations to
extend Web applications to a broader audience and assist these organizations in
reducing their administrative and maintenance costs.
Enable Creation of Applications that Access Multiple Information
Sources. The existence of diverse systems, information and data sources often
results in stand-alone applications that are unable to interact with one
another. SilverStream's products allow Web applications to access information
and data seamlessly from various sources, such as relational databases, host
applications, enterprise resource planning systems and document management
systems. By using our products, customers can focus on the design and
functionality of strategic Web applications to create comprehensive solutions
while preserving their investments in legacy systems.
Reduce the Complexity of Developing Web Applications. SilverStream's
integrated set of development tools provide a common development environment and
a consistent look and feel that span multiple, diverse technologies, such as
Hyper-Text Markup Language (HTML), Java and reusable software objects. We
provide a consistent development interface that is familiar to application
developers and we offer powerful development functionality. Our products and
related consulting, education and support services enhance the productivity of
Web application developers, allowing our customers to leverage the existing
capabilities of their development staff in an environment where skilled Web
application developers are in short supply.
STRATEGY
Our objective is to enhance our position as a leading global provider of
application server software and related products and services. To achieve this
goal, we are pursuing the following strategies:
Capture Emerging Market Opportunity. The market for Web-based application
servers is relatively new. We believe that it is important to reach customers at
an early stage of their adoption of Web technology. We intend to expand our
customer base by seeding a large number of accounts with our products and
offering a range of services to help ensure that initial implementations are
successful. We plan to leverage these initial successes by selling additional
application servers as customers expand their initial deployments and develop
new Web applications.
Extend Technology Leadership. We intend to enhance our leadership position
by increasing the performance, functionality and ease of use of our Application
Server and by integrating new technologies into our products. We will continue
to devote substantial resources to the enhancement of our application server
software. The next release of our Application Server, Version 3.0, is expected
to include improvements to the programming environment as well as support for
computing standards such as Enterprise JavaBeans (EJB) and Java2, and
third-party development tools such as Inprise's JBuilder and Symantec's Visual
Cafe. We intend to leverage our core technology by developing and selling
additional complementary products. In early 1999, we introduced our Enterprise
Data Connectors, which facilitate connections to popular business applications
such as SAP, Lotus Notes and PeopleSoft.
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Maintain Commitment to Open Standards and Interoperability. We plan to
continue to support open standards in our Application Server to facilitate
interoperability with major databases, operating systems, network protocols and
hardware platforms. Our Application Server currently supports standards for
programming languages such as HTML and Java, as well as standards for
communication protocols, security mechanisms, and directory and relational
database access. By supporting open standards, we are able to market our
products to a broad range of customers who can then choose among the hardware,
software and networking technologies that best serve their needs without
sacrificing performance, functionality or flexibility.
Leverage Professional Services Capabilities. As Web-based technologies
have become increasingly important to our customers, there has been increased
demand for comprehensive service offerings. By offering our clients a full range
of professional services on a global basis, we promote the rapid success of
customer projects, creating significant opportunities to sell additional
software licenses to our customers. We intend to increase the size of our
service organization worldwide. In addition, we intend to augment our service
offerings by developing and strengthening our strategic relationships with
systems integrators, training partners and consultants.
Expand Worldwide Sales Efforts. To expand our sales to both new and
existing customers, we plan to continue to pursue a multi-channel distribution
strategy that includes both our direct sales force and relationships with
independent software vendors, value-added resellers and consulting and training
partners. We currently have ten offices throughout North America and plan to
continue to expand our North American sales staff. We also plan to continue
expansion of our international presence by establishing additional overseas
offices, adding direct sales personnel and increasing our indirect sales and
services channels. We currently have four sales offices in Europe and three in
Asia. Our international sales accounted for approximately 27% and 32% of our
total revenue in 1998 and the first quarter of 1999, respectively.
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PRODUCTS AND SERVICES
PRODUCTS
Our product offerings are summarized below:
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION SHIPMENT DATES
- --------------------------------------------------------------------------------------------------------
Application Server Application server for the creation, deployment and Version 2.5 shipped in
management of Web applications. May 1999. First
version shipped in
Available for Windows NT, Solaris or HP-UX November 1997.
operating systems.
Licensed on a per processor basis for unlimited
users with no per seat or per connection charges.
Single Developer A complete development and testing environment for Version 2.5 shipped in
Pack creating Web applications integrated with the May 1999. First
Group Developer Pack SilverStream Application Server. version shipped in
(5 or 10 Developers) November 1997.
The Single Developer Pack is for standalone
development on a single Windows NT machine.
The Group Developer Packs are for teams of up to 5
or 10 developers to work both independently on
their own computers and as a group. Includes 5 or
10 Single Developer Packs and a 5- or 10-user
SilverStream Application Server for group testing
on Windows NT, Solaris or HP-UX operating
systems.
Each of the Developer Packs is priced and sold
separately.
Enterprise Data Products that provide connections to SAP, Lotus First shipped in April
Connectors Notes and PeopleSoft applications. 1999.
Each Enterprise Data Connector is priced and sold
separately.
- --------------------------------------------------------------------------------------------------------
</TABLE>
SERVICES
As part of our ongoing commitment to provide a complete solution for our
customers, we offer comprehensive consulting, education and technical support
services that complement our product offerings. As of May 31, 1999, our services
organization comprised 50 professionals.
To complement our service organization, we train and promote a broad
network of SilverStream partners, ranging from international consulting firms to
local consultants that offer consulting, education and technical support
services. Our customers are encouraged to engage consultants, instructors and
developers whose proficiency with our products has been certified by us and who
have been designated Certified SilverStream Developers or Certified SilverStream
Field Application Engineers.
Consulting Services. We provide application engineering and implementation
services to assist our customers in developing and implementing Web applications
using our products. Consulting services include advisory, prototyping, design,
test and configuration, deployment and tuning services, and technical account
management services. We generally provide our consulting services on a time and
materials basis.
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Education Services. We offer our customers and partners introductory and
advanced training in the use of our software products. Our employees as well as
Certified SilverStream Trainers offer our training classes around the world. We
price these services by course.
Technical Support Services. We believe that a high level of technical
support services is critical to our customers' success and an important
competitive advantage. We offer technical support to our customers, ranging from
dedicated on-site support personnel, to telephone support from our Burlington
and Belgium offices during normal business hours, to 24-hour on-line support
available through our Website. The pricing of our technical support services
varies according to the level of support required.
PRODUCT ARCHITECTURE
The SilverStream Application Server is a tightly integrated platform that
incorporates components and features required to create, deploy and manage
highly scalable and sophisticated Web applications. The fundamental components
of the architecture are shown below:
[Narrative description of graphic material omitted in electronically filed
document]
This is a detailed graphic outlining the fundamental components of the
SilverStream Application Server architecture:
1. At the bottom is a horizontal three-dimensional rectangle entitled
"Enterprise Deployment Services," which rectangle includes four boxes
entitled "Scalability," "Reliability," "Security" and "Manageability."
2. On top of the rectangle are three vertical three-dimensional rectangles:
a. The vertical rectangle on the left is entitled "Presentation Layer," and
includes two boxes entitled "HTML" and "Java"
b. The vertical rectangle in the middle is entitled "Business Logic Layer,"
and includes three boxes entitled "Distributed Objects," "Transactions"
and "Content Management"
c. The vertical rectangle on the right is entitled "Data Access Layer," and
includes two boxes entitled "Data Access Objects" and "Enterprise Data
Connectors"
3. Above the three rectangles and connected to each by thin lines is a
horizontal three-dimensional rectangle entitled "Development Tools."
4. To the left of the rectangle entitled "Presentation Layer" are two computer
icons under the title "Users." There is a two-way arrow between the rectangle
and the icons.
5. To the right of the rectangle entitled "Data Access Layer" are three
three-dimensional cylinders under the title "Data." There is a two-way arrow
between the rectangle and the cylinders.]
PRESENTATION LAYER
Presentation refers to the user interface layer of an application. This is
where the user interacts with the application by entering data, using menus and
hyperlinks, and viewing dynamically generated pages containing data and rich
content. Our products allow developers to support both HTML and Java graphical
user interfaces. HTML has the advantage of quickly running in any Web browser.
Java has the advantage of providing a much richer interactive user interface
that is similar to that of a Microsoft Windows application, but requires an
initial download of some software. Typically, our customers choose to mix both
technologies in a single application, using HTML for Internet users and Java for
intranet users who interact heavily with the application.
HTML. The SilverStream Application Server incorporates a powerful
engine for generating dynamic HTML pages that contain data and rich
content. Developers can design their HTML pages either by writing industry
standard Java Servlets, or using a graphical page designer which generates
Servlets automatically.
Java. The SilverStream Application Server enables the secure
development, downloading and running of graphic Java applications. Java
applications are stored centrally in the SilverStream Application Server
and are downloaded on demand to browsers on remote user computers via the
Web. Our Application Server also provides a Java application runtime called
JRunner which allows the same Java applications to run without a browser,
behaving more like a full Windows application. JRunner also provides for
the download of applications on demand, providing the feel of a
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client/server application, but without requiring the application to be
installed or maintained on each remote computer.
BUSINESS LOGIC LAYER
Business logic is the set of rules that a Web-based application follows,
based on the customer's business policies. For example, in a supply-chain Web
application, business logic defines how items such as discounts, freight and
state tax are calculated, how products are re-ordered and how a customer's
credit limit is checked. In a Web-based application, it is usually desirable to
separate the business logic from the user interface. This makes it easier to
change the business logic and maintain the application.
Distributed Objects and Transactions. The SilverStream Application
Server provides a complete set of tools that allows developers to create
re-usable business objects that encapsulate their business logic. We also
provide powerful capabilities for managing transactions involving multiple
tables. In our next version of the SilverStream Application Server, Version
3.0, we intend to provide support for the industry standard Enterprise
JavaBeans version 1.1. This is intended to allow customers to distribute
objects across the network and control transactions across objects.
Content Management. In addition to its primary focus on structured
data, our Application Server also provides a set of features to manage rich
content such as product catalogs, news articles, financial research,
documents, Adobe Acrobat PDF files, graphics, and photographs. These
features include full text retrieval, file upload/download, version control
and a powerful HTML Edit Control written in Java. These features allow
developers to create Web applications such as e-commerce sites and
corporate portals that combine rich content with transactions.
DATA ACCESS LAYER
The data access layer provides connectivity to multiple disparate data
sources. The SilverStream Application Server provides high performance drivers,
using industry standard Java Database Connectivity (JDBC), for relational
databases, including Oracle, DB/2, Sybase, Microsoft SQL Server, Informix and
others. For non-relational data sources, our Application Server provides an
architecture known as data source objects. Customers, partners and consultants
can write data source objects to connect to a wide range of data sources. To
simplify the creation of data source objects, we offer our Enterprise Data
Connectors that allow customers to easily create data source objects for SAP,
Lotus Notes and PeopleSoft. Our partners offer a wide range of additional
enterprise data connectors for data sources such as CICS, MQ Series, Tuxedo, Top
End and Encina.
ENTERPRISE DEPLOYMENT SERVICES
Enterprise-class Web applications, which consist of connectivity, business
logic and presentation, require the following attributes:
Scalability. The SilverStream Application Server utilizes a number of
techniques such as database connection pooling and thread pooling to
deliver very high performance and throughput across multiple processors in
a single server machine. Our Application Server also offers near linear
scalability using load-balanced clusters of servers. This allows our
customers to handle increased load simply by adding more machines to the
cluster.
Reliability. SilverStream's advanced failover capabilities are
designed to ensure that customers' applications remain operational even
when a server fails. SilverStream's session-level failover feature enables
users to continue operations uninterrupted with seamless recovery of their
transactional data even when the server to which they were previously
connected fails.
Manageability. The SilverStream management console provides a full
interface to monitor server performance, manage clusters, database
connections, security, and other settings. SilverStream provides a standard
network management protocol to interoperate with existing enterprise
systems management software such as Tivoli's TME, Computer Associates'
Unicenter, or Hewlett-Packard's OpenView. SilverStream's Application Server
allows an application to be updated without taking the server or cluster
down.
Security. Our product provides a complete set of features for
encryption, authentication and access control that are required to create
highly secure applications. In addition to providing its own
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directory, our Application Server is also able to interface to directories
such as Windows NT, NIS+ and those that are standard Lightweight Directory
Access Protocol (LDAP) compliant.
INTEGRATED DEVELOPMENT TOOLS
SilverStream provides a rich set of development tools that are tightly
integrated with the functionality provided by the SilverStream Application
Server. These include several visual designers for HTML pages, Java
applications, business objects and content management. Also included are a
programming editor, context sensitive help, a repository, a debugger and
facilities for integrating with popular source control products. SilverStream's
integrated development tools consist of the following graphical designers:
Page Designer. SilverStream development tools allow developers to
design their HTML pages by writing either industry standard Java Servlets,
or using SilverStream's Page Designer which creates Servlets graphically.
SilverStream's Page Designer offers a visual, object-oriented, event-driven
programming model that makes the development of data-driven dynamic pages
far easier and faster than coding them manually. Developers drag and drop
elements onto a page from a tool palette, set properties using a property
sheet, and then define the behavior of the elements by writing Java code
that is executed at the server whenever an event is generated (for example,
when a user clicks a button). Unlike competing alternatives that embed
scripts inside HTML pages, this technique leverages the existing skills of
developers who have worked with products such as PowerBuilder or Visual
Basic.
Form and View Designers. SilverStream provides a development
environment for generating graphic Java applications. The development
environment is similar to the Page Designer, with a common look and feel.
The Form Designer allows developers to build graphical forms, typically
displaying data. The View Designer is frequently used in conjunction with
the Form Designer to display data in a multi-row presentation.
Object Designer. The Object Designer allows developers to create
business logic written in Java, that will typically reside on the
application server and may be reused by other applications. These objects
may use any of the services offered by the SilverStream Application Server,
including connecting to data sources. They may also be triggered by events
like the receipt of an e-mail or a request to modify a specific piece of
data.
CUSTOMERS
Our customer base spans multiple industry segments. The following is a
representative list of our customers. We do not intend the identification of
these customers to imply that these customers are actively endorsing or
promoting our products.
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<TABLE>
<S> <C> <C>
COMMUNICATION MANUFACTURING TECHNOLOGY
Ameritech Fuji Photo Advanced Micro
MCI WorldCom Owens Illinois Devices
Nortel Raytheon Hewlett-Packard
SBC Communications Samsung Siebel Systems
StorageTek
MEDIA ENERGY TRANSPORTATION
TCI Communications ARCO Federal Express
The Walt Disney Conoco Southwest Airlines
Company Enron UPS
FINANCIAL SERVICES GOVERNMENT OTHER
Bankers Trust Federal Home Loan Bank AAA
Bank One Federal Reserve Bank Dupont
Citicorp of New York InterContinental Hotels
J.P. Morgan Internal Revenue Polaroid
The Chicago Stock Service Red Herring
Exchange NASA Sears, Roebuck
Transamerica The United States Army
PHARMACEUTICAL
Johnson & Johnson
Pfizer
</TABLE>
The following case studies illustrate the challenges faced by
representative customers in deploying business applications and the benefits
derived from developing and deploying these applications using our Application
Server.
GLOBAL TRAVEL COMPANY
The travel agency industry has recently undergone changes due to reduced
commissions from airlines, hotels and rental car companies. To remain
competitive, a global travel company needed to be able to create rapidly many
travel product offerings while providing superior service through travel
agencies and via direct, self-service over the Internet. The company's
requirements included the maintenance of customer profiles in a relational
database, as well as access to a diverse set of airline, hotel and other
reservation systems. Travel agent experts needed to be able to perform the
complex transactions required to plan multi-leg trips, including air travel,
hotel, car rental and dinner and theater reservations.
The travel company selected the SilverStream Application Server and
deployed its Web-based application in two phases. In the first phase, the
company rolled out the application to its affiliated travel agencies.
SilverStream's connectivity features were used to maintain customer profiles and
access travel services. In the second phase, the company used SilverStream's
HTML capability to provide a simpler, browser-based interface to customers via
the Internet. By using the SilverStream Application Server, the company was able
to provide more efficient processing by travel agents and better customer
service, while offering the option of self-service to customers. The
SilverStream Application Server enabled the company to adapt its travel
offerings to meet changing market demands and to serve its customers more
efficiently.
NATIONAL INSURANCE PROVIDER
An insurance company provides coverage through a network of thousands of
geographically dispersed independent agents. A claim goes through a complex
process inside the company, during which critical information is available to
agents only on a limited basis by telephone inquiry. The customer wanted to
streamline its claims-handling process by providing its agents direct access to
data and information, including daily claim status, claims adjusters' notes and
monthly account activity. However, the claim and
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account information was stored in separate relational databases and agents had
widely differing hardware and software packages and platforms.
The customer used the SilverStream Application Server to build and deploy
an application in approximately five months. Agents now have broad access to
relevant, up-to-date information about individual claims and accounts, including
powerful search capabilities. The insurance company is enhancing the application
to give each agent access to all information and services relevant to such
agent's relationship with the company. By using the SilverStream Application
Server, the customer was able to reduce inefficiencies in its claims-handling
process by allowing its nationwide network of agents to access relevant data and
information easily and securely, regardless of the user's computer and
networking system and without local administration.
GLOBAL SUPPLIER OF COMPUTER STORAGE DEVICES
A supplier of computer storage devices provides a constantly changing
selection of thousands of sophisticated technology products. These products are
sold by hundreds of direct employees and thousands of distributors worldwide.
The answers to the distributors' many detailed questions were typically hard to
find or unavailable when needed. As part of a strategic growth initiative, the
customer needed to build a repository of support and marketing information that
could be easily accessed across the globe. The source of this information was
hundreds of sales and service employees, who created information about the
products in a broad variety of ways, ranging from data sheets to video clips.
The customer needed an application that would let employee "content creators"
easily place information in a repository in whatever form they wished and then
have that information easily accessible by distributors worldwide. These
distributors had a variety of abilities and had a diverse set of platforms.
The solution was to use SilverStream's products to build a content-rich,
intranet/extranet application. Employees can use an intranet application to
create and manage content. Using a thin Java client, that requires no local
administration, employees are able to find and select "documents," annotate
them, associate them with products and attach any kind of file, including
Microsoft Word or PowerPoint files or even video clips. Documents can be
prioritized, versioned and secured to limit access. The intranet application
also provides usage reports and allows for the specification of expiration
dates. Distributors, using a standard browser, can log in and search for desired
topics. Search requests can be extremely complex, using a variety of criteria,
and may return multiple, prioritized answers. The attached files may then be
viewed or downloaded. This new repository efficiently links a community of
information providers and distributors with a database that is expected to grow
beyond a terabyte in the near future.
SALES, MARKETING AND DISTRIBUTION
We market our products through a worldwide combination of a direct sales
force, partners and distributors. As of May 31, 1999, our sales and marketing
organization consisted of 76 employees, of which:
- 25 are located in our headquarters in Burlington, Massachusetts,
- 28 are located in sales offices in North America, and
- 23 are located in sales offices in the United Kingdom, The Netherlands,
Belgium, Germany, Hong Kong, Singapore and Taiwan.
We have four types of partners that either sell, or help us sell, our
products:
- Value added reseller partners, or VAR partners, resell our products to
customers;
- Consulting partners introduce new potential customers to us and provide
consulting services to our customers;
- Training partners offer training and educational courses to our
customers; and
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<PAGE> 41
- Independent software vendor partners, or ISV partners, use our products
to create their own software products.
As of May 31, 1999, we had approximately 190 partners in the United States
and Canada and over 200 partners in the rest of the world.
Our products are also sold in the Czech Republic, France, Japan,
Scandinavia, South Africa, South America and Spain, through distributors who
sell our products and provide consulting, training and educational courses to
customers in those countries. In Japan, our distributor has translated our
products into Kanji. Our products allow customers to create applications in
different languages.
We also have marketing relationships with other companies who have products
that work well with our products. Our SilverNet technology partners are
comprised of companies who have created commercial products which complement our
products or who market and sell these complementary products. As of May 31,
1999, we had 62 SilverNet technology partners, including Actuate, IBM,
PeopleSoft, Rational and SAP. We work with SilverNet partners to help make it
easier for customers to use our products with the SilverNet partners' products.
Our marketing programs are designed to attract potential customers so that
we, or one of our partners, can demonstrate our products directly to potential
customers. We hold many seminars, some with our partners, send out direct mail
and attend trade shows, and provide information about our company and our
products on our Web site. We also conduct public relations activities, including
interviews and demonstrations for industry analysts and product reviewers.
RESEARCH AND DEVELOPMENT
As of May 31, 1999, we had 45 employees responsible for product
development, quality assurance and documentation. Our research and development
organization is divided into five teams: server, client, application
development, quality assurance and documentation.
We are very focused on enhancing the scalability, performance and
reliability of our Application Server. Our quality assurance department has a
dedicated performance and tuning laboratory designed to improve the performance
of customers' Web-based applications. This laboratory has the ability to
simulate up to 12,000 simultaneous users communicating with SilverStream
Application Servers running on as many as 32 processors on a dedicated 100
megabits per second network.
We have made, and will continue to make, a substantial investment in
research and development. Research and development expenses were $2.6 million in
1997, $5.1 million in 1998 and $1.5 million in the first quarter of 1999. All of
our software development costs have been expensed as incurred.
While we have developed, and expect to continue to develop, most new
products and enhancements to existing products internally, we have licensed
certain software technology from third parties. See "Risk Factors -- Risks
Related to Our Business -- We Rely on Third-Party Software and Technology."
COMPETITION
The market for application server software products is intensely
competitive, subject to rapid technological change and significantly affected by
new product introductions and other market activities of industry participants.
We expect competition to persist and intensify in the future. Our primary
sources of competition include vendors of application server software and
services, such as BEA Systems, IBM, Microsoft, Oracle and Sun Microsystems, as
well as in-house development efforts by potential customers or partners. In
addition, we compete with numerous other developers of business application
software. We believe that the principal competitive factors in our industry
include product performance and functionality, ease of use, scalability, ability
to integrate external data sources, product and company reputation, customer
support and price. See "Risk Factors -- Risks Related to Our Business -- Our
Markets are Highly Competitive and We May Not Continue to Compete Successfully."
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<PAGE> 42
PROPRIETARY RIGHTS AND LICENSING
Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret and copyright laws and contractual restrictions
to protect the proprietary aspects of our technology. These legal protections
afford only limited protection for our technology. We presently have five patent
applications pending in the United States. We cannot predict whether any of
these applications will result in any issued patents or, if patents are issued,
any meaningful protection. We seek to protect our source code for our software,
documentation and other written materials under trade secret and copyright laws.
We license our software pursuant to "shrinkwrap" and, in some cases, signed
license agreements, which impose certain restrictions on the licensee's ability
to utilize the software. Finally, we seek to limit disclosure of our
intellectual property by requiring employees and consultants with access to our
proprietary information to execute confidentiality agreements with us and by
restricting access to our source code. Due to rapid technological change, we
believe that factors such as the technological and creative skills of our
personnel, new product developments and enhancements to existing products are
more important than the various legal protections of our technology to
establishing and maintaining a technology leadership position.
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.
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. See "Risk Factors -- Risks Related to Our
Business -- Protection of Our Intellectual Property is Limited."
We integrate third-party software into our products. This third-party
software may not continue to be available on commercially reasonable terms. If
we cannot maintain licenses to this third-party software, distribution of our
products could be delayed until equivalent software could be developed or
licensed and integrated into our products, which could materially adversely
affect our business, operating results and financial condition.
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<PAGE> 43
EMPLOYEES
As of May 31, 1999, we had a total of 195 employees of whom:
- 45 were in research and development;
- 76 were in sales and marketing;
- 50 were in customer service and support; and
- 24 were in finance and administration.
Our future success will depend in part on our ability to attract, retain
and motivate highly qualified technical and management personnel, for whom
competition is intense. Our employees are not represented by any collective
bargaining unit. We believe our relations with our employees are good.
PROPERTIES
Our headquarters are currently located in a leased facility in Burlington,
Massachusetts, consisting of approximately 40,000 square feet under a sublease
that expires in July 2000. We have also leased offices for sales and support
personnel in North America, Europe and Asia. See "Risk Factors -- Risks Related
to Our Business -- We Must Manage Our Growth and Expansion."
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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<PAGE> 44
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of SilverStream and their ages and
positions as of May 31, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David R. Skok............................. 43 Chairman of the Board of Directors
David A. Litwack.......................... 52 President, Chief Executive Officer and Director
Peter E. Brumme........................... 49 Executive Vice President, Sales and Marketing
Craig A. Dynes............................ Vice President, Chief Financial Officer and
44 Treasurer
Arnold S. Epstein......................... 49 Vice President and Chief Technology Officer
Diane Gordon.............................. 40 Vice President, Customer Services
John W. Pearce............................ 45 Vice President, International Operations
Kim A. Sheffield.......................... 43 Vice President, Research and Development
Timothy Barrows........................... 42 Director
Richard A. D'Amore........................ 45 Director
Paul J. Severino.......................... 52 Director
</TABLE>
David R. Skok founded SilverStream and has served as our Chairman of the
Board of Directors since our inception and as our President and Chief Executive
Officer from May 1996 to November 1996. He also served as our Treasurer from May
1996 to June 1999. Before founding SilverStream, Mr. Skok founded Watermark
Software, a document management and imaging company, and served as its President
and Chief Executive Officer from January 1993 until June 1996, following its
acquisition by FileNet. From September 1990 to December 1994, Mr. Skok also
served as Chief Executive Officer of Xionics Document Technologies, Inc., a
document imaging company. Mr. Skok also currently serves as a director of
Xionics.
David A. Litwack has served as our President and Chief Executive Officer
since May 1997, and as a member of our Board of Directors since November 1996.
Before joining SilverStream, Mr. Litwack served as Executive Vice President of
Sybase Inc., an enterprise software company, from February 1995 to May 1997 and
as President of Powersoft Corporation, a client server development tools
company, from June 1991 to its acquisition by Sybase in February 1995. In
addition, Mr. Litwack is a director of Object Design, Inc.
Peter E. Brumme has served as our Executive Vice President, Sales and
Marketing since January 1999 and was our Chief Operating Officer from January
1997 to December 1998. Prior to joining SilverStream, Mr. Brumme served as Chief
Operating Officer of Watermark from July 1995 to December 1996 and as Senior
Vice President, Sales and Marketing from April 1993 to June 1995.
Craig A. Dynes has served as our Vice President and Chief Financial Officer
since July 1997 and as our Treasurer since June 1999. Prior to joining
SilverStream, Mr. Dynes served as Vice President of Finance, Products Group, of
Sybase from October 1996 to June 1997. Mr. Dynes served as Vice President of
Finance and Operations and Chief Financial Officer of Powersoft from August 1995
to October 1996, and as Chief Financial Officer of Watcom, a compiler software
company, from 1992 until July 1995, following its acquisition by Powersoft.
Arnold S. Epstein has served as our Vice President and Chief Technology
Officer since July 1996. Prior to joining SilverStream, Mr. Epstein served as
Chief Technical Officer of Watermark from March 1993 to June 1996.
Diane Gordon has served as our Vice President, Customer Services since
January 1999. Prior to joining SilverStream, Ms. Gordon served as Vice President
of Operations of Gartner Learning, an independent research company, from March
1997 to September 1998. From March 1991 to February 1997, Ms. Gordon served as
Director of Professional Services of Progress Software, a software company.
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<PAGE> 45
John W. Pearce has served as our Vice President, International Sales since
January 1997. He also served as our Chief Financial Officer from July 1996 to
July 1997. Prior to joining SilverStream, Mr. Pearce served as Vice President,
International Sales and Chief Financial Officer of Watermark from January 1993
to June 1996.
Kim A. Sheffield has served as our Vice President, Research and Development
since July 1996. Prior to joining SilverStream, Mr. Sheffield served as Vice
President of Research & Development, Powersoft Division of Sybase from February
1995 to June 1996. From 1988 to February 1995, Mr. Sheffield served in various
capacities with Powersoft including as Vice President of Engineering from July
1994 to February 1995.
Timothy Barrows has served as a director of SilverStream since July 1996.
Mr. Barrows has been a General Partner of Matrix Venture Partners since 1984.
Richard A. D'Amore has served as a director of SilverStream since July
1996. Mr. D'Amore has been a General Partner of North Bridge Venture Partners
since 1994. He is a director of Solectron Corporation, Veeco Instruments Inc.
and Xionics.
Paul J. Severino has served as a director of SilverStream since May 1999.
Mr. Severino has served as the Chairman of NetCentric Corporation, a provider of
Internet protocol telephony applications, since August 1997 and Chief Executive
Officer since February 1998. Prior to that, he served as NetCentric's Acting
Chief Executive Officer from August 1997 to February 1998. He is a founder of
Wellfleet Communications, Inc., a supplier of internetworking communication
products, where he served as Chairman of the Board from October 1986 to October
1994. From October 1994 to October 1996, he served as Chairman of BayNetworks
after its formation from the merger of Wellfleet and Synoptics. Mr. Severino is
also a director of Media 100 Inc. and MTDC (Massachusetts Telecommunications
Development Corporation).
Each executive officer serves at the discretion of the Board of Directors
and holds office until his or her successor is elected and qualified or until
his or her earlier resignation or removal. There are no family relationships
among any of the directors or executive officers of SilverStream. Each of the
directors serves on the Board of Directors pursuant to the terms of an agreement
that will terminate upon the closing of this offering.
ELECTION OF DIRECTORS
Following this offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term.
Messrs. Skok and Barrows will serve in the class whose term expires in 2000;
Messrs. Litwack and D'Amore will serve in the class whose term expires in 2001;
and Mr. Severino will serve in the class whose term expires in 2002. Upon the
expiration of the term of a class of directors, directors in such class will be
elected for three-year terms at the annual meeting of stockholders in the year
in which such term expires. This classification of the Board of Directors may
have the effect of delaying or preventing changes in control or management of
SilverStream.
COMPENSATION OF DIRECTORS
We reimburse directors for reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors. We may, in our discretion, grant
stock options and other equity awards to our non-employee directors from time to
time pursuant to our 1997 Stock Incentive Plan. On April 30, 1999, we granted to
Paul J. Severino an option to purchase 25,000 shares of common stock at a per
share exercise price of $8.00 under our 1997 Stock Incentive Plan in connection
with his joining our Board. Mr. Severino's option was fully vested upon grant.
BOARD COMMITTEES
The Board of Directors has established a Compensation Committee and an
Audit Committee. The Compensation Committee, which consists of Messrs. Barrows,
D'Amore and Severino, reviews executive
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salaries, administers our bonus, incentive compensation and stock plans, and
approves the salaries and other benefits of our executive officers. In addition,
the Compensation Committee consults with our management regarding our benefit
plans and compensation policies and practices.
The Audit Committee, which consists of Messrs. Barrows, D'Amore and
Severino, reviews the professional services provided by our independent
accountants, the independence of such accountants from our management, our
annual financial statements and our system of internal accounting controls. The
Audit Committee also reviews such other matters with respect to our accounting,
auditing and financial reporting practices and procedures as it may find
appropriate or may be brought to its attention.
EXECUTIVE COMPENSATION
The table below sets forth, for the year ended December 31, 1998, the cash
compensation earned by (1) our Chairman of the Board, (2) our Chief Executive
Officer and (3) each of the four most highly compensated other executive
officers who received annual compensation in excess of $100,000, collectively
referred to below as the Named Executive Officers. In accordance with the rules
of the Securities and Exchange Commission the compensation set forth in the
table below does not include medical, group life or other benefits which are
available to all of our salaried employees, and perquisites and other benefits,
securities or property which do not exceed the lesser of $50,000 or 10% of the
person's salary and bonus shown in the table. In the table below, columns
required by the regulations of the Securities and Exchange Commission have been
omitted where no information was required to be disclosed under those columns.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)
- --------------------------- --------- --------
<S> <C> <C>
David R. Skok............................................... $120,000 $ 0
Chairman of the Board of Directors
David A. Litwack............................................ 120,000 0
President and Chief Executive Officer
Peter E. Brumme............................................. 125,000 20,000
Executive Vice President, Sales and Marketing
John W. Pearce.............................................. 125,000 20,000
Vice President, International Operations
Kim A. Sheffield............................................ 120,000 20,000
Vice President, Research and Development
Arnold S. Epstein........................................... 120,000 20,000
Vice President and Chief Technology Officer
</TABLE>
STOCK OPTIONS
We have not granted any stock options to our Named Executive Officers.
BENEFIT PLANS
1997 Stock Incentive Plan. Our 1997 Stock Incentive Plan was originally
adopted in February 1997 and was amended and restated in June 1999. Up to
3,500,000 shares of our common stock, subject to adjustment in the event of
stock splits and other similar events, may be issued pursuant to awards granted
under the 1997 Stock Incentive Plan. The 1997 Stock Incentive Plan provides for
the grant of incentive stock options intended to qualify under Section 422 of
the Internal Revenue Code, nonstatutory stock options, restricted stock awards
and other stock-based awards.
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<PAGE> 47
Our officers, employees, directors, consultants and advisors and those of
our subsidiaries are eligible to receive awards under the 1997 Stock Incentive
Plan. Under present law, however, incentive stock options may only be granted to
employees. No participant may receive any award for more than 250,000 shares in
any calendar year.
Optionees receive the right to purchase a specified number of shares of our
common stock at a specified option price, subject to the terms and conditions of
the option grant. We may grant options at an exercise price less than, equal to
or greater than the fair market value of our common stock on the date of grant.
Under present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
may not be granted at an exercise price less than the fair market value of the
common stock on the date of grant, or less than 110% of the fair market value in
the case of incentive stock options granted to optionees holding more than 10%
of the voting power of SilverStream. The 1997 Stock Incentive Plan permits our
Board of Directors to determine how optionees may pay the exercise price of
their options, including by cash, check or in connection with a "cashless
exercise" through a broker, by surrender to us of shares of common stock, by
delivery to us of a promissory note, or by any combination of the permitted
forms of payment.
As of May 31, 1999, 198 persons would have been eligible to receive awards
under the 1997 Stock Incentive Plan, including eight executive officers and
three non-employee directors. The granting of awards under the 1997 Stock
Incentive Plan is discretionary.
Our Board of Directors administers the 1997 Stock Incentive Plan. Our Board
of Directors has the authority to adopt, amend and repeal the administrative
rules, guidelines and practices relating to the plan and to interpret its
provisions. It may delegate authority under the 1997 Stock Incentive Plan to one
or more committees of the Board of Directors and, in limited circumstances, to
one or more of our executive officers. Our Board of Directors has authorized the
Compensation Committee to administer the 1997 Stock Incentive Plan, including
the granting of options to our executive officers. Subject to any applicable
limitations contained in the 1997 Stock Incentive Plan, our Board of Directors,
our Compensation Committee or any other committee or executive officer to whom
our Board of Directors delegates authority, as the case may be, selects the
recipients of awards and determines:
- the number of shares of common stock covered by options and the dates
upon which such options become exercisable;
- the exercise price of options;
- the duration of options; and
- the number of shares of common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of such awards,
including the conditions for repurchase, issue price and repurchase
price.
In the event of a merger, liquidation or other acquisition event, our Board
of Directors is authorized to provide for outstanding options or other
stock-based awards to be assumed or substituted for by the acquiror. If the
acquiror refuses to assume or substitute for outstanding awards, they will
accelerate and become fully exercisable and free of restrictions, prior to
consummation of the acquisition event.
No award may be granted under the 1997 Stock Incentive Plan after June
2007, but the vesting and effectiveness of awards previously granted may extend
beyond that date. Our Board of Directors may at any time amend, suspend or
terminate the 1997 Stock Incentive Plan, except that no award granted after an
amendment of the 1997 Stock Incentive Plan and designated as subject to Section
162(m) of the Internal Revenue Code by our Board of Directors shall become
exercisable, realizable or vested, to the extent such amendment was required to
grant such award, unless and until such amendment is approved by our
stockholders.
1996 Founders Stock Incentive Plan. Our 1996 Founders Stock Incentive Plan
was adopted in May 1996 and authorized the issuance of up to 3,877,000 shares of
our common stock. From May 1996 to April 1997, an aggregate of 3,775,031 shares
of common stock was issued under the plan pursuant to
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<PAGE> 48
founders stock restriction agreements. As of May 31, 1999, an aggregate of
145,394 shares of common stock had been repurchased by SilverStream pursuant to
the terms of such agreements. No additional awards may be made under the 1996
Founders Stock Incentive Plan.
1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan
was adopted by our Board of Directors in June 1999 and our stockholders will
also be asked to approve adoption of the plan. The 1999 Employee Stock Purchase
Plan authorizes the issuance of up to a total of 300,000 shares of our common
stock to participating employees.
All of our employees, including directors who are employees, and all
employees of any participating subsidiaries:
- whose customary employment is more than 20 hours per week for more than
five months in a calendar year;
- who have been employed by us for at least three months prior to
enrolling; and
- who are employed on the first day of a designated payroll deduction
offering period
are eligible to participate in the 1999 Employee Stock Purchase Plan. Employees
who would immediately after the grant own five percent or more of the total
combined voting power or value of our stock or any subsidiary are not eligible
to participate. As of May 31, 1999, 151 of our employees would have been
eligible to participate in the 1999 Employee Stock Purchase Plan.
On the first day of an offering period, we will grant to each eligible
employee who has elected to participate in the 1999 Employee Stock Purchase Plan
an option to purchase shares of common stock as follows: the employee may
authorize an amount (up to 10%, or such lesser amount as shall be determined by
the Board, of such employee's base pay) to be deducted from such employee's base
pay during the offering period. On the last day of the offering period, the
employee is deemed to have exercised the option, at the option exercise price,
to the extent of accumulated payroll deductions. Under the terms of the 1999
Employee Stock Purchase Plan, the option exercise price is an amount equal to
85% of the closing price per share of the common stock on either the first day
or the last day of the offering period, whichever is lower. The first offering
period under the 1999 Employee Stock Purchase Plan will commence on the date on
which trading of our common stock commences on the Nasdaq National Market, with
the option price on the first day of such offering period equivalent to the
initial public offering price. In no event may an employee purchase in any one
offering period a number of shares which exceeds the number of shares determined
by dividing the product of (1) $2,083 and (2) the number of full months in the
offering period by the closing market price of a share of common stock on the
first business day of the offering period or such other number as may be
determined by the Board prior to the commencement date of the offering period.
The Compensation Committee may, in its discretion, choose an offering period of
12 months or less for each offering and may choose a different offering period
for each offering.
An employee who is not a participant on the last day of the offering
period, as a result of voluntary withdrawal or termination of employment or for
any other reason, is not entitled to exercise any option, and the employee's
accumulated payroll deductions will be refunded. However, upon termination of
employment because of death, the employee's beneficiary has certain rights to
elect to exercise the option to purchase the shares that the accumulated payroll
deductions in the participant's account would purchase at the date of death.
Because participation in the 1999 Employee Stock Purchase Plan is
voluntary, we cannot now determine the number of shares of our common stock to
be purchased by any of our current executive officers, by all of our current
executive officers as a group or by our non-executive employees as a group.
401(k) Plan. On January 1, 1998, we adopted an employee savings and
retirement plan qualified under Section 401 of the Internal Revenue Code and
covering all of our employees. Pursuant to the 401(k) plan, employees may elect
to reduce their current compensation by up to the statutorily prescribed annual
limit and have the amount of such reduction contributed to the 401(k) plan. We
may make matching or additional contributions to the 401(k) plan in amounts to
be determined annually by our Board of Directors.
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CERTAIN TRANSACTIONS
PREFERRED STOCK ISSUANCES
Since our incorporation in May 1996, we have issued and sold shares of
preferred stock to the following persons and entities who are our executive
officers, directors or principal stockholders. For more detail on shares held by
these purchasers, see "Principal Stockholders."
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
PREFERRED PREFERRED PREFERRED PREFERRED
INVESTOR STOCK STOCK STOCK STOCK
- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
David R. Skok................................... 930,000 159,475 56,948 52,632
David A. Litwack................................ 930,000 178,238 38,185 52,632
Peter E. Brumme................................. -- 11,257 -- --
John W. Pearce.................................. -- 9,381 -- --
Kim A. Sheffield................................ -- 9,381 -- --
Arnold S. Epstein............................... -- 11,257 -- --
Craig A. Dynes.................................. -- 9,381 -- --
Matrix IV Management Co., L.P.(1)............... 870,000 375,235 113,896 134,210
North Bridge Venture Partners, L.P.(2).......... 870,000 375,235 113,896 105,263
Funds affiliated with Essex Investment
Management Co., LLC (3)....................... -- -- 455,581 342,105
</TABLE>
- ------------
(1) Composed of Matrix Partners IV, L.P. and Matrix IV Entrepreneurs Fund, L.P.
Matrix IV Management Co., L.P. is the general partner of each of Matrix
Partners IV, L.P. and Matrix IV Entrepreneurs Fund, L.P. Timothy Barrows, a
director of SilverStream, is a general partner of Matrix IV Management Co.,
L.P.
(2) Richard A. D'Amore, a director of SilverStream, is a general partner of
North Bridge Venture Management L.P., which is the general partner of North
Bridge Venture Partners, L.P.
(3) Composed of Essex Performance Fund, L.P., Essex High Technology Fund, L.P.,
The New Discovery Fund Limited Ltd., Robertson Foundation and Essex Private
Placement Fund, Limited Partnership.
Series A Financing. On July 9, 1996, August 15, 1996 and November 4, 1996
we issued an aggregate of 3,683,050 shares of Series A preferred stock to six
investors, including David R. Skok, David A. Litwack, Matrix and North Bridge.
The per share purchase price for our Series A preferred stock was $1.00.
Series B Financing. On June 16, 1997 and September 12, 1997, we issued an
aggregate of 1,500,938 shares of Series B preferred stock to 21 investors,
including David R. Skok, David A. Litwack, Peter E. Brumme, John W. Pearce, Kim
A. Sheffield, Arnold E. Epstein, Craig A. Dynes, Matrix and North Bridge. The
per share purchase price for our Series B preferred stock was $5.33.
Series C Financing. On November 6, 1997, December 24, 1997 and March 30,
1998, we issued an aggregate of 1,922,588 shares of Series C preferred stock to
35 investors, including David R. Skok, David A. Litwack, Matrix, North Bridge
and Essex. The per share purchase price for our Series C preferred stock was
$8.78.
Series D Financing. On March 1, 1999, April 9, 1999, April 14, 1999 and
May 27, 1999, we issued an aggregate of 1,552,632 shares of Series D preferred
stock to 25 investors, including David R. Skok, David A. Litwack, Matrix, North
Bridge and Essex. The per share purchase price for our Series D preferred stock
was $9.50.
47
<PAGE> 50
COMMON STOCK ISSUANCES
The following table presents selected information regarding our issuances
of common stock to our executive officers. On May 8, 1996, in connection with
our incorporation, we issued an aggregate of 1,000 shares of common stock to
David R. Skok. We issued the remaining shares of common stock pursuant to
founders stock restriction agreements with each of the executive officers which
give us certain rights to repurchase all or a portion of the shares at their
purchase price in the event that the executive officer ceases to be employed by
us. Each of the shares issued in 1996 had a purchase price of $.001 per share.
Each of the shares issued in 1997 had a purchase price of $.50 per share.
<TABLE>
<CAPTION>
EXECUTIVE OFFICER DATE OF ISSUANCE NUMBER OF SHARES
- ----------------- ---------------- ----------------
<S> <C> <C>
David R. Skok............................................... 05/08/96 1,000
07/09/96 1,122,000
David A. Litwack............................................ 11/04/96 1,123,000
Peter E. Brumme............................................. 11/12/96 564,850
John W. Pearce.............................................. 08/16/96 347,600
Kim A. Sheffield............................................ 08/16/96 347,600
Arnold S. Epstein........................................... 08/16/96 451,880
Craig A. Dynes.............................................. 11/02/97 70,000
</TABLE>
STOCK OPTION GRANTS
On April 30, 1999, we granted to Craig A. Dynes, our Vice President, Chief
Financial Officer and Treasurer, an option to purchase 10,000 shares of common
stock at a per share exercise price of $8.00 under our 1997 Stock Incentive
Plan. Mr. Dynes' option shall vest 20% on April 30, 2000 and then quarterly for
four years.
On April 30, 1999, we granted to Diane Gordon, our Vice President, Customer
Services, an option to purchase 5,000 shares of common stock at a per share
exercise price of $8.00 under our 1997 Stock Incentive Plan. Ms. Gordon's option
shall vest 20% on April 30, 2000 and then quarterly for four years.
On April 30, 1999, we granted to Paul J. Severino an option to purchase
25,000 shares of common stock at a per share exercise price of $8.00 under our
1997 Stock Incentive Plan in connection with his joining our Board. Mr.
Severino's options were fully vested upon grant.
------------------------
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested directors on the Board of Directors, and will continue to be on
terms no less favorable to us than could be obtained from unaffiliated third
parties.
48
<PAGE> 51
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of our common stock as of May 31, 1999, and as adjusted to reflect the sale of
the shares of common stock in this offering, by:
- each person who owns beneficially more than 5% of the outstanding shares
of our common stock;
- each of our directors and the Named Executive Officers; and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting or investment power with
respect to shares. Shares of common stock issuable under stock options that are
exercisable within 60 days after May 31, 1999 are deemed outstanding for
computing the percentage ownership of the person holding the options but are not
deemed outstanding for computing the percentage ownership of any other person.
Unless otherwise indicated below, to our knowledge, all persons named in the
table have sole voting and investment power with respect to their shares of
common stock, except to the extent authority is shared by spouses under
applicable law. Unless otherwise indicated, the address of each person owning
more than 5% of the outstanding shares of common stock is c/o SilverStream
Software, Inc., One Burlington Woods, Suite 200, Burlington, Massachusetts
01803.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON
STOCK OUTSTANDING
--------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------------------ ------------------ -------- --------
<S> <C> <C> <C>
Matrix IV Management Co., L.P.(1)......................... 1,493,341 10.7%
1000 Winter Street, Suite 4500
Waltham, MA 02154
North Bridge Venture Partners, L.P........................ 1,464,394 10.5
950 Winter Street, Suite 4600
Waltham, MA 02154
Funds affiliated with Essex Investment Management Co.,
LLC(2).................................................. 797,686 5.7
125 High Street
Boston, MA 02110-2702
David R. Skok(3).......................................... 2,322,055 16.7
David A. Litwack(4)....................................... 2,312,055 16.6
Peter E. Brumme........................................... 576,107 4.1
John W. Pearce............................................ 356,981 2.6
Kim A. Sheffield.......................................... 356,981 2.6
Arnold S. Epstein......................................... 453,757 3.3
Timothy Barrows(1)........................................ 1,493,341 10.7
c/o Matrix IV Management Co., L.P.
1000 Winter Street, Suite 4500
Waltham, MA 02154
Richard A. D'Amore(5)..................................... 1,464,394 10.5
c/o North Bridge Venture Partners, L.P.
950 Winter Street, Suite 4600
Waltham, MA 02154
Paul J. Severino(6)....................................... 25,000 * *
All executive officers and directors as a group (11
persons)(7)............................................... 9,440,052 67.8
</TABLE>
- ------------
* Less than 1% of the outstanding common stock.
(1) Composed of 1,418,674 shares held by Matrix Partners IV, L.P. and 74,667
shares held by Matrix IV Entrepreneurs Fund, L.P. Matrix IV Management Co.,
L.P. is the general partner of each of Matrix Partners IV, L.P. and Matrix
IV Entrepreneurs Fund, L.P. Mr. Barrows, a director of SilverStream, is
49
<PAGE> 52
a general partner of Matrix IV Management Co., L.P. Mr. Barrows disclaims
beneficial ownership of the shares held by Matrix Partners IV, L.P. and
Matrix IV Entrepreneurs Fund, L.P. except to the extent of his pecuniary
interests therein arising from his general partnership interest in Matrix IV
Management Co., L.P.
(2) Composed of 192,417 shares held by Essex Performance Fund, L.P., 192,417
shares held by Essex High Technology Fund, L.P., 96,178 shares held by The
New Discovery Fund Limited Ltd., 32,099 shares held by Robertson Foundation,
and 284,575 shares held by Essex Private Placement Fund, Limited
Partnership. Essex Investment Management Co., LLC acts as investment advisor
to each of the foregoing entities and has voting and investment power with
respect to such shares.
(3) Includes 1,000,000 shares held by the David R. Skok Irrevocable Trust and
100,000 shares held by the David R. Skok 1997 Irrevocable Family Trust.
(4) Includes 1,123,000 shares held by the Litwack Irrevocable Trust.
(5) Consists of 1,464,394 shares held by North Bridge Venture Partners, L.P. Mr.
D'Amore, a director of SilverStream, is a general partner of North Bridge
Venture Management L.P., which is the general partner of North Bridge
Venture Partners, L.P. Mr. D'Amore disclaims beneficial ownership of the
shares held by North Bridge Venture Partners, L.P. except to the extent of
his pecuniary interests therein arising from his general partnership
interests in North Bridge Venture Management, L.P.
(6) Consists of 25,000 shares of common stock issuable upon the exercise of
fully vested stock options.
(7) Includes 25,000 shares of common stock issuable upon the exercise of fully
vested stock options.
50
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
After this offering, the authorized capital stock of SilverStream will
consist of 100,000,000 shares of common stock, $.001 par value per share, and
2,000,000 shares of preferred stock, $.001 par value per share. As of May 31,
1999, there were outstanding (1) 5,237,658 shares of common stock held by 66
stockholders of record, (2) 8,659,208 shares of convertible preferred stock
(convertible into 8,659,208 shares of common stock) held by 72 stockholders of
record and (3) options to purchase an aggregate of 1,343,309 shares of common
stock. Based upon the number of shares outstanding as of that date, and giving
effect to the issuance of the shares of common stock offered by the Company in
this offering, there will be shares of common stock outstanding upon the
closing of this offering.
The following summary of certain provisions of our securities and various
provisions of our amended and restated certificate of incorporation and our
amended and restated bylaws is not intended to be complete and is qualified by
reference to the provisions of applicable law and to our amended and restated
certificate of incorporation and amended and restated bylaws included as
exhibits to the Registration Statement of which this prospectus is a part. See
"Where You Can Find More Information."
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any such dividends declared by the Board of Directors, subject
to any preferential dividend rights of outstanding preferred stock. Upon the
liquidation, dissolution or winding up of SilverStream, the holders of common
stock are entitled to receive ratably the net assets of SilverStream available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of common stock are, and the shares offered by SilverStream in this
offering will be, when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of common stock are subject to the
rights of the holders of shares of any series of preferred stock which
SilverStream may designate and issue in the future. Certain holders of common
stock have the right to require SilverStream to register their shares of common
stock under the Securities Act in certain circumstances. See "Shares Eligible
for Future Sale."
PREFERRED STOCK
Under the terms of our amended and restated certificate of incorporation,
the Board of Directors is authorized to issue shares of preferred stock in one
or more series without stockholder approval. The Board has discretion to
determine the rights, preferences, privileges and restrictions, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences of each series of preferred stock.
The purpose of authorizing the Board of Directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could make it more difficult for a third party to
acquire, or could discourage a third party from acquiring, a majority of the
outstanding voting stock of SilverStream. The issuance of preferred stock with
voting and conversion rights may adversely affect the voting power of the
holders of common stock. SilverStream has no present plans to issue any shares
of preferred stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS
SilverStream is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a
51
<PAGE> 54
prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, "interested stockholder" is a person
who, together with affiliates and associates, owns, or within three years did
own, 15% or more of the corporation's voting stock.
The amended and restated certificate of incorporation and amended and
restated by-laws to be effective on the closing of this offering provide:
- that the Board of Directors be divided into three classes, as nearly
equal in size as possible, with staggered three-year terms;
- that directors may be removed only for cause by the affirmative vote of
the holders of at least 75% of the shares of our capital stock entitled
to vote; and
- that any vacancy on the Board of Directors, however occurring, including
a vacancy resulting from an enlargement of the Board, may only be filled
by vote of a majority of the directors then in office.
The classification of the Board of Directors and the limitations on the
removal of directors and filling of vacancies could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, SilverStream.
The amended and restated certificate of incorporation and amended and
restated by-laws also provide that, after the closing of this offering:
- any action required or permitted to be taken by the stockholders at an
annual meeting or special meeting of stockholders may only be taken if it
is properly brought before such meeting and may not be taken by written
action in lieu of a meeting; and
- special meetings of the stockholders may only be called by the Chairman
of the Board of Directors, the President, or by the Board of Directors.
Our amended and restated by-laws provide that, in order for any matter to
be considered "properly brought" before a meeting, a stockholder must
comply with requirements regarding advance notice to us. These provisions
could delay until the next stockholders' meeting stockholder actions
which are favored by the holders of a majority of our outstanding voting
securities. These provisions may also discourage another person or entity
from making a tender offer for our common stock, because such person or
entity, even if it acquired a majority of our outstanding voting
securities, would be able to take action as a stockholder (such as
electing new directors or approving a merger) only at a duly called
stockholders meeting, and not by written consent.
Delaware's corporation law provides generally that the affirmative vote of
a majority of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation or by-laws, unless a corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. Our amended and restated certificate of incorporation requires the
affirmative vote of the holders of at least 75% of the shares of our capital
stock entitled to vote to amend or repeal any of the foregoing provisions of our
amended and restated certificate of incorporation. Generally our amended and
restated by-laws may be amended or repealed by a majority vote of the Board of
Directors or the holders of a majority of the shares of our capital stock issued
and outstanding and entitled to vote. To amend our amended and restated by-laws
regarding special meetings of stockholders, written actions of stockholders in
lieu of a meeting, and the election, removal and classification of members of
the Board of Directors requires the affirmative vote of the holders of at least
75% of the shares of our capital stock entitled to vote. The stockholder vote
would be in addition to any separate class vote that might in the future be
required pursuant to the terms of any series preferred stock that might be
outstanding at the time any such amendments are submitted to stockholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our amended and restated certificate of incorporation provides that our
directors and officers shall be indemnified by us to the fullest extent
authorized by Delaware law. This indemnification would cover all
52
<PAGE> 55
expenses and liabilities reasonably incurred in connection with their services
for or on behalf of us. In addition, our amended and restated certificate of
incorporation provides that our directors will not be personally liable for
monetary damages to us for breaches of their fiduciary duty as directors, unless
they violated their duty of loyalty to us or our stockholders, acted in bad
faith, knowingly or intentionally violated the law, authorized illegal dividends
or redemptions or derived an improper personal benefit from their action as
directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is BankBoston, N.A.
53
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common stock
outstanding, assuming no exercise of outstanding options. Of these shares, the
shares to be sold in this offering will be freely tradable without
restriction or further registration under the Securities Act except that any
shares purchased by our affiliates, as that term is defined in Rule 144 under
the Securities Act, may generally only be sold in compliance with the
limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
<TABLE>
<CAPTION>
DAYS AFTER DATE OF APPROXIMATE SHARES
THIS PROSPECTUS ELIGIBLE FOR FUTURE SALE COMMENT
------------------ ------------------------ -------
<S> <C> <C>
On effectiveness..................
Freely tradeable shares sold in
offering
90 days...........................
Shares saleable under Rule 144
180 days..........................
Lock-up released; shares saleable
under Rule 144, 144(k) or 701
Thereafter........................
Restricted securities held for
one year or less
</TABLE>
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least one year is entitled to sell, within any three-month period,
a number of such shares that does not exceed the greater of (1) one percent of
the then outstanding shares of common stock (approximately shares
immediately after this offering) or (2) the average weekly trading volume in the
common stock on the Nasdaq National Market during the four calendar weeks
preceding the date on which notice of such sale is filed, provided certain
requirements concerning availability of public information, manner of sale and
notice of sale are satisfied. In addition, our affiliates must comply with the
restrictions and requirements of Rule 144, other than the one-year holding
period requirement, in order to sell shares of common stock which are not
restricted securities.
Under Rule 144(k), a person who is not an affiliate and has not been an
affiliate for at least three months prior to the sale and who has beneficially
owned shares for at least two years may resell such shares without compliance
with the foregoing requirements. In meeting the one- and two-year holding
periods described above, a holder of shares can include the holding periods of a
prior owner who was not an affiliate. The one- and two-year holding periods
described above do not begin to run until the full purchase price or other
consideration is paid by the person acquiring the shares from the issuer or an
affiliate. Rule 701 provides that currently outstanding shares of common stock
acquired under our employee compensation plans may be resold beginning 90 days
after the date of this prospectus (1) by persons, other than affiliates, subject
only to the manner of sale provisions of Rule 144, and (2) by affiliates under
Rule 144 without compliance with its one-year minimum holding period, subject to
certain limitations.
STOCK OPTIONS
At May 31, 1999, approximately 195,058 shares of common stock were issuable
pursuant to vested options granted under our 1997 Stock Incentive Plan, all of
which are subject to Lock-up Agreements with the Underwriters.
We intend to file a registration statement on Form S-8 under the Securities
Act within 180 days after the date of this prospectus, to register up to
3,069,059 shares of common stock issuable under our 1997 Stock Incentive Plan,
including the 1,343,309 shares of common stock subject to outstanding options as
of May 31, 1999. This registration statement is expected to become effective
upon filing.
LOCK-UP AGREEMENTS
Subject to certain exceptions, we and our executive officers, directors and
other SilverStream securityholders have agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated,
54
<PAGE> 57
none of us will, during the period ending 180 days after the date of this
prospectus, (1) 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 (regardless of whether such
shares or any such securities are then owned by such person or are thereafter
acquired), or (2) 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, regardless of whether any such transactions described in
clauses (1) or (2) of this paragraph are to be settled by delivery of such
common stock or such other securities, in cash or otherwise. In addition, for a
period of 180 days from the date of this prospectus, except as required by law,
we have agreed that our Board of Directors will not consent to any offer for
sale, sale or other disposition, or any transaction which is designed or could
be expected, to result in, the disposition by any person, directly or
indirectly, of any shares of common stock without the prior written consent of
Morgan Stanley & Co. Incorporated except that we may, without such consent,
grant options and sell shares pursuant to our stock plans. See "Underwriters."
REGISTRATION RIGHTS
After this offering, the holders of approximately 10,905,208 shares of
common stock and rights to acquire common stock will be entitled to certain
rights with respect to the registration of such shares under the Securities Act.
Under the terms of the agreement between us and the holders of such registrable
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, such holders are entitled to notice of such
registration and are entitled to include shares of such common stock therein.
Additionally, such holders are also entitled to certain demand registration
rights pursuant to which they may require us on up to two occasions to file a
registration statement under the Securities Act at our expense with respect to
our shares of common stock, and we are required to use our best efforts to
effect such registration. Further, holders may require us to file an unlimited
number of additional registration statements on Form S-3 at our expense. All of
these registration rights are subject to certain conditions and limitations,
among them the right of the underwriters of an offering to limit the number of
shares included in such registration and our right not to effect a requested
registration within 180 days following an offering of our securities pursuant to
a Form S-1, including the offering made hereby.
55
<PAGE> 58
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement, the underwriters named below, for whom Morgan Stanley & Co.
Incorporated, BancBoston Robertson Stephens Inc. and SG Cowen Securities
Corporation are acting as representatives, have severally agreed to purchase,
and SilverStream has agreed to sell to the underwriters, the respective number
of shares of common stock set forth opposite the names of the underwriters
below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
BancBoston Robertson Stephens Inc. .........................
SG Cowen Securities Corporation.............................
--------
Total.............................................
========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered in this offering are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The underwriters are obligated to take and pay for all of the
shares of common stock offered in this offering, other than those covered by the
over-allotment option described below, if any such shares are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price.
Any underwriters may allow, and such dealers may reallow, a concession not in
excess of $ a share to other underwriters or to certain other dealers.
After the initial offering of the shares of common stock, the offering price and
other selling terms may from time to time be varied by the representatives of
the underwriters.
SilverStream has granted to the underwriters an option, exercisable for 30
days from the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the public offering price
set forth on the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, made in connection with the offering of the
shares of common stock offered in this offering. To the extent such option is
exercised, each underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of common stock as the number set forth next to such underwriter's name
in the preceding table bears to the total number of shares of common stock set
forth next to the names of all underwriters in the preceding table. If the
underwriter's over-allotment option is exercised in full, the total price to
public would be $ , the total underwriters' discounts and commissions
would be $ , and the total proceeds to us would be $ .
The following table summarizes the compensation to be paid by SilverStream
to the underwriters:
<TABLE>
<CAPTION>
TOTAL
--------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Public offering price......................... $ $ $
Underwriting discounts and commissions payable
by SilverStream.............................
</TABLE>
SilverStream estimates expenses payable by us in connection with this
offering, other than the estimated underwriting discounts and commissions
referred to above, will be approximately $1.0 million.
56
<PAGE> 59
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to five percent of the shares of common stock offered
in this offering for our directors, officers, employees and related persons. The
number of shares of common stock available for sale to the general public will
be reduced to the extent such individuals purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered hereby.
SilverStream, our directors and executive officers and certain other of our
stockholders and option holders have each agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters,
during the period ending 180 days after the date of this prospectus, he, she or
it will not, subject to limited exceptions, directly or indirectly:
- 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 (whether
such shares or any such securities are then owned by such person or are
thereafter acquired directly from us); or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock,
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have applied to list our common stock on the Nasdaq National Market
under the symbol "SSSW."
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering, if the syndicate repurchases previously
distributed shares of common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
In March, April and May 1999, we sold shares of our Series D Preferred
Stock in a private placement. In this private placement, a fund managed and
invested in by Morgan Stanley & Co. Incorporated purchased 105,263 shares of
Series D Preferred Stock, which are convertible into 105,263 shares of common
stock, for approximately $1,000,000, or $9.50 per share. The fund purchased
these shares on the same terms as the other investors in the private placement.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the shares of
common stock. Consequently, the initial public offering price for the shares of
common stock will be determined by negotiations between SilverStream and the
representatives of the underwriters. Among the factors to be considered in
determining the initial public offering price will be:
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<PAGE> 60
- our record of operations, our current financial position and future
prospects;
- the experience of our management;
- sales, earnings and certain of our other financial and operating
information in recent periods; and
- the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies
engaged in activities similar to ours.
The estimated initial public offering price range set forth on the cover page of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.
LEGAL MATTERS
The validity of the shares of common stock we are offering will be passed
upon for us by Hale and Dorr LLP, Boston, Massachusetts. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1997 and 1998, and for the
period ended December 31, 1996 and each of the two years in the period ended
December 31, 1998, as set forth in their report. We have included our financial
statements and schedule in this prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
we propose to sell in this offering. This prospectus, which is a part of the
registration statement, does not contain all of the information set forth in the
registration statement. For further information about us and the common stock we
propose to sell in this offering, we refer you to the registration statement and
the exhibits and schedules filed as a part of the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document filed as an exhibit to the registration statement are not
necessarily complete. If a contract or document has been filed as an exhibit to
the registration statement, we refer you to the copy of the contract or document
that has been filed. Each statement in this prospectus relating to a contract or
document filed as an exhibit is qualified in all respects by the filed exhibit.
The registration statement, including exhibits, may be inspected without charge
at the principal office of the Securities and Exchange Commission in Washington,
D.C. and copies of all or any part of which may be inspected and copied at the
public reference facilities maintained by the Securities and Exchange Commission
at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549,
and at the Commission's regional offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can also
be obtained at prescribed rates by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the public reference room by calling the
Commission at 1-800-SEC-0330. In addition, the Securities and Exchange
Commission maintains a website (http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission.
58
<PAGE> 61
SILVERSTREAM SOFTWARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Changes in Redeemable Convertible
Preferred Stock and Stockholders' Equity (Deficit)........ F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 62
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SilverStream Software, Inc.
We have audited the accompanying consolidated balance sheets of
SilverStream Software, Inc. (the Company) as of December 31, 1997 and 1998, and
the related consolidated statements of operations, redeemable convertible
preferred stock and stockholders' equity (deficit), and cash flows for the
period May 8, 1996 (inception) through December 31, 1996 and the years ended
December 31, 1997 and 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of SilverStream
Software, Inc. at December 31, 1997 and 1998, and the consolidated results of
its operations and its cash flows for the period May 8, 1996 (inception) through
December 31, 1996 and the years ended December 31, 1997 and 1998, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
--------------------------------------
Boston, Massachusetts
March 5, 1999, except for Note 12,
as to which the date is May 27, 1999
F-2
<PAGE> 63
SILVERSTREAM SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $16,649,341 $ 1,198,584 $12,448,106 $12,448,106
Marketable securities................................... -- 3,330,603 246,690 246,690
Accounts receivable; net of allowance for doubtful
accounts of $26,900 at December 31, 1997, $244,733 at
December 31, 1998, and $257,699 at March 31, 1999..... 211,015 3,570,927 5,630,306 5,630,306
Prepaid expenses........................................ 317,250 247,413 461,774 461,774
Other................................................... 267,754 100,930 8,789 8,789
----------- ----------- ----------- -----------
Total current assets............................. 17,445,360 8,448,457 18,795,665 18,795,665
Furniture, equipment and leasehold improvements, net...... 1,528,155 1,796,346 1,968,675 1,968,675
----------- ----------- ----------- -----------
Total assets..................................... $18,973,515 $10,244,803 $20,764,340 $20,764,340
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................ $ 746,413 $ 1,176,190 $ 2,164,753 $ 2,164,753
Accrued expenses........................................ -- 654,009 888,347 888,347
Deferred revenue........................................ 37,087 1,063,658 2,362,609 2,362,609
Current portion of long-term debt....................... 313,210 435,820 385,661 385,661
----------- ----------- ----------- -----------
Total current liabilities........................ 1,096,710 3,329,677 5,801,370 5,801,370
Long-term debt, less current portion...................... 294,727 324,787 249,987 249,987
Commitments and contingencies............................. -- -- -- --
Redeemable convertible preferred stock:
Series A redeemable convertible preferred stock, $.001
par value -- authorized, issued and outstanding
3,683,050 (liquidation preference $3,683,050)......... 3,658,050 3,658,050 3,658,050 --
Series B redeemable convertible preferred stock, $.001
par value -- authorized 1,600,000 shares; issued and
outstanding 1,500,938 (liquidation preference
$8,000,000)........................................... 7,980,000 7,980,000 7,980,000 --
Stockholders' equity (deficit):
Series C convertible preferred stock, $.001 par value --
authorized 2,000,000 shares; issued and outstanding
1,728,283 at December 31, 1997 and 1,922,588 at
December 31, 1998 and March 31, 1999, respectively
(liquidation preference $16,880,323).................. 15,154,325 16,856,323 16,856,323 --
Series D convertible preferred stock, $.001 par value --
authorized 1,600,000 shares; issued and outstanding
1,313,158 at March 31, 1999 (liquidation preference
$12,475,001) (unaudited).............................. -- -- 12,463,001 --
Common stock, $.001 par value -- authorized 21,000,000
shares; issued and outstanding 5,086,391 at December
31, 1997, 5,206,779 at December 31, 1998, 5,220,258 at
March 31, 1999 (unaudited) and 13,639,992 at March 31,
1999 (pro forma)...................................... 5,086 5,207 5,220 13,640
Additional paid-in capital.............................. 174,796 365,985 373,427 41,322,381
Accumulated deficit..................................... (9,286,679) (22,171,726) (26,478,912) (26,478,912)
Other comprehensive loss................................ -- -- (40,626) (40,626)
Notes receivable from stockholders...................... (103,500) (103,500) (103,500) (103,500)
----------- ----------- ----------- -----------
Total stockholders' equity (deficit)............. 5,944,028 (5,047,711) 3,074,933 14,712,983
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity
(deficit)...................................... $18,973,515 $10,244,803 $20,764,340 $20,764,340
=========== =========== =========== ===========
</TABLE>
See accompanying notes
F-3
<PAGE> 64
SILVERSTREAM SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1996 YEARS ENDED THREE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, MARCH 31,
DECEMBER 31, -------------------------- -------------------------
1996 1997 1998 1998 1999
-------------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Software license.................... $ -- $ 248,524 $ 5,982,534 $ 578,495 $ 2,606,846
Services............................ -- -- 825,365 104,077 867,446
----------- ----------- ------------ ----------- -----------
Total revenue............... -- 248,524 6,807,899 682,572 3,474,292
Cost of revenue:
Software license.................... -- 89,997 695,225 118,226 253,816
Services............................ -- 281,796 1,413,962 251,799 1,330,351
----------- ----------- ------------ ----------- -----------
Total cost of revenue....... -- 371,793 2,109,187 370,025 1,584,167
----------- ----------- ------------ ----------- -----------
Gross profit (loss)................... -- (123,269) 4,698,712 312,547 1,890,125
Operating expenses:
Sales and marketing................. 34,532 3,853,766 10,848,396 2,305,322 4,037,413
Research and development............ 849,868 2,622,200 5,069,465 1,239,560 1,503,050
General and administrative.......... 120,398 1,961,205 2,141,187 531,675 696,576
----------- ----------- ------------ ----------- -----------
Total operating expenses.... 1,004,798 8,437,171 18,059,048 4,076,557 6,237,039
----------- ----------- ------------ ----------- -----------
Loss from operations.................. (1,004,798) (8,560,440) (13,360,336) (3,764,010) (4,346,914)
Interest income....................... 53,214 274,331 559,495 58,159 54,597
Interest expense...................... -- (48,986) (84,206) (16,147) (14,869)
----------- ----------- ------------ ----------- -----------
Net loss.............................. $ (951,584) $(8,335,095) $(12,885,047) $(3,721,998) $(4,307,186)
=========== =========== ============ =========== ===========
Basic and diluted net loss per
share:.............................. $ (.45) $ (1.71) $ (2.52) $ (.73) $ (.83)
=========== =========== ============ =========== ===========
Weighted-average common shares used in
computing basic and diluted net loss
per share:.......................... 2,103,535 4,882,996 5,122,480 5,106,947 5,215,648
=========== =========== ============ =========== ===========
Pro forma basic and diluted net loss
per share........................... $ (1.06) $ (.34)
============ ===========
Weighted-average common shares used in
computing pro forma basic and
diluted net loss per share.......... 12,181,677 12,759,943
============ ===========
</TABLE>
See accompanying notes
F-4
<PAGE> 65
SILVERSTREAM SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------- ----------------------- --------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES PAR VALUE CAPITAL DEFICIT
------ ------ ------ ------ ------ --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
in May, July, August
and November 1996...... 4,639,367 $4,639
Issuance of Series A
preferred stock in
July, August and
November 1996 (net of
issuance costs of
$25,000)............... 3,683,050 $ 3,658,050
Net loss................ $ (951,584)
--------- ----------- --------- ----------- --------- ------ -------- ------------
Balance at December 31,
1996................... 3,683,050 3,658,050 4,639,367 4,639 (951,584)
Issuance of common stock
in April, August,
November and December
1997................... 577,914 578 $174,796
Issuance of Series B
preferred stock in June
and September 1997 (net
of issuance costs of
$20,000)............... 1,500,938 7,980,000
Note issued for purchase
of common stock in
August 1997............
Repurchase and
retirement of common
stock in February and
October 1997........... (130,890) (131)
Issuance of Series C
preferred stock in
November and December
(net of issuance costs
of $20,000)............ 1,728,283 $15,154,325
Net loss................ (8,335,095)
--------- ----------- --------- ----------- --------- ------ -------- ------------
Balance at December 31,
1997................... 5,183,988 11,638,050 1,728,283 15,154,325 5,086,391 5,086 174,796 (9,286,679)
Issuance of common stock
in January and December
1998................... 64,863 65 181,887
Issuance of Series C
preferred stock in
March 1998 (net of
issuance costs of
$4,000)................ 194,305 1,701,998
Exercise of stock
options in June through
December 1998.......... 55,525 56 9,302
Net loss................ (12,885,047)
--------- ----------- --------- ----------- --------- ------ -------- ------------
Balance at December 31,
1998................... 5,183,988 11,638,050 1,922,588 16,856,323 5,206,779 5,207 365,985 (22,171,726)
Issuance of Series D
preferred stock in
March 1999 (net of
issuance costs of
$12,000) (unaudited)... 1,313,158 12,463,001
Repurchase and
retirement of common
stock in March 1999
(unaudited)............ (10,754) (11)
Exercise of stock
options in March 1999
(unaudited)............ 24,233 24 7,442
Net loss (unaudited).... (4,307,186)
Currency translation
adjustment
(unaudited)............
Comprehensive income
(loss).................
--------- ----------- --------- ----------- --------- ------ -------- ------------
Balance at March 31,
1999................... 5,183,988 $11,638,050 3,235,746 $29,319,324 5,220,258 $5,220 $373,427 $(26,478,912)
========= =========== ========= =========== ========= ====== ======== ============
<CAPTION>
OTHER NOTES TOTAL
COMPREHENSIVE RECEIVABLE STOCKHOLDERS'
INCOME FROM SALE EQUITY
(LOSS) OF STOCK (DEFICIT)
------------- ---------- -------------
<S> <C> <C> <C>
Issuance of common stock
in May, July, August
and November 1996...... $ 4,639
Issuance of Series A
preferred stock in
July, August and
November 1996 (net of
issuance costs of
$25,000)...............
Net loss................ (951,584)
-------- --------- ------------
Balance at December 31,
1996................... (946,945)
Issuance of common stock
in April, August,
November and December
1997................... 175,374
Issuance of Series B
preferred stock in June
and September 1997 (net
of issuance costs of
$20,000)...............
Note issued for purchase
of common stock in
August 1997............ $(103,500) (103,500)
Repurchase and
retirement of common
stock in February and
October 1997........... (131)
Issuance of Series C
preferred stock in
November and December
(net of issuance costs
of $20,000)............ 15,154,325
Net loss................ (8,335,095)
-------- --------- ------------
Balance at December 31,
1997................... (103,500) 5,944,028
Issuance of common stock
in January and December
1998................... 181,952
Issuance of Series C
preferred stock in
March 1998 (net of
issuance costs of
$4,000)................ 1,701,998
Exercise of stock
options in June through
December 1998.......... 9,358
Net loss................ (12,885,047)
-------- --------- ------------
Balance at December 31,
1998................... (103,500) (5,047,711)
Issuance of Series D
preferred stock in
March 1999 (net of
issuance costs of
$12,000) (unaudited)... 12,463,001
Repurchase and
retirement of common
stock in March 1999
(unaudited)............ (11)
Exercise of stock
options in March 1999
(unaudited)............ 7,466
Net loss (unaudited).... (4,307,186)
Currency translation
adjustment
(unaudited)............ $(40,626) (40,626)
------------
Comprehensive income
(loss)................. (4,347,812)
-------- --------- ------------
Balance at March 31,
1999................... $(40,626) $(103,500) $ 3,074,933
======== ========= ============
</TABLE>
See accompanying notes
F-5
<PAGE> 66
SILVERSTREAM SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1996 YEARS ENDED THREE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, MARCH 31,
DECEMBER 31, -------------------------- -------------------------
1996 1997 1998 1998 1999
-------------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................ $ (951,584) $(8,335,095) $(12,885,047) $(3,721,998) $(4,307,186)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... 29,750 345,494 724,045 154,549 238,025
Provision for allowances on accounts receivable... -- 26,900 217,833 50,171 12,966
Operating expenses paid with issuance of preferred
stock........................................... 83,050 79,998 -- -- --
Operating expenses paid with issuance of common
stock........................................... -- 20,700 181,952 22,500 --
Changes in operating assets and liabilities:
Accounts receivable............................. -- (237,915) (3,577,745) (1,311,705) (2,072,345)
Prepaid expenses................................ (13,671) (303,579) 69,837 76,989 (214,361)
Other current assets............................ -- -- 166,824 262,254 92,141
Accounts payable and accrued expenses........... 75,413 403,246 1,083,786 9,446 1,222,901
Deferred revenue................................ -- 37,087 1,026,571 637,927 1,298,951
---------- ----------- ------------ ----------- -----------
Net cash used in operating activities............... (777,042) (7,963,164) (12,991,944) (3,819,867) (3,728,908)
---------- ----------- ------------ ----------- -----------
INVESTING ACTIVITIES
Purchase of furniture and equipment................. (338,587) (1,564,812) (992,236) (264,777) (410,354)
Sale (purchase) of available-for-sale securities.... -- -- (3,330,603) (5,156,093) 3,083,914
---------- ----------- ------------ ----------- -----------
Net cash provided by (used in) investing
activities........................................ (338,587) (1,564,812) (4,322,839) (5,420,870) 2,673,559
---------- ----------- ------------ ----------- -----------
FINANCING ACTIVITIES
Net proceeds from issuance of preferred stock....... 3,575,000 23,054,327 1,701,998 1,701,993 12,463,001
Net proceeds from issuance of common stock.......... 4,639 51,043 9,358 -- 7,455
Proceeds from line of credit........................ 269,914 513,110 602,317 602,317 --
Payments on long-term debt.......................... -- (175,087) (449,647) (74,766) (124,959)
---------- ----------- ------------ ----------- -----------
Net cash provided by financing activities........... 3,849,553 23,443,393 1,864,026 2,229,544 12,345,497
---------- ----------- ------------ ----------- -----------
Effects of exchange rate on cash and cash
equivalents....................................... -- -- -- -- (40,626)
Net increase (decrease) in cash and cash
equivalents....................................... 2,733,924 13,915,417 (15,450,757) (7,011,193) 11,249,522
Cash and cash equivalents at beginning of period.... -- 2,733,924 16,649,341 16,649,341 1,198,584
---------- ----------- ------------ ----------- -----------
Cash and cash equivalents at end of period.......... $2,733,924 $16,649,341 $ 1,198,584 $ 9,638,148 $12,448,106
========== =========== ============ =========== ===========
SUPPLEMENTAL INFORMATION
Cash paid during the period for:
Income taxes...................................... $ -- $ 456 $ 14,283 $ 2,392 $ --
========== =========== ============ =========== ===========
Interest.......................................... $ -- $ 48,986 $ 84,206 $ 16,147 $ 14,869
========== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 67
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
SilverStream Software, Inc. (the Company) was incorporated on May 8, 1996.
The Company is a global provider of application server software and services
that enable businesses and other large organizations to create, deploy and
manage software applications for intranets, extranets and the Internet. The
Company markets their software worldwide and has sales offices in the United
Kingdom, The Netherlands, Belgium, Germany, Hong Kong, Singapore and Taiwan.
The market for application server software has only recently begun to
develop, is rapidly evolving and will likely have an increasing number of
competitors. The market is marked by rapid technological change, frequent new
product introductions and enhancements and evolving industry standards. The
Company's future financial performance will depend on the market's acceptance of
its application server products and the Company's ability to successfully
introduce enhancements to their application server products and to expand its
operations to meet the evolving customer needs within the industry.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements reflect the application
of certain significant accounting policies as described in this note and
elsewhere in the accompanying consolidated financial statements and notes.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company accounts for cash equivalents and marketable securities in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Cash
equivalents are short-term, highly liquid investments with original maturity
dates of three months or less. Cash equivalents are carried at cost, which
approximates fair market value. The Company's marketable securities are
classified as available-for-sale and are recorded at fair value with any
unrealized gain or loss recorded as an element of stockholders' equity
(deficit). As of December 31, 1998 and March 31, 1999, the Company's marketable
securities consisted of investment-grade corporate bonds.
As of December 31, 1998, the Company's marketable securities had the
following contractual maturities.
<TABLE>
<S> <C>
Within 1 year............................................... $3,083,913
After 1 year through 5 years................................ 246,690
----------
$3,330,603
==========
</TABLE>
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist of cash and cash equivalents, marketable
securities and accounts receivable. Concentration of credit risk with respect to
marketable securities is limited as marketable securities are primarily
investment-grade corporate bonds with high-credit, quality financial
institutions.
F-7
<PAGE> 68
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of credit risk with respect to accounts receivable is limited
due to the large number of companies comprising the Company's customer base.
On-going credit evaluations of customers' financial condition are performed and
collateral is generally not required. The Company maintains reserves for
potential credit losses and such losses, in the aggregate, have not exceeded
management's expectations.
FURNITURE AND EQUIPMENT
Furniture and equipment is stated at cost. Depreciation is computed by use
of the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Leasehold improvements...................................... 5 years
Furniture and fixtures...................................... 5 years
Computer equipment and software............................. 3 years
Telephone equipment......................................... 3 years
</TABLE>
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising costs were
$0, $187,000 and $858,000 for the period ended December 31, 1996 and the years
ended December 31, 1997 and 1998, respectively, and $341,000 and $68,000 for the
three months ended March 31, 1998 and 1999, respectively.
CAPITALIZED SOFTWARE
Certain software development costs are capitalized when incurred under SFAS
No. 86. Capitalization of software development costs begins upon the
establishment of technological feasibility. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs require considerable judgment by management with respect to
certain external factors, including, but not limited to, technological
feasibility, anticipated future gross revenues, estimated economic life, and
changes in software and hardware technologies. Capitalizable costs to date have
been immaterial and therefore have been expensed as incurred.
REVENUE RECOGNITION
Revenue recognition from software license fees and from sales of software
products is recognized when persuasive evidence of an agreement exists, delivery
of the product has occurred, no significant Company obligations with regard to
implementation remain, the fee is fixed or determinable and collectibility is
probable. Upgrade assurance agreements include the right to unspecified upgrades
on an if-and-when available basis. Upgrade assurance revenue is deferred and
recognized on a straight-line basis as license revenue over the life of the
related agreement, which is typically one year.
Services revenue is primarily comprised of revenue from consulting,
technical support and education services. Services revenue from consulting and
education is billed on a time and materials basis and is recognized as the
services are performed. Services revenue on fixed price service arrangements is
recognized upon completion of specific contractual milestone events, or based on
an estimated percentage of completion as work progresses. Technical support
revenue is deferred and recognized on a straight-line basis as service revenue
over the life of the related agreement, which is typically one year.
Customer advances and billed amounts due from customers in excess of
revenue recognized are recorded as deferred revenue and recognized as the
services are delivered.
Sales to independent software vendors are deferred and recognized on a
straight line basis as product revenue over the life of the agreement, which is
typically one year. Partner fees are deferred and
F-8
<PAGE> 69
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recognized on a straight line basis as an offset to operating expenses over the
life of the agreement, which is typically one year.
Customer returns are estimated and accrued for as a percentage of net
product revenues based upon historical trends.
The Company adopted Statement of Position (SOP) 97-2, "Software Revenue
Recognition" and SOP 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2, Software Revenue Recognition," as of January 1, 1998. SOP 97-2 and SOP
98-4 provide guidance for recognizing revenue on software transactions and
supersede SOP 91-1.
The Company will adopt SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions." SOP 98-9 amends SOP
98-4 to extend the period of deferral of the application of certain passages of
SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or before March
15, 1999. All other provisions of SOP 97-2 are effective for transactions
entered into in fiscal years beginning after March 15, 1999.
The adoption of SOP 97-2 and SOP 98-4 did not have a material impact on the
Company's financial results. In addition, the Company believes that the adoption
of SOP 98-9 will not have a material impact on the Company's financial results.
EARNINGS PER SHARE
The Company computes earnings per share in accordance with SFAS No. 128,
"Earnings per Share". SFAS 128 requires calculation and presentation of basic
and diluted earnings per share. Basis earnings per share is calculated based on
the weighted average number of common shares outstanding and excludes any
dilutive effects of warrants, stock options, or other type securities. Diluted
earnings per share is calculated based on the weighted average number of common
shares outstanding and the dilutive effect of warrants, stock options, and
related securities calculated using the treasury stock method. Dilutive
securities are excluded from the diluted earnings per share calculation if their
effect is anti-dilutive.
INCOME TAXES
The Company provides for income taxes under SFAS No. 109, "Accounting for
Income Taxes." Under SFAS 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax basis of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments, which include cash
and cash equivalents, marketable securities, accounts receivable and accounts
payable and long term debt, are based on assumptions concerning the amount and
timing of estimated future cash flows and assumed discount rates reflecting
varying degrees of perceived risk. The carrying value of these financial
instruments approximated their fair value at December 31, 1997 and 1998 due to
the short term nature of these instruments and the variable interest rate on the
long term debt.
FOREIGN CURRENCY TRANSLATIONS
Financial statements of foreign subsidiaries are translated into U.S.
dollars at the exchange rate as of the balance sheet dates, with the exception
of revenues, costs and expenses. All revenues, costs and expenses are translated
at a weighted-average of exchange rates in effect during the year. Net exchange
F-9
<PAGE> 70
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
gains or losses resulting from the translation of the foreign financial
statements are recorded as a separate component of comprehensive income.
Transaction adjustments for all foreign subsidiaries are included in income.
STOCK COMPENSATION ARRANGEMENTS
The Company adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." As permitted by SFAS No. 123, the
Company has continued to account for employee stock options in accordance with
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued
to Employees," and has included the pro forma disclosures required by SFAS No.
123 for all periods presented.
NON-MONETARY TRANSACTIONS
The Company has entered into certain non-monetary transactions involving
the issuance of preferred or common stock in consideration for professional and
marketing services provided to the Company by third parties. The Company has
accounted for these non-monetary transactions in accordance with SFAS No. 123.
All transactions are accounted for based on the fair value of the goods or
services received or on the fair value of the equity instruments issued, where
the fair value of the goods or services received is not reliably manageable.
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which establishes new rules for the reporting and display
of comprehensive income and its components. SFAS 130 requires unrealized gains
and losses on the Company's available-for-sale securities and the foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income. Prior to the three-month period ended March 31, 1999, amounts pertaining
to comprehensive income were not material and have therefore not been separately
stated.
SEGMENT REPORTING
Effective January 1, 1998, the Company adopted the SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS 131
superseded SFAS No. 14, "Financial Reporting for Segment of a Business
Enterprise." SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in interim financial
reports. SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS 131 did not affect results of operation or financial position, but did
affect the disclosure of segment information. See Note 10.
UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information at March 31, 1999 and for the three
months ended March 31, 1998 and 1999, all of which is unaudited, was prepared by
the Company on a basis consistent with the audited financial statements. In
management's opinion, such information reflects all adjustments which are of a
normal recurring nature and which are necessary to present fairly the results of
the periods presented.
F-10
<PAGE> 71
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED PRO FORMA BALANCE SHEET
Upon an initial public offering of the Company's common stock, each
outstanding share of Series A, B, C, and D convertible preferred stock will be
converted into one share of common stock. This reclassification has been
reflected in the unaudited pro forma balance sheet as of March 31, 1999.
UNAUDITED PRO FORMA BASIC AND DILUTED NET LOSS PER SHARE
The unaudited pro forma basic and diluted net loss per share is computed
using the weighted-average number of outstanding common shares assuming
conversion of all preferred shares into common shares (at date of original
issuance), which will occur upon completion of the initial public offering, as
contemplated herein. Common share equivalents are excluded from the calculation
as their effect is anti-dilutive.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standard Executive Committee ("AcSEC") issued
SOP 98-1, "Accounting of the Costs of Computer Software Developed or Obtained
for Internal Use." The adoption of SOP 98-1, which is effective for SilverStream
beginning January 1, 1999, did not have a material effect on SilverStream's
financial condition or results of operations.
In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 is effective for SilverStream's calendar year
1999 financial statements and the adoption did not have a material effect on
SilverStream financial condition or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives Instruments and Hedging Activities." The Company is
currently analyzing the effect, if any, the standard will have on its financial
condition or results of operations.
3. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1997 1998 1999
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures....................... $ 360,315 $ 502,821 $ 513,593
Computer equipment and software.............. 1,302,285 2,051,809 2,447,641
Telephone equipment.......................... 150,067 162,205 163,306
Leasehold improvements....................... 90,732 178,800 181,449
---------- ----------- -----------
1,903,399 2,895,635 3,305,989
Less accumulated depreciation and
amortization............................... (375,244) (1,099,289) (1,337,314)
---------- ----------- -----------
$1,528,155 $ 1,796,346 $ 1,968,675
========== =========== ===========
</TABLE>
F-11
<PAGE> 72
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCRUED EXPENSES
Accrued expenses include the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ---------
(UNAUDITED)
<S> <C> <C>
Provision for estimated returns............................. $231,260 $241,799
Fringe benefits............................................. 124,337 211,873
Occupancy................................................... 130,507 105,457
Professional fees........................................... 66,387 93,982
Bonus....................................................... 19,996 104,998
Other....................................................... 81,522 130,238
-------- --------
$654,009 $888,347
======== ========
</TABLE>
5. DEBT
LONG-TERM DEBT
Under the terms of a credit facility, negotiated in 1996 and expiring March
1, 2000, borrowings of approximately $387,418 and $246,072 converted fully into
separate term loans on March 31, 1997 and September 30, 1997, respectively.
Principal repayments began April 1, 1997 and October 31, 1997 in 30 equal
monthly payments. Interest on the loans accrues at prime rate plus 0.5% (8.25%
at December 31, 1998) and is payable monthly in arrears. The outstanding balance
under the facility at December 31, 1997 and 1998 and March 31, 1999 was
$607,937, $308,870 and $234,103, respectively.
Under terms of a credit facility, negotiated in 1997 and expiring March 1,
2001, borrowings of approximately $602,000 converted fully into a term loan on
March 30, 1998. Principal repayments began April 1, 1998 in 36 equal monthly
payments. Interest on the loan accrues at prime rate plus 0.5% and is payable
monthly in arrears. The outstanding balance under the facility at December 31,
1998 and March 31, 1999 was $451,737 and $401,544, respectively.
Borrowings under the terms of both credit facilities are secured by
substantially all the Company's tangible assets.
The aggregate maturities of long term debt are as follows:
<TABLE>
<S> <C>
1999............................................ $435,820
2000............................................ 274,594
2001............................................ 50,193
--------
$760,607
========
</TABLE>
LINE OF CREDIT
The Company currently has a $750,000 line of credit with its bank for the
purpose of financing equipment purchases. The line of credit converts fully into
a term loan on October 31, 1999. Principal repayments begin on November 1, 1999
in 36 equal monthly payments. Interest on the loan accrues at prime plus 0.5%
and is payable monthly. Borrowings are secured by substantially all the
Company's tangible assets. The loan contains restrictive covenants which
include, among other restrictions, maintaining minimum tangible net worth
requirements, and limitations on incurring additional indebtedness and paying
cash dividends. There were no amounts outstanding under the line of credit at
March 31, 1999.
F-12
<PAGE> 73
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent to March 31, 1999, the Company borrowed $673,263 under the line
of credit.
6. LEASES
The Company leases office space and certain equipment under operating
leases expiring through April 2003. Future minimum payments under noncancelable
operating leases are as follows:
<TABLE>
<S> <C>
1999........................................... $1,184,150
2000........................................... 535,114
2001........................................... 31,876
2002........................................... 29,604
2003........................................... 2,415
----------
Total minimum lease payments................... $1,783,159
==========
</TABLE>
Rent expense charged to operations for the period ended December 1996, and
the years ended December 1997 and 1998 was $41,000, $336,000 and $602,000,
respectively, and for the three months ended March 31, 1998 and 1999 was
$100,000 and $283,000, respectively.
7. EMPLOYEE BENEFITS
1996 FOUNDERS STOCK INCENTIVE PLAN
In May 1996, the Company adopted the 1996 Founders Stock Incentive Plan
(the 1996 Plan) and authorized the issuance of up to 3,877,000 shares of common
stock. The Company issued and sold an aggregate of 3,775,031 shares of common
stock under the 1996 Plan pursuant to founders stock restriction agreements at
the fair value of the stock at the date of the issuance. The restricted stock
vests over four to five years at various rates. The Company has the option to
buy back unvested shares at the price paid if the purchaser ceases to be
affiliated with the Company during the vesting period. An aggregate of 145,394
shares of common stock have been repurchased by the Company under the 1996 Plan.
1997 STOCK INCENTIVE PLAN
In February 1997, the Company adopted the 1997 Stock Incentive Plan (the
1997 Plan) covering all eligible employees, officers, directors, consultants and
advisors. As of December 31, 1998 the Company has reserved 1,305,719 shares of
common stock for issuance under the 1997 Plan. Under the 1997 Plan, the Company
may grant stock options to purchase shares of the Company's common stock,
restricted common stock awards and other stock-based awards having terms and
conditions at the discretion of the Company's Board of Directors. The prices,
terms and vesting periods of stock awards under the 1997 Plan are determined by
the Board of Directors at the date of the grant. The 1997 Plan also contains
provisions which stipulate that upon an acquisition event the Board of Directors
is authorized to determine that any stock option, restricted stock or other
stock-based award granted under the 1997 Plan may become immediately exercisable
in full or in part.
The Company holds notes receivable totaling $103,500 from employees at
December 31, 1997 and 1998, and at March 31, 1998 and 1999. These notes arose
from transactions in September 1997 whereby the Company loaned the employees
money to purchase an aggregate of 207,000 shares of the Company's common stock
at the then fair market value. The notes receivable are fully recourse to the
employees and are due to be paid in full, with accrued interest at the rate of
6.39% per annum, on August 26, 2002. These notes receivable are shown as a
reduction in stockholders' equity in the accompanying balance sheets.
F-13
<PAGE> 74
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
401(K) PLAN
The Company has a 401(k) plan (the Plan), whereby eligible employees may
contribute up to 15% of their compensation, subject to limitations established
by the Internal Revenue Code. The Company may also contribute a discretionary
matching contribution, to each such participant's deferred compensation equal to
a discretionary percentage determined by the Company. As of March 31, 1999, the
Company had not made any discretionary matching contributions in any of the
fiscal periods presented.
STOCK OPTION DISCLOSURES
The Company has adopted the disclosure provisions only of SFAS 123. The
fair values for these options were estimated at the date of grant using the
minimum value method with the following assumptions:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
------------ ------------
1997 1998 1998 1999
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expected life (years)........................... 4.97 5.35 5.34 5.00
Risk free interest rate......................... 5.66% 4.75% 4.92% 4.95%
Dividend yield.................................. -- -- -- --
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------- ---------------------------
1997 1998 1998 1999
----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Pro forma net loss......................... $(8,351,473) $(12,996,310) $(3,735,026) $(4,393,205)
Pro forma net loss per share............... $ (1.71) $ (2.54) $ (.73) $ (.84)
</TABLE>
Compensation expense under SFAS 123 for 1997 and 1998 is not representative
of future expense, as it includes one and two years of expense, respectively. In
future years, the effect of determining compensation cost using the fair value
method will include additional vesting and associated expense.
F-14
<PAGE> 75
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Option activity under the 1997 Plan is summarized below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------- THREE MONTHS ENDED
1997 1998 MARCH 31, 1999
------------------ ------------------ --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year........................ -- -- 607,000 $ .34 895,175 $1.15
Granted....................... 614,000 $.34 381,950 2.21 201,450 4.11
Expired or canceled........... (7,000) .20 (38,250) .37 (28,750) 1.02
Exercised..................... -- (55,525) .17 (24,233) .40
------- ------- ---------
Outstanding, end of year...... 607,000 .34 895,175 1.15 1,043,642 1.76
======= ======= =========
Exercisable at end of year.... -- 159,850 180,249
Available for future grants... 398,719 55,019 532,319
Weighted-average fair value of
options granted during
year........................ $.33 $2.16 $4.03
</TABLE>
The following table presents weighted-average price and life information
about significant option groups outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ .02 - $ .20 162,475 6.79 Years $ .07 30,525 $.08
$ .50 363,750 5.89 Years .50 127,225 .50
$ .90 137,500 7.99 Years .90 2,100 .90
$3.00 241,450 9.23 Years 3.00 -- --
------- -------
$ .02 - $3.00 905,175 7.26 Years $1.15 159,850 $.43
======= =======
</TABLE>
8. PREFERRED STOCK
In July, August and November 1996, the Company sold 3,683,050 shares of
Series A redeemable convertible preferred stock, par value $.001, at $1.00 per
share. Proceeds to the Company were $3,575,000 (net of $25,000 of issuance
costs).
In June and September 1997, the Company sold 1,500,938 shares of Series B
redeemable convertible preferred stock, par value $.001, at $5.33 per share.
Proceeds to the Company were $7,900,002 (net of $20,000 of issuance costs).
In November and December 1997, the Company sold 1,728,283 shares of Series
C convertible preferred stock, par value $.001, at $8.78 per share. Proceeds to
the Company were $15,154,325 (net of $20,000 of issuance costs).
In March 1998, the Company sold 194,305 shares of Series C convertible
preferred stock, par value $.001, at $8.78 per share. Proceeds to the Company
were $1,701,998 (net of $4,000 of issuance costs).
In March 1999, the Company sold 1,313,158 shares of Series D convertible
preferred stock, par value $.001, at $9.50 per share. Proceeds to the Company
were $12,463,001 (net of $12,000 of issuance costs).
F-15
<PAGE> 76
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has reserved up to 8,659,208 shares of its common stock for
issuance upon conversion of the preferred stock.
Significant features of the Series A, B, C and D preferred stocks are as
follows:
CONVERSION
As more fully described in the Company's amended Certificate of
Incorporation, each share of preferred stock is convertible at the shareholder's
option into such number of shares of common stock as determined by a conversion
factor, as defined. The preferred stock will automatically convert upon the
closing of a qualified public offering of the Company's common stock, as
defined.
REDEMPTION
At the written request of the holders of a majority of the outstanding
shares of Series A and Series B preferred stock, the Company will redeem a
specified percentage of the Series A and Series B preferred stock on December
31, 2001, 2002 and 2003, respectively. The price per share to be paid to the
Series A and Series B preferred stockholders shall be $1.00 and $5.33,
respectively, plus any dividends declared but unpaid.
DIVIDENDS
The holders of preferred stock shall be entitled to receive, when and if
declared by the Board of Directors of the Company, dividends in the same amount
per share as would be payable on the number of shares of common stock into which
the preferred stock is then convertible, payable in preference and priority to
payment of any cash dividend on common stock.
VOTING
Shares of preferred stock are entitled to a number of votes on any matter
put before the shareholders of the Company equal to the number of shares of
common stock into which they are convertible.
LIQUIDATION
Upon liquidation of the Company, holders of Series A, Series B, Series C
and Series D preferred stock shall be first entitled, before any distribution or
payment is made to holders of common stock, to be paid $1.00, $5.33, $8.78 and
$9.50 per share, respectively, plus any declared and unpaid dividends thereon.
9. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. A valuation allowance has been established to reflect
the uncertainty of future taxable income to utilize available tax loss
F-16
<PAGE> 77
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
carryforwards and other deferred tax assets. Significant components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward......................... $ 3,700,000 $ 8,900,000
Research and development credit carryforward............ 150,000 350,000
Other................................................... 67,000 146,000
Deferred tax liabilities:
Depreciation............................................ (135,000) (247,000)
----------- -----------
3,782,000 9,149,000
Less valuation allowance for deferred tax assets........ (3,782,000) (9,149,000)
----------- -----------
Total..................................................... $ -- $ --
=========== ===========
</TABLE>
As of December 31, 1998, the Company has net operating loss carryforwards
and research and development tax carryforwards of approximately $22,300,000 and
$350,000, respectively, available to offset future Federal taxable income. These
carryforwards begin to expire in 2012 and may be subject to certain limitations.
10. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one business segment: the development and delivery
of software and services that enable its customers to build and deploy business
applications on intranets, extranets and the Internet. Revenues by geographic
region is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1996 THREE MONTHS ENDED
(INCEPTION) TO YEARS ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------ ---------------------
1996 1997 1998 1998 1999
-------------- ----------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
United States.............. $ -- $181,017 $4,999,717 $558,298 $2,377,344
International.............. -- 67,507 1,808,182 124,274 1,096,948
---------- -------- ---------- -------- ----------
Total...................... $ -- $248,524 $6,807,899 $682,572 $3,474,292
========== ======== ========== ======== ==========
</TABLE>
F-17
<PAGE> 78
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. LOSS PER SHARE (UNAUDITED)
The following table sets forth the computation of basic and diluted loss
per share:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1996 THREE MONTHS ENDED
(INCEPTION) TO YEARS ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, -------------------------- -------------------------
1996 1997 1998 1998 1999
-------------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss............. $ (951,584) $(8,335,095) $(12,885,259) $(3,721,998) $(4,307,186)
Numerator for basic and
diluted loss per
share................ $ (951,584) $(8,335,095) $(12,885,259) $(3,721,998) $(4,307,186)
Denominator:
Weighted average
common shares
outstanding....... 2,103,535 4,882,996 5,122,480 5,106,947 5,215,648
Denominator for basic
and diluted loss per
share................ 2,103,535 4,882,996 5,122,480 5,106,947 5,215,648
</TABLE>
The effect of employee stock options and the convertible preferred stock
has not been included in the computation of the denominator for diluted loss per
share due to their antidilutive nature.
12. SUBSEQUENT EVENT
In April and May 1999, the Company sold 239,474 additional shares of Series
D convertible preferred stock, $.001 par value at $9.50 per share. Proceeds to
the Company were approximately $2,275,003.
F-18
<PAGE> 79
[Narrative description of graphic material omitted in electronically filed
document:
This graphic consists of a group of ten equally spaced logos in two rows.
Top row, from left to right: Upside's 1998 Hot 100 Private Companies, NewMedia
Magazine 1998 Hyper Award, Internet World Best of Show, JAVA Developer's Journal
World Class Award and 1999 Network Computing Well-Connected Award. Bottom row,
from left to right: Internet Showcase 1998 Best of Showcase Award, INFO Best
Test Center, Massachusetts Interactive Media Council, Internet World Industry
Award '98 and Best Practice Awards 1998.
The following text appears below the graphic:
SILVERSTREAM SOFTWARE HAS RECEIVED NUMEROUS AWARDS. We believe these awards
demonstrate our ability to deliver application development and deployment
products that help organizations leverage the benefits of Web-based computing.
While we appreciate the recognition, we never lose sight of our mission: TO
BUILD A HIGHLY SCALABLE AND RELIABLE APPLICATION SERVER PRODUCT AND DELIVER
COMPREHENSIVE SERVICES TO ENSURE OUR CUSTOMERS SUCCESS.]
<PAGE> 80
[LOGO][LOGO]
<PAGE> 81
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 discount, payable by the Registrant 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........................................ $ 11,190
NASD filing fee............................................. 4,525
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving expenses............................. 175,000
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 300,000
Blue Sky fees and expenses (including legal fees)........... 10,000
Transfer agent and registrar fees and expenses.............. 15,000
Miscellaneous............................................... 89,285
Total............................................. $1,000,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article SEVENTH of the Registrant's Amended and Restated Certificate of
Incorporation (the "Restated Certificate") provides that no director of the
Registrant shall be personally liable for any monetary damages for any breach of
fiduciary duty as a director notwithstanding any provision of law imposing such
liability, except to the extent that the Delaware General Corporation Law
prohibits the elimination or limitation of liability of directors for breach of
fiduciary duty.
Article EIGHTH of the Restated Certificate provides that a director or
officer of the Registrant (a) shall be indemnified by the Registrant against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred in connection with any litigation or other legal proceeding
(other than an action by or in the right of the Registrant) brought against him
by virtue of his position as a director or officer of the Registrant if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Registrant, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful and (b) shall be indemnified by the Registrant against all expenses
(including attorneys' fees) and amounts paid in settlement incurred in
connection with any action by or in the right of the Registrant naming him as a
party by virtue of his position as a director or officer of the Registrant if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Registrant, except that no indemnification
shall be made with respect to any matter as to which such person shall have been
adjudged to be liable to the Registrant, unless the Court of Chancery of
Delaware determines that, despite such adjudication but in view of all of the
circumstances, he is entitled to indemnification of such expenses.
Notwithstanding the foregoing, to the extent that a director or officer has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, he is required to be indemnified by
the Registrant against all expenses (including attorneys' fees) incurred in
connection therewith. Expenses shall be advanced to a director or officer in
advance of the final disposition of a legal proceeding, provided that he
undertakes to repay the amount advanced if it is ultimately determined that he
is not entitled to indemnification for such expenses.
II-1
<PAGE> 82
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
Article EIGHTH of the Restated Certificate further provides that the
indemnification provided therein is not exclusive, and provides that in the
event that the Delaware General Corporation Law is amended to expand the
indemnification permitted to directors or officers the Registrant must indemnify
those persons to the fullest extent permitted by such law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Act"). Reference is made to the
form of Underwriting Agreement to be filed as Exhibit 1.1 hereto.
The Registrant has obtained liability insurance for its officers and
directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception, the Registrant has issued the following securities that
were not registered under the Securities Act as summarized below.
(a) Issuances of capital stock.
1. On May 8, 1996, the Registrant issued and sold 1,000 shares of
its common stock for an aggregate purchase price of $10.00 to David R. Skok
in connection with the Registrant's incorporation.
2. On July 9, 1996, the Registrant issued and sold 1,122,000 shares
of its common stock for an aggregate purchase price of $1,122 to David R.
Skok pursuant to a Founders Stock Restriction Agreement.
3. On July 9, 1996, the Registrant issued and sold an aggregate of
2,670,000 shares of its series A preferred stock for an aggregate purchase
price of $2,670,000 to a group of investors pursuant to a Stock Purchase
Agreement.
4. On August 15, 1996, the Registrant issued and sold 83,050 shares
of its series A preferred stock to an individual pursuant to a Stock
Purchase Agreement in consideration of personnel placement services
rendered by the individual to the Registrant.
II-2
<PAGE> 83
5. From August 16, 1996 to September 18, 1996, the Registrant issued
and sold an aggregate of 1,432,817 shares of its common stock for an
aggregate purchase price of approximately $1,433 to a group of employees
pursuant to Founders Stock Restriction Agreements.
6. On November 4, 1996, the Registrant issued and sold 1,123,000
shares of its common stock for an aggregate purchase price of $1,123 to
David A. Litwack pursuant to a Founders Stock Restriction Agreement.
7. On November 4, 1996, the Registrant issued and sold 930,000
shares of its series A preferred stock for an aggregate purchase price of
$930,000 to David A. Litwack pursuant to a Stock Purchase Agreement.
8. On November 12, 1996, the Registrant issued and sold an aggregate
of 960,550 shares of its common stock for an aggregate purchase price of
$960.55 to a group of employees pursuant to Founders Stock Restriction
Agreements.
9. On April 11, 1997, the Registrant issued and sold an aggregate of
258,664 shares of its common stock for an aggregate purchase price of
approximately $5,173 to a group of employees pursuant to Founders Stock
Restriction Agreements.
10. On June 16, 1997, the Registrant issued and sold an aggregate of
1,484,056 shares of its series B preferred stock for an aggregate purchase
price of $7,910,018.48 to a group of investors pursuant to a Stock Purchase
Agreement.
11. From August 26, 1997 to September 3, 1997, the Registrant issued
and sold an aggregate of 230,000 shares of its common stock for an
aggregate purchase price of $115,000 to a group of employees pursuant to
Founders Stock Restriction Agreements.
12. On September 12, 1997, the Registrant issued and sold 16,882
shares of its series B preferred stock for an aggregate purchase price of
$89,981.06 to an individual pursuant to a Stock Purchase Agreement.
13. On November 2, 1997, the Registrant issued and sold 70,000 shares
of its common stock for an aggregate purchase price of $35,000 to an
employee pursuant to a Founders Stock Restriction Agreement.
14. On November 5, 1997, December 1, 1997 and January 16, 1998, the
Registrant issued and sold an aggregate of 48,000 shares of its common
stock to Intel Corporation pursuant to a Collaboration Agreement in
consideration of services rendered by Intel to the Registrant.
15. On November 6, 1997, the Registrant issued and sold an aggregate
of 1,722,588 shares of its series C preferred stock for an aggregate
purchase price of $15,124,322.64 to a group of investors pursuant to a
Stock Purchase Agreement.
16. On December 24, 1997, the Registrant issued and sold 5,695 shares
of its series C preferred stock for an aggregate purchase price of
$50,002.10 to an individual pursuant to a Stock Purchase Agreement.
17. On March 30, 1998, the Registrant issued and sold an aggregate of
194,305 shares of its series C preferred stock for an aggregate purchase
price of $1,705,997.90 to a group of investors pursuant to a Stock Purchase
Agreement.
18. On December 31, 1998, the Registrant issued and sold an aggregate
of 39,863 shares of its common stock to SilverStream Benelux N.V. in
consideration of the acquisition of certain assets of SilverStream Benelux
N.V. by the Registrant.
19. On March 1, 1999, the Registrant issued and sold an aggregate of
1,313,158 shares of its series D preferred stock for an aggregate purchase
price of $12,475,001 to a group of investors pursuant to a Stock Purchase
Agreement.
II-3
<PAGE> 84
20. On April 9, 1999, the Registrant issued and sold an aggregate of
55,263 shares of its series D preferred stock for an aggregate purchase
price of $524,998.50 to a group of investors pursuant to a Stock Purchase
Agreement.
21. On April 14, 1999, the Registrant issued and sold an aggregate of
78,948 shares of its series D preferred stock for an aggregate purchase
price of $750,006 to a group of investors pursuant to a Stock Purchase
Agreement.
22. On May 27, 1999, the Registrant issued and sold 105,263 shares of
its series D preferred stock for an aggregate purchase price of $999,998.50
to an investor pursuant to a Stock Purchase Agreement.
(b) Certain grants and exercises of stock options.
1. From inception through May 31, 1999, the Registrant granted stock
options to purchase 1,548,250 shares of common stock at exercise prices
ranging from $.02 to $8.00 per share to employees, consultants and
directors pursuant to its 1997 Stock Incentive Plan.
2. From inception through May 31, 1999, the Registrant issued and
sold an aggregate of 130,941 shares of its common stock to employees,
consultants and directors for aggregate consideration of approximately
$25,334 pursuant to exercises of options granted under its 1997 Stock
Incentive Plan.
No underwriters were involved in any of the foregoing sales of securities.
Such sales were made in reliance upon an exemption from the registration
provisions of the Securities Act set forth in Section 4(2) thereof relative to
sales by an issuer not involving any public offering or the rules and
regulations thereunder, or, in the case of options to purchase common stock,
Rule 701 of the Securities Act. All of the foregoing securities are deemed
restricted securities for the purposes of the Securities Act.
II-4
<PAGE> 85
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of the
Registrant
3.2* Form of Second Amended and Restated Certificate of
Incorporation of the Registrant, to be filed after to the
closing of this offering
3.3 By-Laws of the Registrant
3.4* Form of Amended and Restated By-Laws of the Registrant, to
be effective upon the closing of this offering
4.1 Specimen common stock certificate
4.2* Third Amended and Restated Investor Rights Agreement dated
March 1, 1999
5.1* Opinion of Hale and Dorr LLP
10.1 1996 Founders Stock Option Plan
10.2 Amended and Restated 1997 Stock Incentive Plan, and forms of
agreements thereunder
10.3 1999 Employee Stock Purchase Plan
10.4 Form of Founders Stock Restriction Agreement
10.5 Sub-Sublease Agreement, dated February 14, 1997, between
Rational Software Corporation (as successor to SQA, Inc.)
and the Registrant
10.6 First Amendment to Sub-Sublease Agreement, dated April 1998
10.7 Term Loan Agreement and Commercial Promissory Note, dated
March 1, 1999, between Fleet National Bank and the
Registrant
10.8 Term Loan Agreement and Commercial Promissory Note, dated
August 11, 1997, between Fleet National Bank and the
Registrant
10.9 Term Loan Agreement and Commercial Promissory Note, dated
November 5, 1996 between Fleet National Bank and the
Registrant
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2* Consent of Hale and Dorr LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (see page II-7)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
27.5 Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment.
(b) Financial Statement:
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
II-5
<PAGE> 86
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the registrant pursuant to the Delaware General
Corporation Law, the Restated Certificate of the registrant, the Underwriting
Agreement, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the registrant
will, unless in the opinion of counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purpose of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For purpose of determining any liability under the 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-6
<PAGE> 87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Burlington, Massachusetts, on this
11th day of June, 1999.
SILVERSTREAM SOFTWARE, INC.
By:
/s/ DAVID A. LITWACK
------------------------------------
David A. Litwack
President and Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers, directors and authorized representatives of
SilverStream Software, Inc. hereby severally constitute and appoint David R.
Skok, David A. Litwack and Craig A. Dynes and each of them singly, our true and
lawful attorneys with full power to them, and each of them singly, with full
powers of substitution and resubstitution, to sign for us and in our names in
the capacities indicated below, the Registration Statement on Form S-1 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement, and any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b), and generally to do all such
things in our names and on our behalf in our capacities as officers and
directors to enable SilverStream Software, Inc. to comply with the provisions of
the Securities Act of 1933, as amended, and all requirements of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys, or any of them, or their substitute or
substitutes, to said Registration Statement and any and all amendments thereto
or to any subsequent Registration Statement for the same offering which may be
filed under Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, as amended,
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/ DAVID R. SKOK Chairman of the Board of Directors June 11, 1999
- ---------------------------------------------
David R. Skok
/s/ DAVID A. LITWACK President, Chief Executive Officer and June 11, 1999
- --------------------------------------------- Director (Principal Executive Officer)
David A. Litwack
/s/ CRAIG A. DYNES Vice President, Chief Financial Officer June 11, 1999
- --------------------------------------------- and Treasurer (Principal Financial and
Craig A. Dynes Accounting Officer)
/s/ TIMOTHY BARROWS Director June 11, 1999
- ---------------------------------------------
Timothy Barrows
/s/ RICHARD A. D'AMORE Director June 11, 1999
- ---------------------------------------------
Richard A. D'Amore
/s/ PAUL J. SEVERINO Director June 11, 1999
- ---------------------------------------------
Paul J. Severino
</TABLE>
II-7
<PAGE> 88
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
SILVERSTREAM SOFTWARE, INC.
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1998 Allowance for Doubtful
Accounts....................................... $ 26,900 218,614 -- 781 $244,733
December 31, 1997 Allowance for Doubtful
Accounts....................................... $ 0 26,900 -- -- $ 26,900
December 31, 1996 Allowance for Doubtful
Accounts....................................... $ 0 0 $ 0
</TABLE>
S-1
<PAGE> 89
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement
3.1* -- Amended and Restated Certificate of Incorporation of the
Registrant
3.2* -- Form of Second Amended and Restated Certificate of
Incorporation of the Registrant, to be filed after to the
closing of this offering
3.3 -- By-Laws of the Registrant
3.4* -- Form of Amended and Restated By-Laws of the Registrant, to
be effective upon the closing of this offering
4.1 -- Specimen common stock certificate
4.2* -- Third Amended and Restated Investor Rights Agreement dated
March 1, 1999
5.1* -- Opinion of Hale and Dorr LLP
10.1 -- 1996 Founders Stock Option Plan
10.2 -- Amended and Restated 1997 Stock Incentive Plan, and forms of
agreements thereunder
10.3 -- 1999 Employee Stock Purchase Plan
10.4 -- Form of Founders Stock Restriction Agreement
10.5 -- Sub-Sublease Agreement, dated February 14, 1997, between
Rational Software Corporation (as successor to SQA, Inc.)
and the Registrant
10.6 -- First Amendment to Sub-Sublease Agreement, dated April 1998
10.7 -- Term Loan Agreement and Commercial Promissory Note, dated
March 1, 1999, between Fleet National Bank and the
Registrant
10.8 -- Term Loan Agreement and Commercial Promissory Note, dated
August 11, 1997, between Fleet National Bank and the
Registrant
10.9 -- Term Loan Agreement and Commercial Promissory Note, dated
November 5, 1996 between Fleet National Bank and the
Registrant
21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of Ernst & Young LLP
23.2* -- Consent of Hale and Dorr LLP (included in Exhibit 5.1)
24.1 -- Powers of Attorney (see page II-7)
27.1 -- Financial Data Schedule
27.2 -- Financial Data Schedule
27.3 -- Financial Data Schedule
27.4 -- Financial Data Schedule
27.5 -- Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.3
BY-LAWS
OF
SILVERSTREAM SOFTWARE, INC.
ARTICLE 1 - STOCKHOLDERS
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held
at such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held on a date to be fixed by
the Board of Directors or the President (which date shall not be a legal holiday
in the place where the meeting is to be held) at the time and place to be fixed
by the Board of Directors or the President and stated in the notice of the
meeting. If no annual meeting is held in accordance with the foregoing
provisions, the Board of Directors shall cause the meeting to be held as soon
thereafter as convenient. If no annual meeting is held in accordance with the
foregoing provisions, a special meeting may be held in lieu of the annual
meeting, and any action taken at that special meeting shall have the same effect
as if it had been taken at the annual meeting, and in such case all references
in these By-laws to the annual meeting of the stockholders shall be deemed to
refer to such special meeting.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be
called at any time by the President or by the Board of Directors. Business
transacted at any special meeting of stockholders shall be limited to matters
relating to the purpose or purposes stated in the notice of meeting.
1.4 NOTICE OF MEETINGS. Except as otherwise provided by law,
written notice of each meeting of stockholders, whether annual or special, shall
be given not less than 10 nor more than 60 days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notices of all
meetings shall state the place, date and hour of the meeting. The notice of a
special meeting shall state, in addition, the purpose or purposes for which the
meeting is called. If mailed, notice is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of the corporation.
1.5 VOTING LIST. The officer who has charge of the stock ledger of
the corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical
<PAGE> 2
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least 10 days prior to the meeting,
at a place within the city where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
of the meeting, and may be inspected by any stockholder who is present.
1.6 QUORUM. Except as otherwise provided by law, the Certificate
of Incorporation or these By-laws, the holders of a majority of the shares of
the capital stock of the corporation issued and outstanding and entitled to vote
at the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to
any other time and to any other place at which a meeting of stockholders may be
held under these By-laws by the stockholders present or represented at the
meeting and entitled to vote, although less than a quorum, or, if no stockholder
is present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 VOTING AND PROXIES. Each stockholder shall have one vote for
each share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 ACTION AT MEETING. When a quorum is present at any meeting,
the holders of shares of stock representing a majority of the votes cast on a
matter (or if there are two or more classes of stock entitled to vote as
separate classes, then in the case of each such class, the holders of shares of
stock of that class representing a majority of the votes cast on a matter) shall
decide any matter to be voted upon by the stockholders at such meeting, except
when a different vote is required by express provision of law, the Certificate
of Incorporation or these By-Laws. When a quorum is present at any
-2-
<PAGE> 3
meeting, any election by stockholders shall be determined by a plurality of the
votes cast on the election.
1.10 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE 2 - DIRECTORS
2.1 GENERAL POWERS. The business and affairs of the corporation
shall be managed by or under the direction of a Board of Directors, who may
exercise all of the powers of the corporation except as otherwise provided by
law or the Certificate of Incorporation. In the event of a vacancy in the Board
of Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 NUMBER; ELECTION AND QUALIFICATION. The number of directors
which shall constitute the whole Board of Directors shall be determined by
resolution of the stockholders or the Board of Directors, but in no event shall
be less than one. The number of directors may be decreased at any time and from
time to time either by the stockholders or by a majority of the directors then
in office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more directors. The
directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election. Directors need not be
stockholders of the corporation.
2.3 ENLARGEMENT OF THE BOARD. The number of directors may be
increased at any time and from time to time by the stockholders or by a majority
of the directors then in office.
2.4 TENURE. Each director shall hold office until the next annual
meeting and until his successor is elected and qualified, or until his earlier
death, resignation or removal.
2.5 VACANCIES. Unless and until filled by the stockholders, any
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may be filled by vote of a majority
of the directors then in office, although less than a quorum, or by a sole
remaining director. A director elected
-3-
<PAGE> 4
to fill a vacancy shall be elected for the unexpired term of his predecessor in
office, and a director chosen to fill a position resulting from an increase in
the number of directors shall hold office until the next annual meeting of
stockholders and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
2.6 RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.7 REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such time and place, either within or without the
State of Delaware, as shall be determined from time to time by the Board of
Directors; provided that any director who is absent when such a determination is
made shall be given notice of the determination. A regular meeting of the Board
of Directors may be held without notice immediately after and at the same place
as the annual meeting of stockholders.
2.8 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be held at any time and place, within or without the State of Delaware,
designated in a call by the Chairman of the Board, President, two or more
directors, or by one director in the event that there is only a single director
in office.
2.9 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his last known business or home address
at least 48 hours in advance of the meeting, or (iii) by mailing written notice
to his last known business or home address at least 72 hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
2.10 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any
members of any committee designated by the directors may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation by such
means shall constitute presence in person at such meeting.
2.11 QUORUM. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute
-4-
<PAGE> 5
a quorum. In the absence of a quorum at any such meeting, a majority of the
directors present may adjourn the meeting from time to time without further
notice other than announcement at the meeting, until a quorum shall be present.
2.12 ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.13 ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee of the Board
of Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.14 REMOVAL. Except as otherwise provided by the General
Corporation Law of Delaware, any one or more or all of the directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except that the directors elected
by the holders of a particular class or series of stock may be removed without
cause only by vote of the holders of a majority of the outstanding shares of
such class or series.
2.15 COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members of the committee present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these By-laws for the Board of Directors.
2.16 COMPENSATION OF DIRECTORS. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the
-5-
<PAGE> 6
Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - OFFICERS
3.1 ENUMERATION. The officers of the corporation shall consist of
a President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 ELECTION. The President, Treasurer and Secretary shall be
elected annually by the Board of Directors at its first meeting following the
annual meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 QUALIFICATION. No officer need be a stockholder. Any two or
more offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the
Certificate of Incorporation or by these By-laws, each officer shall hold office
until his successor is elected and qualified, unless a different term is
specified in the vote choosing or appointing him, or until his earlier death,
resignation or removal.
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering
his written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 VACANCIES. The Board of Directors may fill any vacancy
occurring in any office for any reason and may, in its discretion, leave
unfilled for such period as it may determine any offices other than those of
President, Treasurer and Secretary. Each such
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<PAGE> 7
successor shall hold office for the unexpired term of his predecessor and until
his successor is elected and qualified, or until his earlier death, resignation
or removal.
3.7 CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD. The
Board of Directors may appoint a Chairman of the Board and may designate the
Chairman of the Board as Chief Executive Officer. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess such
powers as are assigned to him by the Board of Directors. If the Board of
Directors appoints a Vice-Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the Board
of Directors.
3.8 PRESIDENT. The President shall, subject to the direction of
the Board of Directors, have general charge and supervision of the business of
the corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties
and possess such powers as the Board of Directors or the President may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
perform such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant
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<PAGE> 8
Secretary, (or if there shall be more than one, the Assistant Secretaries in the
order determined by the Board of Directors) shall perform the duties and
exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall
perform such duties and shall have such powers as may from time to time be
assigned to him by the Board of Directors or the President. In addition, the
Treasurer shall perform such duties and have such powers as are incident to the
office of treasurer, including without limitation the duty and power to keep and
be responsible for all funds and securities of the corporation, to deposit funds
of the corporation in depositories selected in accordance with these By-laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 SALARIES. Officers of the corporation shall be entitled to
such salaries, compensation or reimbursement as shall be fixed or allowed from
time to time by the Board of Directors.
ARTICLE 4 - CAPITAL STOCK
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders
and subject to the provisions of the Certificate of Incorporation, the whole or
any part of any unissued balance of the authorized capital stock of the
corporation or the whole or any part of any unissued balance of the authorized
capital stock of the corporation held in its treasury may be issued, sold,
transferred or otherwise disposed of by vote of the Board of Directors in such
manner, for such consideration and on such terms as the Board of Directors may
determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the
corporation shall be entitled to have a certificate, in such form as may be
prescribed by law and by the Board of Directors, certifying the number and class
of shares owned by him in the corporation. Each such certificate shall be signed
by, or in the name of the corporation by, the
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<PAGE> 9
Chairman or Vice-Chairman, if any, of the Board of Directors, or the President
or a Vice President, and the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the corporation. Any or all of the
signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of each certificate representing shares of such
class or series of stock, provided that in lieu of the foregoing requirements
there may be set forth on the face or back of each certificate representing
shares of such class or series of stock a statement that the corporation will
furnish without charge to each stockholder who so requests a copy of the full
text of the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
4.3 TRANSFERS. Except as otherwise established by rules and
regulations adopted by the Board of Directors, and subject to applicable law,
shares of stock may be transferred on the books of the corporation by the
surrender to the corporation or its transfer agent of the certificate
representing such shares properly endorsed or accompanied by a written
assignment or power of attorney properly executed, and with such proof of
authority or the authenticity of signature as the corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by the
Certificate of Incorporation or by these By-laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect to such stock, regardless of any transfer, pledge or other
disposition of such stock until the shares have been transferred on the books of
the corporation in accordance with the requirements of these By-laws.
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may
issue a new certificate of stock in place of any previously issued certificate
alleged to have been lost, stolen, or destroyed, upon such terms and conditions
as the Board of Directors may prescribe, including the presentation of
reasonable evidence of such loss, theft or destruction and the giving of such
indemnity as the Board of Directors may require for the protection of the
corporation or any transfer agent or registrar.
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<PAGE> 10
4.5 RECORD DATE. The Board of Directors may fix in advance a date
as a record date for the determination of the stockholders entitled to notice of
or to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 10 days after the date of adoption of a
record date for a written consent without a meeting, nor more than 60 days prior
to any other action to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is properly delivered to the corporation. The record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - GENERAL PROVISIONS
5.1 FISCAL YEAR. Except as from time to time otherwise designated
by the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January in each year and end on the last day of December in each
year.
5.2 CORPORATE SEAL. The corporate seal shall be in such form as
shall be approved by the Board of Directors.
5.3 WAIVER OF NOTICE. Whenever any notice whatsoever is required
to be given by law, by the Certificate of Incorporation or by these By-laws, a
waiver of such notice either in writing signed by the person entitled to such
notice or such person's duly authorized attorney, or by telegraph, cable or any
other available method, whether before, at or after the time stated in such
waiver, or the appearance of such person or persons at such meeting in person or
by proxy, shall be deemed equivalent to such notice
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<PAGE> 11
5.4 VOTING OF SECURITIES. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 CERTIFICATE OF INCORPORATION. All references in these By-laws
to the Certificate of Incorporation shall be deemed to refer to the Certificate
of Incorporation of the corporation, as amended and in effect from time to time.
5.7 TRANSACTIONS WITH INTERESTED PARTIES. No contract or
transaction between the corporation and one or more of the directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of the directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or a
committee of the Board of Directors which authorizes the contract or transaction
or solely because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes
of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the
corporation as of the time it is authorized, approved or ratified, by
the Board of Directors, a committee of the Board of Directors, or the
stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
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<PAGE> 12
5.8 SEVERABILITY. Any determination that any provision of these
By-laws is for any reason inapplicable, illegal or ineffective shall not affect
or invalidate any other provision of these By-laws.
5.9 PRONOUNS. All pronouns used in these By-laws shall be deemed
to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
ARTICLE 6 - AMENDMENTS
6.1 BY THE BOARD OF DIRECTORS. These By-laws may be altered,
amended or repealed or new by-laws may be adopted by the affirmative vote of a
majority of the directors present at any regular or special meeting of the Board
of Directors at which a quorum is present.
6.2 BY THE STOCKHOLDERS. These By-laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
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<PAGE> 1
EXHIBIT 4.1
SHARES
SEE REVERSE FOR
CERTAIN DEFINITIONS
[SILVERSTREAM LOGO]
SilverStream Software, Inc.
NUMBER
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS IS TO CERTIFY THAT CUSIP
IS THE OWNER OF
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF THE PAR VALUE OF
$.001 EACH OF
SilverStream Software, Inc.
transferable upon the books of the Company in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of The State of Delaware
and to the Certificate of Incorporation and By-laws of the Company as from time
to time amended.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, SilverStream Software, Inc. has caused its facsimile
corporate seal and facsimile signatures of its duly authorized officers to be
hereunto affixed.
COUNTERSIGNED AND
REGISTERED
BY
BankBoston, N.A.
Dated:
TRANSFER
AGENT AND
Corporate Seal REGISTRAR
/s/ Craig A. Dynes /s/ David A. Litwack
TREASURER PRESIDENT
AUTHORIZED
SIGNATURE
<PAGE> 2
SILVERSTREAM SOFTWARE, INC.
THE CORPORATION WILL FURNISH TO THE HOLDER UPON REQUEST WITHOUT CHARGE THE
DESIGNATIONS, PREFERENCES AND RELATIVE PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ......Custodian.......
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of
survivorship and not as tenants under Uniform Gifts to Minors Act ........
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ___________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
__________________________________________________________ shares of the capital
stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint ________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________
- --------------------------------------------------------------------------------
NOTICE THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED ________________________________________________________
THE SIGNATURE(S) COULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM)
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 10.1
SILVERSTREAM SOFTWARE, INC.
1996 FOUNDERS STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 1996 Founders Stock Incentive Plan (the "Plan") of
SilverStream Software, Inc., a Delaware corporation (the "Company"), is to
advance the interests of the Company's stockholders by enhancing the Company's
ability to attract, retain and motivate persons who make (or are expected to
make) important contributions to the Company by providing such persons with
equity ownership opportunities and performance-based incentives and thereby
better aligning the interests of such persons with those of the Company's
stockholders. Except where the context otherwise requires, the term "Company"
shall include any present or future subsidiary corporations of the Company as
defined in Section 424(f) of the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder (the "Code") (a "Subsidiary").
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock or other
stock-based awards (each, an "Award") under the Plan. Any person who has been
granted an Award under the Plan shall be deemed a "Participant."
3. Administration, Delegation
a. Administration by Board of Directors. The Plan will be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable
from time to time, and the Board may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Award in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. No member of the Board shall be liable
for any action or determination relating to the Plan. All decisions by the Board
shall be made in the Board's sole discretion and shall be final and binding on
all persons having or claiming any interest in the Plan or in any Award. No
director or person acting pursuant to the authority delegated by the Board shall
be liable for any action or determination under the Plan made in good faith.
b. Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may
<PAGE> 2
determine, provided that the Board shall fix the maximum number of shares
subject to Awards and the maximum number of shares for any one Participant to be
made by such executive officers.
c. Appointment of Committees. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). If and when the
Common Stock, $.001 par value per share, of the Company (the "Common Stock") is
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Board shall appoint one such Committee of not less than two members,
each member of which shall be an "outside director" within the meaning of
Section 162(m) of the Code and a "non-employee director" as defined in Rule
16b-3 promulgated under the Exchange Act. All references in the Plan to the
"Board" shall mean a Committee of the Board or the executive officer referred to
in Section 3(b) to the extent that the Board's powers or authority under the
Plan have been delegated to such Committee or executive officer.
4. Stock Available for Awards
a. Number of Shares. Subject to adjustment under Section 4(c), Awards
may be made under the Plan for up to 3,877,000 shares of Common Stock. If any
Award expires or is terminated, surrendered or canceled without having been
fully exercised or is forfeited in whole or in part or results in any Common
Stock not being issued, the unused Common Stock covered by such Award shall
again be available for the grant of Awards under the Plan, subject, however, in
the case of Incentive Stock Options (as hereinafter defined), to any limitation
required under the Code. Shares issued under the Plan may consist in whole or in
part of authorized but unissued shares or treasury shares.
b. Per-Participant Limit. Subject to adjustment under Section 4(c), for
Awards granted after the Common Stock is registered under the Exchange Act, the
maximum number of shares with respect to which an Award may be granted to any
Participant under the Plan shall be 250,000 per calendar year. The
Per-Participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
c. Adjustment to Common Stock. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the number and class of security and exercise price per
share subject to each outstanding Option, (iii) the repurchase price per
security subject to each outstanding Restricted Stock Award, and (iv) the terms
of each other outstanding stock-based Award shall be appropriately adjusted by
the Company (or substitute Awards may be made, if applicable) to the
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<PAGE> 3
extent the Board shall determine, in good faith, that such an adjustment (or
substitution) is necessary and appropriate. If this Section 4(c) applies and
Section 8(e)(i) also applies to any event, Section 8(e)(i) shall be applicable
to such event, and this Section 4(c) shall not be applicable.
5. Stock Options
a. General. The Board may grant options to purchase Common Stock (each,
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option."
b. Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
c. Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
d. Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
e. Exercise of Option. Options may be exercised only by delivery to the
Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
f. Payment Upon Exercise. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
i. in cash or by check, payable to the order of the Company;
ii. except as the Board may otherwise provide in an Option,
delivery of an irrevocable and unconditional undertaking by a creditworthy
broker to deliver promptly to the Company sufficient funds to pay the exercise
price, or delivery by the Participant to the Company of a copy of irrevocable
and unconditional instructions to
-3-
<PAGE> 4
a creditworthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price;
iii. to the extent permitted by the Board and explicitly
provided in the Option (i) by delivery of shares of Common Stock owned by the
Participant valued at their fair market value as determined by the Board in good
faith ("Fair Market Value"), which Common Stock was owned by the Participant at
least six months prior to such delivery, (ii) by delivery of a promissory note
of the Participant to the Company on terms determined by the Board, or (iii) by
payment of such other lawful consideration as the Board may determine; or
iv. any combination of the above-permitted forms of payment.
6. Restricted Stock
a. Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").
b. Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. Other Stock-Based Awards
The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
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<PAGE> 5
8. General Provisions Applicable to Awards
a. Transferability of Awards. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
b. Documentation. Each Award under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
c. Board Discretion. Except as otherwise provided by the Plan, each
type of Award may be made alone in addition or in relation to any other type of
Award. The terms of each type of Award need not be identical, and the Board need
not treat Participants uniformly.
d. Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
e. Acquisition Events
i. Consequences of Acquisition Events. Upon the occurrence of
an Acquisition Event (as defined below), or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall take any one or
more of the following actions with respect to then outstanding Awards: (i)
provide that outstanding Options shall be assumed, or equivalent Options shall
be substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such Options substituted for Incentive Stock Options
shall satisfy, in the determination of the Board, the requirements of Section
424(a) of the Code; (ii) upon written notice to the Participants, provide that
all then unexercised Options will become exercisable in full as of a specified
date (the "Acceleration Date") prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event, except to the
extent exercised by the Participants between the Acceleration Date and the
consummation of such Acquisition Event; (iii) in the event of an Acquisition
Event under the terms of which holders of Common Stock will receive upon
consummation thereof a cash payment for each share of Common Stock surrendered
pursuant to such Acquisition Event (the "Acquisition Price"), provide that all
outstanding Options shall terminate upon consummation of such Acquisition Event
and each Participant shall
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<PAGE> 6
receive, in exchange therefor, a cash payment equal to the amount (if any) by
which (A) the Acquisition Price multiplied by the number of shares of Common
Stock subject to such outstanding Options (whether or not then exercisable),
exceeds (B) the aggregate exercise price of such Options; (iv) provide that all
Restricted Stock Awards then outstanding shall become free of all restrictions
prior to the consummation of the Acquisition Event; and (v) provide that any
other stock-based Awards outstanding (A) shall become exercisable, realizable or
vested in full, or shall be free of all conditions or restrictions, as
applicable to each such Award, prior to the consummation of the Acquisition
Event, or (B), if applicable, shall be assumed, or equivalent Awards shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof).
Each Option or other Award assumed or substituted pursuant to clause
(i) or (v)(B) above shall include a provision to the effect that if, within the
remaining period during which such Option or Award shall otherwise become
exercisable (or vested) pursuant to its terms, the Participant terminates his or
her employment for Good Reason or is terminated without Cause by the surviving
or acquiring corporation, then upon such termination (i) the vesting schedule of
such Option or Award shall be accelerated such that one-half of the then
unvested shares subject to such Option or Award shall become immediately
exercisable or vested, and (ii) the duration of the vesting schedule with
respect to the remaining unvested shares subject to such Option or Award shall
be immediately reduced by one-half. "Good Reason" shall mean (i) any substantial
diminution in the Participant's position, title or responsibilities, (ii) any
required relocation of the Participant to a principal place of business more
than 30 miles from his principal place of business immediately prior to the
Acquisition Event, or (iii) any substantial diminution in the Participant's
annual salary or bonus potential from that in effect immediately prior to the
Acquisition Event. "Cause" shall mean the willful engaging by the Participant in
illegal conduct or gross misconduct which is materially injurious to the
surviving or acquiring corporation. The Participant shall be considered to have
been discharged for "Cause" if the surviving or acquiring corporation
determines, within 30 days after the Participant's resignation, that discharge
for Cause was warranted.
An "Acquisition Event" shall mean: (a) any merger or consolidation
which results in the voting securities of the Company outstanding immediately
prior thereto representing immediately thereafter (either by remaining
outstanding or by being converted into voting securities of the surviving or
acquiring entity) less than 60% of the combined voting power of the voting
securities of the Company or such surviving or acquiring entity outstanding
immediately after such merger or consolidation; (b) any sale of all or
substantially all of the assets of the Company; or (c) the complete liquidation
of the Company.
ii. Assumption of Options Upon Certain Events. The Board may
grant Awards under the Plan in substitution for stock and stock-based awards
held by employees of another corporation who become employees of the Company as
a result
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<PAGE> 7
of a merger or consolidation of the employing corporation with the Company or
the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.
f. Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Board may allow Participants to
satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
g. Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
h. Conditions on Delivery of Stock. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
i. Acceleration. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of all restrictions or that any other stock-based
Awards may become exercisable in full or in part or free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
9. Miscellaneous
a. No Right To Employment or Other Status. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with
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<PAGE> 8
the Company. The Company expressly reserves the right at any time to dismiss or
otherwise terminate its relationship with a Participant free from any liability
or claim under the Plan, except as expressly provided in the applicable Award.
b. No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
c. Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board. No Awards shall be granted under
the Plan after the completion of ten years from the earlier of (i) the date on
which the Plan was adopted by the Board or (ii) the date the Plan was approved
by the Company's stockholders, but Awards previously granted may extend beyond
that date.
d. Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time.
e. Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
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<PAGE> 1
EXHIBIT 10.2
SILVERSTREAM SOFTWARE, INC.
AMENDED AND RESTATED 1997 STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 1997 Stock Incentive Plan (the "Plan") of
SilverStream Software, Inc., a Delaware corporation (the "Company"), is to
advance the interests of the Company's stockholders by enhancing the Company's
ability to attract, retain and motivate persons who make (or are expected to
make) important contributions to the Company by providing such persons with
equity ownership opportunities and performance-based incentives and thereby
better aligning the interests of such persons with those of the Company's
stockholders. Except where the context otherwise requires, the term "Company"
shall include any of the Company's present or future subsidiary corporations as
defined in Section 424(f) of the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder (the "Code").
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted stock awards, or other stock-based
awards (each, an "Award") under the Plan. Each person who has been granted an
Award under the Plan shall be deemed a "Participant."
3. Administration, Delegation
a. Administration by Board of Directors. The Plan will be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
b. Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to
<PAGE> 2
Awards and the maximum number of shares for any one Participant to be made by
such executive officers.
c. Appointment of Committees. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). If and when the
Common Stock, $.001 par value per share, of the Company (the "Common Stock") is
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Board shall appoint one such Committee of not less than two members,
each member of which shall be an "outside director" within the meaning of
Section 162(m) of the Code and a "non-employee director" as defined in Rule
16b-3 promulgated under the Exchange Act. All references in the Plan to the
"Board" shall mean the Board or a Committee of the Board or the executive
officer referred to in Section 3(b) to the extent that the Board's powers or
authority under the Plan have been delegated to such Committee or executive
officer.
4. Stock Available for Awards
a. Number of Shares. Subject to adjustment under Section 8, Awards may
be made under the Plan for up to 3,500,000 shares of Common Stock. If any Award
expires or is terminated, surrendered or canceled without having been fully
exercised or is forfeited in whole or in part or results in any Common Stock not
being issued, the unused Common Stock covered by such Award shall again be
available for the grant of Awards under the Plan, subject, however, in the case
of Incentive Stock Options (as hereinafter defined), to any limitation required
under the Code. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
b. Per-Participant Limit. Subject to adjustment under Section 8, for
Awards granted after the Common Stock is registered under the Exchange Act, the
maximum number of shares of Common Stock with respect to which an Award may be
granted to any Participant under the Plan shall be 250,000 per calendar year.
The Per-Participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
5. Stock Options
a. General. The Board may grant options to purchase Common Stock (each,
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option."
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<PAGE> 3
b. Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
c. Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
d. Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
e. Exercise of Option. Options may be exercised only by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
f. Payment Upon Exercise. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise
provide in an option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price or (ii) delivery by the
Participant to the Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to the Company cash or
a check sufficient to pay the exercise price;
(3) when the Common Stock is registered under the Exchange
Act, by delivery of shares of Common Stock owned by the Participant valued at
their fair market value as determined by (or in a manner approved by) the Board
in good faith ("Fair Market Value"), provided (i) such method of payment is then
permitted under applicable law and (ii) such Common Stock was owned by the
Participant at least six months prior to such delivery;
(4) to the extent permitted by the Board, in its sole
discretion by (i) delivery of a promissory note of the Participant to the
Company on terms determined by the Board, or (ii) payment of such other lawful
consideration as the Board may determine; or
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<PAGE> 4
(5) by any combination of the above permitted forms of
payment.
6. Restricted Stock
a. Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").
b. Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. Other Stock-Based Awards
The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
8. Adjustments for Changes in Common Stock and Certain Other Events
a. Changes in Capitalization. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award, and (v) the terms of each other outstanding Award shall
be appropriately adjusted by the Company (or substituted Awards may be made, if
applicable) to the extent the Board shall determine, in good faith, that such an
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<PAGE> 5
adjustment (or substitution) is necessary and appropriate. If this Section 8(a)
applies and Section 8(c) also applies to any event, Section 8(c) shall be
applicable to such event, and this Section 8(a) shall not be applicable.
b. Liquidation or Dissolution. In the event of a proposed liquidation
or dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least ten business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award or other Award granted under the Plan
at the time of the grant of such Award.
c. Acquisition Events
(1) Definition. An "Acquisition Event" shall mean: (a) any
merger or consolidation of the Company with or into another entity as a result
of which the Common Stock is converted into or exchanged for the right to
receive cash, securities or other property or (b) any exchange of shares of the
Company for cash, securities or other property pursuant to a statutory share
exchange transaction.
(2) Consequences of an Acquisition Event on Options. Upon the
occurrence of an Acquisition Event, or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall provide that all
outstanding Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof). For purposes hereof, an Option shall be considered to be assumed if,
following consummation of the Acquisition Event, the Option confers the right to
purchase, for each share of Common Stock subject to the Option immediately prior
to the consummation of the Acquisition Event, the consideration (whether cash,
securities or other property) received as a result of the Acquisition Event by
holders of Common Stock for each share of Common Stock held immediately prior to
the consummation of the Acquisition Event (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding shares of Common Stock); provided, however, that if the
consideration received as a result of the Acquisition Event is not solely common
stock of the acquiring or succeeding corporation (or an affiliate thereof), the
Company may, with the consent of the acquiring or succeeding corporation,
provide for the consideration to be received upon the exercise of Options to
consist solely of common stock of the acquiring or succeeding corporation (or an
affiliate thereof) equivalent in fair market value to the per share
consideration received by holders of outstanding shares of Common Stock as a
result of the Acquisition Event.
Notwithstanding the foregoing, if the acquiring or succeeding
corporation (or an affiliate thereof) does not agree to assume, or substitute
for, such Options, then
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<PAGE> 6
the Board shall, upon written notice to the Participants, provide that all then
unexercised Options will become exercisable in full as of a specified time prior
to the Acquisition Event and will terminate immediately prior to the
consummation of such Acquisition Event, except to the extent exercised by the
Participants before the consummation of such Acquisition Event; provided,
however, that in the event of an Acquisition Event under the terms of which
holders of Common Stock will receive upon consummation thereof a cash payment
for each share of Common Stock surrendered pursuant to such Acquisition Event
(the "Acquisition Price"), then the Board may instead provide that all
outstanding Options shall terminate upon consummation of such Acquisition Event
and that each Participant shall receive, in exchange therefor, a cash payment
equal to the amount (if any) by which (A) the Acquisition Price multiplied by
the number of shares of Common Stock subject to such outstanding Options
(whether or not then exercisable), exceeds (B) the aggregate exercise price of
such Options.
(3) Consequences of an Acquisition Event on Restricted Stock
Awards. Upon the occurrence of an Acquisition Event, the repurchase and other
rights of the Company under each outstanding Restricted Stock Award shall inure
to the benefit of the Company's successor and shall apply to the cash,
securities or other property which the Common Stock was converted into or
exchanged for pursuant to such Acquisition Event in the same manner and to the
same extent as they applied to the Common Stock subject to such Restricted Stock
Award.
(4) Consequences of an Acquisition Event on Other Awards. The
Board shall specify the effect of an Acquisition Event on any other Award
granted under the Plan at the time of the grant of such Award.
9. General Provisions Applicable to Awards
a. Transferability of Awards. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
b. Documentation. Each Award shall be evidenced by a written instrument
in such form as the Board shall determine. Each Award may contain terms and
conditions in addition to those set forth in the Plan.
c. Board Discretion. Except as otherwise provided by the Plan, each
Award may be made alone or in addition or in relation to any other Award. The
terms of each Award need not be identical, and the Board need not treat
Participants uniformly.
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<PAGE> 7
d. Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
e. Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may, to the extent then permitted under applicable law, satisfy
such tax obligations in whole or in part by delivery of shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
f. Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
g. Conditions on Delivery of Stock. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
h. Acceleration. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of restrictions in full or in part or that any other
Awards may become exercisable in full or in part or free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
10. Miscellaneous
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<PAGE> 8
a. No Right To Employment or Other Status. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
b. No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
c. Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board. No Awards shall be granted under
the Plan after the completion of ten years from the earlier of (i) the date on
which the Plan was adopted by the Board or (ii) the date the Plan was approved
by the Company's stockholders, but Awards previously granted may extend beyond
that date.
d. Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time.
e. Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
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<PAGE> 9
SILVERSTREAM SOFTWARE, INC.
Incentive Stock Option Agreement
Granted Under 1997 Stock Incentive Plan
1. Grant of Option.
This agreement evidences the grant by SilverStream Software, Inc., a
Delaware corporation (the "Company") on [__________], 199[_] to [__________], an
employee of the Company (the "Participant"), of an option to purchase, in whole
or in part, on the terms provided herein and in the Company's 1997 Stock
Incentive Plan (the "Plan"), a total of [__________] shares of common stock,
$.001 par value per share of the Company ("Common Stock") (the "Shares") at
$[__________] per Share. Unless earlier terminated, this option shall expire on
[___________________] (the "Final Exercise Date").
It is intended that the option evidenced by this agreement shall be an
incentive stock option as defined in Section 422 of the Internal Revenue Code of
1986, as amended, and any regulations promulgated thereunder (the "Code").
Except as otherwise indicated by the context, the term "Participant," as used in
this option, shall be deemed to include any person who acquires the right to
exercise this option validly under its terms.
2. Vesting Schedule.
This option will become exercisable ("vest") as to ___% of the original
number of Shares on the first anniversary of the date of the grant of the option
(the "Grant Date") and as to an additional ___% of the original number of Shares
at the end of each successive full three-month period following the first
anniversary of the Grant Date until the fifth anniversary of the Grant Date.
This option shall expire upon, and will not be exercisable after, the Final
Exercise Date.
The right of exercise shall be cumulative so that to the extent the
option is not exercised in any period to the maximum extent permissible it shall
continue to be exercisable, in whole or in part, with respect to all shares for
which it is vested until the earlier of the Final Exercise Date or the
termination of this option under Section 3 hereof or the Plan.
3. Exercise of Option.
a. Form of Exercise. Each election to exercise this option shall be in
writing, signed by the Participant, and received by the Company at its principal
office, accompanied by this agreement, and payment in full in the manner
provided in the Plan. The Participant may purchase less than the number of
shares covered hereby, provided that no partial exercise of this option may be
for any fractional share or for fewer than ten whole shares.
<PAGE> 10
b. Continuous Relationship with the Company Required. Except as
otherwise provided in this Section 3, this option may not be exercised unless
the Participant, at the time he or she exercises this option, is, and has been
at all times since the date of grant of this option, an employee, officer or
director of, or consultant or advisor to, the Company or any parent or
subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an
"Eligible Participant").
c. Termination of Relationship with the Company. If the Participant
ceases to be an Eligible Participant for any reason, then, except as provided in
paragraphs (d) and (e) below, the right to exercise this option shall terminate
three months after such cessation (but in no event after the Final Exercise
Date), provided that this option shall be exercisable only to the extent that
the Participant was entitled to exercise this option on the date of such
cessation. Notwithstanding the foregoing, if the Participant, prior to the Final
Exercise Date, violates the non-competition or confidentiality provisions of any
employment contract, confidentiality and nondisclosure agreement or other
agreement between the Participant and the Company, the right to exercise this
option shall terminate immediately upon such violation.
d. Exercise Period Upon Death or Disability. If the Participant dies or
becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to
the Final Exercise Date while he or she is an Eligible Participant and the
Company has not terminated such relationship for "Cause" as specified in
paragraph (e) below, this option shall be exercisable, within the period of one
year following the date of death or disability of the Participant by the
Participant, provided that this option shall be exercisable only to the extent
that this option was exercisable by the Participant on the date of his or her
death or disability, and further provided that this option shall not be
exercisable after the Final Exercise Date.
e. Discharge for Cause. If the Participant, prior to the Final Exercise
Date, is discharged by the Company for "Cause" (as defined below), the right to
exercise this option shall terminate immediately upon the effective date of such
discharge. "Cause" shall mean willful misconduct by the Participant or willful
failure by the Participant to perform his or her responsibilities to the Company
(including, without limitation, breach by the Participant of any provision of
any employment, consulting, advisory, nondisclosure, non-competition or other
similar agreement between the Participant and the Company), as determined by the
Company, which determination shall be conclusive. The Participant shall be
considered to have been discharged for "Cause" if the Company determines, within
30 days after the Participant's resignation, that discharge for Cause was
warranted.
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<PAGE> 11
4. Right of First Refusal.
(a) If the Participant proposes to sell, assign, transfer, pledge,
hypothecate or otherwise dispose of, by operation of law or otherwise
(collectively, "transfer") any Shares acquired upon exercise of this option,
then the Participant shall first give written notice of the proposed transfer
(the "Transfer Notice") to the Company. The Transfer Notice shall name the
proposed transferee and state the number of such Shares the Participant proposes
to transfer (the "Offered Shares"), the price per share and all other material
terms and conditions of the transfer.
(b) For 30 days following its receipt of such Transfer Notice, the
Company shall have the option to purchase all (but not less than all) of the
Offered Shares at the price and upon the terms set forth in the Transfer Notice.
In the event the Company elects to purchase all of the Offered Shares, it shall
give written notice of such election to the Participant within such 30-day
period. Within ten days after his receipt of such notice, the Participant shall
tender to the Company at its principal offices the certificate or certificates
representing the Offered Shares, duly endorsed in blank by the Participant or
with duly endorsed stock powers attached thereto, all in a form suitable for
transfer of the Offered Shares to the Company. Upon receipt of such certificate
or certificates, the Company shall deliver or mail to the Participant a check in
payment of the purchase price for the Offered Shares; provided that if the terms
of payment set forth in the Transfer Notice were other than cash against
delivery, the Company may pay for the Offered Shares on the same terms and
conditions as were set forth in the Transfer Notice.
(c) After the time at which the Offered Shares are required to be
delivered to the Company for transfer to the Company pursuant to subsection (b)
above, the Company shall not pay any dividend to the Participant on account of
such Shares or permit the Participant to exercise any of the privileges or
rights of a stockholder with respect to such Offered Shares, but shall, insofar
as permitted by law, treat the Company as the owner of such Offered Shares.
(d) If the Company does not elect to acquire all of the Offered Shares,
the Participant may, within the 30-day period following the expiration of the
option granted to the Company under subsection (b) above, transfer the Offered
Shares to the proposed transferee, provided that such transfer shall not be on
terms and conditions more favorable to the transferee than those contained in
the Transfer Notice. Notwithstanding any of the above, all Offered Shares
transferred pursuant to this Section 4 shall remain subject to the right of
first refusal set forth in this Section 4 and such transferee shall, as a
condition to such transfer, deliver to the Company a written instrument
confirming that such transferee shall be bound by all of the terms and
conditions of this Section 4.
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<PAGE> 12
(e) The following transactions shall be exempt from the provisions of
this Section 4:
i. any transfer of Shares to or for the benefit of any spouse,
child or grandchild of the Participant, or to a trust for their benefit;
ii. any transfer pursuant to an effective registration
statement filed by the Company under the Securities Act of 1933, as amended (the
"Securities Act"); and
iii. any transfer of the Shares pursuant to the sale of all or
substantially all of the business of the Company;
provided, however, that in the case of a transfer pursuant to clause 1 above,
such Shares shall remain subject to the right of first refusal set forth in this
Section 4 and such transferee shall, as a condition to such transfer, deliver to
the Company a written instrument confirming that such transferee shall be bound
by all of the terms and conditions of this Section 4.
(f) The Company may assign its rights to purchase Offered Shares in any
particular transaction under this Section 4 to one or more persons or entities.
(g) The provisions of this Section 4 shall terminate upon the earlier
of the following events:
(1) the closing of the sale of shares of Common Stock in an
underwritten public offering pursuant to an effective registration statement
filed by the Company under the Securities Act; or
(2) the sale of all or substantially all of the capital stock,
assets or business of the Company, by merger, consolidation, sale of assets or
otherwise.
(h) The Company shall not be required to (i) to transfer on its books
any of the Shares which shall have been sold or transferred in violation of any
of the provisions set forth in this Section 4, or (ii) treat as owner of such
Shares or to pay dividends to any transferee to whom any such Shares shall have
been so sold or transferred.
5. Agreement in Connection with Public Offering.
The Participant agrees, in connection with the initial underwritten
public offering of the Company's securities pursuant to a registration statement
under the Securities Act, (i) not to sell, make short sale of, loan, grant any
options for the purchase of, or otherwise dispose of any shares of Common Stock
held by the Participant (other than those shares included in such offering)
without the prior written consent of the Company or the underwriters managing
such offering for a period of 180 days from the effective date of such
registration statement, and (ii) to execute any agreement reflecting
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<PAGE> 13
clause (i) above as may be requested by the Company or the managing underwriters
at the time of such offering.
6. Withholding.
No Shares will be issued pursuant to the exercise of this option unless
and until the Participant pays to the Company, or makes provision satisfactory
to the Company for payment of, any federal, state or local withholding taxes
required by law to be withheld in respect of this option.
7. Nontransferability of Option.
This option may not be sold, assigned, transferred, pledged or
otherwise encumbered by the Participant, either voluntarily or by operation of
law, except by will or the laws of descent and distribution, and, during the
lifetime of the Participant, this option shall be exercisable only by the
Participant.
8. Disqualifying Disposition.
If the Participant disposes of Shares acquired upon exercise of this
option within two years from the date of grant of the option or one year after
such Shares were acquired pursuant to exercise of this option, the Participant
shall notify the Company in writing of such disposition.
9. Provisions of the Plan.
This option is subject to the provisions of the Plan, a copy of which
is furnished to the Participant with this option.
IN WITNESS WHEREOF, the Company has caused this option to be executed
under its corporate seal by its duly authorized officer. This option shall take
effect as a sealed instrument.
SILVERSTREAM SOFTWARE, INC.
Dated: _______________________ By: _______________________
Name: _____________________
Title: ____________________
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<PAGE> 14
PARTICIPANT'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the
terms and conditions thereof. The undersigned hereby acknowledges receipt of a
copy of the Company's 1997 Stock Incentive Plan.
PARTICIPANT:
---------------------------------------
(signature)
Address:
--------------------------
--------------------------
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<PAGE> 15
SILVERSTREAM SOFTWARE, INC.
Nonstatutory Stock Option Agreement
Granted Under 1997 Stock Incentive Plan
1. Grant of Option.
This agreement evidences the grant by SilverStream Software, Inc., a
Delaware corporation (the "Company") on _________ , 199[_ ] to [_________], an
[employee], [consultant], [director] of the Company (the "Participant"), of an
option to purchase, in whole or in part, on the terms provided herein and in the
Company's 1997 Stock Incentive Plan (the "Plan"), a total of [_________] shares
of common stock, $.001 par value per share, of the Company ("Common Stock") (the
"Shares") at $[_________] per Share. Unless earlier terminated, this option
shall expire on [____________________] (the "Final Exercise Date ").
It is intended that the option evidenced by this agreement shall not be
an incentive stock option as defined in Section 422 of the Internal Revenue Code
of 1986, as amended, and any regulations as promulgated thereunder (the "Code").
Except as otherwise indicated by the context, the term "Participant," as used in
this option, shall be deemed to include any person who acquires the right to
exercise this option validly under its terms.
2. Vesting Schedule.
This option will become exercisable ("vest") as to ___% of the original
number of Shares on the first anniversary of the date of the grant of the option
(the "Grant Date") and as to an additional ___% of the original number of Shares
at the end of each successive full three-month period following the first
anniversary of the Grant Date until the fifth anniversary of the Grant Date.
This option shall expire upon, and will not be exercisable after, the Final
Exercise Date.
The right of exercise shall be cumulative so that to the extent the
option is not exercised in any period to the maximum extent permissible it shall
continue to be exercisable, in whole or in part, with respect to all shares for
which it is vested until the earlier of the Final Exercise Date or the earlier
termination of this option under Section 3 hereof or the Plan.
3. Exercise of Option.
a. Form of Exercise. Each election to exercise this option shall be in
writing, signed by the Participant, and received by the Company at its principal
office, accompanied by this agreement, and payment in full in the manner
provided in the Plan. The Participant may purchase less than the number of
shares covered hereby, provided that no partial exercise of this option may be
for any fractional share or for fewer than
<PAGE> 16
ten whole shares.
b. Continuous Relationship with the Company Required. Except as
otherwise provided in this Section 3, this option may not be exercised unless
the Participant, at the time he or she exercises this option, is, and has been
at all times since the date of grant of this option, an employee, officer or
director of, or consultant or advisor to, the Company or any parent or
subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an
"Eligible Participant").
c. Termination of Relationship with the Company. If the Participant
ceases to be an Eligible Participant for any reason, then, except as provided in
paragraphs (d) and (e) below, the right to exercise this option shall terminate
three months after such cessation (but in no event after the Final Exercise
Date), provided that this option shall be exercisable only to the extent that
the Participant was entitled to exercise this option on the date of such
cessation. Notwithstanding the foregoing, if the Participant, prior to the Final
Exercise Date, violates the non-competition or confidentiality provisions of any
employment contract, confidentiality and nondisclosure agreement or other
agreement between the Participant and the Company, the right to exercise this
option shall terminate immediately upon such violation.
d. Exercise Period Upon Death or Disability. If the Participant dies or
becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to
the Final Exercise Date while he or she is an Eligible Participant and the
Company has not terminated such relationship for "Cause" as specified in
paragraph (e) below, this option shall be exercisable, within the period of one
year following the date of death or disability of the Participant, by the
Participant, provided that this option shall be exercisable only to the extent
that this option was exercisable by the Participant on the date of his or her
death or disability, and further provided that this option shall not be
exercisable after the Final Exercise Date.
e. Discharge for Cause. If the Participant, prior to the Final Exercise
Date, is discharged by the Company for "Cause" (as defined below), the right to
exercise this option shall terminate immediately upon the effective date of such
discharge. "Cause" shall mean willful misconduct by the Participant or willful
failure by the Participant to perform his or her responsibilities to the Company
(including, without limitation, breach by the Participant of any provision of
any employment, consulting, advisory, nondisclosure, non-competition or other
similar agreement between the Participant and the Company), as determined by the
Company, which determination shall be conclusive. The Participant shall be
considered to have been discharged for "Cause" if the Company determines, within
30 days after the Participant's resignation, that discharge for Cause was
warranted.
4. Right of First Refusal.
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<PAGE> 17
a. If the Participant proposes to sell, assign, transfer, pledge,
hypothecate or otherwise dispose of, by operation of law or otherwise
(collectively, "transfer") any Shares acquired upon exercise of this option,
then the Participant shall first give written notice of the proposed transfer
(the "Transfer Notice") to the Company. The Transfer Notice shall name the
proposed transferee and state the number of such Shares the Participant proposes
to transfer (the "Offered Shares"), the price per share and all other material
terms and conditions of the transfer.
b. For 30 days following its receipt of such Transfer Notice, the
Company shall have the option to purchase all (but not less than all) of the
Offered Shares at the price and upon the terms set forth in the Transfer Notice.
In the event the Company elects to purchase all of the Offered Shares, it shall
give written notice of such election to the Participant within such 30-day
period. Within ten days after his receipt of such notice, the Participant shall
tender to the Company at its principal offices the certificate or certificates
representing the Offered Shares, duly endorsed in blank by the Participant or
with duly endorsed stock powers attached thereto, all in a form suitable for
transfer of the Offered Shares to the Company. Upon receipt of such certificate
or certificates, the Company shall deliver or mail to the Participant a check in
payment of the purchase price for the Offered Shares; provided that if the terms
of payment set forth in the Transfer Notice were other than cash against
delivery, the Company may pay for the Offered Shares on the same terms and
conditions as were set forth in the Transfer Notice.
c. After the time at which the Offered Shares are required to be
delivered to the Company for transfer to the Company pursuant to subsection (b)
above, the Company shall not pay any dividend to the Participant on account of
such Shares or permit the Participant to exercise any of the privileges or
rights of a stockholder with respect to such Offered Shares, but shall, insofar
as permitted by law, treat the Company as the owner of such Offered Shares.
d. If the Company does not elect to acquire all of the Offered Shares,
the Participant may, within the 30-day period following the expiration of the
option granted to the Company under subsection (b) above, transfer the Offered
Shares to the proposed transferee, provided that such transfer shall not be on
terms and conditions more favorable to the transferee than those contained in
the Transfer Notice. Notwithstanding any of the above, all Offered Shares
transferred pursuant to this Section 4 shall remain subject to the right of
first refusal set forth in this Section 4 and such transferee shall, as a
condition to such transfer, deliver to the Company a written instrument
confirming that such transferee shall be bound by all of the terms and
conditions of this Section 4.
e. The following transactions shall be exempt from the provisions of
this Section 4:
i. a transfer of Shares to or for the benefit of any spouse,
child or grandchild of the Participant, or to a trust for their benefit;
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<PAGE> 18
ii. any transfer pursuant to an effective registration
statement filed by the Company under the Securities Act of 1933, as amended (the
"Securities Act"); and
iii. any transfer of the Shares pursuant to the sale of all or
substantially all of the business of the Company;
provided, however, that in the case of a transfer pursuant to clause 1 above,
such Shares shall remain subject to the right of first refusal set forth in this
Section 4 and such transferee shall, as a condition to such transfer, deliver to
the Company a written instrument confirming that such transferee shall be bound
by all of the terms and conditions of this Section 4.
f. The Company may assign its rights to purchase Offered Shares in any
particular transaction under this Section 4 to one or more persons or entities.
g. The provisions of this Section 4 shall terminate upon the earlier of
the following events:
i. the closing of the sale of shares of Common Stock in an
underwritten public offering pursuant to an effective registration statement
filed by the Company under the Securities Act; or
ii. the sale of all or substantially all of the capital stock,
assets or business of the Company, by merger, consolidation, sale of assets or
otherwise.
h. The Company shall not be required to (i) transfer on its books any
of the Shares which shall have been sold or transferred in violation of any of
the provisions set forth in this Section 4, or (ii) treat as owner of such
Shares or to pay dividends to any transferee to whom any such Shares shall have
been so sold or transferred.
5. Agreement in Connection with Public Offering.
The Participant agrees, in connection with the initial underwritten
public offering of the Company's securities pursuant to a registration statement
under the Securities Act, (i) not to sell, make short sale of, loan, grant any
options for the purchase of, or otherwise dispose of any shares of Common Stock
held by the Participant (other than those shares included in such offering)
without the prior written consent of the Company or the underwriters managing
such offering for a period of 180 days from the effective date of such
registration statement, and (ii) to execute any agreement reflecting clause (i)
above as may be requested by the Company or the managing underwriters at the
time of such offering.
6. Withholding.
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<PAGE> 19
No Shares will be issued pursuant to the exercise of this option unless
and until the Participant pays to the Company, or makes provision satisfactory
to the Company for payment of, any federal, state or local withholding taxes
required by law to be withheld in respect of this option.
7. Nontransferability of Option.
This option may not be sold, assigned, transferred, pledged or
otherwise encumbered by the Participant, either voluntarily or by operation of
law, except by will or the laws of descent and distribution, and, during the
lifetime of the Participant, this option shall be exercisable only by the
Participant.
8. Provisions of the Plan.
This option is subject to the provisions of the Plan, a copy of which
is furnished to the Participant with this option.
IN WITNESS WHEREOF, the Company has caused this option to be executed
under its corporate seal by its duly authorized officer. This option shall take
effect as a sealed instrument.
SILVERSTREAM SOFTWARE, INC.
Dated: _______________________ By: ____________________________
Name: __________________________
Title: _________________________
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<PAGE> 20
PARTICIPANT'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the
terms and conditions thereof. The undersigned hereby acknowledges receipt of a
copy of the Company's 1997 Stock Incentive Plan.
PARTICIPANT:
-------------------------------------
(signature)
Address:
----------------------------
----------------------------
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<PAGE> 1
EXHIBIT 10.3
SILVERSTREAM SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this 1999 Employee Stock Purchase Plan (the "Plan") is
to provide eligible employees of SilverStream Software, Inc., a Delaware
corporation (the "Company"), and certain of its subsidiaries with opportunities
to purchase shares of the Company's common stock, $.001 par value (the "Common
Stock"). Three hundred thousand (300,000) shares of Common Stock (prior to
giving effect to the stock split approved by the Company's Board of Directors in
June 1999) in the aggregate have been approved for this purpose. This Plan is
intended to qualify as an "employee stock purchase plan" as defined in Section
423 of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations promulgated thereunder, and shall be interpreted consistent
therewith.
1. Administration. The Plan will be administered by the Company's Board
of Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. All employees of the Company, including Board members
who are employees, and all employees of any subsidiary of the Company (as
defined in Section 424(f) of the Code) designated by the Board or the Committee
from time to time (a "Designated Subsidiary"), are eligible to participate in
any one or more of the offerings of Options (as defined in Section 9) to
purchase Common Stock under the Plan provided that:
(a) they are customarily employed by the Company or a
Designated Subsidiary for more than 20 hours a week and for more than
five months in a calendar year; and
(b) they have been employed by the Company or a Designated
Subsidiary for at least three months prior to enrolling in the Plan;
and
(c) they are employees of the Company or a Designated
Subsidiary on the first day of the applicable Plan Period (as defined
below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the employee has a contractual right to purchase shall be treated as
stock owned by the employee.
<PAGE> 2
3. Offerings. The Company will make one or more offerings ("Offerings")
to employees to purchase stock under this Plan. Offerings will begin on such
date or dates as may be established by the Board from time to time (the
"Offering Commencement Dates"), provided that the first Offering Commencement
Date shall be the date on which trading of the Common Stock commences on the
Nasdaq National Market in connection with an initial public offering of Common
Stock pursuant to an effective registration statement under the Securities Act
of 1933, as amended (the "Securities Act"). Each Offering Commencement Date will
begin a six-month period (a "Plan Period") during which payroll deductions will
be made and held for the purchase of Common Stock at the end of the Plan Period.
The Board or the Committee may, at its discretion, choose a different Plan
Period of twelve (12) months or less for subsequent Offerings.
4. Participation. An employee eligible on the Offering Commencement
Date of any Offering may participate in such Offering by completing and
forwarding a payroll deduction authorization form to the employee's appropriate
payroll office at least 14 days prior to the applicable Offering Commencement
Date. The form will authorize a regular payroll deduction from the Compensation
(as defined below) received by the employee during the Plan Period. Unless an
employee files a new form or withdraws from the Plan, his or her deductions and
purchases will continue at the same rate for future Offerings under the Plan as
long as the Plan remains in effect. The term "Compensation" means the amount of
money reportable on the employee's Federal Income Tax Withholding Statement,
excluding overtime, shift premium, incentive or bonus awards, allowances and
reimbursements for expenses such as relocation allowances for travel expenses,
income or gains on the exercise of Company stock options or stock appreciation
rights, and similar items, whether or not shown on the employee's Federal Income
Tax Withholding Statement, but including, in the case of salespersons, sales
commissions to the extent determined by the Board or the Committee.
5. Deductions. The Company will maintain payroll deduction accounts for
all participating employees. With respect to any Offering made under this Plan,
an employee may authorize a payroll deduction, as set forth below, from the
Compensation he or she receives during the Plan Period or such shorter period
during which deductions from payroll are made. Payroll deductions may be at the
rate of 1%, 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9% or 10% of Compensation.
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other
employee stock purchase plan (as defined in Section 423(b) of the Code) of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock (determined at the Offering Commencement
Date of the Plan Period) for each calendar year in which the Option is
outstanding at any time.
6. Deduction Changes. An employee may decrease or discontinue his or
her payroll deduction once during any Plan Period, by filing a new payroll
deduction
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<PAGE> 3
authorization form. However, an employee may not increase his or her payroll
deduction during a Plan Period. If an employee elects to discontinue his or her
payroll deductions during a Plan Period, but does not elect to withdraw his or
her funds pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. Interest. Interest will not be paid on any employee accounts, except
to the extent that the Board or the Committee, in its sole discretion, elects to
credit employee accounts with interest at such per annum rate as it may from
time to time determine.
8. Withdrawal of Funds. An employee may at any time prior to the close
of business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering. Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Plan Period. The employee may participate in any subsequent Offering in
accordance with terms and conditions established by the Board or the Committee.
9. Purchase of Shares. On the Offering Commencement Date of each Plan
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, the largest number of whole shares of Common Stock of the Company
as does not exceed the number of shares determined by multiplying $2,083 by the
number of full months in the Offering Period and dividing the result by the
closing price (as defined below) on the Offering Commencement Date of such Plan
Period.
The purchase price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price shall be less. Such closing
price shall be (a) the closing price on any national securities exchange on
which the Common Stock is listed, (b) the closing price of the Common Stock on
the Nasdaq National Market or (c) the average of the closing bid and asked
prices in the over-the-counter-market, whichever is applicable, as published in
The Wall Street Journal. If no sales of Common Stock were made on such a day,
the price of the Common Stock for purposes of clauses (a) and (b) above shall be
the reported price for the next preceding day on which sales were made.
Notwithstanding the foregoing, for purposes of this Section 9, the closing price
of the Common Stock on the first business day of the first Plan Period shall be
deemed to be the price per share for which the Common Stock was offered to the
public in the Company's initial public offering.
Each employee who continues to be a participant in the Plan on the
Exercise Date shall be deemed to have exercised his Option at the Option Price
on such date and shall be deemed to have purchased from the Company the number
of full shares of Common
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<PAGE> 4
Stock reserved for the purpose of the Plan that his accumulated payroll
deductions on such date will pay for, but not in excess of the maximum number
determined in the manner set forth above.
Any balance remaining in an employee's payroll deduction account at the
end of a Plan Period will be automatically refunded to the employee.
10. Issuance of Certificates. Certificates representing shares of
Common Stock purchased under the Plan may be issued only in the name of the
employee, in the name of the employee and another person of legal age as joint
tenants with rights of survivorship, or (in the Company's sole discretion) in
the name of a brokerage firm, bank or other nominee holder designated by the
employee. The Company may, in its sole discretion and in compliance with
applicable laws, authorize the use of book entry registration of shares in lieu
of issuing stock certificates.
11. Rights on Retirement, Death or Termination of Employment. In the
event of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, (a) to a
beneficiary previously designated in a revocable notice signed by the employee
(with any spousal consent required under state law), (b) in the absence of such
a designated beneficiary, to the executor or administrator of the employee's
estate or (c) if no such executor or administrator has been appointed to the
knowledge of the Company, to such other person(s) as the Company may, in its
discretion, designate. If, prior to the last business day of the Plan Period,
the Designated Subsidiary by which an employee is employed shall cease to be a
subsidiary of the Company, or if the employee is transferred to a subsidiary of
the Company that is not a Designated Subsidiary, the employee shall be deemed to
have terminated employment for the purposes of this Plan.
12. Optionees Not Stockholders. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him or her.
13. Rights Not Transferable. Rights under this Plan are not
transferable by a participating employee other than by will or the laws of
descent and distribution, and are exercisable during the employee's lifetime
only by the employee.
14. Application of Funds. All funds received or held by the Company
under this Plan may be combined with other corporate funds and may be used for
any corporate purpose.
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<PAGE> 5
15. Adjustment in Case of Changes Affecting Common Stock. In the event
of any stock split, stock dividend, recapitalization, reorganization, merger,
consolidation, combination, exchange of shares, liquidation, spin-off or other
similar change in capitalization or event, or any distribution to holders of
Common Stock other than a normal cash dividend, the number of shares approved
for this Plan, the number of shares subject to any outstanding Option and the
purchase price thereof shall be adjusted proportionately, and such other
adjustment shall be made as may be deemed equitable by the Board or the
Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. Merger. If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger or consolidation, and the Board or the Committee
shall take such steps in connection with such merger or consolidation as the
Board or the Committee shall deem necessary to assure that the provisions of
Section 15 shall thereafter be applicable, as nearly as reasonably may be, in
relation to the said securities or property as to which such holder of such
Option might thereafter be entitled to receive thereunder.
In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a sale
of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, all outstanding Options shall be
cancelled by the Board or the Committee as of the effective date of any such
transaction, provided that notice of such cancellation shall be given to each
holder of an Option, and each holder of an Option shall have the right to
exercise such Option in full based on payroll deductions then credited to his
account as of a date determined by the Board or the Committee, which date shall
not be less than ten (10) days preceding the effective date of such transaction.
17. Amendment of the Plan. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the stockholders of the Company is required by Section 423 of
the Code, such amendment shall not be effected without such approval, and (b) in
no event may any amendment be made which would cause the Plan to fail to comply
with Section 423 of the Code.
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<PAGE> 6
18. Insufficient Shares. In the event that the total number of shares
of Common Stock specified in elections to be purchased under any Offering plus
the number of shares purchased under previous Offerings under this Plan exceeds
the maximum number of shares issuable under this Plan, the Board or the
Committee will allot the shares then available on a pro rata basis.
19. Termination of the Plan. This Plan may be terminated at any time by
the Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
20. Governmental Regulations. The Company's obligation to sell and
deliver Common Stock under this Plan is subject to listing on a national stock
exchange or quotation on the Nasdaq National Market and the approval of all
governmental authorities required in connection with the authorization, issuance
or sale of such stock.
21. Governing Law. The Plan shall be governed by Delaware law except to
the extent that such law is preempted by federal law.
22. Issuance of Shares. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. Notification upon Sale of Shares. Each employee agrees, by entering
the Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased or
one year after the date of exercise of the Option.
24. Effective Date and Approval of Stockholders. The Plan shall take
effect upon the effectiveness of the Company's registration statement under the
Securities Act relating to the Company's initial public offering of Common
Stock, subject to approval by the stockholders of the Company as required by
Section 423 of the Code, which approval must occur within twelve months of the
adoption of the Plan by the Board.
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<PAGE> 1
EXHIBIT 10.4
FORM OF
FOUNDERS STOCK RESTRICTION AGREEMENT
AGREEMENT made as of ______________, 199__, between SilverStream
Software, Inc., a Delaware corporation (the "Company"), and ______________ (the
"Employee").
For valuable consideration, receipt of which is acknowledged, the
parties hereto agree as follows:
1. PURCHASE OF SHARES. The Company shall issue and sell to the
Employee, and the Employee _______________ shares (the "Shares") of common
stock, $.001 par value per share, of the Company (the "Common Stock"), at a
purchase price of $_____ per share. The aggregate purchase price for the Shares
shall be paid by the Employee by check payable to the order of the Company or
such other method as may be acceptable to the Company. Upon receipt of payment
by the Company for the Shares, the Company shall issue to the Employee one or
more certificates in the name of the Employee for that number of Shares
purchased by the Employee. The Employee agrees that the Shares shall, until such
vesting occurs, be subject to the Purchase Option set forth in Section 2 of this
Agreement and the restrictions on transfer set forth in Section 4 of this
Agreement.
2. PURCHASE OPTION.
(a) In the event that the Employee ceases to be employed
by the Company for any reason or no reason, with or without cause, (i) during
the period ending __________, 199__, the Company shall have the right and option
to purchase from the Employee, for the sum of $_____ per share, all of the
Shares and (ii) during the period beginning __________, 199__ and ending
_________, 200__ (the "Vesting Period"), the Company shall have the right and
option to purchase from the Employee, for the sum of $_____ per share, a portion
of the Shares determined by multiplying 60% of the number of Shares initially
purchased hereunder by a fraction, the numerator of which shall be 12 minus the
number of consecutive full three-month periods during which the Employee is
employed by the Company from and after ___________, 199__ and the denominator of
which is 12. The Company's right and option to purchase Shares from the Employee
hereunder is hereinafter referred to as the "Purchase Option."
(b) Upon any acquisition of all or substantially all of
the business of the Company by a third party by merger, sale of assets or
otherwise (an "Acquisition"), (i) the number of shares then subject to the
Purchase Option shall be reduced by one-half and (ii) the duration of the
remaining balance of the Vesting Period shall be shortened by 50%. In addition,
if the employment of Employee is terminated by the Company without Cause or by
the Employee for Good Reason
<PAGE> 2
following an Acquisition but before ________, 200__, then no Shares shall be
subject to the Purchase Option upon such termination and this Agreement shall
terminate. "Cause" shall mean the wilful engaging by the Employee in illegal
conduct or gross misconduct which is materially injurious to the Company. "Good
Reason" shall mean (i) any substantial diminution in the Employee's position,
title or responsibilities, (ii) any required relocation of the Employee to a
principal place of business more than 30 miles from his principal place of
business immediately prior to the Acquisition, or (iii) any substantial
diminution in the Employee's annual salary or bonus potential from that in
effect immediately prior to the Acquisition.
(c) For purposes of this Agreement, employment with the
Company shall include employment with a parent or subsidiary of the Company.
3. EXERCISE OF PURCHASE OPTION AND CLOSING.
(a) The Company may exercise the Purchase Option by
delivering or mailing to the Employee (or his estate), within sixty (60) days
after the termination of the employment of the Employee with the Company, a
written notice of exercise of the Purchase Option. Such notice shall specify the
number of Shares to be purchased. If and to the extent the Purchase Option is
not so exercised by the giving of such a notice within such 60-day period, the
Purchase Option shall automatically expire and terminate effective upon the
expiration of such 60-day period.
(b) Within 10 days after his receipt of the Company's
notice of the exercise of the Purchase Option pursuant to subsection (a) above,
the Employee (or his estate) shall tender to the Company at its principal
offices the certificate or certificates representing the Shares which the
Company has elected to purchase, duly endorsed in blank by the Employee or with
duly endorsed stock powers attached thereto, all in form suitable for the
transfer of such Shares to the Company. Upon its receipt of such certificate or
certificates, the Company shall deliver or mail to the Employee a check in the
amount of the aggregate Option Price therefor.
(c) After the time at which any Shares are required to be
delivered to the Company for transfer to the Company pursuant to subsection (b)
above, the Company shall not pay any dividend to the Employee on account of such
Shares or permit the Employee to exercise any of the privileges or rights of a
stockholder with respect to such Shares, but shall, insofar as permitted by law,
treat the Company as the owner of such Shares.
(d) The Option Price may be payable, at the option of the
Company, by cancellation of all or a portion of any outstanding indebtedness of
the Employee to the Company or in cash (by check) or both.
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<PAGE> 3
(e) The Company shall not purchase any fraction of a
Share upon exercise of the Purchase Option, and any fraction of a Share
resulting from a computation made pursuant to Section 2 of this Agreement shall
be rounded to the nearest whole Share (with any one-half Share being rounded
upward).
4. RESTRICTIONS ON TRANSFER.
(a) Except as otherwise provided in subsection (b) below,
the Employee shall not, during the term of the Purchase Option, sell, assign,
transfer, pledge, hypothecate or otherwise dispose of, by operation of law or
otherwise (collectively "transfer"), any of the Shares, or any interest therein,
unless and until such Shares are no longer subject to the Purchase Option.
(b) Notwithstanding the foregoing, the Employee may
transfer Shares to or for the benefit of any spouse, child or grandchild, or to
a trust for their benefit, provided that such Shares shall remain subject to
this Agreement (including without limitation the restrictions on transfer set
forth in this Section 4 and the Purchase Option) and such permitted transferee
shall, as a condition to such transfer, deliver to the Company a written
instrument confirming that such transferee shall be bound by all of the terms
and conditions of this Agreement.
5. EFFECT OF PROHIBITED TRANSFER. The Company shall not be
required to (a) transfer on its books any of the Shares which shall have been
sold or transferred in violation of any of the provisions set forth in this
Agreement, or (b) treat as owner of such Shares or to pay dividends to any
transferee to whom any such Shares shall have been so sold or transferred.
6. RESTRICTIVE LEGEND. All certificates representing Shares shall
have affixed thereto a legend in substantially the following form, in addition
to any other legends that may be required under federal or state securities
laws:
"The shares of stock represented by this certificate are subject to
restrictions on transfer and an option to purchase set forth in a
certain Stock Restriction Agreement between the Corporation and the
registered owner of these shares (or his predecessor in interest), and
such Agreement is available for inspection without charge at the office
of the Secretary of the Corporation."
7. INVESTMENT REPRESENTATIONS. The Employee represents, warrants
and covenants as follows:
(a) The Employee is purchasing the Shares for his own
account for investment only, and not with a view to, or for sale in connection
with, any distribution of the Shares in violation of the Securities Act of 1933,
as amended (the "Securities Act"), or any rule or regulation under the
Securities Act.
-3-
<PAGE> 4
(b) The Employee has had such opportunity as he has
deemed adequate to obtain from representatives of the Company such information
as is necessary to permit him to evaluate the merits and risks of his investment
in the Company.
(c) The Employee has sufficient experience in business,
financial and investment matters to be able to evaluate the risks involved in
the purchase of the Shares and to make an informed investment decision with
respect to such purchase.
(d) The Employee can afford a complete loss of the value
of the Shares and is able to bear the economic risk of holding such Shares for
an indefinite period.
(e) The Employee understands that (i) the Shares have not
been registered under the Securities Act and are "restricted securities" within
the meaning of Rule 144 under the Securities Act, (ii) the Shares cannot be
sold, transferred or otherwise disposed of unless they are subsequently
registered under the Securities Act or an exemption from registration is then
available; (iii) in any event, the exemption from registration under Rule 144
will not be available for at least one year and even then will not be available
unless a public market then exists for the Common Stock, adequate information
concerning the Company is then available to the public, and other terms and
conditions of Rule 144 are complied with; and (iv) there is now no registration
statement on file with the Securities and Exchange Commission with respect to
any stock of the Company and the Company has no obligation or current intention
to register the Shares under the Securities Act.
(f) A legend substantially in the following form will be
placed on the certificate representing the Shares:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold,
transferred or otherwise disposed of in the absence of an effective
registration statement under such Act or an opinion of counsel
satisfactory to the Corporation to the effect that such registration is
not required."
8. ADJUSTMENTS FOR STOCK SPLITS, STOCK DIVIDENDS, ETC.
(a) If from time to time during the term of the Purchase
Option there is any stock split-up, stock dividend, stock distribution or other
reclassification of the Common Stock of the Company, any and all new,
substituted or additional securities to which the Employee is entitled by reason
of his ownership of the Shares shall be immediately subject to the Purchase
Option, the restrictions on transfer and other provisions of this Agreement in
the same manner and to the same extent as the Shares, and the Option Price shall
be appropriately adjusted.
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<PAGE> 5
(b) If the Shares are converted into or exchanged for, or
stockholders of the Company receive by reason of any distribution in total or
partial liquidation, securities of another corporation, or other property
(including cash), pursuant to any merger of the Company or acquisition of its
assets, then the rights of the Company under this Agreement shall inure to the
benefit of the Company's successor and this Agreement shall apply to the
securities or other property received upon such conversion, exchange or
distribution in the same manner and to the same extent as the Shares.
9. WITHHOLDING TAXES.
(a) The Employee acknowledges and agrees that the Company
has the right to deduct from payments of any kind otherwise due to the Employee
any federal, state or local taxes of any kind required by law to be withheld
with respect to the purchase of the Shares by the Employee.
(b) If the Employee elects, in accordance with Section
83(b) of the Internal Revenue Code of 1986, as amended, to recognize ordinary
income in the year of acquisition of the Shares, the Company will require at the
time of such election an additional payment for withholding tax purposes based
on the difference, if any, between the purchase price for such Shares and the
fair market value of such Shares as of the day immediately preceding the date of
the purchase of such Shares by the Employee.
10. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, and each other provision of this
Agreement shall be severable and enforceable to the extent permitted by law.
11. WAIVER. Any provision contained in this Agreement may be
waived, either generally or in any particular instance, by the Board of
Directors of the Company.
12. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the Company and the Employee and their respective heirs,
executors, administrators, legal representatives, successors and assigns,
subject to the restrictions on transfer set forth in Section 4 of this
Agreement.
13. NO RIGHTS TO EMPLOYMENT. Nothing contained in this Agreement
shall be construed as giving the Employee any right to be retained, in any
position, as an employee of the Company.
14. NOTICE. All notices required or permitted hereunder shall be
in writing and deemed effectively given upon personal delivery or upon deposit
in the United
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<PAGE> 6
States Post Office, by registered or certified mail, postage prepaid, addressed
to the other party hereto at the address shown beneath his or its respective
signature to this Agreement, or at such other address or addresses as either
party shall designate to the other in accordance with this Section 14.
15. PRONOUNS. Whenever the context may require, any pronouns used
in this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties, and supersedes all prior agreements and
understandings, relating to the subject matter of this Agreement.
17. AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
18. GOVERNING LAW. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SILVERSTREAM SOFTWARE, INC.
By:
-----------------------------------
Address: One Burlington Woods Drive
Burlington, MA 01830
EMPLOYEE
---------------------------------------
Address:
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<PAGE> 7
This Form of Founders Stock Restriction Agreement (or comparable form) was
entered into by the following executive officers of SilverStream Software, Inc.:
<TABLE>
<CAPTION>
Per Share End of
Name Date No. of Shares Purchase Price Vesting Period
---- ---- ------------- -------------- --------------
<S> <C> <C> <C> <C>
David R. Skok 7/9/96 1,122,000 $.001 6/30/00
David A. Litwack 11/4/96 1,123,000 $.001 10/31/00
Peter E. Brumme 11/12/96 564,850 $.001 10/31/00
John W. Pearce 8/16/96 347,600 $.001 7/31/00
Kim A. Sheffield 8/16/96 347,600 $.001 7/31/00
Arnold S. Epstein 8/16/96 451,880 $.001 7/31/00
Craig A. Dynes 11/2/97 70,000 $ .50 7/16/01
</TABLE>
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<PAGE> 1
Exhibit 10.5
SUB-SUBLEASE
SQA, Inc., a Delaware corporation, with a place of business at One
Burlington Woods Drive, Burlington, Massachusetts, ("Sublessor"), and
SilverStream Software, Inc., a Delaware corporation with a place of business at
One Forbes Road, Lexington, Massachusetts ("Sublessee"), make this Sublease as
of February 14, 1997.
PRELIMINARY STATEMENT
A. Pursuant to the terms of that certain Lease dated December 5,
1994 (the "Master Lease"), by and between James S. Hekemian and William O.
Finard as Trustees of Burlington Woods Office Trust No. I under a Declaration of
Trust dated April 9, 1980 as the same may be amended from time to time
(collectively, "Owner"), as landlord, and Sybase, Inc., a Delaware corporation
("Sybase"), as Tenant, Owner demised to Sybase certain office space (the
"Premises") located in the building known as Building No. 1 of Burlington Woods
Office Park, with an address of One Burlington Woods Drive, Burlington,
Middlesex County, Massachusetts (the "Building").
B. Pursuant to the terms of that certain Sublease dated as of
February 28, 1996 by and between Sybase as Sublandlord and Sublessor herein as
Subtenant, as affected by that certain Consent to Sublease dated March 12, 1996
and by and among Owner, Sybase and Sublessor and as amended by that certain
First Amendment to Sublease dated as of January 9, 1997, as so affected and
amended being hereinafter referred to as the "Sublease" and attached hereto as
Exhibit A, Sybase demised to Sublessor a portion of the Premises (the "Sublease
Premises") consisting of approximately 80,825 rentable square feet (and
including the entire second floor, the entire third floor and a portion of the
first floor) at the Building.
Capitalized terms used but not defined in this Sub-Sublease shall have
the meaning ascribed to such terms in the Sublease.
Sublessor desires to sub-sublet to Sublessee, and Sublessee desires to
accept from Sublessor, a portion of the Sublease Premises consisting of
approximately 18,225 rentable square feet on the second floor of the Building
and shown on Exhibit B attached to this Sub-Sublease (the "Demised Premises"),
on the terms and conditions set forth in this Sub-Sublease.
AGREEMENT
In consideration of the mutual covenants of this Sub-Sublease and other
valuable consideration, the receipt and sufficiency of which Sublessee and
Sublessor hereby acknowledge, Sublessor and Sublessee agree as follows:
1. DEMISED PREMISES. Sublessor hereby subleases to Sublessee, and
Sublessee hereby subleases from Sublessor, the Demised Premises together with
the non-
<PAGE> 2
exclusive right (together with Sublessor, Sybase and other occupants of the
Building) to use and permit its invitees to use public or common lobbies,
hallways, stairways, passenger elevators and sanitary facilities in the Building
necessary for Sublessee's use and occupancy of the Demised Premises and the
right to use on an unreserved basis up to 60 parking spaces at the Building,
subject to the provisions of Section 2.2(a) of the Sublease. Sublessor shall
deliver the Demised Premised to Sublessee on the Term Commencement Date (as
hereinafter defined) in broom clean condition but otherwise in such condition
assets as of the date of this Sub-Sublease, free of all occupants-other than
Sublessee except that (i) Sublessor shall install, at its sole cost and expense,
a demising wall in accordance with the demising plans attached hereto as Exhibit
B-1 and noted thereon as "SQA demising wall" ("Sublessor's Work") and (ii)
certain furniture which Sublessee has purchased from Sybase shall remain in the
Demised Premises, subject to the terms of a letter agreement dated January 30,
1997 among Sybase, Sublessee and Sublessor attached hereto as Exhibit C and
incorporated herein by reference. Sublessee acknowledges that Sublessor has made
no representations or warranties concerning the Demised Premises, the Building
or the Furniture or their nature, condition or usability, or their fitness for
Sublessee's purposes.
2. TERM. Subject to the provisions of Section 20, the term of this
Sub-Sublease (the "Lease Term") shall commence on March 1, 1997 or such later
date on which Sublessor delivers the Demised Premises to Sublessee in the
condition required in Paragraph 1 of this Sub-Sublease (the "Term Commencement
Date") and shall terminate on the date which is the last day of the 24th full
calendar month following the Term Commencement Date, or such sooner date upon
which the Lease Term may expire or terminate under this Sub-Sublease or pursuant
to law. Sublessor shall use reasonable efforts to deliver the Demised Premises
to Sublessee in the condition required in Paragraph 1 of this Sub-Sublease on or
before March 15, 1997. Notwithstanding the foregoing or any other provision of
this Sub-Sublease, in the event that Sublessor shall fail to deliver the Demised
Premises to Sublessee in the condition required in Paragraph 1 of the
Sub-Sublease on or before April 1, 1997, which date may be extended by Sublessor
(but in no event later than May 1, 1997) to the date which is five (5) business
days after the Consent Date (such date, as it may be so extended, the "Outside
Delivery Date"), Sublessee shall have the right to terminate this Sub-Sublease
by notice given to Sublessor not later than four (4) days after the Outside
Delivery Date. In the event of such termination this Sub-Sublease shall be null
and void and of no other force or effect, without recourse to either party
hereto.
3. USE. Sublessee shall use and occupy the Demised Premises only for the
Permitted Use. Sublessee shall also comply with all laws governing or affecting
Sublessee's use of the Demised Premises, and Sublessee acknowledges that
Sublessor has made no representations or warranties concerning whether the
Permitted Use complies with such laws.
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<PAGE> 3
4. MONTHLY BASE RENT. Commencing on the Commencement Date, Sublessee shall
pay to Sublessor rent at an annual rate of $400,950.00 (at the rate of $22 per
rentable square foot, which amount includes reimbursement to Sublessor for its
expenses for reasonable attorney fees, brokerage commissions and construction of
the SQA demising wall) ("Base Rent"), in equal monthly installments of
$33,412.50, on the first day of each calendar month during the Lease Term. If
the Lease Term includes a partial calendar month at its beginning or end, the
monthly installment of Base Rent for such partial month shall be prorated at the
rate of 1/30 of the monthly installment for each day in such partial month
within the Lease Term and shall be payable in advance on the first day of such
partial month occurring within the Lease Term. The Base Rent shall be paid to
Sublessor at its offices located at the Building, or such other place as
Sublessor may designate in writing, in lawful money of the United States of
America, without demand, deduction, offset or abatement. Notwithstanding the
foregoing, for the first nine (9) months of the Lease Term, a portion of the
monthly Base Rent, in the amount of $5,974.83, shall be abated, such that the
Base Rent for such period shall be $27,437.67 per month during such period.
5. OPERATING EXPENSES AND TAXES. The Sublessee shall pay to Sublessor, as
additional rent, Sublessee's Share (as defined below) of (a) the amount by which
the Taxes with respect to the Property for any Tax Year exceed the Sublessee Tax
Base (as defined below) and (1)) the excess of the Operating Expenses for any
Operating Year over and above the Sublessee Operating Expense Base (as defined
below). Sublessee's Share shall be determined by multiplying the amount by which
the (a) Taxes exceed the Sublessee Tax Base or (b) Operating Expenses exceed the
Sublessee Base Operating Expenses, as applicable, by a fraction, the numerator
of which is the marketable Floor Area of the Demised Premise and the denominator
of which is the Rentable Floor Area of the Sublease Premises (which the parties
agree is 22.6%). The Sublessee Tax Base shall be the 1996-1997 fiscal year
(ending June 30, 1997) and the Sublessee Operating Expense Base shall be 1997
calendar year. All such Tax payments shall be made within twenty (20) days of
demand and all such Operating Expense payments shall be made within ten (10)
days of demand. In addition, at Sublessor's option, one-twelfth (1/12) of the
estimated annualized amounts (whether for Taxes or Operating Expenses( shall be
paid monthly on the first of the month. Sublessee shall also pay 22.6% of all
other additional rent and other charges payable under the Sublease by Sublessor,
as subtenant under the Sublease, in connection with services provided to
Sublessee at the Demised Premises; provided, however, that Sublessee shall not
be liable to Sublessor, Sybase, Owner or any other party for any additional rent
or other charges payable under the Sublease by Sublessor which arise from or in
connection with any default by Sublessor under the Sublease or any other
negligent act or omission or intentional misconduct of Sublessor, or in
connection with services provided to portions of the Sublease Premises other
than the Demised Premises. Appropriate adjustments and corrections shall be made
in any payments due to or from Sublessee hereunder in the event that adjustments
or corrections are made to payments due to or from Sublessor under the Sublease
pursuant to Section
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<PAGE> 4
8.3 of the Sublease. Sublessee shall pay the costs of any overtime HVAC provided
at its request unless Sublessor shall also request the same, in which event such
costs shall be shared equally.
6. UTILITY SERVICES AND CHARGES. Sublessee will pay to Sublessor as
additional rent hereunder, within ten (10) days of being billed therefor, all
charges for electrical service which are reasonably allocable to the Demised
Premises by Sublessor. Sublessor shall have the option to charge Sublessee's
allocable share of electrical usage on an estimated basis, which estimates shall
be made by Sublessor reasonably and in good faith, including consideration of
the amounts it is billed by Sybase. As of the date hereof, Sublessor is
receiving bills from Sybase for charges for electrical services (for lights and
plugs) within the initial Sublease Premises (exclusive of the Expansion
Premises) which are equal to approximately $1.00 per rentable square foot per
year, but Sublessor is in no way warranting the accuracy or completeness of such
charges.
7. SECURITY DEPOSIT. Immediately upon satisfaction of the Sub-Sublease
Consent Contingency (or earlier, if required by Sybase or Owner), Sublessee
shall pay to Sublessor the sum of $ 100,237.50 (the "Security Deposit") as
security for the full and timely payment and performance of Sublessee's
obligations under this Sub-Sublease. If Sublessee fails to pay or perform in a
full and timely manner any of its obligations under this Sub-Sublease, and such
failure continues after the giving of any required notice and the expiration of
any applicable grace period, Sublessor may apply all or any portion of the
Security Deposit toward curing any such failure and compensating Sublessor for
any loss, damage or expenses arising from such failure. If Sublessor so applies
any portion of the Security Deposit, Sublessee shall immediately pay to
Sublessor the amount necessary to restore the Security Deposit to its original
amount. Sublessor shall deposit the Security Deposit in a segregated account,
with interest to Sublessee. If Sublessor assigns its interest in this Sublease
and transfers the Security Deposit (or any balance thereof) to its assignee,
Sublessee shall look only to such assignee for the application and return of the
Security Deposit. In the event that Sublessee receives cash net proceeds from
equity financings in the aggregate amount of $3.0 million or more during the
Lease Term, then Sublessor shall reimburse Sublessee $33,412.50 of the Security
Deposit previously paid by Sublessee hereunder within seven (7) days after
receipt of written confirmation from Sublessee that such equity financings have
closed. Within thirty (30) days after the expiration of the Lease Term
heretofore earlier termination of this Sub-Sublease, Sublessor shall refund the
Security Deposit (or so much thereof as remains after Sublessor's use or
application thereof).
In lieu of a cash Security Deposit, Sublessee may deliver to Sublessor
a clean, irrevocable letter of credit ("Letter of Credit") in the amount of the
Security Deposit naming Sublessor as the beneficiary thereunder and having an
expiration date not less than twenty-four (24) months from the date of issuance
and, in such event, (a) all
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<PAGE> 5
of the terms of Section 13.21(c) of the Sublease shall apply to the Letter of
Credit except that the word "Sublandlord" shall mean Sublessor and the word
"Subtenant" shall mean "Sublessee" and (b) if the conditions described above
have been met for a reduction in the amount of the Security Deposit and
Sublessor shall have received written confirmation thereof, Sublessee may
deliver a substitute Letter of Credit in the reduced amount to replace the
initial Letter of Credit, which shall then be returned to Sublessee.
8. ASSIGNMENTS AND SUBLEASES. Notwithstanding any provision of the
Sublease to the contrary, Sublessee shall not assign this Sub-Sublease or sublet
any portion of the Demised Premises without the prior written consent of
Sublessor (whose consent shall not be unreasonably withheld), Sybase and Owner,
subject to Owner's recapture and other rights under the Master Lease and Owner's
and Sybase's rights under the Sublease. The following transactions shall be
deemed assignments of this Sub- Sublease requiring such prior written consent:
(i) any assignment, mortgage, pledge or other transfer of this Sub-Sublease;
(ii) any sublease, license or occupancy agreement with respect to any portion of
the Demised Premises; (iii) if Sublessee or any of its successors or assigns is
a corporation, any sale, pledge or other transfer of all or a majority of the
capital stock of Sublessee or any such successor or assign (unless such stock is
publicly traded on a recognized security exchange or over-the-counter market),
any merger, consolidation or reorganization of or into Sublessee or any such
successor or assign, and any sale of all or substantially all of the assets of
Sublessee or such successor or assign; (iv) if Sublessee or any of its
successors or assigns is a partnership, limited liability partnership or limited
liability company, any change in its partners or members; and (v) if Sublessee
is a trust, any change in the identity of its trustees or any transfer of a
beneficial interest in such trust. If Sublessor, Sybase and Owner consent to any
such assignment or sublease, such assignment or sublease shall comply with the
requirements of Section 5 of the Sublease, except that Sublessee shall reimburse
Sublessor up to a maximum of $5,000 for legal fees and expenses in any instance
and Sublessee shall pay Sublessor 100% of the consideration or excess rent (net
of amounts excludable under Section 5.2(b) of the Sublease) as described under
Section 5.2(b) of the Sublease and any rights to assign or sublet hereunder
shall be for the benefit of SilverStream Software, Inc. and no other entity,
successor or assign. Any attempt by Sublessee to assign or sublet the Demised
Premises without the prior written consent of Sublessor, Sybase and Owner shall
be void.
Notwithstanding the foregoing,-in no event shall any: (i) sale of stock
or other interests in the Sublessee solely in connection with any equity
financing by Sublessee, (ii) assignment or sublease of the Demised Premises to
any entity controlling, controlled by or under common control with Sublessee or
any successor by merger, consolidation or sale of all or substantially all of
the assets of Sublessee (each an "Affiliate of Sublessee"), or (iii) financing
of furniture, fixtures, or equipment of Sublessee in connection with the Demised
Premises, require prior consent of
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Sublessor provided that notice of such event is given to Sublessor, except that
(a) prior written consent of Sublessor shall be required if (x) the Sublessee,
following any financing pursuant to (i), or the Affiliate of Sublessee, in the
event of (ii), shall not have a net worth and creditworthiness following such
transaction greater than that of Sublessee immediately prior thereto or (y) any
Affiliate of Sublessee shall be a competitor of or in a business similar to
Sublessor or any of its affiliates and (b) in the event of a transaction
described in (iii) in no event shall Sublessee assign, sublet or transfer any
interest in the Demised Premises or this Sub-Sublease or any property of Owner,
Sybase or Sublessor.
If Sublessee requests Sublessor's consent to an assignment or sublease
of the whole or a portion of Demised Premises, Sublessor shall have the option
to terminate this Sub-Sublease for the balance of the term (in the case of any
proposed assignment) or recapture the applicable portion of the Demised Premises
(in the case of any proposed sublease of a portion of the Demised Premises) for
the balance of the term by notice to Sublessee as of the date specified for the
balance of the term in such notice, which shall be not less than thirty (30) nor
more than sixty (60) days after the date of Sublessor's notice. In such event,
the Demised Premises, or portion thereof shall be delivered to Sublessor on the
date specified in good order and condition in the manner provided in this
Sub-Sublease at the end of the Lease Term and Sublessor shall have, at its own
cost and expense, the right to make modifications to such portion so as to make
it either a self-contained unit or accessible to, or part of, the balance of the
second floor premises occupied by Sublessor. The Base Rent, any additional rent
and other charges payable by Sublessee hereunder and the Rentable Floor Area of
the Demised Premises shall be adjusted according to the extent of the Demised
Premises for which this Sub-Sublease is terminated.
9. INSURANCE. During the Lease Term, Sublessee shall maintain insurance of
such types, in such policies, with such endorsements and coverages, and in such
amounts as are set forth in Section 9 of the Sublease, and such additional
insurance as may be required by Sublessor, in Sublessor's reasonable discretion.
All insurance policies shall name Owner, Sybase and Sublessor as additional
insureds and loss payees and shall contain an endorsement that such policies may
not be modified or canceled without 30 days prior written notice to Owner,
Sybase and Sublessor. Sublessee shall promptly pay all insurance premiums and
shall provide Owner, Sybase and Sublessor with policies or certificates
evidencing such insurance.
10. ALTERATIONS. Notwithstanding any provisions of the Sublease to the
contrary, Sublessee shall not make any alterations, improvements or
installations in the Demised Premises without in each instance obtaining the
prior written consent of Owner and Sybase which they may grant, withhold or
condition in their respective sole discretion and Sublessor (whose consent shall
not be unreasonably withheld). If Owner, Sybase and Sublessor consent to any
such alterations, improvements or
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<PAGE> 7
installations, Sublessee shall perform and complete such alterations,
improvements and installations at its expenses, in compliance with applicable
laws and in compliance with Section 4.2 (including, if required by Owner in
accordance with the terms of the Master Lease and Sublease, the removal of
alterations and restoration of the Demises Premises, subject to the provisions
of Section 22 herein) and other applicable provisions of the Sublease. If
Sublessee performs any alterations, improvements or installations without
obtaining the prior written consent of Owner, Sybase and Sublessor, Sublessor
may remove such alterations, improvements or installations, restore the Demised
Premises and repair any damage arising from such a removal or restoration, and
Sublessee shall be liable to Sublessor for all costs and expenses incurred by
Sublessor in the performance of such removal, repairs or restoration.
11. INITIAL WORK. Subject only to Sublessor's obligation to install the SQA
demising wall, Sublessee shall be responsible, at its sole cost and expense, for
the performance of all work necessary to prepare the Demised Premises for
Sublessee's occupancy, which shall include the following, a portion of which is,
shown in more detail on Exhibit B-1: moving the main entrance, constructing
demising walls around Room 234 and renovation of Room 234, including replacement
of the glass wall with a demising wall, closing up the existing doorway and
constructing a new door way and repositioning the existing glass side-light,
(collectively "Sublessee's Initial Work"). Sublessee shall deliver to Sublessor
full plans and specifications for all of Sublessee's Initial Work for
Sublessor's review and approval on or before February 14, 1997 and thereafter
shall, promptly upon Sublessor's request, deliver the plans and specifications
(with such modifications as Sublessor shall have reasonably requested) to Owner
and Sybase. Sublessor shall respond to Sublessee's request for approval of the
Sublessee's Initial Work within five (5) business days of receipt of such
request together with full plans and specifications for the proposed work and
shall use diligent efforts to obtain Sybase's consent. If such plans and
specifications have not been delivered by February 14, 1997 and/or the
Sublessee's Initial Work not completed within 14 days of the date (the "Plan
Approval Date") upon which the consent thereto by Owner, Sybase and Sublessor
have been obtained or, if later, the Consent Date (as defined in Section 20)
(the "Completion Date"), then Sublessee shall not be permitted to occupy or use
for any purposes Room 234 at the Demised Premises until such work has been
completed.
Sublessee's Initial Work-shall comply in all respects with the
requirements of this Sub-Sublease and of the Sublease relating to alterations,
including without limitation the approval by Owner, Sybase and Sublessor of
plans and specifications, the approval by Sublessor and Sybase of contractors
and subcontractors, the provision by Sublessee to Sublessor and Sybase of
as-built plans, and performance of such work in such a manner so as not to
interfere with (i) the business operations of Sublessor, and its use of the
balance of the Sublease Premises, the Building and common areas or (ii) any
alterations being performed by or for Sublessor at the
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<PAGE> 8
Building. The Initial Tenant Work shall include any and all alterations and
modifications of the Demised Premises as are required in order to cause the
Demised Premises to comply with tile Americans with Disabilities Act or such
other laws, which work shall be performed by Sublessee or its sole cost and
expense.
Subject to the foregoing, Sublessee shall have access to the Demised
Premises to perform Sublessee's Initial Work from and after the later of the
Plan Approval Date and the Consent. Date, so long as Sublessor, Sybase and the
Owner have consented to the plans and specifications as required.
Notwithstanding the foregoing, Sublessee shall, upon reasonable prior notice to
Sublessor and its agent, and subject to Sublessor's reasonable conditions
therefor, have access to the Demised Premises prior to the Plan Approval Date
and the Consent Date in order to prepare plans, take measurements and inspect
the Demises Premises as may be reasonably necessary or appropriate in connection
with preparation for the Initial Work, but in no event shall such access entitle
Sublessee to begin or perform any alterations.
12. OPTION TO EXTEND TERM. Subject to Sublessor's rights set forth below,
Sublessee shall have the option to extend the Term of this Sublease for a period
("Extension Period") beginning on the day following the end of the Term of this
Sub-Sublease and ending July 30, 2000, provided that (i) Sublessee is not in
default (after any applicable notice and cure periods) under any of the terms
and conditions of this Sub-Sublease at the time it exercises such option to
extend or at the commencement of the Extension Period and (ii) Sublessee has
given Sublessor written notice of its election to extend the Lease Term
("Extension Notice") no later than eight (8) months prior to the expiration date
of the original Lease Term. In such event, the terms and conditions of this
Sub-Sublease, including those relating to Base Rent, Operating Expenses, Taxes,
additional rent and utility charges shall continue to apply except that there
shall be no further right to extend. If Sublessee fails to give an Extension
Notice by such date, Sublessee's rights under this Section 12 shall be waived
and of no further force and effect.
Notwithstanding the foregoing Sublessor shall have the unilateral right
to terminate Sublessee's extension rights under this Section 12 by written
notice to Sublessee given on or before the later to occur of (1) thirty (30)
days after receipt of Sublessee's Extension Notice and (2) eight (8) months
prior to the commencement date of the Extension Period, in the event that
Sublessor, or any affiliate (which shall include any entity controlling,
controlled by, or under common control with Sublessor), or any successor by
merger, consolidation or sale of all or substantially all of the assets of
Sublessor (each an "Affiliate of Sublessor"), intends to occupy the Demised
Premises for its own use.
If Sublessor fails to give such notice terminating Sublessee's
extension rights, Sublessor's right to so terminate Sublessee's extension rights
under this Section 12 shall be waived and of no further force or effect. In the
event that Sublessor shall
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<PAGE> 9
exercise its right to terminate Sublessee's extension rights under this Section
12, Sublessor shall not thereafter enter into any sublease or assignment of the
Demised Premises to any party not affiliated with Sublessor for the period
beginning on the expiration date of the Lease Term and ending on the date which
is six (6) months thereafter, unless Sublessor shall first give a notice to
Sublessee offering Sublessee the right to reinstate its option to extend the
term of this Sublease for the Extension Period. Sublessee shall have ten (10)
business days after receipt of such notice to notice Sublessor that it wishes to
remain as a sub-Sublessee in the Demised Premises upon the terms and conditions
set forth above for the Extension Period.
13. RIGHT OF FIRST OFFER TO SUB-SUBLEASE ADDITIONAL SPACE. So long as
Sublessee is not in default under this Sub-Sublease (after any applicable notice
and cure periods), Sublessee shall have a right of first offer (the Offer
Right") to sub-sublease hereunder any additional portions of the Expansion
Premises which Sublessor desires to sublet, on and subject to the terms and
conditions of this Section 13. The Offer Right granted hereunder shall be
subject and subordinate to Owner's rights of recapture to the extent the same
are applicable under the Master Lease and the Sublease.
If during the Lease Term Sublessor desires to sub-sublet any portion of
the Expansion Premises beyond the Demised Premises (the "Available Premises"),
Sublessor shall give Sublessee written notice (the "Availability Notice")
setting forth the size and location of the Available Premises, the rental rate,
the term of the proposed subletting and the date Sublessor expects the Available
Premises to be vacated by Sublessor. Sublessee shall have ten (10) business days
after receipt of the Availability Notice to notice Sublessor that Sublessee (i)
desires to sublet the Available Space on the terms set forth in this
Sub-Sublease as supplemented by the Availability Notice, or (ii) declines the
opportunity to sublet the Available Space pursuant to the Availability Notice.
If Sublessee responds to an Availability Notice pursuant to the
preceding clause (i) Sublessee and Sublessor shall promptly execute an amendment
to this Sub- Sublease for the purpose of expanding the Demised Premises to
incorporate the Available Space. If Sublessee responds to an Availability Notice
pursuant to the preceding clause (ii) or, if Sublessee fails to respond to an
Availability Notice within ten (10) business days after receipt thereof,
Sublessor shall be free for a period of nine (9) months to thereafter sublet the
Available Space to another person on such terms and conditions as are not, in
Sublessor's reasonable discretion, materially more favorable to a sub-subtenant
than those set forth in the Availability Notice. In the event that sublessee
shall fail to exercise its rights to sub-sublease any Available Premises in
accordance with any Availability Notice, and Sublessor shall thereafter fail to
sub-sublease such Available Premises to a third party within said nine (9)
month period in accordance with the foregoing terms of this paragraph, or if
Sublessor shall desire to sub-sublease the Available Space on terms materially
more favorable than those set forth in any such Availability Notice, the Offer
Rights and
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<PAGE> 10
procedures set forth herein shall be re-applied prior to any subsequent
Sub-Sublease of the Available Space by Sublessor.
If the rentable square footage of the Demised Premises is increased as
a result of expansion into any Available Premises, the number of unreserved
parking spaces available for Sublessee's use shall be increased by a ratio of
3.3 parking spaces for each 1,000 square feet of added rentable area.
14. BROKERS. Sublessor and Sublessee each represent and warrant to the
other that it has not dealt with any broker other than McCall & Almy, Inc. (the
"Broker") in connection with the consummation of this Sub-Sublease. Sublessor
and Sublessee each shall indemnify and hold harmless the other against any loss,
damage, claims or liabilities arising out of the failure of its representation:
or the breach of its warranty set forth in the previous sentence. Sublessor
shall be solely responsible for the payment of any brokerage commission due to
the Broker.
15. NOTICES. All notices and demands under this Sublease shall be in
writing and shall be effective upon the earlier of (i) receipt at the address
set forth below by the party being served, or (ii) two days after being sent to
address set forth below by United States certified mail, return receipt
requested, postage prepaid, or (iii) one day after being sent to the address set
forth below by a nationally recognized overnight delivery service that provides
tracking and proof of receipt.
If to Owner: c/o Finard & Company
Three Burlington Woods Drive
Burlington, Massachusetts 01803
If to Sybase: 6475 Christie Avenue
Emeryville, California 94608
Attention: Director of Real Estate and Facilities
With a copy to: Attention: Real Estate Legal Counsel
If to Sublessor: One Burlington Woods Drive
Burlington, Massachusetts 01803
Attention: Chief Financial Officer
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<PAGE> 11
With a copy to: Testa, Hurwitz & Thibeault
High Street Tower, 125 High Street
Boston, Massachusetts 02110
Attention: Real Estate Department
If to Sublessee: SilverStream Software, Inc.
One Forbes Road
Lexington, Massachusetts 02173
Attn: Mr. John Pearce
With a copy to: Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Attention: John Chory, Esq.
Either party may change its address for notices and demands under this
Sub- Sublease by notice to the other party. After the Term Commencement Date,
notices to Sublessee shall be sent to the Demised Premises.
16. DEFAULT BY SUBLESSEE; INDEMNITY. Sublessee shall indemnify, defend and
hold harmless Sublessor from all claims, liabilities, losses, damages and
expenses arising out of a default by Sublessee in the full and timely payment
and performance of its obligations, as sub-subtenant, under this Sub-Sublease.
In the event of a default by Sublessee in the full and timely payment and
performance of its obligations under this Sub-Sublease, Sublessor shall have all
of the rights and remedies in the Sublease with respect to defaults by the
Subtenant under the Sublease, including without limitation the rights and
remedies set forth in Sections 12.1, 12.3 and 12.4 of the Sublease. Sublessee
shall further indemnify, defend and hold harmless Sublessor from any claims,
liabilities, losses, damages and expenses with respect to bodily injury, death
or property damage arising from the negligence or willful misconduct of
Sublessee or its agents, officers, or employees. Further, the provisions of
Section 9.1 shall be incorporated-herein by reference, except that the word
"Subtenant" in Sections 9. 1 (a) and (b) shall mean Sublessee; the word
"Sublandlord" shall mean both Sybase and Sublessor in Section 9.1(a) and shall
mean only Sublessor in Section 9.1(b); the words "Sublease Premises" shall mean
"Demised Premises"; the words "Sublease Term" shall mean Lease Term; and the
words "Master Lease" shall mean the Sublease.
17. NON-SOLICITATION. Sublessor and Sublessee hereby agree that during the
Lease Term neither party nor any of its Affiliates (as defined in Sections 12
and 8, respectively), successors or assigns will employ any person who is then
currently employed by the other party or has been employed by the other party
within the immediately preceding six (6) month period, including any officers
and directors, and works at the Premises or in any manner seek to solicit or
induce any such person to
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<PAGE> 12
leave his or her employment with the other party, or assist in the recruitment
or hiring of any such person.
18. SUBORDINATION TO SUBLEASE. (a) This Sub-Sublease is subject and
subordinate to the terms and conditions of the Sublease and the Master Lease.
Sublessee shall not cause a default under the Sublease or the Master Lease or
permit its employees, agents, contractors or invitees to cause a default under
the Sublease or the Master Lease. The termination of the Sublease shall
automatically terminate this Sub- Sublease. If the Sub-Sublease terminates
before the end of the Lease Term, Sublessor shall not be liable to Sublessee for
any damages arising out of such termination so long as termination of the
Sub-Sublease is not caused solely by Sublessor's default under the Sublease.
Sublessee hereby acknowledges that it has read and has knowledge of all of the
terms, provisions, rules and regulations of the Sublease and agrees not to do or
omit to do anything which would cause Sublessor to be in default under the
Sublease. Any such act or omission which causes Sublessor to be in default under
the Sublease shall also constitute a default under this Sub-Sublease entitling
Sublessor to recover from Sublessee any damage, loss, cost or expense which it
thereby suffers.
(b) Except as otherwise specified in this Sub-Sublease, all of the
terms and conditions of the Sublease are incorporated as a part of this
Sub-Sublease, but all references in the Sublease to "Subtenant", "Sublease
Premises", "Sublease Term or Term", "Fixed Rent", "Commencement Date", "Security
Deposit," "Tax Base", Operating Expense Base", "Sublease Year", "Initial
Subtenant Improvements" ' and "Owner's Consent Contingency" shall be deemed to
refer, respectively, to "Sublessee", "Demised Premises", "Lease Term" "Base
Rent", "Term Commencement Date", "Security Deposit", "Sublessee Tax Base",
"Sublessee Operating Expense Base", "Year of this Sub-Sublease", "Initial
Sublessee Work", and "Consent Date", as defined in this Sub-Sublease. To the
extent incorporated into this Sub-Sublease, and unless otherwise provided,
Sublessee shall perform the obligations of the Sublessor, as Subtenant under the
Sublease allocable to the Demised Premises. Notwithstanding any other provision
of this Sub-Sublease, and unless otherwise provided, Sublessor, as Sublandlord
under this Sub-Sublease, shall have the benefit of all rights, remedies and
limitations of liability enjoyed by Sybase, the Sublandlord under the Sublease,
but (i) Sublessor shall have no obligations under this Sublease to perform the
obligations of Owner as landlord under the Master Lease or Sybase as Sublandlord
under the Sublease; including without limitation any obligation to provide
services or maintain insurance, and Sublessee shall seek such performance and
obtain such services solely from the Owner or Sybase as appropriate (provided,
however, that in the event of any failure by Sybase to perform any obligations
of Sybase as Sublandlord under the Sublease Sublessor shall, upon request of
Sublessee, or Sybase, and shall use good faith efforts to attempt to cause
Sybase to perform its respective obligations); (ii) Sublessor shall not be bound
by any representations or warranties of Sybase as Sublandlord under the
Sublease; (iii) in any instance where the consent of
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<PAGE> 13
Owner is required under the terms of the Master Lease and or the Sublease and/or
of Sybase under the Sublease, the consent of Sublessor, Sybase and Owner shall
be required; and (iv) Sublessor shall not be liable to Sublessee for any failure
or delay in Owner's performance of its obligations, as landlord under the Master
Lease or in Sybase's performance of its obligation as Sublandlord under the
Sublease, and in all instances in the Sublease (including without limitation
Sections 6.2, 7.1, 10.1, 11.1, 11.2, and 13.3) where Sybase has agreed to notify
the Owner or to seek Owner's performance, Sublessor shall be obligated to seek
Sybase's compliance with such agreement, but not to contact Owner directly.
(c) Notwithstanding any contrary provision of this Sub-Sublease,
the following terms and conditions of the Sublease are not incorporated as
provisions of this Sub-Sublease: Section 2. 1(b); Section 2.2(a) (last
sentence); Section 2.4; Section 2.5; Section 4. 1(b) (last four sentences);
Section 6. 1(a) and (b)); Section 6.1(c) (second through fifth sentences);
Section 6.1(f) (last sentence); Section 6.2(c); Section 6.2(d) (following the
word "provided"); Section 6.2(e); Section 7. 1 (c) (following the work
"provided"); Section 7. 1(d) and (e); Section 7.3; Section 8.3; Section 11.1(a)
(last two sentences); Section 11.1(b); Section 11.2(c) and (e); Section 12.2;
Section 13.3(a); Section 13.3(e) (Section iii); Section 13.7; Section 13.11;
Section 13.18(b); Section 13.20 (f); Section 13.21(a) and (b); Section 14.1(a)
and (b); Section 14.2; and Section 14.3.
(d) Notwithstanding any contrary provision of this Sub-Sublease,
(i) in any instances where Sybase, as Sublandlord under the Sublease, has a
certain period of time in which to notify Sublessor, as Subtenant under the
Sublease, whether Sybase will or will not take some action, Sublessor, as
Sub-Sublandlord under this Sublease, shall have an additional five (5)-day
period after receiving such notice in which to notify Sublessee, (ii) in any
instance where Sublessor, as Subtenant under the Sublease, has a certain period
of time in which to notify Sybase, as Sublandlord under the Sublease, whether
Sublessor will or will not take some action, Sublessee, as sub-subtenant under
this Sub-Sublease, must notice Sublessor, as Sub-Sublandlord under this
Sub-Sublease, at least five business days before the end of such period, but in
no event shall Sublessee have a period of less than five days in which so to
notify Sublessor unless the period under the Sublease is five days or less, in
which case the period under this Sub-Sublease shall be one day less than the
period provided to Sublessor under the Sublease, and (iii) in any instance where
a specific grace period is granted to Sublessor, as Subtenant under the
Sublease, before Sublessor is considered in default under the Sublease,
Sublessee, as sub-subtenant under this Sub- Sublease, shall be deemed to have a
grace period which is ten days less than Sublessor before Sublessee is
considered in default under this Sub-Sublease, but in any event shall any grace
period be reduced to less than five days unless the period under the Sublease is
five days or less, in which case the period under this Sublease shall be one day
less than the period provided to Sublessor under the Sublease.
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<PAGE> 14
(e) Notwithstanding any contrary provision of this Sub-Sublease,
(i) in the following Sections of the Sublease, wherever the word "Sublandlord"
shall appear, the same shall mean both Sublandlord and Sublessor: Section
2.2(a); Section 2.2(c); Section 4.1 (b); Section 4.1(e); Section 4.2; Section
5.1(a), (b) and (c); Section 6.2(a) and (b); Section 6.3(a) and (b); Section
9.1(a); Section 9.2(c) and (d); Section 9.4; Section 9.5; Section 10.1; Section
13.6; Section 13.15; Section 13.20(d); (ii) in the following Sections of the
Sublease, wherever the word "Owner" appears, the same shall mean both the Owner
and Sublessor: Section 4.1 (b); and Section 4.2; (iii) in the following Sections
of the Sublease, where the word "Subtenant" shall appear, the same shall mean
both Sublessor and Sublessee: Section 4.2 (Page 10, line 19); (iv) in the
following Sections of the Sublease, the word "Sublandlord" shall mean Sybase and
not Sublessor: Section 6. 1 (e); and (v) in the following Sections of the
Sublease, the words "Master Lease" shall mean "Sublease": Section 13.3(b) and
Section 14.1(b) and (c).
(f) The parties hereby acknowledge that the Sublease allows rent
abatements or reductions to Sublessor in certain instances, including, without
limitation, under the provisions of Section 6.2(e), Section 7.1(e), Section 7.3,
Section 11.1(c), Section 11.2(d) and Section 13.20(f). The parties hereby agree
that whenever the Sublessor's rent shall be abated or reduced under the
Sublease, and the cause of such abatement or reduction affects Sublessor's use
of the Expansion Premises not sub-subleased hereunder (and not solely the
balance of the Sublease Premises) and also materially interferes with
Sublessee's use and enjoyment of the Demised Premises in substantially the same
way, the Sublessee's rent under this Sub-Sublease shall be abated or reduced in
proportion to the abatement or reduction granted to Sublessor under the
Sublease.
19. ENTIRE AGREEMENT. This Sublease contains all of the
agreements, conditions, warranties and representations relating to the sublease
of the Demised Premises and may be amended or modified only by written
instruments executed by both Sublessor and Sublessee.
20. CONDITION PRECEDENT. This Sublease, and the rights and
obligations of Sublessor and Sublessee under this Sublease, and the commencement
of the Lease Term are subject to the condition (the "Sub-Sublease Consent
Contingency") that Owner and Sybase each consent to this Sub-Sublease (Sublessee
acknowledging that it is aware of Owner's recapture rights under the Master
Lease and Sublease) and to the Sublessor's Work, and the portion of Sublessee's
Initial Work, shown on Exhibit B-1, and this Sublease shall be effective only
upon the receipt by Sublessor and Sublessee of such consent (the date of such
receipt by Sublessor and Sublessee being referred to herein as the "Consent
Date"). Sublessor shall use reasonable efforts to include in such consent of
Owner and Sybase the to Sublessee's signage rights set forth in section 21
hereof.
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<PAGE> 15
21. SIGNAGE. Sublessee shall be permitted, subject to the
reasonable consent of Sublessor, Sybase and Owner, and at Sublessee's sole cost
and expense, to install a sign (a) on the entry door to the Demised Premises and
(b) in the lobby on the first floor in the Premises in a location and of a size
and type mutually agreeable to Sublessor and Sublessee.
22. REMOVAL OF ALTERATIONS. Sublessor and Sublessee hereby agree
that in the event that Owner requires the removal of any alterations,
improvements or installations made by Sublessee and restoration of the Demised
Premises in accordance with the terms of the Master Lease or the Sublease,
Sublessee shall remove such alterations, improvements or installations and so
restore the Demised Premises at its sole cost and expense; provided, however,
that in the event that the Term of this Lease shall not be extended for the
Extension Period, then Sublessee shall have the right to give notice to
Sublessor within ten (10) days after the expiration of the initial Term of this
Sub-Sublease offering Sublessor the option to elect for Sublessee to not make
such removal or restoration. Within seven (7) days after receipt of such notice,
Sublessor shall give notice to Sublessee electing either to (a) require
Sublessee to undertake such removal and restoration (assuming same has been
required by Owner), in which case Sublessee shall be given an additional period
of fourteen (14) days from receipt of such notice to complete such work, or (b)
permit such alterations, improvements and installations to remain, in which case
Sublessee shall be relieved of all responsibility to remove such alterations,
improvement and installations and to so restore the Demised Premises, which
responsibility shall thereafter be assumed by Sublessor. In the event that
Sublessor shall fail to make such election by notice given to Sublessee within
said seven (7) day period, Sublessor shall be deemed to have elected to permit
such alterations, improvements and installations to remain and to have assumed
all responsibility for such removal and restoration.
IN WITNESS WHEREOF, Sublessor and Sublessee execute this Sublease as of
the date first written above.
SILVERSTREAM SOFTWARE, INC. SQA, INC.
By: /s/ JOHN PEARCE By: /s/ THOMAS F. BOGAN
------------------------------- -------------------------------
Name: John Pearce Name: Thomas F. Bogan
Title: CFO Title: Sr. VP, Finance & Admin
-15-
<PAGE> 1
Exhibit 10.6
FIRST AMENDMENT TO SUB-SUBLEASE
This First Amendment of Sub-Sublease is made as of the _____ day of
April, 1998 between Rational Software Corporation, a Delaware corporation and
sucessor by merger to SQA, Inc., a Delaware corporation (the "Subtenant") and
SilverStream Software, Inc., a Delaware corporation (the "Sub-Sublessee").
WHEREAS, pursuant to the terms of that certain Lease dated as of
December 5, 1994, (the "Master Lease"), by and between James S. Hekimian and
William G. Finard as Trustees of Burlington Woods Office Trust No. I
(collectively, "Owner"), as landlord, and Sybase, Inc., (the "Tenant"), Owner
leased to Tenant certain office space (the "Master Premises") commonly known as
Building No.1 of Burlington Woods Office Park with an address of One Burlington
Woods Drive, Burlington, Massachusetts; and
WHEREAS, Tenant and Subtenant entered into that certain Sublease dated
as of February 28, 1996 by and between Tenant, as sublandlord and Subtenant as
subtenant (the "Sublease") of a portion of the Master Premises consisting of
forty-three thousand one hundred twenty-one (43,121) rentable square feet (the
"Sublease Premises"); and
WHEREAS, Owner consented to the Sublease pursuant to that certain
Consent to Sublease dated as of March 12, 1996 (the "Consent"); and
WHEREAS, Tenant and Subtenant entered into a certain First Amendment to
Sublease dated as of January 9, 1997 (the "First Sublease Amendment") which
increased the size of the Sublease Premises to eighty thousand eight hundred
twenty-five (80,825) rentable square feet; and
WHEREAS, Owner consented to the First Sublease Amendment by executing
and delivering a consent dated January 15, 1997; and
WHEREAS, Tenant and Subtenant entered into a certain Second Amendment
to Sublease dated as of May __, 1997 (the "Second Sublease Amendment") which
increased the size of the Sublease Premises to eighty-three thousand twenty-five
rentable square feet (the "Expanded Sublease Premises"); and
WHEREAS, Subtenant and the Sub-Sublessee entered into a certain
Sub-Sublease dated as of February 14, 1997 by and between Subtenant as
sub-sublessor and Sub-Sublessee as sub-sublessee (the "Sub-Sublease"), for a
portion of the Sublease Premises consisting of eighteen thousand two hundred
twenty-five (18,225) rentable
<PAGE> 2
square feet on the second (2nd) floor of the building (the "Sub-Sublease
Premises"); and
WHEREAS, Owner and Tenant consented to the Sub-Sublease pursuant to
that certain Consent to Sub-Sublease dated as of March 4, 1997 (the
"Sub-Sublease Consent"); and
WHEREAS, Subtenant desires to sub-sublet the remainder of the second
floor, consisting of approximately nineteen thousand four hundred seventy-nine
(19,479) rentable square feet (the "Expansion Premises") to Sub-Sublessee; and
extend the term of the Sub-Sublease to July 30, 2000; and
WHEREAS, Subtenant and Sub-Sublessee acknowledge and agree that Owner
and Tenant's approval are required to this First Amendment to Sub-Sublease.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, Subtenant and Sub-Sublessee hereby
agree as follows:
1. CAPITALIZED TERMS. All capitalized terms not otherwise
modified or defined herein shall have the same meanings as are ascribed to them
in the Sub-Sublease. For purposes of this First Amendment to Sub-Sublease, the
Sub-Sublease, as amended by this First Amendment to Sub-Sublease, shall be
hereinafter referred to as (the "Amended Sub-Sublease").
2. EFFECTIVENESS OF THIS FIRST AMENDMENT TO SUB-SUBLEASE. This
First Amendment to Sub-Sublease is subject to the consent of Owner and Tenant
(together, the "Required Consents"), and shall not become legally binding and
effective until the receipt by Subtenant and Sub-Sublessee of the Required
Consents. In the event the Required Consents are not obtained, neither party
shall have any rights or obligations hereunder.
3. DELIVERY OF EXPANSION PREMISES. Subject to obtaining the
Required Consents, the Subtenant shall deliver possession of the Expansion
Premises to Sub-Sublessee on a date (the "Expansion Premises Effective Date"),
which shall be not earlier than May 1, 1998 nor later than August 31, 1998.
Subtenant shall notify Sub-Sublessee of the Expansion Premises Effective Date
not less than sixty (60) days prior to the Expansion Premises Effective Date,
provided that if Subtenant fails to give such written notice, the Expansion
Premises Effective Date shall be August 31, 1998. Beginning on the Expansion
Premises Effective Date, the Expansion Premises shall be included in the
Sub-Sublease Premises for all purposes of the Amended Sub-Sublease and, except
as otherwise expressly set forth herein, all provisions of the Sub-Sublease
shall be applicable to the Expansion Premises.
<PAGE> 3
4. DEFINITION OF THE PREMISES. On and after the Expansion
Premises Effective Date, for all purposes of the Amended Sub-Sublease, the
Sub-Sublease Premises shall consist of thirty-seven thousand seven hundred four
(37,704) rentable square feet comprising the entire rentable area of the second
(2nd) floor of the building and the number of additional unreserved parking
spaces available for Sub-Sublessee's use shall be increased by sixty-four (64).
5. TERM. If this First Amendment becomes effective, the
Sub-Sublessee shall be deemed to have exercised its option to extend the Term of
the Sub-Sublease until July 30, 2000, upon the terms set forth in Section 12 of
the Sub-Sublease and, in such event, the Lease Term shall terminate on July 30,
2000, or such sooner date upon which the Lease Term may expire or terminate
under the Sub-Sublease or pursuant to law and, in addition, Subtenant waives its
option to terminate Sub-Sublessee's extension rights under Section 12 of the
Sub-Sublease.
6. CONDITION UPON DELIVERY OF POSSESSION. Sub-Sublessee has
inspected the Expansion Premises and acknowledges that the Expansion Premises
shall be delivered to Sub-Sublessee in their existing "as is" condition,
reasonable wear and tear excepted, but otherwise broom clean and free of all
occupants. Subtenant shall have no obligation to perform any work in the
Expansion Premises to prepare the same for Sub-Sublessee's occupancy.
Sub-Sublessee acknowledges that Subtenant has made no representations or
warranties concerning the Expansion Premises or their nature, condition or
usability, or their fitness for Sub-Sublessee's purposes.
7. ANNUAL BASE RENT.
(a) Commencing on the Expansion Premises Effective Date
and continuing through the Lease Term, the Annual Base Rent payable with respect
to the Sub-Sublease Premises shall be eight hundred twenty-nine thousand four
hundred eighty-eight and 00/100 dollars ($829,488.00) per annum (($69,124.00)
per month).
8. SUB-SUBLESSEE'S SHARE. On the Expansion Premises Effective
Date, the definition of "Sublessee's Share" as set forth in Paragraph 5 of the
Sub-Sublease shall be increased from 22.6% to 45.41%:
9. SECURITY DEPOSIT. Immediately upon delivery to the
Sub-Sublessee of a copy of the Required Consents, the Sub-Sublessee shall
increase the Security Deposit to $138,248.00 for the remainder of the Lease
Term.
10. PLAN SHOWING TENANT'S SPACE. Effective as of the Expansion
Premises Effective Date, Exhibit B to the Sub-Sublease shall be replaced with
the plan showing the expanded Sub-Sublease Premises, which plan is attached
hereto as Exhibit A.
<PAGE> 4
11. NOTICES. Paragraph 15 of the Sub-Sublease shall be amended by
deleting the notice address of Sublessor and inserting the following therefor:
If to Sublessor: Glen D. Weisman
Director of Operations
Rational Software Corporation
18880 Homestead Road
Cupertino, CA 95014
With a copy to: Michael H. Glazer, P.C.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
12. BROKERAGE. Each party hereto represents and warrants to the
other party that it has not dealt with any real estate broker or agent in
connection with this First Amendment to Sub-Sublease, except for McCall & Almy,
Inc ("McCall"). Any fee due McCall shall be the responsibility of the Subtenant.
Each party hereto shall indemnify the other party and hold the other party
harmless from any cost, expense or liability (including costs of suit and
reasonable attorneys' fees) for any compensation, commission or fees claimed by
any other real estate broker or agent in connection with this Amended
Sub-Sublease or its negotiation by reason of any acts of the other party.
13. AUTHORITY. Subtenant and Sub-Sublessee each warrant to the
other that the person or persons executing this First Amendment on its behalf
has or have authority to do so and that such execution has fully obligated and
bound such party to all terms and provisions of this First Amendment.
14. RATIFICATION. As modified by this First Amendment, the
Sub-Sublease is in full force and effect and Subtenant and Sub-Sublessee ratify
and confirm the same.
15. INTERPRETATION AND PARTIAL INVALIDITY. If any term of this
First Amendment, or the application thereof to any person or circumstances,
shall to any extent be invalid or unenforceable, the remainder of this First
Amendment, or the application of such term to persons or circumstances other
than those as to which it is invalid or unenforceable, shall not be affected
thereby, and each term of this First Amendment shall be valid and enforceable to
the fullest extent permitted by law. The titles for the sections are for
convenience only and not to be considered in construing this First Amendment.
This First Amendment contains all of the agreements of the parties with respect
to the subject matter hereof, and supersedes all prior dealings between them
with respect to such subject matter.
[SIGNATURES ON NEXT PAGE]
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this First Amendment as a
sealed instrument, in two or more counterparts, as of the day and year first
above written.
Subtenant:
RATIONAL SOFTWARE CORPORATION
By: /s/ Glen Weisman
----------------------------------
Name: Glen Weisman
Title: Director of Operations
Hereunto duly authorized
Sub-Sublessee:
SILVERSTREAM SOFTWARE, INC.
By: /s/ Craig Dynes
----------------------------------
Name: Craig Dynes
Title: CFO
Hereunto duly authorized
<PAGE> 1
FLEET BANK TERM LOAN AGREEMENT
For value received and in further consideration of the granting by Fleet Bank of
Massachusetts, National Association ("Bank") to the undersigned ("Borrower") of
a line of credit or of a loan or loans thereunder (all such loans, together with
any existing loans from Bank to Borrower, being hereinafter collectively and
separately referred to as the "Loan), Borrower represents and warrants to and
agrees with Bank as follows ("Agreement"):
SECTION 1. THE LOAN.
1.1 AMOUNT. Bank will lend to Borrower, and Borrower will borrow from
Bank $750,000.00, with interest at Prime + .5% per annum.
1.2 EVIDENCE OF LOAN. At the option of Bank, the Loan and the terms of
repayment thereof, including the rate of interest, may be evidenced by a note or
notes, or by Bank's books and records.
1.3 SECURITY AND/OR GUARANTY. The payment of the Loan may at any time
or from time to time be secured and/or guaranteed wholly or partly separate and
apart from this Agreement, but whether or not secured and/or guaranteed, all
monies and other property at any time in the possession of Bank which Borrower
either owns or has the permission of the owner thereof to pledge with or
otherwise hypothecate to Bank, including, but not limited to, any deposits,
balances of deposits or other sums at any time credited by or due from Bank,
shall at all times be collateral security for all of the liabilities,
obligations and undertakings of Borrower to Bank, direct or indirect, absolute
or contingent, now existing or hereafter arising or acquired including, but not
limited to, the payment of the Loan.
SECTION 2. WARRANTIES AND REPRESENTATIONS. Borrower hereby represents
and warrants to Bank (which representations and warranties will survive the
making of the Loan) that:
2.1 CORPORATE EXISTENCE. Borrower, if a corporation, is and will
continue to be, a corporation duly incorporated and validly existing under the
laws of the State of _____________________ and duly licensed or qualified as a
foreign corporation in all states wherein the nature of its property owned or
business transacted by it makes such licensing or qualification necessary.
Borrower has obtained all required permits, authorizations and licenses, without
unusual restrictions or limitations, to conduct the business in which Borrower
is presently engaged, all of which are in full force and effect.
2.2 CORPORATE AUTHORITY AND POWER. If Borrower is a corporation, the
execution, delivery and performance of this Agreement, any note or security
agreement or any other instrument or document at any time required in connection
with the Loan are within the corporate powers of Borrower, and not in
contravention of law, the Articles of Organization or By-Laws of Borrower or any
amendment thereof, or of any indenture, agreement or undertaking to which
Borrower is a party or may otherwise be bound, and each such instrument and
document represents a valid and binding obligation of Borrower and is fully
enforceable according to its terms. Borrower will, at the request of Bank at any
time and from time to time, furnish Bank with the opinion of counsel for
Borrower with respect to any or all of the foregoing or other matters, such
opinion to be in substance and form satisfactory to Bank.
<PAGE> 2
Exhibit 10.7
[Fleet Logo]
March 4, 1999
Mr. Craig Dynes
Chief Financial Officer
SilverStream Software, Inc.
One Burlington Woods, Suite 200
Burlington, MA 01803
Dear Craig:
We are pleased to advise you that Fleet National Bank (the "Bank") has approved
a commitment to extend a new $750,000 Equipment Term Loan Facility to
SilverStream Software, Inc. (the "Borrower"), subject to the terms and
conditions hereinafter set forth.
BORROWER: SilverStream Software, Inc.
AMOUNT: $750,000
TYPE: Equipment Term Loan Facility
PURPOSE: Equipment financing
MATURITY: November 1, 1999 (Draw down period)
REPAYMENT: The balance outstanding at 11/1/99 shall be termed out in 36
equal monthly payments beginning 11/1/99.
INTEREST RATE: Fleet National Bank Prime Rate plus 1/2%, payable monthly in
arrears.
SECURITY: A perfected first lien on all corporate assets (excluding
Intellectual Property)
ADVANCE RATE: Advances will be made at 100% of invoice on approved equipment
(excluding taxes, shipping, software, etc.) upon the submission
to the Bank of invoices and evidence of payment (to be made not
more than 30 days after purchase, except for assets purchased
prior to closing which will be submitted at closing).
<PAGE> 3
Mr. Dynes
Page #2
PAYMENT: The Bank shall be authorized to debit any account
maintained by the Borrower for the payment of interest,
principal and fees when due.
OTHER FEES: The Borrower is responsible for any and all
out-of-pocket expenses incurred by the Bank in
connection with the arrangement, documentation and
closing of this transaction, whether or not the
transaction closes, or any loan is made. These fees
will be limited to UCC search and filing fees.
AFFIRMATIVE COVENANTS: Customary for transactions of this type including, but
not limited to the following:
Borrower shall:
1.) Pay all taxes; comply with all laws; preserve corporate existence;
maintain adequate insurance (on which the Bank shall be named loss
payee); keep property records and books of account, etc.
2.) Maintain the following financial ratios (which will also apply to the
existing indebtedness evidenced by a Commercial Promissory Note.
Letter Agreement and related documentation previously executed.
a.) MINIMUM TANGIBLE NET WORTH -- The Borrower will maintain a
Tangible Net Worth (TNW) of not less than $4,000,000.00 at
all times. TNW shall be defined as Stockholders' Equity
minus Intangible Assets. To be tested quarterly.
b.) MINIMUM LIQUIDITY -- The Borrower will maintain as at the
end of each fiscal quarter of Borrower, a ratio of Net Quick
Assets to Total Current Liabilities, which ratio shall not
be less than 2.00:1. To be tested quarterly. Net Quick
Assets shall be defined as cash, cash-equivalents, readily
marketable securities and receivables (not of appropriate
reserves).
3.) Provide monthly and annual financial statements within 30 and 90 days
respectively of the end of the period. An accounting firm acceptable
to the Bank shall audit the annual financials. Compliance Certificates
shall accompany each financial statement certifying that the Borrower
is in compliance with the financial covenants on all other terms of
the agreement.
4.) Maintain Fleet National Bank as its primary bank of account.
<PAGE> 4
Mr. Dynes
Page #3
NEGATIVE COVENANTS: Customary for transactions of this type including, but not
limited to the following:
Borrower shall not:
1.) Materially change the nature of its business.
2.) Pledge or encumber any of its assets to third parties.
3.) Assume or issue guarantees or become contingently liable in support of
third party transactions excluding those currently existing.
4.) Sell, lease, assign or otherwise dispose of any of its assets other
than in the ordinary course of business.
5.) Create or assume new indebtedness.
6.) Pay any dividends or make distributions.
7.) Complete transactions with affiliates, other than those done on an
arms length basis, without prior consent.
8.) Merge or make an acquisition without prior consent of the Bank.
EVENTS OF DEFAULT: Customary for transactions of this type including, but not
limited to;
1.) Non-payment of principal, interest or fees.
2.) Any representation shall prove untrue in any material respect.
3.) Any violation of any covenant of the Letter Agreement or any other
related document.
4.) Insolvency, bankruptcy or judgment in excess of $100,000.
CONDITIONS PRECEDENT TO LENDING: Customary for transactions of this type
including, but not limited to the following:
<PAGE> 5
Mr. Dynes
Page #4
1) Completion of documentation satisfactory to the Bank (including UCC
searches and the execution of any required leases). Related documents
include the following:
A) Commercial Promissory Note
B) Term Loan Agreement
C) Landlord's Waiver
D) UCC-1 Financing Statements
E) Inventory and Accounts Receivable Security Agreement
F) Supplemental Security Agreement Security Interest in Goods and
Chattels.
2) Certified copy of all resolutions and documents evidencing necessary
corporate action including board minutes, certificate of incumbency,
corporate resolution, certificate of good standing and a certified copy
of the Borrower's by-laws and charter documents.
3.) No material adverse changes in the condition (financial or otherwise),
operations, properties, assets, liabilities, or earnings of the
Borrower since the date of its most recent company prepared statement.
3) The terms and the commitment are subject to the condition that there be
no material change in governmental regulations or monetary policies,
including any change relating to capital adequacy of the Bank which
would have the effect of reducing the rate of return on the capital of
the Bank below the level contemplated hereby.
Craig, I am glad to present this commitment and I look forward to further
expanding our relationship in the future. Please do not hesitate to call if you
have questions or comments.
Sincerely,
/s/ Dina M. Gordon
------------------------
Dina M. Gordon
Assistant Vice President
High Technology Division
<PAGE> 6
2.3 FINANCIAL STATUS. All financial statements and other statements
heretofore or hereafter given by Borrower to Bank in respect hereof are or will
be true and correct, subject to any limitation stated therein, consistent with
any prior statements furnished to Bank, and prepared in accordance with
generally accepted accounting principles to represent fairly the condition of
Borrower at the date thereof.
2.4 LITIGATION. There is not now pending or threatened against Borrower
any action or other proceedings or any claim in which Borrower has any monetary
or other proprietary interest nor do any of the executive or managing personnel
of Borrower know of any facts which may give rise to any such litigation,
proceeding or claim, except:______________________________________________.
2.5 SUBSIDIARIES AFFILIATES. If Borrower is a corporation it (a) owns
100% or N/A% of the issued and outstanding stock of the following subsidiaries
and/or affiliates:______________________________________________________________
________________________________________________________________________________
(b) such stock shall be free and clear of any pledges, liens, or other
encumbrances.
2.6 EVENTS OF DEFAULT. No event of default specified in Section 5.0
hereof, and no event which, with the lapse of time or notice, would become such
an event of default, has occurred and is continuing.
2.7 TITLE OF PROPERTY. Borrower has good and marketable title to all
property in which Borrower has given or has agreed to give a security interest
to Bank and such property is or will be free of all encumbrances
except:__________________________________-_____________________________
2.8 TAXES. Borrower has filed all tax returns required to be filed, has
paid all taxes due thereon and has provided adequate reserves for payment of any
tax which is being contested.
SECTION 3. AFFIRMATIVE COVENANTS. Borrower agrees that until payment in
full of the Loan and performance of all of the obligations under this Agreement,
Borrower will, unless Bank otherwise consents in writing, comply with the
following:
3.1 COMPENSATING BALANCES. Bank shall be Borrower's main bank of
deposit and Borrower shall maintain average aggregate collected balances in its
deposit account or accounts with Bank of not less than N/A per centum
(__________%) of the outstanding unpaid balance of the Loan or Loans; such
collected balances to be calculated net of any balances required to support
_____ and deposit account activity costs. Balances shall be averaged
______________________________.
3.2 COMMITMENT FEE. Subject to the terms of this agreement Bank commits
itself until ______________, 19__, to lend to Borrower at any time or from time
to time a sum or sums in the aggregate amount of $ N/A ; and Borrower agrees to
pay to Bank monthly in arrears a fee for Bank's said commitment in the amount of
_________________ per centum (________%) of the unused portion thereof as long
as the same be outstanding. Borrower shall also, in addition to requirements of
Paragraph 3.1 above, maintain collected balances in its deposit account or
accounts with Banks of not less than ___________ per centum (___________%) of
the unused portion of said commitment. Repayments on account of the Loan shall
not operate to increase the unused portion of said commitment, except in the
case of Revolving Loans.
3.3 FINANCIAL STATEMENTS. (a) Borrower will furnish to Bank monthly
statements prepared by Borrower within thirty days of the close of each month
and within ninety days after the close of each fiscal year, an annual audit
prepared by the equity method and certified by public accountants selected by
Borrower and approved by Bank, together with a certificate by such accountants
that at
-2-
<PAGE> 7
such audit date Borrower was acting in compliance with the terms of this
Agreement. If Borrower is a corporation, consolidated and consolidating
statements shall be furnished for Borrower and all subsidiary corporations, (b)
Borrower shall indicate on said statements all guarantees made by it and (c)
Borrower will upon request permit a representative of Bank to inspect and make
copies of Borrower's books and records at all reasonable times, (d) Borrower
shall furnish a covenant compliance certificate with monthly financial
statements.
3.4 INSURANCE. Borrower will maintain adequate fire insurance with
extended coverage, public liability and other insurance as Bank may reasonably
require as consistent with sound business practice and with companies
satisfactory to Bank, which policies will show the Bank as a loss payee.
3.5 TAXES AND OTHER LIENS. Borrower will comply with all statutes and
government regulations and pay all taxes, assessments, governmental charges or
levies, or claims for labor, supplies, rent and other obligations made against
it which, if unpaid, might become a lien or charge against Borrower or on its
property, except liabilities being contested in good faith and against which if
requested by Bank, Borrower will set up reserves satisfactory to Bank.
3.6 MAINTENANCE OF EXISTENCE. If Borrower is a corporation, it will
maintain its existence and comply with all applicable statutes, rules and
regulations, and maintain its properties in good operating condition, and
continue to conduct its business as presently conducted.
3.7 NOTICE OF DEFAULT. Within three (3) business days of becoming aware
of (a) the existence of any condition or event which constitutes a default under
Section 5.0 hereof, or (b) the existence of any condition or event which with
notice or the passage of time, will constitute a default under Section 5.0
hereof, Borrower will provide Bank with written notice specifying the nature and
period of existence thereof and what action Borrower is taking or proposes to
take with respect thereto.
3.8 USE OF PROCEEDS. Borrower shall use the proceeds of the Loan
hereunder for general commercial purposes, provided that no part of such
proceeds will be used, for the purpose of purchasing or carrying any "margin
security" as such term is defined in Regulation U of the Board of Governors of
the Federal Reserve System.
3.9 FURTHER ASSURANCES. Borrower will execute and deliver to Bank any
writings and do all things necessary, effectual or reasonably requested by Bank
to carry into effect the provisions and intent of this Agreement.
SECTION 4. NEGATIVE COVENANTS. Without the prior written approval of
Bank, Borrower will not:
4.1 CONSOLIDATION, MERGER OR ACQUISITION. Participate in any merger or
consolidation or alter or amend the capital structure of Borrower including, but
not limited to, the issuance of additional stock, or make any acquisition of the
business of another.
4.2 DIVIDENDS. Pay any dividends, including stock dividends, or make
any distributions in cash or otherwise, including splits of any kind, to any
officer, stockholder or beneficial owner of Borrower other than salaries.
4.3 ENCUMBRANCES. Mortgage, pledge or otherwise encumber any property
of Borrower or permit any lien to exist thereon except liens (i) for taxes not
delinquent or being contested in good
-3-
<PAGE> 8
faith; (ii) of mechanics or materialmen in respect of obligations not overdue or
being contested in good faith; (iii) resulting from security deposits made in
the ordinary course of business; and (iv) in favor of Bank.
4.4 INVESTMENTS. Invest any assets of Borrower in securities other than
obligations of the United States of America.
4.5 DISPOSITION OF ASSETS, GUARANTEES, LOANS, ADVANCES. Sell, transfer
or assign any assets of Borrower other than in the ordinary course of business
or, except as hereinafter specifically permitted, (i) sell or transfer or assign
any of Borrower's accounts receivable with or without recourse (ii) guarantee or
become surety for the obligations of any person, firm or corporation, or (iii)
make any loans or advances except:___________________________________________.
4.6 WORKING CAPITAL. Permit its inventory to exceed _______% of its
Current Assets; permit its net Working Capital (excess of Current Assets over
Current Liabilities) to be less than $ N/A for the current fiscal year and for
each subsequent fiscal year to be less than the amount for the prior fiscal year
plus _______% of Borrower's net income earned for the prior year, after
provision for taxes, provided that there shall be no reduction in the required
working capital for losses; or permit its Current Assets to be less than
___________% of its Current Liabilities, Current Assets and Current Liabilities
to be computed in accordance with customary accounting practice except that
Current Liabilities shall in any event include all rentals and other payments
due within one year under any lease or rental of personal property.
4.7 LIABILITIES. Permit its total short and long term liabilities
including borrowings to exceed __________% of Borrower's tangible net worth,
said percentage to decrease N/A% per year for the term of the Loan.
4.8 FIXED ASSETS. Make, or incur any obligation to make, any
expenditures in any fiscal year for fixed assets by purchase or lease agreement
the aggregate fair market value of which assets is in excess of $ N/A.
4.9 COMPENSATION. If Borrower is a corporation, pay to its officers and
directors aggregate compensation in any fiscal year which exceeds $ N/A.
4.10 EMPLOYEE RETIREMENT INVESTMENT SECURITY ACT OF 1974 AS AMENDED
("ERISA"). Permit any pension plan to: (a) engage in any "prohibited
transaction"; (b) fail to report to Bank a "reportable event"; (c) incur any
"accumulated funding deficiency"; or (d) terminate its existence at any time in
a manner which could result in the imposition of a lien on the property of the
Borrower. (The quoted terms are defined in Sections 2003(c), 302, and 4003,
respectively, of ERISA.)
SECTION 5. DEFAULTS. If any one or more of the following "Events of
Default" shall occur at any time, Bank shall have the right to declare any or
all liabilities or obligations of Borrower to Bank immediately due and payable
without notice or demand:
5.1 Any warranty, representation or statement made or furnished to Bank
by or on behalf of Borrower or any guarantor or surety for Borrower was in any
material respect false when made or furnished;
5.2 A failure to pay or perform when due any obligation, liability or
covenant of Borrower or of any guarantor or surety for Borrower, under this loan
agreement or any other indebtedness or obligation for borrowed money, or if such
indebtedness or obligation shall be accelerated, or if there exists any event of
default under any such instrument, document or agreement evidencing or securing
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<PAGE> 9
such indebtedness or obligation, including, but not limited to, failure to
perform the terms of this Agreement or of the note or notes evidencing the Loan;
5.3 The commencement of any proceeding under any bankruptcy or
insolvency laws by or against Borrower, the appointment of a trustee, receiver,
or custodian and, if any such proceeding is involuntary such proceeding has not
been dismissed and all trustees, receivers, or custodians discharged within 30
days of its commencement or their appointment;
5.4 The service upon Bank of a writ in which Bank is named as trustee
or Borrower or any guarantor or surety for Borrower;
5.5 If Borrower or any guarantor or surety for Borrower is a
corporation, trust or partnership, the liquidation, termination or dissolution
of any such organization or its ceasing to carry on actively its present
business;
5.6 The death of Borrower or any guarantors or surety for Borrower, and
if Borrower or any guarantor or surety for Borrower is a partnership, the death
of any partner; or
5.7 A judgment or judgments for the payment of money aggregating in
excess of $100,000.00 is outstanding against Borrower or any guarantor or surety
for Borrower and any one of such judgments has been outstanding for more than
thirty (30) days from the date of its entry and has not been discharged in full
or stayed.
SECTION 6. MISCELLANEOUS.
6.1 OTHER AGREEMENTS. This Agreement is supplementary to each and every
other agreement between Borrower and Bank and shall not be so construed as to
limit or otherwise derogate from any of the rights or remedies of Bank or any of
the liabilities, obligations or undertakings of Borrower under any such
agreement, nor shall any contemporaneous or subsequent agreement between
Borrower and Bank be construed to limit or otherwise derogate from any of the
rights or remedies of Bank or any of the liabilities, obligations or
undertakings of Borrower hereunder unless such other agreement specifically
refers to this Agreement and expressly so provides. This Agreement and the
covenants and agreements herein contained shall continue in full force and
effect and shall be applicable not only with respect to the Loan, but also to
all other obligations, liabilities and undertakings of Borrower to Bank whether
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising or acquired, until all such obligations, liabilities and
undertakings have been paid or otherwise satisfied in full.
6.2 WAIVERS. No delay or omission on the part of Bank in exercising any
right hereunder shall operate as a waiver of such right or any other right and
waiver on any one or more occasions shall not be construed as a bar to or waiver
of any right or remedy of Bank on any future occasion.
6.3 EXPENSES. Borrower will pay or reimburse Bank for all reasonable
expenses, including attorneys' fees, which Bank may in any way incur in
connection with this agreement or any other agreement between Borrower and Bank
or with any Loan or which result from any claim or action by any third person
against Bank which would not have been asserted were it not for Bank's
relationship with Borrower hereunder or otherwise.
6.4 NOTICES. All notices and other communications hereunder shall be in
writing, except as otherwise provided in this Agreement, and shall be hand
delivered or mailed by first-class mail, postage prepaid (in which event notice
shall be deemed to have been given when so delivered or deposited in the mail),
addressed (a) if to Borrower, to One Burlington Woods, Suite 220, Burlington,
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<PAGE> 10
MA 01803 and (b) if to Bank, to 1 Federal Street, Boston, MA 02110, Attention
Scott Wheelock. The address of any party hereto for such demands, notices and
other communications may be changed by giving notice in writing at any time to
the other party hereto.
6.5 MASSACHUSETTS LAW. This Agreement is intended to take effect as a
sealed instrument and shall be governed by and construed according to the laws
of the Commonwealth of Massachusetts.
6.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
Borrower's legal representatives, successors and assigns and shall inure to the
benefit of Bank's successors and assigns.
6.7 ADDITIONAL PROVISIONS. Borrower furthermore agrees to the following
additional provisions:
Liquidity Covenant: The Borrower will maintain as at the end of each
fiscal quarter of Borrower, a ratio of Net Quick Assets to Total Current
Liabilities, which ratio shall not be less than 2.00 to 1. To be tested
quarterly.
Capital Base: The Borrower, will maintain, as at the end of each month
of the Borrower, consolidated Capital Base of not less than $4,000,000.00.
"Net Quick Assets" shall be defined as cash, cash-equivalents,
readily-marketable securities and receivables (net of appropriate reserves).
"Capital Base" shall be defined as the sum of (i) the consolidated
Tangible Net Worth of Borrower.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
duly executed under seal this 1st day of March, 1999, at Boston, Massachusetts.
SilverStream Software
(Name of Borrower)
By /s/ Craig A. Dynes
Hereunto duly authorized
Title: CFO
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<PAGE> 11
ATTEST:
/s/ Mary T. Curry By_____________________________
Hereunto duly authorized
Title:
Fleet Bank of Massachusetts,
National Association
By_____________________________
Hereunto duly authorized
Title:
-7-
<PAGE> 12
Fleet Bank Commercial Promissory Note
Boston, Massachusetts _______________ __, 19__
FOR VALUE RECEIVED, I, the undersigned, promise to pay to the order of
Fleet National Bank (with any subsequent holder referred to in this note as
"you") at any of your offices, the sum of Seven-Hundred, Fifty-Thousand and
00/100 Dollars ($750,000.00) with Interest in accordance with the provisions
below which are marked.
INTEREST RATE
I will pay interest on the unpaid principal balance of this Note as follows, but
in no event will interest exceed the maximum rate permitted by law:
/X/ FLOATING RATE. At the aggregate of the Bank's Prime Rate as the
Bank announces it from time to time, plus one-half percent per annum.
Changes in the Bank's Prime Rate as the Bank announces it from time to
time are to take effect, for the purposes of the determination of
interest on this Note, when made effective generally to loans by the
Bank.
/ / FIXED RATE. At the rate of __________ percent per annum.
/ / DISCOUNT. Interest to maturity has been deducted from the proceeds
of this Note. Interest at the rate of ___________ percent per annum
shall be paid on any amount not paid when due hereunder until that
amount and any such interest are so paid.
INTEREST PAYMENTS
I will pay interest at the above rate as follows:
/X/ PERIODICALLY. Monthly/Quarterly __________, in arrears, with the
first such payment due on the 1st day of February, 1999, and each
subsequent payment due on the corresponding day of each calendar
month/calendar quarter/__________ thereafter.
/ / AT MATURITY. At the maturity of this Note.
/ / INTEREST INCLUDED IN REPAYMENTS. Interest is included in
the payment(s) to be made pursuant to the Repayment Provisions below.
REPAYMENT PROVISIONS
In addition to any interest payments to be made as indicated above, I will pay
you the amount stated above as follows:
/ / ON DEMAND. On demand by you.
/ / PAYMENTS TO BE MADE UNTIL DEMAND. On demand by you, with payments
of $_________ each to be made monthly unless and until such demand is
made. The first such payments shall be due on the __________ day of
___________, 19__ (if you have not made demand before then) and unless
and until you make demand, each subsequent payment shall be due on the
corresponding day of each month thereafter.
/ / TIME. __________________ days after the date hereof on
__________________, 19__.
/X/ INSTALLMENTS. In 36 consecutive monthly installments, of which each
but the last shall be 1/36th of the principal amount outstanding on
11/1/99 and the final of which shall be equal to the then unpaid
principal balance of this Notice plus all accrued and unpaid interest
thereon. The first
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<PAGE> 13
such monthly installment shall be due on the first day of November,
1999 and each subsequent installment shall be due on the corresponding
day of each month thereafter, with the balance of all principal and
interest due on October 1, 2002.
PREPAYMENT. I will be entitled to prepay this note as follows:
LATE CHARGES. If the entire amount of any required principal and/or interest is
not paid in full within ten (10) days after the same is due, the Borrower shall
pay to the Bank a late fee equal to five percent (5%) of the required payment
provided that such late fee shall be reduced to three percent (3%) of any
required principal and interest payment that is not paid within fifteen (15)
days of the date it is due if this Agreement is secured by a mortgage on an
owner-occupied residence, 1-4 units.
APPLICATION OF PAYMENTS. Any payments you receive from me will be applied first
to any accrued and unpaid interest and then to the unpaid principal balance of
this Note. If any payment under this Note becomes due and payable on the day
upon which your office is legally closed to business, the due date shall be
extended to the next succeeding business day and interest shall be payable
during such extension at the rate stated above.
EACH BORROWER AND ENDORSER LIABLE. If more than one borrower has signed below,
each of us has made all of the promises contained in this Note, and we are
jointly and severally liable for all obligations on this Note. If one or more
endorser has signed below, each endorser agrees to all terms of this Note,
including without limitation the provisions relating to Security.
This Note is subject to the terms, provisions and conditions set forth
on the reverse side of this page. Signed as an instrument under seal on the date
stated above.
BORROWER(S)
SilverStream Software, Inc.
Name of Borrower
By: /s/ Craig Dynes
_______________________________________________
Name Title
By:_______________________________________________
Name Title
Address: One Burlington Woods, Suite 200
Burlington, MA 01803
__________________________________________________
Name of Borrower
By:_______________________________________________
Name Title
Address:__________________________________
__________________________________________
ENDORSER(S):
__________________________________________
__________________________________________
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<PAGE> 14
EVENTS OF DEFAULT. Upon the occurrence of any one or more of the
following Events of Default, the entire unpaid principal balance of this Note
and all unpaid accrued interest hereunder shall become immediately due and
payable at your option and without notice or demand. In addition at your option
and without notice or demand, the occurrence of any such Event of Default shall
also constitute a default under all agreements between you and me as well as of
all instruments and papers that I have given to you. Events of Default are:
(a) my failure to pay when due (or upon demand, if payable on demand)
any amount due on this Note or any other amount I owe you; (b) my failure
promptly, punctually, and faithfully to perform any other obligation or
discharge any liability of mine to you; (c) your determination that any
representative or warranty I made to you in any document, instrument, agreement
or paper was not true or accurate when given; (d) the occurrence of any event of
default under any agreement between you and me or under any instrument or paper
I have given to you notwithstanding that you may not have exercised your rights
upon default under any such other agreement, instrument or paper; (e) any act
by, against, or relating to me or my property or assets, which act constitutes
the application for, consent to, or sufferance of, the appointment of a
receiver, trustee, or other person, pursuant to court action or otherwise over
all or any part of my property, the granting of any trust mortgage or execution
of an assignment for the benefit of my creditors or the occurrence of any other
voluntary or involuntary liquidation or extension of debt agreement for me; my
written admission of my inability to pay my debts as they mature; the filing of
any complaint, application, or petition by or against me initiating any matter
in which I am or may be granted any relief from my debts pursuant to the Federal
Bankruptcy Code or pursuant to any other insolvency statute or procedure; my
offering by or entering into any composition, extension, or any other
arrangement seeking relief or extension for my debts or any other judicial or
non-judicial proceeding or agreement by, against, or including me which seeks or
intends to accomplish a reorganization or arrangement with creditors; (f) the
imposition of any lien upon my assets or the entry of any judgment against me,
which lien is not discharged, or judgment appealed from or satisfied, within
fifteen (15) days after its imposition or entry; (g) any material adverse change
in my assets, liabilities, property, business or condition, financial or
otherwise; (h) the occurrence of any event or circumstance with respect to me
such that you deem yourself to be insecure; (i) my death, termination of
existence, dissolution, winding up, or liquidation; (j) the occurrence of any of
the foregoing Events of Default with respect to any guarantor or endorser to you
of my liabilities to you, as if such guarantor or endorser were a borrower who
signed this Note.
LOAN DOCUMENTS; SECURITY. The following loan documents and security
instruments are incorporated herein by reference with the same force and effect
as if set forth herein in full: Term Loan Agreement dated ________________.
Inventory and Accounts Receivable Security Agreement dated ______________.
Supplementary Security Agreement, Security Interest in Goods and Chattels dated
______________, Certificate of Authority dated _______________. The execution,
endorsement or guaranty of this Note constitutes a confirmation by each person
that any security interest listed above which was given to you before the date
hereof shall continue in effect as security for this Note. In addition to the
foregoing, any and all of the deposits or other sums at any time credited by or
due from you to me or to any endorser or guarantor of this Note, and any cash,
securities, instruments, or other property of mine or of such endorser or
guarantor in your possession, whether for safekeeping, or otherwise, shall at
all times constitute security for this Note and for any and all of my
liabilities to you including, without limitation, the liability evidenced
hereby, and may be applied or set off by you against such liabilities at any
time whether or not such liabilities are then due and whether or not other
collateral is available to you.
COSTS AND EXPENSES. I and each endorser and guarantor of this Note,
will pay all costs and expenses, including, without limitation, reasonable
attorneys' fees and all expenses and disbursements of counsel, in connection
with the protection or enforcement of any of your rights
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<PAGE> 15
against me or any such endorser and guarantor and against any collateral given
to you to secure this Note or any other of my liabilities or of such endorser
and guarantor to you (whether or not suit is instituted by or against you).
ASSIGNABILITY BY YOU. You may assign and transfer this Note to any
person, firm or corporation and deliver to the assignee any collateral or
security interest you hold in connection with this Note. In the event of such
assignment, you will have no further responsibility or liability with respect to
such collateral or security interest, and the terms of this Note and any related
documents shall inure to the benefit of your assignee and its successors. This
Note shall be binding upon me and each endorser and guarantor hereof and upon my
and their respective heirs, successors, assigns, and representatives, and shall
inure to the benefit of you and your successors and endorsees.
SEVERABILITY. If any provision of this Note is deemed by any court
having jurisdiction thereof to be invalid or unenforceable, the other provisions
of this Note shall remain in full force and effect. If any provision of this
Note is deemed by any such court to be unenforceable because such provision is
too broad in scope, such provision shall be construed to be limited in scope to
the extent such court shall deem necessary to make it enforceable. If any
provision is deemed inapplicable by any such court to any person or
circumstances, it shall nevertheless be construed to apply to all other persons
and circumstances.
WAIVER. No delay or omission by you in exercising or enforcing any of
your powers, rights, privileges, remedies, or discretions hereunder shall
operate as a waiver thereof on that occasion nor on any other occasion. No
waiver of any default hereunder shall operate as a waiver of any other default
hereunder, nor as a continuing waiver.
ENDORSEMENT. Each endorser, jointly and severally if more than one,
unconditionally guarantees prompt payment when due, by acceleration or
otherwise, of this Note, regardless of its genuineness, validity, regularity or
enforceability and waives any right to require you to proceed against the
Borrower or any collateral which you might have been granted to secure any
endorser's liabilities under this Note.
PRESENTMENT, EXTENSION. I and each endorser and guarantor of this Note
respectively waive presentment, demand, notices, and protest, and also waive any
delay on the part of the holder hereof. Each assents to any extension or other
indulgence (including, without limitation, the release of any other party of
this Note or the release or substitution of collateral) which you permit me or
any such endorser or guarantor with respect to this Note or any collateral given
to secure this Note and any other liability of mine or such endorser or
guarantor to you.
MISCELLANEOUS. My liabilities and those of any endorser or guarantor of
this Note are joint and several; provided, however, your release of me or any
endorser or guarantor shall not release any other person obligated on account of
this Note. Each reference is in this Note to me, any endorser, and any
guarantor, is to such person individually and also to all such persons jointly.
No person obligated on account of this Note may seek contribution from any other
person also obligated unless and until all liabilities to you of the person from
whom contribution is sought have been satisfied in full.
I and each endorser and guarantor of this Note authorize you to
complete this Note if delivered in incomplete form, in any respect.
This Note is delivered to you at one of your offices in Massachusetts
and shall be governed by the laws of the Commonwealth of Massachusetts. I and
each endorser and guarantor of this Note submit to the jurisdiction of the
courts of the Commonwealth of Massachusetts for all purposes with
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<PAGE> 16
respect to this Note, any collateral given to secure their respective
liabilities to you or their respective liabilities to you or their respective
relationships with you.
-12-
<PAGE> 1
Exhibit 10.8
Fleet Bank Term Loan Agreement
For value received and in further consideration of the granting by Fleet Bank of
Massachusetts, National Association ("Bank") to the undersigned ("Borrower") of
a line of credit or of a loan or loans thereunder (all such loans, together with
any existing loans from Bank to Borrower, being hereinafter collectively and
separately referred to as the "Loan"), Borrower represents and warrants to and
agrees with the Bank as follows ("Agreement"):
SECTION 1. THE LOAN
1.1 AMOUNT. Bank will lend to Borrower, and Borrower will borrow from
Bank $750,000.00 with interest at Prime+1/2% per annum.
1.2 EVIDENCE OF LOAN. At the option of Bank, the Loan and the terms of
repayment thereof, including the rate of interest, may be evidenced
by a note or notes, or by Bank's books and records.
1.3 SECURITY AND/OR GUARANTY. The payment of the Loan may at any time or
from time to time be secured and/or guaranteed wholly or partly
separate and apart from this Agreement, but whether or not secured
and/or guaranteed, all monies and other property at any time in the
possession of Bank which Borrower either owns or has the permission
of the owner thereof to pledge with or otherwise hypothecate to
Bank, including, but not limited to, any deposits, balances of
deposits or other sums at any time credited by or due from Bank,
shall at all times be collateral security for all of the
liabilities, obligations and undertakings of Borrower to Bank,
direct or indirect, absolute or contingent, now existing or
hereafter arising or acquired including, but not limited to, the
payment of the Loan.
SECTION 2. WARRANTIES AND REPRESENTATIONS. Borrower hereby represents and
warrants to Bank (which representations and warranties will survive
the making of the Loan) that:
2.1 CORPORATE EXISTENCE. Borrower, if a corporation, is and will
continue to be, a corporation duly incorporated and validly existing
under the laws of the State of ________________ and duly licensed or
qualified as a foreign corporation in all states wherein the nature
of its property owned or business transacted by it makes such
licensing or qualification necessary. Borrower has obtained all
required permits, authorizations and licenses, without unusual
restrictions or limitations, to conduct the
<PAGE> 2
business in which Borrower is presently engaged, all of which are in
full force and effect.
2.2 CORPORATE AUTHORITY AND POWER. If Borrower is a corporation, the
execution, delivery and performance of this Agreement, any note or
security agreement or any other instrument or document at any time
required in connections with the Loan are within the corporate
powers of Borrower, and not in contravention of law, the Articles of
Organization or By-Laws of Borrower or any amendment thereof, or of
any indenture, agreement or undertaking to which Borrower is a party
or may otherwise be bound, and each such instrument and document
represents a valid and binding obligation of Borrower and is fully
enforceable according to its terms. Borrower will, at the request of
Bank at any time and from time to time, furnish Bank with the
opinion of counsel for Borrower with respect to any or all of the
foregoing or other matters, such opinion to be in substance and form
satisfactory to Bank.
2.3 FINANCIAL STATUS. All financial statements and other statements
heretofore or hereafter given by Borrower to Bank in respect hereof
are or will be true and correct, subject to any limitation stated
therein, consistent with any prior statements furnished to Bank, and
prepared in accordance with generally accounting principles to
represent fairly the condition of Borrower at the date thereof.
2.4 LITIGATION. There is not now pending or threatened against Borrower
any action or other proceedings or any claim in which Borrower has
any monetary or other proprietary interest nor do any of the
executive or managing personnel of Borrower know of any facts which
may give rise to any such litigation, proceeding or claim,
except: ___________________________________________________________
___________________________________________________________________
_______________
2.5 SUBSIDIARIES AFFILIATES. If Borrower is a corporation it (a) owns
100% or N/A% of the issued stock of the following subsidiaries
and/or affiliates:
___________________________________________________________________
___________________________________________________________________
______________________________ (b) such stock shall be free and
clear of any pledges, liens, or other encumbrances.
2.6 EVENTS OF DEFAULT. No event of default specified in Section 5.0
hereof, and no event which, with the lapse of time or notice, would
become such an event of default, has occurred and is continuing.
2
<PAGE> 3
2.7 TITLE TO PROPERTY. Borrower has good and marketable title to all
property in which Borrower has given or has agreed to give a
security interest to Bank and such property is or will be free of
all encumbrances except: __________________________________________
___________________________________________________________________
2.8 TAXES. Borrower has filed all tax returns required to be filed, has
paid all taxes due thereon and has provided adequate reserves for
payment of any tax which is being contested.
SECTION 3. AFFIRMATIVE COVENANTS. Borrower agrees that until payment in
full of the Loan and performance of all of its other obligations under this
Agreement, Borrower will, unless Bank otherwise consents in writing, comply with
the following:
3.1 COMPENSATING BALANCES. Bank shall be Borrower's main bank of deposit
and Borrower shall maintain average aggregate collected balances in
its deposit account or accounts with Bank of not less that N/A per
centum (_____%) of the outstanding unpaid balance of the Loans, such
collected balances to be calculated net of any balances required to
support demand deposit account activity costs. Balances shall be
averaged _______________________________________________.
3.2 COMMITMENT FEE. Subject to the terms of this agreement Bank commits
itself until _______, 19___ to lend to Borrower at any time or from
time to time a sum or sums in the aggregate amount of $N/A and
Borrower agrees to pay to Bank monthly in arrears a fee for Bank's
said commitment in the amount of ______ per centum (________%) of
the unused portion thereof so long as the same be outstanding.
Borrower shall also, in addition to requirements of Paragraph 3.1
above, maintain collected balances in its deposit account or
accounts with Banks of not less than _______ per centum (________%)
of the unused portion of said commitment. Repayments on account of
the Loan shall not operate to increase the unused portion of said
commitment, except in the case of Revolving Loans.
3.3 FINANCIAL STATEMENTS. (a) Borrower will furnish to Bank quarterly
statements prepared by Borrower within forty-five days of the close
of each quarter, and within ninety days after the close of each
fiscal year, an annual audit prepared by the equity method and
certified by public accountants selected by Borrower and approved by
Bank, together with a certificate by such accountants that at such
audit date Borrower was acting in compliance with the terms of this
Agreement. If Borrower is a
3
<PAGE> 4
corporation, consolidated and consolidating statements shall be
furnished for Borrower and all subsidiary corporations, (b) Borrower
shall indicate on said statements all guarantees made by it and (c)
Borrower will upon request permit a representative of Bank to
inspect and make copies of Borrower's books and records at all
reasonable times.
3.4 INSURANCE. Borrower will maintain adequate fire insurance with
extended coverage, public liability and other insurance as Bank may
reasonably require as consistent with sound business practice and
with companies satisfactory to Bank, which policies will show the
Bank as a loss payee.
3.5 TAXES AND OTHER LIENS. Borrower will comply with all statutes and
government regulations and pay all taxes, assessments, governmental
charges or levies, or claims for labor, supplies, rent and other
obligations made against it which, if unpaid, might become a lien or
charge against Borrower or on its property, except liabilities being
contested in good faith and against which if requested by Bank.
Borrower will set up reserves satisfactory to Bank.
3.6 MAINTENANCE OF EXISTENCE. If Borrower is a corporation, it will
maintain its existence and comply with all applicable statutes,
rules and regulations, and maintain its properties in good operating
condition, and continue to conduct its business as presently
conducted.
3.7 NOTICE OF DEFAULT. Within three (3) business days of becoming aware
of (a) the existence of any condition or event which constitutes a
default under Section 5.0 hereof, or (b) the existence of any
condition or event which with notice or the passage of time, will
constitute a default under Section 5.0 hereof. Borrower will provide
Bank with written notice specifying the nature and period of
existence thereof and what action Borrower is taking or proposes to
take with respect thereto.
3.8 USE OF PROCEEDS. Borrower shall use the proceeds of the Loan
hereunder for general commercial purposes, provided that no part of
such proceeds will be used, for he purpose of purchasing or carrying
any "margin security" as such term is defined in Regulation U of the
Board of Governors of the Federal Reserve System.
3.9 FURTHER ASSURANCES. Borrower will execute and deliver to Bank any
writings and do all things necessary, effectual or reasonably
requested by Bank to carry into effect the provisions and intent of
this Agreement.
4
<PAGE> 5
SECTION 4. NEGATIVE COVENANTS. Without the prior written approval of Bank,
Borrower will not:
4.1 CONSOLIDATION, MERGER OR ACQUISITION. Participate in any merger or
consolidation or alter or amend the capital structure of Borrower
including, but not limited to, the issuance of additional stock, or
make any acquisition of the business of another.
4.2 DIVIDENDS. Pay any dividends, including stock dividends, or make any
distributions, in case or otherwise, including splits of any kind,
to any officer, stockholder or beneficial owner of Borrower other
than salaries.
4.3 ENCUMBRANCES. Mortgage, pledge or otherwise encumber any property of
Borrower or permit any lien to exist thereon except liens (i) for
taxes not delinquent or being contested in good faith; (ii) of
mechanics or materialmen in respect of obligations not overdue or
being contested in good faith; (iii) resulting form security
deposits made in the ordinary course of business; and (iv) in favor
of Bank.
4.4 INVESTMENTS. Invest any assets of Borrower in securities other than
obligations of the United States of America.
4.5 DISPOSITION OF ASSETS, GUARANTEES, LOANS, ADVANCES. Sell, transfer
or assign any assets of Borrower other than in the ordinary course
of business or, except as hereinafter specifically permitted, (i)
sell or transfer or assign any of Borrower's accounts receivable
with or without recourse, (ii) guarantee or become surety for the
obligations of any person, firm or corporation, or (iii) make any
loans or advances except _________________________________________.
4.6 WORKING CAPITAL. Permit its inventory to exceed ________% of its
Current Assets; permit its net Working Capital (excess of Current
Assets over Current Liabilities) to be less than $N/A for the
current fiscal year and for each subsequent fiscal year to be less
than the amount for the prior fiscal year plus ______% of Borrower's
net income earned for the prior plus __________% of Borrower's net
income earned for the prior year, after provision for taxes,
provided that there shall be no reduction in the required working
capital for losses; or permit its Current Assets to be less than
_______% of its Current Liabilities, Current Assets and Current
Liabilities to be computed in accordance with customary accounting
practice except that Current Liabilities shall in any event include
all rentals and other payments due within one year under any lease
or rental of personal property.
5
<PAGE> 6
4.7 LIABILITIES. Permit its total short and long term liabilities
including borrowings to exceed _______% of Borrower's tangible net
worth, said percentage to decrease N/A % per year for the term of
the Loan.
4.8 FIXED ASSETS. Make, or incur any obligation to make, any
expenditures in any fiscal year for fixed assets by purchase or
lease agreement the aggregate fair market value of which assets are
in excess of $ N/A .
4.9 COMPENSATION. If Borrower is a corporation, pay to its officers and
directors aggregate compensation in any fiscal year which exceeds
$N/A.
4.10 EMPLOYMENT RETIREMENT INVESTMENT SECURITY ACT OF 1974 AS AMENDED
("ERISA"). PERMIT ANY PENSION PLAN TO: (a) engage in any "prohibited
transaction"; (b) fail to report to Bank a "reportable event"; (c)
incur any "accumulated funding deficiency"; or (d) terminate its
existence at any time in a manner which could result in the
imposition of a lien on the property of the Borrower. (The quote
terms are defined in Sections 2003(c), 302 and 4003, respectively,
of ERISA.
SECTION 5. DEFAULTS. If any one or more of the following "Events of
Default" shall occur at any time, Bank shall have the right to declare any or
all liabilities or obligations of Borrower to Bank immediately due and payable
without notice or demand:
5.1 Any warranty, representation or statement made or furnished to Bank
by or on behalf of Borrower or any guarantor or surety for Borrower
was in any material respect false when made or furnished;
5.2 A failure to pay or perform when due any obligation, liability or
covenant of Borrower or of any guarantor or surety for Borrower,
under this loan agreement or any other indebtedness or obligation
for borrowed money, or if such indebtedness or obligation shall be
accelerated, or if there exists any event of default under any such
instrument, document or agreement evidencing or securing such
indebtedness or obligation, including, but not limited to, failure
to perform the terms of this Agreement or of the note or notes
evidencing the Loan;
5.3 The commencement of any proceeding under any bankruptcy or
insolvency laws by or against Borrower, the appointment of a
trustee, receiver or custodian and, if any such proceeding is
involuntary such proceeding has not been dismissed and all trustees,
receivers, or custodians discharged within 30 days of its
commencement or their
6
<PAGE> 7
appointment;
5.4 The service upon Bank of writ in which Bank is named as trustee or
Borrower or any guarantor or surety for Borrower;
5.5 If Borrower or any guarantor or surety for Borrower is a
corporation, trust or partnership, the liquidation, termination or
dissolution any such organization or its ceasing to carry on
actively its present business;
5.6 The death of Borrower or any guarantors or surety for Borrower, and
if Borrower or any guarantor or surety for Borrower is a
partnership, the death of any partner; or
5.7 A judgment or judgments for the payment of money aggregating in
excess of $100,000.00 is outstanding against Borrower or any
guarantor or surety for Borrower and any one of such judgments has
been outstanding for more than thirty (30) days from the date of its
entry and has not been discharged in full or stayed.
SECTION 6. MISCELLANEOUS
6.1 OTHER AGREEMENTS. This Agreement is supplementary to each and every
other agreement between Borrower and Bank and shall not be so
construed as to limit or otherwise derogate from any of the rights
or remedies of Bank or any of the liabilities, obligations or
undertakings of Borrower under any such agreement, nor shall any
contemporaneous or subsequent agreement between Borrower Bank be
construed to limit or otherwise derogate from any of the rights or
remedies of Bank or any of the liabilities, obligations or
undertakings or Borrower hereunder unless such other agreement
specifically refers to this Agreement and expressly so provides.
This Agreement and the covenants and agreements herein contained
shall continue in full force and effect and shall be applicable not
only with respect to the Loan, but also to all other obligations,
liabilities and undertakings of Borrower to Bank whether direct or
indirect, absolute or contingent, due or to become due, now existing
or hereafter arising or acquired, until all such obligations,
liabilities and undertakings have been paid or otherwise satisfied
in full.
6.2 WAIVERS. No delay or omission on the part of Bank in exercising any
right hereunder shall operate as a waiver of such right or any other
right and waiver on any one or more occasions shall not be construed
as a bar to or waiver of any right or remedy of Bank on any future
occasion.
7
<PAGE> 8
6.3 EXPENSES. Borrower will pay or reimburse Bank for all reasonable
expenses, including attorneys' fees, which Bank may in any way incur
in connection with this agreement or any other agreement between
Borrower and Bank or with any Loan or which result from any claim or
action by any third person against Bank which would not have been
asserted were it not for Bank's relationship with Borrower hereunder
or otherwise.
6.4 NOTICES. All notices and other communications hereunder shall be in
writing, except as otherwise provided in this Agreement, and shall
be hand delivered or mailed by first-class mail, postage prepared
(in which event notice shall be deemed to have been given when so
delivered or deposited in the mail), addressed (a) if to Borrower,
to ONE BURLINGTON WOODS, SUITE 200, BURLINGTON, MA 01803 and (b) if
to Bank, to 75 State Street, Boston, Massachusetts 02109, Attention
THOMAS W. DAVIES. The address of any party hereto for such demands,
notices and other communications may be changed by giving notice in
writing at any time to the other party hereto.
6.5 MASSACHUSETTS LAW. This Agreement is intended to take effect as a
sealed instrument and shall be governed by and construed according
to the laws of the Commonwealth of Massachusetts.
6.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
Borrower's legal representatives, successors and assigns and will
inure to the benefit of Bank's successors and assigns.
6.7 ADDITIONAL PROVISIONS. Borrower furthermore agrees to the following
additional provisions: THE TERMS AND CONDITIONS CONTAINED IN THE
LETTER AGREEMENT OF EVEN DATE ARE INCORPORATED HEREIN.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
duly executed under seal this _____________ day of ________________________,
19___, at Boston, Massachusetts.
/s/ Craig Dynes
---------------------------------
(Name of Borrower)
By
------------------------------
Hereunto duly authorized
Title:
8
<PAGE> 9
ATTEST:
/s/ Mary T. Curry By
- ------------------------------ ------------------------------
Hereunto duly authorized
Title:
Fleet National Bank
By
------------------------------
Hereunto duly authorized
Title:
9
<PAGE> 10
FLEET BANK COMMERCIAL PROMISSORY NOTE
- --------------------------------------------------------------------------------
_________________, Massachusetts August 11, 1997
FOR VALUE RECEIVED, I, the undersigned promise to pay to the order of
Fleet National Bank (with any subsequent holder referred to in this note as
"you") at any of your offices, the sum of Seven Hundred Fifty Thousand and
00/100. _______________________ DOLLARS ($750,000.00) with interest in
accordance with the provisions below which are marked.
INTEREST RATE
I will pay interest on the unpaid principal balance of this Note as follows, but
in no event will interest exceed the maximum rate permitted by law:
X FLOATING RATE. At the aggregate of the Bank's Prime Rate as the Bank
announces it from time to time, plus one-half percent annum. Changes in
the Bank's Price Rate as the Bank announces it from time to time are to
take effect, for the purposes of the determination of interest on this
Note, when made effective generally to loans by the Bank.
[ ] FIXED RATE. At the rate of ________ percent per annum.
[ ] DISCOUNT. Interest to maturity has been deducted from the proceeds of
this Note, Interest at the rate of ________ percent per annum shall be
paid on any amount not paid when due hereunder until that amount and
any such interest are so paid.
INTEREST PAYMENTS
I will pay interest at the above rate as follows:
X PERIODICALLY Monthly/Quarterly/__________. In arrears, with the first
such payment due on the 1st day of September, 1997 and each subsequent
payment due on the corresponding day of each calendar month/calendar
quarter/ ____________________ thereafter.
[ ] AT MATURITY. At the maturity of this Note.
[ ] INTEREST INCLUDED IN REPAYMENTS. Interests included in the
payment(s) to be made pursuant to the Repayment Provisions below.
REPAYMENT PROVISIONS
In addition to any interest payments to be made as indicated above, I will pay
you the amount stated above as follows:
10
<PAGE> 11
[ ] ON DEMAND, On demand by you.
[ ] PAYMENTS TO BE MADE UNTIL DEMAND. On demand by you, with payments of
$__________ each to be made monthly unless and until such demand is
made monthly unless and until such demand is made. The first such
payments shall be due on the ____ day of ______ 19__ (if you have not
made demand before then) and unless and until you make demand, each
subsequent payment shall be due on the corresponding day of each month
thereafter.
[ ] TIME, ___________ days after the date hereof on _______________, 19__.
X INSTALLMENTS. In 36 consecutive monthly installments, of which each but
the last shall be $[ * ]and the final of which shall be equal to the
then unpaid principal balance of this Note plus all accrued and unpaid
interest thereon. ____ first such monthly Installment shall be due on
the 1st day of April, 1998 and each subsequent Installment shall be due
on the corresponding day of each month thereafter, with the balance of
all principal and interest due on March 1, 2001.
[ ] * 1/36th of the principal amount outstanding on March 31, 1998.
PREPAYMENT. I will be entitled to prepay this note as follows:
LATE CHARGES. If the entire amount of any required principal and/or interest is
not paid in full within ten (10) days after the same is due, the Borrower shall
pay to the Bank a late fee equal to five percent (5%) of the required payment
provided that such late fee shall be reduced to three percent (3%) of any
required principal and interest payment that is not paid within fifteen (15)
days of the date it is due if Agreement is secured by a mortgage on an
owner-occupied residence, 1-4 units.
APPLICATION OF PAYMENTS. Any payments you receive from me will be applied first
to any accrued and unpaid interest and then to the unpaid principal balance of
this Note. If any payment under this Note becomes due and payable on the day
upon which your office is legally closed to business, the due date shall be
extended to the next succeeding business day and interest shall be payable
during such extension at the rate stated above.
EACH BORROWER AND ENDORSER LIABLE. If more than one borrower has signed below,
each of us has made all of the promises contained in this Note, and we are
jointly and severally liable for all obligations on this Note. If one or more
endorser has signed below, each endorser agrees to all terms of this Note,
including without limitation the provisions relating to Security.
11
<PAGE> 12
This Note is subject to the terms, provisions and conditions set forth
on the reverse side of this page. Signed as an instrument under seal on the date
stated above.
BORROWER(S)
Silverstream Software, Inc.
- ---------------------------------
Name of Borrower
By: /s/ Craig Dynes
-----------------------------
Name
Title
By:
-----------------------------
Name
Title
Address: One Burlington Woods, Suite 200
-------------------------------
Burlington, MA 01803
---------------------
- ---------------------------------
Name of Borrower
By:
-----------------------------
Name
Title
Address:
------------------------
------------------------
ENDORSER(S):
- ---------------------------------
- ---------------------------------
12
<PAGE> 1
Exhibit 10.9
FLEET BANK TERM LOAN AGREEMENT
For value received and in further consideration of the granting by Fleet
National Bank ("Bank") to the undersigned ("Borrower") of a line of credit or of
a loan or loans thereunder (all such loans, together with any existing loans
from Bank to Borrower, being hereinafter collectively and separately referred to
as the "Loan"), Borrower represents and warrants to and agrees with Bank as
follows ("Agreement"):
SECTION 1. THE LOAN.
1.1 AMOUNT. Bank will lend to Borrower, the Borrower will borrow
from Bank $750,000 with interest at Prime + 1/2% per annum. (As detailed in the
Letter Agreement of even date, the Borrower also has a fixed rate option.)
1.2 EVIDENCE OF LOAN. At the option of Bank, the Loan and the
terms of repayment thereof, including the rate of interest, may be evidenced by
a note or notes, or by Bank's books and records.
1.3 SECURITY AND/OR GUARANTY. The payment of the Loan may at any
time or from time to time be secured and/or guaranteed wholly or partly separate
and apart from this Agreement, but whether or not secured and/or guaranteed, all
monies and other property at any time in the possession of Bank which Borrower
either owns or has the permission of the owner thereof to pledge with or
otherwise hypothecate to Bank, including, but not limited to, any deposits,
balances of deposits or other sums at any time credited by or due from Bank,
shall at all times be collateral security for all of the liabilities,
obligations and undertakings of Borrower to Bank, direct or indirect, absolute
or contingent, now existing or hereafter arising or acquired including, but not
limited to, the payment of the Loan.
SECTION 2. WARRANTIES AND REPRESENTATIONS. Borrower hereby represents
and warrants to Bank (which representations and warranties will survive the
making of the Loan) that:
2.1 CORPORATE EXISTENCE. Borrower, if a corporation, is and will
continue to be, a corporation duly incorporated and validly existing under the
laws of the State of __________________ and duly licensed or qualified as a
foreign corporation in all states wherein the nature of its property owned or
business transacted by it makes such licensing or qualification necessary.
Borrower has obtained all required permits, authorizations and licenses, without
unusual restrictions or limitations, to conduct the business in which Borrower
is presently engaged, all of which are in full force and effect.
<PAGE> 2
2.2 CORPORATE AUTHORITY AND POWER. If Borrower is a corporation,
the execution, delivery and performance of this Agreement, any note or security
agreement or any other instrument or document at any time required in connection
with the Loan are within the corporate powers of Borrower, and not in
contravention of law, the Articles of Organization or By-Laws of Borrower or any
amendment thereof, or of any indenture, agreement or undertaking to which
Borrower is a party or may otherwise be bound, and each such instrument and
document represents a valid and binding obligation of Borrower and is fully
enforceable according to its terms. Borrower will, at the request of Bank at any
time and from time to time, furnish Bank with the opinion of counsel for
Borrower with respect to any or all of the foregoing or other matters, such
opinion to be in substance and form satisfactory to Bank.
2.3 FINANCIAL STATUS. All financial statement and other statements
heretofore or hereafter given by Borrower to Bank in respect hereof are or will
be true and correct, subject to any limitation stated therein, consistent with
any prior statements furnished to Bank, and prepared in accordance with
generally accepted accounting principles to represent fairly the condition of
Borrower at the date thereof.
2.4 LITIGATION. There is not now pending or threatened against
Borrower any action or other proceedings or any claim in which Borrower has any
monetary or other proprietary interest nor do any of the executive or managing
personnel of Borrower know of any facts which may give rise to any such
litigation, proceeding or claim, except: _______________________________________
________________________________________________________________________________
2.5 SUBSIDIARIES AFFILIATES. If Borrower is a corporation it (a)
owns 100% or N/A % of the issued and outstanding stock of the following
subsidiaries and/or affiliates: ________________________________________________
________________________________________________________________________________
(b) such stock shall be free and clear of any pledges, liens, or other
encumbrances.
2.6 EVENTS OF DEFAULT. No event of default specified in Section
5.0 hereof, and no event which, with the lapse of time or notice, would become
such an event of default, has occurred and is continuing.
2.7 TITLE TO PROPERTY. Borrower has good and marketable title to
all property in which Borrower has given or has agreed to give a security
interest to Bank and such property is or will be free of all encumbrances
except: ________________________________________________________________________
-2-
<PAGE> 3
2.8 TAXES. Borrower has filed all tax returns required to be
filed, has paid all taxes due thereon and has provided adequate reserves for
payment of any tax which is being contested.
SECTION 3. AFFIRMATIVE COVENANTS. Borrower agrees that until payment in
full of the Loan and performance of all of its other obligations under this
Agreement, Borrower will, unless Bank otherwise consents in writing, comply with
the following:
3.1 COMPENSATING BALANCES. Bank shall be Borrower's main bank of
deposit and Borrower shall maintain average aggregate collected balances in its
deposit account or accounts with Bank of not less than N/A per centum
(_________%) of the outstanding unpaid balance of the Loan or Loans; such
collected balances to be calculated net of any balances required to support
demand deposit account activity costs. Balances shall be averaged _____________
________________________________________________________________________________
3.2 COMMITMENT FEE. Subject to the terms of this agreement Bank
commits itself until ___________ 19__ to lend to Borrower at any time or from
time to time a sum or sums in the aggregate amount of $ N/A and Borrower agrees
to pay to Bank monthly in arrears a fee for Bank's said commitment in the amount
of ___________ per centum (_________%) of the unused portion thereof so long as
the same be outstanding. Borrower shall also, in addition to requirements of
Paragraph 3.1 above, maintain collected balances in its deposit account or
accounts with Banks of not less than ____________ per centum (_________%) of the
unused portion of said commitment. Repayments on account of the Loan shall not
operate to increase the unused portion of said commitment, except in the case of
Revolving Loans.
3.3 FINANCIAL STATEMENTS. (a) Borrower will furnish to Bank
quarterly statements prepared by Borrower within forty-five days of the close of
each quarter, and within ninety days after the close of each fiscal year, an
annual audit prepared by the equity method and certified by public accountants
selected by Borrower and approved by Bank, together with a certificate by such
accountants that at such audit date Borrower was acting in compliance with the
terms of this Agreement. If Borrower is a corporation, consolidated and
consolidating statements shall be furnished for Borrower and all subsidiary
corporations, (b) Borrower shall indicate on said statements all guarantees made
by it and (c) Borrower will upon request permit a representative of Bank to
inspect and make copies of Borrower's books and records at all reasonable times.
3.4 INSURANCE. Borrower will maintain adequate fire insurance with
extended coverage, public liability and other insurance as Bank may reasonably
require as consistent with sound business practice and with companies
satisfactory to Bank, which policies will show the Bank as a loss payee.
-3-
<PAGE> 4
3.5 TAXES AND OTHER LIENS. Borrower will comply with all statutes
and government regulations and pay all taxes, assessments, governmental charges
or levies, or claims for labor, supplies, rent and other obligations made
against it which, if unpaid, might become a lien or charge against Borrower or
on its property, except liabilities being contested in good faith and against
which if requested by Bank, Borrower will set up reserves satisfactory to Bank.
3.6 MAINTENANCE OF EXISTENCE. If Borrower is a corporation, it
will maintain its existence and comply with all applicable statues, rules and
regulations, and maintain its properties in good operating condition, and
continue to conduct its business as presently conducted.
3.7 NOTICE OF DEFAULT. Within three (3) business days of becoming
aware of (a) the existence of any condition or event which constitutes a default
under Section 5.0 hereof, or (b) the existence of any condition or event which
with notice or the passage of time, will constitute a default under Section 5.0
hereof, Borrower will provide Bank with written notice specifying the nature and
period of existence thereof and what action Borrower is taking or proposes to
take with respect thereto.
3.8 USE OF PROCEEDS. Borrower shall use the proceeds of the Loan
hereunder for general commercial purposes, provided that no part of such
proceeds will be used, for the purpose of purchasing or carrying any "margin
security" as such term is defined in Regulation U of the Board of Governors of
the Federal Reserve System.
3.9 FURTHER ASSURANCES. Borrower will execute and deliver to Bank
any writings and do all things necessary, effectual or reasonably requested by
Bank to carry into effect the provisions and intent of this Agreement.
SECTION 4. NEGATIVE COVENANTS. Without the prior written approval of
Bank, Borrower will not:
4.1 CONSOLIDATION, MERGER OR ACQUISITION. Participate in any
merger or consolidation or alter or amend the capital structure of Borrower
including, but not limited to, the issuance of additional stock, or make any
acquisition of the business of another.
4.2 DIVIDENDS. Pay any dividends, including stock dividends, or
make any distributions, in cash or otherwise, including splits of any kind, to
any officer, stockholder or beneficial owner of Borrower other than salaries.
4.3 ENCUMBRANCES. Mortgage, pledge or otherwise encumber any
property of Borrower or permit any lien to exist thereon except liens (i) for
taxes not delinquent or being contested in good faith; (ii) of mechanics or
materialmen in
-4-
<PAGE> 5
respect of obligations not overdue or being contested in good faith; (iii)
resulting from security deposits made in the ordinary course of business; and
(iv) in favor of Bank.
4.4 INVESTMENTS. Invest any assets of Borrower in securities other
than obligations of the United States of America.
4.5 DISPOSITION OF ASSETS, GUARANTEES, LOANS, ADVANCES. Sell,
transfer or assign any assets of Borrower other than in the ordinary course of
business or, except as hereinafter specifically permitted, (i) sell or transfer
or assign any of Borrower's accounts receivable with or without recourse; (ii)
guarantee or become surety for the obligations of any person, firm or
corporation, or (iii) make any loans or advances except:______________________.
4.6 WORKING CAPITAL. Permit its inventory to exceed N/A % of its
Current Assets; permits its net Working Capital (excess of Current Assets over
Current Liabilities) to be less than $______________ for the current fiscal year
and for each subsequent fiscal year to be less than the amount for the prior
fiscal year plus __________% of Borrower's net income earned for the prior year,
after provision for taxes, provided that there shall be no reduction in the
required working capital for losses; or permit its Current Assets to be less
than ____________% of its Current Liabilities, Current Assets and Current
Liabilities to be computed in accordance with customary accounting practice
except that Current Liabilities shall in any event include all rentals and other
payments due within one year under any lease or rental of personal property.
4.7 LIABILITIES. Permit its total short and long term liabilities
including borrowings to exceed _________% of Borrower's tangible net worth, said
percentage to decrease [N/A] % per year for the term of the Loan.
4.8 FIXED ASSETS. Make, or incur any obligation to make, any
expenditures in any fiscal year for fixed assets by purchase or lease agreement
the aggregate fair market value of which assets is in excess of $[N/A] .
4.9 COMPENSATION. If Borrower is a corporation, pay to its
officers and directors aggregate compensation in any fiscal year which exceeds
$[N/A] .
4.10 EMPLOYEE RETIREMENT INVESTMENT SECURITY ACT OF 1974 AS AMENDED
("ERISA"). PERMIT ANY PENSION PLAN TO: (a) engage in any "prohibited
transaction"; (b) fail to report to Bank a "reportable event"; (c) incur any
"accumulated funding deficiency"; or (d) terminate its existence at any time in
a manner which could result in the imposition of a lien on the property of the
Borrower. (The quoted terms are defined in Sections 2003(c), 302, and 4003,
respectively, of ERISA).
-5-
<PAGE> 6
SECTION 5. DEFAULTS. If any one or more of the following "Events of
Default" shall occur at any time, BANK SHALL HAVE THE RIGHT TO DECLARE ANY OR
ALL LIABILITIES OR OBLIGATIONS OF BORROWER TO BANK IMMEDIATELY DUE AND PAYABLE
WITHOUT NOTICE OR DEMAND:
5.1 Any warranty, representation or statement made or furnished to
Bank by or on behalf of Borrower or any guarantor or surety for Borrower was in
any material respect false when made or furnished;
5.2 A failure to pay or perform when due any obligation, liability
or covenant of Borrower or of any guarantor or surety for Borrower, under this
loan agreement or any other indebtedness or obligation for borrowed money, or if
such indebtedness or obligation shall be accelerated, or if there exists any
event of default under any such instrument, document or agreement evidencing or
securing such indebtedness or obligation, including, but not limited to, failure
to perform the terms of this Agreement or of the note or notes evidencing the
Loan;
5.3 The commencement of any proceeding under any bankruptcy or
insolvency laws by or against Borrower, the appointment of a trustee, receiver,
or custodian and, if any such proceeding is involuntary such proceeding has not
been dismissed and all trustees, receivers, or custodians discharged within 30
days of its commencement or their appointment;
5.4 The service upon Bank of a writ in which Bank is named as
trustee or Borrower or any guarantor or surety for Borrower;
5.5 If Borrower or any guarantor or surety for Borrower is a
corporation, trust or partnership, the liquidation, termination or dissolution
of any such organization or its ceasing to carry on actively its present
business;
5.6 The death of Borrower or any guarantors or surety for
Borrower, and if Borrower or any guarantor or surety for Borrower is a
partnership, the death of any partner; or
5.7 A judgment or judgments for the payment of money aggregating
in excess of $100,000 is outstanding against Borrower or any guarantor or surety
for Borrower and any one of such judgments has been outstanding for more than
thirty (30) days from the date of its entry and has not been discharged in full
or stayed.
SECTION 6. MISCELLANEOUS.
6.1 OTHER AGREEMENTS. This Agreement is supplementary to each and
every other agreement between Borrower and Bank and shall not be so construed as
to limit or otherwise derogate from any of the rights or remedies of Bank or any
of
-6-
<PAGE> 7
the liabilities, obligations or undertakings of Borrower under any such
agreement, nor shall any contemporaneous or subsequent agreement between
Borrower and Bank be construed to limit or otherwise derogate from any of the
rights or remedies of Bank or any of the liabilities, obligations or
undertakings of Borrower hereunder unless such other agreement specifically
refers to this Agreement and expressly so provides. This Agreement and the
covenants and agreements herein contained shall continue in full force and
effect and shall be applicable not only with respect to the Loan, but also to
all other obligations, liabilities and undertakings of Borrower to Bank whether
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising or acquired, until all such obligations, liabilities and
undertakings have been paid or otherwise satisfied in full.
6.2 WAIVERS. No delay or omission on the part of Bank in
exercising any right hereunder shall operate as a waiver of such right or any
other right and waiver on any one or more occasions shall not be construed as a
bar to or waiver of any right or remedy of Bank on any future occasion.
6.3 EXPENSES. Borrower will pay or reimburse Bank for all
reasonable expenses, including attorneys' fees, which Bank may in any way incur
in connection with this agreement or any other agreement between Borrower and
Bank or with any Loan or which result from any claim or action by any third
person against Bank which would not have been asserted were it not for Bank's
relationship with Borrower hereunder or otherwise.
6.4 NOTICES. All notices and other communications hereunder shall
be in writing, except as otherwise provided in this Agreement, and shall be hand
delivered or mailed by first-class mail, postage prepaid (in which event notice
shall be deemed to have been given when so delivered or deposited in the mail),
addressed (a) if to Borrower, to 1 FORBES ROAD, LEXINGTON, MA 02173 and (b) if
to Bank, to 28 State Street, Boston, Massachusetts 02109, Attention: THOMAS W.
DAVIES. The address of any party hereto for such demands, notices and other
communications may be changed by giving notice in writing at any time to the
other party hereto.
6.5 MASSACHUSETTS LAW. This Agreement is intended to take effect
as a sealed instrument and shall be governed by and construed according to the
laws of the Commonwealth of Massachusetts.
6.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
Borrower's legal representatives, successors and assigns and shall inure to the
benefit of Bank's successors and assigns.
6.7 ADDITIONAL PROVISIONS. Borrower furthermore agrees to the
following additional provisions: THE TERMS AND CONDITIONS CONTAINED IN THE
LETTER AGREEMENT OF EVEN DATE ARE INCORPORATED HEREIN.
-7-
<PAGE> 8
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
duly executed under seal this __________ day of _____________________, 19_____
at Boston, Massachusetts.
SilverStream Software Inc.
----------------------------------
(Name of Borrower)
By: /s/ David Skok
------------------------------
Hereunto duly authorized
Title: CEO
ATTEST:
/s/ John Pearce By:
- ------------------------------ -----------------------------
Hereunto duly authorized
Title:
Fleet National Bank
By:
-----------------------------
Hereunto duly authorized
Title:
-8-
<PAGE> 9
FLEET BANK Commercial Promissory Note
- --------------------------------------------------------------------------------
Boston, Massachusetts November 5, 1996
FOR VALUE RECEIVED, I, the undersigned, promise to pay to the order of Fleet
National Bank (with any subsequent holder referred to in this note as "you") at
any of your offices, the sum of Seven-Hundred, Fifty-Thousand and 00/100 DOLLARS
($750,000.00) with interest in accordance with the provisions below which are
marked.
INTEREST RATE
I will pay interest on the unpaid principal balance of this Note as follows, but
in no event will interest exceed the maximum rate permitted by law;
[X] FLOATING RATE. At the aggregate of the Bank's Prime Rate as the Bank
announces it from time to time, plus one-half percent per annum. Changes in the
Bank's Prime Rate as the Bank announces it from time to time are to take effect,
for the purposes of the determination of interest on this Note, when made
effective generally to loans by the Bank.
[ ] FIXED RATE. At the rate of _______ percent per annum.
[ ] DISCOUNT. Interest to maturity has been deducted from the proceeds of this
Note. Interest at the rate of ______ percent per annum shall be paid on any
amount not paid when due hereunder until that amount and any such interest are
so paid.
INTEREST PAYMENTS
I will pay interest at the above rate as follows:
|X| PERIODICALLY Monthly/Quarterly/_____________. In arrears, with the first
such payment due on the 1st day of December, 1996 and each subsequent payment
due on the corresponding day of each calendar month/calendar quarter/___________
thereafter.
[X] AT MATURITY. At the maturity of this Note.
[ ] INTEREST INCLUDED IN REPAYMENTS. Interest is included in the payment(s) to
be made pursuant to the Repayment Provisions below.
-9-
<PAGE> 10
PAYMENT PROVISIONS
In addition to any interest payments to be made as indicated above, I will pay
you the amount stated above as follows:
[ ] ON DEMAND. On demand by you.
[ ] PAYMENTS TO BE MADE UNTIL DEMAND. On demand by you, with payments
of $____________ each to be made monthly unless and until such demand is made.
The first such payments shall be due on the _______ day of _______, 19_____ (if
you have not made demand before then) and unless and until you make demand, each
subsequent payment shall be due on the corresponding day of each month
thereafter.
[ ] TIME. _____________ days after the date hereof on _______________, 19___.
[X] INSTALLMENTS. In 30 consecutive monthly installments, of which each but
the last shall be $ * and the final of which shall be equal to the then unpaid
principal balance of this Note plus all accrued and unpaid interest thereon. The
first such monthly installment shall be due on the first day of April, 1997 and
each subsequent installment shall be due on the corresponding day of each month
thereafter, with the balance of all principal and interest due on September 1,
1999.
* 1/30th of the principal amount.
PREPAYMENT. I will be entitled to prepay this note as follows:
LATE CHARGES. If the entire amount of any required principal and/or interest is
not paid in full within ten (10) days after the same is due, the Borrower shall
pay to the Bank a late fee equal to five percent (5%) of the required payment
provided that such late fee shall be reduced to three percent (3%) of any
required principal and interest payment that is not paid within fifteen (15)
days of the date it is due if this Agreement is secured by a mortgage on an
owner-occupied residence, 1-4 units.
APPLICATION OF PAYMENTS. Any payments you receive from me will be applied first
to any accrued and unpaid interest and then to the unpaid principal balance of
this Note. If any payment under this Note becomes due and payable on the day
upon which your office is legally closed to business, the due date shall be
extended to the next succeeding business day and interest shall be payable
during such extension at the rate stated above.
EACH BORROWER AND ENDORSER LIABLE. If more than one borrower has signed below,
each of us has made all of the promises contained in this Note, and we are
jointly and severally liable for all obligations on this Note. If one or more
-10-
<PAGE> 11
endorser has signed below, each endorser agrees to all terms of this Note,
including without limitation the provisions relating to Security.
This Note is subject to the terms, provisions and conditions set forth
on the reverse side of this page. Signed as an instrument under seal on the date
stated above.
BORROWER(S)
Silverstream Software, Inc.
- ---------------------------------
Name of Borrower
By: /s/ David Skok
-----------------------------
Name : David Skok
Title: CEO
By:
-----------------------------
Name
Title
Address:
------------------------
------------------------
- ---------------------------------
Name of Borrower
By:
-----------------------------
Name
Title
Address:
------------------------
------------------------
ENDORSER(S):
- ---------------------------------
- ---------------------------------
-11-
<PAGE> 12
EVENTS OF DEFAULT. Upon the occurrence of any one or more of the
following Events of Default, the entire unpaid principal balance of this Note
and all unpaid accrued interest hereunder shall become immediately due and
payable on your option and without notice or demand. In addition, at your option
and without notice or demand, the occurrence of any such Event of Default shall
also constitute a default under all agreements between you and me as well as of
all instruments and papers that I have given to you. Events of Default are:
(a) my failure to pay when due (or upon demand, if payable on
demand) any amount due on this Note or any other amount I owe you; (b) my
failure promptly, punctually, and faithfully to perform any other obligation or
discharge any liability of mine to you; (c) your determination that any
representation or warranty I made to you in any document, instrument, agreement
or paper was not true or accurate when given; (d) the occurrence of any event of
default under any agreement between you and me or under any instrument or paper
I have given to you notwithstanding that you may not have exercised your rights
upon default under any such other agreement, instrument or paper; (e) any act
by, against, or relating to me or my property or assets, which act constitutes
the application for, consent to, or sufferance of, the appointment of a
receiver, trustee, or other person, pursuant to court action or otherwise over
all or any part of my property, the granting of any trust mortgage or execution
of an assignment for the benefit of my creditors or the occurrence of any other
voluntary or involuntary liquidation or extension of debt agreement for me; my
written admission of my inability to pay my debts as they mature; the filing of
any complaint, application, or petition by or against me initiating any matter
in which I am or may be granted any relief from my debts pursuant to the Federal
Bankruptcy Code or pursuant to any other insolvency statute or procedure; my
offering by or entering into any composition, extension, or any other
arrangement seeking relief or extension for my debts or any other judicial or
non-judicial proceeding or agreement by, against, or including me which seeks or
intends to accomplish a reorganization or arrangement with creditors; (f) the
imposition of any lien upon my assets or the entry of any judgment against me,
which lien is not discharged, or judgment appealed from or satisfied, within
fifteen (15) days after its imposition or entry; (g) any material adverse change
in my assets, liabilities, property, business or condition, financial or
otherwise; (h) the occurrence of any event or circumstance with respect to me
such that you deem yourself to be insecure; (i) my death, termination of
existence, dissolution, winding up, or liquidation; (j) the occurrence of any of
the foregoing Events of Default with respect to any guarantor or endorser to you
of my liabilities to you, as if such guarantor or endorser were a borrower who
signed this Note.
LOAN DOCUMENTS; SECURITY. The following loan documents and security
instruments are incorporated herein by reference with the same force and effect
as if set forth herein in full: Letter Agreement dated November 5, 1996;
Inventory and Accounts Receivable Security Agreement dated 11/5/96;
Supplementary Security Agreement, Security Interest in Goods and Chattels dated
11/5/96; Term Loan
-12-
<PAGE> 13
Agreement dated 11/5/96. The execution, endorsement or guaranty of this Note
constitutes a confirmation by each person that any security interest listed
above which was given to you before the date hereof shall continue in effect as
security for this Note. In addition to the foregoing, any and all of the
deposits or other sums at any time credited by or due from you to me or to any
endorser or guarantor of this Note, and any cash, securities, instruments, or
other property of mine or of such endorser or guarantor in your possession,
whether for safekeeping, or otherwise, shall at all times constitute security
for this Note and for any and all of my liabilities to you including, without
limitation, the liability evidenced hereby, and may be applied or set off by you
against such liabilities at any time whether or not such liabilities are then
due and whether or not other collateral is available to you.
COSTS AND EXPENSES. I and each endorser and guarantor of this Note,
will pay all costs and expenses, including, without limitation reasonable
attorneys' fees and all expenses and disbursements of counsel, in connection
with the protection or enforcement of any of your rights against me or any such
endorser and guarantor and against any collateral given to you to secure this
Note or any other of my liabilities or of such endorser and guarantor to you
(whether or not suit is instituted by or against you).
ASSIGNABILITY BY YOU. You may assign and transfer this Note to any
person, firm or corporation and deliver to the assignee any collateral or
security interest you held in connection with this Note. In the event of such
assignment, you will have no further responsibility or liability with respect to
such collateral or security interest, and the terms of this Note and any related
documents shall inure to the benefit of your assignee and its successors. This
Note shall be binding upon me and each endorser and guarantor hereof and upon my
and their respective heirs, successors, assigns, and representatives, and shall
inure to the benefit of you and your successors and endorsees.
SEVERABILITY. If any provision of this Note is deemed by any court
having jurisdiction thereof to be invalid or unenforceable, the other provisions
of this Note shall remain in full force and effect. If any provision of this
Note is deemed by any such court to be unenforceable because such provision is
too broad in scope, such provision shall be construed to be limited in scope to
the extent such court shall deem necessary to make it enforceable. If any
provision is deemed inapplicable by any such court to any person or
circumstances, it shall nevertheless be construed to apply to all other persons
and circumstances.
WAIVER. No delay or omission by you in exercising or enforcing any of
your powers, rights, privileges, remedies, or discretions hereunder shall
operate as a waiver thereof on that occasion nor on any other occasion. No
waiver of any default hereunder shall operate as a waiver of any other default
hereunder, nor as a continuing waiver.
-13-
<PAGE> 14
ENDORSEMENT. Each endorser, jointly and severally if more than one,
unconditionally guarantees prompt payment when due, by acceleration or otherwise
of this Note, regardless of its genuineness, validity, regularity or
enforceability and waives any right to require you to proceed against the
Borrower or any collateral which you might have been granted to secure any
endorser's liabilities under this Note.
PRESENTMENT, EXTENSION. I and each endorser and guarantor of this Note
respectively waive presentment, demand, notices, and protest, and also waive any
delay on the part of the holder hereof. Each assents to any extension or other
indulgence (including, without limitation, the release of any other party to
this Note or the release or substitution of collateral) which you permit me or
any such endorser or guarantor with respect to this Note or any collateral given
to secure this Note and any other liability of mine or such endorser or
guarantor to you.
MISCELLANEOUS. My liabilities and those of any endorser or guarantor of
this Note are joint and several; provided, however, your release of one or any
endorser or guarantor shall not release any other person obligated on account of
this Note. Each reference in this Note to me, any endorsor, and any guarantor,
is to such person individually and also to all such persons jointly. No person
obligated on account of this Note may seek contribution from any other person
also obligated unless and until all liabilities to you of the person from whom
contribution is sought have been satisfied in full.
I and each endorser and guarantor of this Note authorize you to
complete this Note if delivered in incomplete form, in any respect.
This Note is delivered to you at one of your offices in Massachusetts
and shall be governed by the laws of the Commonwealth of Massachusetts. I and
each endorsor and guarantor of this Note submit to the jurisdiction of the
courts of the Commonwealth of Massachusetts for all purposes with respect to
this Note, any collateral given to secure their respective liabilities to you or
their respective liabilities to you or their respective relationships with you.
-14-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF SILVERSTREAM SOFTWARE, INC.
Subsidiary Name Jurisdiction of Organization
SilverStream Securities Corporation Massachusetts
SilverStream Netherlands, Inc. Delaware
SilverStream Software Limited United Kingdom
SilverStream Software GmbH Germany
SilverStream Software B.V. The Netherlands
SilverStream Software BVBA/SPRL Belgium
SilverStream Software (Asia) Limited Hong Kong
SilverStream Software (Asia) Pte. Ltd. Singapore
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
March 5, 1999, (except for Note 12, as to which the date is May 27, 1999) with
respect to the Financial Statements included in the Registration Statement (Form
S-1) and related Prospectus of SilverStream Software, Inc. for the registration
of shares of its common stock.
Our audits also included the financial statement schedule of SilverStream
Software, Inc. listed in Item 16(b). This schedule is the responsibility of
SilverStream Software, Inc.'s management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects, the information set
forth therein.
/s/ Ernst & Young LLP
Boston, Massachusetts
June 10, 1999
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