<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 5, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
SILVERSTREAM SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------------
<TABLE>
<S> <C> <C>
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:
<TABLE>
<S> <C>
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>
-------------------------
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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.001 par value per share 2,070,000 Shares $117.50 $243,225,000 $64,212
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 270,000 shares which the underwriters have the option to purchase
from SilverStream Software, Inc. solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) under the Securities Act of 1933, based on the
average of high and low sales prices as reported by the Nasdaq National
Market on December 31, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 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 an offer to buy these securities in any state where the offer
or sale is not permitted.
PROSPECTUS (Subject To Completion)
Issued January , 2000
1,800,000 Shares
[LOGO] SILVERSTREAM
COMMON STOCK
------------------------
SILVERSTREAM SOFTWARE, INC. IS OFFERING 1,000,000 SHARES AND THE SELLING
STOCKHOLDERS ARE OFFERING 800,000 SHARES.
------------------------
OUR COMMON STOCK IS LISTED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"SSSW." ON DECEMBER 31, 1999, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET WAS $119 PER SHARE.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS SILVERSTREAM STOCKHOLDERS
-------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Per Share................... $ $ $ $
Total....................... $ $ $ $
</TABLE>
SilverStream has granted the underwriters the right to purchase up to an
additional 270,000 shares of common stock to cover over-allotments.
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.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on
, 2000.
------------------------
MORGAN STANLEY DEAN WITTER
ROBERTSON STEPHENS
SG COWEN
, 2000
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 7
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS.......................... 16
USE OF PROCEEDS....................... 17
DIVIDEND POLICY....................... 17
PRICE RANGE OF COMMON STOCK........... 17
CAPITALIZATION........................ 18
DILUTION.............................. 19
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 22
BUSINESS.............................. 33
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT............................ 48
CERTAIN TRANSACTIONS.................. 53
PRINCIPAL AND SELLING STOCKHOLDERS.... 55
DESCRIPTION OF CAPITAL STOCK.......... 58
SHARES ELIGIBLE FOR FUTURE SALE....... 60
UNDERWRITERS.......................... 62
LEGAL MATTERS......................... 63
EXPERTS............................... 63
ADDITIONAL INFORMATION................ 63
AVAILABLE INFORMATION................. 64
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
WHICH IS CONTAINED IN THIS PROSPECTUS. WE AND THE SELLING STOCKHOLDERS 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.
2
<PAGE> 4
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 global provider of software and services that enable
businesses and other large organizations to create, deploy and manage software
programs for intranets, extranets and the Internet. The advantages of Web-based
technology are driving the creation of a new generation of business-transforming
software programs. These powerful Web-based programs, or Web applications, link
a broad universe of customers, vendors, employees and partners with multiple,
diverse data sources. We believe our products and services help our customers to
rapidly develop Web applications that are reliable, secure and able to handle
increasing and variable volumes of user traffic, commonly known as being
scalable. Using our products and services, organizations can create and deploy
robust Web applications in diverse areas such as e-commerce,
business-to-business commerce, enterprise portals, employee self-service, supply
chain management and customer service.
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 expandable, reliable and secure solutions that
shorten the development time 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 Application Server is a software
product that provides access to various forms of electronic information and
communicates, usually in the form of a Web application, with the computers of
users accessing the information. Our enterprise data connectors provide access
to various kinds of third-party data sources. We believe 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 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.
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, ObjectEra and the SilverStream logo are our trademarks. This prospectus
also contains trademarks and trade names of other companies.
3
<PAGE> 5
RECENT DEVELOPMENTS
We have recently announced two important future strategic additions to our
product offerings. Through our recent acquisition of GemLogic, we plan to offer
an Extensible Markup Language, or XML, integration server in addition to our
Application Server to enable customers to more easily develop and deploy
business-to-business e-commerce applications. XML is an emerging standard for
sharing data over the Internet, enabling data to be exchanged among different
software, database packages and legacy systems.
We have also announced the formation of an e-Business Solutions group to
deliver pre-built application frameworks. These frameworks provide pre-built,
reusable software components and tools that provide some of the key
functionality common across Web applications without sacrificing the
customization necessary to preserve competitive advantage and meet a customer's
business needs. Our first planned product from our e-Business Solutions group is
a framework for enterprise portals, which are Web applications that provide an
integrated, personalized view of all the applications and information that an
individual employee, customer or partner needs on a regular basis. Both of these
additions to our product and service offerings will be built on top of our
Application Server, leveraging its performance and scalability as well as our
integrated development tools.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by:
SilverStream................................ 1,000,000 shares
Selling stockholders...................... 800,000 shares
-----------------
Total............................. 1,800,000 shares
-----------------
-----------------
Common stock to be outstanding after this
offering.................................. 18,688,504 shares
Use of proceeds............................. For general corporate purposes, including
working capital and capital expenditures.
For more detailed information, see "Use of
Proceeds" on page 17.
Nasdaq National Market symbol............... SSSW
</TABLE>
The number of shares of Common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999. This
number does not include 1,787,810 shares issuable upon the exercise of
outstanding options.
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1996 YEARS ENDED NINE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, SEPTEMBER 30,
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 $ 3,443 $ 9,010
Services......................... -- -- 825 332 5,024
-------- -------- ---------- ---------- -----------
Total revenue...................... -- 249 6,808 3,775 14,034
Cost of revenue:
Software license................. -- 90 767 392 1,076
Services......................... -- 282 1,414 880 6,463
-------- -------- ---------- ---------- -----------
Total cost of revenue.............. -- 372 2,181 1,272 7,539
-------- -------- ---------- ---------- -----------
Gross profit (loss)................ -- (123) 4,627 2,503 6,495
Total operating expenses........... 1,005 8,437 17,987 12,328 21,372
-------- -------- ---------- ---------- -----------
Loss from operations............... (1,005) (8,560) (13,360) (9,825) (14,877)
-------- -------- ---------- ---------- -----------
Net loss........................... $ (952) $ (8,335) $ (12,885) $ (9,430) $ (14,362)
======== ======== ========== ========== ===========
Net loss applicable to common
stockholders..................... $ (952) $ (8,335) $ (12,885) $ (9,430) $ (14,625)
======== ======== ========== ========== ===========
Basic and diluted net loss per
share applicable to common
stockholders..................... $ (5.12) $ (10.61) $ (4.89) $ (3.80) $ (2.58)
Weighted-average common shares used
in computing basic and diluted
net loss per share applicable to
common stockholders.............. 185,686 785,548 2,632,496 2,484,016 5,678,081
Pro forma basic and diluted net
loss per share applicable to
common stockholders.............. $ (1.33) $ (1.17)
Weighted-average common shares used
in computing pro forma basic and
diluted net loss per share
applicable to common
stockholders..................... 9,691,693 12,548,963
</TABLE>
Weighted-average common shares shown above exclude unvested shares of
common stock subject to repurchase rights, which totalled 2,489,984 and
1,543,653 for the year ended December 31, 1998 and the nine months ended
September 30, 1999, respectively.
5
<PAGE> 7
Shares used in computing pro forma basic and diluted net loss per share
above include 8,659,208 shares of common stock issued upon conversion of our
outstanding preferred stock upon the closing of the initial public offering of
our common stock on August 20, 1999.
The as adjusted column in the consolidated balance sheet data below gives
effect to the sale of 1,000,000 shares of common stock in this offering by
SilverStream at an assumed public offering price of $119.00 per share, after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------
ACTUAL AS ADJUSTED
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $51,324 $163,924
Working capital............................................. 55,201 167,801
Total assets................................................ 67,644 180,244
Long-term debt, less current portion........................ 622 622
Total stockholders' equity.................................. 59,095 171,695
</TABLE>
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; and
- Reflects the conversion upon the closing of our initial public offering
on August 20, 1999 of all outstanding shares of our convertible preferred
stock into shares of common stock on a one-for-one basis.
6
<PAGE> 8
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
WE HAVE INCURRED SUBSTANTIAL LOSSES, WE EXPECT CONTINUED LOSSES AND CONTINUED
LOSSES WILL HARM OUR BUSINESS.
We have never been profitable. 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
$14.4 million for the nine months ended September 30, 1999. As of September 30,
1999, we had an accumulated deficit of $36.5 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. If our revenue grows more slowly than we anticipate or if our
operating expenses increase more than we expect or cannot be reduced in the
event of lower revenue, our business will be materially and adversely affected.
WE EXPECT TO DEPEND ON OUR APPLICATION SERVER AND RELATED SERVICES FOR
SUBSTANTIALLY ALL OF OUR REVENUE FOR THE FORESEEABLE FUTURE AND IF OUR
APPLICATION SERVER DOES NOT ACHIEVE WIDESPREAD MARKET ACCEPTANCE, OUR BUSINESS
AND RESULTS OF OPERATIONS WILL SUFFER.
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 and related
products and services 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. Any delay or difficulties in completing these
enhancements would seriously harm our business and operating results. We have
recently made available test copies of Version 3.0 of our Application Server,
which includes new functionality including improvements to the programming
environment as well as support for computing standards, such as Enterprise
JavaBeans and Java2, and third-party development tools. We cannot predict the
time required to complete testing or the date of commercial release. In December
1999, we acquired GemLogic, Inc., a developer of Extensible Markup Language
(XML) integration server technology. XML is an emerging standard for sharing
data over the Internet and is designed to support business-to-business commerce
over the Internet. The acquired technology will require significant additional
development before release of any commercial product and we cannot predict the
time required to complete development, testing and integration with our
Application Server or the date of commercial release. In addition, we cannot be
certain that enhanced versions of the SilverStream Application Server or new and
enhanced versions of complementary products will meet customer performance needs
or expectations when shipped or that new versions will be free of significant
software defects or bugs.
WE HAVE ONLY BEEN IN BUSINESS FOR A SHORT PERIOD OF TIME AND YOUR BASIS FOR
EVALUATING US IS LIMITED.
We began commercial shipments of our first software products in November
1997. You must consider the risks, expenses and uncertainties that an early
stage company like ours faces, particularly in the new and
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<PAGE> 9
rapidly evolving Internet market. Because we have only recently commenced
commercial sales, our past results and rates of growth may not be meaningful and
you should not rely on them as an indication of our future performance.
OUR LIMITED OPERATING HISTORY MAKES FORECASTING DIFFICULT AND THE FAILURE TO
MEET EXPECTATIONS COULD CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE.
As a result of our limited operating history, it is difficult to forecast
accurately our revenues, and we have limited meaningful historical financial
data upon which to base planned operating expenses. If we do not achieve our
expected revenues, our operating results will be below our expectations and the
expectations of investors and market analysts, which could cause the price of
our common stock to decline. Specifically, we were founded in May 1996, and
began shipping our first products, the SilverStream Application Server 1.0 and
related software development tools, in November 1997. Our operating expenses are
largely based on anticipated revenue trends and a high percentage of our
expenses are and will continue to be fixed in the short-term. The revenue and
income potential of our products and business are unproven and the market that
we are addressing is rapidly evolving.
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.
THE UNPREDICTABILITY OF OUR QUARTERLY OPERATING RESULTS MAY ADVERSELY AFFECT
THE TRADING PRICE OF OUR COMMON STOCK.
Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future, making it difficult to predict
future performance. These variations result from a number of factors, many of
which are outside of our control. Because of this difficulty in predicting
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.
Although we have limited historical financial data, we believe that our
quarterly operating results may experience seasonal fluctuations. For instance,
quarterly results may fluctuate based on our clients' calendar year budgeting
cycles, deferral of customer orders in anticipation of product enhancements or
new products, slow summer purchasing patterns 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 AND IF WE
FAIL TO GROW OUR CUSTOMER BASE OR GENERATE REPEAT BUSINESS, OUR OPERATING
RESULTS COULD BE HARMED.
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 choose not 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
8
<PAGE> 10
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.
OUR MARKETS ARE HIGHLY COMPETITIVE AND OUR FAILURE TO COMPETE SUCCESSFULLY
WILL LIMIT OUR ABILITY TO RETAIN AND INCREASE OUR MARKET SHARE.
Our markets are new, rapidly evolving and highly competitive, and we expect
this competition to persist and intensify in the future. Our failure to maintain
and enhance our competitive position will limit our ability to retain and
increase our market share resulting in serious harm to our business and
operating results.
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 more established customer support and professional
services organizations. In addition, these companies may adopt aggressive
pricing policies, may bundle their competitive products with broader product
offerings or may introduce new products and enhancements. See
"Business -- Competition" on page 45 for more information on our competition.
OUR LENGTHY SALES CYCLE MAKES IT DIFFICULT TO PREDICT OUR QUARTERLY RESULTS.
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. Our long sales cycle makes it difficult to predict the
quarter in which sales 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 AND MARKETING 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. If we are unable to attract or
retain such qualified sales personnel, our business and operating results would
be seriously harmed. 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.
FAILURE TO MAINTAIN EXISTING, OR INCREASE THE NUMBER OF, THIRD-PARTY
DISTRIBUTION RELATIONSHIPS MAY LIMIT OUR ABILITY TO PENETRATE THE MARKET.
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 failure to increase the number of our
distribution relationships or maintain our existing relationships may limit our
ability to penetrate the market. Our current agreements with our distribution
partners do not prevent these companies from selling products of other
companies, including products that may compete with our products, and do not
generally require these partners to purchase minimum quantities of our products.
These distributors could give
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<PAGE> 11
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. In addition, a significant
increase in sales through these channels could also negatively impact our gross
margins, as sales through these channels generally have lower revenue per unit
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. If we
fail to attract, train and retain the skilled persons who deliver these
services, our business and operating results would be harmed. We plan to
increase the number of our services personnel to meet these needs. However,
competition for qualified service personnel is intense and we may not be able to
attract, train or retain 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.
WE FACE RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS THAT COULD HARM OUR
BUSINESS.
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. However, we may not be able to maintain or
increase market demand for our products which may harm our business. We are
increasingly subject to a number of risks associated with international business
activities which may increase our costs, lengthen our sales cycle and require
significant management attention. These risks generally include:
- Increased expenses associated with customizing products for foreign
countries;
- General economic conditions in our international markets;
- Currency exchange rate fluctuations;
- Unexpected changes in regulatory requirements resulting in unanticipated
costs and delays;
- Tariffs, export controls and other trade barriers;
- Longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;
- 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.
OUR FUTURE SUCCESS DEPENDS ON CONTINUED USE OF THE INTERNET AND GROWTH OF
ELECTRONIC BUSINESS.
Our future success depends heavily on the acceptance and wide use of the
Internet for electronic business. If electronic business does not continue to
grow or grows more slowly than expected, demand for our products and services
will be reduced. Consumers and businesses may reject the Internet as a viable
commercial medium for a number of reasons, including potentially inadequate
network infrastructure, slow development of enabling technologies, insufficient
commercial support or privacy concerns. The Internet's infrastructure may not be
able to support the demands placed on it by increased usage. In addition, delays
in the development or adoption of new standards and protocols required to handle
increased levels of Internet activity, or increased governmental regulation,
could cause the Internet to lose its viability as a commercial medium. Even if
the required infrastructure, standards, protocols and complementary products,
services or facilities are developed, we may incur substantial expenses adapting
our solutions to changing or emerging technologies.
10
<PAGE> 12
IF WE FAIL TO RESPOND TO RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY
STANDARDS, OUR PRODUCTS MAY BECOME OBSOLETE.
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 may quickly render
an existing product 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.
IN ORDER TO MANAGE OUR GROWTH AND EXPANSION, WE WILL NEED TO IMPROVE OUR
MANAGEMENT AND OPERATIONAL SYSTEMS ON A TIMELY BASIS.
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 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 have entered into a lease for a new facility and plan to move our
headquarters to new office space in the second quarter of 2000. We will likely
experience significant costs, and we could experience a disruption in the
development or marketing of our products, in connection with our planned 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. 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. None of
our senior management or other key personnel is bound by an employment
agreement. 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 INCLUDE THIRD-PARTY SOFTWARE AND TECHNOLOGY IN OUR PRODUCTS AND OUR
BUSINESS WOULD BE HARMED IF WE WERE NOT ABLE TO CONTINUE USING THIS 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 some of the 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.
11
<PAGE> 13
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.
WE MAY NOT ACHIEVE THE EXPECTED BENEFITS OF OUR RECENT ACQUISITIONS.
In December 1999, we acquired ObjectEra, a developer of object request
broker computer products, and GemLogic, a developer of XML integration server
technology. Our failure to successfully address the risks associated with these
acquisitions could have a material adverse affect on our ability to develop and
market products based on the acquired technologies. We plan to develop enhanced
features to our Application Server and complementary products based on the
acquired technologies, and will be devoting significant resources to product
development, sales and marketing. To date, GemLogic has not developed a
commercial product and ObjectEra's products have had limited sales. The success
of these acquisitions will depend on our ability to:
- successfully integrate and manage the acquired operations;
- retain the software developers and other key employees of ObjectEra and
GemLogic;
- develop, integrate and market products and product enhancements based on
the acquired technologies; and
- control costs and expenses as well as demands on our management
associated with the acquisitions.
If we are unable to successfully develop and market products and product
enhancements as a result of these acquisitions, we may not achieve enhanced
revenue or other anticipated benefits from our acquisitions.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND CONSEQUENTLY HARM OUR
FINANCIAL CONDITION.
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 an 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.
OUR SOFTWARE PRODUCTS MAY CONTAIN ERRORS OR DEFECTS THAT COULD RESULT IN LOST
REVENUES, DELAYED OR LIMITED MARKET ACCEPTANCE OR PRODUCT LIABILITY CLAIMS WITH
SUBSTANTIAL LITIGATION COSTS.
Complex software products like ours can contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. 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. We have in the past discovered software errors in our new
releases and new products after their introduction and expect that this will
continue. Despite internal testing and testing by current and potential
customers, our current and future products may contain serious defects,
including Year 2000 errors.
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.
12
<PAGE> 14
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF THE SYSTEMS WE USE ARE NOT YEAR
2000 COMPLIANT OR IF OUR CUSTOMERS OR POTENTIAL CUSTOMERS ALTER THEIR PURCHASING
PATTERNS AS A RESULT OF THE YEAR 2000.
We have attempted to assess, and we must continue to audit Year 2000 issues
with the computer, communications and software systems that we use to deliver
our products and to manage our internal operations. 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.
We may experience fewer sales if potential customers delay the purchase and
implementation of our products after January 1, 2000 in order to 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 order to address 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" on page 30.
OUR BUSINESS MAY SUFFER IF WE CANNOT PROTECT OUR INTELLECTUAL PROPERTY.
We have no patents, and none may be issued from our existing patent
applications. 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 and competitors may gain access to
our intellectual property which may result in the loss of our customers. In
addition, despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use our
proprietary information. Litigation may be necessary to enforce our intellectual
property rights, to protect our trade secrets and to determine the validity and
scope of the proprietary rights of others. Any litigation could result in
substantial costs and diversion of resources with no assurance of success and
could seriously harm our business and operating results. In addition, we sell
our products internationally, and the laws of many countries do not protect our
proprietary rights as well as the laws of the United States. Our future patents,
if any, may be successfully challenged or may not provide us with any
competitive advantages.
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 COULD INCUR SUBSTANTIAL COSTS DEFENDING OUR INTELLECTUAL PROPERTY FROM
INFRINGEMENT OR A CLAIM OF INFRINGEMENT.
Other companies, including our competitors, may obtain patents or other
proprietary rights that would prevent, limit or interfere with our ability to
make, use or sell our products. As a result, we may be found to infringe on the
proprietary rights of others. In the event 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
13
<PAGE> 15
significantly harmed. 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.
RISKS RELATED TO THIS OFFERING
WE MAY NEED ADDITIONAL FINANCING WHICH COULD BE DIFFICULT TO OBTAIN.
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 advantage of future opportunities, grow our
business or respond to competitive pressures or unanticipated requirements,
which could seriously harm our business.
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE, WHICH COULD RESULT
IN SUBSTANTIAL LOSSES FOR INVESTORS PURCHASING SHARES IN THIS OFFERING.
The market price of our common stock has been highly volatile and has
fluctuated significantly in the past. The market price of our common stock may
continue to 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; and
- Future sales of our common stock or other securities.
WE MAY INCUR SIGNIFICANT COSTS FROM 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 ADVERSELY 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 more detailed description, see "Shares Eligible for
Future Sale" on page 59.
PURCHASERS IN THIS OFFERING WILL INCUR IMMEDIATE, SUBSTANTIAL DILUTION.
The public offering price of our common stock in this offering will be
substantially higher than the book value per share of our 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 anticipated public
offering price. To the extent these outstanding options are ultimately
exercised, there will be further dilution to investors in this offering.
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<PAGE> 16
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD
PREVENT OR DELAY A CHANGE IN CONTROL OF OUR COMPANY.
Provisions of our 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.
INSIDERS HAVE SUBSTANTIAL CONTROL OVER SILVERSTREAM AND COULD DELAY OR PREVENT
A CHANGE IN CORPORATE CONTROL.
Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own, in the aggregate, approximately
47.4% of our outstanding common stock. As a result, these stockholders have the
ability 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.
WE HAVE BROAD DISCRETION TO USE THE PROCEEDS FROM THIS OFFERING AND THE
FAILURE OF MANAGEMENT TO APPLY SUCH FUNDS EFFECTIVELY COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
We currently have no specific plans for a significant portion of our net
proceeds from this offering. 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.
15
<PAGE> 17
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> 18
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 1,000,000 shares of
common stock we are offering will be approximately $112,600,000, 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 $143,123,500. These estimates assume
a public offering price of $119.00 per share. We will not receive any proceeds
from the sale of common stock by the selling stockholders.
We intend to use the proceeds we receive from the offering for working
capital and general corporate purposes. We continuously evaluate and discuss
acquisitions and strategic investments. We may use a portion of our net proceeds
from this offering to acquire technologies or businesses, or make strategic
investments in businesses, that are complementary to our business. Pending such
uses, we plan to invest the net proceeds in short-term, interest-bearing,
investment grade 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.
PRICE RANGE OF COMMON STOCK
Our common stock is listed on the Nasdaq National Market under the symbol
"SSSW." Public trading of our common stock commenced on August 17, 1999. Prior
to that, there was no public market for our common stock. The following table
sets forth, for the periods indicated, the high and low sale price per share of
the common stock on the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Third Quarter (from August 17, 1999).................... $ 42.75 $ 22.56
Fourth Quarter.......................................... 123.00 26.88
YEAR ENDING DECEMBER 31, 2000:
First Quarter (through January 3, 2000)................. $ 132.00 $111.25
</TABLE>
As of November 30, 1999, there were 183 holders of record of our common
stock. On December 31, 1999, the last sale price reported on the Nasdaq National
Market for our common stock was $119.00 per share.
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<PAGE> 19
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999.
The as adjusted information gives effect to the receipt of the net proceeds from
the issuance and sale of the 1,000,000 shares of common stock offered by us in
this offering at an assumed public offering price of $119.00 per share, after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by us. The outstanding share information excludes
1,615,832 shares of common stock issuable on exercise of outstanding options as
of September 30, 1999 with a weighted average exercise price of $5.42 per share.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
---------------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
Long-term debt, less current portion........................ $ 622 $ 622
Stockholders' equity:
Preferred stock, $.001 par value, 2,000,000 shares
authorized and no shares issued or outstanding, actual and
as adjusted............................................... -- --
Common stock, $.001 par value; 100,000,000 shares
authorized: 17,553,176 shares issued and outstanding,
actual and 18,553,176 shares issued and outstanding, as
adjusted.................................................. 18 19
Additional paid-in capital.................................. 97,516 210,115
Deferred compensation....................................... (1,739) (1,739)
Accumulated deficit......................................... (36,534) (36,534)
Other comprehensive loss.................................... (62) (62)
Notes receivable from stockholders.......................... (104) (104)
-------- --------
Total stockholders' equity........................ 59,095 171,695
-------- --------
Total capitalization.............................. $ 59,717 $172,317
======== ========
</TABLE>
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<PAGE> 20
DILUTION
The net tangible book value of our common stock as of September 30, 1999
was approximately $57.2 million, or approximately $3.26 per share. "Net tangible
book value" per share represents the amount of our total tangible assets less
total liabilities, divided by 17,553,176 shares of common stock outstanding as
of September 30, 1999. After giving effect to the receipt of the net proceeds
from our sale of 1,000,000 shares of our common stock, our net tangible book
value at September 30, 1999 would have been $169.8 million, or $9.15 per share.
This represents an immediate increase in net tangible book value of $5.89 per
share to existing stockholders and an immediate dilution in net tangible book
value of $109.85 per share to new investors. The following table illustrates the
per share dilution:
<TABLE>
<S> <C> <C>
Public offering price per share............................. $119.00
Net tangible book value per share as of September 30,
1999................................................... $3.26
Increase in net tangible book value per share attributable
to new investors....................................... 5.89
-----
Net tangible book value per share after offering............ 9.15
-------
Dilution per share to new investors......................... $109.85
=======
</TABLE>
As of September 30, 1999, there were approximately 1,615,832 shares of
common stock subject to outstanding options at a weighted exercise price of
approximately $5.42 per share; and 1,420,700 shares were reserved for issuance
under our stock plans as of September 30, 1999. To the extent outstanding
options are exercised, there will be further dilution to new investors.
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<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our Consolidated Financial Statements, related notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein. 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, which have been audited
by Ernst & Young LLP, independent auditors. The consolidated balance sheet data
as of December 31, 1996 are derived from our audited consolidated financial
statements, and the consolidated balance sheet data as of September 30, 1998 are
derived from our unaudited consolidated financial statements not included in
this prospectus. The consolidated financial data as of September 30, 1999 and
for the nine-month periods ended September 30, 1998 and 1999 are derived from
our unaudited Consolidated Financial Statements included elsewhere herein. The
unaudited Consolidated Financial Statements 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 nine-month
period ended September 30, 1999 are not necessarily indicative of the results
that may be expected for the entire year ended December 31, 1999.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8,
1996
(INCEPTION) YEARS ENDED NINE MONTHS ENDED
TO DECEMBER 31, SEPTEMBER 30,
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 $ 3,443 $ 9,010
Services............................ -- -- 825 332 5,024
-------- -------- ---------- ---------- -----------
Total revenue............... -- 249 6,808 3,775 14,034
Cost of revenue:
Software license.................... -- 90 767 392 1,076
Services............................ -- 282 1,414 880 6,463
-------- -------- ---------- ---------- -----------
Total cost of revenue....... -- 372 2,181 1,272 7,539
-------- -------- ---------- ---------- -----------
Gross profit (loss)................... -- (123) 4,627 2,503 6,495
Operating expenses:
Sales and marketing................. 35 3,854 10,776 7,079 13,220
Research and development............ 850 2,622 5,070 3,766 5,173
General and administrative.......... 120 1,961 2,141 1,483 2,600
Compensation charge for issuance of
stock options.................... -- -- -- -- 298
Amortization of goodwill............ -- -- -- -- 81
-------- -------- ---------- ---------- -----------
Total operating expenses.... 1,005 8,437 17,987 12,328 21,372
-------- -------- ---------- ---------- -----------
Loss from operations.................. (1,005) (8,560) (13,360) (9,825) (14,877)
Other income, net..................... 53 225 475 395 515
-------- -------- ---------- ---------- -----------
Net loss.............................. $ (952) $ (8,335) $ (12,885) $ (9,430) $ (14,362)
Beneficial conversion feature in
Series D preferred stock............ -- -- -- -- (263)
-------- -------- ---------- ---------- -----------
Net loss applicable to common
stockholders........................ $ (952) $ (8,335) $ (12,885) $ (9,430) $ (14,625)
======== ======== ========== ========== ===========
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8,
1996
(INCEPTION) YEARS ENDED NINE MONTHS ENDED
TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------------- ------------------------
1996 1997 1998 1998 1999
-------------- -------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Basic and diluted net loss per share
applicable to common stockholders..... $ (5.12) $ (10.61) $ (4.89) $ (3.80) $ (2.58)
Weighted-average common shares used in
computing basic and diluted net loss
per share........................... 185,686 785,548 2,632,496 2,484,016 5,678,081
Pro forma basic and diluted net loss
per share........................... $ (1.33) $ (1.17)
Weighted-average common shares used in
computing pro forma basic and
diluted net loss per share.......... 9,691,693 12,548,963
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
----------------------------------- --------------------
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 $ 1,199 $ 4,443 $51,324
Working capital......................... 2,591 16,349 5,119 9,479 55,201
Total assets............................ 3,056 18,956 10,014 13,322 67,644
Long-term debt, less current portion.... 189 295 325 301 622
Redeemable convertible preferred
stock................................. 3,658 11,638 11,638 11,638 --
Total stockholders' equity (deficit).... (947) 5,944 (5,048) (1,622) 59,095
</TABLE>
21
<PAGE> 23
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.
OVERVIEW
SilverStream is a global provider of software and services that enable
businesses and other large organizations to create, deploy and manage software
programs 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.
We derive our revenue from the sale of software product licenses and from
professional consulting, education and technical support services. We plan to
generate future revenue from both new and existing customers. As existing
customers create new software applications based on the SilverStream Application
Server, they may require more application servers to run these applications. We
plan to widen our customer base by selling licenses and services to new
customers. We anticipate that we will continue to sell annual update assurance
and support agreements to most customers. We recognize our software license
revenue in accordance with Statement of Position (SOP) 97-2, "Software Revenue
Recognition," as amended by SOP 98-4. SOP 97-2 generally requires revenue 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 (i) we have no remaining significant obligations with
regard to implementation, (ii) the license fee is fixed or determinable and
(iii) collection of the fee is probable. However, when we sell software product
licenses to a reseller, revenue is not recognized until the product is shipped
to the ultimate customer. This is because the reseller is functioning as a
distributor and may order products without a specific customer. Our customers
often contract for update assurance which provides them with new releases of
software for a period of typically one year. These agreements are separately
negotiated and priced. We recognize update assurance revenue ratably over this
12-month period. We license our software to independent software vendors who use
our products to create their own software products for resale. Independent
software vendors typically pay us a prepayment at the beginning of their
contract. We recognize this revenue ratably over the period of the contract,
typically one year, because the only undelivered element under these agreements
is service, for which no pattern of performance is discernable. We also earn
partner fees, which are deferred and recognized on a straight-line basis as an
offset to operating expenses over the life of the agreement, typically one year.
We consider such fees to be reimbursement for costs incurred in connection with
our partner program. 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 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 (i) royalties due to third
parties for technology included in our products, (ii) the cost of manuals and
product documentation, (iii) media used to deliver our products, (iv) shipping
and fulfillment costs and (v) the costs associated with license revenues from
independent software vendors. Our cost of services revenue includes (i) salaries
and related expenses for our consulting, education and technical support
services organizations, (ii) costs of third parties contracted to provide
consulting services to customers and (iii) an allocation of our facilities,
communications and depreciation expenses.
22
<PAGE> 24
Our operating expenses are classified into five general categories: sales
and marketing, research and development, general and administrative,
compensation charge for issuance of stock options and goodwill. Sales and
marketing expenses consist primarily of salaries and other related costs for
sales and marketing personnel, sales commissions, travel, public relations,
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
facilities-related expenses. Compensation charge for the issuance of stock
options represents the difference between the exercise price of options granted
and the estimated fair market value of the underlying common stock on the date
of the grant. Goodwill represents the amortization of the goodwill related to
the acquisition of some of the company's former distributors in Europe.
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 $36.5 million
as of September 30, 1999 and $22.2 million as of December 31, 1998. 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 sets forth for the periods indicated the percentage of
revenues represented by certain lines in our consolidated statements of
operations.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- --------------------
1997 1998 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Software license................................ 100.0% 87.9% 91.2% 64.2%
Services........................................ 0.0 12.1 8.8 35.8
-------- -------- -------- --------
Total revenue........................... 100.0 100.0 100.0 100.0
-------- -------- -------- --------
Cost of revenue:
Software license................................ 36.2 11.2 10.4 7.7
Services........................................ 113.4 20.8 23.3 46.0
-------- -------- -------- --------
Total cost of revenue................... 149.6 32.0 33.7 53.7
-------- -------- -------- --------
Gross profit (loss)............................... (49.6) 68.0 66.3 46.3
Operating Expenses:
Sales and marketing............................. 1,550.7 158.3 187.5 94.2
Research and development........................ 1,055.1 74.5 99.8 36.9
General and administrative...................... 789.1 31.4 39.3 18.5
Compensation charge for issuance of stock
options...................................... 0.0 0.0 0.0 2.1
Amortization of goodwill........................ 0.0 0.0 0.0 0.6
-------- -------- -------- --------
Total operating expenses................ 3,394.9 264.2 326.6 152.3
-------- -------- -------- --------
Loss from operations.............................. (3,444.5) (196.2) (260.3) (106.0)
Other income, net................................. 90.7 6.9 10.5 3.7
-------- -------- -------- --------
Net loss.......................................... (3,353.8)% (189.3)% (249.8)% (102.3)%
======== ======== ======== ========
</TABLE>
23
<PAGE> 25
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
REVENUE
Total revenue increased 272% to $14.0 million in the nine months ended
September 30, 1999 from $3.8 million in the nine months ended September 30,
1998. This increase is attributable to an increase in our customer base
resulting in substantial growth in software license and services revenue.
Revenue from international sales increased to $5.0 million, or 36% of total
revenue, in the nine months ended September 30, 1999 from $215,000, or 6% of
total revenue, in the nine months ended September 30, 1998. The increase in
international sales is primarily due to increased selling and related activities
in Germany, Belgium, The Netherlands, The Czech Republic, Norway, France,
Singapore, Hong Kong and Taiwan.
Software License. Software license revenue increased 162% to $9.0 million
in the nine months ended September 30, 1999 from $3.4 million in the nine months
ended September 30, 1998. This increase is attributable to increased unit sales
of our products following the release of Version 2.0 in October of 1998 and
Version 2.5 in May of 1999, as well as higher prices realized for our products
in 1999 as compared to 1998.
Services. Services revenue increased 1,413% to $5.0 million in the nine
months ended September 30, 1999 from $332,000 in the nine months ended September
30, 1998. The primary factors for the nine month comparative increase are the
creation and expansion of our professional consulting organization and the
provision of a wider range of consulting services to customers, and an increase
in the number of customers and support contracts.
We believe that growth in our software license revenue depends on our
ability to provide our customers with support, education, and consulting
services and to educate third-party consulting partners on how to use our
products. As a result, we intend to continue to expand our services organization
in the future. 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 174% to $1.1
million in the nine months ended September 30, 1999 from $392,000 in the nine
months ended September 30, 1998. This increase is attributable to increased
product, shipping and third party royalty costs from a larger volume of sales
orders and to costs associated with our independent software vendors. Cost of
software license revenue increased as a percentage of software license revenue
to 12% from 11% for the nine months ended September 30, 1999 as compared to the
nine months ended September 30, 1998. This increase reflects higher fulfillment
costs associated with the increase in international orders. We expect software
license costs to increase in the future due to additional customers licensing
our products, both domestically and internationally, as well as the licensing of
additional third-party technology that we may choose to embed in our product
offerings.
Services. Cost of services revenue increased 634% to $6.5 million in the
nine months ended September 30, 1999 from $880,000 in the nine months ended
September 30, 1998. This increase is due to an increase in the number of our
education and technical support personnel and to the creation and rapid
expansion of our consulting services business in late 1998 and all of 1999. To
date, our services costs have been higher than our services revenue. 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 87% to $13.2
million in the nine months ended September 30, 1999 from $7.1 million in the
nine months ended September 30, 1998. This increase is
24
<PAGE> 26
attributable to increases in the number of sales employees in North America, as
well as the company's expansion of its international sales operations. 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 37%
to $5.2 million in the nine months ended September 30, 1999 from $3.8 million in
the nine months ended September 30, 1998. This increase is primarily
attributable to increases in the number of research and development personnel to
support SilverStream'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.
General and Administrative. General and administrative expenses increased
75% to $2.6 million in the nine months ended September 30, 1999 from $1.5
million in the nine months ended September 30, 1998. This increase is
attributable to a growing number of administrative employees, as well as 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 and incur additional costs related
to the growth of our business.
Compensation Charge for Issuance of Stock Options. We incurred a charge of
$298,000 for the nine months ended September 30, 1999 related to the issuance of
stock options with exercise prices below fair market value on the date of grant.
There was no such charge in the nine month period ended September 30, 1998.
Additional unvested outstanding options will continue to vest over the next five
years, which will result in additional compensation expense of approximately
$1.7 million in the aggregate in periods subsequent to September 30, 1999, which
will be charged to operations ratably over the next five years.
Amortization of Goodwill. We incurred a charge of $81,000 for the nine
months ended September 30, 1999 related to the amortization of goodwill, as a
result of the company's acquisitions which occurred in June and July 1999 of
three of its European distributors in The Czech Republic, Norway and France.
There were no such charges in the comparable nine month period ended September
30, 1998. Goodwill of approximately $1.9 million in the aggregate will continue
to be charged to operations ratably over the next five years relating to these
acquisitions.
OTHER INCOME, NET
Other income, net increased 30% to $515,000 in the nine months ended
September 30, 1999 from $395,000 in the nine months ended September 30, 1998.
This increase is attributable to an increase in interest income due to higher
cash balances in the comparable nine month period ended September 30, 1999
versus September 30, 1998.
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 $68,000, or 27% of total
revenue, in 1997 to $1.8 million, or 27% of total revenue, in 1998 due to the
same factors. 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.
25
<PAGE> 27
Services. We had no services revenue in 1997 and services revenue of
$825,000 in 1998. Approximately 71% of our services revenue in 1998 resulted
from education and support services delivered to an increasing customer base and
the remainder resulted primarily from the sale of professional consulting
services.
COST OF REVENUE
Software License. Cost of software license revenue increased by
approximately $677,000 from $90,000 in 1997 to $767,000 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. Of this increase, approximately
68% was due to an increase in our support organization and the balance was
primarily due to the creation of our professional consulting services
organization in 1998.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses in 1996 amounted to
$35,000 and increased by approximately $6.9 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.
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 primarily due
to the hiring of more personnel.
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.
QUARTERLY RESULTS
The following table presents our unaudited quarterly operating results for
each of the eight quarters through September 30, 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.
26
<PAGE> 28
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1997 1998 1998 1998 1998 1999 1999 1999
-------- --------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue:
Software license............... $ 249 $ 579 $ 948 $ 1,916 $ 2,539 $ 2,607 $ 2,908 $ 3,495
Services....................... -- 104 113 115 494 867 1,400 2,757
------- ------- ------- ------- ------- ------- ------- -------
Total revenue........... 249 683 1,061 2,031 3,033 3,474 4,308 6,252
Cost of revenue:
Software license............... 90 118 116 158 375 303 383 391
Services....................... 282 252 267 361 534 1,330 1,836 3,296
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenue... 372 370 383 519 909 1,633 2,219 3,687
------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss).............. (123) 313 678 1,512 2,124 1,841 2,089 2,565
Operating expenses:
Sales and marketing............ 1,283 2,305 2,116 2,658 3,696 3,988 4,270 4,962
Research and development....... 647 1,240 1,190 1,336 1,304 1,503 1,839 1,831
General and administrative..... 1,123 532 462 489 659 697 963 940
Compensation charge for
issuance of stock options.... -- -- -- -- -- 15 175 108
Amortization of goodwill....... -- -- -- -- -- -- -- 81
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 3,053 4,077 3,768 4,483 5,659 6,203 7,247 7,922
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations............. (3,176) (3,764) (3,090) (2,971) (3,535) (4,362) (5,158) (5,357)
Other income, net................ 216 97 155 143 80 40 138 337
------- ------- ------- ------- ------- ------- ------- -------
Net loss......................... $(2,960) $(3,667) $(2,935) $(2,828) $(3,455) $(4,322) $(5,020) $(5,020)
Beneficial conversion feature in
Series D preferred stock....... -- -- -- -- -- -- (263) --
------- ------- ------- ------- ------- ------- ------- -------
Net loss applicable to common
stockholders................... $(2,960) $(3,667) $(2,935) $(2,828) $(3,455) $(4,322) $(5,283) $(5,020)
======= ======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL REVENUE:
Revenue:
Software license............... 100% 85% 89% 94% 84% 75% 68% 56%
Services....................... -- 15 11 6 16 25 32 44
------- ------- ------- ------- ------- ------- ------- -------
Total revenue........... 100 100 100 100 100 100 100 100
Cost of revenue:
Software license............... 36 17 11 7 12 9 9 6
Services....................... 113 37 25 18 18 38 42 53
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenue... 149 54 36 25 30 47 51 59
------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss).............. (49) 46 64 75 70 53 49 41
Operating expenses:
Sales and marketing............ 516 337 200 132 122 115 99 80
Research and development....... 260 182 112 65 43 43 43 29
General and administrative..... 451 78 43 24 22 20 22 15
Compensation charge for
issuance of stock options.... -- -- -- -- -- -- 4 2
Amortization of goodwill....... -- -- -- -- -- -- -- 1
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 1,227 597 355 221 187 178 168 127
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations............. (1,276) (551) (291) (146) (117) (125) (119) (86)
Other income, net................ 87 14 15 7 3 1 3 6
------- ------- ------- ------- ------- ------- ------- -------
Net loss......................... (1,189)% (537)% (276)% (139)% (114)% (124)% (116)% (80)%
Beneficial conversion feature in
Series D preferred stock....... -- -- -- -- -- -- (6) --
------- ------- ------- ------- ------- ------- ------- -------
Net loss applicable to common
stockholders................... (1,189)% (537)% (276)% (139)% (114)% (124)% (122)% (80)%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE> 29
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 three
quarters 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, March 31, 1999,
June 30, 1999 and September 30, 1999 due to increased usage of third-party
consultants as well as salaries and related costs for increased professional
services personnel as a result of the expansion of our professional consulting
services organization.
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 each of the quarters ended March 31, 1999,
June 30, 1999 and September 30, 1999 due to increases in salaries, the number of
direct sales personnel and sales commissions and incentives paid in each
quarter. Research and development expenses increased in the quarters ended March
31, 1999 and June 30, 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.
General and administrative expenses decreased during the quarter ended
March 31, 1998 as employees were assigned to other departments as marketing,
sales and research and development activities increased. General and
administrative expenses decreased further in the quarter ended June 30, 1998 due
to a decrease in the provision for doubtful accounts and decreases in travel
expenses. General and administrative expenses increased in the quarter ended
December 31, 1998 due to increases in personnel and contracting fees and an
increase in the provision for doubtful accounts.
Subsequent to the completion of SilverStream's equity financing in late
1997, other income, net generally decreased as cash balances declined until the
quarter following an additional equity financing in March 1999. Interest expense
has generally decreased since the quarter ended June 30, 1998 as equipment term
loans were paid down. In the quarter ended June 30, 1999, interest expense has
increased along with an increase in equipment loan borrowings.
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
28
<PAGE> 30
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 credit carryforwards of approximately $22.3 million and $350,000,
respectively. The net operating loss and research and development credit
carryforwards will expire at various dates, beginning in 2012, if not utilized.
Under the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), substantial changes in our ownership may limit the amount of net
operating loss carry-forwards that can be utilized annually in the future to
offset taxable income. A valuation allowance has been established to fully
reserve the potential benefits of these carryforwards 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 and our initial public offering resulting
in aggregate net proceeds of approximately $97.5 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 September 30, 1999, we had $56.5 million in
cash, cash equivalents and marketable securities, and $55.2 million in working
capital. We have two term loans and a line of credit for amounts borrowed to
finance equipment. These term loans and line of credit are from the same bank
and bear interest at the bank's prime rate (8.25% at September 30, 1999) plus
0.5%. At September 30, 1999, we had a total of approximately $1.1 million
outstanding under these term loans and the line of credit. Borrowings under
these term loans and the line of credit are secured by substantially all of our
tangible assets. On October 31, 1999, the line of credit converted into a term
loan, with principal repayments commencing on November 1, 1999 in 36 equal
monthly payments.
Net cash used in operating activities was $8.0 million in 1997, $13.0
million in 1998 and $11.6 million in the nine months ended September 30, 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, $4.3
million in 1998 and $3.3 million in the nine months ended September 30, 1999.
Investing activities reflects purchases of property and equipment in each
period, as well as purchases of short-term investments.
Net cash provided by financing activities was $23.4 million in 1997, $1.9
million in 1998 and $65.1 million in the nine months ended September 30, 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, 1998 and the nine
months ended September 30, 1999.
Capital expenditures were $1.6 million in 1997, $1.0 million in 1998 and
$1.7 million in the nine months ended September 30, 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. Purchases of computer equipment represent
the largest component of our capital expenditures. We expect this trend to
continue as we move our headquarters in the second quarter of 2000, increase the
number of employees, increase the size of our development and quality assurance
testing facilities and improve and expand our information systems. 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.
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On December 13, 1999 we acquired two companies, GemLogic and ObjectEra. The
total consideration for GemLogic and ObjectEra is $20.2 million paid in shares
of our common stock and cash. Additional future consideration of up to $1.95
million in cash and up to $6.75 million in common stock is expected to be paid
in the future depending on future events. Of the cash portion of the total
consideration, we paid $4.2 million on December 13, 1999 and expect to make a
cash payment of $3.9 million on February 1, 2000. Employees of GemLogic were
granted non-qualified stock options at exercise prices ranging between
approximately $40 and $60 per share. A compensation charge for the issuance of
these stock options, representing the difference between the exercise price of
options granted and the fair market value, of up to approximately $5.6 million
in the aggregate will be charged to operations based upon vesting of these
options over the next four to seven years.
On November 9, 1999 we entered into a lease for our principal executive
offices. The term of the lease is from March 1, 2000 to February 28, 2006.
Annual lease payments are $800,000 for the first year, $1,200,000 for the second
year and $1,375,000 for each of the remaining years.
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
and the expansion of our professional services organization, 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. This could result in failures or
the creation of erroneous results.
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, 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.
The risks posed by Year 2000 issues could adversely affect our business in
a number of significant ways. Although we believe that our internally developed
systems and technology are Year 2000 compliant, our information and
non-information technology systems nevertheless could be substantially impaired
or cease to operate due to Year 2000 problems. Additionally, we rely on
information technology supplied by third parties and the resellers of our
products 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.
We have conducted a Year 2000 readiness review for the current versions of
our products. This review included assessment, validation, testing and, where
necessary, remediation, upgrading and replacement of
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product versions, as well as 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, so long as the underlying operating system of the host machine
and any other software used with or in the host machine or with our products are
also Year 2000 compliant. We do not believe that versions of our products prior
to Version 2.5 are Year 2000 compliant, and we encourage users of these versions
to upgrade to the latest version. We do not provide software patches or remedial
software programs for versions of our products prior to Version 2.5. Our
customers who have update assurance agreements with us each have the right to
receive the latest version of our product. Our customers who do not have update
assurance agreements with us may purchase the latest version of our product from
us.
We have not separately tested software obtained from third parties that is
incorporated into our products. We have tested this third-party software as
incorporated in our products as part of our product review. We are also seeking
assurances from these third parties that this software is Year 2000 compliant.
We plan to upgrade or replace any third-party software incorporated in our
products which is not Year 2000 compliant. If we are unable to upgrade or
replace any non-compliant software promptly, and our products or portions of our
products fail to operate correctly, our business and results of operations could
be materially adversely affected.
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. A
third-party assurance consists of a letter to us, or a public notice, from the
third party asserting Year 2000 compliance. 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 completed an assessment of our material internal information
technology systems, including both our own software products and third-party
software and hardware technology, including our accounting system, customer
service and support system and phone system. We have also completed an
assessment of our non-information technology systems. We are not currently aware
of any material operational issues 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.
Costs related to the Year 2000 issue have been immaterial to date and we
expect total future costs to remain below $350,000, of which $100,000 has been
accrued as of September 30, 1999. 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 material
problems and costs with Year 2000 compliance that could adversely affect our
business, results of operations and financial condition.
We intend to address all situations that may result if we experience
material unanticipated problems with our critical operations. We have available
internal resources to analyze, assess, and direct remediation efforts if
necessary, backup systems that don't rely on computers, and alternative sources
of supply. Remediation costs
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may 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. If any of our operations
experience Year 2000 problems and our remediation efforts are inadequate to
address the problems, then our business, results of operations or financial
condition could be materially adversely affected.
CONVERSION TO EURO
Eleven of the 15 common member countries of the European Union have agreed
to adopt the Euro as their legal currency. We have arranged for the necessary
modifications of our internal information technology and other systems to
accommodate Euro-denominated transactions. In addition, our products support the
Euro currency symbol. We are also assessing the business implications of the
conversion to the Euro, including long-term competitive implications and the
effect of market risk with respect to financial instruments. Based on the
foregoing, we do not believe the Euro will have a significant effect on our
business, financial position, cash flows or results of operations. We will
continue to assess the impact of Euro conversion issues as the applicable
accounting, tax, legal and regulatory guidance evolves.
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 September 30,
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, 2000.
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.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial Statements."
The SAB formalizes positions the staff has expressed in speeches and comment
letters. SAB 101 is effective no later than the first fiscal quarter of the
fiscal year beginning after December 15, 1999. We are presently analyzing the
impact, if any, that the adoption of SAB 101 will have on our financial
condition or results of operations.
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BUSINESS
OVERVIEW
SilverStream is a global provider of software and services that enable
businesses and other large organizations to create, deploy and manage software
programs for intranets, extranets and the Internet. The advantages of Web-based
technology are driving the creation of a new generation of business-transforming
software programs. These powerful Web-based programs, or Web applications, link
a broad universe of customers, vendors, employees and partners with multiple,
diverse data sources. In addition, organizations can design their applications
to include the rules that govern the operation of these applications in a manner
consistent with their business policies. These rules are known as business
logic. We believe 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 and customer service.
Our products consist of an application server, an integrated set of
development tools and enterprise data connectors. An application server is a
software product that provides access to various forms of electronic information
and communicates, usually in the form of a Web application, with the computers
of users accessing the information. 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 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. We believe
our development tools shorten the development time and simplify the development
process required to build complex Web applications. Our enterprise data
connectors facilitate access to data sources associated with some third-party
business applications, such as inventory or employee information systems. 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 have recently announced two important future strategic additions to our
product offerings. Through our recent acquisition of GemLogic, we plan to offer
an Extensible Markup Language, or XML, integration server in addition to our
Application Server to enable customers to more easily develop and deploy
business-to-business e-commerce applications. XML is an emerging standard for
sharing data over the Internet, enabling data to be exchanged among different
software, database packages and legacy systems.
We have also announced the formation of an e-Business Solutions group to
deliver pre-built application frameworks. These frameworks provide pre-built,
reusable software components and tools that provide some of the key
functionality common across Web applications without sacrificing the
customization necessary to preserve competitive advantage and meet a customer's
business needs. Our first planned product from our
e-Business Solutions group is a framework for enterprise portals, which are Web
applications that provide an integrated, personalized view of all the
applications and information that an individual employee, customer or partner
needs on a regular basis. Both of these additions to our product and service
offerings will be built on top of our Application Server, leveraging its
performance and scalability as well as our integrated development tools.
We market our products and services globally through our direct sales force
and a network of independent software vendors, value-added resellers and
consulting 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.
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
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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. Based on information provided to
SilverStream, we believe 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-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. Based on
information provided to SilverStream, we believe 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 by 2003.
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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 development time 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 - Web development programs based on generally
software applications and computer accepted industry standards
platforms - Interoperability of Web applications among legacy
applications and platforms
- Preservation of investment in pre-existing, or
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
Development time 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 global provider of software and services that enable
businesses and other large organizations to create, deploy and manage software
programs for intranets, extranets and the Internet. Organizations use our
products for such diverse Web applications as e-commerce, employee self-service,
supply chain management and customer service. We believe 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 enable large organizations to manage scalable, reliable and secure Web
applications and
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address 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 databases, software
applications that run on mainframe computers, and manufacturing, accounting,
inventory, purchasing 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 the
language used to describe Web pages known as Hyper-Text Markup Language and
commonly referred to as HTML, a widely used programming language known as 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 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 release of our Application Server, Version 3.0, include's
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. On December 13, 1999 we acquired two
companies, GemLogic and ObjectEra. GemLogic is a developer of an XML integration
server. This software application is expected to be included in the future with
our Application Server. ObjectEra is a developer of JBroker, a software program
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called an Object Request Broker (ORB). This program is expected to be included
in the next version of our Application Server. We have also announced the
formation of an e-Business Solutions group to develop applications frameworks.
The first planned product from our e-Business Solutions group is a framework for
enterprise portals.
Maintain Commitment to Generally Accepted Industry Standards and
Interoperability. We plan to continue to support generally accepted industry
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 Hyper-Text Markup Language and Java, as well as standards for communication
protocols, security mechanisms, and directory and database access. By supporting
generally accepted 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 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 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 seven sales offices in Europe and three in Asia. Our
international sales accounted for approximately 27% and 36% of our total revenue
in 1998 and the first nine months 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 set of development and testing software Version 2.5 shipped in
Pack products for creating Web applications integrated May 1999. First
Group Developer Pack with the 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 November 30, 1999, our
services organization comprised 98 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.
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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.
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 incorporates components and features
required to create, deploy and manage 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
architecture:] SilverStream Application Server
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 Hyper-Text Markup
Language and Java graphical user interfaces. Hyper-Text Markup Language 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 Hyper-Text Markup Language for Internet users and Java for
intranet users who interact heavily with the application.
Hyper-Text Markup Language. The SilverStream Application Server
incorporates a powerful engine for generating dynamic Hyper-Text Markup
Language pages that contain data and rich content. Developers can design
their Hyper-Text Markup Language pages either by writing industry standard
Java Servlets, or using a graphical page designer which generates Servlets
automatically.
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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. Our JRunner feature also
provides for the download of applications on demand, providing the feel of
a 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 Hyper-Text Markup Language edit control written in Java.
These features allow developers to create Web applications such as
e-commerce sites and enterprise 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 for improving the performance of a large computer system to
deliver very high performance and throughput across multiple processors in
a single server machine. Our Application Server also offers scalability
using load-balanced clusters of servers, which 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
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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 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 Hyper-Text Markup Language
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 Hyper-Text Markup Language 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 Hyper-Text Markup Language
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.
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CUSTOMERS
Our customer base spans multiple industry segments. The following is a
representative list of our customers who have purchased a SilverStream
Application Server license. We do not intend the identification of these
customers to imply that these customers are actively endorsing or promoting our
products.
<TABLE>
<S> <C> <C>
COMMUNICATION MANUFACTURING TECHNOLOGY
Ameritech Fuji Photo Advanced Micro
MCI WorldCom Owens Illinois Devices
Sprint Canada Raytheon Fujitsu
Samsung Hewlett-Packard
Siebel Systems
StorageTek
Tivoli
MEDIA ENERGY TRANSPORTATION
Associated New Media ARCO Federal Express
TCI Communications Conoco Southwest Airlines
The Walt Disney Enron UPS
Company Reliant Energy
Warner Music
FINANCIAL SERVICES GOVERNMENT OTHER
Bankers Trust CalPERS AAA
Bank One Federal Home Loan Bank Dupont
Citicorp of Atlanta InterContinental Hotels
J.P. Morgan Federal Reserve Bank Polaroid
ING Barings of New York Red Herring
Merrill Lynch Internal Revenue Sears, Roebuck
The Chicago Stock Service Service Corp.
Exchange The United States Army International
Transamerica
PHARMACEUTICAL
Bristol Myers Squibb
Johnson & Johnson
Pfizer
</TABLE>
Software license revenue from the customers listed above represented
approximately 23% of SilverStream's total software license revenue for the year
ended December 31, 1998 and approximately 11% of SilverStream's total software
license revenue for the nine-month period ended September 30, 1999. We derive
our software license revenue from the sale of software product licenses. We do
not charge our customers based on frequency of use of our products.
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 TELECOMMUNICATIONS COMPANY
A global telecommunications company provides crucial information to its
sales force on a daily basis through a corporate portal using a non-integrated
suite of our competitor's products. The portal was designed to provide to the
sales force information about special offers, templates for proposals and
competitive information. However, a usability study concluded that the explosive
growth of content posted on the corporate portal had created an unwieldy portal
application, resulting in substantial time spent both in
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searching for relevant data by the sales force and in administering the portal.
The customer believed that such concerns could lead to decreased use of the
corporate portal, and therefore, decreased sales force efficiency.
The customer is currently using the SilverStream Application Server to
build and deploy a new enterprise portal designed to allow each individual user
to create a personalized homepage with every item on the page applying directly
to the user. The customer selected the SilverStream Application Server because
of our ability to integrate the enterprise portal, content management, search
engine and workflow process products into a single platform. The customer
believes that the deployment of this enterprise portal will save on average more
than one hour per day per salesperson. We believe that our integrated platform
of application server, development tools and data connectors will enable this
company to speed its deployment of this crucial enterprise portal to its sales
force, while providing the connectivity and scalability necessary to properly
deploy and maintain an application of this scope. We also believe that our
Application Server will substantially reduce the time currently spent on
administering the site. By providing these benefits to the customer, we believe
the SilverStream Application Server is helping this customer remain competitive
by enhancing the efficiency of its sales force.
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
Hyper-Text Markup Language capability to provide a browser-based interface to
customers via the Internet. Because the company is able to provide access to a
diverse set of reservation systems and offer self-service to customers, we
believe the SilverStream Application Server enabled the company to provide more
efficient processing by travel agents and better customer service. Because the
company is able to rapidly create travel product offerings by using the
SilverStream Application Server, we believe the company is able 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 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. Because the customer is able to allow 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, we believe the SilverStream Application Server enabled the
customer to reduce inefficiencies in its claims-handling process.
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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. Because of these features, we believe 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 November 30, 1999, our sales and
marketing organization consisted of 111 employees, of which:
- 37 are located in our headquarters in Burlington, Massachusetts,
- 33 are located in sales offices in North America, and
- 41 are located in sales offices in the United Kingdom, The Netherlands,
Belgium, Germany, Norway, the Czech Republic, France, Hong Kong,
Singapore and Taiwan.
We have three 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; and
- Independent software vendor partners, or ISV partners, use our products
to create their own software products.
We enter into partnership agreements with our partners which include some
or all of the following terms and conditions:
- Term of agreement is generally one year with subsequent one-year
renewals;
- Grant of license to demonstrate, use and resell SilverStream products;
- Grant of license to include SilverStream products in partner products;
- Grant of license to use SilverStream trademarks;
- Payment to SilverStream of initial and annual partnership fees; and
- SilverStream product discounts for value added resellers and independent
software vendors.
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As of November 30, 1999, we had approximately 300 partners.
Our products are also sold in Japan, 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 November 30,
1999, we had 69 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 November 30, 1999, we had 59 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 24 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 $5.2 million in the first nine months 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
software technology from third parties.
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. 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, Oracle's Application Server, Allaire's Cold Fusion
product and Bluestone's Sapphire/ Web product. 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.
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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.
We believe the primary factors upon which we compete with vendors of
application server software and services are:
- Product performance and functionality;
- Ease of use of our products;
- Ability of our products to handle large volumes of users and
transactions;
- The extent to which our products adhere to industry standards;
- The ability of our products to run on computer hardware from various
manufacturers;
- The ability of our products to connect to various data sources;
- Price; and
- Customer service.
In addition, we believe our products and services provide shorter
development time and lower cost of ownership in comparison to in-house
development efforts.
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 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.
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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.
We integrate third-party software into our products. This third-party
software may not continue to be available on commercially reasonable terms. The
third-party software that we license includes text search software, a database,
a Java compiler, a Java runtime environment, an internet browser and an object
request broker. These licensed components enhance features in our products but
are not critical to the operation of our products. Some of these components are
available, at no charge, to our customers from the supplier but are included in
our products for customer convenience. In cases where the licensed component
provides an operating feature, we believe there are alternative suppliers for
the technology who may license their software to us. We also license encryption
technology from RSA Data Security under a perpetual agreement that is terminable
by either party upon default by the other. RSA is the sole source of this
technology and therefore the loss of this license would seriously harm our
business. In addition, if we cannot maintain licenses to the other third-party
software included in our products, 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.
EMPLOYEES
As of November 30, 1999, we had a total of 297 employees of whom:
- 59 were in research and development;
- 111 were in sales and marketing;
- 98 were in customer service and support; and
- 29 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. In the second quarter of 2000 we
intend to relocate our headquarters to a leased facility in Billerica,
Massachusetts consisting of approximately 100,000 square feet under a lease that
expires in 2006.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of SilverStream and their ages and
positions as of November 30, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David R. Skok............................. 44 Chairman of the Board of Directors
David A. Litwack.......................... 52 President, Chief Executive Officer and Director
Peter E. Brumme........................... 50 Vice President, Marketing and Business Development
Craig A. Dynes............................ 44 Vice President, Chief Financial Officer, Treasurer
and Secretary
Arnold S. Epstein......................... 50 Vice President and Chief Technology Officer
Diane Gordon.............................. 40 Vice President, Customer Services
John W. Pearce............................ 45 Vice President, International Operations
Kim A. Sheffield.......................... 44 Vice President, Research and Development
Timothy Barrows(1)(2)..................... 42 Director
Richard A. D'Amore(1)(2).................. 46 Director
Paul J. Severino(1)(2).................... 53 Director
</TABLE>
- ------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
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., a data management
company.
Peter E. Brumme has served as our Vice President, Marketing and Business
Development since October 1999 and was our Executive Vice President, Sales and
Marketing from January 1998 to September 1999. From January 1997 to December
1998 Mr. Brumme served as our Chief Operating Officer. 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 and Secretary 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.
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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.
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 September 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 Partners since 1985.
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.,
Xionics and SmarterKids.com.
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 from February 1998 to April 1999. 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 President and Chief Executive Officer
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., Interspeed, Inc.
and MCK Communications.
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.
ELECTION OF DIRECTORS
The Board of Directors is currently divided into three classes, each of
whose members serve for a staggered three-year term. Messrs. Skok and Barrows
serve in the class whose term expires in 2000; Messrs. Litwack and D'Amore serve
in the class whose term expires in 2001; and Mr. Severino serves 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.
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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 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, 1999, 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 $50,000 or 10% of the
person's salary and bonus shown in the table. In the table below, columns
required by the regulations of the Securities and Exchange Commission have been
omitted where no information was required to be disclosed under those columns.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------
AWARDS
ANNUAL COMPENSATION --------------------
--------------------- NUMBER OF SECURITIES
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) UNDERLYING OPTIONS
- --------------------------- --------- -------- --------------------
<S> <C> <C> <C>
David R. Skok........................................ $120,000 $ -- $ --
Chairman of the Board of Directors
David A. Litwack..................................... 120,000 -- --
President and Chief Executive Officer
John W. Pearce....................................... 100,000 78,234 --
Vice President, International Operations
Craig A. Dynes....................................... 124,583 55,000 10,000
Vice President, Chief Financial Officer, Treasury and
Secretary
Peter E. Brumme...................................... 150,000 25,000 --
Vice President, Business Development
Diane Gordon......................................... 119,616 50,000 55,000
Vice President, Customer Services
</TABLE>
The Board of Directors awarded the cash bonuses to the members of senior
management as identified above in recognition of individual performance and the
achievement of company goals in 1999.
50
<PAGE> 52
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the
fiscal year ended December 31, 1999 to each of the Named Executive Officers. No
stock appreciation rights were granted during such fiscal year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OPTION TERM(3)
OPTIONS FISCAL YEAR PRICE(2) EXPIRATION -----------------------
GRANTED 1999(1) ($/ SHARE) DATE 5% 10%
---------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David R. Skok............... -- --% $ -- -- $ -- $ --
David A. Litwack............ -- -- -- -- -- --
John W. Pearce.............. -- -- --
Craig A. Dynes.............. 10,000 0.9 8.00 4/30/09 50,312 127,499
Peter E. Brumme............. -- -- --
Diane Gordon................ 40,000 3.8 4.00 1/04/09 100,623 254,999
5,000 0.5 8.00 4/30/09 25,156 63,750
10,000 0.9 14.00 8/04/09 88,045 223,124
</TABLE>
- ------------
(1) Based on options to purchase an aggregate of 1,055,300 shares granted to our
employees under the 1997 Stock Incentive Plan during the 12 months ended
December 31, 1999.
(2) The exercise price was equal to the fair market value of our common stock as
valued by the Board of Directors on the date of grant.
(3) The potential realizable value is calculated based on the term of the option
at the time of grant. Stock price appreciation of 5% and 10% is assumed
pursuant to rules promulgated by the Securities and Exchange Commission and
does not represent our prediction of our stock price performance. The
potential realizable values at 5% and 10% appreciation are calculated by
assuming that the exercise price on the date of grant appreciates at the
indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price.
OPTION VALUES
The following table sets forth for each of the Named Executive Officers
options exercised and the number and value of securities underlying unexercised
options that are held by the Named Executive Officers as of December 31, 1999.
None of the Named Executive Officers exercised options in 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1999 AT DECEMBER 31, 1999
-------------------- --------------------
VESTED UNVESTED VESTED UNVESTED
------- --------- ------ ----------
<S> <C> <C> <C> <C>
David R. Skok...................................... -- -- -- $ --
David A. Litwack................................... -- -- -- --
John W. Pearce..................................... -- -- -- --
Craig A. Dynes..................................... -- 10,000 -- 1,110,000
Peter E. Brumme.................................... -- -- -- --
Diane Gordon....................................... -- 55,000 -- 6,205,000
</TABLE>
BENEFIT PLANS
1997 Stock Incentive Plan. Our 1997 Stock Incentive Plan provides for the
issuance of up to 3,500,000 shares of our common stock. 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 to our officers, employees, directors,
consultants and advisors.
51
<PAGE> 53
Our Board of Directors has authorized the Compensation Committee to
administer the 1997 Stock Incentive Plan. The Compensation Committee 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 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.
1996 Founders Stock Incentive Plan. Our 1996 Founders Stock Incentive Plan
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 founders stock restriction agreements. As of December
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
provides for the issuance of up to 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 were employed by us prior to July 1, 1999 for the first offering
period or for subsequent offering periods, 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.
To participate in the 1999 Employee Stock Purchase Plan, an employee must
authorize us to deduct from one to ten percent of his or her base pay during the
offering period. The first offering period commenced on August 17, 1999. The
purchase price of the shares for the first offering period is 85% of the initial
public offering price of $16.00 per share or the closing price per share of the
common stock on the last day of the offering period, whichever is lower. The
purchase price of the shares for the subsequent offering periods is 85% of the
closing price per share of the common stock on either the first or last day of
the offering period, whichever is lower.
401(k) Plan. Our employee savings and retirement plan is qualified under
Section 401 of the Internal Revenue Code. Our 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.
52
<PAGE> 54
CERTAIN TRANSACTIONS
All outstanding shares of preferred stock were converted to common stock on
the close of our initial public offering on August 20, 1999 on a one-for-one
basis.
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 and Selling Stockholders" on page 55.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D AGGREGATE
PREFERRED PREFERRED PREFERRED PREFERRED PURCHASE
INVESTOR STOCK STOCK STOCK STOCK PRICE
- -------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
David R. Skok.............................. 930,000 159,475 56,948 52,632 $2,780,009
David A. Litwack........................... 930,000 178,238 38,185 52,632 2,715,277
Peter E. Brumme............................ -- 11,257 -- -- 60,000
John W. Pearce............................. -- 9,381 -- -- 50,001
Kim A. Sheffield........................... -- 9,381 -- -- 50,001
Arnold S. Epstein.......................... -- 11,257 -- -- 60,000
Craig A. Dynes............................. -- 9,381 -- -- 50,001
Matrix IV Management Co., L.P.(1).......... 870,000 375,235 113,896 134,210 5,145,004
North Bridge Venture Partners, L.P.(2)..... 870,000 375,235 113,896 105,263 4,870,008
Funds affiliated with Essex Investment
Management Co., LLC(3)................... -- -- 455,581 342,105 7,249,999
</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 23 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.
53
<PAGE> 55
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 at a purchase price of $.01 per share. We issued the remaining
shares of common stock pursuant to founders stock restriction agreements with
each of the executive officers which give us 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 remaining 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 March 1, 1999, we granted to Diane Gordon, our Vice President, Customer
Services, an option to purchase 40,000 shares of common stock at a per share
exercise price of $4.00 under our 1997 Stock Incentive Plan. Ms. Gordon's option
vested 25% on January 4, 2000 and shall vest thereafter 6.25% per quarter for
three years.
On April 30, 1999, we granted to Craig A. Dynes, our Vice President, Chief
Financial Officer, Treasurer and Secretary, 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
thereafter 5% per quarter for four years.
On April 30, 1999, we granted to Diane Gordon 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
thereafter 5% per quarter 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.
On August 4, 1999, we granted to Diane Gordon an option to purchase 10,000
shares of common stock at a per share exercise price of $14.00 under our 1997
Stock Incentive Plan. Ms. Gordon's option shall vest 20% on August 4, 2000 and
thereafter 5% per quarter for four years.
------------------------
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. SilverStream agreed to the material terms of each of the preferred
stock issuances set forth above after arms'-length negotiations with previously
unaffiliated persons. 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.
54
<PAGE> 56
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of our common stock as of November 30, 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;
- All of our directors and executive officers as a group; and
- Each Selling Stockholder.
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 November 30, 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>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING(1)
------------------- NUMBER OF SHARES -------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ------------------------------------ --------- ------- ---------------- --------- -------
<S> <C> <C> <C> <C> <C>
Matrix IV Management Co., L.P.(2)....... 1,493,341 8.5% -- 1,493,341 8.0%
1000 Winter Street, Suite 4500
Waltham, MA 02154
North Bridge Venture Partners, L.P...... 1,464,394 8.3 -- 1,464,394 7.9
950 Winter Street, Suite 4600
Waltham, MA 02451
David R. Skok(3)........................ 2,322,055 13.2 232,206 2,089,849 11.3
David A. Litwack(4)..................... 2,312,055 13.2 232,206 2,079,849 11.2
Peter E. Brumme......................... 576,107 3.3 57,611 518,496 2.8
John W. Pearce.......................... 356,981 2.0 35,698 321,283 1.7
Kim A. Sheffield........................ 357,521 2.0 35,698 321,823 1.7
Arnold S. Epstein....................... 453,757 2.6 46,314 407,443 2.2
Timothy Barrows(2)...................... 1,493,341 8.5 -- 1,493,341 8.0
c/o Matrix IV Management Co., L.P.
1000 Winter Street, Suite 4500
Waltham, MA 02154
Richard A. D'Amore(5)................... 1,464,394 8.3 -- 1,464,394 7.9
c/o North Bridge Venture Partners,
L.P.
950 Winter Street, Suite 4600
Waltham, MA 02451
Paul J. Severino........................ 25,000 * -- 25,000 *
Craig A. Dynes.......................... 79,381 7,938 71,443 *
Diane Gordon(6)......................... 8,000 * -- 8,000 *
All executive officers and directors as
a group (11 persons)(7)............... 9,448,592 53.7 647,671 8,800,921 47.4
OTHER SELLING STOCKHOLDERS
- -----------------------
Irina Shishov(8)........................ 86,648 * 6,032 80,616 *
101 Oldham Road
Newton, MA 02165
</TABLE>
55
<PAGE> 57
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING(1)
------------------- NUMBER OF SHARES -------------------
OTHER SELLING STOCKHOLDERS NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- -------------------------- --------- ------- ---------------- --------- -------
<S> <C> <C> <C> <C> <C>
Wenonah Development Company............. 56,948 * 5,695 51,253 *
1745 Merrick Avenue
Merrick, NY 11156
Michel Goosens(8)....................... 9,000 * 7,500 1,500 *
Rue de l'Hotel, 3
7090 Steenkerque
Belgium
Gerald Goetgeluck....................... 6,000 * 4,500 1,500 *
Champ del Croix, 34
1380 Lasne
Belgium
Iona Technologies Finance............... 105,263 * 7,500 97,763 *
P.O. Box 1109
Midland Bank Trust Building
Mary Street, Georgetown, Grand Cayman
Cayman Islands, British West Indies
Pequot Private Equity Fund, L.P.(9)..... 234,210 1.3 50,000 184,210 1.0
Pequot Capital Management, Inc.
500 Nyala Farm Road
Westport, CT 06880
Intel 64 Fund, LLC...................... 105,263 * 39,797 65,466 *
2200 Mission College Boulevard
Santa Clara, CA 95052
Christopher C. Keller(8)................ 57,228 * 10,000 47,228 *
60 Crown View Drive
Monroe, CT 06468
Frederick S. Holahan, Jr.(8)............ 57,228 * 13,000 44,228 *
16 Coughlin Drive
Southbury, CT 06488
Edward W. Takacs........................ 83,050 * 8,305 74,745 *
High Tech Ventures Incorporated
18 Hurley Street
Cambridge, MA 02141
</TABLE>
- ------------
* Less than 1% of the outstanding common stock.
(1) Assumes no exercise of the underwriters' over-allotment option. See
"Underwriters."
(2) 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 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.
(3) Includes 1,000,000 shares held by the Farrar Trust, of which 100,000 are
being sold in this offering, and 100,000 shares held by the Concord Trust,
of which 10,000 are being sold in this offering.
(4) Includes 1,123,000 shares held by the Litwack Irrevocable Trust, of which
112,786 are being sold in this offering.
(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
56
<PAGE> 58
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 8,000 shares issuable upon the exercise of stock options
exercisable within 60 days of November 30, 1999.
(7) Includes 8,000 shares issuable upon the exercise of stock options
exercisable within 60 days of November 30, 1999.
(8) Selling stockholder is an employee of SilverStream.
(9) Includes 26,325 shares held by Pequot Offshore Private Equity Fund, Inc.
57
<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of SilverStream consists 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 November 30, 1999, there were
outstanding:
- 17,573,548 shares of common stock held by 183 stockholders of record;
- Options to purchase an aggregate of 1,659,960 shares of common stock.
There will be 18,688,504 shares of common stock outstanding upon the
closing of this offering.
The following summary is not intended to be complete and is qualified by
reference to the provisions of applicable law and to our second 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.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share held on
matters submitted to a vote of stockholders. Holders of our common stock 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 their proportionate share of any 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. The common stock
has no preemptive, subscription, redemption or conversion rights. All
outstanding shares of common stock are fully paid and nonassessable. The shares
offered by SilverStream in this offering will be fully paid and nonassessable.
The rights, preferences and privileges of the 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.
PREFERRED STOCK
Our Board of Directors is authorized to issue shares of preferred stock in
one or more series without stockholder approval. The Board will have 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 Board's ability to issue preferred
stock will provide desirable flexibility in connection with possible
acquisitions and other corporate purposes. However, this ability 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 OUR CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS
SilverStream is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for three years after the date of the transaction in which the
person became an interested stockholder, unless the business combination is
approved in a prescribed manner. A "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. An "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years did own, 15% or more
of the corporation's voting stock.
SilverStream's second amended and restated certificate of incorporation and
amended and restated by-laws provide:
- That the Board of Directors be divided into three classes, as nearly
equal in size as possible, with staggered three-year terms;
58
<PAGE> 60
- That directors may be removed only for cause by the 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 make it more difficult for a
third party to acquire, or discourage a third party from acquiring,
SilverStream.
The certificate of incorporation and by-laws also provide that:
- 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 by-laws also 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, 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 only at a duly called stockholders' meeting, and
not by written consent.
Delaware law provides that the 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 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 certificate of incorporation. Generally, our 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. Changes to our 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 of preferred stock that might be then outstanding.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation provides that our directors and officers
shall be indemnified by us to the fullest extent authorized by Delaware law.
This indemnification covers all expenses and liabilities reasonably incurred in
connection with their services for or on behalf of us. In addition, our
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.
59
<PAGE> 61
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, based on the number of shares outstanding
at December 31, 1999, we will have 18,688,504 shares of common stock
outstanding, assuming no exercise of outstanding options. Of these shares, all
of the 1,800,000 shares to be sold in this offering and the 3,450,000 shares
sold in our initial public 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.
The remaining shares of common stock held by existing stockholders are
"restricted securities" under Rule 144 other than shares issued upon exercise of
options after the date of our initial public offering. Generally, restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144 or 701 under the
Securities Act, which are summarized below. Substantially all of these remaining
shares are subject to "lock-up" agreements expiring on either February 12, 2000
or 91 days after the date of this offering. Sales of these restricted securities
in the public market, or the availability of these shares for sale, could cause
the trading price of our common stock to decline.
The amounts of restricted securities that will be available for sale in the
public market, subject in some cases to the volume limitations and other
restrictions of Rule 144, will be as follows:
<TABLE>
<CAPTION>
APPROXIMATE
SHARES
ELIGIBLE FOR
DATE FUTURE SALE COMMENT
- ---- ------------ -------
<S> <C> <C>
Currently.............................. 3,450,000 Freely tradable shares sold in our
initial public offering
On effectiveness of this prospectus.... 1,800,000 Shares sold in this offering
February 12, 2000...................... 5,772,000 Initial public offering lock-up
expires; shares salable under Rule 144
or 701
Between February 12, 2000 and 91 days
after the date of this prospectus.... 986,000 Shares become salable under Rule 144
91 days after the date of this
prospectus........................... 7,422,000 90 day lock-up expires; shares salable
under Rule 144 or 701
Between May 27, 2000 and July 23,
2000................................. 245,000 Shares become salable under Rule 144
</TABLE>
Shares issued upon exercise of options granted by us prior to the date of
our initial public offering will be available for sale in the public market
under Rule 701 of the Securities Act. Rule 701 permits resales of these shares
in reliance upon Rule 144 but without compliance with various restrictions,
including the holding period requirement, imposed under Rule 144. In general,
under Rule 144, beginning 90 days after the date of our initial public offering,
a person (or persons whose shares are aggregated) who has beneficially owned
restricted securities for at least one year would be entitled to sell within any
three-month period a number of shares not to exceed the greater of (1) one
percent of the then outstanding shares of common stock or (2) the average weekly
trading volume of our common stock during the four calendar weeks preceding the
filing of a Form 144 with respect to the sale. Sales under Rule 144 are also
subject to manner of sale and notice requirements, as well as to the
availability of current public information about us. Under Rule 144(k), a person
who is not deemed to have been an affiliate at any time during the 90 days
preceding a sale and who has beneficially owned the shares proposed to be sold
for at least two years is entitled to sell the shares without complying with the
manner of sale, public information, volume information or notice provisions of
Rule 144.
STOCK OPTIONS
At November 30, 1999, approximately 234,257 shares of common stock were
issuable pursuant to vested options granted under our 1997 Stock Incentive Plan,
substantially all of which are subject to lock-up agreements with the
underwriters.
60
<PAGE> 62
Up to 1,431,470 shares of common stock issued or issuable under our 1997
Stock Incentive Plan, have been registered on a registration statement on Form
S-8 under the Securities Act.
LOCK-UP AGREEMENTS
In connection with our initial public offering, our officers, directors,
the selling stockholders and other principal stockholders agreed with Morgan
Stanley & Co. Incorporated not to sell or otherwise dispose of any of their
shares for a period expiring on February 12, 2000. In addition, the officers,
directors and selling stockholders of SilverStream have agreed not to sell or
otherwise dispose of an aggregate of approximately 6,541,000 shares until 91
days after the date of this offering. Morgan Stanley & Co. Incorporated,
however, may in its sole discretion, at any time without notice, release all or
any portion of the shares subject to either of these lock-up agreements.
REGISTRATION RIGHTS
After this offering, the holders of approximately 10,271,633 shares of
common stock will be entitled to rights with respect to the registration of such
shares under the Securities Act. 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 common stock.
Additionally, such holders are also entitled to 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. We are required
to use our best efforts to effect any 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 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.
61
<PAGE> 63
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement, the underwriters named below, for whom Morgan Stanley & Co.
Incorporated, FleetBoston Robertson Stephens Inc. and SG Cowen Securities
Corporation are acting as representatives, have severally agreed to purchase,
and SilverStream and the selling stockholders agreed to sell to them an
aggregate of 1,800,000 shares of common stock. The number of shares of common
stock that each underwriter has agreed to purchase is set forth opposite its
name below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ----------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
FleetBoston Robertson Stephens Inc..........................
SG Cowen Securities Corporation.............................
----------
Total............................................. 1,800,000
==========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and the selling stockholders 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 legal matters by
their counsel. 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 public offering price set forth on the cover
page hereof and part to 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 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 270,000
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 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 $ before deducting estimated offering expenses.
SilverStream, our directors and executive officers and the selling
stockholders have each agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the underwriters, during the period
ending 90 days after the date of this prospectus, he, she or it will not
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; 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.
62
<PAGE> 64
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.
Our common stock is listed 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, the selling stockholders and the underwriters have agreed to indemnify
each other against liabilities in connection with this offering, 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 invested in by
entities affiliated with Morgan Stanley & Co. Incorporated purchased 105,263
shares of Series D Preferred Stock, which converted into 105,263 shares of
common stock on the closing of our initial public offering on August 20, 1999,
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.
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.
ADDITIONAL 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. 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
63
<PAGE> 65
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 at 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.
AVAILABLE INFORMATION
SilverStream is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission. Such reports, proxy
statements and other information filed by SilverStream can be inspected and
copied at the public reference facilities maintained by the 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 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 also obtain information
on the operation of the public reference room by calling the Commission at
1-800-SEC-0330. In addition, the Commission also makes electronic filings
publicly available on the Internet within 24 hours of acceptance. The
Commission's Internet address is http://www.sec.gov. The Commission website also
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
64
<PAGE> 66
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 Cash Flows....................... F-5
Notes to Consolidated Financial Statements.................. F-6
Unaudited Pro Forma Condensed Consolidated Financial
Information............................................... F-21
Unaudited Pro Forma Condensed Consolidated Balance Sheet.... F-22
Unaudited Pro Forma Condensed Consolidated Statement of
Operations................................................ F-23
Unaudited Notes to Pro Forma Condensed Consolidated
Financial Information..................................... F-24
</TABLE>
F-1
<PAGE> 67
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 13,
as to which the date is July 23, 1999
F-2
<PAGE> 68
SILVERSTREAM SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1997 1998 1999
----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $16,649,341 $ 1,198,584 $ 51,323,975
Marketable securities..................................... -- 3,330,603 5,148,079
Accounts receivable; net of allowances of $44,660 at
December 31, 1997, $475,993 at December 31, 1998, and
$710,391 at September 30, 1999 (unaudited).............. 193,255 3,339,667 5,772,431
Prepaid expenses.......................................... 317,250 247,413 869,451
Other..................................................... 267,754 100,930 14,361
----------- ------------ ------------
Total current assets............................... 17,427,600 8,217,197 63,128,297
Furniture, equipment and leasehold improvements, net........ 1,528,155 1,796,346 2,662,925
Intangibles, (net).......................................... -- -- 1,852,445
----------- ------------ ------------
Total assets....................................... $18,955,755 $ 10,013,543 $ 67,643,667
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 728,653 $ 1,176,190 $ 3,146,027
Accrued expenses.......................................... -- 422,749 1,714,351
Deferred revenue.......................................... 37,087 1,063,658 2,636,937
Current portion of long-term debt......................... 313,210 435,820 429,939
----------- ------------ ------------
Total current liabilities.......................... 1,078,950 3,098,417 7,927,254
Long-term debt, less current portion........................ 294,727 324,787 621,219
Commitments and contingencies............................... -- -- --
Redeemable convertible preferred stock:
Series A redeemable convertible preferred stock, $.001 par
value -- authorized, issued and outstanding 3,683,050 at
December 31, 1997 and 1998, none at September 30,
1999.................................................... 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 at December 31, 1997 and 1998,
none at September 30, 1999.............................. 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, none at September 30, 1999........ 15,154,325 16,856,323 --
Common stock, $.001 par value -- authorized 100,000,000
shares; issued and outstanding 5,086,391 at December 31,
1997, 5,206,779 at December 31, 1998, 17,553,176 at
September 30, 1999 (unaudited).......................... 5,086 5,207 18,016
Additional paid-in capital................................ 174,796 365,985 97,516,295
Deferred compensation..................................... -- -- (1,739,652)
Accumulated deficit....................................... (9,286,679) (22,171,726) (36,533,874)
Other comprehensive loss.................................. -- -- (62,091)
Notes receivable from stockholders........................ (103,500) (103,500) (103,500)
----------- ------------ ------------
Total stockholders' equity (deficit)............... 5,944,028 (5,047,711) 59,095,194
----------- ------------ ------------
Total liabilities and stockholders' equity
(deficit)........................................ $18,955,755 $ 10,013,543 $ 67,643,667
=========== ============ ============
</TABLE>
See accompanying notes
F-3
<PAGE> 69
SILVERSTREAM SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1996 YEARS ENDED NINE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, -------------------------- --------------------------
1996 1997 1998 1998 1999
-------------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Software license................ $ -- $ 248,524 $ 5,982,534 $ 3,443,225 $ 9,009,865
Services...................... -- -- 825,365 331,926 5,024,498
----------- ----------- ------------ ----------- ------------
Total revenue.......... -- 248,524 6,807,899 3,775,151 14,034,363
Cost of revenue:
Software license.............. -- 89,997 767,225 392,095 1,076,359
Services...................... -- 281,796 1,413,962 879,611 6,462,504
----------- ----------- ------------ ----------- ------------
Total cost of
revenue.............. -- 371,793 2,181,187 1,271,706 7,538,863
----------- ----------- ------------ ----------- ------------
Gross profit (loss)............. -- (123,269) 4,626,712 2,503,445 6,495,500
Operating expenses:
Sales and marketing........... 34,532 3,853,766 10,776,396 7,080,237 13,220,030
Research and development...... 849,868 2,622,200 5,069,465 3,765,504 5,172,711
General and administrative.... 120,398 1,961,205 2,141,187 1,482,370 2,599,871
Compensation charge for
issuance of stock options... -- -- -- -- 298,426
Amortization of goodwill...... -- -- -- -- 81,348
----------- ----------- ------------ ----------- ------------
Total operating
expenses............. 1,004,798 8,437,171 17,987,048 12,328,111 21,372,386
----------- ----------- ------------ ----------- ------------
Loss from operations............ (1,004,798) (8,560,440) (13,360,336) (9,824,666) (14,876,885)
Interest income................. 53,214 274,331 559,495 463,383 668,667
Interest expense................ -- (48,986) (84,206) (68,155) (153,929)
----------- ----------- ------------ ----------- ------------
Net loss........................ $ (951,584) $(8,335,095) $(12,885,047) $(9,429,438) $(14,362,148)
Beneficial conversion feature in
Series D preferred stock...... -- -- -- -- (263,158)
----------- ----------- ------------ ----------- ------------
Net loss applicable to common
stockholders.................. $ (951,584) $(8,335,095) $(12,885,047) $(9,429,438) $(14,625,306)
=========== =========== ============ =========== ============
Basic and diluted net loss per
share applicable to common
stockholders:................. $ (5.12) $ (10.61) $ (4.89) $ (3.80) $ (2.58)
Weighted-average common shares
used in computing basic and
diluted net loss per share
applicable to common
stockholders.................. 185,686 785,548 2,632,496 2,484,016 5,678,081
Pro forma basic and diluted net
loss per share applicable to
common stockholders........... $ (1.33) $ (1.17)
Weighted-average common shares
used in computing pro forma
basic and diluted net loss per
share applicable to common
stockholders.................. 9,691,693 12,548,963
</TABLE>
See accompanying notes
F-4
<PAGE> 70
SILVERSTREAM SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1996 YEARS ENDED NINE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, SEPTEMBER 30,
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) $ (9,429,413) $(14,362,148)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 29,750 345,494 724,045 517,421 997,604
Provision for allowances on accounts
receivable.................................... -- 44,660 431,333 298,913 234,398
Operating expenses paid with issuance of
preferred stock............................... 83,050 79,998 -- -- --
Operating expenses paid with issuance of common
stock......................................... -- 20,700 181,952 181,952 --
Compensation charge for issuance of stock
options....................................... -- -- -- -- 298,426
Changes in operating assets and liabilities:
Accounts receivable........................... -- (237,915) (3,577,745) (3,198,282) (2,216,330)
Prepaid expenses.............................. (13,671) (303,579) 69,837 (134,070) (592,568)
Other current assets.......................... -- -- 166,824 247,984 156,575
Other non-current assets...................... -- -- -- -- --
Accounts payable and accrued expenses......... 75,413 385,486 870,286 670,333 2,323,128
Deferred revenue.............................. -- 37,087 1,026,571 961,900 1,573,279
---------- ----------- ------------ ------------ ------------
Net cash used in operating activities............. (777,042) (7,963,164) (12,991,944) (9,883,262) (11,587,636)
---------- ----------- ------------ ------------ ------------
INVESTING ACTIVITIES
Purchase of furniture and equipment............... (338,587) (1,564,812) (992,236) (623,416) (1,692,975)
Cash acquired through acquisitions of
subsidiaries.................................... -- -- -- -- 170,653
Sale (purchase) of available-for-sale
securities...................................... -- -- (3,330,603) (3,681,674) (1,817,476)
---------- ----------- ------------ ------------ ------------
Net cash provided by (used in) investing
activities...................................... (338,587) (1,564,812) (4,322,839) (4,305,090) (3,339,798)
---------- ----------- ------------ ------------ ------------
FINANCING ACTIVITIES
Net proceeds from issuance of preferred stock..... 3,575,000 23,054,327 1,701,998 1,701,993 14,727,997
Net proceeds from issuance of common stock........ 4,639 51,043 9,358 2,181 50,070,161
Proceeds from line of credit...................... 269,914 513,110 602,317 602,317 750,000
Payments on long-term debt........................ -- (175,087) (449,647) (324,687) (459,449)
---------- ----------- ------------ ------------ ------------
Net cash provided by financing activities......... 3,849,553 23,443,393 1,864,026 1,981,809 65,088,709
Effects of exchange rate on cash and cash
equivalents..................................... -- -- -- -- (35,884)
---------- ----------- ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents..................................... 2,733,924 13,915,417 (15,450,757) (12,206,543) 50,125,391
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 $ 4,442,798 $ 51,323,975
========== =========== ============ ============ ============
SUPPLEMENTAL INFORMATION
Cash paid during the period for:
Income taxes.................................... $ -- $ 456 $ 14,283 $ 2,392 $ 26,994
========== =========== ============ ============ ============
Interest........................................ $ -- $ 48,986 $ 84,206 $ 65,691 $ 56,889
========== =========== ============ ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 71
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, Norway, the Czech Republic, France,
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 consolidated financial statements include the accounts of the Company
and its international subsidiaries, all of which are wholly owned, located in
Europe and Asia. All intercompany accounts and transactions have been eliminated
in 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 September 30, 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>
F-6
<PAGE> 72
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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........................
Lesser of remaining
lease-term or useful
life
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 $702,000 and $446,000 for
the nine months ended September 30, 1998 and 1999, respectively.
CAPITALIZED SOFTWARE
Capitalization of software development costs under SFAS No. 86 begins upon
the establishment of technological feasibility. Technological feasibility is
established upon the completion of a working model. 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. Costs incurred
by the Company between completion of a working model and the point at which the
product is ready for general release have been insignificant. Therefore, through
December 31, 1998 and September 30, 1999, all research and development costs
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. Update assurance agreements represent the right to receive unspecified
upgrades on an if-and-when available basis. Fees from update assurance
agreements, which are separately negotiated and priced, are deferred and
recognized on a straight-line basis over the life of the related agreement,
which is typically one year.
F-7
<PAGE> 73
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. 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.
Revenue derived from arrangements with resellers of our products is not
recognized until the software is shipped to the customer.
Sales to independent software vendors (ISVs) are deferred and recognized on
a straight line basis as product revenue over the life of the agreement, which
is typically one year, since the only undelivered element under these agreements
is service for which no pattern of performance is discernible. ISV-related
partner fees are deferred and recognized on a straight line basis as an offset
to the related expenses over the life of the agreement, which is typically one
year, since the Company considers such fees to be reimbursement for costs
incurred, primarily marketing support, in connection with its ISV partner
program.
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.
LICENSING AGREEMENTS
The Company has entered into various licensing agreements with third-party
software and technology companies, primarily for encryption technology,
requiring royalty payments which are based on either a percentage of product
revenue or per unit sales. Royalty expenses, which are charged to cost of
revenue under these license agreements, totaled $168,000 for the year ended
December 31, 1998, and $82,000 and $184,000 for the nine months ended September
30, 1998 and 1999, respectively. Prepaid royalties related to these licensing
agreements were $183,000 and $113,000 for the years ended December 31, 1997 and
1998, respectively, and $165,000 and $305,000 for the periods ended September
30, 1998 and 1999, respectively.
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. Basic earnings per share is calculated based on
the weighted average number of common shares outstanding and excludes any
dilutive effects of warrants, stock options, common stock subject to repurchase
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
F-8
<PAGE> 74
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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,
whichever is more reliably measurable. All expenses related to non-monetary
transactions were recognized in the period incurred.
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
F-9
<PAGE> 75
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. The Company views its operations and manages its business as one
segment: the development and delivery of application server solutions, that
include software and related products and services. Factors used to identify the
Company's single operating segment include the organizational structure of the
Company and the financial information available for evaluation by the chief
operating decision maker in making decisions about how to allocate resources and
assess performance. The adoption of SFAS 131 did not affect results of operation
or financial position, but did affect the disclosure of segment information. See
Note 11.
UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information at September 30, 1999 and for the nine
months ended September 30, 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.
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 occurred upon completion of the initial public offering. 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.
F-10
<PAGE> 76
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------
1997 1998 1999
---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures....................... $ 360,315 $ 502,821 $ 633,636
Computer equipment and software.............. 1,302,285 2,051,809 3,576,861
Telephone equipment.......................... 150,067 162,205 167,449
Leasehold improvements....................... 90,732 178,800 300,524
---------- ----------- -----------
1,903,399 2,895,635 4,678,470
Less accumulated depreciation and
amortization............................... (375,244) (1,099,289) (2,015,545)
---------- ----------- -----------
$1,528,155 $ 1,796,346 $ 2,662,925
========== =========== ===========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses include the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
Fringe benefits............................................ $124,337 $ 669,999
Occupancy.................................................. 130,507 308,563
Professional fees.......................................... 66,387 (53,674)
Bonus...................................................... 19,996 174,999
Other...................................................... 81,522 614,464
-------- ----------
$422,749 $1,714,351
======== ==========
</TABLE>
5. DEBT
LONG-TERM DEBT
Under the terms of a credit facility, negotiated in 1996 and expiring March
1, 2000, borrowings of approximately $501,598 and $295,286 converted fully into
separate term loans on March 31, 1997 and September 30, 1997, respectively.
Principal repayments began April 1, 1997 and October 1, 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 was $607,937, $308,870
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 31, 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 September 30, 1999 was $451,737 and $301,158, respectively.
Borrowings under the terms of both credit facilities are secured by
substantially all the Company's tangible assets.
F-11
<PAGE> 77
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 was $750,000 outstanding under the line of credit at
September 30, 1999.
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 nine months ended September 30, 1998 and 1999 was
$345,000 and $853,000, respectively.
7. EMPLOYEE BENEFITS
RESTRICTED STOCK ISSUED TO FOUNDER
In May and July 1996, the Company sold 1,123,000 shares of common stock to
the founder pursuant to a founders stock restriction agreement at the fair value
of the stock at the date of the issuance. The shares were issued in the name of
the founder, who has all rights of a stockholder, subject to certain repurchase
and transfer provisions. If the founder ceases to be employed by the Company,
the Company shall have the option to repurchase from the founder a portion of
the shares based upon a predetermined formula. In addition, the founder shall
not sell any of the shares that are subject to repurchase by the Company.
An aggregate of 617,650 shares, 393,050 shares and 285,532 shares of common
stock are subject to repurchase at December 31, 1997 and 1998, and September 30,
1999, respectively.
1996 FOUNDERS STOCK INCENTIVE PLAN
In May 1996, the Company adopted the 1996 Founders Stock Incentive Plan
(the 1996 Plan) covering all eligible employees, officers, directors consultants
and advisors. At inception of the 1996 Plan, the Company authorized the issuance
of up to 3,877,000 shares of common stock. The Company issued and sold an
F-12
<PAGE> 78
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 shares were issued in the name of the employee, who has all
rights of a stockholder, subject to certain repurchase and transfer provisions.
If the employee ceases to be employed by the Company, the Company shall have the
option to repurchase from the employee a portion of the shares based upon a
predetermined formula. In addition, the employee shall not sell any of the
shares that are subject to repurchase by the Company. An aggregate of 145,394
shares of common stock have been repurchased by the Company under the 1996 Plan
and retired.
An aggregate of 2,235,839 shares, 1,436,707 shares and 1,115,105 shares of
common stock are subject to repurchase at December 31, 1997 and 1998, and
September 30, 1999, respectively.
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. As of September 30, 1999, the
Company authorized the issuance of up to 3,500,000 shares of common stock 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 issued and sold an aggregate of 300,000 shares of common stock
under the 1997 Plan pursuant to founders stock restriction agreements at the
fair value of the stock at the date of issuance. The shares are issued in the
name of the employee, who has all rights of a stockholder, subject to certain
repurchase and transfer provisions. If the employee ceases to be employed by the
Company, the Company shall have the option to repurchase from the employee a
portion of shares based upon a predetermined formula. In addition, the employee
shall not sell any of the shares that are subject to repurchase by the Company.
An aggregate of 300,000 shares, 160,875 shares and 143,016 shares of common
stock are subject to repurchase at December 31, 1997 and 1998, and September 30,
1999.
In March 1999, options to purchase an aggregate of 201,450 shares of common
stock which vest over a five year period were granted to employees with an
exercise price of $4.00 per share. In April 1999, options to purchase an
aggregate of 11,600 and 215,450 shares of common stock which vest over a five
year period were granted to employees with an exercise price of $6.00 and $8.00
per share, respectively. Additionally, on April 30, 1999, an option to purchase
an aggregate of 25,000 shares of common stock which vested immediately was
granted to a director with an exercise price of $8.00 per share. In May 1999,
options to purchase an aggregate of 113,250 shares of common stock which vest
over a five year period were granted to employees with an exercise price of
$8.00 per share. In June 1999, options to purchase an aggregate of 27,000 shares
of common stock which vest over a five-year period were granted to employees
with an exercise price of $10.00 per share.
The Company has recorded deferred compensation of $2,038,078 relating to
these option grants, which is being charged ratably to operations over the
vesting period of the options.
The Company holds notes receivable totaling $103,500 from employees at
December 31, 1997 and 1998, and at September 30, 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
F-13
<PAGE> 79
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 September 30, 1999,
the Company had not made any discretionary matching contributions in any of the
fiscal periods presented.
EMPLOYEE STOCK PURCHASE PLAN
On June 9, 1999, the Board of Directors approved the adoption of the
Company's 1999 employee stock purchase plan (the 1999 Purchase Plan). A total of
300,000 shares of common stock has been reserved for issuance under the 1999
Purchase Plan. The 1999 Purchase Plan permits eligible employees to acquire
shares of the Company's common stock through periodic payroll deductions of up
to 10% of base cash compensation. Each offering period will have a maximum
duration of 12 months. The price at which the common stock may be purchased is
85% of the lesser of the closing price of the Company's common stock on the
first day of the applicable offering period or on the last day of the respective
purchase period. The initial offering period will commence on the effectiveness
of the initial public offering and will end at the end of a six month period.
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>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------ --------------
1997 1998 1998 1999
---- ---- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expected life (years)........................... 4.97 5.35 6.7 8.54
Risk free interest rate......................... 5.66% 4.75% 4.22% 5.76%
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 NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- ---------------------------
1997 1998 1998 1999
----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Pro forma net loss................. $(8,351,473) $(12,996,310) $9,595,468 $16,000,251
Pro forma net loss per share....... $ (10.63) $ (4.94) $ (3.86) $ (2.82)
</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> 80
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Option activity under the 1997 Plan is summarized below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------- NINE MONTHS ENDED
1997 1998 SEPTEMBER 30, 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 2.21 870,150 9.28
Expired or canceled........... (7,000) .20 (38,250) .37 (41,550) 2.83
Exercised..................... -- (55,525) .17 (107,943) 2.16
------- ------- ---------
Outstanding, end of year...... 607,000 .34 895,175 1.15 1,615,832 5.42
======= ======= =========
Exercisable at end of year.... -- 159,850 159,299
Available for future grants... 398,719 55,019 1,420,700
Weighted-average fair value of
options granted during
year........................ $.33 $2.16 $13.15
</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).
F-15
<PAGE> 81
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March, April and May of 1999, the Company sold 1,552,632 shares of
Series D Convertible Preferred Stock, par value $.001, at $9.50 per share.
Proceeds to the Company were $14,727,997 (net of $22,000 of issuance costs).
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 and C 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 and Series C
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 and $8.78 per share,
respectively, plus any declared and unpaid dividends thereon.
9. NON-MONETARY TRANSACTIONS
In August 1996, the Company issued 83,050 shares of its Series A redeemable
convertible preferred stock in consideration for $83,050 of fees for personnel
placement services. The transaction was accounted for by recognizing
professional fees expense of $83,050 and increasing the preferred stock balance
by the same amount.
In June 1997, the Company issued 15,009 shares of its Series B redeemable
convertible preferred stock in consideration for $79,998 of fees for marketing
services. The transaction was accounted for by recognizing marketing expense of
$79,998 and increasing the preferred stock balance by the same amount.
In September 1997, the Company issued 207,000 shares of common stock in
exchange for interest bearing notes of $103,500 and cash of $11,500 (see Note
7).
F-16
<PAGE> 82
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In November 1997, the Company entered into an agreement to issue up to
48,000 shares of its common stock in consideration of software services and
co-marketing efforts. The Company has issued 48,000 shares under the agreement.
The transaction was accounted for by recognizing marketing expense of $43,200
and increasing the common stock balance by the same amount.
In September 1998, the Company issued 39,863 shares of its common stock in
consideration for $159,452 of fees for marketing services. The transactions were
accounted for by recognizing total marketing expense of $159,452 and increasing
the common stock balance by the same amount.
10. 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
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.
11. SEGMENT AND GEOGRAPHIC INFORMATION
As discussed in Note 2, the Company operates in one business segment: the
development and delivery of application server software and related software
products and services. In making this determination, the Company considered the
information which management uses to oversee the Company's operations as well as
the manner in which the business is managed.
Foreign operations in 1998 were conducted in four countries in Europe.
During the first nine months of 1999, foreign operations were expanded.
Operations are currently conducted in seven countries in Europe and three
countries in the Asia Pacific region.
F-17
<PAGE> 83
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues by geographic region are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1996 NINE MONTHS ENDED
(INCEPTION) TO YEARS ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------- ------------------------
1996 1997 1998 1998 1999
-------------- ---------- ------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
United States............ $ -- $181,017 $4,999,717 $2,839,022 $ 9,035,959
Other.................... -- 67,507 1,808,182 936,129 4,998,404
-------- -------- ---------- ---------- -----------
Total.................... $ -- $248,524 $6,807,899 $3,775,151 $14,034,363
======== ======== ========== ========== ===========
</TABLE>
Total long lived assets by geographic region are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -----------------------
1996 1997 1998 1998 1999
-------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
United States.............. $308,837 $1,528,155 $1,733,471 $1,686,072 $4,081,018
Other...................... -- -- 62,876 -- 434,352
-------- ---------- ---------- ---------- ----------
Total...................... $308,837 $1,528,155 $1,796,347 $1,686,072 $4,515,370
======== ========== ========== ========== ==========
</TABLE>
F-18
<PAGE> 84
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss
per share:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1996 NINE MONTHS ENDED
(INCEPTION) TO YEARS ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, -------------------------- --------------------------
1996 1997 1998 1998 1999
-------------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss.................. $ (951,584) $(8,335,095) $(12,885,047) $(9,429,438) $(14,362,148)
Beneficial conversion
feature in series D
preferred stock....... -- -- -- -- (263,158)
----------- ----------- ------------ ----------- ------------
Net loss applicable to
common stockholders... (951,584) (8,335,095) (12,885,047) (9,429,438) (14,625,306)
=========== =========== ============ =========== ============
Denominator:
Weighted average common
shares outstanding.... 2,322,605 5,065,356 5,122,480 5,100,943 7,221,734
Weighted average common
shares subject to
repurchase............ (2,136,919) (4,279,808) (2,489,984) (2,616,927) (1,543,653)
----------- ----------- ------------ ----------- ------------
Denominator for basic and
diluted loss per share
applicable to common
stockholders............ 185,686 785,548 2,632,496 2,484,016 5,678,081
=========== =========== ============ =========== ============
Basic and diluted net
loss per share
applicable to common
stockholders.......... $ (5.12) $ (10.61) $ (4.89) $ (3.80) $ (2.58)
Pro forma:
Shares used above....... 2,632,496 5,678,081
Pro forma adjustment to
reflect weighted
effect of assumed
conversion of
convertible preferred
stock................. 7,059,197 6,870,882
------------ ------------
Shares used in computing
pro forma basic net
loss per share
applicable to common
stockholders.......... 9,691,693 12,548,963
============ ============
Pro forma basic and
diluted net loss per
share applicable to
common stockholders... $ (1.33) $ (1.17)
</TABLE>
The Company has excluded all preferred stock, outstanding stock options and
shares subject to repurchase by the Company from the calculation of loss per
share because all such securities are antidilutive for all periods presented.
Shares subject to repurchase by the Company will be included in the computation
of earnings per share when the Company's option to repurchase these shares
expires. Weighted-average options outstanding to purchase 0, 168,192, and
348,880 shares of common stock for the years ended December 31, 1996, 1997, and
1998, were not included in the computation of net loss per share because the
effect would be antidilutive. Such securities, had they been dilutive, would
have been included in the computation of diluted net loss per share using the
treasury stock method.
F-19
<PAGE> 85
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUBSEQUENT EVENTS
ISSUANCE OF SERIES D STOCK
In March, April and May 1999, the Company sold 1,552,632 shares of Series D
convertible preferred stock, par value $.001, at $9.50 per share. Proceeds to
the Company were $14,727,997 (net of $22,000 of issuance costs). Terms of the
Series D stock are consistent with Series A, Series B and Series C (see Note 8)
except that Series D has no mandatory redemption provisions. The issuance of
Series D stock in May 1999 resulted in a beneficial conversion of $263,158.
CHANGE IN AUTHORIZED STOCK
On June 9, 1999, the Board of Directors approved an amendment and
restatement of the Company's certificate of incorporation to increase the number
of authorized shares to 100,000,000 shares of common stock and 2,000,000 shares
of undesignated preferred stock. Such amended and restated certificated
incorporation will be effective upon the closing of this offering.
EMPLOYEE STOCK PURCHASE PLAN
On June 9, 1999, the Board of Directors approved the adoption of the
Company's 1999 employee stock purchase plan (the 1999 Purchase Plan). A total of
300,000 shares of common stock has been reserved for issuance under the 1999
Purchase Plan. The 1999 Purchase Plan permits eligible employees to acquire
shares of the Company's common stock through periodic payroll deductions of up
to 10% of base cash compensation. Each offering period will have a maximum
duration of 12 months. The price at which the common stock may be purchased is
85% of the lesser of the closing price of the Company's common stock on the
first day of the applicable offering period or on the last day of the respective
purchase period. The initial offering period will commence on the effectiveness
of the initial public offering and will end at the end of a six month period.
ACQUISITIONS
In June and July 1999, the Company acquired three international
distributors by issuing 140,000 shares of common stock. The transactions have
been accounted for as purchases and, accordingly, their results of operations
are included in the consolidated financial statements from the dates of
acquisition. The purchase prices have been allocated to the assets acquired and
liabilities assumed based upon their respective fair values.
F-20
<PAGE> 86
SILVERSTREAM SOFTWARE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
OVERVIEW
On December 13, 1999, we acquired GemLogic, Inc. GemLogic, which was
incorporated in January 1999, provides XML software to enable customers to more
easily develop and deploy business-to-business
e-commerce applications. The purchase price was approximately $12.1 million. The
acquisition was completed through the issuance of approximately 114,456 shares
of our common stock. Under the terms of the GemLogic purchase agreement, we are
committed to make additional issuances of common stock, based upon the
achievement of future goals and deliverables. Contingent consideration, which
would be added to goodwill and amortized over the remaining life, may
approximate $4.8 million. In addition we issued options to purchase common stock
to GemLogic employees at exercise prices ranging from $40 to $60 per share.
These options may result in a compensation charge of up to approximately $5.6
million, which will be charged to operations based upon vesting of these options
over the next four to seven years. The merger has been accounted for using the
purchase method of accounting.
On December 13, 1999, we acquired ObjectEra, Inc. for $8.1 million.
ObjectEra, which commenced operations in January 1999, developed and distributes
a software program known as an Object Request Broker (ORB). $4.2 million of the
purchase price was paid at the closing, with $3.9 million to be paid on February
1, 2000. Under the terms of the ObjectEra purchase agreement, SilverStream is
committed to making additional payments in a combination of cash and common
stock, based upon the achievement of future goals and deliverables. Contingent
consideration, which would be added to goodwill and amortized over the remaining
life, may approximate $3.9 million. The merger has been accounted for using the
purchase method of accounting.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the nine months ended September 30, 1999 gives effect to the acquisitions of
GemLogic and ObjectEra, as if they had occurred on January 1, 1999. The
Unaudited Pro Forma Condensed Statement of Operations includes the historical
results of operations of GemLogic and ObjectEra for the nine months ended
September 30, 1999.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect
to the acquisition of GemLogic and ObjectEra as if it had occurred on September
30, 1999. The following pro forma statements and the accompanying notes should
be read in conjunction with the historical financial statements of SilverStream.
The Unaudited Pro Forma Condensed Consolidated Financial Information is
intended for informational purposes only and is not necessarily indicative of
the future position or future results of operations of the consolidated company
after the acquisitions of GemLogic and ObjectEra or of the financial position or
results of operations of the consolidated company that would have actually
occurred had the acquisitions of GemLogic and ObjectEra been effected on January
1, 1999.
F-21
<PAGE> 87
SILVERSTREAM SOFTWARE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30, PRO FORMA SEPTEMBER 30,
1999 GEMLOGIC OBJECTERA ADJUSTMENTS 1999
------------- -------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents............ $ 51,323,975 $ 2,826 $381,026 $(4,200,000)1(a) $ 47,507,827
Marketable securities................ 5,148,079 -- -- -- 5,148,079
Accounts receivable.................. 5,772,431 -- 361,155 -- 6,133,586
Prepaid expenses..................... 869,451 -- 125,400 -- 994,851
Other................................ 14,361 -- -- -- 14,361
------------ -------- -------- ----------- ------------
Total current assets............. 63,128,297 2,826 867,581 (4,200,000) 59,798,704
Furniture and fixtures, net.......... 2,662,925 13,425 17,073 -- 2,693,423
Intangibles, net..................... 1,852,445 -- -- 20,279,4981(a) 22,131,943
------------ -------- -------- ----------- ------------
Total assets..................... $ 67,643,667 $16,251 $884,654 $16,079,498 $ 84,624,070
============ ======== ======== =========== ============
Current Liabilities:
Accounts payable..................... $ 3,146,027 $ -- $ 69,400 -- $ 3,215,427
Accrued expenses..................... 1,714,351 -- -- $3,900,0001(a) 5,614,351
Deferred revenue..................... 2,636,937 -- 878,667 -- 3,515,604
Current portion of long-term debt.... 429,939 -- -- -- 429,939
------------ -------- -------- ----------- ------------
Total current liabilities........ 7,927,254 -- 948,067 3,900,000 12,775,321
Long-term debt, less current
portion............................ 621,219 -- -- -- 621,219
Common Stock......................... 18,016 80,000 2,500 (82,386)1(b) 18,130
Additional paid-in capital........... 97,516,295 -- -- 12,132,2221(a) 109,648,517
Deferred compensation................ (1,739,652) -- -- -- (1,739,652)
Accumulated deficit.................. (36,533,874) (63,749) (65,913) 129,6621(b) (36,533,874)
Other comprehensive loss............. (62,091) -- -- -- (62,091)
Notes receivable from stockholders... (103,500) -- -- -- (103,500)
------------ -------- -------- ----------- ------------
Total stockholders' equity
(deficit)...................... 59,095,194 16,251 (63,413) 12,179,498 71,227,530
------------ -------- -------- ----------- ------------
Total liabilities and
stockholders' equity
(deficit)...................... $ 67,643,667 $16,251 $884,654 $16,079,498 $ 84,624,070
============ ======== ======== =========== ============
</TABLE>
F-22
<PAGE> 88
SILVERSTEAM SOFTWARE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30, SEPTEMBER 30,
1999 GEMLOGIC OBJECTERA ADJUSTMENTS 1999
------------- -------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenue:
Software license........... $ 9,009,865 -- $ 25,764 -- $ 9,035,629
Services................... 5,024,498 -- 56,724 -- 5,081,222
------------ -------- -------- ----------- ------------
Total revenue......... 14,034,363 -- 82,488 -- 14,116,851
Cost of Revenue:
Software license........... 1,076,359 -- -- -- 1,076,359
Services................... 6,462,504 -- -- -- 6,462,504
------------ -------- -------- ----------- ------------
Total cost of
revenue............. 7,538,863 -- -- -- 7,538,863
Gross profit (loss)............. 6,495,500 -- 82,488 -- 6,577,988
Operating expenses:
Sales and marketing........ 13,220,030 -- -- -- 13,220,030
Research and development... 5,172,711 $ 63,749 152,914 -- 5,389,374
General and
administrative........... 2,599,871 -- -- -- 2,599,871
Compensation charge for
issuance of stock
options.................. 298,426 -- -- $ 921,4302(a) 1,219,856
Amortization of goodwill... 81,348 -- -- 3,041,9252(b) 3,123,273
------------ -------- -------- ----------- ------------
Total operating
expenses............ 21,372,386 63,749 152,914 3,963,355 25,552,404
Loss from operations............ (14,876,886) (63,749) (70,426) (3,963,355) (18,974,416)
Interest income................. 668,667 -- 4,513 (157,500)2(c) 515,680
Interest expense................ (153,929) -- -- -- (153,929)
------------ ------------
Net loss........................ (14,362,148) (63,749) (65,913) (4,120,855) 18,612,665
Beneficial conversion feature of
Series D preferred stock...... (263,158) -- -- -- (263,158)
------------ -------- -------- ----------- ------------
Net loss applicable to common
stockholders.................. $(14,625,306) $(63,749) $(65,913) $(4,120,855) $(18,875,823)
============ ======== ======== =========== ============
Basic and diluted net loss per
share applicable to common
stockholders.................. $(2.58) $(3.30)
====== ======
Weighted-average common shares
used in computing basic and
diluted net loss per share
applicable to common
stockholders.................. 5,678,081 5,723,863
============ ============
</TABLE>
F-23
<PAGE> 89
SILVERSTEAM SOFTWARE, INC.
UNAUDITED NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
1. PRO FORMA ADJUSTMENTS AND ASSUMPTIONS -- BALANCE SHEET
The pro forma adjustments to the unaudited pro forma condensed consolidated
balance sheet, assuming the acquisition occurred on September 30, 1999 are as
follows:
1(a) Adjustment to record the purchase price and intangible assets of
GemLogic and ObjectEra as follows:
<TABLE>
<S> <C>
Cash portion of ObjectEra purchase price.................... $ 4,200,000
Balance payable to ObjectEra................................ 3,900,000
-----------
Total purchase price for ObjectEra.......................... 8,100,000
Add: Fair value of ObjectEra estimated net liabilities as of
September 30, 1999........................................ (63,413)
-----------
Subtotal ObjectEra estimated goodwill....................... 8,163,413
Total purchase price for GemLogic based upon the fair value
of common stock issued.................................... 12,132,336
Less: Fair value of GemLogic estimated net assets as of
September 30, 1999........................................ 16,251
-----------
Subtotal GemLogic estimated goodwill........................ 12,116,085
-----------
Estimated cost in excess of fair value of net assets
acquired (goodwill)....................................... $20,279,498
===========
</TABLE>
The Company has assumed the goodwill to have an estimated useful life of 5
years. The purchase price allocation and estimated useful life of goodwill is
preliminary and will be finalized upon an analysis by the Company of the
intangible assets acquired in connection with these acquisitions.
1(b) Adjustment to eliminate the equity and accumulated deficit of GemLogic
and ObjectEra in consolidation.
2. PRO FORMA ADJUSTMENTS AND ASSUMPTIONS -- STATEMENT OF OPERATIONS
The pro forma adjustments to the unaudited pro forma condensed consolidated
statement of operations, assuming the acquisition occurred on January 1, 1999,
are as follows:
2(a) Adjustment to record 9 months of compensation charge for the issuance
of stock options below fair market value.
2(b) Adjustment to record 9 months of amortization associated with GemLogic
and ObjectEra intangible assets acquired.
2(c) Adjustment to reduce the interest income as a result of the payment of
$4,200,000 as if the transaction had occurred in January 1999.
For calculation of the net loss per share the Company has excluded shares
subject to repurchase by the Company from the calculation of loss per share
because all such securities are antidilutive for all periods presented. Shares
subject to repurchase by the Company will be included in the computation of
earnings per share when the Company's option to repurchase these shares expires.
F-24
<PAGE> 90
[LOGO][LOGO]
<PAGE> 91
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........................................ $ 64,212
NASD filing fee............................................. 24,823
Nasdaq National Market listing fee.......................... 17,500
Printing and mailing expenses............................... 90,000
Legal fees and expenses..................................... 140,000
Accounting fees and expenses................................ 100,000
Blue Sky fees and expenses (including legal fees)........... 5,000
Transfer agent and registrar fees and expenses.............. 5,000
Miscellaneous............................................... 3,465
--------
Total............................................. $450,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article SEVENTH of the Registrant's Second 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.
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
II-1
<PAGE> 92
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.
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.
II-2
<PAGE> 93
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 fees for marketing services from SilverStream Benelux N.V.
to 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.
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.
II-3
<PAGE> 94
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.
23. On June 21, 1999, the Registrant issued and sold an aggregate of
15,000 shares of its common stock to the former shareholders of
SilverStream s.r.o. and SilverSolutions spol. s.r.o. in consideration of
all of the outstanding share capital of such companies.
24. On June 23, 1999, the Registrant issued and sold an aggregate of
54,500 shares of its common stock to the former shareholders of
SilverStream Norge AS in consideration of all of the outstanding share
capital of such company held by such shareholders and the cancellation of
certain debt payable by such company.
25. On July 23, 1999, the Registrant issued and sold an aggregate of
70,500 shares of its common stock to the former shareholders of
SilverStream France S.A. in consideration of all of the outstanding share
capital and subscription rights for share capital of such company held by
such shareholders and the assignment of certain debt payable by such
company.
26. On December 10, 1999, the Registrant issued and sold an aggregate
of 114,456 shares of its common stock to the former shareholders of
GemLogic, Inc. in consideration of all of the outstanding share capital and
subscription rights for share capital of such company held by such
shareholders.
(b) Certain grants and exercises of stock options.
1. From inception through November 30, 1999, the Registrant granted
stock options to purchase 1,939,650 shares of common stock at exercise
prices ranging from $.02 to $82.88 per share to employees, consultants and
directors pursuant to its 1997 Stock Incentive Plan.
2. From inception through November 30, 1999, the Registrant issued
and sold an aggregate of 183,840 shares of its common stock to employees,
consultants and directors for aggregate consideration of approximately
$268,535 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, Regulation S relative to sales by an issuer outside the
United States, 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> 95
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Second Amended and Restated Certificate of Incorporation of
the Registrant
3.2 Amended and Restated By-Laws of the Registrant
4.1** Specimen common stock certificate
4.2** Third Amended and Restated Investor Rights Agreement dated
March 1, 1999, as amended
5.1* Opinion of Hale and Dorr LLP
10.1** 1996 Founders Stock Incentive Plan
10.2** Amended and Restated 1997 Stock Incentive Plan, and forms of
agreements thereunder
10.3** Amended and Restated 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
10.10+** OEM Master License Agreement between RSA Data Security, Inc.
and the Registrant, dated as of September 30, 1997, as
amended
10.11+** Support Agreement between RSA Data Security, Inc. and the
Registrant, dated as of June 30, 1999
10.12** Form of VAR Business Partner Agreement
10.13** Form of ISV Business Partners Agreement
10.14** Form of Consulting Partner Agreement
10.15 Lease, dated November 9, 1999, between SilverStream
Software, Inc. and BCIA New England Holdings LLC
10.16*** Agreement and Plan of Merger, dated December 13, 1999, by
and among SilverStream Software, Inc., SilverStream
Acquisition Corporation and GemLogic, Inc.
10.17*** Stock Purchase Agreement, dated December 13, 1999, by and
among SilverStream Software, Inc., ObjectEra, Inc. and the
Stockholders of ObjectEra, Inc.
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 (included on page II-7)
27.1 Financial Data Schedule for the period ended December 31,
1996
27.2 Financial Data Schedule for the year ended December 31, 1997
27.3 Financial Data Schedule for the year ended December 31, 1998
27.4 Financial Data Schedule for the nine months September 30,
1998
27.5 Financial Data Schedule for the nine months September 30,
1999
</TABLE>
- ------------
* To be filed by amendment.
II-5
<PAGE> 96
** Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1 (File No. 333-80553).
*** Incorporated herein by reference to the Registrant's Current Report on Form
8-K, dated December 13, 1999.
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act, which portions
are omitted and filed separately with the Securities and Exchange
Commission.
(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.
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> 97
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
4th day of January, 2000.
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 the 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 January 4, 2000
- ---------------------------------------------
David R. Skok
/s/ DAVID A. LITWACK President, Chief Executive Officer and January 4, 2000
- --------------------------------------------- Director (Principal Executive Officer)
David A. Litwack
/s/ CRAIG A. DYNES Vice President, Chief Financial January 4, 2000
- --------------------------------------------- Officer and Treasurer (Principal
Craig A. Dynes Financial and Accounting Officer)
/s/ TIMOTHY BARROWS Director January 4, 2000
- ---------------------------------------------
Timothy Barrows
/s/ RICHARD A. D'AMORE Director January 4, 2000
- ---------------------------------------------
Richard A. D'Amore
/s/ PAUL J. SEVERINO Director January 4, 2000
- ---------------------------------------------
Paul J. Severino
</TABLE>
II-7
<PAGE> 98
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 Allowances for Returns and
Doubtful Accounts.............................. $ 44,660 $218,614 $592,500 $379,781 $475,993
December 31, 1997 Allowances for Returns and
Doubtful Accounts.............................. $ -- $ 44,660 -- -- $ 44,660
December 31, 1996 Allowances for Returns and
Doubtful Accounts.............................. $ -- $ -- -- -- $ 0
</TABLE>
S-1
<PAGE> 99
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Second Amended and Restated Certificate of Incorporation of
the Registrant
3.2 Amended and Restated By-Laws of the Registrant
4.1** Specimen common stock certificate
4.2** Third Amended and Restated Investor Rights Agreement dated
March 1, 1999, as amended
5.1* Opinion of Hale and Dorr LLP
10.1** 1996 Founders Stock Incentive Plan
10.2** Amended and Restated 1997 Stock Incentive Plan, and forms of
agreements thereunder
10.3** Amended and Restated 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
10.10+** OEM Master License Agreement between RSA Data Security, Inc.
and the Registrant, dated as of September 30, 1997, as
amended
10.11+** Support Agreement between RSA Data Security, Inc. and the
Registrant, dated as of June 30, 1999
10.12** Form of VAR Business Partner Agreement
10.13** Form of ISV Business Partners Agreement
10.14** Form of Consulting Partner Agreement
10.15 Lease, dated November 9, 1999, between SilverStream
Software, Inc. and BCIA New England Holdings LLC
10.16*** Agreement and Plan of Merger, dated December 13, 1999, by
and among SilverStream Software, Inc., SilverStream
Acquisition Corporation and GemLogic, Inc.
10.17*** Stock Purchase Agreement, dated December 13, 1999, by and
among SilverStream Software, Inc., ObjectEra, Inc. and the
Stockholders of ObjectEra, Inc.
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 (included on page II-7)
27.1 Financial Data Schedule for the period ended December 31,
1996
27.2 Financial Data Schedule for the year ended December 31, 1997
27.3 Financial Data Schedule for the year ended December 31, 1998
27.4 Financial Data Schedule for the nine months September 30,
1998
27.5 Financial Data Schedule for the nine months September 30,
1999
</TABLE>
- ------------
* To be filed by amendment.
** Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1 (File No. 333-80553).
*** Incorporated herein by reference to the Registrant's Current Report on Form
8-K, dated December 13, 1999.
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act, which portions
are omitted and filed separately with the Securities and Exchange
Commission.
<PAGE> 1
Exhibit 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SILVERSTREAM SOFTWARE, INC.
SilverStream Software, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
1. The Corporation filed its original Certificate of
Incorporation with the Secretary of State of the State of Delaware on May 8,
1996, under the name Lionheart Software, Inc. An Amended and Restated
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on July 20, 1999.
2. At a duly called meeting of the Board of Directors of the
Corporation at which a quorum was present at all times, a resolution was duly
adopted, pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, setting forth an Amended and Restated Certificate of
Incorporation of the Corporation and declaring said Amended and Restated
Certificate of Incorporation advisable. The stockholders of the Corporation duly
approved said proposed Amended and Restated Certificate of Incorporation by
written consent in accordance with Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware, and written notice of such consent has
been given to all stockholders who have not consented in writing to said
restatement. The resolution setting forth the Amended and Restated Certificate
of Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation,
be and hereby is amended and restated in its entirety so that
the same shall read as follows:
FIRST. The name of the Corporation is:
SilverStream Software, Inc.
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
<PAGE> 2
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is as follows: To engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 102,000,000 shares, consisting of
(i) 100,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and (ii) 2,000,000 shares of Preferred Stock, $.001 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the Board
of Directors upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one
vote for each share held at all meetings of stockholders. There shall be no
cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common
Stock from funds lawfully available therefor as and when determined by the Board
of Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
2
<PAGE> 3
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or be junior to the
Preferred Stock of any other series to the extent permitted by law. Except as
otherwise provided in this Certificate of Incorporation, no vote of the holders
of the Preferred Stock or Common Stock shall be a prerequisite to the
designation or issuance of any shares of any series of the Preferred Stock
authorized by and complying with the conditions of this Certificate of
Incorporation, the right to have such vote being expressly waived by all present
and future holders of the capital stock of the Corporation.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided that the Board of Directors is expressly
authorized to adopt, amend or repeal the By-Laws of the Corporation.
SEVENTH. Except to the extent that the General Corporation Law of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
3
<PAGE> 4
EIGHTH. 1. ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT
OF THE CORPORATION. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, 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 Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 7
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation. Notwithstanding anything to the contrary in this Article, the
Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is
reimbursed from the proceeds of insurance, and in the event the Corporation
makes any indemnification payments to an Indemnitee and such Indemnitee is
subsequently reimbursed from the proceeds of insurance, such Indemnitee shall
promptly refund such indemnification payments to the Corporation to the extent
of such insurance reimbursement.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he
4
<PAGE> 5
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware shall determine upon application that, despite the
adjudication of such liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
(including attorneys' fees) which the Court of Chancery of Delaware shall deem
proper.
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article, to the extent that an
Indemnitee has been successful, on the merits or otherwise, in defense of any
action, suit or proceeding referred to in Sections 1 and 2 of this Article, or
in defense of any claim, issue or matter therein, or on appeal from any such
action, suit or proceeding, he shall be indemnified against all expenses
(including attorneys' fees) actually and reasonably incurred by him or on his
behalf in connection therewith. Without limiting the foregoing, if any action,
suit or proceeding is disposed of, on the merits or otherwise (including a
disposition without prejudice), without (i) the disposition being adverse to the
Indemnitee, (ii) an adjudication that the Indemnitee was liable to the
Corporation, (iii) a plea of guilty or NOLO CONTENDERE by the Indemnitee, (iv)
an adjudication that the Indemnitee did not act in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and (v) with respect to any criminal proceeding, an adjudication
that the Indemnitee had reasonable cause to believe his conduct was unlawful,
the Indemnitee shall be considered for the purposes hereof to have been wholly
successful with respect thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to
his right to be indemnified, the Indemnitee must notify the Corporation in
writing as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel
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to assume the defense of such action, in each of which cases the fees and
expenses of counsel for the Indemnitee shall be at the expense of the
Corporation, except as otherwise expressly provided by this Article. The
Corporation shall not be entitled, without the consent of the Indemnitee, to
assume the defense of any claim brought by or in the right of the Corporation or
as to which counsel for the Indemnitee shall have reasonably made the conclusion
provided for in clause (ii) above.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6
below, in the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article of any action, suit, proceeding or investigation of
which the Corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter;
provided, however, that the payment of such expenses incurred by an Indemnitee
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article. Such undertaking shall be accepted without reference to the
financial ability of the Indemnitee to make such repayment.
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain
indemnification or advancement of expenses pursuant to Section 1, 2, 3 or 5 of
this Article, the Indemnitee shall submit to the Corporation a written request,
including in such request such documentation and information as is reasonably
available to the Indemnitee and is reasonably necessary to determine whether and
to what extent the Indemnitee is entitled to indemnification or advancement of
expenses. Any such indemnification or advancement of expenses shall be made
promptly, and in any event within 60 days after receipt by the Corporation of
the written request of the Indemnitee, unless with respect to requests under
Section 1, 2 or 5 the Corporation determines within such 60-day period that the
Indemnitee did not meet the applicable standard of conduct set forth in Section
1 or 2, as the case may be. Such determination shall be made in each instance by
(a) a majority vote of the directors of the Corporation consisting of persons
who are not at that time parties to the action, suit or proceeding in question
("disinterested directors"), whether or not a quorum, (b) a majority vote of a
committee of disinterested directors designated by majority vote of
disinterested directors, whether or not a quorum, (c) a majority vote of a
quorum of the outstanding shares of stock of all classes entitled to vote for
directors, voting as a single class, which quorum shall consist of stockholders
who are not at that time parties to the action, suit or proceeding in question,
(d) independent legal counsel (who may, to the extent permitted by law, be
regular legal counsel to the Corporation), or (e) a court of competent
jurisdiction.
7. REMEDIES. The right to indemnification or advances as granted
by this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if
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the Corporation denies such request, in whole or in part, or if no disposition
thereof is made within the 60-day period referred to above in Section 6. Unless
otherwise required by law, the burden of proving that the Indemnitee is not
entitled to indemnification or advancement of expenses under this Article shall
be on the Corporation. Neither the failure of the Corporation to have made a
determination prior to the commencement of such action that indemnification is
proper in the circumstances because the Indemnitee has met the applicable
standard of conduct, nor an actual determination by the Corporation pursuant to
Section 6 that the Indemnitee has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the Indemnitee has
not met the applicable standard of conduct. The Indemnitee's expenses (including
attorneys' fees) incurred in connection with successfully establishing his right
to indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of
this Article or of the relevant provisions of the General Corporation Law of
Delaware or any other applicable laws shall affect or diminish in any way the
rights of any Indemnitee to indemnification under the provisions hereof with
respect to any action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
9. OTHER RIGHTS. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the Corporation or other persons serving the Corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under
any provision of this Article to indemnification by the Corporation for some or
a portion of the expenses (including attorneys' fees), judgments, fines or
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with any action, suit, proceeding or investigation and any
appeal therefrom but not, however, for the total amount thereof, the Corporation
shall nevertheless indemnify the Indemnitee for
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the portion of such expenses (including attorneys' fees), judgments, fines or
amounts paid in settlement to which the Indemnitee is entitled.
11. INSURANCE. The Corporation may purchase and maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the Corporation or another corporation, partnership, joint venture,
trust or other enterprise (including any employee benefit plan) against any
expense, liability or loss incurred by him in any such capacity, or arising out
of his status as such, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the General
Corporation Law of Delaware.
12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. DEFINITIONS. Terms used herein and defined in Section 145(h)
and Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law of
Delaware is amended after adoption of this Article to expand further the
indemnification permitted to Indemnitees, then the Corporation shall indemnify
such persons to the fullest extent permitted by the General Corporation Law of
Delaware, as so amended.
NINTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
TENTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation.
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1. NUMBER OF DIRECTORS. The number of directors of the
Corporation shall not be less than three. The exact number of directors within
the limitations specified in the preceding sentence shall be fixed from time to
time by, or in the manner provided in, the Corporation's By-Laws.
2. CLASSES OF DIRECTORS. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III. No one class shall
have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the designated number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class I, and if such fraction is two-thirds, one of the
extra directors shall be a member of Class I and one of the extra directors
shall be a member of Class II, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
3. ELECTION OF DIRECTORS. Elections of directors need not be by
written ballot except as and to the extent provided in the By-Laws of the
Corporation.
4. TERMS OF OFFICE. Each director shall serve for a term ending
on the date of the third annual meeting following the annual meeting at which
such director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting in 2000; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting in 2001; and each initial director in Class III shall serve for a term
ending on the date of the annual meeting in 2002; and provided further, that the
term of each director shall be subject to the election and qualification of his
successor and to his earlier death, resignation or removal.
5. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF
INCREASES OR DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase
or decrease in the authorized number of directors, (i) each director then
serving as such shall nevertheless continue as a director of the class of which
he is a member and (ii) the newly created or eliminated directorships resulting
from such increase or decrease shall be apportioned by the Board of Directors
among the three classes of directors so as to ensure that no one class has more
than one director more than any other class. To the extent possible, consistent
with the foregoing rule, any newly created directorships shall be added to those
classes whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. QUORUM; ACTION AT MEETING. A majority of the directors at any
time in office shall constitute a quorum for the transaction of business. 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 director so
disqualified, provided that in no case shall less than one-third of the number
of directors fixed pursuant to Section 1 above constitute a quorum. If at any
meeting of the Board of Directors there shall be less than
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such a quorum, a majority of those present may adjourn the meeting from time to
time. Every act or decision done or made by a majority of the directors present
at a meeting duly held at which a quorum is present shall be regarded as the act
of the Board of Directors unless a greater number is required by law, by the
By-Laws of the Corporation or by this Certificate of Incorporation.
7. REMOVAL. Directors of the Corporation may be removed only for
cause by the affirmative vote of the holders of at least two-thirds of the
shares of the capital stock of the Corporation issued and outstanding and
entitled to vote.
8. VACANCIES. Any vacancy in the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the size of the
Board of Directors, shall be filled only by a vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. A director elected 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 election of the class for which such director shall have been
chosen, subject to the election and qualification of his successor and to his
earlier death, resignation or removal.
9. STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC.
Advance notice of stockholder nominations for election of directors and other
business to be brought by stockholders before a meeting of stockholders shall be
given in the manner provided by the By-Laws of the Corporation.
10. AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of
law, this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article TENTH.
ELEVENTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article ELEVENTH.
TWELFTH. Special meetings of stockholders may be called at any time by
only the Chairman of the Board of Directors, the President or 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. Notwithstanding any other provision of law, this Certificate of
Incorporation or the By-Laws of the
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Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least seventy-five
percent (75%) of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article TWELFTH.
* * * * *
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IN WITNESS WHEREOF, the Corporation has caused this Second Amended and
Restated Certificate of Incorporation to be signed by its President this 20th
day of August, 1999.
SILVERSTREAM SOFTWARE, INC.
/s/ David A. Litwack
---------------------------
David A. Litwack
President
<PAGE> 1
Exhibit 3.2
AMENDED AND RESTATED
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, the Chairman of the Board 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, the Chairman of the Board 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, the Chairman of the
Board 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 only by the Chairman of the Board of Directors, the President
or 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 ten 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 the stockholder's
address as it appears on the records of the corporation.
<PAGE> 2
1.5 VOTING LIST. The officer who has charge of the stock ledger of
the corporation shall prepare, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten 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
by law, the Certificate of Incorporation or these By-Laws. 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 proxy executed in writing (or in such other manner
permitted by the General Corporation Law of the State of Delaware) 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 a majority of the stock present or represented and voting 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 a majority
of the stock of that class present or represented and
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voting 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. Any election by
stockholders shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election.
1.10 NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nomination for election to the Board of Directors of the corporation
at a meeting of stockholders may be made by the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting who complies with the notice procedures set forth in this Section
1.10. Such nominations, other than those made by or on behalf of the Board of
Directors, shall be made by timely notice in writing to the Secretary of the
corporation. To be timely, a stockholder's notice must be delivered to, or
mailed and received by, the Secretary at the principal executive offices of the
corporation not less than 70 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that (i)
in the event that the date of the annual meeting is advanced by more than 20
days, or delayed by more than 70 days, from such anniversary date, notice by the
stockholder to be timely must be so delivered or received not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the seventieth day prior to such annual meeting or the
tenth day following the day on which notice of the date of such annual meeting
was mailed or public disclosure of the date of such annual meeting was made,
whichever first occurs, and (ii) with respect to the annual meeting of
stockholders of the corporation to be held in the year 2000, to be timely, a
stockholder's notice must be so received not earlier than the ninetieth day
prior to such annual meeting and not later than the close of business on the
later of (A) the sixtieth day prior to such annual meeting and (B) the tenth day
following the day on which notice of the date of such annual meeting was mailed
or public disclosure of the date of such annual meeting was made, whichever
first occurs. A stockholder's notice to the Secretary shall set forth (a) as to
each proposed nominee (i) the name, age, business address and, if known,
residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to be named as
a nominee and to serve as a director if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the corporation's
books, of such stockholder and (ii) the class and number of shares of the
corporation which are beneficially owned by such stockholder. In addition, to be
effective, the stockholder's notice must be accompanied by the written consent
of the proposed nominee to serve as a director if elected. The corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the corporation to determine the eligibility of such proposed
nominee to serve as a director of the corporation.
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The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
1.11 NOTICE OF BUSINESS AT ANNUAL MEETINGS. At an annual meeting of
the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before an annual meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, if such business relates to the election of directors of the
corporation, the procedures in Section 1.10 must be complied with. If such
business relates to any other matter, the stockholder must have given timely
notice thereof in writing to the Secretary. To be timely, a stockholder's notice
must be delivered to, or mailed and received by, the Secretary at the principal
executive offices of the corporation not less than 70 days nor more than 90 days
prior to the first anniversary of the preceding year's annual meeting; provided,
however, that (i) in the event that the date of the annual meeting is advanced
by more than 20 days, or delayed by more than 70 days, from such anniversary
date, notice by the stockholder to be timely must be so delivered or received
not earlier than the ninetieth day prior to such annual meeting and not later
than the close of business on the later of the seventieth day prior to such
annual meeting or the tenth day following the day on which notice of the date of
such annual meeting was mailed or public disclosure of the date of such annual
meeting was made, whichever first occurs, and (ii) with respect to the annual
meeting of stockholders of the corporation to be held in the year 2000, to be
timely, a stockholder's notice must be so received not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of (A) the sixtieth day prior to such annual meeting and
(B) the tenth day following the day on which notice of the date of such annual
meeting was mailed or public disclosure of the date of such annual meeting was
made, whichever first occurs. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the corporation's books, of
the stockholder proposing such business, (c) the class and number of shares of
the corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding anything
in these By-Laws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this Section 1.11
and except that any stockholder proposal which complies with Rule 14a-8 of the
proxy rules (or any successor provision) promulgated under the Securities
Exchange Act of 1934, as amended, and is to be included in the corporation's
proxy
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statement for an annual meeting of stockholders shall be deemed to comply with
the requirements of this Section 1.11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 1.11, and if he should so
determine, the chairman shall so declare to the meeting that any such business
not properly brought before the meeting shall not be transacted.
1.12 ACTION WITHOUT MEETING. Unless otherwise provided in the
Certificate of Incorporation, any action required or permitted to be taken by
stockholders for or in connection with any corporate action may be taken without
a meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
corporation by delivery to its registered office in Delaware by hand or
certified or registered mail, return receipt requested, to its principal place
of business or to an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Each such
written consent shall bear the date of signature of each stockholder who signs
the consent. No written consent shall be effective to take the corporate action
referred to therein unless written consents signed by a number of stockholders
sufficient to take such action are delivered to the corporation in the manner
specified in this paragraph within sixty days of the earliest dated consent so
delivered.
If action is taken by consent of stockholders and in accordance with
the foregoing, there shall be filed with the records of the meetings of
stockholders the writing or writings comprising such consent.
If action is taken by less than unanimous consent of stockholders,
prompt notice of the taking of such action without a meeting shall be given to
those who have not consented in writing and a certificate signed and attested to
by the Secretary of the corporation that such notice was given shall be filed
with the records of the meetings of stockholders.
In the event that the action which is consented to is such as would
have required the filing of a certificate under any provision of the General
Corporation Law of the State of Delaware, if such action had been voted upon by
the stockholders at a meeting thereof, the certificate filed under such
provision shall state, in lieu of any statement required by such provision
concerning a vote of stockholders, that written consent has been given under
Section 228 of said General Corporation Law and that written notice has been
given as provided in such Section 228.
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Notwithstanding the foregoing, if at any time the corporation shall
have a class of stock registered pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, for so long as such class is registered, any
action by the stockholders of such class must be taken at an annual or special
meeting of stockholders and may not be taken by written consent.
1.13 ORGANIZATION. The Chairman of the Board, or in his absence the
Vice Chairman of the Board designated by the Chairman of the Board, or the
President, in the order named, shall call meetings of the stockholders to order,
and shall act as chairman of such meeting; provided, however, that the Board of
Directors may appoint any stockholder to act as chairman of any meeting in the
absence of the Chairman of the Board. The Secretary of the corporation shall act
as secretary at all meetings of the stockholders; but in the absence of the
Secretary at any meeting of the stockholders, the presiding officer may appoint
any person to act as secretary of the meeting.
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, the Certificate of Incorporation or these By-Laws. 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 Board of Directors, but in no event shall be less than three.
The number of directors may be decreased at any time and from time to time 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 CLASSES OF DIRECTORS. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III. No one class shall
have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the designated number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class I, and if such fraction is two-thirds, one of the
extra directors shall be a member of Class I and one of the extra directors
shall be a member of Class II, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
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2.4 TERMS OF OFFICE. Each director shall serve for a term ending
on the date of the third annual meeting following the annual meeting at which
such director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting of stockholders in
2000; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 2001; and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2002; and provided further, that the term of each director shall
be subject to the election and qualification of his successor and to his earlier
death, resignation or removal.
2.5 ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF
INCREASES OR DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase
or decrease in the authorized number of directors, (i) each director then
serving as such shall nevertheless continue as a director of the class of which
he or she is a member and (ii) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by the Board of
Directors among the three classes of directors so as to ensure that no one class
has more than one director more than any other class. To the extent possible,
consistent with the foregoing rule, any newly created directorships shall be
added to those classes whose terms of office are to expire at the latest dates
following such allocation, and any newly eliminated directorships shall be
subtracted from those classes whose terms of offices are to expire at the
earliest dates following such allocation, unless otherwise provided from time to
time by resolution adopted by the Board of Directors.
2.6 VACANCIES. Any vacancy in the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the size of the
Board, shall be filled only 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 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 election
of the class for which such director shall have been chosen, subject to the
election and qualification of his successor and to his earlier death,
resignation or removal.
2.7 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.
2.8 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
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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.
2.9 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.
2.10 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 24 hours in advance of the meeting, (ii) by sending a telegram, telecopy,
telex or electronic mail message, or delivering written notice by hand, to his
last known business or home address at least 24 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.
2.11 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.
2.12 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 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.
2.13 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.
2.14 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.
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2.15 REMOVAL. Directors of the corporation may be removed only for
cause by the affirmative vote of the holders of at least two-thirds of the
shares of the capital stock of the corporation issued and outstanding and
entitled to vote.
2.16 COMMITTEES. The Board of Directors may 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.
2.17 COMPENSATION OF DIRECTORS. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the 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.
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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 or her 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 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. 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. Unless
otherwise provided by the Board of Directors, he shall preside at all meetings
of the stockholders and at all meetings of 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 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
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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 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 or her 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.
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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 or her in the corporation. Each such certificate shall be
signed by, or in the name of the corporation by, the 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
stockholders 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.
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
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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.
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 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 ten days before
the date of such 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 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.
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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.
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
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(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.
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. Except as otherwise provided in Section
6.3, 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 or 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 regular or special meeting.
6.3 CERTAIN PROVISIONS. Notwithstanding any other provision of
law, the Certificate of Incorporation or these By-Laws, and notwithstanding the
fact that a lesser percentage may be specified by law, the affirmative vote of
the holders of at least seventy-five percent (75%) of the shares of the capital
stock of the corporation issued and outstanding and entitled to vote shall be
required to amend or repeal, or to adopt any provision inconsistent with Section
1.3, Section 1.10, Section 1.11, Section 1.12, Section 1.13, Article 2 or
Article 6 of these By-Laws.
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EXHIBIT 10.15
LEASE
BETWEEN
SILVERSTREAM SOFTWARE, INC., AS TENANT
AND
BCIA NEW ENGLAND HOLDINGS LLC, AS LANDLORD
2 FEDERAL STREET, BILLERICA, MASSACHUSETTS
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 BASIC DATA; DEFINITIONS..............................................1
1.1 Basic Data............................................................1
1.2 Definitions...........................................................3
1.3 Enumeration of Exhibits...............................................6
ARTICLE 2 PREMISES AND APPURTENANT RIGHTS......................................6
2.1 Lease of Premises.....................................................6
2.2 Appurtenant Rights....................................................6
ARTICLE 3 BASIC RENT...........................................................7
3.1 Payment...............................................................7
ARTICLE 4 COMMENCEMENT AND CONDITION...........................................7
4.1 Commencement Date.....................................................7
4.2 Preparation of the Premises...........................................7
4.3 Early Entry.......................................................... 9
ARTICLE 5 USE OF PREMISES..................................................... 9
5.1 Permitted Use........................................................ 9
5.2 Installations and Alterations by Tenant..............................10
5.3 Extra Hazardous Use..................................................12
5.4 Hazardous Materials..................................................12
ARTICLE 6 ASSIGNMENT AND SUBLETTING...........................................13
6.1 Prohibition..........................................................13
6.2 Acceptance of Rent...................................................14
6.3 Excess Payments......................................................14
6.4 Further Requirements.................................................15
ARTICLE 7 RESPONSIBILITY FOR REPAIRS AND CONDITION............................15
7.1 Landlord Repairs.....................................................15
7.2 Tenant Repairs.......................................................16
7.3 Floor Load - Heavy Machinery.........................................17
<PAGE> 3
7.4 Electricity Service..................................................18
7.5 Interruption of Service..............................................18
ARTICLE 8 REAL ESTATE TAXES...................................................19
8.1 Payments on Account of Real Estate Taxes.............................19
8.2 Abatement............................................................20
ARTICLE 9 OPERATING AND UTILITY EXPENSES......................................21
9.1 Definitions..........................................................21
9.2 Tenant's Payment of Operating Expenses...............................21
9.3 Tenant's Audit Right.................................................22
ARTICLE 10 INDEMNITY AND PUBLIC LIABILITY INSURANCE...........................22
10.1 Tenant's Indemnity................................................22
10.2 Tenant Insurance..................................................23
10.3 Tenant's Risk.....................................................23
10.4 Landlord's Indemnity..............................................24
10.5 Waiver of Subrogation.............................................24
ARTICLE 11 FIRE, EMINENT DOMAIN, ETC..........................................24
11.1 Landlord's Right of Termination...................................24
11.2 Restoration; Tenant's Right of Termination........................24
11.3 Landlord's Insurance..............................................25
11.4 Abatement of Rent.................................................25
11.5 Condemnation Award................................................26
ARTICLE 12 HOLDING OVER; SURRENDER............................................26
12.1 Holding Over......................................................26
12.2 Surrender of Premises.............................................26
ARTICLE 13 RIGHTS OF MORTGAGEES; TRANSFER OF TITLE............................27
13.1 Rights of Mortgagees..............................................27
13.2 Assignment of Rents and Transfer of Title.........................27
13.3 Notice to Mortgagee...............................................28
ARTICLE 14 DEFAULT; REMEDIES..................................................28
14.1 Tenant's Default..................................................28
14.2 Landlord's Remedies...............................................32
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14.3 Additional Rent...................................................33
14.4 Landlord's Remedying Tenant Defaults..............................33
14.5 Remedies Cumulative...............................................33
14.6 Attorneys' Fees...................................................34
14.7 Waiver............................................................34
14.8 Security Deposit..................................................34
14.9 Landlord's Default................................................35
14.10 Tenant Remedying Landlord's Default...............................36
14.11 Independent Covenant..............................................36
ARTICLE 15 MISCELLANEOUS PROVISIONS...........................................36
15.1 Rights of Access..................................................36
15.2 Covenant of Quiet Enjoyment.......................................36
15.3 Landlord's Liability..............................................36
15.4 Estoppel Certificate..............................................37
15.5 Brokerage.........................................................37
15.6 Rules and Regulations.............................................37
15.7 Invalidity of Particular Provisions...............................38
15.8 Provisions Binding, Etc. .........................................38
15.9 Recording.........................................................38
15.10 Notice............................................................38
15.11 When Lease Becomes Binding; Entire Agreement; Modification........39
15.12 Paragraph Headings and Interpretation of Sections.................39
15.13 Dispute Resolution................................................39
15.14 Waiver of Jury Trial..............................................40
15.15 Time Is of the Essence............................................40
15.16 Multiple Counterparts.............................................40
15.17 Governing Law.....................................................40
15.18 Roof Rights.......................................................40
15.19 Ownership; Prior Tenant...........................................40
15.20 Authority.........................................................40
15.21 Warranties........................................................41
iii
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EXHIBITS
Exhibit A Legal Description of Land
Exhibit B Site Plan of Building
Exhibit C Schedule of Landlord's Furnishings and Equipment
Exhibit D Operating Expenses
Exhibit E Rules and Regulations
Exhibit F Appraisers' Determination of Fair Market Rent
Exhibit G Form of Subordination, Non-Disturbance and Attornment Agreement
Exhibit H Form of Letter of Credit
Exhibit I Form of Notice of Lease
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L E A S E
THIS LEASE is dated as of November 9, 1999 between the Landlord and the
Tenant named below, and is of space in the Building described below.
ARTICLE 1
BASIC DATA; DEFINITIONS
-----------------------
1.1 BASIC DATA. Each reference in this Lease to any of the following
terms shall be construed to incorporate the data for that term set forth in this
Section:
LANDLORD: BCIA New England Holdings LLC, a Delaware limited liability
company.
LANDLORD'S ADDRESS: c/o Boston Capital Institutional Advisors LLC, One
Boston Place, Boston, Massachusetts 02108.
TENANT: Silverstream Software, Inc., a Delaware corporation.
TENANT'S ADDRESS: 2 Federal Street, Billerica, Massachusetts.
PROPERTY: The land located in Billerica, Massachusetts, together with
the Building and other improvements thereon, all as more particularly described
in EXHIBIT A attached hereto.
BUILDING: The two-story building commonly known and numbered as 2
Federal Street, agreed to be 100,000 rentable square feet, as shown on the site
plan attached hereto as EXHIBIT B together with all of Landlord's Furnishings
and Equipment.
PREMISES: The entire Property, including the Land and the Building, as
shown on the site plan attached hereto as EXHIBIT B.
BASIC RENT: The Basic Rent for the Term is as follows:
- ---------------------------------------- ------------------- -------------------
RENTAL PERIOD ANNUAL BASIC RENT MONTHLY PAYMENT
- ---------------------------------------- ------------------- -------------------
From the Commencement Date to February
28, 2001. $ 800,000.00 $ 66,666.67
- ---------------------------------------- ------------------- -------------------
From March 1, 2001 to February 28, 2002. $1,200,000.00 $100,000.00
- ---------------------------------------- ------------------- -------------------
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- ---------------------------------------- ------------------- -------------------
From March 1, 2002 to February 28, 2006. $1,375,000.00 $114,583.33
- ---------------------------------------- ------------------- -------------------
If Tenant exercises the Extension Option as provided herein, then the
Basic Rent for the Extension Term shall be the greater of (i) $1,375,000.00 per
annum, and (ii) the Fair Market Rent. As used herein, the term "FAIR MARKET
RENT" means the Basic Rent as determined: (i) by agreement between Landlord and
Tenant, negotiating in good faith, no later than thirty (30) days after Tenant's
exercise of the Extension Option but if Tenant exercises the Extension Option
prior to March 1, 2005, then Landlord and Tenant shall reach agreement,
negotiating in good faith, no later than March 31, 2005 (and Landlord shall not
be required to so negotiate prior to March 1, 2005), or (ii) if Landlord and
Tenant shall not have agreed upon the Fair Market Rent by said date as aforesaid
(an "IMPASSE"), then Fair Market Rent for the Extension Term shall be fixed by
means of an Appraisers' Determination as more particularly described in EXHIBIT
F hereto.
SECURITY DEPOSIT: $300,000 for the first three (3) years of the Term,
thereafter being reduced to $150,000 for the remainder of the Term. The Security
Deposit shall be in the form of a Letter of Credit satisfying the requirements,
and to be held and disposed of as provided in, SECTION 14.8. Notwithstanding any
contrary provision herein, the above-referenced reduction in the amount of the
Security Deposit at the end of the third year of the Term shall not be effected
if (i) Landlord has previously drawn upon the Letter of Credit pursuant hereto,
or (ii) a Default of Tenant has occurred, and in each such event the Security
Deposit shall remain $300,000 for the duration of the Term.
COMMENCEMENT DATE: March 1, 2000, subject to the provisions of SECTION
4.1 herein regarding early entry.
TERM: Six (6) years, commencing on the Commencement Date and expiring
at the close of the day on February 28, 2006. The Term shall include the
Extension Term provided that Tenant exercises the Extension Option strictly in
accordance with this Lease.
EXTENSION OPTION: Provided that Tenant is not then in default
hereunder, Tenant shall have the option to extend the Term for the Extension
Term, with such Extension Option to be exercised by Tenant delivering to
Landlord written notice thereof (the "TENANT EXTENSION NOTICE") not later than
March 1, 2005.
EXTENSION TERM: Subject to Tenant exercising the Extension Option, in
accordance with the provisions of this Lease, the Extension Term shall be for a
period of five (5) years, commencing on March 1, 2006 and expiring on February
28, 2011. The Extension Term shall be upon all the same terms, covenants and
conditions as the Term, except (i) as to Basic Rent, which shall be determined
as set forth above, and (ii) that there shall be no further extension rights
unless agreed to in writing by Landlord.
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INITIAL GENERAL LIABILITY INSURANCE: $5,000,000 per
occurrence/$10,000,000 aggregate (combined single limit) for property damage,
bodily injury or death.
PERMITTED USES: General offices and research and development,
warehousing and distribution, light manufacturing.
LANDLORD'S CONTRIBUTION: $600,000, subject to SECTION 4.2 below.
1.2 DEFINITIONS. When used in Lease, the capitalized terms set forth
below shall bear the meanings set forth below.
ADEQUATE ASSURANCE: As defined in SECTION 14.1.
ADEQUATE ASSURANCE OF FUTURE PERFORMANCE: As defined in SECTION 14.1.
ADDITIONAL RENT: All charges and sums payable by Tenant as set forth in
this Lease, other than and in addition to Basic Rent.
AGENT: BCIA Property Management LLC or such other person or entity from
time to time designated by Landlord.
ALTERATIONS: As defined in SECTION 5.2.
BANKRUPTCY CODE: As defined in SECTION 14.1.
BASIC RENT: As defined in SECTION 1.1.
BROKER: Meredith & Grew, Inc. and Spaulding & Slye, as co-brokers.
APPRAISERS' DETERMINATION: As defined in EXHIBIT F attached hereto.
BUILDING: As defined in SECTION 1.1.
BUSINESS DAY: All days except Saturdays, Sundays, and other days when
national banks in the state in which the property is located are not open for
business.
COMMENCEMENT DATE: As defined in SECTION 4.1.
COST OF TENANT'S WORK: As defined in SECTION 4.2.
DEFAULT OF TENANT: As defined in SECTION 14.1.
ENVIRONMENTAL CONDITION: Any disposal, release or threat of release of
Hazardous Materials on, from or about the Building or the Property or storage of
Hazardous Materials on, from or about the Building or the Property.
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ENVIRONMENTAL LAWS: Any federal, state and/or local statute, ordinance,
bylaw, code, rule and/or regulation now or hereafter enacted, pertaining to any
aspect of the environment or human health, including, without limitation,
Chapter 21C, Chapter 21D and Chapter 21E of the General Laws of Massachusetts
and the regulations promulgated by the Massachusetts Department of Environmental
Protection, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, 42 U.S.C. ss. 9601 et seq., the Resource Conservation and Recovery
Act of 1976, 42 U.S.C. ss. 6901 et seq., the Toxic Substances Control Act, 15
U.S.C. ss.2061 et seq., the Federal Clean Water Act, 33 U.S.C. ss.1251, and the
Federal Clean Air Act, 42 U.S.C. ss.7401 et SEQ.
EVENT OF BANKRUPTCY: As defined in SECTION 14.1.
EXTENSION OPTION: As defined in SECTION 1.1.
EXTENSION TERM: As defined in SECTION 1.1.
FAIR MARKET RENT: As defined in SECTION 1.1.
FIELDS BUSINESS PARK means the business park in which the Premises are
located.
FORCE MAJEURE: Collectively and individually, strikes or other labor
trouble, fire or other casualty, acts of God, governmental preemption of
priorities or other controls in connection with a national or other public
emergency or shortages of fuel, supplies or labor resulting therefrom, or any
other cause, whether similar or dissimilar, beyond the reasonable control of the
party required to perform an obligation, excluding financial constraints of such
party.
HOLDER: As defined in SECTION 13.1.
HAZARDOUS MATERIALS: Shall mean each and every element, compound,
chemical mixture, contaminant, pollutant, material, waste or other substance
which is defined, determined or identified as hazardous or toxic under any
Environmental Law, including, without limitation, any "oil," "hazardous
material," "hazardous waste," "hazardous substance" or "chemical substance or
mixture", as the foregoing terms (in quotations) are defined in any
Environmental Laws.
INITIAL GENERAL LIABILITY INSURANCE: As defined in SECTION 1.1.
LAND: The land that constitutes a portion of the Property.
LANDLORD: As defined in SECTION 1.1.
LANDLORD AGENTS: Landlord's partners, members, shareholders, officers,
directors, managers, employees, agents, invitees or contractors.
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<PAGE> 10
LANDLORD'S ADDRESS: As defined in SECTION 1.1.
LANDLORD'S CONSTRUCTION REPRESENTATIVE: As defined in SECTION 1.1.
LANDLORD'S CONTRIBUTION: As defined in SECTION 1.1.
LANDLORD'S FURNISHINGS AND EQUIPMENT: As defined in EXHIBIT G attached
hereto.
LETTER OF CREDIT: As defined in SECTION 14.8.
MORTGAGE: As defined in SECTION 13.1.
NEW LAWS: As defined in SECTION 7.2(A).
NEW LAW WORK: As defined in SECTION 7.2(A).
OPERATING EXPENSES: As defined in SECTION 9.1.
OPERATING YEAR: As defined in SECTION 9.1.
PERMITTED USES: As defined in SECTION 1.1.
PREMISES: As defined in SECTION 1.1.
PROPERTY: As defined in SECTION 1.1.
RENT: Basic Rent and Additional Rent, collectively.
RULES AND REGULATIONS: As defined in SECTION 2.2.
SECURITY DEPOSIT: As defined in SECTION 1.1.
SNDA: As defined in SECTION 13.1.
SUCCESSOR: As defined in SECTION 13.1.
STRUCTURE: As defined in SECTION 7.1.
TAXES: As defined in SECTION 8.1.
TAX YEAR: As defined in SECTION 8.1.
TENANT: As defined in SECTION 1.1.
TENANT EXTENSION NOTICE: As defined in SECTION 1.1.
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TENANT'S ADDRESS: As defined in SECTION 1.1.
TENANT'S AGENTS: means Tenant's partners, members, shareholders,
officers, directors, managers, employees, agents, invitees or contractors.
TENANT'S CONSTRUCTION REPRESENTATIVE: As defined in SECTION 1.1.
TENANT'S PLANS: As defined in SECTION 4.2.
TENANT'S REMOVABLE PROPERTY: As defined in SECTION 5.2.
TENANT'S ROOFTOP EQUIPMENT: As defined in SECTION 15.18(a).
TENANT'S WORK: As defined in SECTION 4.2.
TERM: As defined in SECTION 1.1.
1.3 ENUMERATION OF EXHIBITS. The following Exhibits are attached
hereto, are made a part of this Lease, are incorporated herein by reference, and
are to be treated as a part of this Lease for all purposes. Undertakings
contained in such Exhibits are agreements on the part of Landlord and Tenant, as
the case may be, to perform the obligations stated therein.
Exhibit A - Legal Description of Land
Exhibit B - Site Plan of Building
Exhibit C - Schedule of Landlord's Furnishings and Equipment
Exhibit D - Operating Expenses
Exhibit E - Rules and Regulations
Exhibit F - Appraisers' Determination of Fair Market Rent
Exhibit G - Form of Subordination, Non-Disturbance and Attornment Agreement
Exhibit H - Form of Letter of Credit
Exhibit I - Form of Notice of Lease
ARTICLE 2
PREMISES AND APPURTENANT RIGHTS
-------------------------------
2.1 LEASE OF PREMISES. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord the Premises for the Term and upon the terms and
conditions hereinafter set forth.
2.2 APPURTENANT RIGHTS. Tenant shall have, as appurtenant to the
Premises, the non-exclusive right to use, and permit its invitees to use in
common with others entitled thereto, the easements, rights of way or other
rights, if any, which are appurtenant to the Property pursuant to any recorded
documents evidencing such easements or rights; but such rights shall always be
subject to such conditions, rules and regulations from time to time established
by Landlord pursuant to SECTION 15.6 (the "RULES AND REGULATIONS") and to the
right of Landlord to
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<PAGE> 12
designate and change from time to time such appurtenant rights pursuant to the
terms of the recorded documents evidencing such rights and to grant such
easements and other encumbrances so long as the same do not materially and
adversely interfere with the use of the Premises by Tenant.
ARTICLE 3
BASIC RENT
----------
3.1 PAYMENT.
(a) Tenant agrees to pay the Basic Rent and Additional Rent to
Landlord, or as directed by Landlord, commencing on the Commencement
Date, without offset, abatement (except as provided in SECTION 7.5 and
SECTION 11.4), deduction or demand. Basic Rent shall be payable in
equal monthly installments, in advance, on the first day of each and
every calendar month during the Term of this Lease, to Landlord at
Landlord's Address or at such other place as Landlord shall from time
to time designate by notice, in lawful money of the United States. In
the event that any installment of Basic Rent or any regularly scheduled
payment of Additional Rent is not paid within five (5) days of when
due, Tenant shall pay, in addition to any charges under SECTION 14.4,
at Landlord's request an administrative fee equal to 4% of the overdue
payment. Landlord and Tenant agree that all amounts due from Tenant
under or in respect of this Lease, whether labeled Basic Rent,
Additional Rent or otherwise, shall be considered as rental reserved
under this Lease for all purposes, including without limitation
regulations promulgated pursuant to the Bankruptcy Code, and including
further without limitation Section 502(b) thereof.
(b) Basic Rent for any partial month shall be pro-rated on a
daily basis, and if the first day on which Tenant must pay Basic Rent
shall be other than the first day of a calendar month, the first
payment which Tenant shall make to Landlord shall be equal to a
proportionate part of the monthly installment of Basic Rent for the
partial month from the first day on which Tenant must pay Basic Rent to
the last day of the month in which such day occurs, plus the
installment of Basic Rent for the succeeding calendar month.
ARTICLE 4
COMMENCEMENT AND CONDITION
--------------------------
4.1 COMMENCEMENT DATE. The Commencement Date shall be the first to
occur of:
(a) March 1, 2000, or
(b) the day Tenant's personnel occupy all or any part of the
Premises for the conduct of its business prior to the Commencement
Date.
4.2 PREPARATION OF THE PREMISES.
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<PAGE> 13
(a) Tenant shall prepare, at its sole cost and expense
(against which the Landlord's Contribution may be applied), plans for
the layout of the improvements which Tenant desires to have performed
in the Premises (the "TENANT'S PLANS"). Tenant's Plans shall be
submitted to Landlord for its approval, and Landlord shall approve or
disapprove of Tenant's Plans, in its reasonable discretion, within ten
(10) Business Days of receiving them. No work shall be conducted by
Tenant until Tenant's Plans have been fully approved by Landlord. Any
disapproval shall be accompanied by a reasonably specific statement of
reasons therefor. At Tenant's sole cost and expense (against which the
Landlord's Contribution may be applied), Tenant shall cause Tenant's
Plans to be revised in a manner sufficient to remedy the Landlord's
objections and/or respond to the Landlord's concerns and for such
revised plans to be redelivered to Landlord, and Landlord shall either
approve or disapprove Tenant's revised plans within five (5) Business
Days following the date of submission. Tenant's Plans shall be stamped
by a Massachusetts-registered architect and engineer, such architect
and engineer being subject to Landlord's reasonable approval, and shall
comply with all applicable laws, ordinances and regulations (including,
without limitation, the applicable requirements of the Americans with
Disabilities Act of 1990, and the regulations promulgated thereunder)
and the requirements of the Rules and Regulations and shall be in a
form satisfactory to appropriate governmental authorities responsible
for issuing permits, approvals and licenses required for construction.
Landlord hereby approves the following as Tenant's architect: Maugel
Architects; and the following as Tenant's contractor: Spaulding & Slye.
(b) Promptly after approval of Tenant's Plans, Tenant shall
exercise all reasonable efforts to complete the work specified therein
necessary to prepare the Premises for Tenant's occupancy ("TENANT'S
WORK"). All Tenant's Work shall be completed in accordance with the
requirements set forth in the Rules and Regulations. Landlord shall
reimburse Tenant for the costs incurred by the Tenant with respect to
the design and performance of Tenant's Work (the "COST OF TENANT'S
WORK") up to the amount of Landlord's Contribution, subject to the
provisions hereof. To the extent that the Cost of Tenant's Work exceeds
the Landlord's Contribution, Tenant shall be entirely responsible for
such excess. Landlord's Contribution shall be payable by Landlord to
Tenant (or, at Tenant's election, directly to Tenant's contractor) upon
written requisition to Landlord in installments according to reasonable
construction disbursement procedures, as Tenant's Work progresses. In
any case, prior to payment of any such installment Tenant shall deliver
to Landlord a written request, which request shall be given no more
frequently than once every thirty (30) days, for such disbursement,
which shall be accompanied by: (i) invoices for Tenant's Work covered
by any previous requisition; (ii) copies of partial lien waivers or
final lien waivers (in the case of a final installment); and (iii) a
certificate signed by the Tenant's architect and an officer of the
Tenant certifying that Tenant's Work represented by the aforementioned
invoices has been completed substantially in accordance with Tenant's
Plans and that the remaining portion of Landlord's Contribution is
sufficient to pay in full for the completion of
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<PAGE> 14
Tenant's Work. If at any time the amount of Landlord's Contribution is
insufficient to pay for the remaining amount of Tenant's Work, then
Tenant shall pay from its own funds all further sums necessary to
enable Tenant and Tenant's architect to again make the certification
required under (iii) above.
(c) Except for Tenant's Work, the Premises are being leased in
their AS IS condition. The Premises are being leased WITHOUT
REPRESENTATION OR WARRANTY by Landlord. Tenant acknowledges that it has
inspected the Premises and common areas of the Building and, except for
Tenant's Work, has found them satisfactory, except that because of
current weather, it has not been determined whether the air
conditioning units are in good working condition. Landlord and Tenant
agree that they will review the operation of the air conditioning units
during the months of June, July and August of 2000 and by August 31,
2000 determine if such units are in good working condition. If such
units are determined to not be in good working condition, then, at
Landlord's sole cost and expense, Landlord agrees to cause such units
to be placed in good working condition. If such units are determined to
be in good working condition, then such units shall be deemed to be
accepted by Tenant.
4.3 EARLY ENTRY. Landlord agrees to allow Tenant to have access to the
Premises after the execution hereof for design, space planning, inspection and
the like (collectively, "NON-CONSTRUCTION WORK") and for installation of its
telecommunications equipment and to install its fixtures, all subject to
obtaining Landlord's approval of Tenant's plans pursuant to SECTION 4.2 herein.
Prior to any entry onto the Premises, Tenant shall deliver to Landlord
certificates of insurance evidencing the coverages required herein. With respect
to the period commencing upon any such early entry, all non-payment provisions
of this Lease shall apply. In addition, upon the commencement of any such
installation or construction, Tenant shall pay for all utilities, trash removal,
and, only if requested by Tenant during this period prior to the Commencement
Date, security patrols. Tenant's obligation to pay all other Operating Expenses
and all other payment obligations under this Lease shall commence on the
Commencement Date.
ARTICLE 5
USE OF PREMISES
---------------
5.1 PERMITTED USE.
(a) Tenant agrees that the Premises shall be used and occupied
by Tenant only for Permitted Uses and for no other use without
Landlord's express written consent.
(b) Tenant agrees to conform to the following provisions
during the Term of this Lease:
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<PAGE> 15
(i) Tenant shall cause all freight to be delivered to
or removed from the Building and the Premises in accordance
with the Rules and Regulations established by Landlord
therefor;
(ii) Tenant will not place on the exterior of the
Building (including both interior and exterior surfaces of
doors and interior surfaces of windows), any sign, symbol,
advertisement or the like visible to public view outside of
the Premises without Landlord's prior written consent, which
consent shall not be unreasonably withheld or delayed.
Landlord will not withhold consent for any signs or lettering
provided that such signs or lettering comply with law and
conform to any sign standards of Fields Business Park, and
provided that Tenant has submitted to Landlord a plan or
sketch in reasonable detail (showing, without limitation,
size, color, location, materials and method of affixation) of
the sign or lettering;
(iii) Tenant shall not perform any act or carry on
any practice which may injure the Premises, or cause any
offensive odors or loud noise or constitute a nuisance or a
menace; and
(iv) Tenant shall, in its use of the Premises, comply
with the requirements of all applicable governmental laws,
rules and regulations, including, without limitation, the
Americans With Disabilities Act of 1990 and the regulations of
the Massachusetts Architectural Access Board.
5.2 INSTALLATIONS AND ALTERATIONS BY TENANT.
(a) Tenant shall make no alterations, additions (including,
for the purposes hereof, wall-to-wall carpeting), or improvements
(collectively, "ALTERATIONS") in or to the Premises (including any
Alterations necessary for Tenant's initial occupancy of the Premises)
without Landlord's prior written consent, which consent shall not be
unreasonably withheld or delayed with respect to non-structural
Alterations that do not materially adversely affect or involve the
Building's life safety, HVAC, electrical, plumbing or mechanical
systems or any other Building systems. Any Alterations shall be in
accordance with the Rules and Regulations in effect with respect
thereto and with plans and specifications meeting the requirements set
forth in the Rules and Regulations and approved in advance by Landlord.
All Alterations shall be (i) be performed in a good and workmanlike
manner and in compliance with all applicable laws, ordinances and
regulations; (ii) be made at Tenant's sole cost and expense; (iii) at
the election of Landlord, become part of the Premises and the property
of Landlord except for all articles of personal property, business
fixtures, machinery, equipment and furniture owned or installed by
Tenant solely at its expense in the Premises, including without
limitation, Tenant's Rooftop Equipment as defined in SECTION 15.18(A)
(collectively, "TENANT'S REMOVABLE PROPERTY"); and (iv) be coordinated
with any work being performed by
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<PAGE> 16
Landlord in such a manner as not to damage the Building or interfere
with the construction or operation of the Building. At Landlord's
request, Tenant shall, before its work is started, secure assurances
satisfactory to Landlord in its reasonable discretion protecting
Landlord against claims arising out of the furnishing of labor and
materials for the Alterations. Notwithstanding the foregoing, Tenant
shall have the right to make Alterations without Landlord's approval so
long as the same (1) do not affect the Structure as defined in SECTION
7.1 herein or the roof, window frames, outside walls, or building
systems of the Building and (2) do not have an aggregate cost of more
than $50,000 in any one year.
If any Alterations shall involve the removal of fixtures,
equipment or other property in the Premises which are not Tenant's
Removable Property, such fixtures, equipment or property shall be
promptly replaced by Tenant at its expense with new fixtures, equipment
or property of like utility and of at least equal quality.
(b) Notice is hereby given, and Landlord and Tenant hereby
agree, that Landlord shall not be liable for any labor or materials
furnished or to be furnished to Tenant upon credit, and that no
mechanic's or other lien for any such labor or materials shall attach
to or affect the reversion or other estate or interest of Landlord in
and to the Premises, the Building or the Property. To the maximum
extent permitted by law, before such time as any contractor commences
to perform work on behalf of Tenant, Tenant shall obtain from such
contractor (and any subcontractors) and shall furnish to Landlord, a
written statement acknowledging the provisions set forth in the
immediately preceding sentence. Tenant agrees to pay promptly when due
the entire cost of any work done on behalf of Tenant, its agents,
employees or independent contractors, and not to cause or permit any
liens for labor or materials performed or furnished in connection
therewith to attach to all or any part of the Property and immediately
to discharge any such liens which may so attach. If, notwithstanding
the foregoing, any lien is filed against all or any part of the
Property for work claimed to have been done for, or materials claimed
to have been furnished to, Tenant or its agents, employees or
independent contractors, Tenant, at its sole cost and expense, shall
cause such lien to be dissolved promptly after receipt of notice that
such lien has been filed, by the payment thereof or by the filing of a
bond sufficient to accomplish the foregoing. If Tenant shall fail to
discharge any such lien upon notice thereof, Landlord may, at its
option, discharge such lien and treat the cost thereof (including
attorneys' fees incurred in connection therewith) as Additional Rent
payable upon demand, it being expressly agreed that such discharge by
Landlord shall not be deemed to waive or release the default of Tenant
in not discharging such lien. Tenant shall indemnify and hold Landlord
harmless from and against any and all expenses, liens, claims,
liabilities and damages based on or arising, directly or indirectly, by
reason of the making of any alterations, additions or improvements by
or on behalf of Tenant to the Premises under this Section, which
obligation shall survive the expiration or termination of this Lease.
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(c) In the course of any work being performed by Tenant
(including, without limitation, the "field installation" of any
Tenant's Removable Property), Tenant agrees to use labor compatible
with that being employed by Landlord for work in the Building or on the
Property or other buildings owned by Landlord or its affiliates (which
term, for purposes hereof, shall include, without limitation, entities
which control or are under common control with or are controlled by
Landlord or, if Landlord is a partnership or limited liability company,
by any partner or member of Landlord) and not to employ or permit the
use of any labor or otherwise take any action which might result in a
labor dispute involving personnel providing services in the Building or
on the Property pursuant to arrangements made by Landlord.
5.3 EXTRA HAZARDOUS USE. Tenant covenants and agrees that Tenant will
not do or permit anything to be done in or upon the Premises, or bring in
anything or keep anything therein, which shall increase the rate of property or
liability insurance on the Premises or the Property above the standard rate
applicable to Premises being occupied for the Permitted Uses. If the premium or
rates payable with respect to any policy or policies of insurance purchased by
Landlord or Agent with respect to the Property increases as a result of any act
or activity on or use of the Premises during the Term or payment by the insurer
of any claim arising from any act or neglect of Tenant, its employees, agents,
contractors or invitees, Tenant shall pay such increase, from time to time,
within fifteen (15) days after demand therefor by Landlord, as Additional Rent.
5.4 HAZARDOUS MATERIALS.
(a) Tenant may use chemicals such as adhesives, lubricants,
ink, solvents and cleaning fluids of the kind and in amounts and in the
manner customarily found and used in business offices in order to
conduct its business at the Premises and to maintain and operate the
business machines located in the Premises. Tenant shall not allow, use,
store, handle, treat, transport, release or dispose of any other
Hazardous Materials on or about the Premises or the Property without
Landlord's prior written consent, which Landlord may withhold or
condition in Landlord's sole discretion.
(b) Any handling, treatment, transportation, storage, disposal
or use of Hazardous Materials by Tenant in or about the Premises or the
Property and Tenant's use of the Premises shall comply with all
applicable Environmental Laws.
(c) Tenant shall indemnify, defend upon demand with counsel
reasonably acceptable to Landlord, and hold Landlord harmless from and
against, any liabilities, losses claims, damages, interest, penalties,
fines, attorneys' fees, experts' fees, court costs, remediation costs,
and other expenses which result from the use, storage, handling,
treatment, transportation, release, threat of release or disposal of
Hazardous Materials in or about the Premises or the Property by Tenant
or Tenant's agents, employees, contractors or invitees.
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(d) Tenant shall give written notice to Landlord as soon as
reasonably practicable of (i) any communication received by Tenant from
any governmental authority concerning Hazardous Materials which relates
to the Premises or the Property, and (ii) any Environmental Condition
of which Tenant is aware.
(e) Landlord has provided to Tenant a copy of a certain Phase
I Environmental Site Assessment with respect to the Property dated
April 30, 1999 prepared by Eckland Consultants Inc., and Landlord
represents to Tenant that said report is the only environmental site
assessment in Landlord's possession with respect to the Property.
ARTICLE 6
ASSIGNMENT AND SUBLETTING
-------------------------
6.1 PROHIBITION.
(a) Except as expressly provided in this SECTION 6.1, Tenant
covenants and agrees that neither this Lease nor the Term and estate
hereby granted, nor any interest herein or therein, will be assigned
(collaterally, conditionally or otherwise), mortgaged, pledged,
encumbered or otherwise transferred, whether voluntarily,
involuntarily, by operation of law or otherwise, and that neither the
Premises nor any part thereof will be encumbered in any manner by
reason of any act or omission on the part of Tenant, or used or
occupied or permitted to be used or occupied, by anyone other than
Tenant, or for any use or purpose other than a Permitted Use, or be
sublet (which term, without limitation, shall include granting of
concessions, licenses and the like) in whole or in part, or be offered
or advertised for assignment or subletting by Tenant or any person
acting on behalf of Tenant, without, in each case, the prior written
consent of Landlord. Without limiting the foregoing, any agreement: (x)
which purports to relieve Tenant from the obligation to pay, or
pursuant to which a third party agrees to pay on Tenant's behalf, all
or any portion of the Basic Rent or Additional Rent under this Lease;
and/or (y) pursuant to which a third party undertakes or is granted by
or on behalf of Tenant the right to assign or attempt to assign this
Lease or sublet or attempt to sublet all or any portion of the
Premises, shall for all purposes hereof be deemed to be an assignment
of this Lease and subject to the provisions of this ARTICLE 6. The
provisions of this PARAGRAPH (a) shall apply to a transfer (by one or
more transfers) of a controlling portion of or interest in the stock or
partnership or membership interests or other evidences of equity
interests of Tenant as if such transfer were an assignment of this
Lease; provided that if equity interests in Tenant at any time are or
become traded on a public stock exchange, the transfer of equity
interests in Tenant on a public stock exchange shall not be deemed an
assignment within the meaning of this Article.
(b) The provisions of PARAGRAPH (a) shall not apply to either
(x) transactions with an entity into or with which Tenant is merged or
consolidated, or to which more
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than 50% of Tenant's stock or all or substantially all of Tenant's
assets are transferred, (y) transactions with any entity which controls
or is controlled by Tenant or is under common control with Tenant, or
(z) assignments or subleases to reputable assignees/sublessees to which
Landlord consents in writing, such consent not to be unreasonably
withheld, conditioned or delayed.
6.2 ACCEPTANCE OF RENT. If this Lease be assigned, or if the Premises
or any part thereof be sublet or occupied by anyone other than Tenant, whether
or not in violation of the terms and conditions of the Lease, Landlord may, at
any time and from time to time, collect rent and other charges from the
assignee, sublessee or occupant, and apply the net amount collected to the rent
and other charges herein reserved, but no such assignment, subletting,
occupancy, collection or modification of any provisions of this Lease shall be
deemed a waiver of this covenant, or the acceptance of the assignee, sublessee
or occupant as a tenant or a release of Tenant from the further performance of
covenants on the part of Tenant to be performed hereunder. Any consent by
Landlord to a particular assignment, subletting or occupancy or other act for
which Landlord's consent is required under PARAGRAPH (a) of SECTION 6.1 shall
not in any way diminish the prohibition stated in PARAGRAPH (a) of SECTION 6.1
as to any further such assignment, subletting or occupancy or other act or the
continuing liability of the original named Tenant. No assignment or subletting
hereunder shall relieve Tenant from its obligations hereunder, and Tenant shall
remain fully and primarily liable therefor. Landlord may withhold consent to a
particular assignment, subletting or occupancy if the assignment, sublease or
occupancy agreement does not provide that the assignee, sublessee or other
occupant agrees to be independently bound by and upon all of the covenants,
agreements, terms, provisions and conditions set forth in this Lease on the part
of Tenant to be kept and performed.
6.3 EXCESS PAYMENTS. If Tenant assigns this Lease or sublets the
Premises or any portion thereof, Tenant shall pay to Landlord as Additional Rent
fifty percent (50%) of the amount, if any, by which any and all compensation
received by Tenant as a result of such assignment or subletting, net of
reasonable expenses actually incurred by Tenant in connection with such
assignment or subletting, exceeds (a) in the case of an assignment, the Basic
Rent and Additional Rent under this Lease, and (b) in the case of a subletting,
the portion of the Basic Rent and Additional Rent allocable to the portion of
the Premises subject to such subletting. Such payments shall be made on the date
the corresponding payments under this Lease are due. Notwithstanding the
foregoing, the provisions of this Section shall impose no obligation on Landlord
to consent to an assignment of this Lease or a subletting of all or a portion of
the Premises. As used in this Section, the term "reasonable expenses" means (a)
improvement allowances or other economic concessions granted by Tenant to the
assignee or sublessee; (b) the unamortized costs of initial and subsequent
improvements to the subject portion of the Premises paid for by Tenant; (c)
costs incurred by Tenant to buy-out or take over the previous lease of the
assignee or sublessee; (d) all costs incurred by Tenant to advertise the subject
portion of the Premises for assignment or sublease; and (e) arms length
brokerage commissions and/or legal fees paid by Tenant in connection with the
assignment or sublease;
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6.4 FURTHER REQUIREMENTS. Tenant shall reimburse Landlord on demand, as
Additional Rent, for any out-of-pocket costs (including reasonable attorneys'
fees and expenses) actually incurred by Landlord in connection with any actual
or proposed assignment, sublease or occupancy agreement or other act described
in PARAGRAPH (a) of SECTION 6.1, whether or not consummated, including the
reasonable costs of making investigations as to the acceptability of the
proposed assignee or sublessee. Notwithstanding Tenant entering into any
assignment, sublease or occupancy agreement pursuant hereto, Tenant shall remain
primarily liable for all of its obligations hereunder. Any assignment, sublease
or occupancy agreement to which Landlord gives its consent shall not be valid or
binding on Landlord and no assignee, sublessee or occupant shall take possession
of all or any portion of the Premises, unless and until Tenant and the assignee,
sublessee or occupant executes a consent agreement in form and substance
satisfactory to Landlord in its reasonable discretion and a fully executed
counterpart of such assignment, sublease or occupancy agreement. In the event
that Landlord consents to any sublease under the provisions of this Article, any
such sublease shall provide that: (i) the term of the sublease must end no later
than one day before the last day of the Term of this Lease; (ii) no sublease
shall be valid, and no sublessee shall take possession of all or any part of the
Premises until a fully executed counterpart of such sublease has been delivered
to Landlord; (iii) such sublease is subject and subordinate to this Lease; (iv)
Landlord may enforce the provisions of the sublease, including collection of
rents; (v) in the event of termination of this Lease or reentry or repossession
of the Premises by Landlord, Landlord may, at its sole discretion and option,
take over all of the right, title and interest of Tenant, as sublessor, under
such sublease, and such sublessee shall, at Landlord's option, attorn to
Landlord but nevertheless Landlord shall not (A) be liable for any previous act
or omission of Tenant under such sublease; (B) be subject to any defense or
offset previously accrued in favor of the sublessee against Tenant; or (C) be
bound by any previous modification of such sublease made without Landlord's
written consent or by any previous prepayment of more than one month's rent.
ARTICLE 7
RESPONSIBILITY FOR REPAIRS AND CONDITION
OF PREMISES; SERVICES TO BE FURNISHED BY LANDLORD
-------------------------------------------------
7.1 LANDLORD REPAIRS.
(a) Except as otherwise provided in this Lease, Landlord
agrees to keep in good order, condition and repair the Structure of the
Building (but specifically excluding all life safety, HVAC, plumbing,
mechanical and electrical systems in the Building). As used herein the
term "Structure" means the load bearing portions of the walls, columns,
beams, concrete slab, footings, and structural beams of the roof, in
each case necessary to preserve the load bearing capacity thereof.
Landlord shall in no event be responsible to Tenant for the repair of
glass (including exterior glass, the doors (or related glass and finish
work) into or inside the Building), or any condition in the Premises or
the Building caused by any act or neglect of Tenant, its invitees or
contractors. Landlord shall in no event be responsible for any
maintenance or repairs required by reason of any Alterations
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performed by or on behalf of Tenant. Landlord shall also keep and
maintain those exterior portions of the Premises which are not
specifically the obligation of Tenant as set forth in SECTION 7.2
herein, in a good and clean order, condition and repair, free of snow
and ice, and shall keep and maintain all landscaped areas in the
exterior portions of the Premises in a neat and orderly condition
(collectively, the "EXTERIOR WORK"); provided, however, that Tenant may
elect to perform the Exterior Work required in this sentence upon sixty
(60) days notice to Landlord whereupon the management fee described in
EXHIBIT D hereto shall be reduced as described in said EXHIBIT D.
Landlord agrees that, prior to the Commencement Date, it shall, at its
own expense, sealcoat and restripe the parking area at the Premises in
its current configuration and clean and trim the landscaping on the
Land. Landlord shall not be responsible to make any improvements or
repairs to the Premises other than as expressly in this SECTION 7.1
provided, unless expressly provided.
(b) Landlord shall never be liable for any failure to make
repairs which Landlord has undertaken to make under the provisions of
this SECTION 7.1 or elsewhere in this Lease, unless Tenant has given
notice to Landlord of the need to make such repairs, and Landlord has
failed to commence to make such repairs within a reasonable time after
receipt of such notice, or fails to proceed with reasonable diligence
to complete such repairs.
(c) Tenant shall have certain self-help rights pursuant to
SECTION 14.10 hereof.
7.2 TENANT REPAIRS.
(a) Except as otherwise provided in this Lease, Tenant agrees
to keep in good order, condition and repair (including replacement of)
each and every part of the Premises, including without limitation,
exterior walls (including exterior window units and glass), the roof
(excluding the structural beams thereof) and all life safety, HVAC,
plumbing, mechanical and electrical systems, excepting only reasonable
wear and tear of the Premises; and Tenant shall surrender the Premises
to Landlord, at the end of the Term, in such condition. Without
limitation, except as set forth in SECTION 7.2(b) below, Tenant shall
comply with all laws, codes and ordinances from time to time in effect
and all directions, rules and regulations of governmental agencies
having jurisdiction, and the standards recommended by the local Board
of Fire Underwriters applicable to Tenant's use and occupancy of the
Premises, and shall, at Tenant's expense, timely obtain all permits,
licenses and the like required thereby.
Notwithstanding the foregoing or any other provision of this
Lease to the contrary, however, Tenant shall not be responsible to
conduct the work necessary for compliance (the "NEW LAW WORK") with any
new laws, regulations, or standards which are not in effect on the date
of this Lease (the "NEW LAWS"), which New Laws require (i) repairs or
modifications to the Structure of the Building, or (ii) repairs or
modifications to
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the utility or Building service equipment, or (iii) installation of new
Building service equipment, such as fire detection or suppression
equipment, unless such repairs, modifications, or installations shall
(a) be due to Tenant's particular manner of use of the Premises (as
opposed to office and research and development use generally), (b) be
due to the negligence or willful misconduct of Tenant or Tenant's
Agents, or (c) be due to Tenant's Work or Tenant's Alterations..
Subject to SECTION 10.5 regarding waiver of subrogation, Tenant shall
be responsible for the cost of repairs which may be made necessary by
reason of damage to the Building caused by any act or neglect of Tenant
or Tenant's Agents (including any damage by fire or other casualty
arising therefrom).
(b) If repairs are required to be made by Tenant pursuant to
the terms hereof, and Tenant fails to make the repairs, upon not less
than twenty (20) days' prior written notice from Landlord stating
Landlord's intention to use self-help (except that no notice shall be
required in the event of an emergency), Landlord may make or cause such
repairs to be made (but shall not be required to do so), and the
provisions of SECTION 14.4 shall be applicable to the costs thereof.
Landlord shall not be responsible to Tenant for any loss or damage
whatsoever that may accrue to Tenant's stock or business by reason of
Landlord's making such repairs, but Landlord shall use reasonable
efforts to minimize interference with Tenant's use of the Premises.
(c) Notwithstanding any provision herein to the contrary, if
replacements or repairs of a capital nature for which Tenant is
responsible are necessary based upon the mutual agreement of Landlord
and Tenant using their reasonable discretion during the last two (2)
years of the Term as the same may be extended pursuant hereto, such
replacements shall be made by Landlord, and Tenant's obligation with
respect thereto shall be to reimburse Landlord based upon the annual
charge-off set forth in Paragraph 6 of EXHIBIT D hereto.
7.3 FLOOR LOAD - HEAVY MACHINERY.
(a) Tenant shall not place a load upon any floor in the
Premises exceeding the floor load per square foot of area which such
floor was designed to carry and which is allowed by law. Landlord
reserves the right to prescribe the weight and position of all business
machines and mechanical equipment, including safes, which shall be
placed so as to distribute the weight. Business machines and mechanical
equipment shall be placed and maintained by Tenant at Tenant's expense
in settings sufficient, in Landlord's judgment, to absorb and prevent
vibration, noise and annoyance. Tenant shall not move any safe, heavy
machinery, heavy equipment, freight, bulky matter or fixtures into or
out of the Building without Landlord's prior consent, which consent may
include a requirement to provide insurance, naming Landlord as an
insured, in such amounts as Landlord may deem reasonable.
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(b) If any such safe, machinery, equipment, freight, bulky
matter or fixtures requires special handling, Tenant agrees to employ
only persons holding a Master Rigger's License to do such work, and
that all work in connection therewith shall comply with applicable laws
and regulations. Any such moving shall be at the sole risk and hazard
of Tenant, and Tenant will exonerate, indemnify and save Landlord
harmless against and from any liability, loss, injury, claim or suit
resulting directly or indirectly from such moving.
7.4 ELECTRICITY SERVICE. The Premises shall be separately metered for
electricity such that the applicable public utility company can provide
electricity directly to the Premises, and Tenant shall be responsible for
payment of all electricity charges directly to such utility (including
electricity for all lighting, heating, ventilation and air conditioning in the
Premises.) Landlord shall permit Landlord's existing wires, risers, conduits and
other electrical equipment to be used to supply electricity to Tenant at the
Premises, and Tenant agrees in its use of the Premises that its total connected
lighting load will not exceed the maximum from time to time permitted under
applicable governmental regulations. If, without in any way derogating from the
foregoing limitation, Tenant shall require electricity in excess of the
requirements set forth above, provided Tenant first obtains Landlord's consent
(which Landlord may withhold in its sole discretion), Tenant may perform the
work necessary to supply such additional service or equipment, at Tenant's sole
cost and expense and subject to the requirements of SECTION 5.2 of this Lease.
7.5 INTERRUPTION OF SERVICE. Landlord shall not be responsible in any
manner for any suspension, interruption or curtailment of any services or
utilities to the Premises (an "INTERRUPTION"), regardless of the cause thereof,
and no such suspension, interruption or curtailment shall give rise to any claim
for abatement of rent or other compensation to Tenant from Landlord, nor shall
Tenant claim any direct, indirect or consequential damages or constructive
eviction on account thereof, nor shall this Lease or any obligation of Tenant be
affected thereby.
Notwithstanding the foregoing, if Tenant shall give Landlord notice
("ABATEMENT NOTICE") of any Abatement Event, as defined below, and if such
Abatement Event continues beyond the "Eligibility Period" (as that term is
defined below), then the Basic Rent and Tenant's other monetary obligations to
Landlord shall be abated entirely or reduced, as the case may be, after
expiration of the Eligibility Period for such time that Tenant continues to be
so prevented from using, and does not use, the Premises or a portion thereof, in
the proportion that the rentable area of the portion of the Premises that Tenant
is prevented from using, and does not use, bears to the total rentable area of
the Premises; provided, however, in the event that Tenant is prevented from
using, and does not use, a portion of the Premises for a period of time in
excess of the Eligibility Period and the remaining portion of the Premises is
not sufficient to allow Tenant to effectively conduct its business therein, and
if Tenant does not conduct its business from such remaining portion, then for
such time after expiration of the Eligibility Period during which Tenant is so
prevented from effectively conducting its business therein, Basic Rent and
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Tenant's other monetary obligations to Landlord shall be abated entirely for
such time as Tenant continues to be so prevented from using, and does not use,
the Premises. An "ABATEMENT EVENT" shall be defined as an Interruption (other
than those addressed in Article XI) that prevents Tenant from using the Premises
or any material portion thereof. The term "ELIGIBILITY PERIOD" shall mean a
period of ten (10) consecutive days after Landlord's receipt of any Abatement
Notice(s). The provisions of this SECTION 7.5 shall constitute the sole right
and remedy of Tenant with respect to an Abatement Event
ARTICLE 8
REAL ESTATE TAXES
-----------------
8.1 PAYMENTS ON ACCOUNT OF REAL ESTATE TAXES.
(a) "TAX YEAR" shall mean a twelve-month period commencing on
July 1 and falling wholly or partially within the Term, and "TAXES"
shall mean (i) all taxes, assessments (special or otherwise), levies,
fees and all other government levies, exactions and charges of every
kind and nature, general and special, ordinary and extraordinary,
foreseen and unforeseen, which are, at any time prior to or during the
Term, imposed or levied upon or assessed against the Property or any
portion thereof, or against any Basic Rent, Additional Rent or other
rent of any kind or nature payable to Landlord by anyone on account of
the ownership, leasing or operation of the Property, or which arise on
account of or in respect of the ownership, development, leasing,
operation or use of the Property or any portion thereof; (ii) all gross
receipts taxes or similar taxes imposed or levied upon, assessed
against or measured by any Base Rent, Additional Rent or other rent of
any kind or nature or other sum payable to Landlord by anyone on
account of the ownership, development, leasing, operation, or use of
the Property or any portion thereof; (iii) all value added, use and
similar taxes at any time levied, assessed or payable on account of the
ownership, development, leasing, operation, or use of the Property or
any portion thereof; and (iv) reasonable expenses of any proceeding for
abatement of any of the foregoing items included in Taxes, provided
Landlord prevails in such abatement proceeding; but the amount of
special taxes or special assessments included in Taxes shall be limited
to the amount of the installment (plus any interest, other than penalty
interest, payable thereon) of such special tax or special assessment
required to be paid during the year in respect of which such Taxes are
being determined. There shall be excluded from Taxes all income,
estate, succession, inheritance and transfer taxes of Landlord;
provided, however, that if at any time during the Term the present
system of ad valorem taxation of real property shall be changed so that
a capital levy, franchise, income, profits, sales, rental, use and
occupancy, excise or other tax or charge shall in whole or in part be
substituted for, or added to, such ad valorem tax and levied against,
or be payable by, Landlord with respect to the Property or any portion
thereof, such tax or charge shall be included in the term "TAXES" for
the purposes of this Article. There shall also be excluded from Taxes
any so-called "linkage" fees related to obligations of the
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original developer of the Building to provide off-site improvements
such as roadway improvements and the like.
(b) Tenant shall pay to Landlord, as Additional Rent, an
amount equal to the amount of Taxes attributable to each Tax Year, such
amount to be apportioned for any portion of a Tax Year in which the
Commencement Date falls or the Term expires.
(c) Estimated payments by Tenant on account of Taxes shall be
made on the first day of each and every calendar month during the Term
of this Lease, in the fashion herein provided for the payment of Basic
Rent. The monthly amount so to be paid to Landlord shall be sufficient
to provide Landlord by the time real estate tax payments are due with a
sum equal to Tenant's required payment, as reasonably estimated by
Landlord from time to time, on account of Taxes for the then current
Tax Year. Promptly after receipt by Landlord of bills for such Taxes,
Landlord shall advise Tenant of the amount thereof and the computation
of Tenant's payment on account thereof. If estimated payments
theretofore made by Tenant for the Tax Year covered by such bills
exceed the required payment on account thereof for such Tax Year,
Landlord shall credit the amount of overpayment against subsequent
obligations of Tenant on account of Taxes (or promptly refund such
overpayment if the Term of this Lease has ended and Tenant has no
further obligation to Landlord); but if the required payments on
account thereof for such Tax Year are greater than estimated payments
theretofore made on account thereof for such Tax Year, Tenant shall pay
the difference to Landlord within thirty (30) days after being so
advised by Landlord, and the obligation to make such payment for any
period within the Term shall survive expiration or earlier termination
of the Term.
8.2 ABATEMENT. If Landlord shall receive any tax refund or
reimbursement of Taxes or sum in lieu thereof with respect to any Tax Year all
or any portion of which falls within the Term, then out of any balance remaining
thereof after deducting Landlord's actual expenses in obtaining such refund,
Landlord shall pay to Tenant, provided there does not then exist a Default of
Tenant, an amount equal to such refund or reimbursement or sum in lieu thereof
(exclusive of any interest, and apportioned if such refund is for a Tax Year a
portion of which falls outside the Term) Tenant shall have the right, upon
written notice to Landlord, to seek an abatement of Taxes or sum in lieu thereof
with respect to any Tax Year, all or a portion of which falls within the Term,
and Landlord shall reasonably cooperate with such proceeding. If Tenant does not
seek an abatement for a Tax Year(s) during the Term, Landlord may file for an
abatement if, within fifteen (15) days after providing Tenant with written
notice of Landlord's intent to so file, Tenant does not file for such abatement
and provide Landlord with written notice thereof, and Tenant shall cooperate
reasonably with Landlord in connection with any such proceeding. Notwithstanding
the foregoing, in no event shall Tenant be entitled to receive more than the
payments made by Tenant on account of Taxes for any such Tax Year or to receive
any payments or abatement of Basic Rent.
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ARTICLE 9
OPERATING AND UTILITY EXPENSES
------------------------------
9.1 DEFINITIONS. "OPERATING YEAR" shall mean each calendar year all or
any part of which falls within the Term, and "OPERATING EXPENSES" shall mean the
aggregate reasonable costs and expenses incurred by Landlord with respect to the
operation, administration, cleaning, repair, replacement, maintenance and
management of the Property and all portions thereof, all as set forth in EXHIBIT
D attached hereto.
9.2 TENANT'S PAYMENT OF OPERATING EXPENSES.
(a) Tenant shall pay to Landlord, as Additional Rent, an
amount equal to the Operating Expenses attributable to each Operating
Year, such amount to be apportioned for any portion of an Operating
Year in which the Commencement Date falls or the Term of this Lease
ends.
(b) Estimated payments by Tenant on account of Operating
Expenses shall be made on the first day of each and every calendar
month during the Term of this Lease, in the fashion herein provided for
the payment of Basic Rent. The monthly amount so to be paid to Landlord
shall be sufficient to provide Landlord by the end of each Operating
Year a sum equal to Tenant's required payment, as reasonably estimated
by Landlord from time to time during each Operating Year, on account of
Operating Expenses for such Operating Year. After the end of each
Operating Year, Landlord shall submit to Tenant a reasonably detailed
accounting of Operating Expenses for such Operating Year, and Landlord
shall certify to the accuracy thereof. If estimated payments
theretofore made for such Operating Year by Tenant exceed Tenant's
required payment on account thereof for such Operating Year according
to such statement, Landlord shall credit the amount of overpayment
against subsequent obligations of Tenant with respect to Operating
Expenses (or promptly refund such overpayment if the Term of this Lease
has ended and Tenant has no further obligation to Landlord); but if the
required payments on account thereof for such Operating Year are
greater than the estimated payments (if any) theretofore made on
account thereof for such Operating Year, Tenant shall make payment to
Landlord within thirty (30) days after being so advised by Landlord,
and the obligation to make such payment for any period within the Term
shall survive expiration of the Term.
(c) Notwithstanding any provision of this SECTION 9.2 or any
other provision of this Lease to the contrary, Tenant shall also pay
certain Operating Expenses for the period beginning on Tenant's early
entry as described in SECTION 4.3.
(d) Tenant shall pay, directly to the proper authorities
charged with collection thereof, all charges for utilities used and
consumed in the Premises, including without limitation, charges for
gas, electricity and telephone service; provided, however, that
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Landlord shall pay water and sewer charges for the Premises directly to
the service provider and include such charges in Operating Expenses.
9.3 TENANT'S AUDIT RIGHT. Tenant shall have the right to examine, copy
and audit Landlord's books and records establishing Operating Expenses for any
Operating Year for a period of one (1) year following the date that Tenant
receives the statement of Operating Expenses for such Operating Year from
Landlord. Tenant shall give Landlord not less than thirty (30) days' prior
notice of its intention to examine and audit such books and records, and such
examination and audit shall take place at such place within the continental
United States as Landlord routinely maintains such books and records, unless
Landlord elects to have such examination and audit take place in another
location designated by Landlord in the city and state in which the Property is
located. All costs of the examination and audit shall be borne by Tenant;
provided, however, that if such examination and audit establishes that the
actual Operating Expenses for the Operating Year in question are less than the
amount set forth as the annual Operating Expenses on the annual statement
delivered to Tenant by at least five percent (5%), then Landlord shall pay the
reasonable costs of such examination and audit. If, pursuant to the audit, the
payments made for such Operating Year by Tenant exceed Tenant's required payment
on account thereof for such Operating Year, Landlord shall credit the amount of
overpayment against subsequent obligations of Tenant with respect to Operating
Expenses (or promptly refund such overpayment if the Term of this Lease has
ended and Tenant has no further obligation to Landlord); but, if the payments
made by Tenant for such Operating Year are less than Tenant's required payment
as established by the examination and audit, Tenant shall pay the deficiency to
Landlord within thirty (30) days after conclusion of the examination and audit,
and the obligation to make such payment for any period within the Term shall
survive expiration of the Term. If Tenant does not elect to exercise its right
to examine and audit Landlord's books and records for any Operating Year within
the time period provided for by this paragraph, Tenant shall have no further
right to challenge Landlord's statement of Operating Expenses.
ARTICLE 10
INDEMNITY AND PUBLIC LIABILITY INSURANCE
----------------------------------------
10.1 TENANT'S INDEMNITY. Except to the extent arising from the
negligence or willful misconduct of Landlord or its agents or employees, Tenant
agrees to indemnify and save harmless Landlord and Landlord's Agents from and
against all claims, losses, costs, damages, liabilities or expenses of whatever
nature arising: (i) from any accident, injury or damage whatsoever to any
person, or to the property of any person, occurring in or about the Premises; or
(ii) from the use or occupancy of the Premises or of any business conducted
therein, and, in any case, occurring after the Commencement Date until the
expiration of the Term of this Lease and thereafter so long as Tenant is in
occupancy of any part of the Premises; or (iii) directly from any default or
breach by Tenant or Tenant's Agents under the terms or covenants of this Lease.
This indemnity and hold harmless agreement shall include indemnity against all
losses, costs, damages, expenses and liabilities incurred in or in connection
with any such claim or any
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proceeding brought thereon, and the defense thereof, including, without
limitation, reasonable attorneys' fees and costs at both the trial and appellate
levels.
10.2 TENANT INSURANCE. Tenant agrees to maintain in full force from the
date upon which Tenant first enters the Premises for any reason, throughout the
Term of this Lease, and thereafter so long as Tenant is in occupancy of any part
of the Premises, a policy of commercial general liability and property damage
insurance (including broad form contractual liability, independent contractor's
hazard and completed operations coverage) under which Tenant is named as an
insured and Landlord, Agent (and such other persons as are in privity of estate
with Landlord as may be set out in a notice from time to time) are named as
additional insureds, and under which the insurer agrees to indemnify and hold
Landlord, Agent and those in privity of estate with Landlord, harmless from and
against all cost, expense and/or liability arising out of or based upon any and
all claims, accidents, injuries and damages set forth in SECTION 10.1. Tenant
may satisfy such insurance requirements by including the Premises in a so-called
"blanket" and/or "umbrella" insurance policy, provided that the amount of
coverage allocated to the Premises shall fulfill the requirements set forth
herein. Each policy required hereunder shall be non-cancelable and non-amendable
with respect to Landlord, Agent and Landlord's said designees without thirty
(30) days' prior notice, shall be written on an "occurrence" basis, and shall be
in at least the amounts of the Initial General Liability Insurance specified in
SECTION 1.1 or such greater amounts as Landlord in its reasonable discretion
shall from time to time request, and a duplicate original or certificates
thereof satisfactory to Landlord, together with a photocopy of the entire
policy, shall be delivered to Landlord.
10.3 TENANT'S RISK. Tenant agrees to use and occupy the Premises at
Tenant's own risk. Landlord shall not be liable to Tenant or Tenant's Agents for
any damage, injury, loss, compensation, or claim (including, but not limited to,
claims for the interruption of or loss to Tenant's business) based on, arising
out of or resulting from any cause whatsoever, including, but not limited to,
repairs to any portion of the Premises or the Property, any fire, robbery,
theft, mysterious disappearance and/or any other crime or casualty, the actions
of any person or persons, or any leakage in any part or portion of the Premises
or the Building, or from water, rain or snow that may leak into, or flow from
any part of the Premises or the Building, or from drains, pipes or plumbing
fixtures in the Building, unless due to the negligence or willful misconduct of
Landlord or Landlord's agents, contractors or employees. Any goods, property or
personal effects stored or placed in or about the Premises shall be at the sole
risk of Tenant, and neither Landlord nor Landlord's insurers shall in any manner
be held responsible therefor. Notwithstanding the foregoing, Landlord shall not
be released from liability for any injury, loss, damages or liability to the
extent arising from any negligence or willful misconduct of Landlord, its
servants, employees or agents acting within the scope of their authority on or
about the Premises; provided, however, that in no event shall Landlord, its
servants, employees or agents have any liability to Tenant based on any loss
with respect to or interruption in the operation of Tenant's business, except
for potential abatement to the extent set forth in SECTION 7.5. Tenant shall
carry "all-risk" property insurance on a "replacement cost" basis, insuring
Tenant's
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Removable Property and any Alterations made by Tenant pursuant to SECTION 5.2,
to the extent that the same have not become the property of Landlord.
10.4 LANDLORD'S INDEMNITY. Except to the extent arising from the
negligence or willful misconduct of Tenant or Tenant's Agents, Landlord agrees
to indemnify and save harmless Tenant and Tenant's Agents from and against all
claims, losses, costs, damages, liabilities or expenses of whatever nature
arising: (i) from any accident, injury or damage whatsoever to any person, or to
the property of any person, occurring in or about the Premises to the extent
such accident, injury or damage results from any negligence or willful
misconduct on the part of Landlord or Landlord's Agents; or (ii) directly from
any default or breach by Landlord or Landlord's Agents under any terms or
covenants of this Lease. This indemnity and hold harmless agreement shall
include indemnity against all losses, costs, damages, expenses and liabilities
incurred in or in connection with any such claim or any proceeding brought
thereon, and the defense thereof, including, without limitation, reasonable
attorneys' fees and costs at both the trial and appellate levels.
10.5 WAIVER OF SUBROGATION. The parties hereto shall each procure an
appropriate clause in, or endorsement on, any property insurance policy on the
Premises or any personal property, fixtures or equipment located thereon or
therein, pursuant to which the insurer waives subrogation or consents to a
waiver of right of recovery in favor of either party, its respective agents or
employees. Having obtained such clauses and/or endorsements, each party hereby
agrees that it will not make any claim against or seek to recover from the other
or its agents or employees for any loss or damage to its property or the
property of others resulting from fire or other perils covered by such property
insurance.
ARTICLE 11
FIRE, EMINENT DOMAIN, ETC.
--------------------------
11.1 LANDLORD'S RIGHT OF TERMINATION. If (a) the Building is
substantially damaged by fire or casualty (the term "substantially damaged"
meaning damage of such a character that the same cannot, in the ordinary course,
reasonably be expected to be repaired within two hundred seventy (270) days from
the time that repair work would commence) or (b) if any material part of the
Premises is taken by any exercise of the right of eminent domain thereby
rendering the Premises unusable for Tenant's purposes, then each of Tenant and
Landlord shall have the right to terminate this Lease (even if Landlord's entire
interest in the Premises may have been divested) by giving notice to the other
of its election so to do within thirty (30) days after the occurrence of such
casualty or the effective date of such taking, whereupon this Lease shall
terminate thirty (30) days after the date of such notice with the same force and
effect as if such date were the date originally established as the expiration
date hereof.
11.2 RESTORATION; TENANT'S RIGHT OF TERMINATION. If (a) the Building is
damaged by fire or other casualty or (b) part of the Premises is taken by any
exercise of the right of eminent domain but such taking does not render the
Premises unusable for Tenant's purposes, and this
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Lease is not terminated pursuant to SECTION 12.1, Landlord shall thereafter use
reasonable efforts to restore the Building (excluding any Alterations made by
Tenant but including restoration of Tenant's Work, exclusive of Tenant's
Removable Property, but only to the extent the same are covered by Landlord's
property damage insurance required pursuant to SECTION 11.3 herein) to proper
condition for Tenant's use and occupation, provided that Landlord's obligation
shall be limited to the amount of insurance and eminent domain proceeds
available therefor. If, for any reason, such restoration shall not be
substantially completed within two hundred seventy (270) days after the
expiration of the 30-day period referred to in SECTION 11.1 (which six-month
period may be extended for such periods of time as Landlord is prevented from
proceeding with or completing such restoration due to Force Majeure, but in no
event for more than an additional three months), Tenant shall have the right to
terminate this Lease by giving notice to Landlord within thirty (30) days after
the expiration of such period (as so extended) provided that such restoration is
not completed within such period. This Lease shall cease and come to an end
without further liability or obligation on the part of either party thirty (30)
days after such giving of notice unless, within such thirty-day period, Landlord
substantially completes such restoration. Such right of termination shall be
Tenant's sole and exclusive remedy at law or in equity for Landlord's failure so
to complete such restoration, and time shall be of the essence with respect
thereto.
11.3 LANDLORD'S INSURANCE. Landlord agrees to maintain in full force
and effect, during the Term of this Lease, property damage insurance for full
replacement cost of the Building (excluding footings and foundations), with such
deductibles as may from time to time be carried by reasonably prudent owners of
similar buildings in the area in which the Property is located. Landlord may
satisfy such insurance requirements by including the Property in a so-called
"blanket" insurance policy, provided that the amount of coverage allocated to
the Property shall fulfill the foregoing requirements.
11.4 ABATEMENT OF RENT. If the Building is damaged by fire or other
casualty, Basic Rent and Additional Rent payable by Tenant shall abate
proportionately for the period during which, by reason of such damage, there is
material interference with Tenant's use of the Building, having regard for the
extent to which Tenant may be required to discontinue Tenant's use of all or an
undamaged portion of the Building due to such damage, but such abatement or
reduction shall end if and when Landlord shall have substantially completed
sufficient restoration that Tenant is able to use the Building without material
interference and the Building is in substantially the condition it was in prior
to such damage (excluding any Alterations made by Tenant pursuant to SECTION
5.2). If the Premises shall be affected by any exercise of the power of eminent
domain, Basic Rent and Additional Rent payable by Tenant shall be justly and
equitably abated and reduced according to the nature and extent of the loss of
use thereof suffered by Tenant. In no event shall Landlord have any liability
for damages to Tenant for inconvenience, annoyance, or interruption of business
arising from any fire or other casualty or eminent domain.
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11.5 CONDEMNATION AWARD. Landlord shall have and hereby reserves and
excepts, and Tenant hereby grants and assigns to Landlord, all rights to recover
for damages to the Property and the leasehold interest hereby created, and to
compensation accrued or hereafter to accrue by reason of any taking, by exercise
of the right of eminent domain, and by way of confirming the foregoing, Tenant
hereby grants and assigns, and covenants with Landlord to grant and assign to
Landlord, all rights to such damages or compensation, and covenants to deliver
such further assignments and assurances thereof as Landlord may from time to
time request. Nothing contained herein shall be construed to prevent Tenant from
prosecuting in a separate condemnation proceeding a claim for the value of any
of Tenant's Removable Property installed in the Premises by Tenant at Tenant's
expense and for relocation expenses.
ARTICLE 12
HOLDING OVER; SURRENDER
-----------------------
12.1 HOLDING OVER. Any holding over by Tenant after the expiration of
the Term of this Lease shall be treated as a daily tenancy at sufferance at a
rent equal to two (2) times the Basic Rent then in effect plus the Additional
Rent herein provided (prorated on a daily basis). After the first month of any
such holding over, Tenant shall also pay to Landlord all damages, direct and/or
indirect, sustained by reason of any such holding over. In all other respects,
such holding over shall be on the terms and conditions set forth in this Lease
as far as applicable.
12.2 SURRENDER OF PREMISES. Upon the expiration or earlier termination
of the Term of this Lease, Tenant shall peaceably quit and surrender to Landlord
the Premises in neat and clean condition and in good order, condition and
repair, together with all alterations, additions and improvements which may have
been made or installed in, on or to the Premises prior to or during the Term of
this Lease (except as hereinafter provided), excepting only ordinary wear and
use and damage by fire or other casualty for which, under other provisions of
this Lease, Tenant has no responsibility to repair or restore. Tenant shall
remove all of Tenant's Removable Property and may, at its election, remove or
leave in place (a) the fifty (50) workstations currently located in the Building
(which workstations shall become Tenant's personal property one (1) year from
the date hereof so long as Tenant is not then in default hereunder and this
Lease is then in full force and effect and which workstations shall become
Landlord's personal property upon the expiration or earlier termination of the
Term if Tenant chooses not to remove the same as aforesaid), and; (b) all
Alterations made by Tenant at Tenant's expense. Tenant shall repair any damages
to the Premises or the Building caused by any such removal. Any of (1) said
workstations, (2) Tenant's Removable Property, and (3) such Alterations which
shall remain in the Building or on the Premises after the expiration or
termination of the Term of this Lease shall be deemed conclusively to have been
abandoned, and either may be retained by Landlord as its property or may be
disposed of in such manner as Landlord may see fit at Landlord's sole cost and
expense, except with respect to Tenant's Removable Property which shall be at
Tenant's sole cost and expense.
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ARTICLE 13
RIGHTS OF MORTGAGEES; TRANSFER OF TITLE
---------------------------------------
13.1 RIGHTS OF MORTGAGEES. Provided Tenant receives a fully-executed
original of the SNDA, or a similar instrument reasonably acceptable to Tenant,
this Lease shall be subject and subordinate to the lien and terms of any
mortgage, deed of trust or ground lease or similar encumbrance (collectively, a
"MORTGAGE", and the holder thereof from time to time the "HOLDER") from time to
time encumbering the Premises, whether executed and delivered prior to or
subsequent to the date of this Lease, unless the Holder shall elect otherwise.
If this Lease is subordinate to any Mortgage and the Holder or any other party
shall succeed to the interest of Landlord pursuant to the Mortgage (such Holder
or other party, a "SUCCESSOR"), at the election of the Holder or Successor,
Tenant shall attorn to the Holder or Successor and this Lease shall continue in
full force and effect between the Holder or Successor and Tenant. Tenant agrees
to execute such instruments of subordination or attornment in confirmation of
the foregoing agreement as the Holder or Successor reasonably may request. With
respect to each Mortgage encumbering the Premises from time to time during the
Term, Landlord and Tenant agree to execute a subordination, non-disturbance and
attornment agreement ("SNDA") in substantially the form attached hereto as
EXHIBIT G, and Landlord shall cause the current Holder of the current Mortgage,
and make reasonable efforts to cause any future Holder of any future Mortgage,
to execute same, whereupon Landlord shall deliver such executed SNDA to Tenant.
13.2 ASSIGNMENT OF RENTS AND TRANSFER OF TITLE.
(a) With reference to any assignment by Landlord of Landlord's
interest in this Lease, or the rents payable hereunder, conditional in
nature or otherwise, which assignment is made to the Holder of a
Mortgage on property which includes the Premises, Tenant agrees that
the execution thereof by Landlord, and the acceptance thereof by the
Holder of such Mortgage shall never be treated as an assumption by such
Holder of any of the obligations of Landlord hereunder unless such
Holder shall, by notice sent to Tenant, specifically otherwise elect
and, except as aforesaid, such Holder shall be treated as having
assumed Landlord's obligations hereunder only upon foreclosure of such
Holder's Mortgage and the taking of possession of the Premises.
(b) In no event shall the acquisition of Landlord's interest
in the Property by a purchaser which, simultaneously therewith, leases
Landlord's entire interest in the Property back to the seller thereof
be treated as an assumption by operation of law or otherwise, of
Landlord's obligations hereunder, but Tenant shall look solely to such
seller-lessee, and its successors from time to time in title, for
performance of Landlord's obligations hereunder. In any such event,
this Lease shall be subject and subordinate to the lease to such
purchaser. For all purposes, such seller-lessee, and its successors in
title, shall be the Landlord hereunder unless and until Landlord's
position shall have been assumed by such purchaser-lessor.
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(c) Except as provided in PARAGRAPH (b) of this Section, in
the event of any transfer of title to the Property by Landlord,
Landlord shall thereafter be entirely freed and relieved from the
performance and observance of all covenants and obligations hereunder.
13.3 NOTICE TO MORTGAGEE. After receiving notice from Landlord of any
Holder of a Mortgage which includes the Premises, no notice from Tenant to
Landlord alleging any default by Landlord shall be effective unless and until a
copy of the same is given to such Holder (provided Tenant shall have been
furnished with the name and address of such Holder), and the curing of any of
Landlord's defaults by such Holder shall be treated as performance by Landlord.
ARTICLE 14
DEFAULT; REMEDIES
-----------------
14.1 TENANT'S DEFAULT.
(a) If at any time subsequent to the date of this Lease any
one or more of the following events (herein referred to as a "DEFAULT
OF TENANT") shall happen:
(i) Tenant shall fail to pay the Basic Rent or any
other Additional Rent hereunder when due and such failure
shall continue for five (5) Business Days after notice to
Tenant from Landlord; or
(ii) Tenant shall neglect or fail to perform or
observe any other covenant herein contained on Tenant's part
to be performed or observed and Tenant shall fail to remedy
the same within thirty (30) days after notice to Tenant
specifying such neglect or failure, or if such failure is of
such a nature that Tenant cannot reasonably remedy the same
within such thirty (30) day period, Tenant shall fail to
commence promptly (and in any event within such thirty (30)
day period) to remedy the same and to prosecute such remedy to
completion with diligence and continuity (and in any event,
within ninety (90) days after the notice described in this
SUBPARAGRAPH (ii)); or
(iii) Tenant's leasehold interest in the Premises
shall be taken on execution or by other process of law
directed against Tenant; or
(iv) Tenant shall make an assignment for the benefit
of creditors or shall be adjudicated insolvent, or shall file
any petition or answer seeking any reorganization,
arrangement, composition, readjustment, liquidation,
dissolution or similar relief for itself under any present or
future Federal, State or other statute, law or regulation for
the relief of debtors (other than the Bankruptcy Code, as
hereinafter defined), or shall seek or consent to or acquiesce
in the appointment of any trustee, receiver or liquidator of
Tenant or of all or any
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substantial part of its properties, or shall admit in writing
its inability to pay its debts generally as they become due;
or
(v) An Event of Bankruptcy (as hereinafter defined)
shall occur with respect to Tenant; or
(vi) A petition shall be filed against Tenant under
any law (other than the Bankruptcy Code) seeking any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present
or future Federal, State or other statute, law or regulation
and shall remain undismissed or unstayed for an aggregate of
sixty (60) days (whether or not consecutive), or if any
trustee, conservator, receiver or liquidator of Tenant or of
all or any substantial part of its properties shall be
appointed without the consent or acquiescence of Tenant and
such appointment shall remain unvacated or unstayed for an
aggregate of sixty (60) days (whether or not consecutive);
(vii) If: (x) Tenant shall fail to pay the Basic Rent
or any Additional Rent hereunder when due or shall fail to
perform or observe any other covenant herein contained on
Tenant's part to be performed or observed and Tenant shall
cure any such failure within the applicable grace period set
forth in CLAUSES (i) or (ii) above; or (y) a Default of Tenant
of the kind set forth in CLAUSES (i) or (ii) above shall occur
and Landlord shall, in its sole discretion, permit Tenant to
cure such Default of Tenant after the applicable grace period
has expired; AND the same or a similar failure shall occur
more than once within the next 365 days (whether or not such
similar failure is cured within the applicable grace period);
or
(viii) The occurrence of any of the events described
in PARAGRAPHS (a)(iv)-(a)(vi) with respect to any guarantor of
all or any portions of Tenant's obligations under this Lease;
then in any such case Landlord may terminate this Lease as hereinafter
provided.
(b) For purposes of CLAUSE (a)(v) above, an "EVENT OF
BANKRUPTCY" means the filing of a voluntary petition by Tenant, or the
entry of an order for relief against Tenant, under Chapter 7, 11, or 13
of the Bankruptcy Code, and the term "BANKRUPTCY CODE" means 11
U.S.C ss.101, ET SEQ.. If an Event of Bankruptcy occurs, then the
trustee of Tenant's bankruptcy estate or Tenant as debtor-in-possession
may (subject to final approval of the court) assume this Lease, and may
subsequently assign it, only if it does the following within sixty
(60) days after the date of the filing of the voluntary petition, the
entry of the order for relief (or such additional time as a court of
competent jurisdiction may grant, for cause, upon a motion made within
the original sixty-day period):
(i) files a motion to assume the Lease with the
appropriate court;
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(ii) satisfies all of the following conditions, which
Landlord and Tenant acknowledge to be commercially reasonable:
(A) cures all Defaults of Tenant under this
Lease or provides Landlord with Adequate
Assurance (as defined below) that it
will (x) cure all monetary Defaults of
Tenant hereunder within ten (10) days
from the date of the assumption; and (y)
cure all nonmonetary Defaults of Tenant
hereunder within thirty (30) days from
the date of the assumption;
(B) compensates Landlord and any other
person or entity, or provides Landlord
with Adequate Assurance that within ten
(10) days after the date of the
assumption, it will compensate Landlord
and such other person or entity, for any
pecuniary loss that Landlord and such
other person or entity incurred as a
result of any Default of Tenant, the
trustee, or the debtor-in-possession;
(C) provides Landlord with Adequate
Assurance of Future Performance (as
defined below) of all of Tenant's
obligations under this Lease; and
(D) delivers to Landlord a written statement
that the conditions herein have been
satisfied.
(c) For purposes only of the foregoing PARAGRAPH (b), and in
addition to any other requirements under the Bankruptcy Code, any
future federal bankruptcy law and applicable case law, "ADEQUATE
ASSURANCE" means at least meeting the following conditions, which
Landlord and Tenant acknowledge to be commercially reasonable:
(i) entering an order segregating sufficient cash to
pay Landlord and any other person or entity under PARAGRAPH
(b) above; and
(ii) granting to Landlord a valid first lien and
security interest (in form acceptable to Landlord) in all
property comprising the Tenant's "property of the estate," as
that term is defined in Section 541 of the Bankruptcy Code,
which lien and security interest secures the trustee's or
debtor-in-possession's obligation to cure the monetary and
nonmonetary defaults under the Lease within the periods set
forth in PARAGRAPH (b) above.
(d) For purposes only of PARAGRAPH (b) above, and in addition
to any other requirements under the Bankruptcy Code, any future federal
bankruptcy law and applicable case law, "ADEQUATE ASSURANCE OF FUTURE
PERFORMANCE" means at least
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meeting the following conditions, which Landlord and Tenant acknowledge
to be commercially reasonable:
(i) the trustee or debtor-in-possession depositing
with Landlord, as security for the timely payment of rent and
other monetary obligations, an amount equal to the sum of two
(2) months' Basic Rent plus an amount equal to two (2) months'
installments on account of Additional Rent;
(ii) the trustee or the debtor-in-possession agreeing
to pay in advance, on each day that the Basic Rent is payable,
the monthly installments on account of Additional Rent;
(iii) the trustee or debtor-in-possession providing
adequate assurance of the source of the rent and other
consideration due under this Lease;
(iv) Tenant's bankruptcy estate and the trustee or
debtor-in-possession providing Adequate Assurance that the
bankruptcy estate (and any successor after the conclusion of
the Tenant's bankruptcy proceedings) will continue to have
sufficient unencumbered assets after the payment of all
secured obligations and administrative expenses to assure
Landlord that the bankruptcy estate (and any successor after
the conclusion of the Tenant's bankruptcy proceedings) will
have sufficient funds to fulfill Tenant's obligations
hereunder.
(e) If the trustee or the debtor-in-possession assumes the
Lease under PARAGRAPH (b) above and applicable bankruptcy law, it may
assign its interest in this Lease only if the proposed assignee first
provides Landlord with Adequate Assurance of Future Performance of all
of Tenant's obligations under the Lease, and if Landlord determines, in
the exercise of its reasonable business judgment, that the assignment
of this Lease will not breach any other lease, or any mortgage,
financing agreement, or other agreement relating to the Property by
which Landlord or the Property is then bound (and Landlord shall not be
required to obtain consents or waivers from any third party required
under any lease, mortgage, financing agreement, or other such agreement
by which Landlord is then bound).
(f) For purposes only of PARAGRAPH (e) above, and in addition
to any other requirements under the Bankruptcy Code, any future federal
bankruptcy law and applicable case law, "ADEQUATE ASSURANCE OF FUTURE
PERFORMANCE" means at least the satisfaction of the following
conditions, which Landlord and Tenant acknowledge to be commercially
reasonable:
(i) the proposed assignee submitting a current
financial statement, audited by a certified public accountant,
that allows a net worth and working capital in amounts
determined in the reasonable business judgment of Landlord to
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be sufficient to assure the future performance by the assignee
of Tenant's obligation under this Lease; and
(ii) if requested by Landlord in the exercise of its
reasonable business judgment, the proposed assignee obtaining
a guarantee (in form and substance satisfactory to Landlord)
from one or more persons who satisfy Landlord's standards of
creditworthiness.
14.2 LANDLORD'S REMEDIES.
(a) Upon the occurrence of a Default of Tenant, Landlord may
terminate this Lease by notice to Tenant, specifying a date not less
than five (5) days after the giving of such notice on which this Lease
shall terminate and this Lease shall come to an end on the date
specified therein as fully and completely as if such date were the date
herein originally fixed for the expiration of the Term of this Lease,
and Tenant will then quit and surrender the Premises to Landlord, but
Tenant shall remain liable as hereinafter provided.
(b) If this Lease shall have been terminated as provided in
this ARTICLE, then Landlord may re-enter the Premises, either by
summary proceedings, ejectment or otherwise, and remove and dispossess
Tenant and all other persons and any and all property from the same, as
if this Lease had not been made.
(c) If this Lease shall have been terminated as provided in
this Article, Tenant shall pay the Basic Rent, Additional Rent and
other sums payable hereunder up to the time of such termination, and
thereafter Tenant, until the end of what would have been the Term of
this Lease in the absence of such termination, and whether or not the
Premises shall have been relet, shall be liable to Landlord for, and
shall pay to Landlord, as liquidated current damages the Basic Rent,
Additional Rent and other sums that would be payable hereunder if such
termination had not occurred, less the net proceeds, if any, of any
reletting of the Premises, after deducting all reasonable expenses in
connection with such reletting, including, without limitation, all
repossession costs, brokerage commissions, legal expenses, attorneys'
fees, advertising, expenses of employees, alteration costs and expenses
of preparation for such reletting. Tenant shall pay the portion of such
current damages referred to above to Landlord monthly on the days which
the Basic Rent would have been payable hereunder if this Lease had not
been terminated.
(d) At any time after termination of this Lease as provided in
this Article, whether or not Landlord shall have collected any such
current damages, as liquidated final damages and in lieu of all such
current damages beyond the date of such demand, at Landlord's election
Tenant shall pay to Landlord an amount equal to (1) the net present
value, utilizing the discount rate then being paid on U.S. Treasury
obligations having a term closest to what would have been the Term of
this Lease absent termination hereof,
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of the excess, if any, of the Basic Rent and Additional Rent (including
Taxes, Operating Expenses and other charges payable under this Lease)
which would be payable hereunder from the date of such demand (using
the prior year's Additional Rent for such calculation) over the then
fair rental value (including Taxes, Operating Expenses and other
charges payable under this Lease) of the Premises for the same period.
(e) In case of any Default of Tenant, re-entry, expiration and
dispossession by summary proceedings or otherwise, Landlord may (i)
re-let the Premises or any part or parts thereof, either in the name of
Landlord or otherwise, for a term or terms which may at Landlord's
option be equal to or less than or exceed the period which would
otherwise have constituted the balance of the Term of this Lease and
may grant concessions or free rent to the extent that Landlord
considers advisable and necessary to re-let the same and (ii) make such
alterations, repairs and decorations in the Premises as Landlord
considers advisable and necessary for the purpose of reletting the
Premises; and the making of such alterations, repairs and decorations
shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Tenant hereby expressly waives any and all
rights of redemption granted by or under any present or future laws in
the event of Tenant being evicted or dispossessed, or in the event of
Landlord obtaining possession of the Premises, by reason of the
violation by Tenant of any of the covenants and conditions of this
Lease.
14.3 ADDITIONAL RENT. As referred to in SECTION 14.1 and
notwithstanding any other provision of this Lease to the contrary, if Tenant
shall fail to pay when due any sums under this Lease designated as Additional
Rent, Landlord shall have the same rights and remedies as Landlord has hereunder
for failure to pay Basic Rent.
14.4 LANDLORD'S REMEDYING TENANT DEFAULTS. Landlord shall have the
right, but shall not be required, twenty (20) days after notice to Tenant
stating Landlord's intention to exercise self-help remedies (provided that no
notice shall be required, in Landlord's reasonable discretion, (1) in the event
of emergency, (2) to remedy Tenant's failure to carry insurance required
hereunder, or (3) to cure any lien which Tenant allows to attach to the
Premises), to pay such sums or do any act which requires the expenditure of
monies which may be necessary or appropriate by reason of the failure or neglect
of Tenant to perform any of the provisions of this Lease, and in the event of
the exercise of such right by Landlord, Tenant agrees to pay to Landlord
forthwith upon demand all such sums, together with interest thereon at a rate
equal to 3% over the base rate in effect from time to time at Fleet Bank (but in
no event greater than 18% per annum), as Additional Rent. Any payment of Basic
Rent, Additional Rent or other sums payable hereunder not paid when due shall,
at the option of Landlord, bear interest at a rate equal to 3% over the base
rate in effect from time to time at Fleet Bank (but in no event greater than 18%
per annum) from the due date thereof and shall be payable forthwith on demand by
Landlord, as Additional Rent.
14.5 REMEDIES CUMULATIVE. The specified remedies to which Landlord may
resort hereunder are not intended to be exclusive of any remedies or means of
redress to which
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Landlord may at any time be entitled lawfully, and Landlord may invoke any
remedy (including the remedy of specific performance) allowed at law or in
equity as if specific remedies were not herein provided for.
14.6 ATTORNEYS' FEES. Reasonable attorneys' fees and expenses incurred
by or on behalf of Landlord in enforcing its rights hereunder or occasioned by
any Default of Tenant shall be paid by Tenant.
14.7 WAIVER.
(a) Failure on the part of Landlord or Tenant to complain of
any action or non-action on the part of the other, no matter how long
the same may continue, shall never be a waiver by Tenant or Landlord,
respectively, of any of the other's rights hereunder. Further, no
waiver at any time of any of the provisions hereof by Landlord or
Tenant shall be construed as a waiver of any of the other provisions
hereof, and a waiver at any time of any of the provisions hereof shall
not be construed as a waiver at any subsequent time of the same
provisions. The consent or approval of Landlord or Tenant to or of any
action by the other requiring such consent or approval shall not be
construed to waive or render unnecessary Landlord's or Tenant's consent
or approval to or of any subsequent similar act by the other.
(b) No payment by Tenant, or acceptance by Landlord, of a
lesser amount than shall be due from Tenant to Landlord shall be
treated otherwise than as a payment on account of the earliest
installment of any payment due from Tenant under the provisions hereof.
The acceptance by Landlord of a check for a lesser amount with an
endorsement or statement thereon, or upon any letter accompanying such
check, that such lesser amount is payment in full, shall be given no
effect, and Landlord may accept such check without prejudice to any
other rights or remedies which Landlord may have against Tenant.
14.8 SECURITY DEPOSIT.
(a) Tenant agrees that it shall deliver the Security Deposit
to Landlord simultaneously with the execution and delivery of this
Lease, in the form of a "LETTER OF CREDIT" which, as used herein, shall
mean an unconditional standby irrevocable commercial letter of credit
that is: (i) in the amount of the Security Deposit, (ii) issued by a
commercial bank or savings and loan institution reasonably acceptable
to Landlord, (iii) binding for the Term hereof, as the same may be
extended, or renewable annually, and (iv) substantially in the form
attached hereto as EXHIBIT H. In the event that the Letter of Credit
has an expiration date prior to the expiration of the Term and has not
been renewed by Tenant and evidence thereof delivered to Landlord at
least thirty (30) days prior to the expiration of said Letter of
Credit, Tenant shall substitute a new Letter of Credit, conforming with
the requirements hereof, with an expiration date which is at least
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<PAGE> 40
one (1) year after the date of the expiration date of the prior Letter
of Credit. If Tenant fails to timely substitute a new Letter of Credit
by such date, Landlord shall have the right to draw on the letter of
credit and hold the cash proceeds thereof as the Deposit as set forth
in this Lease. The Security Deposit shall be held, paid and applied by
the Landlord as set forth in this Lease. Landlord may draw upon the
Letter of Credit at any time after any Default of Tenant whereupon the
cash proceeds thereof shall constitute the Security Deposit hereunder.
(b) Landlord shall hold the Security Deposit throughout the
Term of this Lease as security for the performance by Tenant of all
obligations on the part of Tenant hereunder. Landlord shall have the
right from time to time, without prejudice to any other remedy Landlord
may have on account thereof, to apply such deposit, or any part
thereof, to Landlord's damages arising from, or to cure, any Default of
Tenant. If Landlord shall so apply any or all of such Security Deposit,
Tenant shall immediately upon demand deposit with Landlord the amount
so applied to be held as security hereunder. Landlord shall return the
Security Deposit, or so much thereof as shall not have theretofore been
applied in accordance with the terms of this Section, to Tenant on the
expiration or earlier termination of the Term of this Lease and
surrender of possession of the Premises by Tenant to Landlord at such
time, provided that there is then existing no Default of Tenant (nor
any circumstance which, with the passage of time or the giving of
notice, or both, would constitute a Default of Tenant). While Landlord
holds the Security Deposit, Landlord shall have no obligation to pay
interest on the same and shall have the right to commingle the same
with Landlord's other funds. If Landlord conveys Landlord's interest
under this Lease, Landlord shall disclose the existence of the Security
Deposit to the transferee and, except for Holders, which shall be
governed by ARTICLE 13 herein, require that the non-Holder transferee
assume all obligations of Landlord under this Lease relating to the
unapplied portion of the Security Deposit, and the Security Deposit, or
any part thereof not previously applied, may be turned over by Landlord
to Landlord's transferee, and, if so turned over, Tenant agrees to look
solely to such transferee for proper application of the Security
Deposit in accordance with the terms of this Section, and the return
thereof in accordance herewith. The Holder of a Mortgage shall not be
responsible to Tenant for the return or application of any such
Security Deposit, whether or not it succeeds to the position of
Landlord hereunder, unless such Security Deposit shall have been
received in hand by such Holder.
14.9 LANDLORD'S DEFAULT. Landlord shall in no event be in default under
this Lease unless Landlord shall neglect or fail to perform any of its
obligations hereunder and shall fail to remedy the same within thirty (30) days
after notice to Landlord specifying such neglect or failure, or if such failure
is of such a nature that Landlord cannot reasonably remedy the same within such
thirty (30) day period, Landlord shall fail to commence promptly (and in any
event within such thirty (30) day period) to remedy the same and to prosecute
such remedy to completion with diligence and continuity.
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14.10 TENANT REMEDYING LANDLORD'S DEFAULT. Tenant shall have the right,
but shall not be required, twenty (20) days after notice to Landlord stating
Tenant's intention to exercise self-help remedies, to pay such sums or do any
act which requires the expenditure of monies which may be necessary or
appropriate by reason of the failure or neglect of Landlord to perform any of
the provisions of this Lease, and in the event of the exercise of such right by
Tenant, Landlord agrees to pay to Tenant forthwith upon demand all such sums,
together with interest thereon at a rate equal to 3% over the base rate in
effect from time to time at Fleet Bank (but in no event greater than 18% per
annum).
14.11 INDEPENDENT COVENANT. Tenant acknowledges that its covenant to
pay Rent hereunder is independent of Landlord's obligation to act or refrain
from acting hereunder, and that in the event that Tenant shall have a claim
against Landlord, (including without limitation, with respect to Tenant's right
to self-help pursuant to SECTION 14.10 herein), Tenant shall not have the right
to deduct the amount allegedly owed to Tenant from any Rent or other sum payable
to Landlord, it being understood that Tenant's sole remedy for recovering upon
such claim shall be to bring an independent legal action against Landlord.
ARTICLE 15
MISCELLANEOUS PROVISIONS
------------------------
15.1 RIGHTS OF ACCESS. Landlord and Agent shall have the right to enter
the Premises at all reasonable hours for the purpose of inspecting the Premises,
doing maintenance or making repairs or otherwise exercising its rights or
fulfilling its obligations under this Lease, and Landlord and Agent also shall
have the right to make access available at all reasonable hours to prospective
or existing mortgagees, purchasers or, during the last thirteen (13) months of
the Term, tenants of any part of the Property. During any such entry, Landlord
shall exercise reasonable efforts to prevent any disruption or interference with
Tenant's use and enjoyment of the Premises.
15.2 COVENANT OF QUIET ENJOYMENT. Subject to the terms and conditions
of this Lease, on payment of the Basic Rent and Additional Rent and observing,
keeping and performing all of the other terms and conditions of this Lease on
Tenant's part to be observed, kept and performed, Tenant shall lawfully,
peaceably and quietly enjoy the Premises during the term hereof, without
hindrance or ejection by any persons lawfully claiming under Landlord to have
title to the Premises superior to Tenant. The foregoing covenant of quiet
enjoyment is in lieu of any other covenant, express or implied.
15.3 LANDLORD'S LIABILITY.
(a) Tenant agrees to look solely to Landlord's equity interest
in the Property at the time of recovery for recovery of any judgment
against Landlord, and agrees that neither Landlord nor any successor of
Landlord shall be personally liable for any such judgment, or for the
payment of any monetary obligation to Tenant. The provision
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contained in the foregoing sentence is not intended to, and shall not,
limit any right that Tenant might otherwise have to obtain injunctive
relief against Landlord or any successor of Landlord, or to take any
action not involving the personal liability of Landlord or any
successor of Landlord to respond in monetary damages from Landlord's
assets other than Landlord's equity interest in the Property.
(b) In no event shall Landlord ever be liable to Tenant for
any loss of business or any other indirect or consequential damages
suffered by Tenant from whatever cause.
(c) Where provision is made in this Lease for Landlord's
consent, and Tenant shall request such consent, and Landlord shall fail
or refuse to give such consent, Tenant shall not be entitled to any
damages for any withholding by Landlord of its consent, it being
intended that Tenant's sole remedy shall be an action for specific
performance or injunction, and that such remedy shall be available only
in those cases where Landlord has expressly agreed in writing not to
unreasonably withhold its consent. Furthermore, whenever Tenant
requests Landlord's consent or approval (whether or not provided for
herein), Tenant shall pay to Landlord, on demand, as Additional Rent,
any reasonable expenses incurred by Landlord (including without
limitation reasonable attorneys' fees and costs, if any) in connection
therewith.
(d) Any repairs or restoration required or permitted to be
made by Landlord under this Lease may be made during normal business
hours, and Landlord shall have no liability for damages to Tenant for
inconvenience, annoyance or interruption of business arising therefrom,
but Landlord shall use reasonable efforts to minimize or prevent any
such inconvenience, annoyance or interruption.
15.4 ESTOPPEL CERTIFICATE. Landlord and Tenant shall, at any time and
from time to time, upon not less than ten (10) business days prior written
notice by the other, execute, acknowledge and deliver to the other an estoppel
certificate containing such statements of fact as the other reasonably requests.
15.5 BROKERAGE. Landlord and Tenant each warrant and represent to the
other that it has dealt with no broker in connection with the consummation of
this Lease other than Broker, and, in the event of any brokerage claims against
either party predicated upon dealings of the other party, said other party shall
defend the same and indemnify the damaged party against any such claim. Landlord
acknowledges that it is obligated to make a certain commission payment to
Meredith & Grew, Inc. (a portion of which is to be paid to Spaulding & Slye),
upon the consummation of this Lease and upon any other conditions as may be set
out in Landlord's agreement with Meredith & Grew, Inc.
15.6 RULES AND REGULATIONS. Tenant shall abide by the Rules and
Regulations from time to time established by Landlord, it being agreed that such
Rules and Regulations will be established and applied by Landlord in a
non-discriminatory fashion, such that all Rules and
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Regulations shall be generally applicable to other tenants of the Building of
similar nature to the Tenant named herein. Landlord agrees to use reasonable
efforts to insure that any such Rules and Regulations are uniformly enforced,
but Landlord shall not be liable to Tenant for violation of the same by any
other tenant or occupant of the Building, or persons having business with them.
In the event that there shall be a conflict between such Rules and Regulations
and the provisions of this Lease, the provisions of this Lease shall control.
The Rules and Regulations currently in effect are set forth in EXHIBIT E.
15.7 INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of
this Lease, or the application thereof to any person or circumstance shall, to
any extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
15.8 PROVISIONS BINDING, ETC. Except as herein otherwise provided, the
terms hereof shall be binding upon and shall inure to the benefit of the
successors and assigns, respectively, of Landlord and Tenant (except in the case
of Tenant, ONLY such successors and assigns as may be permitted hereunder) and,
if Tenant shall be an individual, upon and to his heirs, executors,
administrators, successors and permitted assigns. Each term and each provision
of this Lease to be performed by Tenant shall be construed to be both a covenant
and a condition. Any reference in this Lease to successors and assigns of Tenant
shall not be construed to constitute a consent to assignment by Tenant.
15.9 RECORDING. Tenant agrees not to record this Lease, but, if the
Term of this Lease (including any Extension Term) is seven (7) years or longer,
each party hereto agrees, on the request of the other, to execute a notice of
lease substantially in the form attached hereto as EXHIBIT I. In no event shall
such document set forth the rent or other charges payable by Tenant under this
Lease; and any such document shall expressly state that it is executed pursuant
to the provisions contained in this Lease, and is not intended to vary the terms
and conditions of this Lease. At Landlord's request, promptly upon expiration of
or earlier termination of the Term, Tenant shall execute and deliver to Landlord
a release of any document recorded in the real property records for the location
of the Property evidencing this Lease. The obligations of Tenant under this
Section shall survive the expiration or any earlier termination of the Term.
15.10 NOTICE. All notices or other communications required hereunder
shall be in writing and shall be deemed duly given if delivered in person (with
receipt therefor), if sent by reputable overnight delivery or courier service
(e.g., Federal Express) providing for receipted delivery, or if sent by
certified or registered mail, return receipt requested, postage prepaid, to the
following address:
(a) if to Landlord at Landlord's Address, to the attention of
Karl W. Weller, Managing Director.
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(b) if to Tenant, at Tenant's Address, to the attention of
Craig Dynes, and after the Commencement Date, at the Premises.
Where receipt of notice or other communication shall be conclusively
established by either (i) return of a return receipt indicating that the notice
has been delivered; or (ii) return of the letter containing the notice with an
indication from the courier or postal service that the addressee has refused to
accept delivery of the notice. Either party may change its address for the
giving of notices by notice given in accordance with this Section.
15.11 WHEN LEASE BECOMES BINDING; ENTIRE AGREEMENT; MODIFICATION. The
submission of this document for examination and negotiation does not constitute
an offer to lease, or a reservation of, or option for, the Premises, and this
document shall become effective and binding only upon the execution and delivery
hereof by both Landlord and Tenant. This Lease is the entire agreement between
Landlord and Tenant, and this Lease expressly supersedes any negotiations,
considerations, representations and understandings and proposals or other
written documents relating hereto. This Lease may be modified or altered only by
written agreement between Landlord and Tenant, and no act or omission of any
employee or agent of Landlord shall alter, change or modify any of the
provisions hereof.
15.12 PARAGRAPH HEADINGS AND INTERPRETATION OF SECTIONS. The paragraph
headings throughout this instrument are for convenience and reference only, and
the words contained therein shall in no way be held to explain, modify, amplify
or aid in the interpretation, construction or meaning of the provisions of this
Lease. The provisions of this Lease shall be construed as a whole, according to
their common meaning (except where a precise legal interpretation is clearly
evidenced), and not for or against either party. Use in this Lease of the words
"including," "such as" or words of similar import, when followed by any general
term, statement or matter, shall not be construed to limit such term, statement
or matter to the specified item(s), whether or not language of non-limitation,
such as "without limitation" or "including, but not limited to," or words of
similar import, are used with reference thereto, but rather shall be deemed to
refer to all other terms or matters that could fall within a reasonably broad
scope of such term, statement or matter.
15.13 DISPUTE RESOLUTION. In the event of a dispute between Landlord
and Tenant pursuant to this Lease (other than a dispute relating to the payment
of Basic Rent and Additional Rent) the parties agree that prior to pursuing
other available remedies (excluding giving notices of default), they will
attempt to directly negotiate resolution of their dispute. If negotiation is
unsuccessful, then they agree to participate in at least three hours of
mediation to be facilitated by a mediator mutually acceptable to them under the
mediation procedures set by the mediator. The mediation session shall be
conducted within thirty (30) days of the date on which the mediator receives the
request to mediate. The costs of such mediation shall be shared equally by the
parties.
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15.14 WAIVER OF JURY TRIAL. Landlord and Tenant hereby each waive trial
by jury in any action, proceeding or counterclaim brought by either against the
other, on or in respect of any matter whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant or Tenant's
use or occupancy of the Premises.
15.15 TIME IS OF THE ESSENCE. Time is of the essence of each provision
of this Lease.
15.16 MULTIPLE COUNTERPARTS. This Lease may be executed in multiple
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same document.
15.17 GOVERNING LAW. This Lease shall be governed by the laws of the
state in which the Property is located.
15.18 ROOF RIGHTS.
(a) TENANT. Tenant shall have the right to install (subject to
the provisions of this Lease, including without limitation, Attachments
I and II to EXHIBIT E) and operate, at Tenant's sole cost and expense,
Tenant's Rooftop Equipment. As used herein, the term "TENANT'S ROOFTOP
EQUIPMENT" means telecommunications equipment installed on the roof of
the Building and operated for Tenant's sole benefit, and for which
Tenant does not receive payment from any third party. Given Tenant's
ongoing obligations with respect to the maintenance, repair and
replacement of the roof of the Building, Tenant may, if there is no
technical method of avoiding same, penetrate the roofing surface for
such purpose.
(b) LANDLORD. Notwithstanding any other provision of this
Lease to the contrary, (i) Landlord shall have full rights of access
to, and the right to place telecommunications equipment upon, the roof
of the Building; provided, however, that such equipment does not
unreasonably interfere with any Tenant's Rooftop Equipment which is
installed prior to Landlord's installation, and (ii) Landlord shall
have the right to place telecommunications equipment on the Land so
long as the same does not interfere with vehicular access or parking at
the Premises.
15.19 OWNERSHIP; PRIOR TENANT. Landlord hereby represents and warrants
to Tenant that Landlord holds fee simple title to the Premises, subject to
easements, restrictions, reservations and encumbrances of record. Landlord
represents and warrants to Tenant that the prior lease of the Premises to
Peritus Software has been terminated and is of no further force or effect.
15.20 AUTHORITY. Landlord and Tenant each represents and warrants to
the other that it has full power and authority to enter into this Lease, and
that this Lease has been approved by all requisite corporate action.
40
<PAGE> 46
15.21 WARRANTIES. Landlord agrees that it will cooperate with Tenant to
enforce any warranties which might be in effect from time to time on the roof or
any other portions of the Building for which Tenant has maintenance
responsibility under this Lease.
41
<PAGE> 47
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
duly executed, under seal, by persons hereunto duly authorized, as of the date
first set forth above.
LANDLORD:
BCIA NEW ENGLAND HOLDINGS LLC, a Delaware
limited liability company
By: BCIA NEW ENGLAND HOLDINGS MASTER LLC,
a Delaware limited liability company,
its Manager
By: BCIA NEW ENGLAND HOLDINGS MANAGER
LLC, a Delaware limited liability
company, its Manager
By: BCIA NEW ENGLAND HOLDINGS
MANAGER CORP., a Delaware
corporation, its Manager
By: /s/ Karl W. Weller
---------------------------
Name: Karl W. Weller
---------------------------
Title: Executive Vice President
---------------------------
TENANT:
SILVERSTREAM SOFTWARE, INC.
By: /s/ Craig Dynes
--------------------------------
Name: Craig Dynes
------------------------------
Title: CFO
-----------------------------
42
<PAGE> 48
EXHIBIT A
Legal Description of Land
A-1
<PAGE> 49
EXHIBIT A
Legal Description of Land
A certain parcel of land, together with the building and other
improvements constructed thereon, situated in the Town of Billerica, County of
Middlesex, Commonwealth of Massachusetts, known as Lot 7, as shown on a plan
entitled "Plan of Land in Billerica, Mass., (Middlesex County), For: William J.
Callahan, Scale: 1" = 60', dated October 13, 1983, by Joseph W. Moore Co., Land
Surveyors and Civil Engineers, 16 Railroad Ave., Bedford, Mass." and more
particularly described as follows:
Beginning: at a point at the northwesterly corner of said parcel, same
point being on the easterly sideline of Concord Road, at a
stonewall and at land of Casey, as shown on said plan;
thence: running S23[degrees] -08' -49"E Five Hundred Seventy-Seven
and 88/100 (577.88) feet to a point;
thence: turning and running S66[degrees] -35' -16"W Six and 98/100
(6.98) feet to a point;
thence: turning and running S10[degrees] -43' -40"E Seventy-Four and
35/100 (74.35) feet to a point at Lot 6, last three (3)
courses being by a stonewall;
thence: turning and running S42[degrees] -28' -33"W Two-Hundred
Fifty-Three and 80/100 (253.80) feet to a point;
thence: turning and running N47[degrees] -31' -27"W Thirty (30.00)
feet to a point;
thence: turning and running S42[degrees] -28' -33"W Two Hundred
Sixty-Two (262.00) feet to a point on the northerly sideline
of Federal Street;
thence: turning and running N47[degrees] -31' -27"W One Hundred
Fifteen (115.00) feet to a point of curvature;
thence: turning and running along a curved line having an arc of One
Hundred Twenty-One and 94/100 (121.94) feet and a radius of
Two Hundred Twenty-Seven and 96/100 (227.96) feet to a point
of tangency;
thence: turning and running N78[degrees] -10' -23"W Thirty-Eight and
51/100 (38.51) feet to a point of curvature;
thence: turning and running along a curved line having an arc of
Thirty-Nine and 27/100 (39.27) feet and a radius of Twent-Five
(25.00) feet to a point on the
<PAGE> 50
easterly sideline of Concord Road, last four (4) courses being
along the northerly sideline of Federal Street;
thence: turning and running N11[degrees] -49' -37"E Three Hundred
Twenty-Five and 06/100 (325.06) feet to a point of curvature;
thence: turning and running along a curved line having an arc of Five
Hundred Seven and 55/100 (507.55) feet and a radius of Seven
Hundred Sixty (760.00) feet to a point of tangency;
thence: turning and running N50[degrees] -05' -26"E Eighty and
85/100 (80.85) feet to the point of beginning, last three (3)
courses being along the easterly sideline of Concord Road.
Containing: 346,278 square feet, or 7.95 acres, more or less.
Said lot is subject to restrictions and easements of record.
BEING the same premises as shown an "Plan of Land in
Billerica, Mass., (Middlesex County), For: The Fields Realty
Trust, January 12, 1987, BSC-Bedford Lannd Surveyors and Civil
Engineers
and a certain parcel of land situated in the Town of Billerica, County of
Middlesex, Commonwealth of Massachusetts known as Federal Street as shown on a
plan recorded in the Middlesex North District Registry of Deeds, Plan Book 141
Plan 60 and more particularly described as follows:
Beginning: at the northwesterly comer of said parcel same point being on
the easterly sideline of Concord Road and at Lot 7 as shown on
said plan;
Thence: running along a curved line having an arc of Thirty-Nine and
27/100 (39.27) feet and a radius of Twenty-Five (25.00) feet
to a point;
Thence: turning and running S78[degree] -10' -23"E Thirty-Eight and
51/100 (38.51) feet to a point;
Thence: turning and running along a curved line having an arc on One
Hundred Twenty-One and 94/100 (121.94) feet and a radius of
Two Hundred Twenty-Seven and 96/100 (227.96) feet to a point;
Thence: turning and running S47[degrees] -31' -27"E Four Hundred
Sixty-one and 23/100 (461.23) feet to a point;
<PAGE> 51
Thence: turning and running along a curved line having an arc of
Eighty-Five and 63/100 (85.63) feet and a radius of Three
Hundred Fifty-Five and 97/100 (355.97) feet to a point;
Thence: turning and running S33[degrees] -44' -00"E Eighty-Three and
33/100 (83.33) feet to a point;
Thence: turning and running along a curved line having an arc of
Thirty-Four and 84/100 (34.84) feet and a radius of
Twenty-Five (25.00) feet to a point;
Thence: turning and running along a curved line having an arc of Two
Hundred Seventy-Two and 10/100 (272.10) feet and a radius of
Sixty (60.00) feet to a point;
Thence: turning and running N33[degrees] -44' -30"W One Hundred
Sixty-Seven (167.00) feet to a point;
Thence; turning and running along a curved line having an arc of
Seventy-Three and 60/100 (73.60) feet and a radius of Three
Hundred Five and 97/100 (305.97) feet to a point;
Thence: turning and running N47[degrees] -31' -27"W Four Hundred
Sixty-One and 23/100 (461.23) feet to a point;
Thence: turning and running along a curved line having an arc of
Fifty-Six and 90/100 (56.90) feet and a radius of One Hundred
Six and 37/100 (106.37) feet to a point;
Thence: turning and running N78[degrees] -10' -23"W Seventy Five
(75.00) feet to a point;
Thence: turning and running along a curved line having an arc of
Thirty-Nine and 27/100 (39.27) feet and a radius of
Twenty-Five (25.00) feet to a point on the easterly sideline
of Concord Road;
Thence: turning and running along the easterly sideline of Concord
Road N11[degrees] -49' -37" One Hundred Ten (110.00) feet to
the point of beginning.
Said parcel is subject to easements and restrictions of record.
<PAGE> 52
EXHIBIT B
Site Plan of Building
B-1
<PAGE> 53
[FLOOR PLAN ENTITLED "FLOOR 1"]
<PAGE> 54
[FLOOR PLAN ENTITLED "FLOOR 2"]
<PAGE> 55
EXHIBIT C
Schedule of Landlord's Furnishings and Equipment
As used herein, the term "LANDLORD'S FURNISHINGS AND EQUIPMENT" means
the following items, collectively:
o Fifty (50) complete workstations installed on the second floor
o Reception desk located in main lobby
o Ten (10) cafeteria tables and thirty (30) cafeteria chairs
o Cafeteria serving table and non-commercial refrigerator
o Projection screens located throughout building, with exception
of five (5) which have already been removed from second floor
o All building equipment and fixtures permanently attached,
excluding whiteboards, including but no limited to:
o Computer room Liebert cooling units;
o All telephone/data wiring;
o Security system including computer;
o All remaining kitchen equipment (as of 9/1/99):
refrigerators, ovens, racks, tables, etc.; and
o All remaining cable trays
C-1
<PAGE> 56
EXHIBIT D
Operating Expenses
Operating Expenses shall include the following, without limitation:
1. All expenses incurred by Landlord or Landlord's agents which
shall be directly related to employment of personnel,
including amounts incurred for wages, salaries and other
compensation for services, payroll, social security,
unemployment and similar taxes, workmen's compensation
insurance, disability benefits, pensions, hospitalization,
retirement plans and group insurance, uniforms and working
clothes and the cleaning thereof, and expenses imposed on
Landlord or Landlord's agents pursuant to any collective
bargaining agreement for the services of employees of Landlord
or Landlord's agents in connection with the operation, repair,
maintenance, cleaning, management and protection of the
Property, including, without limitation, day and night
supervisors, manager, accountants, bookkeepers, janitors,
carpenters, engineers, mechanics, electricians and plumbers
and personnel engaged in supervision of any of the persons
mentioned above; provided that, if any such employee is also
employed on other property of Landlord, such compensation
shall be suitably prorated among the Property and such other
properties.
2. The cost of services, utilities, materials and supplies
furnished or used in the operation, repair, replacement,
maintenance, cleaning, repaving, management and protection of
the Property or any portion thereof (excluding the cost to
repair, maintain or replace the Structure of the Building
which shall be conducted at Landlord's sole cost and expense
other than New Law Work as defined in SECTION 7.2(a)),
including without limitation, fees paid relating to facilities
of the Fields Business Park and such matters as are required
to comply with law, including without limitation, any New Law
Work.
3. The cost of replacements for tools and other similar equipment
used in the repair, maintenance, cleaning and protection of
the Property, provided that, in the case of any such equipment
used jointly on other property of Landlord, such costs shall
be suitably prorated among the Property and such other
properties.
4. Where the Property is managed by Landlord or an affiliate of
Landlord, an annual sum equal to the amounts customarily
charged by management firms in the metropolitan Boston area
for similar properties, but in no event more than five percent
(5%) of gross annual Rent hereunder (provided that if Tenant
elects to perform the Exterior Work, then said management fee
shall be reduced by 1% from the management fee that would be
charged if Tenant were not performing such Exterior Work),
whether or not actually paid, or where managed by other
D-1
<PAGE> 57
than Landlord or an affiliate thereof, the amounts accrued for
management, together with, in either case, amounts accrued for
legal and other professional fees relating to the Property,
but excluding such fees and commissions paid in connection
with services rendered for securing or renewing leases and for
matters not related to the normal administration and operation
of the Property (Landlord agreeing to provide a letter as of
the Commencement Date stating the management fee to be charged
in the first Operating Year);
5. Premiums for insurance against damage or loss to the Property
from such hazards as Landlord shall determine, including, but
not by way of limitation, insurance covering loss of rent
attributable to any such hazards, and public liability
insurance.
6. If, during the Term of this Lease, Landlord shall make a
capital expenditure to comply with law, including without
limitation, any New Law Work, or to reduce the costs of
operating the Property, the total cost of which is not
properly includable in Operating Expenses for the Operating
Year in which it was made, there shall nevertheless be
included in such Operating Expenses for the Operating Year in
which it was made and in Operating Expenses for each
succeeding Operating Year the annual charge-off of such
capital expenditure. Annual charge-off shall be determined by
dividing the original capital expenditure PLUS an interest
factor, reasonably determined by Landlord, as being the
interest rate then being charged for long-term mortgages by
institutional lenders on like properties within the locality
in which the Property is located, by the number of years of
useful life of the capital expenditure; and the useful life
shall be determined reasonably by Landlord in accordance with
generally accepted accounting principles and practices in
effect at the time of making such expenditure. Notwithstanding
the foregoing, with respect to capital expenditures intended
to reduce the cost of operating the Property, the amount
chargeable to Tenant hereunder shall not exceed the amount of
the actual reduction in the cost of operating the Property
resulting from the capital expenditure in each operating Year
or as otherwise agreed in writing by Landlord and Tenant.
7. Costs for electricity, water and sewer use charges, gas and
other utilities supplied to the Property and not paid for
directly by tenants.
8. Betterment assessments, provided the same are apportioned
equally over the longest period permitted by law, and to the
extent, if any, not included in Taxes.
9. Amounts paid to independent contractors for services,
materials and supplies furnished for the operation, repair,
maintenance, cleaning and protection of the Property.
D-2
<PAGE> 58
Notwithstanding anything to the contrary set forth in the Lease,
Operating Expenses shall not include the following:
(i) Any ground or underlying lease rental;
(ii) Bad debt expenses and interest, principal, points and fees on
debts or amortization on any mortgage or other debt instrument encumbering the
Building or the Land;
(iii) Costs incurred by Landlord to the extent that Landlord is
reimbursed by insurance proceeds or is otherwise reimbursed;
(iv) Depreciation, amortization and interest payments, except (1) on
equipment, materials, tools, supplies and vendor-type equipment purchased by
Landlord to enable Landlord to supply services Landlord might otherwise contract
for with a third party where such depreciation, amortization and interest
payments would otherwise have been included in the charge for such third party's
services, all as determined in accordance with generally accepted accounting
principles, consistently applied, and when depreciation or amortization is
permitted or required, the item shall be amortized over its reasonably
anticipated useful life and (2) as set forth in Paragraph 6 above;
(v) Advertising and promotional expenditures, and costs of acquisition
and maintenance of signs in or on the Building identifying the owner of the
Building;
(vi) Expenses in connection with services or other benefits which are
not offered to Tenant or for which Tenant is charged directly;
(vii) Management fees paid or charged by Landlord in connection with
the management of the Building to the extent such management fee is in excess of
the amount set forth in the Lease;
(viii) Salaries and other benefits paid to the employees of Landlord to
the extent attributable to personnel above the level of Building manager;
(ix) Amounts paid to Landlord or to subsidiaries or affiliates of
Landlord for goods and/or services in the Building to the extent the same
exceeds the costs of such goods and/or services rendered by unaffiliated third
parties on a competitive basis;
(x) Landlord's general corporate overhead and general and
administrative expenses;
(xi) Any compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord;
(xii) Costs arising from Landlord's charitable or political
contributions;
D-3
<PAGE> 59
(xiii) Costs arising from latent defects or repair thereof;
(xix) Costs for sculpture, paintings or other objects of art, except
for repair/replacement with objects of similar quality of those items currently
located at the Property; and
(xxi) Costs associated with the operation of the business of the entity
which constitutes Landlord as the same are distinguished from the costs of
operation of the Building, including accounting and legal matters, costs of
defending any lawsuits with any mortgagee (except as the actions of Tenant may
be in issue), costs of selling, syndicating, financing, mortgaging or
hypothecating any of Landlord's interest in the Building, costs incurred in
connection with any disputes between Landlord and its employees, between
Landlord and Building management, or between Landlord and other tenants or
occupants, but the foregoing shall not limit the amount charged pursuant to
Paragraph 4 of this EXHIBIT D.
All assessments and premiums which are not specifically charged to
Tenant because of what Tenant has done, which can be paid by Landlord in
installments, shall be paid by Landlord in the maximum number of installments
permitted by law without interest, penalty or other additional cost and not
included as Operating Expenses except in the year in which the assessment or
premium installment is actually paid.
D-4
<PAGE> 60
EXHIBIT E
Rules and Regulations of Building
The following regulations are generally applicable:
1. The public sidewalks, entrances, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or
encumbered by Tenant (except as necessary for deliveries) or used for
any purpose other than ingress and egress to and from the Premises.
2. No awnings, curtains, blinds, shades, screens or other projections
shall be attached to or hung in, or used in connection with, any window
of the Premises or any outside wall of the Building. Such awnings,
curtains. blinds, shades, screens or other projections must be of a
quality, type, design and color, and attached in the manner, approved
by Landlord.
3. No show cases or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in the halls,
corridors or vestibules.
4. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were designed and
constructed, and no sweepings, rubbish, rags, acids or like substances
shall be deposited therein. All damages resulting from any misuse of
the fixtures shall be borne by the Tenant.
5. Tenant shall not use the Premises or any part thereof or permit the
Premises or any part thereof to be used for manufacturing. Tenant shall
not use the Premises or any part thereof or permit the Premises or any
part thereof to be used as a public employment bureau or for the sale
of property of any kind at auction, except in connection with Tenant's
business.
6. Tenant must, upon the termination of its tenancy, return to the
Landlord all locks, cylinders and keys to offices and toilet rooms of
the Premises.
7. No vehicles (other than bicycles) or animals of any kind shall be
brought into or kept in or about the Premises.
8. No tenant shall make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of this or any
neighboring building or premises or those having business with them
whether by use of any musical instrument, radio, talking machine,
unmusical noise, whistling, singing, or in any other way. No tenant
shall throw anything out of the doors, windows or skylights or down the
passageways.
E-1
<PAGE> 61
9. The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
10. No smoking shall be permitted in the Premises or the Building. Smoking
shall only be permitted in smoking areas outside of the Building which
have been designated by the Landlord.
11. Tenant shall cooperate with Landlord in obtaining maximum effectiveness
of the cooling system by closing draperies when the sun's rays fall
directly on windows of the Premises.
12. Tenant shall comply with all rules and regulations of the industrial
Fields Business Park.
13. The rules and regulations set forth in ATTACHMENT I to this Exhibit,
which is by this reference made a part hereof, are applicable to any
Alterations being undertaken by or for Tenant in the Premises pursuant
to SECTION 5.2 of the Lease:
E-2
<PAGE> 62
Attachment I to Exhibit E
Rules and Regulations for Tenant Alterations
--------------------------------------------
A. GENERAL
1. All Alterations made by Tenant in, to or about the Premises shall be
made in accordance with the requirements of this Exhibit and by contractors or
mechanics approved by Landlord.
2. Tenant shall, prior to the commencement of any work, submit for
Landlord's written approval, complete plans for the Alterations, with full
details and specifications for all of the Alterations, in compliance with
Section D below.
3. Alterations must comply with the Building Code applicable to the
Property and the requirements, rules and regulations and any other governmental
agencies having jurisdiction.
4. No work shall be permitted to commence before Tenant obtains and
furnishes to Landlord copies of all necessary licenses and permits from all
governmental authorities having jurisdiction.
5. All demolition, removals or other categories of work that may
inconvenience other tenants or disturb Building operations, must be scheduled
and performed before or after normal business hours, and Tenant shall provide
Agent with at least 24 hours' notice prior to proceeding with such work.
6. All inquiries, submissions, approvals and all other matters shall be
processed through Agent.
7. All work, if performed by a contractor or subcontractor, shall be
subject to reasonable supervision and inspection by Landlord's representative.
Such supervision and inspection shall be at Tenant's sole expense and Tenant
shall pay Landlord's reasonable charges for such supervision and inspection.
B. PRIOR TO COMMENCEMENT OF WORK
1. Tenant shall submit to the Building manager a request to perform the
work. The request shall include the following enclosures:
(a) A list of Tenant's contractors and/or subcontractors
for Landlord's approval.
(b) Four complete sets of plans and specifications
properly stamped by a registered architect or
professional engineer.
Attachment I to E-1
<PAGE> 63
(c) A properly executed building permit application form.
(d) Four executed copies of the Insurance Requirements
Agreement in the form attached to this Exhibit as
ATTACHMENT II and made a part hereof from Tenant's
contractor and, if requested by Landlord, from the
contractor's subcontractors.
(e) Contractor's and subcontractor's insurance
certificates, including an indemnity in accordance
with the Insurance Requirements Agreement.
2. Landlord will return the following to Tenant:
(a) Two sets of plans approved or a disapproved with
specific comments as to the reasons therefor (such
approval or comments shall not constitute a waiver of
approval of governmental authorities).
(b) Two fully executed copies of the Insurance
Requirements Agreement.
3. Landlord's approval of the plans, drawings, specifications or other
submissions in respect of any Alterations shall create no liability or
responsibility on the part of Landlord for their completeness, design
sufficiency or compliance with requirements of any applicable laws, rules or
regulations of any governmental or quasi-governmental agency, board or
authority.
4. Tenant shall obtain a building permit from the Building Department
and necessary permits from other governmental agencies. Tenant shall be
responsible for keeping current all permits. Tenant shall submit copies of all
approved plans and permits to Landlord and shall post the original permit on the
Premises prior to the commencement of any work.
C. REQUIREMENTS AND PROCEDURES
1. All structural and floor loading requirements of Tenant shall be
subject to the prior approval of Landlord's structural engineer at Tenant's sole
cost and expense.
2. All mechanical (HVAC, plumbing and sprinkler) and electrical
requirements shall be subject to the approval of Landlord's mechanical and
electrical engineers and all mechanical and electrical work shall be performed
by contractors who are engaged by Landlord in constructing, operating or
maintaining the Building. When necessary, Landlord will require engineering and
shop drawings, which drawings must be approved by Landlord before work is
started. Drawings are to be prepared by Tenant and all approvals shall be
obtained by Tenant.
3. No material or equipment shall be carried under or on top of
elevators.
Attachment I to E-2
<PAGE> 64
4. If shutdown of risers and mains for electrical, life safety system,
HVAC, sprinkler and plumbing work is required, such work shall be supervised by
Landlord's representative. No work will be performed in Building mechanical
equipment rooms without Landlord's approval and under Landlord's supervision.
5. Tenant's contractor shall:
(a) have a superintendent or foreman on the Premises at
all times;
(b) police the job at all times, continually keeping the
Premises orderly;
(c) maintain cleanliness and protection of all areas,
including elevators and lobbies.
(d) protect the front and top of all peripheral HVAC
units and thoroughly clean them at the completion of
work;
(e) block off supply and return grills, diffusers and
ducts to keep dust from entering into the Building
air conditioning system; and
6. If Tenant's contractor is negligent in any of its responsibilities,
Tenant shall be charged for corrective work.
7. All equipment and installations must be equal to the standards
generally in effect with respect to the remainder of the Building. Any deviation
from such standards will be permitted only if indicated or specified on the
plans and specifications and approved by Landlord.
8. A properly executed air balancing report signed by a professional
engineer shall be submitted to Landlord upon the completion of all HVAC work.
9. Upon completion of the Alterations, Tenant shall submit to Landlord
a permanent certificate of occupancy and final approval by the other
governmental agencies having jurisdiction.
10. Tenant shall submit to Landlord a final "as-built" set of drawings
showing all items of the Alterations in full detail, in both hard copy and
electronic form.
11. Additional and differing provisions in the Lease, if any, will be
applicable and will take precedence.
D. STANDARDS FOR PLANS AND SPECIFICATIONS.
Attachment I to E-3
<PAGE> 65
Whenever Tenant shall be required by the terms of the Lease (including
this Exhibit) to submit plans to Landlord in connection with any Alterations,
such plans shall include at least the following:
1. Floor plan indicating location of partitions and doors (details
required of partition and door types).
2. Location of standard electrical convenience outlets and telephone
outlets.
3. Location and details of special electrical outlets; E.G.,
photocopiers, etc.
4. Reflected ceiling plan showing layout of standard ceiling and
lighting fixtures. Partitions to be shown lightly with switches located
indicating fixtures to be controlled.
5. Locations and details of special ceiling conditions, lighting
fixtures, speakers, etc.
6. Location and specifications of floor covering, paint or paneling
with paint colors referenced to standard color system.
7. Finish schedule plan indicating wall covering, paint, or paneling
with paint colors referenced to standard color system.
8. Details and specifications of special millwork, glass partitions,
rolling doors and grilles, blackboards, shelves, etc.
9. Hardware schedule indicating door number keyed to plan, size,
hardware required including butts, latchsets or locksets, closures, stops, and
any special items such as thresholds, soundproofing, etc.
Keying schedule is required.
10. Verified dimensions of all built-in equipment (file cabinets,
lockers, plan files, etc.)
11. Location and weights of storage files.
12. Location of any special soundproofing requirements.
13. Location and details of special floor areas exceeding 50 pounds of
live load per square foot.
14. All structural, mechanical, plumbing and electrical drawings, to be
prepared by the base building consulting engineers, necessary to complete the
Premises in accordance with Tenant's Plans.
15. All drawings to be uniform size (30" x 46") and shall incorporate
the standard project electrical and plumbing symbols and be at a scale of 1/8" =
1' or larger.
Attachment I to E-4
<PAGE> 66
16. All drawings shall be stamped by an architect (or, where
applicable, an engineer) licensed in the jurisdiction in which the Property is
located and without limiting the foregoing, shall be sufficient in all respects
for submission to applicable authorization in connection with a building permit
application.
Attachment I to E-5
<PAGE> 67
Attachment II to Exhibit E
Contractor's Insurance Requirements
-----------------------------------
Building: 2 Federal Street, Billerica, Massachusetts
Landlord: BCIA New England Holdings LLC
Tenant: Silverstream Software, Inc.
The undersigned contractor or subcontractor ("CONTRACTOR") has been
hired by the tenant named above (hereinafter called "TENANT") of the Premises
named above (or by Tenant's contractor) to perform certain work ("WORK") for
Tenant in the Premises identified above. Contractor and Tenant have requested
the landlord named above ("LANDLORD") to grant Contractor access to the Premises
and its facilities in connection with the performance of the Work, and Landlord
agrees to grant such access to Contractor upon and subject to the following
terms and conditions:
1. Contractor agrees to indemnify and save harmless Landlord and its
respective officers, employees and agents and their affiliates, subsidiaries and
partners, and each of them, from and with respect to any claims, demands, suits,
liabilities, losses and expenses, including reasonable attorneys' fees, arising
out of or in connection with the Work (and/or imposed by law upon any or all of
them) because of personal injuries, bodily injury (including death at any time
resulting therefrom) and loss of or damage to property, including consequential
damages, whether such injuries to person or property are claimed to be due to
negligence of the Contractor, Tenant, Landlord or any other party entitled to be
indemnified as aforesaid except to the extent specifically prohibited by law
(and any such prohibition shall not void this Agreement but shall be applied
only to the minimum extent required by law).
2. Contractor shall provide and maintain at its own expense, until
completion of the Work, the following insurance:
(1) Workmen's Compensation and Employers, Liability Insurance
covering each and every workman employed in, about or upon the Work, as provided
for in each and every statute applicable to Workmen's Compensation and
Employers' Liability Insurance.
(2) Comprehensive General Liability Insurance including
coverages for Protective and Contractual Liability (to specifically include
coverage for the indemnification clause of this Agreement) for not less than the
following limits:
Personal Injury:
$3,000,000 per person
$10,000,000 per
Attachment II to E-1
<PAGE> 68
occurrence
Property Damage:
$3,000,000 per occurrence $3,000,000 aggregate
(3) Comprehensive Automobile Liability Insurance (covering all
owned, non-owned and/or hired motor vehicles to be used in connection with the
Work) for not less than the following limits:
Bodily Injury:
$1,000,000 per person
$1,000,000 per occurrence
Property Damage:
$1,000,000 per occurrence
Contractor shall furnish a certificate from its insurance carrier or
carriers to the Premises office before commencing the Work, showing that it has
complied with the above requirements regarding insurance and providing that the
insurer will give Landlord ten (10) days' prior written notice of the
cancellation of any of the foregoing policies.
3. Contractor shall require all of its subcontractors engaged in the
Work to provide the following insurance:
(1) Comprehensive General Liability Insurance including
Protective and Contractual Liability coverages with limits of liability at least
equal to the limits stated in paragraph 2(b).
(2) Comprehensive Automobile Liability Insurance (covering all
owned, non-owned and/or hired motor vehicles to be used in connection with the
Work) with limits of liability at least equal to the limits stated in paragraph
2(c).
Upon the request of Landlord, Contractor shall require all of its
subcontractors engaged in the Work to execute an Insurance Requirements
agreement in the same form as this Agreement.
Agreed to and executed this day of __________________, 19__.
Contractor:
By:_______________________________
Attachment II to E-2
<PAGE> 69
By:_______________________________
By:_______________________________
Attachment II to E-3
<PAGE> 70
EXHIBIT F
Appraisers' Determination of Fair Market Rent
The term "APPRAISERS' DETERMINATION" refers to the following
procedures and requirements:
For the purpose of fixing the Fair Market Rent for the Extension Term, Landlord
and Tenant shall agree upon an appraiser who shall be a member of the M.A.I. or
A.S.R.E.C. (or successor professional organizations) and shall have at least ten
(10) years experience appraising rental values of property in the metropolitan
Boston market area.
If Landlord and Tenant are not able to agree upon an appraiser by the date which
is ten (10) days after an Impasse, as defined in SECTION 1.1 (the "APPRAISER
SELECTION DEADLINE"), each of Landlord and Tenant shall, within ten (10)
additional days, that is, by the date which is twenty (20) days after an
Impasse, select an appraiser with the foregoing qualifications whereupon each of
said appraisers shall, within five (5) days of their selection hereunder, select
a third appraiser with the foregoing qualifications. The Fair Market Rent for
the Extension Term shall thereafter be determined to be the amount equal to the
average of the two appraisals which are closest in dollar amount to each other
except that if all three appraisals are apart in equal amounts, then the
appraisal which falls in the middle shall be the Fair Market Rent for the
Extension Term. If either party fails to select an appraiser by the Appraiser
Selection Deadline, then the appraiser selected by the other party, if selected
by the Appraiser Selection Deadline, shall be the sole appraiser. Landlord and
Tenant shall share equally the expense of any and all appraisers. The
appraiser(s) shall be obligated to make a determination of Fair Market Rent
within thirty (30) days of the appointment of either the single appraiser (if
only one) and within thirty (30) days of the appointment of the third appraiser
(if three are so appointed).
In determining the Fair Market Rent for the Extension Term, the appraisers shall
utilize customary appraisal methods.
The appraisers shall not have the right to modify any provision of this Lease
and shall only determine the Fair Market Rent which shall constitute the Basic
Rent under this Lease for the Extension Term.
F-1
<PAGE> 71
EXHIBIT G
Form of Subordination, Non-Disturbance and Attornment Agreement
SUBORDINATION, NON-DISTURBANCE,
AND ATTORNMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the ___________ day of
________________ , 199_, by and between General Electric Capital Corporation, a
New York corporation ("MORTGAGEE"), and ______________________________, a
______________________________ ("LESSEE").
R E C I T A L S:
A. Mortgagee is making a loan of up to $ ______________ (the "LOAN") to
______________________________, a ______________________________ ("BORROWER"),
secured by the Borrower's interest in the real property described in EXHIBIT A
attached hereto and incorporated herein by reference (said real property and
improvements being herein called the "Project"), such Loan being secured by a
Deed of Trust and Security Agreement dated ______________________________ (the
"MORTGAGE"), constituting a lien or encumbrance on the Project; and
B. Lessee is the holder of a leasehold estate in and to
______________________________ of ______________________________ of the Project,
consisting of approximately ______________ usable square feet of space (the
"DEMISED PREMISES"), under that Lease Agreement (the "LEASE") dated
______________, executed by Borrower, as Landlord (Borrower being sometimes
hereinafter called "LESSOR"), and Lessee, as Tenant; and
C. Lessee and Mortgagee desire to confirm their understandings with
respect to the Lease and the Mortgage.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, Lessee and Mortgagee agree and
covenant as follows:
1. NON-DISTURBANCE. Mortgagee agrees that it will not disturb
the possession of Lessee under the Lease and will recognize and honor all of
Tenant's rights under the Lease upon any judicial or non-judicial foreclosure of
the Mortgage or upon acquiring title to the Project by deed-in-lieu of
foreclosure, or otherwise, if the Lease is in full force and effect and Lessee
is not then in default under the Lease, and that Mortgagee will accept the
attornment of Lessee thereafter so long as Lessee is not in default under the
Lease.
G-1
<PAGE> 72
2. ATTORNMENT. If the interests of Lessor in and to the
Demised Premises are owned by Mortgagee by reason of any deed-in-lieu of
foreclosure, judicial foreclosure, sale pursuant to any power of sale or other
proceedings brought by it or by any other manner, including, but not limited to,
Mortgagee's exercise of its rights under any assignment of leases and rents, and
Mortgagee succeeds to the interest of Lessor under the Lease, Lessee shall be
bound to Mortgagee under all of the terms, covenants and conditions of the Lease
for the balance of the term thereof remaining and any extension thereof duly
exercised by Lessee with the same force and effect as if Mortgagee were the
Lessor under the Lease; and Lessee does hereby attorn to Mortgagee, as its
lessor, said attornment to be effective and self-operative, without the
execution of any further instruments on the part of any of the parties hereto,
immediately upon Mortgagee's succeeding to the interest of Lessor under the
Lease; provided, however, that Lessee shall be under no obligation to pay rent
to Mortgagee until Lessee receives written notice from Mortgagee that Mortgagee
has succeeded to the interest of the Lessor under the Lease or otherwise has the
right to receive such rents. The respective rights and obligations of Lessee and
Mortgagee upon such attornment, to the extent of the then remaining balance of
the term of the Lease, shall be and are the same as now set forth therein, it
being the intention of the parties hereto for this purpose to incorporate the
Lease in this Agreement by reference, with the same force and effect as if set
forth in full herein.
3. MORTGAGEE'S OBLIGATIONS. If Mortgagee shall succeed to the
interest of Lessor under the Lease, Mortgagee, subject to the last sentence of
this Paragraph 3, shall be bound to Lessee under all of the terms, covenants and
conditions of the Lease; provided, however, that Mortgagee shall not be:
(a) Liable for any act or omission of any prior
lessor (including Lessor); or
(b) Subject to the offsets or defenses which Lessee
might have against any prior lessor (including Lessor); or
(c) Bound by any rent or additional rent or advance
rent which Lessee might have paid for more than the current month to
any prior lessor (including Lessor), and all such rent shall remain due
and owing, notwithstanding such advance payment; or
(d) Bound by the $300,000 Letter of Credit held as a
Security Deposit by Landlord or by any other security or advance rental
deposit made by Lessee which is not delivered or paid over to Mortgagee
and with respect to which Lessee shall look solely to Lessor for refund
or reimbursement;
(e) Bound by any termination, amendment or
modification of the Lease made without its consent and written
approval;
(f) Liable under any warranty of construction
contained in the Lease or any implied warranty of construction; or
G-2
<PAGE> 73
(g) Liable for the performance or completion of any
construction obligations under the Lease or for any loan or
contribution or rent concession towards construction of the Demised
Premises pursuant to the Lease.
Neither General Electric Capital Corporation nor any other party who from time
to time shall be included in the definition of Mortgagee hereunder, shall have
any liability or responsibility under or pursuant to the terms of this Agreement
after it ceases to own an interest in the Project. Nothing in this Agreement
shall be construed to require Mortgagee to see to the application of the
proceeds of the Loan, and Lessee's agreements set forth herein shall not be
impaired on account of any modification of the documents evidencing and securing
the Loan. Lessee acknowledges that Mortgagee is obligated only to Borrower to
make the Loan only upon the terms and subject to the conditions set forth in the
Loan Agreement between Mortgagee and Borrower pertaining to the Loan. In no
event shall Mortgagee or any purchaser of the Project at foreclosure sale or any
grantee of the Project named in a deed-in-lieu of foreclosure, nor any heir,
legal representative, successor, or assignee of Mortgagee or any such purchaser
or grantee (collectively the Mortgagee, such purchaser, grantee, heir, legal
representative, successor or assignee, the "Subsequent Landlord") have any
personal liability for the obligations of Lessor under the Lease and should the
Subsequent Landlord succeed to the interests of the Lessor under the Lease,
Tenant shall look only to the estate and property of any such Subsequent
Landlord in the Project for the satisfaction of Tenant's remedies for the
collection of a judgment (or other judicial process) requiring the payment of
money in the event of any default by any Subsequent Landlord as landlord under
the Lease, and no other property or assets of any Subsequent Landlord shall be
subject to levy, execution or other enforcement procedure for the satisfaction
of Tenant's remedies under or with respect to the Lease; provided, however, that
the Lessee may exercise any other right or remedy provided thereby or by law in
the event of any failure by Lessor to perform any such material obligation.
4. SUBORDINATION. The Lease and all rights of Lessee
thereunder are subject and subordinate to the lien and the terms of the Mortgage
and to any deeds of trust, mortgages, ground leases or other instruments of
security which do now or may hereafter cover the Project or any interest of
Lessor therein (collectively, the "Prior Encumbrances") and to any and all
advances made on the security thereof and to any and all increases, renewals,
modifications, consolidations, replacements and extensions of the Mortgage or of
any of the Prior Encumbrances. This provision is acknowledged by Lessee to be
self-operative and no further instrument shall be required to effect such
subordination of the Lease. Lessee shall, however, upon demand at any time or
times execute, acknowledge and deliver to Mortgagee any and all instruments and
certificates that in Mortgagee's judgment may be necessary or proper to confirm
or evidence such subordination. If Lessee shall fail or neglect to execute,
acknowledge and deliver any such instrument or certificate, Mortgagee may, in
addition to any other remedies Mortgagee may have, as agent and attorney-in-fact
of Lessee, execute, acknowledge and deliver the same and Lessee hereby
irrevocably appoints Mortgagee as Lessee's agent and attorney-in-fact for such
purpose. However, notwithstanding the generality of the foregoing provisions of
this paragraph, Lessee agrees that Mortgagee shall have the right at any time to
subordinate the
G-3
<PAGE> 74
Mortgage, and any such other mortgagee or ground lessor shall have the right at
any time to subordinate any such Prior Encumbrances, to the Lease on such terms
and subject to such conditions as Mortgagee, or any such other mortgagee or
ground lessor, may deem appropriate in its discretion.
5. NEW LEASE. Upon the written request of either Mortgagee or
Lessee to the other given at the time of any foreclosure, trustee's sale or
conveyance in lieu thereof, the parties agree to execute a lease of the Demised
Premises upon the same terms and conditions as the Lease between Lessor and
Lessee, which lease shall cover any unexpired term of the Lease existing prior
to such foreclosure, trustee's sale or conveyance in lieu of foreclosure.
6. NOTICE. Lessee agrees to give written notice to Mortgagee
of any default by Lessor or Borrower under the Lease not less than thirty (30)
days prior to terminating the Lease or exercising any other right or remedy
thereunder or provided by law. Lessee further agrees that it shall not terminate
the Lease or exercise any such right or remedy provided such default is cured
within such thirty (30) days; provided, however, that if such default cannot by
its nature be cured within thirty (30) days, then Lessee shall not terminate the
Lease or exercise any such right or remedy, provided the curing of such default
is commenced within such thirty (30) days and is diligently prosecuted
thereafter. Such notices shall be delivered by certified mail, return receipt
requested to:
General Electric Capital Corporation
c/o GE Capital Asset Management Corporation
North Sam Houston Parkway East, Suite 1200
Houston, Texas 77060
Attention: Robert H. Hayes
and
General Electric Capital Corporation
Long Ridge Road
Stamford, Connecticut 06927
Attention: Vice President, Securitizations
7. MORTGAGEE. The term "Mortgagee" shall be deemed to include
General Electric Capital Corporation and any of its successors and assigns,
including anyone who shall have succeeded to Lessor's interest in and to the
Lease and the Project by, through or under judicial foreclosure or sale under
any power or other proceedings brought pursuant to the Mortgage, or deed in lieu
of such foreclosure or proceedings, or otherwise.
8. ESTOPPEL. Lessee hereby certifies, represents and warrants
to Mortgagee that:
G-4
<PAGE> 75
(a) That the Lease is a valid lease and in full force
and effect. That to Lessee's knowledge, there is no existing default in
any of the terms and conditions thereof and no event has occurred
which, with the passing of time or giving of notice or both, would
constitute an event of default;
(b) That the Lease has not be amended, modified,
supplemented, extended, renewed or assigned, and represents the entire
agreement of the parties;
(c) That, except as provided in the Lease, Lessee is
entitled to no rent concessions or abatements;
(d) That Lessee shall not pay rental under the Lease
for more than one (1) month in advance. Lessee agrees that Lessee
shall, upon written notice by Mortgagee, pay to Mortgagee, when due,
all rental under the Lease;
(e) That all obligations and conditions under the
Lease to be performed to date have been satisfied, free of defenses and
set-offs;
(f) That Landlord has not yet provided and is
obligated to provide a Landlord Contribution of $600,000 pursuant to
SECTION 4.2 of the Lease and is obligated to deliver the Premises in a
certain condition as described in SECTION 4.2(c) and 7.1 of the Lease;
and
(g) That Lessee has not received written notice of
any claim, litigation or proceedings, pending or threatened, against or
relating to Lessee, or with respect to the Demised Premises which would
affect its performance under the Lease. Lessee has not received written
notice of any violations of any federal, state, county or municipal
statutes, laws, codes, ordinances, rules, regulations, orders, decrees
or directives relating to the use or condition of the Demised Premises
or Lessee's operations thereon.
9. MODIFICATION AND SUCCESSORS. This Agreement may not be
modified orally or in any manner other than by an agreement, in writing, signed
by the parties hereto and their respective successors in interest. This
Agreement shall inure to the benefit of and be binding upon the parties hereto,
their successors and assigns.
10. COUNTERPARTS. This Agreement may be executed in several
counterparts, and all so executed shall constitute one agreement, binding on all
parties hereto, notwithstanding that all parties are not signatories to the
original or the same counterpart.
G-5
<PAGE> 76
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MORTGAGEE: GENERAL ELECTRIC CAPITAL
CORPORATION,
a New York corporation
By:
-----------------------------------
Name:
Title:
LESSEE: SILVERSTREAM SOFTWARE, INC.,
a Delaware corporation
By:
-----------------------------------
Name:
Title:
G-6
<PAGE> 77
STATE OF ______________ss.
ss.
COUNTY OF _____________
This instrument was acknowledged before me on this ___________ day of
_______________, 199_, by ______________________________,
__________________________________ of ________________________________, a
______________________________, on behalf of said corporation.
(SEAL) -------------------------------------------
Notary Public in and for
the State of __________
----------------------------------------
Print name of notary
My Commission Expires:
------------------
STATE OF ______________ss.
ss.
COUNTY OF _____________
This instrument was acknowledged before me on this ___________ day of
_______________, 199_, by ______________________________,
__________________________________ of ________________________________, a
______________________________, on behalf of said corporation.
(SEAL) -------------------------------------------
Notary Public in and for
the State of __________
----------------------------------------
Print name of notary
My Commission Expires:
------------------
G-7
<PAGE> 78
EXHIBIT H
Form of Letter of Credit
______________, 1999
________________________
________________________
________________________
________________________
Re: Letter of Credit No.:
-----------------------------
Gentlemen:
We hereby establish our Irrevocable and Transferable Letter of Credit
in your favor by order and for the account of _______________________________,
for a sum not exceeding ____________________________ Dollars United States
Currency ($________) available by your sight draft on us accompanied by:
A letter (the "Letter") purportedly signed by an officer of
______________________ (together with its successors and assigns, the
"Beneficiary") to the effect that a default by the Tenant in the
payment or performance of its obligations under the Lease has occurred
and such default has not been cured within the applicable grace period,
if any.
Partial drawings are permitted under this Irrevocable Letter of Credit.
Each draft drawn hereunder must be marked "Drawn under
_____________________ Bank, Credit No. _________________, dated
_____________".
We engage with you that a draft accompanied by the Letter shall be duly
honored by us simultaneously upon the presentation thereof at our office at
_____________________________ at any time on or before the expiration of the
Term of the Lease.
This Letter of Credit is transferable solely on the condition that:
The Beneficiary proposing to transfer furnishes to us a
request for transfer in writing and the original of this
Letter of Credit for appropriate endorsement. When transferred
in accordance with these provisions, the draft and the
accompanying Letter may be executed only by the transferee.
H-1
<PAGE> 79
_____________________
_______________, 1999
Page 2
This Letter of Credit is subject to Article 5 of the Massachusetts
Uniform Commercial Code and where not inconsistent therewith to the Uniform
Customs and Practices for Documentary Credits (1983 Revision), International
Chamber of Commerce, Paris, France, Publication 400.
Very truly yours,
_________________________ Bank
By: ______________________________
_________________, Its ________________
Hereunto duly authorized
H-2
<PAGE> 80
EXHIBIT I
Form of Notice of Lease
Pursuant to Massachusetts General Laws, Chapter 183, Section 4, notice
is hereby given of the following Lease:
Landlord: BCIA New England Holdings LLC, a Delaware limited liability
company, having a principal place of business at c/o Boston
Capital Institutional Advisors LLC, One Boston Place, Boston,
Massachusetts 02108.
Tenant: Silverstream Software, Inc., a _____________________
corporation, having its principal office at 2 Federal Street,
Billerica, Massachusetts.
Date of
Lease: ____________, 1999.
Description
of
Leased
Premises: The land located in Billerica, Massachusetts, together with
the two-story building located thereon, commonly known and
numbered as 2 Federal Street.
Term of
Lease: Six (6) years
Extension
Option: One (1) option to renew for a term of five (5) years
This instrument is executed as notice of the aforesaid Lease and is not
intended, nor shall it be deemed, to vary or govern the interpretation of the
terms and conditions thereof.
I-1
<PAGE> 81
EXECUTED as a sealed instrument this _____ day of _____________, 1999.
LANDLORD:
BCIA NEW ENGLAND HOLDINGS LLC, a Delaware
limited liability company
By: BCIA NEW ENGLAND HOLDINGS MASTER LLC, a
Delaware limited liability company, its
Manager
By: BCIA NEW ENGLAND HOLDINGS MANAGER LLC, a
Delaware limited liability company, its
Manager
By: BCIA NEW ENGLAND HOLDINGS MANAGER
CORP., a Delaware corporation, its
Manager
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
TENANT:
SILVERSTREAM SOFTWARE, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
I-2
<PAGE> 82
STATE OF ______________ss.
ss.
COUNTY OF _____________
This instrument was acknowledged before me on this ___________ day of
_______________, 199_, by ______________________________,
__________________________________ of ________________________________, a
______________________________, on behalf of said corporation.
(SEAL) -------------------------------------------
Notary Public in and for
the State of __________
----------------------------------------
Print name of notary
My Commission Expires:
------------------
STATE OF ______________ss.
ss.
COUNTY OF _____________
This instrument was acknowledged before me on this ___________ day of
_______________, 199_, by ______________________________,
__________________________________ of ________________________________, a
______________________________, on behalf of said corporation.
(SEAL) -------------------------------------------
Notary Public in and for
the State of __________
----------------------------------------
Print name of notary
My Commission Expires:
------------------
I-3
<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
SilverStream s.r.o. Czech Republic
SilverSolutions spol. s.r.o. Czech Republic
SilverStream Norge AS Norway
SilverStream France S.A. France
ObjectEra, Inc. California
GemLogic, Inc. Connecticut
<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 13, as to which the date is July 23, 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 2,070,000 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
January 4, 2000
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