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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-23043
PERVASIVE SOFTWARE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2693793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8834 CAPITAL OF TEXAS HIGHWAY, SUITE 300
AUSTIN, TEXAS 78759
(Address of principal executive offices)
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(512) 794-1719
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of each class)
-----------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes [x] No [_]
(2) Yes [x] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
As of September 21, 1998 the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $64,110,549. Shares of
Common Stock held by each officer and director have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of September 21, 1998 there were 13,403,177 shares of the Registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Portions of the registrant's definitive Proxy Statement to be issued
in conjunction with the Registrant's Annual Meeting of Stockholders to be held
on November 4, 1998.
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PERVASIVE SOFTWARE INC.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED
JUNE 30, 1998
TABLE OF CONTENTS
Page
PART I..................................................................... 1
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 18
Item 3. Legal Proceedings........................................... 18
Item 4. Submission of Matters to a Vote of the Security Holders..... 18
Item 4a. Executive Officers of the Registrant........................ 18
PART II.................................................................... 20
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 20
Item 6. Selected Consolidated Financial Data........................ 21
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 22
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.. 29
Item 8. Consolidated Financial Statements and Supplementary Data.... 30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 30
PART III................................................................... 31
Item 10. Directors and Executive Officers of the Registrant.......... 31
Item 11. Executive Compensation...................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 31
Item 13. Certain Relationships and Related Transactions.............. 31
PART IV.................................................................... 32
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................... 32
SIGNATURES................................................................. 34
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PART I
ITEM 1. BUSINESS
The statements contained in this Report on Form 10-K and in the Annual Report
that are not purely historical statements are forward looking statements within
the meaning of Section 21E of the Securities and Exchange Act of 1934, including
statements regarding the Company's expectations, beliefs, hopes, intentions or
strategies regarding the future. These forward-looking statements involve risks
and uncertainties. Actual results may differ materially from those indicated in
such forward-looking statements. See "Risk Factors that May Affect Future
Results," "Special Note Regarding Forward-Looking Statements" and the factors
and risks discussed in other reports filed from time to time with the Securities
and Exchange Commission.
OVERVIEW
Pervasive Software Inc. ("Pervasive" or the "Company") is a leading worldwide
provider of ultra-light, embedded database and information management software
for packaged client/server applications. The software is designed for
integration by independent software vendors ("ISVs") into packaged applications
that are deployed in environments without a dedicated database administrator
("DBA"). The Company's Pervasive.SQL(TM) database engine, which combines high
performance transactional and industry-standard relational data access, enables
ISVs to deliver easy-to-use, reliable and cost-effective applications to end
users. As a result, end users can concentrate on running their businesses
instead of managing the database underlying their applications. This is
particularly critical in the large number of zero DBA or Z-DBA(TM) environments
typically found in small and mid-sized businesses or departments of large
organizations that lack the information technology infrastructure or personnel
required to deploy and support client/server applications. The Company's
comprehensive approach to selling, marketing and supporting its products is
designed to address the specific needs of its large indirect distribution
channel of ISVs that build packaged client/server applications and value added
resellers ("VARs") that sell and implement these applications to end users in Z-
DBA environments. The Company develops, markets, sells and supports its products
worldwide through its principal office in Austin, Texas and through offices in
Frankfurt, Paris, Brussels, Dublin, London, Hong Kong and Tokyo.
INDUSTRY BACKGROUND
Organizations are recognizing the importance of collecting, analyzing and
disseminating information to obtain competitive advantage. This information is
increasingly generated by sophisticated client/server applications and managed
by underlying database software that allow for decentralized decision making and
broader access to critical business information. The benefits of client/server
systems and computing trends such as improved hardware price performance, the
proliferation of application development tools and the emergence of the Internet
have resulted in significant growth in the market for packaged client/server
applications and underlying database software. According to the 1998 WORLDWIDE
SOFTWARE REVIEW AND FORECAST from International Data Corporation, the worldwide
market for packaged application software for Windows and NetWare operating
environments was approximately $13 billion in 1997, and is projected to grow
approximately 38% annually to over $34 billion in 2000.
Client/server computing environments are inherently complex, typically
involving a variety of hardware, operating systems, networking protocols,
applications and database software. It is likely that this complexity will
increase over time as organizations exploit new technologies, such as the
Internet, intranets, mobile and hand-held computing, and embedded and smart
devices. As a result of this complexity, organizations that develop, deploy and
support applications built on enterprise-scale database software typically
require large and costly information technology departments including highly
skilled database administrators.
Many businesses, especially small and mid-sized companies and departments of
large organizations, typically do not have the information technology budgets,
infrastructure, computing expertise or database administrators required to
deploy and support client/server applications built on enterprise-scale database
software. As a result, for these zero database administrator, or Z-DBA,
environments, the total cost of ownership of client/server computing has been
prohibitive. Business Research Group estimates that in 1997 only 22% of domestic
organizations with less
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than 1,000 employees had deployed client/server applications while more than 90%
of larger organizations had deployed such applications. According to 1990 U.S.
Census data, in the U.S. alone there were over 6 million organizations with less
than 1,000 employees, not including departments of larger organizations whose
needs often mirror those of smaller organizations.
This relatively low penetration of client/server applications in Z-DBA
environments, combined with a growing market for packaged applications, has
created an opportunity for ISVs and VARs to develop, deploy and support packaged
client/server applications that meet their customers' robust functionality needs
and also run in Z-DBA environments. Only then can ISVs and VARs provide the
benefits of client/server computing, ease of implementation and low overall cost
of ownership that Z-DBA environments require.
To provide these benefits, ISVs and VARs require ultra-light embedded database
and information management software that facilitates the development, deployment
and support of packaged client/server applications. ISVs require database
software that enables them to develop their applications with minimal
investments in networking, communications, client/server, Internet or database
expertise. ISVs also require database software with minimal, or ultra-light,
system requirements to allow for optimum performance of the application in a
variety of hardware configurations. VARs require reliable, high-performance,
zero administration database software that they can quickly and cost-effectively
deploy and support. Low-end desktop database products do not meet the needs of
this market because they typically lack the scalability and functionality
required for developing full featured client/server applications and are often
sold through retail channels that provide minimal deployment or support to their
customers. Likewise, enterprise-scale database software fails to meet the needs
of this market because it typically either requires a large and costly
information technology department with one or more database administrators or
results in prohibitively high implementation and support costs. Accordingly,
there is a need for reliable, high-performance, zero administration, embeddable
database software that enables ISVs and VARs to cost-effectively develop, deploy
and support client/server and Internet-based applications targeted at
organizations seeking robust, low cost of ownership, packaged solutions for
their Z-DBA environments.
THE PERVASIVE SOLUTION
Pervasive is a leading provider of ultra-light, embedded database and
information management software designed to enable the cost-effective
development, deployment and support of packaged client/server applications
in Z-DBA environments. The Company's database engines, Pervasive.SQL, Btrieve(R)
and Scalable SQL(TM), are well suited for integration by software developers
into business-critical applications that are reliable and scalable and can be
rapidly deployed. These products enable the Company's ISV and VAR customers to
more profitably develop, deploy and support packaged client/server applications
that provide robust functionality and low overall cost of ownership in Z-DBA
environments. The Company's comprehensive approach to selling, marketing and
supporting its products is designed to address the specific needs of ISVs that
build packaged client/server applications and the VARs that sell and implement
these applications to end users in Z-DBA environments.
The Company's database and information management software simplifies
development by enabling developers to write applications that are capable of
running on multiple platforms and that can scale with little or no modification
from single user workstation to client/server and Internet environments. The
Company's products currently operate on the Windows NT, NetWare, Windows 98,
Windows 95, Windows 3.1, OS/2 and DOS operating platforms. In addition, the
software is designed to allow developers to exercise a high degree of control
over the database engine, enabling the tight integration, or embedding, of the
database into their applications. As a result, packaged applications built on
the Company's embedded databases enable organizations to implement client/server
systems and automate critical business functions without the costs and
complexities typically associated with enterprise-class client/server
applications and databases. In addition, the architecture of the Company's
products incorporates network and communications protocols that monitor and
manage the client/server connection. Further, the small memory footprint of the
Company's software requires significantly smaller investments in memory and
computing power than enterprise-class database software and permits portability
to a wide range of PC desktop and server systems. In the second quarter of
fiscal 1999, the Company will begin shipping Pervasive.SQL I*net Data
Server(TM), which is being designed to allow for Internet-enabling of existing
Pervasive.SQL applications with little or no code changes.
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The Company's sales and marketing organization focuses exclusively on indirect
channels by targeting ISVs that build packaged client/server and Internet-based
applications and VARs that sell and deploy the applications. The Company's
sales, marketing, training and licensing programs are designed to encourage ISVs
to embed the Company's databases into their own software products and to
stimulate the sales of the applications by VARs to end users. The Company
believes its strong relationships with ISVs and VARs provide the Company with a
competitive advantage, market visibility, and multiple sales opportunities that
offer end users additional sources of service and technical support.
STRATEGY
Pervasive's strategy is to be the leading provider of embedded, low
maintenance database and information management products for packaged
client/server and Internet-based applications worldwide. The Company has
tailored its database and information management products to meet the specific
needs of ISVs and VARs that develop solutions for Z-DBA environments. Key
elements of the Company's strategy include:
Extend Technology Leadership into New Markets. The Company intends to extend
its leadership position in embedded databases for packaged client/server
applications. As the Company's customers extend the use of client/server
applications to Internet and intranet applications, the Company intends to
further enhance the functionality of its products to exploit these
opportunities. In addition, the Company is extending the technological
advantages of its small memory footprint, highly reliable, low-maintenance
databases for use in new and emerging markets, such as applications designed for
mobile and hand-held computing, and embedded and smart devices. The Company's
business development efforts are focusing on identifying, developing and
securing opportunities and relationships in these new markets.
Continue to Leverage and Grow Worldwide Indirect Channel. The Company
believes that its past investments in training and educating its channel
partners, its long-term relationships with ISVs and VARs and its success in
encouraging them to embed the Company's products into their applications has
created a competitive advantage in the marketplace. The Company's channel
approach is designed to further the integration of its products into
client/server and Internet-based applications and to stimulate sales of the
applications themselves. The Company intends to continue to leverage its large
investment in U.S. and European channel programs by replicating these successes
in other regions of the world, by expanding these channels with the recruitment
of new ISVs and VARs and by expanding the size of its global sales organization
to manage these channels. In addition, the Company intends to identify and
secure additional third-party information management products such as data
transformation, report writing, and data-mart/data warehousing for sale through
its channel.
Leverage Installed Base. A significant element of the Company's strategy is
to leverage its large installed base. The Company has a large installed base
that embeds its software in many different types of applications, especially
accounting and financial applications which are often the first client/server
applications purchased by organizations looking for Z-DBA solutions. Once an end
user standardizes on a functional application and embedded database, additional
applications can be more easily integrated. Accordingly, the Company intends to
leverage this strong position to further penetrate additional application
markets, such as health care, manufacturing, retail and others.
In addition, the Company derives revenues from user count upgrade sales and
version upgrade sales of the Company's products including Pervasive.SQL and
Btrieve operating on Microsoft Windows NT and Novell NetWare operating systems.
The Company intends to leverage this large, worldwide installed base of Windows
NT and NetWare users by marketing and selling upgrades to the most recent
versions and to higher user count versions of the Company's products.
Continue Client-Based "Seeding" Strategy. The Company's seeding strategy
stimulates high-volume deployment of its client-based shrink wrap products. This
strategy enables ISVs to develop client-based applications and to deploy them
broadly with minimal incremental cost. The Company then works with its ISVs and
VARs through a combination of promotional and lead referral programs to upgrade
these applications to client/server environments. The Company intends to
continue its seeding strategy in order to generate upgrade revenues by
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enabling ISVs and VARs to sell higher margin server products as end users
upgrade from single user workstation to client/server environments.
PRODUCTS
The Company offers a range of database and information management products
that enable ISVs to combine the sophistication of client/server computing with
the low cost of ownership and convenience of Z-DBA packaged software. The
resulting applications enable organizations to automate business-critical
functions in their Z-DBA environments. The following table provides an overview
of these products and the platforms on which they operate:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION PLATFORMS
========================================================================================================
<S> <C> <C>
Pervasive.SQL High performance database engine that provides transactional Windows NT
and relational data access, easy installation and NetWare
maintenance, improved performance over previous versions, is Windows 98
compatible with older versions of Btrieve, and provides low Windows 95
cost of ownership for Z-DBA packaged applications. Windows 3.1
OS/2
DOS
- --------------------------------------------------------------------------------------------------------
Pervasive.SQL Single user version of Pervasive.SQL that includes all the Windows NT
Workstation features found in the server and allows migration from single Windows 98
user to client/server with little or no code changes. Windows 95
- --------------------------------------------------------------------------------------------------------
Pervasive.SQL SDK Software Developer's Kit that provides tight integration with Windows NT
leading development tools such as Microsoft's Visual Basic Windows 98
and Visual C++, Symantec's Visual Cafe, and Inprise's Delphi. Windows 95
Included is the Java class library, ActiveX controls, I*net
Data Server, ODBC connectivity, Pervasive.SQL Workstation,
and the Developer Resource Center.
- --------------------------------------------------------------------------------------------------------
Pervasive.SQL Allows for the Internet enabling of existing Pervasive.SQL Windows NT
I*net Data Server applications with little or no code changes so ISVs and VARs
can extend packaged applications to mobile workers.
- --------------------------------------------------------------------------------------------------------
Seagate Software Industry standard report writer that allows end users to Windows NT
Crystal Reports generate sophisticated reports on their Pervasive.SQL, Windows 98
Btrieve or Scalable SQL databases. Windows 95
- --------------------------------------------------------------------------------------------------------
Data Junction Easy to use data translation and migration utility that Windows NT
allows data from other data sources to be transferred into a Windows 98
Pervasive.SQL database. Windows 95
- --------------------------------------------------------------------------------------------------------
Btrieve Navigational, record-oriented database software targeted at Windows NT
high volume transaction applications. NetWare
Windows 95
Windows 3.1
OS/2
DOS
- --------------------------------------------------------------------------------------------------------
Scalable SQL Relational database software optimized for reporting, ad hoc Windows NT
query and decision support systems. NetWare
- --------------------------------------------------------------------------------------------------------
</TABLE>
On February 9, 1998, the Company announced the introduction of Pervasive.SQL,
an enhanced database software product that enables packaged client/server
applications to simultaneously access a single database engine
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with both high volume transactional processing and industry-standard SQL
capabilities. The software is designed for integration by ISVs into packaged
client/server and Internet-based applications that are deployed in Z-DBA
environments. Pervasive.SQL delivers improved performance, simplified
installation and maintenance, low cost of ownership and compatibility with
existing Btrieve- and Scalable SQL - based applications. The Company began
shipping Pervasive.SQL in February of 1998.
Pervasive.SQL employs the Company's MicroKernel Database Engine allowing
applications to operate a transactional and a relational database engine at the
same time, a primary advantage of this architecture. Pervasive.SQL combines a
high performance record-oriented, transactional interface for high volume
applications with a SQL-oriented relational interface for flexible reporting, ad
hoc query and decision support. Pervasive.SQL delivers a relational and
transactional engine with multi-platform support, low maintenance operation
and application scalability from single user workstations to client/server and
Internet configurations.
Pervasive.SQL provides a number of advantages over other ultra-light database
management systems including support for larger storage needs (up to 64
gigabytes); smart components for simplified installation and configuration;
expanded programming language interfaces; a 32-bit file management utility to
expedite data import, export and recovery tasks; enhanced automatic tuning
designed to increase performance; and built-in recovery capabilities.
Pervasive.SQL offers a high degree of programming control through its record-
oriented, transactional interface and delivers low-maintenance operation through
self-tuning algorithms for index balancing, disk space allocation and cache
management.
The Company continues to offer its Btrieve and Scalable SQL database engines
as the Company's ISVs migrate their existing applications to the current
Pervasive.SQL product. This migration is expected to take place over an
extended period of time consistent with each ISV's own product development
cycles.
In addition to its database products, the Company offers software developer
kits, which include tools, documentation and licenses to enable programmers to
develop, test and deploy applications that embed the Company's databases. The
Company's new Pervasive.SQL Software Developer's Kit ("SDK") product, released
in September 1998, is designed to attract new ISVs to the Pervasive.SQL
development community. It provides tight integration with leading development
tools such as Microsoft's Visual Basic and Visual C++, Symantec's Visual Cafe,
and Inprise's Delphi to substantially reduce application development time.
In February 1998, the Company began marketing certain complementary third-
party products through its channel. Third-party products offered by the Company
include Crystal Reports, an industry standard report writer from Seagate
Software that allows end users to generate sophisticated reports on their
Pervasive.SQL, Btrieve or Scalable SQL databases, and powerful data conversion
tools from Data Junction Corporation, which enable software developers to
quickly and easily migrate applications to run on the Pervasive.SQL database
engine.
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The Company has designed its Pervasive.SQL, Btrieve and Scalable SQL products
with a number of common characteristics as set forth in the table below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRODUCT CHARACTERISTICS DESCRIPTION BENEFITS
=======================================================================================================================
<S> <C> <C>
Embedded Designed to be "hidden" inside an Allows broad deployment of complex
application, permitting development of a distributed applications into
tightly integrated application. environments with minimal or no
information technology infrastructure.
- -----------------------------------------------------------------------------------------------------------------------
Small Memory Footprint Internal memory requirements: Maximizes resources available to the
Pervasive. SQL 1.3 MB application and enables operation on a
Btrieve 350 KB wide range of hardware.
Scalable SQL 1.0 MB
- -----------------------------------------------------------------------------------------------------------------------
Low Maintenance Administrative functions, such as disk Requires low level of information
space allocation, memory and index technology support making complex
management are automated, which eliminates applications available in Z-DBA
the need for regular maintenance. environments.
- -----------------------------------------------------------------------------------------------------------------------
Reliability Pervasive.SQL, Btrieve and Scalable SQL Provides high degree of data integrity
are based on industry-proven technology. and stability to business applications.
- -----------------------------------------------------------------------------------------------------------------------
Configurability Pervasive.SQL, Btrieve and Scalable SQL Enables the storage and processing of
can access local and distributed data databases to be distributed throughout
simultaneously. the network.
- -----------------------------------------------------------------------------------------------------------------------
Application Scalability Applications can run in any configuration Offers cost savings for developers and
from single user workstation to supporting end users because a single application
hundreds of concurrent users in can be deployed in multiple
client/server and Internet environments. configurations without modification.
- -----------------------------------------------------------------------------------------------------------------------
Open Database Connectivity Industry standard interface enabling any Allows ODBC-compliant applications to
("ODBC") application to communicate with any access data stored in any Pervasive.SQL,
database. Btrieve or Scalable SQL database.
- -----------------------------------------------------------------------------------------------------------------------
Common MicroKernel Database Transactional and relational applications Allows developers to choose the
Engine can simultaneously share common databases. appropriate data access method:
transactional access for high volume and
relational access for reporting, queries
and decision support.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
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SALES AND MARKETING
Pervasive's sales and marketing organization focuses on indirect channels by
targeting the ISVs that build packaged client/server applications and the VARs
that sell and implement the applications to end users in Z-DBA environments. The
Company's marketing group has primary responsibility for product direction and
has developed a number of programs utilized by the sales organization to support
the ISV and VAR channels, such as the OEM program for large ISVs and other
partner programs for VARs and small and mid-sized ISVs. These programs are
worldwide in scope and capture leads from a variety of additional marketing
programs including direct response marketing and advertising, joint marketing
and public relations.
The Company's OEM program focuses on recruiting large ISVs to embed the
Company's database and information management products on an OEM basis. Large
OEM customers include accounting and financial application vendors, such as
Great Plains Software, Solomon Software, Macola Software, Platinum Software and
AccPac International, and healthcare application vendors, such as HBOC and
Macess. In addition, the Company has numerous OEM customers in other packaged
application markets including document imaging, banking, sales force automation
and manufacturing. The OEM program is designed to generate mutually beneficial
strategic relationships between the Company and its ISVs and ongoing royalties
for the Company through licensing contracts, which are typically for three-year
terms. This program offers the Company's OEM partners volume discounts,
specialized technical support, training and consulting, enabling delivery of
tightly integrated solutions to end users. The Company's sales groups administer
education and training programs for the VARs that work directly with the OEMs.
These programs reduce the burden on the OEMs and allow the Company to access and
influence their VAR channel.
The Company's other sales and marketing programs recruit many VARs and small
and mid-sized ISVs to develop applications that are designed to be deployed with
shrink-wrap versions of the Company's database and information management
products. These programs further develop, support and train VARs and small and
mid-sized ISVs to facilitate the deployment of packaged applications. The sales
group monitors these customer's needs and, when volumes become sufficient,
recruits these ISVs into the OEM program.
The Company's sales and marketing organization utilizes a seeding strategy for
sales of its client-based shrink wrap products to stimulate high-volume
deployment of client- and client/server-based products. This strategy enables
ISVs to develop client-based applications and to deploy them broadly with
minimal incremental cost. The Company then works with its ISVs and VARs through
a combination of promotional and lead referral programs to upgrade these
applications to client/server environments. As a result, the Company generates
upgrade revenues while enabling ISVs and VARs to sell higher margin server
products to end users upgrading from single user workstation or peer-to-peer
networks to client/server environments.
The international sales group utilizes more than 60 distribution partners
covering more than 80 countries worldwide. The distribution partners implement
sales and marketing programs for a particular region, typically using the
Company's business alliance, distributor or master distributor programs. In
addition to managing these distributor relationships, the international sales
group recruits and supports ISVs and VARs with the same programs as the domestic
sales groups. The Company currently has international sales offices in
Frankfurt, Paris, Brussels, London, Hong Kong and Tokyo.
Although the Company focuses its sales and marketing efforts on ISVs and VARs,
its shrink-wrap products are often fulfilled through large software
distributors. For the year ended June 30, 1996 aggregate purchases by
Distributor A totaled $2.4 million, representing 18% of total revenues. For the
year ended June 30, 1997, aggregate purchases by Distributors A and B totaled
$2.5 million and $4.5 million, representing 10% and 18%, respectively. For the
year ended June 30, 1998 aggregate purchases by Distributor A totaled $3.7
million, representing 10% of total revenues. No other customers accounted for
more than 10% of the Company's revenues in fiscal 1996, 1997 or 1998.
In February 1998, the Company began marketing certain complementary third-
party products through its channel. Third-party products offered by the Company
include Crystal Reports, an industry standard report writer
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from Seagate Software that allows end users to generate sophisticated reports on
their Pervasive.SQL, Btrieve or Scalable SQL databases, and powerful data
conversion tools from Data Junction Corporation, which enable software
developers to quickly and easily migrate applications to run on the
Pervasive.SQL database engine. The Company markets these third-party products on
a stand alone basis or integrated with the Company's own products.
CUSTOMER SERVICE AND SUPPORT
The Company offers two levels of customer service. First level support
responds to customer inquiries via telephone, electronic mail and fax. Second
level support responds to higher level technical needs and supports the OEM
partner accounts. To provide high quality customer support, the Company has
established a specialized customer engineering group, consisting of both support
and engineering personnel. The Company believes that combining support and
engineering expertise in one group provides customers with more rapid resolution
of software support issues. The Company's customer service and support
organization also provides training and consulting services to its channel
partners.
Customer service is provided at no charge for the first 30 days after initial
purchase and at any time via electronic mail or the Company's web site. After
the 30 days, the Company offers contract and fee-based premium support programs.
Worldwide customer support is provided through the corporate offices in Austin,
Texas and through support and development centers in Dublin, Ireland and in
Tokyo, Japan. From the Company's inception in January 1994 through June 30,
1998, revenues from customer service and support were not significant.
RESEARCH AND DEVELOPMENT
The Company has made substantial investments in research and development
through both internal development and technology acquisition. Although the
Company expects that most enhancements to existing and new products will be
developed internally, from time to time the Company will evaluate externally
developed technologies for integration into its product lines.
The Company has invested the majority of its research and development activity
on developing feature extensions to its Pervasive.SQL product line. This
development consists primarily of adding new competitive product features,
expanding the number of computer and network operating systems on which the
products can be installed and maintaining the ability to run in multiple
operating system environments. Development activities continue to focus on
developing database software characterized by a small memory footprint, high-
performance and low-maintenance requirements, to better serve the ISVs, VARs and
their end users in Z-DBA environments.
In March 1998, the Company announced a joint development initiative with
Oracle Corporation to enable application developers to create and deploy a
single application for both small businesses and large corporations without
substantial code changes. The joint development effort should also allow
existing packaged application providers to migrate their solutions to Pervasive
and Oracle databases. Research and development expenses related to the joint
development initiative with Oracle were not material for the year ended June 30,
1998, however, these expenses are expected to increase in the future.
In June 1998, the Company announced a strategic licensing agreement to
integrate Synchrologic Inc.'s synchronization technology into a future release
of Pervasive.SQL. Once this integration is complete, future versions of
Pervasive.SQL should enable developers of mobile and occasionally connected
applications to deliver solutions featuring simple implementation and low
administration requirements.
The Company's research and development expenditures for fiscal 1996, 1997 and
1998 were $4.5 million, $6.0 million and $9.6 million, respectively. The Company
expects that it will continue to commit significant resources to research and
development in the future. To date, all cost related to development of the
Company's products have been expensed as incurred.
The market for the Company's products and services is characterized by rapid
technological change, frequent new product introductions and enhancements,
evolving industry standards, and rapidly changing customer
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requirements. The introduction of products incorporating new technologies and
the emergence of new industry standards could render existing products obsolete
and unmarketable. The Company's future success will depend in part upon its
ability to anticipate changes, enhance its current products, develop and
introduce new products that keep pace with technological advancements and
address the increasingly sophisticated needs of its customers. See "Risk Factors
That May Affect Future Results--Rapid Technological Change and New Products."
TECHNOLOGY
Pervasive.SQL, Btrieve and Scalable SQL are based on Pervasive's MicroKernel
Database Architecture and each employs the Company's MicroKernel Database Engine
(MKDE) allowing applications to operate a transactional and a relational
database engine at the same time, a primary advantage of this architecture.
Pervasive.SQL provides a number of advantages over other database management
systems including support for larger storage needs (up to 64 gigabytes); smart
components for simplified installation and configuration; expanded programming
language interfaces; a 32-bit file management utility to expedite data import,
export and recovery tasks; enhanced automatic tuning designed to increase
performance; and built-in recovery capabilities.
Applications based on Pervasive database engines can scale from single user
workstation to client/server environments with little or no code changes or
relinking. Network environments can be customized to minimize network traffic
and to balance resource loading by distributing database files and data
processing throughout multi-platform computer networks.
The configuration options for the Company's products include the following:
Single User Workstation. The single user workstation configuration provides
mobile and stand-alone operation. All access modules and MKDE components
reside locally, and data files are stored on the workstation's disk drive.
This configuration is used when the workstation is not connected to a network
or when data files do not need to be shared.
Client/Server. In a client/server configuration, database requests made by an
application are typically processed on a server. A small requester module on
the workstation routes requests from the application to a server database
engine. Since all data processing and data files reside on the server, this
configuration minimizes both network traffic and the use of workstation
resources.
COMPETITION
The market for the Company's products is intensely competitive and subject to
rapid change. The Company primarily encounters competition from large, public
companies, including Microsoft, Oracle, Informix, Sybase and IBM. Each of these
companies offers database software products competitive with the Company's
products. In particular, Sybase offers a small memory footprint database
software product, Adaptive Server Anywhere, which directly competes with the
Company's products. In addition, because there are relatively low barriers to
entry in the software market, the Company may encounter additional competition
from other established and emerging companies. Most of the Company's competitors
have longer operating histories, significantly greater financial, technical,
marketing and other resources, significantly greater name recognition and a
larger installed base of customers than the Company. As a result, the Company's
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
development, promotion and sale of competitive products, than can the Company.
There is also a substantial risk that announcements of competing products by
large competitors such as Microsoft or Oracle could result in the cancellation
of customer orders in anticipation of the introduction of such new products. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products to address customer needs and which may limit the
Company's ability to sell its products through particular distribution partners.
Accordingly, new competitors or alliances among current and new competitors may
emerge and rapidly gain significant market share in the Company's current or
anticipated markets. The Company also expects that competition will increase as
a result of software industry consolidation. Increased competition is likely to
result in price reductions, fewer customer orders, reduced margins and loss of
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market share, any of which could materially adversely affect the Company. There
can be no assurance that the Company will be able to compete successfully
against current and future competitors or that the competitive pressures faced
by the Company will not materially adversely affect its business, operating
results and financial condition.
EMPLOYEES
As of June 30, 1998, the Company employed 220 full-time employees, including
87 in sales and marketing, 61 in research and development, 38 in technical
support and 34 in general and administrative. The Company believes that its
future success will depend in large part upon its continuing ability to attract
and retain highly skilled managerial, sales, marketing, customer support and
research and development personnel. Like other software companies, the Company
faces intense competition for such personnel, and the Company has at times
experienced and continues to experience difficulty in recruiting qualified
personnel. There can be no assurance that the Company will be successful in
attracting, assimilating and retaining other qualified personnel in the future.
The Company is not subject to any collective bargaining agreement and it
believes that its relationships with its employees are good.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
Investors should carefully consider the following risk factors and warnings
before making an investment decision. The risks described below are not the
only ones facing the Company. Additional risks that the Company does not yet
know of or that it currently thinks are immaterial may also impair its business
operations. If any of the following risks actually occur, the Company's
business, operating results or financial condition could be materially adversely
affected. In such case, the trading price of the Company's Common Stock could
decline. Investors should also refer to the other information set forth in this
Report on Form 10-K, including the consolidated financial statements and the
related notes.
This Report on Form 10-K and the Annual Report contain forward-looking
statements. These statements relate to future events or the Company's future
financial performance. In some cases, investors can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue"
or the negative of such terms and other comparable terminology. These
statements are only predictions. Actual events or results may differ
materially. In evaluating these statements, investors should specifically
consider various factors, including the risks outlined below. These factors may
cause the Company's actual results to differ materially from any forward-looking
statement. See "Special Note Regarding Forward-Looking Statements" and the
factors and risks discussed in other reports filed from time to time with the
Securities and Exchange Commission.
LIMITED OPERATING HISTORY; MARGINAL PROFITABILITY; FUTURE OPERATING RESULTS
UNCERTAIN
The Company was founded in January 1994. Accordingly, the Company's prospects
must be considered in light of the risks and difficulties frequently encountered
by companies in the early stage of development, particularly companies in new
and rapidly evolving markets. To address these risks, the Company must, among
other things, respond to competitive developments, continue to attract, retain
and motivate qualified personnel and continue to improve its products. Although
the Company has been profitable for the nine most recent fiscal quarters, this
profitability has been marginal historically and, except for the quarters ended
September 30, 1994 and December 31, 1994, the Company incurred net losses in
each quarter from inception through the quarter ended March 31, 1996. As of
June 30, 1998, the Company had an accumulated deficit of approximately $2.3
million. The Company's historical operating losses and marginal profitability
have been due in part to the commitment of significant resources to the
Company's technical support, research and development and sales and marketing
organizations. The Company expects to continue to devote substantial resources
to these areas and as a result will need to recognize significant quarterly
revenues to maintain profitability. In particular, the Company intends to hire
a significant number of sales and research and development personnel through the
end of fiscal 1999 and beyond, which the Company believes is required if the
Company is to achieve significant revenue growth in the future. Although the
Company's revenues have increased in recent periods, there can be no assurance
that the Company's
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revenues will grow in future periods, that they will grow at past rates or that
the Company will remain profitable on a quarterly or annual basis in the future.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON NEW PRODUCT RELEASE; PRODUCT CONCENTRATION
Prior to the release of Pervasive.SQL, the Company derived substantially all
of its revenues from the license of its Btrieve and Scalable SQL products. The
Company expects that its future operating results will become increasingly
dependent upon market acceptance of its recently released Pervasive.SQL product
and anticipates that revenues from the license of Btrieve and Scalable SQL will
decrease accordingly. The pace and timing of market acceptance of Pervasive.SQL
is largely dependent upon factors such as the product development cycles of ISVs
and VARs who embed the Company's products into third party packaged software
applications. As a result, the Company expects to continue to derive a
significant portion of its revenues from the license of Btrieve and Scalable SQL
in the near term and there can be no assurance as to whether or when
Pervasive.SQL will achieve market acceptance. A low demand for, or low or
delayed market acceptance of the Company's Pervasive.SQL product as a result of
competition, technological change or other factors, would have a material
adverse effect on the Company's business, operating results and financial
condition. Although the Company recognized revenue in the third and fourth
quarters of 1998 related to initial sales of Pervasive.SQL, such sales may have
been attributable to one-time upgrades from earlier versions of the Company's
products, favorable upgrade pricing by the Company or other factors. As
Pervasive.SQL has only recently been released, there can be no assurance that
future sales will continue at initial rates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Overview."
OPERATING RESULTS SUBJECT TO SIGNIFICANT FLUCTUATIONS; SEASONALITY
The Company's quarterly revenues, expenses and operating results have varied
significantly in the past and are likely to vary significantly in the future due
to a variety of factors, such as demand for the Company's products, the size and
timing of significant orders and their fulfillment, the number, timing and
significance of product enhancements and new product announcements by the
Company and its competitors, changes in pricing policies by the Company or its
competitors, customer order deferrals in anticipation of enhancements or new
products offered by the Company or its competitors, the ability of the Company
to develop, introduce and market new and enhanced versions of its products on a
timely basis, changes in the Company's level of operating expenses, budgeting
cycles of its customers, product life cycles, software defects and other product
quality problems, the Company's ability to attract and retain qualified
personnel, changes in the Company's sales incentive plans, changes in the mix of
domestic and international revenues, the level of international expansion,
foreign currency exchange rate fluctuations, performance of indirect channel
partners, changes in the mix of indirect channels through which the Company's
products are offered, the impact of acquisitions of competitors and indirect
channel partners, the Company's ability to control costs and general domestic
and international economic and political conditions. The Company operates with
virtually no order backlog because its software products are shipped shortly
after orders are received, which makes product revenues in any quarter
substantially dependent on orders booked and shipped throughout that quarter.
As a result, if orders in the first month or two of a quarter fall short of
expectations, it is unlikely that the Company will be able to meet its revenue
targets for that quarter. In addition, the Company is substantially reliant upon
indirect sales channels over which the Company has little or no control.
Moreover, the Company's expense levels are based to a significant extent on the
Company's expectations of future revenues and therefore are relatively fixed in
the short term. If revenue levels are below expectations, operating results are
likely to be adversely and disproportionately affected because only a small
portion of the Company's expenses vary with its revenues.
The Company's business has experienced and is expected to continue to
experience seasonal customer buying patterns. In recent years, the Company has
had relatively stronger demand for its products during the quarters ending
December 31 and June 30 and demand has been relatively weaker in the quarters
ending September 30 and March 31. The Company believes that this pattern may
continue. To the extent international operations constitute a greater
percentage of the Company's revenues in future periods, the Company anticipates
the effect of seasonal
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buying patterns on the Company's business could be more pronounced in subsequent
periods as a result of reduced sales activity in Europe and Japan during the
summer months.
Based upon all of the factors described above, the Company believes that its
quarterly revenues, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of its operating
results are not necessarily meaningful and that, in any event, such comparisons
should not be relied upon as indications of future performance. The Company has
limited ability to forecast future revenues, and it is likely that in some
future quarter the Company's operating results will be below the expectations of
public securities analysts and investors. In the event that operating results
are below expectations, or in the event that adverse conditions prevail or are
perceived to prevail generally or with respect to the Company's business, the
price of the Company's Common Stock would likely be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON INDIRECT SALES CHANNEL; DISTRIBUTOR CONCENTRATION
The Company derives substantially all of its revenues from its indirect sales
channel, consisting of ISVs, VARs, system integrators, consultants and
distributors. The Company has invested, and intends to continue to invest,
significant resources to develop this channel, which could adversely affect the
Company's operating margins. There can be no assurance that the Company will be
able to attract additional indirect channel partners that will be able to market
and support the Company's products. In addition, many of the Company's indirect
channel partners offer competing product lines. Therefore, there can be no
assurance that any of the Company's current indirect channel partners will
continue to represent or recommend the Company's products. Further, the
inability to recruit new indirect channel partners, or the loss of, or a
significant reduction in revenues from, any particular indirect channel partner
could materially adversely affect the Company's business, operating results and
financial condition.
Some of the Company's ISVs, VARs and end users place their orders through
distributors. A relatively small number of distributors have accounted for a
significant percentage of the Company's revenues. In fiscal 1996, 1997 and
1998, two distributors accounted for a combined 27%, 29% and 20% of revenues,
respectively. The Company expects that it will continue to be dependent upon a
limited number of distributors for a significant portion of its revenues in
future periods and such distributors are expected to vary from period to period.
The loss of a major distributor or any reduction in orders by such distributor,
including reductions due to market or competitive conditions, combined with the
inability to replace the distributor on a timely basis could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company's operating results may in the future be subject to
substantial period-to-period fluctuations as a consequence of such distributor
concentration.
SIGNIFICANT COMPETITION
The market for the Company's products is intensely competitive and subject to
rapid change. The Company primarily encounters competition from large, public
companies, including Microsoft Corporation ("Microsoft"), Oracle Corporation
("Oracle"), Informix Corporation ("Informix"), Sybase, Inc. ("Sybase") and
International Business Machines Corporation ("IBM"). Each of these companies
offers database products competitive with the Company's products. In
particular, Sybase offers a small memory footprint database software product,
Adaptive Server Anywhere, which directly competes with the Company's
Pervasive.SQL, Btrieve and Scalable SQL products. In addition, because there
are relatively low barriers to entry in the software market, the Company may
encounter additional competition from other established and emerging companies.
Most of the Company's competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources than the Company,
significantly greater name recognition and a large installed base of customers.
As a result, the Company's competitors may be able to respond more quickly to
new or emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of competitive
products, than can the Company. There is also a substantial risk that
announcements of competing products by large competitors could result in the
cancellation of customer orders in anticipation of the introduction of such new
products. In addition, current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to increase the ability of their products to address customer needs and which
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may limit the Company's ability to sell its products through particular
distribution partners. Accordingly, new competitors or alliances among current
and new competitors may emerge and rapidly gain significant market share. The
Company also expects that competition will increase as a result of software
industry consolidation. Increased competition is likely to result in price
reductions, fewer customer orders, reduced margins and loss of market share, any
of which could materially adversely affect the Company. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors or that the competitive pressures faced by the Company
will not materially adversely affect its business, operating results and
financial condition.
RELIANCE ON INSTALLED BASE
In connection with the acquisition of certain software and related technology
from Novell in April 1994, the Company entered into a license agreement
permitting, among other things, the then-current version of Btrieve to be
reproduced and distributed on a royalty-free basis as part of or together with
current and future versions of any Novell products, including Novell's NetWare
operating system ("NetWare"). The Company derives significant revenues from
upgrade sales into the NetWare installed base and sales of the Company's
software operating on NetWare represented approximately 48% of the Company's
revenues in fiscal 1998. As a result, sales of the Company's products have been
and will continue to be influenced by the market acceptance of NetWare. NetWare
faces substantial competition from other operating systems, including
Microsoft's Windows NT, which the Company believes has a large and growing share
of the worldwide market for client/server operating systems. If sales of
NetWare decrease, Novell discontinues NetWare or discontinues bundling Btrieve
with NetWare or if ISVs, VARs or their end users migrate to competing
client/server operating system platforms, and the Company is not able to
substantially increase sales of its products that run on competing client/server
operating systems, the Company's business, operating results and financial
condition would be materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON CONTINUED GROWTH OF THE MARKET FOR CLIENT/SERVER APPLICATIONS AND
EMBEDDED DATABASES
Although demand for client/server applications and embedded databases has
grown in recent years, this market is still emerging and there can be no
assurance that it will continue to grow or that, even if the market does grow,
organizations will continue to adopt the Company's products. The Company has
spent, and intends to continue to spend, considerable resources educating
potential customers about the Company's embedded database products and the
packaged client/server applications market generally. However, there can be no
assurance that such expenditures will enable the Company's products to achieve
any additional degree of market acceptance. The rate at which organizations
have adopted the Company's products has varied significantly by market and by
product within each market, and the Company expects to continue to experience
such variations with respect to its target markets and products in the future.
There can be no assurance that the market for the Company's products will
continue to develop or that the Company's existing, newly introduced or future
products will be widely accepted. Additionally, there can be no assurance that
the market for client/server and other applications in which the Company's
products are embedded will continue to grow. If the markets for the Company's
products or the applications in which they are embedded fail to develop, or
develop more slowly than the Company currently anticipates, the Company's
business, operating results and financial condition would be materially
adversely affected.
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The market for the Company's products is characterized by rapid technological
change, frequent new product introductions and enhancements, uncertain product
life cycles, changes in customer demands and evolving industry standards. The
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. The
Company's future success will depend upon its ability to continue to enhance its
current products and to develop and introduce new products on a timely basis
that keep pace with technological developments and satisfy increasingly
sophisticated customer requirements. As a result of the complexities inherent
in client/server computing environments and the performance demanded by
customers for embedded databases, new products and product enhancements can
require long development and testing periods.
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As a result, significant delays in the general availability of such new releases
or significant problems in the installation or implementation of such new
releases could have a material adverse effect on the Company's business,
operating results and financial condition. The Company has experienced delays in
the past in the release of new products and new product enhancements. There can
be no assurance that the Company will be successful in developing and marketing,
on a timely and cost effective basis, new products or new product enhancements
that respond to technological change, evolving industry standards or customer
requirements, that the Company will not experience difficulties that could delay
or prevent the successful development, introduction or marketing of these
products or that the Company's new products and product enhancements will
achieve market acceptance.
RISK OF SOFTWARE DEFECTS
Software products as complex as those offered by the Company may contain
errors or defects, particularly when first introduced or when new versions or
enhancements are released. The Company has in the past discovered software
errors in certain of its new products after their introduction. There can be no
assurance that, despite testing by the Company, defects and errors will not be
found in current versions, new versions or enhancements of its products after
commencement of commercial shipments, resulting in loss of revenues or delay in
market acceptance, which could have a material adverse effect on the Company's
business, operating results and financial condition.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish twenty-first century dates from twentieth century dates. As a
result, in less than two years, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists in the software industry concerning the potential
effects associated with such compliance.
Although the latest versions of Pervasive.SQL, Btrieve, and Scalable SQL are
designed to be Year 2000 compliant, an earlier release of Scalable SQL was not
Year 2000 compliant. There can be no assurance that the Company's software
products that are designed to be Year 2000 compliant contain all necessary date
code changes. In addition, third party packaged client/server applications in
which the Company's products are embedded, or for which the Company's products
are separately licensed may not be Year 2000 compliant which may have an adverse
impact on demand for the Company's products. As a result, the Company may incur
increased expenses in migration issues for such customers.
The Company believes that the purchasing patterns of customers and potential
customers may be affected by Year 2000 issues in a variety of ways. Many
companies are expending significant resources to correct or patch their current
software systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase software products such as those offered by
the Company. Potential customers may also choose to defer purchasing Year 2000
compliant products until they believe it is absolutely necessary, thus resulting
in potentially stalled market sales within the industry. Conversely, Year 2000
issues may cause other companies to accelerate purchases, thereby causing an
increase in short-term demand and a consequent decrease in long-term demand for
software products. Additionally, Year 2000 issues could cause a significant
number of companies, including current Company customers, to reevaluate their
current software needs, and as a result switch to other systems or suppliers.
Any of the foregoing could result in a material adverse effect on the Company's
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance."
PRODUCT LIABILITY
Although the Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims, it is possible that such limitation of liability provisions
may not be effective as a result of existing or future laws or unfavorable
judicial decisions. The Company has not experienced any material product
liability claims to date; however, the sale and support of the Company's
products may entail the risks of such claims, which may be substantial in light
of the use of the Company's products in business-critical applications. A
successful product liability claim brought against the Company could have a
material adverse effect on the Company's business, operating results and
financial condition.
MANAGEMENT OF CHANGING BUSINESS
The Company has recently experienced a period of significant revenue growth
and an expansion in the number of its employees, the scope of its operating and
financial systems and geographic area of its operations. In particular, the
Company had a total of 220 employees at June 30, 1998, as compared to 168 at
June 30, 1997. This growth has resulted in new and increased responsibilities
for management and has placed a strain upon the Company's financial and other
resources. The Company expects that continued expansion of international
operations will lead to increased financial and administrative demands, such as
increased operational complexity associated with expanded facilities,
administrative burdens associated with managing an increasing number of
relationships with foreign partners and expanded treasury functions to manage
foreign currency risks. The Company's future operating results will also depend
on its ability to expand its sales and marketing organizations, further develop
its sales channels to penetrate different and broader markets and expand its
support organization to accommodate growth in the Company's installed base. In
addition, the Company will move its headquarters to new facilities in Austin,
Texas in the second quarter of fiscal 1999. This move is expected to be a
disruptive, time consuming and expensive process. The failure of the Company to
manage its expansion effectively could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS
The Company anticipates that for the foreseeable future a significant portion
of its revenues will be derived from sources outside North America and the
Company intends to continue expanding its sales and support operations
internationally. In order to successfully expand international sales, the
Company must establish additional foreign operations, expand its international
sales channel management and support organizations, hire additional personnel,
customize its products for local markets, recruit additional international
resellers and increase
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the productivity of existing international resellers. To the extent that the
Company is unable to do so in a timely and cost-effective manner, the Company's
sales growth internationally, if any, will be limited, and the Company's
business, operating results and financial condition could be materially
adversely affected. Even if the Company is able to successfully expand its
international operations there can be no assurance that the Company will be able
to maintain or increase international market demand for its products.
The Company's international operations are generally subject to a number of
risks, including costs of customizing products for foreign countries,
protectionist laws and business practices favoring local competition, dependence
on local vendors, compliance with multiple, conflicting and changing government
laws and regulations, longer sales cycles, greater difficulty or delay in
accounts receivable collection, import and export restrictions and tariffs,
difficulties in staffing and managing foreign operations, foreign currency
exchange rate fluctuations and the associated effects on product demand,
multiple and conflicting tax laws and regulations and political and economic
instability. To date, a majority of the Company's revenues and costs have been
denominated in U.S. dollars. However, the Company believes that in the future,
an increasing portion of the Company's revenues and costs will be denominated in
foreign currencies. Although the Company may from time to time undertake
foreign exchange hedging transactions to reduce its foreign currency transaction
exposure, the Company does not currently attempt to eliminate all foreign
currency transaction exposure. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the efforts of Ron
R. Harris, the Company's President and Chief Executive Officer, and other key
management, sales and marketing, technical support and research and development
personnel, none of whom are bound by an employment contract. The loss of key
management or technical personnel could adversely affect the Company. The
Company believes that its future success will depend in large part upon its
continuing ability to attract and retain highly skilled managerial, sales and
marketing, technical support and research and development personnel. Like other
software companies, the Company faces intense competition for such personnel,
and the Company has at times experienced and continues to experience difficulty
in recruiting qualified personnel. There can be no assurance that the Company
will be successful in attracting, assimilating and retaining additional
qualified personnel in the future. The loss of the services of one or more of
the Company's key individuals, or the failure to attract and retain additional
qualified personnel, could have a material adverse effect on the Company's
business, operating results and financial condition.
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT; USE OF
LICENSED TECHNOLOGY
The Company relies primarily on a combination of copyright, trademark and
trade secret laws, confidentiality procedures and contractual provisions to
protect its proprietary rights. The Company licenses its database software
products primarily under "shrink-wrap" licenses (i.e., licenses included as part
of the product packaging). Shrink-wrap licenses are not negotiated with or
signed by individual licensees, and purport to take effect upon the opening of
the product package. However, the Company believes that such measures afford
only limited protection. There can be no assurance that others will not develop
technologies that are similar or superior to the Company's technology or design
around the copyrights and trade secrets owned by the Company. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Policing unauthorized use
of the Company's products is difficult, and although the Company is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem. Embedded software products,
like those offered by the Company, can be especially susceptible to software
piracy. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights as fully as do the laws of the U.S.
The Company is not aware that it is infringing any proprietary rights of third
parties. There can be no assurance, however, that third parties will not claim
infringement by the Company of their intellectual property rights. The Company
expects that software product developers increasingly will be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of
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products in different industry segments 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 the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company, if at all. In the event of a successful claim of product
infringement against the Company and failure or inability of the Company to
either license the infringed or similar technology or develop alternative
technology on a timely basis, the Company's business, operating results and
financial condition could be materially adversely affected.
The Company relies upon certain software that it licenses from third parties,
including software that is integrated with the Company's internally developed
software and used in its products to perform key functions. There can be no
assurance that these third-party software licenses will continue to be available
to the Company on commercially reasonable terms. The loss of or inability to
maintain any such software licenses could result in shipment delays or
reductions until equivalent software could be developed, identified, licensed
and integrated which could materially adversely affect the Company's business,
operating results and financial condition.
VOLATILITY OF STOCK PRICE
The market price of the Common Stock is highly volatile and may be
significantly affected by factors such as actual or anticipated fluctuations in
the Company's revenues and operating results, announcements of technological
innovations, new or enhanced products by the Company or its competitors,
developments with respect to copyrights or proprietary rights, conditions and
trends in the software and other technology industries, adoption of new
accounting standards affecting the software industry, changes in financial
estimates by securities analysts, general market conditions and other factors.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have particularly affected the market prices
for the securities of technology companies. In the past, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation has often been brought against the company. There can
be no assurance that such litigation will not occur in the future with respect
to the Company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect upon the Company's business, operating results and financial
condition.
CONTROL OF COMPANY BY OFFICERS AND DIRECTORS
As of June 30, 1998 the executive officers, directors and their affiliates in
the aggregate beneficially owned approximately 60% of the Common Stock. As a
result, acting together these stockholders will be able to exercise effective
control over all matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions. Such
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company.
ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
The Company's Restated Certificate of Incorporation and Bylaws contain certain
provisions that may have the effect of discouraging, delaying or preventing a
change in control of the Company or unsolicited acquisition proposals that a
stockholder might consider favorable, including provisions: authorizing the
issuance of "blank check" preferred stock; establishing advance notice
requirements for stockholder nominations for elections to the Board of Directors
or for proposing matters that can be acted upon at stockholders' meetings;
eliminating the ability of stockholders to act by written consent; requiring
super-majority voting to approve certain amendments to the Restated Certificate
of Incorporation; limiting the persons who may call special meetings of
stockholders; and providing for a Board of Directors with staggered, three-year
terms. In addition, certain provisions of Delaware law and the Company's 1997
Stock Incentive Plan (the "1997 Plan") may also have the effect of discouraging,
delaying or preventing a change in control of the Company or unsolicited
acquisition proposals.
16
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in the "Letter to Stockholders" in the Annual Report
and this Report on Form 10-K under "Business," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
elsewhere constitute forward-looking statements within the meaning of Section
21E of the Securities and Exchange Act of 1934. Forward-looking statements
include statements regarding the Company's expectations, beliefs, hopes,
intentions or strategies regarding the future. These statements involve known
and unknown risks, uncertainties, and other factors that may cause our or our
industry's actual results, levels of activity, performance, or achievements to
be materially different from any future results, levels of activity,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among other things, those listed under "Risk
Factors" and elsewhere in this Prospectus.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of such
terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking
statements after the date of this Prospectus to conform such statements to
actual results.
17
<PAGE>
ITEM 2. PROPERTIES
The Company expects to move its headquarters from its current facility of
approximately 46,000 square feet to a new facility of approximately 70,000
square feet in October 1998. The new facility will provide additional space and
expansion options to accommodate future growth at rental rates per square foot
consistent with the current facility. This new facility is leased through
September 2008. The Company expects to incur approximately $2 million in
capital expenditures and increased rent expense in fiscal 1999 as a result of
the move. The Company currently leases other domestic offices in California,
Illinois and Tennessee, as well as international offices in Frankfurt, Paris,
Brussels, Dublin, London, Hong Kong and Tokyo.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during
the fourth quarter of the fiscal year ended June 30, 1998.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the biographical summaries of the executive officers of
the Company as of September 28, 1998:
The executive officers and directors of the Company, and their ages as of
September 28, 1998, are as follows:
NAME AGE POSITION
- -------------------------- --- -------------------------------------------
Ron R. Harris............. 45 President, Chief Executive Officer and
Director
James R. Offerdahl........ 42 Chief Operating Officer and Chief Financial
Officer
Robert J. Adams, Jr....... 39 Vice President, Worldwide Marketing
Scott Bleakley............ 42 Vice President, Corporate Development
Casey G. A. Leaman........ 51 Vice President, Worldwide Sales
Marcus D. Marshall........ 46 Vice President, Customer Engineering
Ron R. Harris has served as President and Chief Executive Officer for the
Company since its inception and as a director since June 1995. He has also
served as the Company's acting Vice President of Research and Development since
May 1997. Prior to joining the Company, Mr. Harris served as a Vice President
of Citrix Systems, Inc., a developer of thin-client/server software, from
October 1990 to May 1993. Mr. Harris received his B.S. in Computer Science from
Vanderbilt University and an M.B.A. from the University of Texas at Austin.
James R. Offerdahl has served as the Company's Chief Operating Officer, Chief
Financial Officer and Secretary since September 1998. In addition, Mr. Offerdahl
served as Chief Financial Officer, Vice President, Finance and Administration
and Secretary from October 1996 to September 1998. From May 1993 to September
1996, Mr. Offerdahl served as Chief Financial Officer and Vice President,
Administration of Tivoli Systems Inc., a provider of enterprise systems
management solutions, acquired by IBM in March 1996. From April 1991 to May
1993, Mr. Offerdahl served as Vice President, Finance and Administration of
InterFlo Medical, a medical device company that was acquired by Baxter
Healthcare Corporation in April 1992. Mr. Offerdahl received a B.S. in
Accounting from Illinois State University and an M.B.A. from the University of
Texas at Austin.
Robert J. Adams, Jr. has served as the Company's Vice President, Worldwide
Marketing since April 1996. In addition, Mr. Adams served as Vice President,
Marketing and Inside Sales from August 1996 to December 1997.
18
<PAGE>
Prior to joining the Company, Mr. Adams served as President and Chief Executive
Officer of Adams & Co., Inc., a consulting company, from October 1995 to April
1996. From January 1993 to October 1995, Mr. Adams served as President and Chief
Executive Officer of Business Matters, Inc., a software development company.
From March 1984 to January 1993, Mr. Adams served in various capacities at Lotus
Development Corporation, a software development company, most recently as
Director of the Database Products Group. Mr. Adams currently serves as a
director of PC Build, Inc., a privately held hardware manufacturing company. Mr.
Adams received a B.S. in Industrial Engineering from Purdue University and an
M.B.A. from Babson College.
Scott Bleakley has served as the Company's Vice President, Corporate
Development since April 1998. Prior to joining the Company, Mr. Bleakley served
as Vice President of Business Development of Tivoli Systems, Inc. Prior to
Tivoli, Mr. Bleakley served in a number of positions at IBM over a 6 year period
where he most recently served as the Sales Operations Executive for the RS/6000
product line in the U.S. and Canada. Mr. Bleakley received a B.A. in Economics
from Ohio Wesleyan University and an M.B.A. from Miami University.
Casey G. A. Leaman has served as the Company's Vice President, Worldwide Sales
since January 1998. Previously, Mr. Leaman served as Vice President,
International Sales from February 1997 to December 1997. Prior to joining the
Company, Mr. Leaman served as Vice President, International Sales of CenterLine
Software, Inc., a developer of compilers and software testing tools, from
October 1995 to October 1996. Prior to that time, Mr. Leaman served as a
director of Kanishka Systems PTE Ltd. (Singapore), a developer of document
management software, from March 1994 to May 1995 and as President and Chief
Operating Officer from January 1995 to May 1995. From August 1992 to January
1994, Mr. Leaman served as Regional Managing Director-Asia for a division of ASK
Computer Systems Inc., a software developer. From March 1989 through June 1992,
Mr. Leaman served in various roles at Lotus Development Corporation, including
Regional General Manager-Asia & Australia. Mr. Leaman received a B.S. in
Agricultural Business Management from Penn State University and an M.S. in
Agricultural Economics from Purdue University.
Marcus D. Marshall has served as the Company's Vice President, Customer
Engineering since May 1997. He served as the Company's Vice President, Research
and Development from November 1995 to May 1997 and as Vice President,
Engineering and Technical Support from June 1995 to November 1995. Prior to
joining the Company, Mr. Marshall served as Director of Engineering (U.S.) of
Computer Resources International, a developer of software engineering
environments, from February 1994 to June 1995. From November 1991 to February
1994, Mr. Marshall served as Vice President, Development of International
Software Systems, Inc., a developer of software engineering and simulation
software. Mr. Marshall received a B.S. and an M.S. in Electrical Engineering
from Rice University.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company is traded on the Nasdaq National Market
under the symbol PVSW. The Company completed its initial public offering and
commenced trading on September 26, 1997. The following table sets forth the high
and low closing sales prices of the Company's common stock from September 26,
1997 to June 30, 1998.
Fiscal 1998 High Low
----------------------- -------------- --------------
First Quarter* $11.63 $11.00
Second Quarter $11.50 $ 7.00
Third Quarter $14.63 $ 6.75
Fourth Quarter $14.50 $10.38
*Commencing September 26, 1997
As of August 31, 1998, there were approximately 130 stockholders of record
(which number does not include the number of stockholders whose shares are held
by a brokerage house or clearing agency, but does include such brokerage house
or clearing agency as one record holder). The company believes it has in excess
of 1,800 beneficial owners of its of its common stock.
The Company has never paid a cash dividend on its common stock and does not
intend to pay cash dividends on its common stock in the foreseeable future.
20
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
with ''Management's Discussion and Analysis of Financial Condition and Results
of Operations,'' which are included elsewhere in this Form 10-K. The
consolidated statements of operations data for the fiscal years ended June 30,
1996, 1997 and 1998 and the consolidated balance sheet data at June 30, 1997 and
1998 are derived from audited consolidated financial statements included
elsewhere in this Form 10-K. The consolidated statements of operations data for
the periods ended June 30, 1994 and 1995 and the consolidated balance sheet data
at June 30, 1994, 1995 and 1996 are derived from audited consolidated financial
statements not included herein.
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 12,
1994
(INCEPTION) YEAR ENDED JUNE 30,
TO JUNE 30 -------------------------------------------------
1994 1995 1996 1997 1998
----------- ---------- --------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenues................................................ $ 933 $ 8,601 $ 13,476 $ 24,481 $ 36,700
Costs and expenses:
Cost of revenues and technical support................. 424 1,997 2,605 3,310 5,292
Sales and marketing.................................... 216 3,864 6,998 10,034 15,438
Research and development............................... 2,303 2,399 4,477 5,996 9,556
General and administrative............................. 198 996 2,505 2,886 3,070
----------- ---------- --------- ---------- --------
Total costs and expenses................................ 3,141 9,256 16,585 22,226 33,356
----------- ---------- --------- ---------- --------
Operating income (loss)................................. (2,208) (655) (3,109) 2,255 3,344
Interest and other income.............................. 5 86 99 55 573
Provision for income taxes............................. -- (129) (170) (593) (1,101)
Minority interest in (earnings) loss of subsidiary..... -- 89 (25) (127) (94)
----------- ---------- --------- ---------- --------
Net income (loss)....................................... $ (2,203) $ (609) $ (3,205) $ 1,590 $ 2,722
=========== ========== ========= ========== ========
Basic earnings per share................................ $ 1.90 $ 0.26
========== ========
Diluted earnings per share.............................. $ 0.12 $ 0.18
========== ========
Shares used in computing basic earnings per share....... 835 10,468
========== ========
Shares used in computing diluted earnings per share..... 13,080 14,741
========== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------------------------
1994 1995 1996 1997 1998
------- ------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital......................................... $ 1,281 $ 5,740 $ 1,768 $ 1,560 $19,815
Total assets............................................ 2,937 8,480 7,471 10,445 32,643
Long-term liabilities, net of current portion........... 958 1,006 621 -- --
Redeemable convertible preferred stock.................. -- 4,026 4,026 4,026 --
Total stockholders' equity (deficit).................... 1,562 1,061 (2,083) (394) 23,979
</TABLE>
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements contained in this Report on Form 10-K and in the Annual
Report that are not purely historical statements are forward looking statements
within the meaning of Section 21E of the Securities and Exchange Act of 1934,
including statements regarding the Company's expectations, beliefs, hopes,
intentions or strategies regarding the future. These forward-looking statements
involve risks and uncertainties. Actual results may differ materially from those
indicated in such forward-looking statements. See "Risk Factors that May Affect
Future Results," "Special Note Regarding Forward-Looking Statements" and the
factors and risks discussed in other reports filed from time to time with the
Securities and Exchange Commission.
OVERVIEW
Pervasive is a worldwide provider of ultra-light, embedded database and
information management software for packaged client/server applications. The
software is designed for integration by independent software vendors ("ISVs")
into packaged applications that are deployed in environments without a dedicated
database administrator ("DBA"). The Company's Pervasive.SQL(TM) database engine,
which combines high performance transactional and industry-standard relational
data access, enables ISVs to deliver easy-to-use, reliable and cost-effective
applications to end users. As a result, end users can concentrate on running
their businesses instead of managing the database underlying their applications.
This is particularly critical in the large number of zero DBA or Z-DBA(TM)
environments typically found in small and mid-sized businesses or departments of
large organizations that lack the information technology infrastructure or
personnel required to deploy and support client/server applications.
The Company derives its revenues primarily from shrink-wrap licenses
through ISVs, VARs and distributors and from OEM license agreements with ISVs.
Additionally, the Company generates revenues from user count upgrades as well as
from upgrades to client/server environments from single user workstation or
peer-to-peer environments. Shrink-wrap license fees depend on both the user
count of the license and whether the license is for the Company's client- or
server-based products. The Company's OEM licensing program offers ISVs volume
discounts and specialized technical support, training and consulting in exchange
for embedding the Company's products in packaged applications and paying to the
Company a royalty based on sales of the applications.
Revenues are generally recognized from the license of software upon the
later of shipment or when all significant vendor obligations have been
satisfied. Revenues related to agreements involving nonrefundable fixed minimum
license fees are generally recognized upon delivery of the product master or
first copy if no significant vendor obligations remain. Per copy royalties in
excess of a fixed minimum amount are recognized as revenues when such amounts
are reported to the Company. The Company operates with virtually no order
backlog because its software products are shipped shortly after orders are
received, which makes product revenues in any quarter substantially dependent on
orders booked and shipped throughout that quarter. The Company enters into
agreements with certain distributors that provide for certain stock rotation and
price protection rights. These rights allow the distributor to return products
in a non-cash exchange for other products or for credits against future
purchases. The Company reserves for the cost of estimated sales returns, stock
rotation and price protection rights, as well as for uncollectable accounts
based on experience.
On February 9, 1998, the Company announced the introduction of
Pervasive.SQL(TM), an enhanced database software product that enables packaged
client/server applications to simultaneously access a single database engine
with both high volume transactional processing and industry-standard SQL
capabilities. The software is designed for integration by ISVs into packaged
client/server and Internet-based applications that are deployed in Z-DBA
environments. Pervasive.SQL delivers improved performance, simplified
installation and maintenance, low cost of ownership and compatibility with
existing Btrieve- and Scalable SQL - based applications. The Company began
shipping Pervasive.SQL in February of 1998.
Prior to the release of Pervasive.SQL, the Company derived substantially
all of its revenues from the license of its Btrieve and Scalable SQL products.
The Company expects that its future operating results will become
22
<PAGE>
increasingly dependent upon market acceptance of its recently announced
Pervasive.SQL product and anticipates that revenues from the license of Btrieve
and Scalable SQL will decrease accordingly. The pace and timing of market
acceptance of Pervasive.SQL is largely dependent upon factors such as the
product development cycles of ISVs and VARs who embed the Company's products
into third party packaged software applications. As a result, the Company
expects to continue to derive a significant portion of its revenues from the
license of Btrieve and Scalable SQL in the near term and there can be no
assurance as to whether or when Pervasive.SQL will achieve sustainable market
acceptance. A low demand for, or low or delayed market acceptance of the
Company's Pervasive.SQL product as a result of competition, technological change
or other factors, would have a material adverse effect on the Company's
business, operating results and financial condition. Although the Company
recognized revenue in the third and fourth quarters of 1998 related to initial
sales of Pervasive.SQL, such sales may have been attributable to one-time
upgrades from earlier versions of the Company's products, favorable upgrade
pricing by the Company or other factors. As Pervasive.SQL has only recently been
released, there can be no assurance that future sales will continue at initial
rates. See "Risk Factors that May Affect Future Results."
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
revenues represented by certain lines in the Company's consolidated statements
of operations:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Revenues............................................................. 100% 100% 100%
Costs and expenses:
Cost of revenues and technical support.............................. 19 14 14
Sales and marketing................................................. 52 41 42
Research and development............................................ 33 24 26
General and administrative.......................................... 19 12 9
------- ------- -------
Total costs and expenses............................................. 123 91 91
------- ------- -------
Operating income..................................................... (23) 9 9
Interest and other income........................................... 1 -- 1
------- ------- -------
Income before income taxes and minority interest..................... (22) 9 10
Provision for income taxes.......................................... (2) (2) (3)
Minority interest in earnings of subsidiary......................... -- (1) --
------- ------- -------
Net income........................................................... (24)% 6% 7%
======= ======= ======
</TABLE>
Revenues
The Company's revenues were $13.5 million, $24.5 million and $36.7 million
for the fiscal years ended June 30, 1996, 1997 and 1998, respectively, an
increase of 81% from fiscal 1996 to 1997, and 50% from fiscal 1997 to 1998. The
increase in the Company's revenues was attributable primarily to increased
market acceptance of the Company's products, principally licenses of the
Company's software operating on Windows NT, introduction of Pervasive.SQL and
expansion of its worldwide sales organization. In addition, the increase in
revenues from 1996 to 1997 was also attributable to market acceptance of price
increases for most products instituted in June 1996. Although the Company's
revenues have increased in recent periods, there can be no assurance that
revenues will grow in future periods, that they will grow at past rates or that
the Company will remain profitable on a quarterly or annual basis in the future.
Licenses of the Company's software operating on Windows NT or other
Microsoft operating systems increased to approximately 45% of the Company's
revenues in fiscal 1998 from approximately 36% in the prior year. Licenses of
the Company's software operating on NetWare represented approximately 48% of
revenues in fiscal 1998, as compared to 58% in the prior year. The Company
believes that the increase in the percentage of revenues attributable to
licenses of the Company's products operating on Windows NT and other Microsoft
operating systems is due both to increased market acceptance of the Company's
products operating on Microsoft
23
<PAGE>
platforms and to the increased market penetration of Microsoft platforms
relative to other operating systems. The Company expects that the percentages of
its revenues attributable to licenses of its software operating on particular
platforms will continue to change from time to time and there can be no
assurance that the Company's revenues attributable to licenses of its software
operating on Windows NT, or any other operating system platform, will grow in
the future, or at all.
International revenues, consisting of all revenues from customers located
outside of North America, were $5.7 million, $8.3 million and $14.2 million in
fiscal 1996, 1997 and 1998, representing 43%, 34% and 39% of total revenues,
respectively. The increase in dollar amount in each period was primarily
attributable to expansion of the Company's international sales organization,
particularly in Europe. The decrease in international revenues as a percentage
of revenues from fiscal 1996 to 1997 was primarily due to the increasing
contribution to revenues from the Company's domestic OEM licensing program and,
to a lesser extent, from the June 1996 price increase. The Company believes
that revenues from international markets represent a significant opportunity and
expects that international revenues may account for an increasing portion of its
revenues in the future as the Company expands internationally, primarily in
Europe and Japan, but also in other areas of the world. See "Risk Factors That
May Affect Future Results--Risks Associated with International Sales and
Operations" and Note 14 of Notes to Consolidated Financial Statements.
In February 1998, the Company began marketing certain complementary third-
party products through its channel. Those third-party products now include
Crystal Reports, an industry standard report writer from Seagate Software that
allows end users to generate sophisticated reports on their Pervasive.SQL,
Btrieve or Scalable SQL databases, and powerful data conversion tools from Data
Junction Corporation, which enable software developers to quickly and easily
transfer data from other sources into a Pervasive.SQL database. Revenue from
third party products was not significant in fiscal 1998.
Costs and Expenses
Cost of Revenues and Technical Support. Cost of revenues and technical
support consists primarily of the cost to manufacture and fulfill orders for the
Company's shrink wrap software products and the cost to provide technical
support, primarily telephone support, which is typically provided within 30 days
of purchase. Cost of revenues and technical support was $2.6 million, $3.3
million and $5.3 million in fiscal 1996, 1997 and 1998, representing 19%, 14%
and 14% of revenues, respectively. The increase in cost of revenues and
technical support in each period was attributable to increased sales volume and
increased technical support personnel in the U.S. and in Europe. The Company
anticipates that cost of revenues and technical support will continue to
increase in dollar amount as the Company expands its international operations,
particularly in Japan, and provides technical support for additional products.
Such costs could vary as a percentage of revenues relative to comparable periods
in prior years.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
foreign sales office expenses, travel and entertainment, marketing programs and
promotional expenses. Sales and marketing expenses were $7.0 million, $10.0
million and $15.4 million in fiscal 1996, 1997 and 1998, representing 52%, 41%
and 42% of revenues, respectively. The increase in dollar amounts from fiscal
1996 to 1997 was primarily attributable to increased costs associated with
hiring additional sales and marketing personnel and, to a lesser extent,
increased infrastructure costs associated with foreign sales office expansion,
partially offset by a reduction of approximately $1.2 million in marketing costs
associated with the Company's shift away from advertising toward more direct
mail oriented lead generation activities. Sales and marketing expenses
decreased as a percentage of revenues in fiscal 1997 primarily because of
significant revenue growth that outpaced sales and marketing expenditures. The
increase in dollar amounts from fiscal 1997 to 1998 was primarily due to
increased costs associated with hiring additional sales and marketing personnel,
the initial promotion of Pervasive.SQL and increased infrastructure costs
associated with foreign sales office expansion. The Company expects that sales
and marketing expenses will continue to increase in dollar amount as the Company
continues to promote Pervasive.SQL and its other products, hire additional sales
and marketing personnel, increase lead generation activities and expand its
international operations. Sales and marketing expenses are likely to continue
to fluctuate as a percentage of revenues due to the timing of costs associated
with new product releases and international expansion.
24
<PAGE>
Research and Development. Research and development expenses consist
primarily of personnel and related costs. Research and development expenses were
$4.5 million, $6.0 million and $9.6 million in fiscal 1996, 1997 and 1998,
representing 33%, 24% and 26% of revenues, respectively. The increase in dollar
amount each period was primarily due to the increased hiring of, and contracting
with, additional research and development personnel. Research and development
expenses decreased as a percentage of revenues in fiscal 1997 primarily because
of significant revenue growth that outpaced research and development
expenditures. The Company anticipates that it will continue to devote
substantial resources to research and development and that such expenses will
continue to increase in dollar amount.
Software development costs that were eligible for capitalization in
accordance with Statement of Financial Accounting Standards No. 86 were
insignificant during these periods, and, accordingly, the Company charged all
software development costs to research and development expenses.
In March 1998, the Company announced a joint development initiative with
Oracle Corporation to enable application developers to create and deploy a
single application for both small businesses and large corporations without
substantial code changes. The joint development effort should also allow
existing packaged application providers to migrate their solutions to Pervasive
and Oracle databases. Research and development expenses related to the joint
development initiative with Oracle were not material for the year ended June 30,
1998, however, these expenses are expected to increase in the future.
General and Administrative. General and administrative expenses consist
primarily of the personnel and other costs of the Company's finance, human
resources, information systems and administrative departments. General and
administrative expenses were $2.5 million, $2.9 million and $3.1 million in
fiscal 1996, 1997 and 1998, representing 19%, 12% and 9% of revenues,
respectively. The increase in dollar amount in each period was primarily due to
the increased staffing and associated expenses necessary to manage and support
the Company's increased scale of operations, both domestically and
internationally. General and administrative expenses decreased as a percentage
of revenue in each period primarily because of significant revenue growth that
outpaced general and administrative expenditures. The Company believes that its
general and administrative expenses will increase in dollar amount in the future
as the Company's administrative staff expands to support its growing worldwide
operations and as a result of an increase in expenses associated with being a
public company.
Provision for Income Taxes. Provision for income taxes was approximately
$170,000, $593,000 and $1.1 million in fiscal 1996, 1997 and 1998 respectively.
The Company's effective tax rates were 26% and 28% for fiscal 1997 and 1998,
respectfully. Tax expense in fiscal 1996, and an insignificant portion of the
tax expense in fiscal 1997 and 1998, represents withholding taxes paid or
accrued to be paid to foreign countries on royalties earned by the Company. The
increase in the Company's effective tax rate for fiscal year 1998 is primarily
due to increased foreign taxes associated with the Company's increased
operations overseas.
The Company believes that, based on a number of factors, it is more likely
than not that a substantial amount of the Company's deferred tax assets may not
be realized. These factors include a limited history of profitability, recent
increases in expense levels to support the Company's growth, the lack of
carryback capacity to realize the deferred tax assets and the fact that the
Company operates in an intensely competitive market subject to rapid change.
Accordingly, the Company has recorded a valuation allowance to the extent
deferred tax assets exceed the potential benefit from carryback of deferred
items to offset current or prior year taxable income. The Company expects its
effective tax rate will increase in the future once the Company's deferred tax
asset is fully realized. See Note 4 of Notes to Consolidated Financial
Statements.
25
<PAGE>
QUARTERLY RESULTS FROM OPERATIONS
The following table sets forth selected unaudited quarterly information for
the Company's last eight fiscal quarters. The Company believes that this
information has been prepared on the same basis as the audited consolidated
financial statements appearing in Item 8 of this Form 10-K and believes that all
necessary adjustments (consisting only of normal recurring adjustments) have
been included in the amounts stated below and present fairly the results of such
periods when read in conjunction with the audited consolidated financial
statements and notes thereto.
<TABLE>
<CAPTION>
QUARTER ENDED:
--------------------------------------------------------------------------------------
SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
1996 1996 1997 1997 1997 1997 1998 1998
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ................... $ 5,090 $ 5,676 $ 6,418 $ 7,297 $ 7,671 $ 8,470 $ 9,744 $ 10,815
Costs and expenses:
Cost of revenues and
technical support ........ 734 744 861 971 1,164 1,230 1,277 1,621
Sales and marketing ...... 1,905 2,481 2,651 2,997 3,112 3,520 4,243 4,563
Research and development . 1,120 1,204 1,691 1,981 2,251 2,292 2,511 2,502
General and administrative 709 715 672 790 630 791 795 854
--------- --------- --------- --------- --------- --------- --------- ---------
Total costs and expenses ... 4,468 5,144 5,875 6,739 7,157 7,833 8,826 9,540
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income ........... 622 532 543 558 514 637 918 1,275
Interest and other income 17 25 16 (3) (19) 218 190 184
(expense), net
Provision for income taxes (164) (144) (143) (142) (146) (258) (277) (420)
Minority interest in
(earnings) loss of
subsidiary.............. (17) (23) (44) (43) (19) (22) (17) (36)
--------- --------- --------- --------- --------- --------- --------- ---------
Net income ................. $ 458 $ 390 $ 372 $ 370 $ 330 $ 575 $ 814 $ 1,003
========= ========= ========= ========= ========= ========= ========= =========
Basic earnings per share ... $ 2.10 $ 0.48 $ 0.36 $ 0.29 $ 0.16 $ 0.04 $ 0.06 $ 0.08
Diluted earnings per share . $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.02 $ 0.04 $ 0.05 $ 0.07
AS A PERCENTAGE OF REVENUES:
Revenues.................... 100% 100% 100% 100% 100% 100% 100% 100%
Costs and expenses:
Cost of revenues and
technical support....... 14 13 13 13 15 15 13 15
Sales and marketing....... 38 44 42 41 41 42 44 42
Research and development.. 22 21 26 27 29 27 26 23
General and administrative 14 13 11 11 8 9 8 8
--------- --------- --------- --------- --------- --------- --------- ---------
Total costs and expenses.... 88 91 92 92 93 93 91 88
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income............ 12 9 8 8 7 7 9 12
Interest and other income
(expense), net.......... -- -- -- -- -- 3 2 1
Provision for income taxes (3) (2) (2) (2) (2) (3) (3) (4)
Minority interest in
(earnings) loss of
subsidiary.............. -- -- -- (1) (1) -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income.................. 9% 7% 6% 5% 4% 7% 8% 9%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Such fluctuations may result in volatility in the price
of the Company's common stock. The Company establishes its expenditure levels
based on its expectations as to future revenue, and, if revenue levels are below
expectations, expenses can be disproportionately high. As a result, a drop in
near term demand for the Company's products could significantly affect both
revenues and profits in any quarter. In the future, the Company's operating
results may fluctuate for this reason or as a result of a number of other
factors, including increased expenses, timing of product releases, increased
competition, variations in the mix of sales, announcements of new products by
the Company or its competitors and capital spending patterns of the Company's
customers. As a result of these factors, there can be no assurance that the
Company will be able to maintain profitability on a quarterly basis. See "Risk
Factors That May Affect Future Results."
LIQUIDITY AND CAPITAL RESOURCES
On September 25, 1997 the Company completed an initial public offering in
which the Company sold 2,000,000 shares of common stock for net proceeds to the
Company of $17.4 million, after deducting the underwriter's discount and
expenses of the offering.
In fiscal 1996, cash used in operations was $1.5 million. Cash provided by
operations was $3.7 million and $3.0 million for fiscal 1997 and 1998,
respectively. The decrease in cash generated by operations from fiscal 1997 to
1998 resulted primarily from increases in accounts receivable consistent with
the increased sales volume during fiscal 1998.
During fiscal 1998, the Company invested $4.9 million in marketable
securities, consisting of various taxable and tax advantaged securities. In
addition, the Company purchased property and equipment totaling approximately
$840,000, $2.2 million and $2.4 million in fiscal 1996, 1997 and 1998,
respectively, primarily computer hardware and software for the Company's growing
employee base. The Company expects that its capital expenditures will increase
when the Company moves to larger facilities and as the Company's employee base
grows.
26
<PAGE>
The Company will move its headquarters from its current facility of
approximately 46,000 square feet to a new facility of approximately 70,000
square feet in the second quarter of fiscal 1999. The new facility will provide
additional space and expansion options to accommodate future growth at rental
rates per square foot consistent with the current facility. The Company expects
to incur approximately $2 million in capital expenditures and an increase in
rent expense in fiscal 1999 as a result of the move.
On February 10, 1998, the Company acquired an additional 15% ownership
interest in its majority owned subsidiary, Pervasive Software Co., Ltd.
(formerly known as Btrieve Technologies Japan, Ltd.), by acquiring stock held by
minority shareholders for approximately $270,000 in cash. After the acquisition
the Company holds 80.5% of the outstanding stock of Pervasive Software Co., Ltd.
On February 13, 1998, the Company acquired Smithware, Inc. ("Smithware") a
developer of database development and reporting components for Pervasive
products. The Company acquired Smithware for approximately $390,000 consisting
of $170,000 in cash, 23,752 shares of common stock of the Company valued at
$160,000 and acquisition costs of $60,000, plus up to an additional $80,000 of
cash and 47,502 shares of stock payable upon achievement of certain milestones
in the future. In conjunction with the acquisition, the Company repaid
Smithware's outstanding debts of approximately $110,000.
At June 30, 1998 the Company had $19.8 million in working capital including
$15.6 million in cash and cash equivalents and $4.9 million in marketable
securities. The Company has a $4.0 million revolving line of credit with a bank,
but has at no time borrowed under such line. The Company's line of credit
contains certain financial covenants and restrictions as to various matters
including the Company's ability to pay cash dividends and effect mergers or
acquisitions without the bank's prior approval. The Company is currently in
compliance with such financial covenants and restrictions. The Company has
granted a first priority security interest in substantially all of its tangible
assets as security for its obligations under its credit lines.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1997, the AICPA issued Statement of Position (SOP) 97-2,
Software Revenue Recognition, which changes the requirements for revenue
recognition. In March 1998, the AICPA issued SOP 98-4, Deferral of the Effective
Date of a Provision of SOP 97-2, "Software Revenue Recognition." The Company is
required to adopt SOP 97-2 and SOP 98-4 in fiscal 1999. The Company believes
that the adoption of the SOP will not have a material effect on its 1999
financial statements.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
(Statement 130). This statement establishes standards for reporting and display
of comprehensive income. The Company is required to adopt Statement 130 in
fiscal 1999. The Company believes that the adoption of Statement 130 will not
affect its results of operations or financial position, but will affect the
disclosure of comprehensive items in the future.
In June 1997, the FASB also issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information (Statement 131). Statement 131
establishes the standards for the manner in which public enterprises are
required to report financial and descriptive information about their operating
segments. The Company is required to adopt Statement 131 in fiscal 1999. The
Company believes that the adoption of Statement 131 will not affect its results
of operations or financial position, and will not significantly affect the
disclosure of segment information in the future.
27
<PAGE>
YEAR 2000 COMPLIANCE
The "Year 2000" issue results from an industry-wide practice of
representing years with only two digits instead of four. Beginning in the year
2000, date code fields will need to accept four digit entries to distinguish
twenty-first century dates from twentieth century dates (2000 or 1900). As a
result, in less than two years, computer systems and/or software used by many
companies may need to be upgraded to comply with such Year 2000 requirements.
Significant uncertainty exists in the software industry concerning the potential
effects associated with such compliance.
The Company's Year 2000 readiness plan for current versions of its
products; Pervasive.SQL 7, Btrieve v6.15, Scalable SQL 4 and ODBC Interface v2
includes the following:
1. Assessment - Take an inventory of products to be tested, survey third-
party programs utilized, generate compliance plan, and define what
compliance will mean.
2. Implementation - Devise upgrades to correct any Year 2000 issues.
3. Validation - Test and debug current versions of products.
4. Contingency planning - Plan to implement in the event that the Company
does not achieve Year 2000 compliance by January 1, 2000.
The Company has essentially completed all phases of its plan, except for
contingency planning, with respect to the current versions of all of its
products. As a result, each of the current versions of its products was found
to have no known Year 2000 limitations, when configured and used in accordance
with the related documentation, and provided that the underlying operating
system of the host machine and any other software used with or in the host
machine are also Year 2000 compliant. An earlier release of Scalable SQL is not
Year 2000 compliant and several other earlier versions of the Company's products
have not been tested for Year 2000 compliance. These earlier versions of the
Company's products are no longer supported by Pervasive Software. The Company
recommends upgrading to the current version of its products if customers have
any concerns.
Pervasive has defined "Year 2000 Compliant" as the ability to:
1. Correctly handle date information needed for the transition from
December 31, 1999 to January 1, 2000.
2. Function according to the product documentation provided for this date
change, without changes in operation resulting from the approaching new
century, assuming correct configuration.
3. 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.
4. If the date elements in interfaces and data storage specify the
century, store and provide output of date information in ways that are
unambiguous as to century.
5. Recognize Year 2000 as a leap year.
Third-party applications which utilize Pervasive products can still be
written that do not take advantage of the Year 2000 capabilities of Pervasive's
products. Pervasive does not currently have any information concerning the Year
2000 compliance status of its customers or third-party vendors who imbed or
resell Pervasive's products. If Pervasive's current or future customers fail to
achieve Year 2000 compliance or if they divert technology expenditures away from
software products such as those offered by the Company to address Year 2000
issues, the Company's business, operating results, or financial condition could
be materially adversely affected.
Pervasive has not specifically tested software licensed from third parties
that is marketed through the Company's channel, but the Company has received
warranties and representations from its vendors that licensed software is
Year 2000 Compliant. Despite testing by Pervasive and current and potential
customers, and assurances from developers of products incorporated into
Pervasive's products, the Company's products may contain undetected errors or
defects associated with Year 2000 date functions. Unknown errors or defects in
Pervasive's products could result in loss of
28
<PAGE>
revenues or delay in market acceptance, which could have a material adverse
effect on the Company's business, operating results and financial condition.
The Company's internal systems include both its information technology
("IT") and non-IT systems (such as its security system, building equipment, and
embedded microcontrollers). The Company has initiated an informal Year 2000
compliance project to assess its material internal IT systems and its non-IT
systems. The project encompasses two major areas of Pervasive's internal IT
structure. The technical services area, including all hardware, operating
system, and standard application issues, and the applications area, including
all corporate database, accounting and custom applications. To the extent that
the Company is not able to test the technology provided by third-party vendors,
the Company is seeking assurances from such vendors that their systems are Year
2000 Compliant. Although Pervasive is not currently aware of any material
operational issues or costs associated with preparing its internal IT and non-IT
systems for the Year 2000, the Company may experience material unanticipated
problems and costs caused by undetected errors or defects in the technology used
in its internal IT and non-IT systems. The Company plans to formalize its
internal IT and non-IT Year 2000 readiness plan beginning January 1999. The
Company anticipates that a majority of the existing Year 2000 issues will be
eliminated by this time and it believes that this time frame will provide
adequate time to resolve any remaining material issues.
The Company has funded its Year 2000 plan from operating cash flows and has
not separately accounted for these costs in the past, nor does the Company have
specific dollars budgeted for the project as the costs are not considered to be
material. Pervasive has not yet fully developed a comprehensive contingency
plan to address situations that may result if the Company is unable to achieve
Year 2000 compliance of its critical operations. The cost of developing and
implementing such a plan may itself be material.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The majority of the Company's operations are based in the U.S. and,
accordingly, the majority of its transactions are denominated in U.S. Dollars.
However, the Company does have foreign based operations where transactions are
denominated in foreign currencies and are subject to market risk with respect to
fluctuations in the relative value of currencies. Currently, the Company has
operations in Japan, Germany, France, Ireland, England, Belgium, and Hong Kong
and conducts transactions in the local currency of each location. In fiscal
1998 the U.S. Dollar strengthened against the Japanese Yen. Had the U.S. Dollar
to Japanese Yen rate remained unchanged throughout fiscal 1998, the result would
have been an increase in revenue and operating income of approximately $430,000
and $220,000, respectively. The impact of fluctuations in the relative value of
other currencies was not material for fiscal 1998.
The Company monitors its foreign currency exposure and, from time to time
will attempt to reduce its exposure through hedging. At June 30, 1998, the
Company had two offsetting foreign currency contracts outstanding with notional
amounts of approximately $224,000. Such contracts mature in March 1999. Gains
and losses on foreign currency hedging were not material to the consolidated
financial statements for years ending June 30, 1996, 1997 and 1998.
Pervasive is subject to interest rate risk on its cash and marketable
securities investments, however, this risk is limited as the Company's
investment policy requires the Company to invest in short-term securities and
maintain an average maturity of one year or less.
29
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item 8
are listed in Item 14(a)(1) and begin on page F-1 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
30
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors is incorporated herein by reference
from the section entitled "Election of Directors" of the Company's definitive
Proxy Statement (the "Proxy Statement") to be filed pursuant to Regulation 14A
of the Securities Exchange Act of 1934, as amended, for the registrants' Annual
Meeting of Stockholders to be Held on November 4, 1998. The Proxy Statement is
anticipated to be filed within 120 days after the end of the registrant's fiscal
year ended June 30, 1998. For information regarding executive officers of the
Company, see the Information appearing under the caption "Executive Officers of
the Registrant" in Part I, Item 4a of this Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by
reference from the section entitled "Executive Compensation and Related
Information" of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is incorporated herein by reference from the section entitled "Stock
Ownership of Certain Beneficial Owners and Management" of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated herein by reference from the section entitled "Certain
Relationships and Related Transactions" of the Proxy Statement.
31
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of the Company are filed as
part of this Annual Report on Form 10-K as follows:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors......................................... F-2
Consolidated Balance Sheets at June 30, 1997 and 1998.................. F-3
Consolidated Statements of Operations for each of the
three years in the period ended June 30, 1998....................... F-4
Consolidated Statements of Changes in Redeemable Convertible
Preferred Stock and Stockholders' Equity (Deficit) for
each of the three years in the period ended June 30, 1998........... F-5
Consolidated Statements of Cash Flows for each of the three
years in the period ended June 30, 1998............................. F-6
Notes to the Consolidated Financial Statements......................... F-7
(a)(2) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts is filed on page S-1 of
this Report on Form 10-K.
All other schedules have been omitted because they are not applicable, not
required under the instructions, or the information requested is set forth in
the consolidated financial statements or related notes thereto.
(a)(3) EXHIBITS
3.1* Restated Certificate of Incorporation
3.2* Bylaws of the Company
4.1* Reference is made to Exhibits 3.1, 3.2 and 4.3
4.2* Specimen Common Stock certificate
4.3* Investors' Rights Agreement dated April 19, 1995, between the Company
and the investors named therein
10.1* Form of Indemnification Agreement
10.2* 1997 Stock Incentive Plan
10.3* Employee Stock Purchase Plan
10.4* First Amended and Restated 1994 Incentive Plan
10.5* Amendment and Restatement of Credit Agreement dated March 31, 1997
between the Company and Texas Commerce Bank National Association (now
known as Chase Bank of Texas, National Association)
10.6* Lease Agreement dated October 5, 1994 between the Company and Colina
West Limited
10.7* First Amendment to Lease Agreement dated September 8, 1995 between the
Company and Colina West Limited
10.8* Sublease Agreement dated December 10, 1996 between the Company and
Reynolds, Loeffler & Dowling, P.C.
10.9* Joint Venture Agreement dated March 26, 1995 between the Company and
Novell Japan, Ltd., AG Tech Corporation and Empower Ltd.
10.10 Lease agreement dated April 2, 1998 between the Company and CarrAmerica
Realty, L.P. T/A Riata Corporate Park
32
<PAGE>
10.11 Amendment and Restatement of Credit Agreement and Promissory Note dated
February 28, 1998 between the Company and Chase Bank of Texas, National
Association
21.1 Subsidiaries of the registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
*Incorporated by reference to the Company's Registration Statement on Form S-1
(File No. 333-32199).
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Registrant during the fourth
quarter of the fiscal year ended June 30, 1998.
(c) EXHIBITS
See (a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULE
See (a)(2) above.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERVASIVE SOFTWARE INC.
(Registrant)
By: /s/ RON R. HARRIS
-----------------------------------
Ron R. Harris
President and Chief Executive officer
September 28, 1998
---------------------------------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ RON R. HARRIS President and Chief Executive September 28, 1998
- ------------------------- Officer
Ron R. Harris (Principal Executive Officer)
/s/ JAMES R. OFFERDAHL Chief Operating Officer and September 28, 1998
- ------------------------- Chief Financial Officer
James R. Offerdahl (Principal Financial and
Accounting Officer)
/s/ NANCY R. WOODWARD Director and Chairman September 28, 1998
- ------------------------- of the Board
Nancy R. Woodward
/s/ JOSEPH C. ARAGONA Director September 28, 1998
- -------------------------
Joseph C. Aragona
/s/ DAVID A. BOUCHER Director September 28, 1998
- -------------------------
David A. Boucher
/s/ DAVID R. BRADFORD Director September 28, 1998
- -------------------------
David R. Bradford
/s/ SHELBY H. CARTER, JR. Director September 28, 1998
- -------------------------
Shelby H. Carter, Jr.
<PAGE>
PERVASIVE SOFTWARE INC.
FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
----
Report of Independent Auditors...............................................F-2
Consolidated Balance Sheets at June 30, 1997 and 1998........................F-3
Consolidated Statements of Operations for each of the three years
in the period ended June 30, 1998...........................................F-4
Consolidated Statements of Changes in Redeemable Convertible Preferred Stock
and Stockholders' Equity (Deficit) for each of the three years in the
period ended June 30, 1998....... ..........................................F-5
Consolidated Statements of Cash Flows for each of the three years
in the period ended June 30, 1998...........................................F-6
Notes to Consolidated Financial Statements...................................F-7
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Pervasive Software Inc.
We have audited the accompanying consolidated balance sheets of Pervasive
Software Inc. and Subsidiaries as of June 30, 1998 and 1997, and the related
consolidated statements of operations, changes in redeemable convertible
preferred stock and stockholders' equity (deficit) and cash flows for each of
the three years in the period ended June 30, 1998. Our audits also included the
financial statement schedule listed in the Index at Item 14(a)(2). These
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the financial statement schedule 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 Pervasive Software
Inc. and Subsidiaries at June 30, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
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
Austin, Texas
July 17, 1998
F-2
<PAGE>
PERVASIVE SOFTWARE INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
------------------------------
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including interest bearing
investments of $3,075 in 1997 and $15,130 in 1998............ $ 4,058 $15,587
Marketable securities.......................................... - 4,943
Trade accounts receivable, net of allowance for doubtful
accounts of $100 in 1997 and $300 in 1998.................... 2,803 5,304
Inventory...................................................... 105 350
Deferred income taxes.......................................... 157 546
Prepaid expenses and other current assets...................... 555 1,370
---------- ----------
Total current assets.............................................. 7,678 28,100
Property and equipment, net....................................... 2,664 3,667
Other assets...................................................... 103 876
---------- ----------
Total assets...................................................... $10,445 $32,643
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable......................................... $ 1,052 $ 1,382
Accrued payroll and payroll related costs...................... 517 966
Other accrued expenses......................................... 2,273 2,710
Deferred revenue............................................... 1,267 1,929
Income taxes payable........................................... 301 1,140
Deferred royalty payable - Novell.............................. 708 158
---------- ----------
Total current liabilities......................................... 6,118 8,285
Minority interest in subsidiary................................... 695 379
Redeemable convertible preferred stock............................ 4,026 -
Stockholders' equity (deficit):
Preferred stock................................................ 3,915 -
Common stock, $0.001 par value;
Authorized - 75,000,000 shares;
issued and outstanding - 1,391,611 shares in 1997 and
13,347,724 shares in 1998.................................... 205 26,270
Accumulated deficit........................................ (4,514) (2,291)
---------- ----------
Total stockholders' equity (deficit).............................. (394) 23,979
---------- ----------
Total liabilities and stockholders' equity........................ $10,445 $32,643
========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
PERVASIVE SOFTWARE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------
1996 1997 1998
---------- --------- ----------
<S> <C> <C> <C>
Revenues................................... $13,476 $24,481 $36,700
Costs and expenses:
Cost of revenues and technical support.... 2,605 3,310 5,292
Sales and marketing....................... 6,998 10,034 15,438
Research and development.................. 4,477 5,996 9,556
General and administrative................ 2,505 2,886 3,070
---------- --------- ----------
Total costs and expenses................... 16,585 22,226 33,356
---------- --------- ----------
Operating income (loss).................... (3,109) 2,255 3,344
Interest and other income................. 99 55 573
---------- --------- ----------
Income (loss) before income taxes and
minority interest......................... (3,010) 2,310 3,917
Provision for income taxes................ (170) (593) (1,101)
Minority interest in earnings of
subsidiary, net of income taxes......... (25) (127) (94)
---------- --------- ----------
Net income (loss).......................... $(3,205) $ 1,590 $ 2,722
========== ========= ==========
Basic earnings per share................... $1.90 $0.26
========= ==========
Diluted earnings per share................. $0.12 $0.18
========= ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
PERVASIVE SOFTWARE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------------------------
REDEEMABLE TOTAL
CONVERTIBLE STOCKHOLDERS'
PREFERRED PREFERRED ACCUMULATED EQUITY
STOCK STOCK COMMON STOCK DEFICIT (DEFICIT)
------------ ---------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balances at June 30, 1995........ $ 4,026 $ 3,915 $ - $(2,854) $ 1,061
Foreign currency translation
adjustment.................... - - - 61 61
Net loss....................... - - - (3,205) (3,205)
------------ ---------- -------------- ------------- --------------
Balances at June 30, 1996........ 4,026 3,915 - (5,998) (2,083)
Issuance of 1,389,611 shares of
common stock pursuant to the
exercise of stock options..... - - 205 - 205
Foreign currency translation
adjustment.................... - - - (106) (106)
Net income..................... - - - 1,590 1,590
------------ ---------- -------------- ------------- --------------
Balances at June 30, 1997........ 4,026 3,915 205 (4,514) (394)
Conversion of 9,713,132 shares
of preferred stock............ (4,026) (3,915) 7,941 - 4,026
Issuance of 2,000,000 shares of
common stock, net of issuance
costs of $1,168............... - - 17,432 - 17,432
Issuance of 23,752 shares of
common stock in purchase of a
business...................... - - 162 - 162
Acquisition of 74,012 treasury
shares, cumulative treasury
shares of 74,012 and cost of
$10 at June 30, 1998......... - - (10) - (10)
Issuance of 249,699 shares of
common stock pursuant to the
exercise of stock options..... - - 170 - 170
Issuance of 43,542 shares of
common stock pursuant to the
employee stock purchase plan.. - - 370 - 370
Foreign currency translation
adjustment, cumulative amount
of $(586) at June 30, 1998.... - - - (499) (499)
Net income..................... - - - 2,722 2,722
------------ ---------- -------------- ------------- --------------
Balances at June 30, 1998........ $ - $ - $26,270 $(2,291) $23,979
============ ========== ============== ============= ==============
</TABLE>
See accompanying notes.
F-5
<PAGE>
PERVASIVE SOFTWARE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------
1996 1997 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FROM OPERATING ACTIVITIES
Net income (loss)........................................... $(3,205) $ 1,590 $ 2,722
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.............................. 575 749 1,442
Non cash compensation expense pursuant to employee
stock purchase plan....................................... - - 469
Deferred income tax benefit................................ - (157) (782)
Other non cash items....................................... 132 6 110
Change in current assets and liabilities:
Increase in current assets................................ (1,663) (16) (3,602)
Increase in accounts payable and accrued liabilities...... 878 2,085 2,017
Increase (decrease) in deferred revenue................... 1,738 (525) 662
----------------- ----------------- -----------------
Net cash provided by (used in) operating activities.......... (1,545) 3,732 3,038
CASH FROM INVESTING ACTIVITIES
Purchase of property and equipment.......................... (843) (2,161) (2,421)
Purchase of marketable securities........................... - - (23,393)
Proceeds from sale of marketable securities................. - - 18,450
Purchase of business, net of cash acquired.................. - - (333)
Purchase of minority interest............................... - - (266)
Increase in other assets.................................... - - (60)
----------------- ----------------- -----------------
Net cash used in investing activities........................ (843) (2,161) (8,023)
CASH FROM FINANCING ACTIVITIES
Proceeds from issuance of stock, net of issuance costs...... - - 17,432
Purchase of treasury stock.................................. - - (10)
Payment of royalty to Novell................................ - (370) (570)
Proceeds from exercise of stock options..................... - 205 170
----------------- ----------------- -----------------
Net cash provided by (used in) financing activities.......... - (165) 17,022
Effect of exchange rate changes on cash and cash
equivalents................................................. 31 (87) (508)
----------------- ----------------- -----------------
Increase (decrease) in cash and cash equivalents............. (2,357) 1,319 11,529
Cash and cash equivalents at beginning of year............... 5,096 2,739 4,058
----------------- ----------------- -----------------
Cash and cash equivalents at end of year..................... $ 2,739 $ 4,058 $ 15,587
================= ================= =================
</TABLE>
See accompanying notes.
F-6
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. THE COMPANY
Pervasive Software Inc. (the Company), is a leading provider of ultra light
embedded database software designed to enable the cost-effective development,
deployment and support of low-maintenance packaged client/server applications.
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.
On September 25, 1997 the Company completed an initial public offering in
which the Company sold 2,000,000 shares of common stock for net proceeds to the
Company of $17.4 million, after deducting the underwriters' discount and other
costs of the offering.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company licenses its software through OEM license agreements with
independent software vendors (ISVs) and through shrink-wrap software licenses,
sold through ISVs, value-added resellers (VARs) and distributors. Revenues are
generally recognized from the license of software upon the later of shipment or
when all significant vendor obligations have been satisfied. Revenues related
to OEM license agreements involving nonrefundable fixed minimum license fees are
generally recognized upon delivery of the product master or first copy if no
significant vendor obligations remain. Per copy royalties related to OEM
license agreements in excess of a fixed minimum amount are recognized as revenue
when such amounts are reported to the Company. The Company generally provides
telephone support to customers and end users in the 30 days immediately
following the sale at no additional charge and at a minimal cost per call. When
material, the Company accrues the cost of providing this support. Revenue from
training is recognized when the related services are performed. The Company
enters into agreements with certain distributors that provide for certain stock
rotation and price protection rights. These rights allow the distributor to
return products in a non-cash exchange for other products or for credits against
future purchases. The Company reserves for the cost of estimated sales returns,
rotation and price protection rights as well as uncollectible accounts based on
experience. Customer advances and billed amounts due from customers in excess
of revenue recognized are recorded as deferred revenue.
Software Development Costs
Software development costs incurred by the Company in connection with its
long-term development projects are accounted for in accordance with Statement of
Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed (Statement 86). The Company
has not capitalized any internal costs through June 30, 1998 related to its
software development activities.
Advertising Costs
The Company expenses costs of producing advertising and sales related
collateral materials as incurred. Other production costs associated with direct
mail programs, placement costs associated with magazine or other printed media
and all direct costs associated with trade shows and other sales related events
are expensed when the related direct mail is sent, advertising space is used or
the event is held. These expenses in 1996, 1997 and 1998 were approximately
$1,900,000, $700,000 and $700,000, respectively.
F-7
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Under the asset and liability method of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (Statement 109), deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and net operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
Cash and Cash Equivalents
Cash and cash equivalents include cash, certificates of deposit, and
securities with original maturities less than ninety days when purchased.
Marketable Securities
Marketable securities have been classified as available-for-sale and such
designation is reevaluated as of each balance sheet date. While the Company's
intent is to hold debt securities to maturity, they are classified as available-
for-sale because the sale of such securities may be required prior to maturity.
Realized gains and losses are recorded on the specific identification method.
Unrealized gains and losses have been insignificant for all periods presented.
All of the Company's marketable securities mature on or before June 30, 1999.
All are stated at cost, which approximates fair market value as of June 30, 1997
and 1998, and consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1997 1998
---------- ---------
<S> <C> <C>
Marketable securities....................
U.S. Government agencies............... $ - $3,907
Municipal bonds........................ - 1,036
---------- ---------
Total.................................... $ - $4,943
========== =========
</TABLE>
Inventory
Inventories, consisting primarily of finished goods, are stated at the lower
of cost (first in, first out) or market. The Company utilizes the services of
fulfillment houses to manufacture, store, and ship inventory and process
returned product. The Company does not take title to product in inventory until
the point at which the product is packaged by the fulfillment houses and is
available for shipping.
Property and Equipment
Property and equipment are stated at cost and are being depreciated over
their estimated useful lives (2 to 5 years) using the straight-line method.
Leasehold improvements are amortized over the life of the lease or the estimated
useful life, whichever is shorter.
F-8
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign Currency Transactions
For the Company's foreign subsidiaries, the functional currency has been
determined to be the local currency, and therefore, assets and liabilities are
translated at year end exchange rates, and income statement items are translated
at average exchange rates prevailing during the year. Such translation
adjustments are recorded in aggregate as a component of stockholders' equity.
Gains and losses from foreign currency denominated transactions are included in
other income (expense) and were not material in 1996, 1997 or 1998.
Financial instruments, principally forward pricing contracts, are used by the
Company in the management of its foreign currency exposures. Gains and losses
on foreign currency transaction hedges are recognized in income when realized
and offset the foreign exchange gains and losses on the underlying transactions.
The Company does not hold or issue derivative financial instruments for trading
purposes.
Fair Value of Financial Instruments
Cash equivalents, accounts receivable, accounts payable, accrued liabilities
and other liabilities are stated at cost which approximates fair value due to
the short-term maturity of these instruments.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist of short-term investments, including marketable
securities, and trade receivables. The Company's short-term investments, which
are included in cash and cash equivalents and in marketable securities for
reporting purposes, are placed with high credit quality financial institutions
and issuers. The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Estimated credit
losses are provided for in the financial statements and historically have been
within management's expectations.
For the year ended June 30, 1996, Distributor A accounted for $2,390,000 of
the Company's total revenues. For the year ended June 30, 1997, Distributors A
and B accounted for $2,530,000 and $4,530,000, respectively, of the Company's
total revenues. For the year ended June 30, 1998, Distributor A accounted for
$3,700,000 of the Company's total revenues. No other customers accounted for
more than 10% of the Company's revenues during the years ended June 30, 1996,
1997 or 1998.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Stock-Based Compensation
The Company has adopted the provisions of Financial Accounting Standards
Statement No. 123, Accounting for Stock Based Compensation and has elected to
account for its employee stock options under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees.
F-9
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net Income Per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128 (Statement 128),
Earnings Per Share. Statement 128 replaced "primary" and "fully diluted"
earnings per share with "basic" and "diluted" earnings per share. All weighted
average share and earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the Statement 128
requirements.
Recently Issued Accounting Standards
In October 1997, the AICPA issued Statement of Position (SOP) 97-2, Software
Revenue Recognition, which changes the requirements for revenue recognition. In
March 1998, the AICPA issued SOP 98-4, Deferral of the Effective Date of a
Provision of SOP 97-2, "Software Revenue Recognition." The Company is required
to adopt SOP 97-2 and SOP 98-4 during the year ended June 30, 1999. The Company
believes that the adoption of the SOP will not have a material effect on its
1999 financial statements.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
(Statement 130). This statement establishes standards for reporting and display
of comprehensive income. The Company is required to adopt Statement 130 in
fiscal 1999. The Company believes that the adoption of Statement 130 will not
affect its results of operations or financial position, but will affect the
disclosure of comprehensive items in the future.
In June 1997, the FASB also issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information (Statement 131). Statement 131
establishes the standards for the manner in which public enterprises are
required to report financial and descriptive information about their operating
segments. The Company is required to adopt Statement 131 in fiscal 1999. The
Company believes that the adoption of Statement 131 will not affect its results
of operations or financial position, and will not significantly affect the
disclosure of segment information in the future.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1997 1998
---------- ---------
<S> <C> <C>
Computer equipment and purchased software................................... $ 2,881 $ 4,640
Office equipment, furniture and fixtures.................................... 932 1,461
Leasehold improvements...................................................... 213 407
---------- ---------
4,026 6,508
Less accumulated depreciation and amortization.............................. (1,362) (2,841)
---------- ---------
$ 2,664 $ 3,667
========== =========
</TABLE>
F-10
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
The components of income (loss) before income taxes and minority interest
consist of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------
1996 1997 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Domestic income (loss)...................................... $(3,083) $1,384 $2,820
Foreign income.............................................. 73 926 1,097
----------------- ----------------- -----------------
Income (loss) before taxes and minority interest............ $(3,010) $2,310 $3,917
================= ================= =================
</TABLE>
Details of the income tax provision consist of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------
1996 1997 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Income tax provision:
Current:
Federal................................................... $ (61) $ 185 $ 942
Foreign................................................... 160 551 850
State..................................................... - 14 91
----------------- ----------------- -----------------
Total current.............................................. 99 750 1,883
----------------- ----------------- -----------------
Deferred:
Federal.................................................... 71 (157) (782)
----------------- ----------------- -----------------
Total deferred.............................................. 71 (157) (782)
----------------- ----------------- -----------------
$ 170 $ 593 $1,101
================= ================= =================
</TABLE>
The foreign taxes include withholdings on royalties from foreign countries.
The Company's provision for income taxes differs from the expected provision
(benefit) amount computed by applying the statutory federal income tax rate of
34% to income (loss) before income taxes and minority interest for 1996, 1997
and 1998 as a result of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------
1996 1997 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Computed at statutory rate of 34%........................... $(1,023) $ 785 $1,332
Effect of foreign operations................................ 159 236 266
State income taxes, net of federal benefit.................. - 14 60
Tax exempt interest......................................... - - (63)
Research tax credit......................................... - - (40)
Future benefits not currently recognized.................... 1,023 (428) (462)
Other....................................................... 11 (14) 8
----------------- ----------------- -----------------
$ 170 $ 593 $1,101
================= ================= =================
</TABLE>
F-11
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
The components of deferred income taxes at June 30, 1997 and 1998 are as
follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Purchased technology, net........................................ $ 799 $ 747
Tax credit carryforwards......................................... 308 -
Accrued expenses not deductible for tax purposes................. 352 789
Revenue deferred for financial purposes.......................... 296 483
Other............................................................ 100 156
--------- ---------
Total deferred tax assets.................................... 1,855 2,175
Valuation allowance for deferred tax assets......................... (1,698) (1,236)
--------- ---------
Net deferred tax assets...................................... $ 157 $ 939
========= =========
</TABLE>
Management believes that, based on a number of factors, it is more likely
than not that a substantial amount of the Company's deferred tax assets may not
be realized. These factors include the lack of a significant history of profits,
recent increases in expense levels to support the Company's growth, the lack of
carryback capacity to realize the deferred tax asset in full and the fact that
the Company operates in an intensely competitive market subject to rapid change.
Accordingly, the Company has recorded a valuation allowance to the extent
deferred tax assets exceed the potential benefit from carryback of deferred
items to offset current or prior year taxable income. During the year ended June
30, 1998, the valuation allowance was reduced by approximately $462,000
primarily due to additional carryback potential generated in the current year.
5. EMPLOYEE BENEFITS
The Company's employees are offered health and dental coverage under a
partially self-funded plan in which the Company purchases specific stop-loss
insurance coverage at $30,000 per year, per employee. The Company has also
purchased an aggregate stop-loss insurance coverage to limit its maximum annual
exposure to claims funded. Based on the policy census at June 30, 1998, such
maximum annual exposure for the policy year ending December 31, 1998 is
approximately $490,000. The Company pays a fixed fee per covered individual for
administrative costs of the administrator and the cost of the stop-loss
insurance purchased on the Company's behalf. The Company contributes 100%
toward the cost to insure each employee and 75% toward the cost to insure
dependents for which coverage is requested by the employee. Expenses for the
partially self-funded plan including premiums and claims funded for the years
ended June 30, 1996, 1997 and 1998 were approximately $255,000, $311,000 and
$508,000, respectively.
The Company has a 401(k) retirement plan which is available to all domestic,
full-time employees. The Company's expenses related to the plan were not
significant in the years ended June 30, 1996, 1997 or 1998.
6. COMMON STOCK AND STOCK OPTIONS
The Company's 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan")
was adopted by the Board of Directors in July 1997 and approved by the
stockholders in August 1997. A total of 500,000 shares of common stock has been
reserved for issuance under the 1997 Purchase Plan. The 1997 Purchase Plan is
intended to qualify under Section 423 of the Internal Revenue Code and has
consecutive and overlapping twenty-four month offering periods that begin every
six months. The 1997 Purchase Plan commenced after the completion of the
initial public offering. Each twenty-four month offering period includes four
six-month purchase periods, during which payroll deductions are accumulated and
at the end of which, shares of common stock are purchased with a participant's
accumulated payroll deductions. The 1997 Purchase Plan permits eligible
employees to purchase common stock through payroll deductions of up to 250
shares per purchase period, 500 shares in the initial purchase period ended
April 30, 1998. The price of common stock to be purchased under the 1997
Purchase Plan is 85% of the lower of the fair market value of the common stock
at the beginning of the offering period or at the end of the relevant purchase
period. In fiscal
F-12
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMON STOCK AND STOCK OPTIONS (CONTINUED)
1998, 43,542 shares of common stock at a price of $8.50 per share were issued
under the 1997 Purchase Plan. Shares available for purchase under the 1997
Purchase Plan were 456,458 at June 30, 1998. The Company recorded non-cash
compensation expense totaling approximately $469,000 during 1998 related to
employee withholdings under the 1997 Purchase Plan.
The Company's 1997 Stock Incentive Plan (the 1997 Plan) was adopted by the
Board of Directors on May 22, 1997, and approved by the stockholders on August
12, 1997, as the successor to the First Amended and Restated 1994 Incentive Plan
(the 1994 Plan). Outstanding options under the 1994 Plan have been incorporated
into the 1997 Plan and no further options grants will be made under the 1994
Plan. The incorporated options will continue to be governed by their existing
terms, unless the Plan Administrator elects to extend one or more features of
the 1997 Plan to those options.
Incentive stock options may be granted to employees of the Company entitling
them to purchase shares of common stock for a maximum of ten years (five years
in the case of options granted to a person possessing more than 10% of the
combined voting power of the Company as of the date of grant). The exercise
price for incentive stock options may not be less than fair market value of the
common stock on the date of the grant (110% of fair market value in the case of
options granted to a person possessing more than 10% of the combined voting
power of the Company). Nonqualified stock options may be granted to employees,
officers, directors, independent contractors and consultants of the Company.
The exercise price for nonqualified stock options may not be less than 85% of
the fair market value of the common stock on the date of the grant (110% of fair
market value in the case of options granted to a person possessing more than 10%
of the combined voting power of the Company). The Company may also award
Restricted Stock and Stock Appreciation Rights subject to provisions in the 1997
Plan.
The vesting period for stock options is generally a four-year period. Options
granted prior to July 1, 1997 are exercisable by the holder prior to vesting,
however, unvested shares are subject to repurchase by the Company at the
exercise price should the employee be terminated or leave the Company prior to
vesting in such options.
A summary of changes in common stock options during the year ended June 30,
1996, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF EXERCISE EXERCISE
SHARES PRICES PRICE
-------------------- ----------------------- --------------------
<S> <C> <C> <C>
Options outstanding, June 30, 1995.................. 2,255,066 $0.10 - 0.13 $0.10
Granted............................................ 644,510 $0.13 $0.13
Exercised.......................................... - - -
Surrendered........................................ (108,600) $0.10 - 0.13 $0.11
-------------------- ----------------------- --------------------
Options outstanding, June 30, 1996.................. 2,790,976 $0.10 - 0.13 $0.11
Granted............................................ 1,094,018 $0.13 - 4.60 $1.17
Exercised.......................................... (1,389,611) $0.10 - 2.00 $0.15
Surrendered........................................ (235,686) $0.10 - 2.00 $0.15
-------------------- ----------------------- --------------------
Options outstanding, June 30, 1997.................. 2,259,697 $0.10 - 4.60 $0.59
Granted............................................ 726,400 $6.00 - 13.88 $8.09
Exercised.......................................... (249,699) $0.10 - 3.60 $0.72
Surrendered........................................ (177,599) $0.10 - 10.63 $1.86
-------------------- ----------------------- --------------------
Options outstanding, June 30, 1998.................. 2,558,799 $0.10 - 13.88 $1.68
==================== ======================= ====================
</TABLE>
F-13
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMON STOCK AND STOCK OPTIONS (CONTINUED)
The following is additional information relating to options outstanding at
June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE
REMAINING
RANGE OF WEIGHTED AVERAGE CONTRACTUAL LIFE
EXERCISE PRICE NUMBER OF OPTIONS EXERCISE PRICE OF OPTIONS
-------------------------- ------------------------- ----------------------- -----------------------
<S> <C> <C> <C>
$0.10 to $0.30 1,545,922 $ 0.11 6.93
$0.60 to $0.90 121,438 $ 0.74 8.52
$2.00 to $4.60 212,638 $ 3.22 8.86
$6.00 to $8.37 416,400 $ 7.51 9.28
$10.63 to $13.88 262,401 $11.94 9.74
-------------------------- ------------------------- ----------------------- -----------------------
$0.10 to $13.88 2,558,799 $0.11 to $11.94 7.60
========================== ========================= ======================= =======================
</TABLE>
Of the options exercised, 480,486 shares remain unvested at June 30, 1998 and
may be repurchased by the Company at the option's exercise price and recorded as
treasury stock should vesting requirements not be fulfilled. At June 30, 1998,
3,184,012 shares of common stock were reserved for exercise of stock options. As
part of the Company's 1997 Plan, the number of shares of common stock available
for issuance automatically increases on July 1 each calendar year beginning July
1, 1998 and ending July 1, 2000, by an amount equal to five percent (5%) of the
shares of common stock and common stock equivalents outstanding on the trading
day immediately preceding July 1, with a maximum annual increase of 1,000,000
shares.
Pro forma compensation expense regarding net income and earnings per share is
required by Statement 123, which also requires the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to June 30, 1995, under the fair value method prescribed by Statement 123.
During fiscal 1998, the fair value of each option grant was estimated on the
date of grant using the Black-Scholes option-pricing model and during fiscal
1997 and 1996, the fair value of each option grant was estimated using the
minimum value model, with the following weighted average assumptions:
<TABLE>
<CAPTION>
EMPLOYEE STOCK
EMPLOYEE STOCK OPTIONS PURCHASE PLAN
--------------------------------------------------------- ----------------------------
1996 1997 1998 1998
--------------- --------------- --------------- ----------------------------
<S> <C> <C> <C> <C>
Risk free interest rate...... 5.99% 6.49% 5.80% 5.46%
Dividend yield............... 0.00% 0.00% 0.00% 0.00%
Volatility factor............ - - 0.582 0.582
Weighted average expected
life of options (in years).. 4 4 4 0.5
</TABLE>
F-14
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMON STOCK AND STOCK OPTIONS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is expensed over the options' vesting periods and stock purchased under
the 1997 Employee Stock Purchase Plan is amortized over the six month purchase
period. The Company's pro forma information follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
1996 1997 1998
------------------- ---------------- ----------------
<S> <C> <C> <C>
Pro forma stock based compensation expense.................... $ 2 $ 12 $ 387
Pro forma net income (loss)................................... $ (3,207) $1,578 $2,335
Pro forma basic earnings per share............................ $ - $ 1.89 $ 0.22
Pro forma diluted earnings per share.......................... $ - $ 0.12 $ 0.16
Weighted average grant date fair value........................ $ 0.03 $ 0.22 $ 4.39
</TABLE>
Because Statement 123 is applicable only to options granted subsequent to
June 30, 1995, the pro forma effect will not be fully reflected until fiscal
1999.
7. PREFERRED STOCK
On September 25, 1997, the effective date of the Company's initial public
offering, all of the outstanding preferred stock was converted into 9,713,132
shares of common stock. In addition, the Company's Certificate of Incorporation
was amended authorizing the Board of Directors to issue preferred stock ("new
preferred stock") in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by the stockholders.
At June 30, 1998, the Company had not issued any new preferred stock.
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1997 1998
----------- -----------
<S> <C> <C>
Numerator:
Net income.................................................. $ 1,590 $ 2,722
=========== ===========
Denominator:
Denominator for basic earnings per share - weighted average 835 10,468
shares.......................................................
Effect of dilutive securities:
Convertible preferred shares............................... 9,713 2,315
Employee stock options..................................... 2,532 1,958
----------- -----------
Potentially dilutive common shares......................... 12,245 4,273
----------- -----------
Denominator for diluted earnings per share -
adjusted weighted average shares and assumed conversions.. 13,080 14,741
=========== ===========
Basic earnings per share......................................... $ 1.90 $ 0.26
=========== ===========
Diluted earnings per share....................................... $ 0.12 $ 0.18
=========== ===========
</TABLE>
The Company's historical capital structure prior to its initial public
offering is not indicative of its prospective structure due to the automatic
conversion of all shares of convertible preferred stock into common stock
concurrent with the closing of the Company's anticipated initial public
offering. Accordingly, historical net income (loss) per share for the year
ended June 30, 1996 is not considered meaningful and has not been presented
herein.
F-15
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INVESTMENT IN PERVASIVE SOFTWARE CO., LTD.
In May 1995, the Company acquired a 65.5% controlling interest in a newly
formed entity, Pervasive Software Co., Ltd. ("Pervasive Japan", formerly known
as Btrieve Technologies Japan, Ltd.). Pervasive Japan was formed for the
purpose of localization, support and marketing in Japan of the Company's ultra
light embedded database products for packaged client/server applications.
On February 10, 1998, the Company acquired an additional 15% ownership
interest in Pervasive Japan by acquiring stock held by minority shareholders for
approximately $266,000 in cash, which approximated its proportionate share of
book value. The acquisition was accounted for under the purchase method. After
the acquisition, the Company holds 80.5% of the outstanding stock of Pervasive
Japan. Pervasive Japan's net assets before elimination of intercompany balances
at June 30, 1997 and 1998 were approximately $2,000,000, and $1,900,000
respectively.
Pervasive Japan had entered into various operating agreements with certain
of its former minority shareholders in which these certain shareholders provide
localization, pre- and post-sales support, management and marketing services.
Expenses related to these agreements during the period in which the related
entity was a minority shareholder were $590,000, $616,000 and $326,000 in 1996,
1997 and 1998, respectively. One of the former minority shareholders is also a
distributor for Pervasive Japan. Sales to this distributor during the period in
which the related entity was a minority shareholder were approximately
$2,390,000, $2,530,000 and $1,800,000 in 1996, 1997 and 1998, respectively.
Receivables from this former shareholder were $530,000 as of June 30, 1997.
10. ACQUISITION OF SMITHWARE, INC.
On February 13, 1998, the Company acquired Smithware, Inc. ("Smithware") a
developer of database development and reporting components for Pervasive
products. The Company acquired Smithware for approximately $390,000 consisting
of $170,000 in cash, 23,752 shares of common stock of the Company valued at
$160,000 and acquisition costs of $60,000, plus up to an additional $80,000 of
cash and 47,502 shares of stock payable upon achievement of certain milestones
in the future. In conjunction with the acquisition, the Company repaid
Smithware's outstanding debts of approximately $110,000. The acquisition has
been accounted for under the purchase method and, accordingly, the operating
results of Smithware have been included in the consolidated financial statements
from the date of the acquisition. The acquisition did not have a material
effect on operations. The excess of purchase price over the fair value of the
net assets ($390,000) was recorded as goodwill, is being amortized over a ten
year period and will be increased by any consideration paid upon achievement of
certain milestones in the future. As of June 30, 1998, accumulated amortization
of goodwill was approximately $13,000.
11. LINE OF CREDIT
At June 30, 1998, the Company has a $4,000,000 revolving line of credit
with a bank, but at no time has borrowed under such line. Borrowings under the
line of credit would be collateralized by substantially all accounts receivable,
inventory and equipment and bears interest at the bank's prime lending rate or
LIBOR rate at the Company's option. The revolving line of credit will expire on
September 30, 1999.
12. COMMITMENTS AND CONTINGENCIES
The Company leases its office space and is obligated for its proportionate
share of utilities and other defined operating expenses of the building. Office
rent expense for the year ended June 30, 1996, 1997 and 1998, was approximately
$451,000, $573,000 and $924,000, respectively.
F-16
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company will move its headquarters from its current facility of
approximately 46,000 square feet to a new facility of approximately 70,000
square feet in the second quarter of fiscal 1999. The new facility will provide
additional space and expansion options to accommodate future growth at rental
rates per square foot consistent with the current facility. Future minimum
lease payments at June 30, 1998, under the operating leases for office space,
net of minimum sublease rent payments, are as follows (in thousands):
<TABLE>
<S> <C>
1999............................. $1,148
2000............................. 1,329
2001............................. 1,299
2002............................. 1,421
2003............................. 1,466
----------
$6,663
==========
</TABLE>
The leases for office space include options to renew the leases for
additional five year periods and are partially collateralized by letters of
credit totaling $301,000 to and in favor of the landlords.
13. FOREIGN CURRENCY SWAP AGREEMENT
The Company has entered into foreign currency swap contracts to minimize
foreign exchange exposure related to yen-denominated intercompany transactions.
At June 30, 1998, the Company had two offsetting foreign currency contracts
outstanding with notional amounts of approximately $224,000 and maturing in
March 1999. Gains and losses on currency swaps were not material to the
consolidated financial statements as of June 30, 1996, 1997 and 1998.
14. SEGMENTS OF BUSINESS AND GEOGRAPHIC AREA INFORMATION
The Company is engaged in the design, development and marketing of ultra
light embedded database products for packaged client/server applications. The
Company considers its business activities to constitute a single segment of
business.
A summary of the Company's operations by geographic area follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------
1996 1997 1998
----------------- ----------------- -------------------
<S> <C> <C> <C>
Revenue:
Domestic.................................................. $ 7,747 $16,135 $22,476
Europe (all originating from U.S.)........................ 2,716 4,693 9,293
Japan..................................................... 2,425 2,863 3,877
Rest of World (all originating from U.S.)................. 588 790 1,054
----------------- ----------------- -------------------
Total...................................................... $13,476 $24,481 $36,700
================= ================= ===================
Operating income (loss)(A):
United States............................................. $(2,983) $ 361 $(1,279)
Europe (inclusive of revenue originating from U.S.)....... (202) 1,131 3,765
Japan..................................................... 76 763 858
----------------- ----------------- -------------------
Total...................................................... $(3,109) $ 2,255 $ 3,344
================= ================= ===================
Identifiable assets:
United States............................................ $ 5,646 $ 6,644 $29,253
Europe................................................... 392 810 620
Japan.................................................... 1,433 2,991 2,770
----------------- ----------------- -------------------
Total..................................................... $ 7,471 $10,445 $32,643
================= ================= ===================
</TABLE>
(A) Operating income for Europe does not include any allocation of marketing,
product development, technical support and administrative costs incurred in
the United States.
F-17
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. STATEMENTS OF CASH FLOWS
The increase in current assets reflected in the statements of cash flows is
comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------
1996 1997 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
(Increase) in trade accounts receivable..................... $(1,485) $(259) $(2,550)
Decrease (increase) in inventory............................ 123 (19) (234)
Decrease (increase) in prepaid expenses and other........... (301) 262 (818)
----------------- ----------------- -----------------
$(1,663) $ (16) $(3,602)
================= ================= =================
</TABLE>
The increase in accounts payable and accrued liabilities reflected in the
statements of cash flows is comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------
1996 1997 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (decrease) in trade accounts payable .............. $(126) $ 342 $ 289
Increase in accrued payroll and payroll related costs....... 213 57 362
Increase in income taxes refundable/payable................. 311 301 906
Increase in accrued expenses ............................... 480 1,385 460
---------------- ----------------- -----------------
$ 878 $2,085 $2,017
================ ================= =================
Supplemental disclosures:
Interest paid during the year.............................. $ - $ - $ -
================ ================= =================
Income taxes paid (refunded) during the year:
Domestic................................................. $(316) $ 376 $ 426
================ ================= =================
Foreign.................................................. $ 159 $ - $ 271
================ ================= =================
</TABLE>
F-18
<PAGE>
SCHEDULE II
PERVASIVE SOFTWARE INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
BALANCE AT CHARGED TO WRITE-OFFS BALANCE
BEGINNING COSTS AND CHARGED TO AT END OF
DESCRIPTION OF PERIOD EXPENSES ALLOWANCE PERIOD
----------------- ------------------- -------------------- ---------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended June 30, 1996 $ - $ - $ - $ -
Year ended June 30, 1997 - 100 - 100
Year ended June 30, 1998 100 200 - 300
VALUATION ALLOWANCE FOR DEFERRED TAX
ASSET:
Year ended June 30, 1996 1,079 1,047 - 2,126
Year ended June 30, 1997 2,126 - 428 1,698
Year ended June 30, 1998 1,698 - 462 1,236
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
3.1* Restated Certificate of Incorporation
3.2* Bylaws of the Company
4.1* Reference is made to Exhibits 3.1, 3.2 and 4.3
4.2* Specimen Common Stock certificate
4.3* Investors' Rights Agreement dated April 19, 1995, between the Company
and the investors named therein
10.1* Form of Indemnification Agreement
10.2* 1997 Stock Incentive Plan
10.3* Employee Stock Purchase Plan
10.4* First Amended and Restated 1994 Incentive Plan
10.5* Amendment and Restatement of Credit Agreement dated March 31, 1997
between the Company and Texas Commerce Bank National Association
10.6* Lease Agreement dated October 5, 1994 between the Company and Colina
West Limited
10.7* First Amendment to Lease Agreement dated September 8, 1995 between the
Company and Colina West Limited
10.8* Sublease Agreement dated December 10, 1996 between the Company and
Reynolds, Loeffler & Dowling, P.C.
10.9* Joint Venture Agreement dated March 26, 1995 between the Company and
Novell Japan, Ltd., AG Tech Corporation and Empower Ltd.
10.10 Lease agreement dated April 2, 1998 between the Company and CarrAmerica
Realty, L.P. T/A Riata Corporate Park
10.11 Amendment and Restatement of Credit Agreement and Promissory Note dated
February 28, 1998 between the Company and Chase Bank of Texas, National
Association
21.1 Subsidiaries of the registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
*Incorporated by reference to the Company's Registration Statement on Form S-1
(File No. 333-32199).
<PAGE>
EXHIBIT 10.10
* * * * * * * * * * * * * * * * * * * *
Lease
RIATA CORPORATE PARK
* * * * * * * * * * * * * * * * * * * *
Between
PERVASIVE SOFTWARE INC.
(Tenant)
and
CARRAMERICA REALTY, L.P.
T/A RIATA CORPORATE PARK
(Landlord)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. LEASE AGREEMENT........................................................................................ 3
A. Lease of Premises............................................................................. 3
B. Determination of Rentable Square Feet......................................................... 3
C. Definitions................................................................................... 3
(1) Usable Area.......................................................................... 3
(2) General Common Areas................................................................. 3
(3) Floor Common Areas................................................................... 3
2. RENT................................................................................................... 3
A. Types of Rent................................................................................. 3
(1) Base Rent............................................................................ 4
(2) Operating Cost Share Rent............................................................ 4
(3) Additional Rent...................................................................... 4
(4) Rent................................................................................. 4
B. Payment of Operating Cost Share Rent.......................................................... 4
(1) Payment of Estimated Operating Cost Share Rent....................................... 4
(2) Correction of Operating Cost Share Rent.............................................. 4
C. Definitions................................................................................... 5
(1) Included Operating Costs............................................................. 5
(2) Excluded Operating Costs............................................................. 6
(3) Taxes................................................................................ 7
(4) Lease Year........................................................................... 7
(5) Fiscal Year.......................................................................... 7
(6) Tenant's Proportionate Share......................................................... 7
(7) Controllable Operating Costs......................................................... 8
(8) Controllable Operating Cost Share Rent............................................... 8
(9) Non-Controllable Operating Cost Share Rent........................................... 8
D. Computation of Base Rent and Rent Adjustments................................................. 8
(1) Prorations........................................................................... 8
(2) Default Interest..................................................................... 8
(3) Rent Adjustments..................................................................... 8
(4) Miscellaneous........................................................................ 8
3. PREPARATION AND CONDITION OF PREMISES; POSSESSION AND SURRENDER OF PREMISES............................ 9
A. Condition of Premises......................................................................... 9
B. Tenant's Possession........................................................................... 9
C. Maintenance................................................................................... 9
4. PROJECT SERVICES....................................................................................... 9
A. Heating and Air Conditioning.................................................................. 9
B. Elevators..................................................................................... 9
C. Electricity................................................................................... 9
D. Water......................................................................................... 10
E. Janitorial Service............................................................................ 10
F. Parking....................................................................................... 10
G. Building Security and Safety.................................................................. 10
H. Interruption of Services...................................................................... 10
5. ALTERATIONS AND REPAIRS................................................................................ 11
A. Landlord's Consent and Conditions............................................................. 11
B. Damage to Systems............................................................................. 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
C. No Liens...................................................................................... 12
D. Ownership of Improvements..................................................................... 12
E. Removal at Termination........................................................................ 12
6. USE OF PREMISES........................................................................................ 12
7. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES........................................................... 13
8. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE........................................................... 13
A. Waiver of Claims.............................................................................. 13
B. Indemnification............................................................................... 13
C. Tenant's Insurance............................................................................ 13
D. Insurance Certificates........................................................................ 14
E. Landlord's Insurance.......................................................................... 14
9. FIRE AND OTHER CASUALTY................................................................................ 15
A. Termination................................................................................... 15
B. Restoration................................................................................... 15
10. EMINENT DOMAIN......................................................................................... 15
11. RIGHTS RESERVED TO LANDLORD............................................................................ 15
A. Name.......................................................................................... 15
B. Signs......................................................................................... 15
C. Window Treatments............................................................................. 15
D. Keys.......................................................................................... 16
E. Access........................................................................................ 16
F. Preparation for Reoccupancy................................................................... 16
G. Heavy Articles................................................................................ 16
H. Show Premises................................................................................. 16
I. Relocation of Tenant.......................................................................... 16
J. Use of Lockbox................................................................................ 16
K. Repairs and Alterations....................................................................... 16
L. Landlord's Agents............................................................................. 17
M. Building Services............................................................................. 17
N. Other Actions................................................................................. 17
12. TENANT'S DEFAULT....................................................................................... 17
A. Rent Default.................................................................................. 17
B. Assignment/Sublease or Hazardous Substances Default........................................... 17
C. Other Performance Default..................................................................... 17
D. Credit Default................................................................................ 17
13. LANDLORD REMEDIES...................................................................................... 17
A. Termination of Lease or Possession............................................................ 17
B. Lease Termination Damages..................................................................... 18
C. Possession Termination Damages................................................................ 18
D. Remedies Cumulative........................................................................... 18
(1) Landlord............................................................................. 18
(2) Tenant............................................................................... 18
E. Waiver of Trial by Jury....................................................................... 18
F. Litigation Costs.............................................................................. 18
14. SURRENDER.............................................................................................. 19
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
15. HOLDOVER............................................................................................... 19
16. SUBORDINATION TO GROUND LEASES AND MORTGAGES........................................................... 19
A. Subordination................................................................................. 19
B. Termination of Ground Lease or Foreclosure of Mortgage........................................ 19
C. Security Deposit.............................................................................. 19
D. Notice and Right to Cure...................................................................... 19
E. Definitions................................................................................... 19
17. ASSIGNMENT AND SUBLEASE................................................................................ 20
A. In General.................................................................................... 20
B. Landlord's Consent............................................................................ 20
C. Procedure..................................................................................... 20
D. Related Entities.............................................................................. 20
E. [Intentionally Deleted]....................................................................... 21
18. CONVEYANCE BY LANDLORD................................................................................. 21
19. ESTOPPEL CERTIFICATE................................................................................... 21
20. SECURITY DEPOSIT....................................................................................... 21
21. FORCE MAJEURE.......................................................................................... 22
22. NOTICES................................................................................................ 22
A. Landlord...................................................................................... 22
B. Tenant........................................................................................ 22
23. QUIET POSSESSION....................................................................................... 23
24. REAL ESTATE BROKER..................................................................................... 23
25. MISCELLANEOUS.......................................................................................... 23
A. Successors and Assigns........................................................................ 23
B. Date Payments Are Due......................................................................... 23
C. Meaning of "Landlord", "Re-Entry, "including" and "Affiliate"................................. 23
D. Time of the Essence........................................................................... 23
E. No Option..................................................................................... 23
F. Severability.................................................................................. 23
G. Governing Law................................................................................. 23
H. Lease Modification............................................................................ 23
I. No Oral Modification.......................................................................... 23
J. Landlord's Default; Landlord's Right to Cure Tenant's Default................................. 23
K. Captions...................................................................................... 24
L. Authority..................................................................................... 24
M. Landlord's Enforcement of Remedies............................................................ 24
N. Entire Agreement.............................................................................. 24
O. Landlord's Title.............................................................................. 24
P. Light and Air Rights.......................................................................... 24
Q. Singular and Plural........................................................................... 24
R. No Recording by Tenant........................................................................ 24
S. Exclusivity................................................................................... 24
T. No Construction Against Drafting Party........................................................ 24
U. Survival...................................................................................... 24
V. Rent Not Based on Income...................................................................... 24
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
W. Building Manager and Service Providers........................................................ 24
X. Late Charge and Interest on Late Payments..................................................... 25
Y. Tenant's Financial Statements................................................................. 25
Z. Usury Savings................................................................................. 25
AA. Waiver of Warranties.......................................................................... 25
26. UNRELATED BUSINESS INCOME.............................................................................. 25
27. HAZARDOUS SUBSTANCES................................................................................... 25
28. EXCULPATION............................................................................................ 26
29. LANDLORD'S LIEN........................................................................................ 26
30. SATELLITE DISH......................................................................................... 26
</TABLE>
APPENDIX A - LEGAL DESCRIPTION OF LAND
APPENDIX A-1 - INITIAL PROJECT SITE PLAN
APPENDIX B - RULES AND REGULATIONS
APPENDIX C - TENANT IMPROVEMENT AGREEMENT
APPENDIX C-1 - SHELL CONDITION
APPENDIX C-2 - BASE BUILDING PROFILE
APPENDIX D - MORTGAGES CURRENTLY AFFECTING THE PROJECT
APPENDIX E - COMMENCEMENT DATE CONFIRMATION
APPENDIX F - SPECIAL PROVISIONS
APPENDIX G - FORM OF LETTER OF CREDIT
iv
<PAGE>
INDEX OF TERMS
--------------
Page No.
--------
Additional Rent................................................................4
Base Building Plans..........................................................C-1
Base Building Work...........................................................C-1
Base Rent...................................................................1, 4
Building.......................................................................1
Business Hours.................................................................9
Cap Amount.....................................................................8
Change Orders................................................................C-2
Commencement Date..............................................................1
Completion Date..............................................................C-2
Controllable Operating Cost Share Rent.........................................8
Controllable Operating Costs...................................................8
Dish..........................................................................26
Early Termination Date.......................................................F-3
Equitable Adjustment...........................................................5
First Expansion Space........................................................F-2
First Renewal Term...........................................................F-1
First Take Space.............................................................F-1
Fiscal Year....................................................................7
Floor Common Areas.............................................................3
Force Majeure.................................................................22
General Common Areas...........................................................3
Governmental Requirements.....................................................11
Hazardous Substances..........................................................25
Included Capital Items.........................................................5
Initial Improvement Plans....................................................C-1
Initial Improvements.........................................................C-1
Initial Space"). The........................................................F-1
Issuer.......................................................................G-3
Landlord.......................................................................1
Landlord's Architect...........................................................3
Landlord's Contribution......................................................C-2
Landlord's Real Estate Broker..................................................1
Landlord's RFR Notice........................................................F-3
Lease..........................................................................1
Lease Year.....................................................................7
Letter of Credit.........................................................21, G-3
Necessary Hazardous Substances................................................25
New Premises..................................................................16
Non-Controllable Operating Cost Share Rent.....................................8
Non-Controllable Operating Costs...............................................8
Old Premises..................................................................16
Operating Cost Report..........................................................4
Operating Cost Share Rent......................................................4
Operating Costs................................................................5
Premises.......................................................................1
Project........................................................................1
Renewal Term.................................................................F-1
Rent...........................................................................4
Rent Tax.......................................................................7
Rentable Square Feet...........................................................1
v
<PAGE>
RFR Space....................................................................F-3
Schedule.......................................................................1
Second Expansion Space.......................................................F-2
Second Renewal Term..........................................................F-1
Second Take Space............................................................F-1
Security Deposit...........................................................1, 21
Stated Amount................................................................G-1
Stated Expiration Date.......................................................G-1
Taxe...........................................................................7
Tenant.........................................................................1
Tenant Delay.................................................................C-2
Tenant Improvements............................................................1
Tenant's Proportionate Share................................................1, 7
Tenant's Real Estate Broker....................................................1
Term...........................................................................1
Termination Date...............................................................1
Termination Fee..............................................................F-3
Termination Notice...........................................................F-3
Termination Option...........................................................F-3
Third Take Space.............................................................F-1
UCP..........................................................................G-2
Usable Area....................................................................3
Work..........................................................................11
vi
<PAGE>
LEASE
THIS LEASE (the "Lease") is made as of April 2, 1998, between
CarrAmerica Realty, L.P., a Delaware limited partnership, t/a Riata Corporate
Park (the "Landlord"), and the Tenant as named in the Schedule below. The term
"Premises" means the "Building" (herein so called) known as "Riata Corporate
Park Building 8," with a local address of 12365 Riata Trace Parkway, Building
II, Austin, Texas. The Building is part of an office development (the "Project")
known as "Riata Corporate Park," the extent and configuration of which shall be
determined by Landlord from time to time. The Project is situated on the land
legally described in Appendix A. The initial configuration of the Project,
including the Premises, is outlined on the site plan attached hereto as Appendix
A-1. Landlord shall obtain Tenant's prior written approval (not to be
unreasonably withheld or delayed) to any reconfiguration of the Project which
involves relocation or reconfiguration of the Building or which will have a
materially negative effect on parking for or access to the Premises.
The following schedule (the "Schedule") is an integral part of this
Lease. Terms defined in this Schedule shall have the same meaning throughout the
Lease.
SCHEDULE
1. Tenant: Pervasive Software Inc., a Delaware corporation
2. Premises: All of the 1st, 2nd and 3rd floors of Riata Corporate Park
Building 8
3. Rentable Square Feet: Approximately 91,332
4. Tenant's Proportionate Share: 100% (Based upon a total of
approximately 91,332 rentable square feet in the Building, subject to
phasing of the Premises in the Building under paragraph 2 of Appendix F
and subject to adjustment with respect to other Buildings in the
Project into which Tenant expands pursuant to Appendix F.
Notwithstanding the foregoing, at all times Tenant shall be responsible
for 100% of the costs associated with Tenant's supplemental HVAC
systems.)
5. Security Deposit: $175,000.00
6. Tenant's Real Estate Broker for this Lease: Michael A. Kennedy and
Oxford Commercial, Inc. (Diana Barbour)
7. Landlord's Real Estate Broker for this Lease: Oxford Commercial, Inc.
(Mark Greiner and Spencer Hayes)
8. Tenant Improvements: See the Tenant Improvement Agreement attached
hereto as Appendix C
9. Commencement Date: October 1, 1998, or the Completion Date (as defined
in Appendix C and as otherwise provided therein) if it is later.
Landlord and Tenant shall execute a Commencement Date Confirmation
substantially in the form of Appendix E promptly following the
Commencement Date.
10. Termination Date/Term: Ten (10) years after the Commencement Date, or
if the Commencement Date is not the first day of a month, then ten (10)
years after the first day of the following month.
11. Base Rent:
<TABLE>
<CAPTION>
Period Annual Base Rent Monthly Base Rent Payment*
------ ---------------- --------------------------
<S> <C> <C>
Months 1-36 $14.10 per rentable sq.ft. $107,315.10
Months 37-72 $16.05 per rentable sq.ft. $122,156.55
Months 73-120 $18.03 per rentable sq.ft. $137,226.33
</TABLE>
<PAGE>
* The monthly Base Rent payment amount is based on total rentable
square footage within the Premises as set forth in this Schedule.
However, pursuant to the provisions of Section 2B of the Lease and
Appendix F to the Lease, rentable square footage within the Premises
may be greater or less than this figure from time to time under the
Lease, in which event the monthly Base Rent payment may vary. The
"Annual Base Rent" per square foot set forth above will not vary.
12. Initial estimated Operating Cost Share Rent: $7.00 per rentable square
foot per year (subject to Sections 4.C and 4.E below), based on
operation of the Building during Business Hours (defined below).
Subject to the fluctuation in the total rentable square footage of the
Premises described above, this rent figure equals $639,324.00 per year
and $53,277.00 per month.
2
<PAGE>
1. LEASE AGREEMENT.
A. Lease of Premises. On the terms stated in this Lease, Landlord
leases the Premises to Tenant, and Tenant leases the Premises from Landlord, for
the Term beginning on the Commencement Date and ending on the Termination Date
unless extended or sooner terminated pursuant to this Lease.
B. Determination of Rentable Square Feet. Landlord and Tenant
acknowledge and agree that the Rentable Square Footage as stated in the Schedule
is an approximation and cannot be conclusively determined until after completion
of construction of the Premises and the Building. Within sixty (60) days of the
Completion Date, the Rentable Square Footage of the Premises shall be determined
and certified in writing by RTG Partners, Inc. ("Landlord's Architect") using
the modified "BOMA" standard, as described below. For purposes of this
determination, Rentable Square Footage for the Premises shall be calculated by
taking the sum of the following:
(1) (i) Square footage of all Usable Area (as defined below)
within the first (1st) floor of the Building, including Floor Common
Areas (as defined below), plus (ii) an "add-on factor" to account for
Tenant's share of General Common Areas (as defined below). The current
estimate for the add-on factor for the 1st floor of the Building, so
long as only Tenant occupies such floor is 4.4% times all Usable Area
within the 1st floor.
(2) (i) Square footage of all Usable Area within the second (2nd)
floor of the Building, including Floor Common Areas, plus (ii) an "add-
on factor" to account for Tenant's share of General Common Areas. The
current estimate for the add-on-factor for the 2nd floor of the
Building, so long as such floor is occupied only by Tenant, is 4.4%
times all Usable Area within the 2nd floor.
(3) (i) Square footage of all Usable Area within the third (3rd)
floor of the Building, including Floor Common Areas, plus (ii) an "add-
on factor" to account for Tenant's share of General Common Areas. The
current estimate for the add-on factor for the 3rd floor of the
Building, so long as such floor is occupied only by Tenant, is 4.4%
times all Usable Area within the 3rd floor.
C. Definitions.
(1) Usable Area. "Usable Area" is computed (i) with respect to
multi-tenant floors, by measuring to the finished surface of the office
side of the corridor and other permanent walls, to the center of
partitions that separate the office from adjoining Usable Areas, and to
the inside finished surface of the dominant portion of the permanent
outer building walls, and (ii) with respect to single tenant floors, by
measuring to the inside finished surface of the dominant portion of the
permanent outer building walls, excluding major vertical penetrations
of the floor. Deductions are not made for columns and projections
necessary to the building.
(2) General Common Areas. "General Common Areas" are defined as
all areas intended for use by all building tenants (including building
lobby, mailroom, elevator equipment rooms, shower facilities, security
office and fire sprinkler rooms).
(3) Floor Common Areas. "Floor Common Areas" are defined as all
areas for use by tenants of a single floor only, and include restrooms,
janitor's closets, mechanical, electrical, telephone rooms and building
corridors, calculated by subtracting all Usable Area on a multi-tenant
floor from the Usable Area for such floor as determined for occupancy
by a single tenant.
2. RENT.
A. Types of Rent. Tenant shall pay the following Rent in the form
of a check to Landlord at the following address:
3
<PAGE>
CarrAmerica Realty, L.P.
t/a Riata Corporate Park
P.O. Box ________
Atlanta, GA 30384-0566
or by wire transfer as follows:
NationsBank, N.A. (South)
ABA Number 061-000-052
Account Number 3261312955
Account Name: CarrAmerica Realty, L.P. t/a Riata Corporate Park
or in such other manner as Landlord may notify Tenant:
(1) Base Rent in monthly installments in advance, the first
monthly installment payable on the Commencement Date (prorated if the
Commencement Date is not the first day of a month) and thereafter on or
before the first day of each month of the Term in the amount set forth
on the Schedule.
(2) Operating Cost Share Rent in an amount equal to the sum of
Controllable Operating Cost Share Rent and Non-Controllable Operating
Cost Share Rent. Operating Cost Share Rent shall be paid monthly in
advance in an estimated amount. The method for billing and payment of
Operating Cost Share Rent, and definitions of certain of the
capitalized terms used herein, are set forth in Sections 2B, 2C and 2D
below.
(3) Additional Rent in the amount of all costs, expenses,
liabilities, and amounts which Tenant is required to pay under this
Lease, excluding Base Rent and Operating Cost Share Rent, but including
any interest for late payment of any item of Rent.
(4) Rent as used in this Lease means Base Rent, Operating Cost
Share Rent and Additional Rent. Tenant's agreement to pay Rent is an
independent covenant, with no right of setoff, deduction or
counterclaim of any kind except as expressly provided herein.
B. Payment of Operating Cost Share Rent.
(1) Payment of Estimated Operating Cost Share Rent. Landlord
shall estimate the Operating Costs of the Project (including Taxes, as
defined below) by April 1 of each Fiscal Year, or as soon as reasonably
possible thereafter but not later than May 31 of such Fiscal Year.
Landlord may revise these estimates whenever it obtains more accurate
information, such as the final real estate tax assessment or tax rate
for the Project, but no more than once per Fiscal Year. If Landlord
fails to deliver its original estimate by May 31 of the Fiscal Year,
Tenant may notify Landlord thereof in writing and, if Landlord has
still not provided such estimate within thirty (30) days of such
notice, Tenant shall not be required to pay any increase in Estimated
Operating Cost Share Rent for such Fiscal Year from the previous Fiscal
Year, provided that the foregoing shall have no effect on the
application of Section 2(B)(2) below for such Fiscal Year.
Within ten (10) days after receiving the original or revised
estimate (in writing) from Landlord, Tenant shall pay Landlord
one-twelfth (1/12th) of Tenant's Proportionate Share of the estimated
Operating Costs, multiplied by the number of months that have elapsed
in the applicable Fiscal Year to the date of such payment including the
current month, minus payments previously made by Tenant for the months
elapsed. On the first day of each month thereafter, Tenant shall pay
Landlord one-twelfth (1/12th) of Tenant's Proportionate Share of this
estimate, until a new estimate becomes applicable.
(2) Correction of Operating Cost Share Rent. Landlord shall
deliver to Tenant a written report for the previous Fiscal Year (the
"Operating Cost Report") by April 1 of each year, or as soon as
reasonably possible thereafter but not later than May 31 of each Fiscal
Year, setting forth (a) the actual Operating Costs
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incurred, (b) the amount of Operating Cost Share Rent due from Tenant,
and (c) the amount of Operating Cost Share Rent paid by Tenant. Within
twenty (20) days after such delivery, Tenant shall pay to Landlord the
amount due minus the amount paid, if applicable. If the amount paid
exceeds the amount due, Landlord shall apply the excess to Tenant's
payments of Operating Cost Share Rent next coming due or, if the excess
is greater than $5,000.00, Landlord shall promptly refund such amount
to Tenant. If Landlord fails to deliver the Operating Cost Report by
May 31 of the Fiscal Year following the Fiscal Year to which such
Operating Cost Report applies, Tenant may notify Landlord thereof in
writing and, if Landlord has still not provided such Operating Cost
Report within thirty (30) days of such notice, Tenant shall not be
liable for any increase in Tenant's Operating Cost Share Rent for the
preceding Fiscal Year above Tenant's Estimated Operating Cost Share
Rent paid for such preceding Fiscal Year, provided that the foregoing
shall have no effect on Tenant's obligation for Operating Cost Share
Rent for the then-current or any subsequent Fiscal Year.
(3) Tenant's Audit Rights. Landlord shall maintain books and
records reflecting the Operating Costs in accordance with sound
accounting and management practices. Tenant and its certified public
accountant shall have the right to inspect Landlord's records at
Landlord's office upon at least seventy-two (72) hours' prior notice
during normal business hours during the ninety (90) days following the
delivery of the Operating Cost Report. The results of any such
inspection shall be kept strictly confidential by Tenant and its
agents, and Tenant and its certified public accountant must agree, in
their contract for such services, to such confidentiality restrictions
and shall specifically agree that the results shall not be made
available to any other tenant of the Project. Unless Tenant sends to
Landlord any written exception to either such report within said ninety
(90) day period, such report shall be deemed final and accepted by
Tenant. Tenant shall pay the amount shown on the Report in the manner
prescribed in this Lease, whether or not Tenant takes any such written
exception, without any prejudice to such exception. If Tenant makes a
timely exception, Landlord may select and cause another firm with at
least five (5) years of experience in auditing the books and records of
commercial office projects to issue, in consultation with Tenant's
auditor, a final and conclusive resolution of Tenant's exception.
Tenant shall pay the cost of such certification unless Landlord's
original determination of annual Operating Costs overstated the amounts
thereof by more than three percent (3%), in which event Landlord shall
pay the cost of both such certification and Tenant's audit.
C. Definitions.
(1) Included Operating Costs. "Operating Costs" means any expenses,
costs and disbursements of any kind, paid or incurred by Landlord
directly in connection with the management [including an annual
management fee, which shall not exceed four and one-half percent (4
1/2%) of Rent (net of the management fee) for such year], maintenance,
operation, insurance, repair, replacement and other related activities
in connection with any part of the Building or the Project and of the
personal property, fixtures, machinery, equipment, systems and
apparatus used in connection therewith, including the cost of providing
those services required to be furnished by Landlord under this Lease.
Operating Costs shall also include Taxes and the costs of any capital
improvements which reduce Operating Costs or improve safety, and those
made to keep the Project in compliance with governmental requirements
applicable from time to time (collectively, "Included Capital Items");
provided, that the costs of any Included Capital Item shall be
amortized by Landlord, together with an amount equal to interest at
eight percent (8%) per annum, over the estimated useful life of such
item and such amortized costs are only included in Operating Costs for
that portion of the useful life of the Included Capital Item which
falls within the Term. With respect to Included Capital Items which
reduce Operating Costs, the amortized costs thereof included in
Operating Costs shall not exceed the total amount of actual savings.
If the Building is not fully occupied during any portion of any
Fiscal Year, Operating Costs shall be calculated to equal what would
have been incurred by Landlord had the Building been fully occupied (an
"Equitable Adjustment"). This Equitable Adjustment shall apply only to
Operating Costs which are variable and therefore increase as occupancy
of the Building increases. Landlord may incorporate the Equitable
Adjustment in its estimates of Operating Costs.
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If Landlord does not furnish any particular service whose cost
would have constituted an Operating Cost to a tenant other than Tenant
which has undertaken to perform such service itself, Operating Costs
shall be increased by the amount which Landlord is not incurring due to
such tenant providing such service. If Tenant elects to perform any
such service itself, at its cost, Operating Costs shall not include the
cost of such service.
(2) Excluded Operating Costs. Operating Costs shall not include:
(a) Costs of decorating, redecorating, special cleaning, or
other services provided to specific tenants and not
provided on a regular basis to tenants of the Project;
(b) Wages, salaries, fees and fringe benefits paid to
executive personnel, marketing personnel, or officers or
partners of Landlord above the title of a property
manager directly responsible for the Project;
(c) Any charge for depreciation of the Building or equipment
and any interest or other financing charge except for
Included Capital Items, as described in Section 2C(1)
above;
(d) Any charge for Landlord's income taxes, profit taxes,
franchise taxes, or similar taxes on Landlord's business
unless enacted in lieu of included taxes or an increase
thereof;
(e) All costs relating to activities of the solicitation and
execution of leases of space in the Project;
(f) All costs for which Tenant or any other tenant in the
Building is being charged other than pursuant to the
operating expense clause in such tenant's lease with
Landlord;
(g) The cost of capital expenditures incurred in correcting
defects in the construction of the Building or in the
Building equipment, except that conditions (not
occasioned by construction defects) resulting from
ordinary wear and tear will not be deemed defects for the
purpose of this item;
(h) The cost of any repair made by Landlord because of the
total or partial destruction of the Building or the
condemnation of a portion of the Building;
(i) Any increase in insurance premiums to the extent that
such increase is caused or attributable to the use,
occupancy, or act of another tenant other than office or
related uses;
(j) The cost of any items for which Landlord is reimbursed by
insurance or otherwise compensated by tenants of the
Building pursuant to lease clauses similar to this
paragraph;
(k) The cost of any additions or capital improvements to the
Building subsequent to the date of original construction
other than amortization of Included Capital Items;
(l) The cost of any repairs, alterations, additions, changes,
replacements, and other items which under generally
accepted accounting principles are properly classified as
capital expenditures, but only to the extent they upgrade
or improve the Building as opposed to replace existing
items which have worn out, and other than amortization of
Included Capital Items;
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(m) The cost of capital expenditures for any removal,
treatment or abatement of asbestos or any other Hazardous
Substance or gas in the Building;
(n) Any operating expense representing an amount paid to a
related corporation, entity, or person which is not
competitive with the amount which would be paid in the
absence of such relationship;
(o) The cost of alterations of space in the Project for lease
to other tenants; and
(p) Ground rent or similar payments by Landlord to a ground
lessor of the Project.
(3) Taxes. "Taxes" means any and all taxes, assessments and
charges of any kind, general or special, ordinary or extraordinary,
levied against the Project, which Landlord shall pay or become
obligated to pay in connection with the ownership, leasing, renting,
management, use, occupancy, control or operation of the Project or of
the personal property, fixtures, machinery, equipment, systems and
apparatus used in connection therewith. Taxes shall include real estate
taxes, personal property taxes, sewer rents, water rents, special or
general assessments, ad valorem taxes, assessments by any property
owners association or under any deed or other restrictive covenants and
any tax levied directly on the rents hereunder or the interest of
Landlord under this Lease (the "Rent Tax"). Taxes shall also include
all reasonable third-party fees and other actual out-of-pocket costs
and expenses paid by Landlord in reviewing and/or protesting any tax
and in seeking a refund or reduction of any Taxes, whether or not the
Landlord is ultimately successful.
For any year, the amount to be included in Taxes (a) from taxes or
assessments payable in installments, shall be the amount of the
installments (with any interest charged by the taxing authority) due
and payable during such year, and (b) from all other Taxes, shall at
Landlord's election be the amount accrued, assessed, or otherwise
imposed for such year or the amount due and payable in such year. Any
refund or other adjustment to any Taxes by the taxing authority, shall
apply during the year in which the adjustment is made.
Taxes shall not include any net income (except Rent Tax), profit,
excise, capital, stock, succession, transfer, franchise, gift, estate
or inheritance tax, except to the extent that such tax shall be imposed
in lieu of any portion of Taxes. Taxes shall also not include any late
charges or penalties incurred due to Landlord's late payment of Taxes,
unless incurred as a result of Tenant's late payment of Operating Cost
Share Rent.
If, in their respective commercially-reasonable business judgment,
Landlord and Tenant believe any property tax assessment in which Taxes
will be based is excessively high and desire to protest such assessment
with the appropriate taxing authority, then Landlord shall use
reasonable efforts to carry out such protest.
(4) Lease Year. "Lease Year" means each consecutive twelve-month
period beginning with the Commencement Date, except that if the
Commencement Date is not the first day of a calendar month, then the
first Lease Year shall be the period from the Commencement Date through
the final day of the twelve months after the first day of the following
month, and each subsequent Lease Year shall be the twelve months
following the prior Lease Year.
(5) Fiscal Year. "Fiscal Year" means the calendar year, except
that the first Fiscal Year and the last Fiscal Year of the Term may be
a partial calendar year.
(6) Tenant's Proportionate Share. "Tenant's Proportionate Share"
means a fraction, the numerator of which is the total Rentable Square
Footage of the Premises, and the denominator of which is the total
Rentable Square Footage of the Building and any other Project buildings
into which Tenant has expanded.
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(7) Controllable Operating Costs. "Controllable Operating Costs"
means all Operating Costs other than costs related to utilities, Taxes,
insurance, weather, Tenant's operations in the Building after Business
Hours and wear and tear on the Building due to such after-hours use
(herein, collectively, "Non-Controllable Operating Costs").
(8) Controllable Operating Cost Share Rent. "Controllable
Operating Cost Share Rent" applicable to the first Fiscal Year shall be
an amount equal to Tenant's Proportionate Share of Controllable
Operating Costs during the first Fiscal Year. Controllable Operating
Cost Share Rent applicable to the second Fiscal Year shall be the
lesser of (i) Tenant's Proportionate Share of Controllable Operating
Costs during the second Fiscal Year, or (ii) the sum of Tenant's
Proportionate Share of Controllable Operating Costs for the first
Fiscal Year, plus six percent (6%) (such sum is the "Cap Amount"). The
Controllable Operating Cost Share Rent applicable to each Fiscal Year
thereafter shall be the lesser of (i) Tenant's Proportionate Share of
Controllable Operating Costs during the applicable Fiscal Year, or (ii)
the sum of the Cap Amount for the immediately preceding Fiscal Year,
plus six percent (6%). Assume, for example, Controllable Operating Cost
Share Rent for the first Fiscal Year of $100.00. In the second Fiscal
Year, Controllable Operating Cost Share Rent would be the lesser of (i)
Tenant's Proportionate Share of Controllable Operating Costs for the
second Fiscal Year, or (ii) $106.00 ($100.00 plus 6%, which would be
the Cap Amount). In the third Fiscal Year, Controllable Operating Cost
Share Rent would be the lesser of (i) Tenant's Proportionate Share of
Controllable Operating Costs for the third Fiscal Year, or (ii) $112.36
($106.00 plus 6%, which becomes the Cap Amount subject to a 6% increase
for the following Fiscal Year).
(9) Non-Controllable Operating Cost Share Rent. "Non-Controllable
Operating Cost Share Rent" for each Fiscal Year of this Lease shall be
an amount equal to Tenant's Proportionate Share of Non-Controllable
Operating Costs.
D. Computation of Base Rent and Rent Adjustments.
(1) Prorations. If this Lease begins on a day other than the first
day of a month, Base Rent and Operating Cost Share Rent shall be
prorated for such partial month based on the actual number of days in
such month. If this Lease begins on a day other than the first day, or
ends on a day other than the last day, of the Fiscal Year, Operating
Cost Share Rent shall be prorated for the applicable Fiscal Year.
(2) Default Interest. Any sum due from Tenant to Landlord not
paid when due shall bear interest from the date due until paid at the
lesser of fourteen percent (14%) per annum or the highest rate allowed
by law.
(3) Rent Adjustments. Subject to Section 2B(2) above, if any
Operating Cost paid in one Fiscal Year relates to more than one Fiscal
Year, Landlord may proportionately allocate such Operating Cost among
the related Fiscal Years. Operating Costs allocable to the Project as a
whole (as opposed to a single building within the Project), including
all maintenance, repair, replacement, insurance, Taxes and other
Operating Costs associated with the parking and driveway areas,
landscaping, project and directional signage and other common areas
within the Project, shall be allocated among the completed buildings in
the Project based upon the relative Rentable Square Feet within such
buildings, and Operating Cost Share Rent shall include Tenant's
Proportionate Share of such Operating Costs allocated to the Building.
(4) Miscellaneous. So long as Tenant is in default of any
obligation under this Lease beyond any applicable cure period, Tenant
shall not be entitled to any refund of any amount from Landlord,
provided that Landlord shall promptly refund such amount to Tenant upon
Tenant's cure of such default. If this Lease is terminated for any
reason prior to the annual determination of Operating Cost Share Rent,
either party shall pay the full amount due to the other within fifteen
(15) days after Landlord's written notice to Tenant of the amount when
it is determined. Landlord may commingle any payments made with respect
to Operating Cost Share Rent, without payment of interest.
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3. PREPARATION AND CONDITION OF PREMISES; POSSESSION AND SURRENDER OF
PREMISES.
A. Condition of Premises. Except as expressly provided in this Lease
and Appendix C hereto, Landlord is leasing the Premises to Tenant without any
obligation to alter, remodel, improve, repair or decorate any part of the
Premises. Landlord shall cause the Premises to be completed in accordance with
the Tenant Improvement Agreement attached as Appendix C.
B. Tenant's Possession. Tenant's taking possession of any portion of
the Premises and execution of the Commencement Date Confirmation shall be
conclusive evidence that such portion of the Premises was in good order, repair
and condition, subject only to "punch list" items. If Tenant takes possession of
any part of the Premises prior to the Commencement Date for purposes of
conducting business (and not merely preparing the Premises for Tenant's use and
occupancy), all terms of this Lease shall apply to such pre-Term possession,
including Base Rent at the rate set forth for the First Lease Year in the
Schedule, prorated for any partial month.
C. Maintenance. Throughout the Term, Tenant shall maintain the
Premises in their condition as of the Completion Date, loss or damage caused by
the elements, ordinary wear and tear, and fire and other casualty excepted, and
at the termination of this Lease or Tenant's right to possession, Tenant shall
return the Premises to Landlord in broom-clean condition. To the extent Tenant
fails to perform either obligation, Landlord may, but need not, restore the
Premises to such condition and Tenant shall pay the actual, reasonable cost
thereof.
4. PROJECT SERVICES. Landlord shall furnish services as follows, at no
additional cost to Tenant except as provided in this Lease:
A. Heating and Air Conditioning. Landlord shall provide heating and
air conditioning services during the normal business hours of 7:00 a.m. to 6:00
p.m., Monday through Friday, and 8:00 a.m. to 1:00 p.m. on Saturday, excluding
New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day ("Business Hours"). Landlord shall furnish heating and air
conditioning to provide a comfortable temperature for normal business operations
in keeping with other Class "A" office buildings in the Austin Northwest
suburban market, except to the extent Tenant installs equipment which adversely
affects the temperature maintained by the air conditioning system above that
contemplated in the Initial Improvement Plans (as defined in Appendix C). If
Tenant installs such equipment, Landlord may install supplementary air
conditioning units in the Premises, and Tenant shall pay to Landlord upon
written demand as Additional Rent the cost of installation, operation and
maintenance thereof.
Upon Tenant's occupancy in a multi-tenant building in the Project,
Landlord shall furnish heating and air conditioning after Business Hours for
such building if Tenant provides Landlord reasonable prior notice, and pays
Landlord all then-current, reasonable charges for such additional heating or air
conditioning, consistent with charges therefor levied against other tenants in
the building in question. Where Tenant occupies 100% of a Building, Landlord
shall furnish heating and air conditioning after Business Hours if Tenant
provides Landlord reasonable prior notice, and pays to Landlord an amount equal
to $2.00 for each hour of such additional heating and air conditioning per
Building floor, as compensation to Landlord for additional wear and tear on the
heating and air conditioning equipment for such Building.
B. Elevators. Except in case of an emergency, Landlord shall provide
24-hour passenger elevator service to Tenant, in common with Landlord and all
other tenants, if any.
C. Electricity. Landlord shall provide sufficient electricity to
operate normal office lighting and equipment, as specified in the Base Building
Plans (as defined in Appendix C). Tenant shall not install or operate in the
Premises any electrically operated equipment or other machinery, other than
business machines and equipment normally employed for general office use which
do not require high electricity consumption for operation, without obtaining the
prior written consent of Landlord, not to be unreasonably withheld, delayed or
conditioned. If, in connection with Tenant's occupancy of any multi-tenant
building, any or all of Tenant's equipment requires electricity consumption in
excess of that which is necessary to operate normal office equipment, such
consumption (including consumption for computer or telephone rooms and special
HVAC equipment) shall be submetered by
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Landlord at Tenant's expense, and Tenant shall reimburse Landlord as Additional
Rent for the cost of its submetered consumption based upon Landlord's average
cost of electricity. Such Additional Rent shall be in addition to Tenant's
obligations pursuant to Section 2A(2) to pay its Proportionate Share of
Operating Costs. Tenant shall have the right, at no expense to Landlord, to (i)
contract directly with an electric service provider for service to the Building,
provided Tenant occupies all of the Building and such service will not result in
the placement of any material additional electrical facilities in the Premises,
and (ii) sub-meter one or more portions of the Premises.
D. Water. Landlord shall furnish hot and cold tap water for drinking
and toilet purposes. Tenant shall pay Landlord the actual cost of water
furnished for any other purpose, as Additional Rent. Neither Landlord nor Tenant
shall permit water to be wasted.
E. Janitorial Service. Landlord shall furnish janitorial service as
generally provided to other tenants in the Project; provided, however, upon
sixty (60) days prior written notice to Landlord, Tenant may, at its option,
contract directly for janitorial services for any portion of the Premises
comprising an entire building (subject to Landlord's reasonable approval of such
contract, including the reputable character of the service provider and its
satisfaction of Landlord's bonding and insurance requirements and provided that
such direct contract does not create any unrelated business taxable income to
Landlord), at Tenant's sole cost and expense, in which event the cost of
janitorial services shall not be included as part of Operating Costs hereunder.
F. Parking. Landlord shall provide, without charge, parking areas for
the Project, as designated by Landlord from time to time, for the nonexclusive
use by Tenant and its employees and other invitees in common with Landlord and
other tenants of Project and their respective employees and other invitees,
which parking areas shall contain no fewer than four (4) parking spaces
(including visitor parking spaces and any reserved parking spaces) for every one
thousand 1,000 Rentable Square Feet contained within the Project. Landlord shall
provide fifteen (15) parking spaces within such parking areas within close
proximity to the Building, which shall be identified as reserved for Tenant's
visitor parking. Landlord shall also provide a grade level parking area adjacent
to the Building which shall be designated for loading and deliveries. Subject to
the foregoing, Tenant shall have no right to exclusive parking with respect to
any parking spaces within the Project, and Tenant shall not tow cars or
otherwise enforce its parking rights against third parties. Tenant shall use its
best efforts to not allow its employees or other invitees to park within any
public streets adjacent to the Project. Landlord shall use reasonable efforts to
enforce Tenant's parking rights against third parties, provided that Landlord
shall have no liability to Tenant due to Tenant's inability to utilize parking
spaces within the Project. Landlord shall have the right, but not the
obligation, to impose reasonable rules and regulations as Landlord may deem
necessary to regulate parking within the Project, including registration of
license plate numbers for vehicles driven by Tenant's employees, issuance and
monitoring of parking tags or permits and/or designation of exclusive parking
spaces. Surface visitor parking shall be available at no charge to Tenant or
Tenant's visitors. Parking areas within close proximity to the Building shall be
constructed substantially as shown on the site plan attached as Appendix A-1.
G. Building Security and Safety. Landlord shall install and maintain
a card-key access control system for entry into the Building and for elevator
operation during non-Business Hours for the use of Tenant. Landlord shall also
install and maintain a fire sprinkler system for the Building in accordance with
applicable governmental requirements. Further, Landlord shall provide 24-hour/7
days per week security patrol service for the Project common areas, with no
warranty or liability respecting the effectiveness of such service. Tenant shall
have the right to install its own security system in the Premises, and such
security system equipment shall remain Tenant's property, to be removed by
Tenant upon termination of the Lease in accordance with Section 5E below.
H. Interruption of Services. If any of the Building equipment or
machinery ceases to function properly for any cause Landlord shall use
reasonable diligence to repair the same promptly. Landlord's inability to
furnish, to any extent, the Project services set forth in this Section 4, or any
cessation thereof resulting from any causes, including any entry for repairs
pursuant to this Lease, and any renovation, redecoration or rehabilitation of
any area of the Project shall not render Landlord liable for damages to either
person or property or for interruption or loss to Tenant's business, nor be
construed as an eviction of Tenant, nor work an abatement of any portion of
Rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof.
However, in the event that an interruption of the Project services set forth in
this Section 4 causes a material portion of the Premises to be untenantable for
a
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period of at least three (3) consecutive business days, monthly Rent shall be
abated proportionately from the date of such interruption until such services
are resumed.
5. ALTERATIONS AND REPAIRS.
A. Landlord's Consent and Conditions. Tenant shall not make any
structural or exterior improvements or alterations to the Premises or any
alterations affecting the Building systems, nor any non-structural interior
improvements or alterations not affecting the Building systems costing more than
$10,000.00 (in either case, the "Work") without in each instance submitting
plans and specifications for the Work to Landlord and obtaining Landlord's prior
written consent, which consent shall not be unreasonably withheld or unduly
delayed or conditioned. Landlord will be deemed to be acting reasonably in
withholding its consent for any Work to the exterior of the Premises or any Work
which (a) impacts the base structural components or systems of the Building or
(b) impacts any other tenant's premises.
Tenant shall reimburse Landlord for actual costs incurred for review of
the plans and all other items submitted by Tenant, not to exceed $500.00. Unless
agreed otherwise, Tenant shall pay for the cost of all Work. All Work shall
become the property of Landlord upon its installation, except for (i) Tenant's
trade fixtures, including, without limitation, Tenant's reception area equipment
and desk, hanging file systems, secretarial and work stations or systems,
supplemental HVAC units, security system, and any other system or item the
removal of which will not materially impact the structural integrity of the
Building and which other system (i.e., not specifically identified above) was
not paid for by Landlord's Contribution (as defined in Appendix C), and (ii)
items which Landlord requires Tenant to remove at Tenant's cost at the
termination of the Lease pursuant to Sections 5D and 5E. Tenant shall designate
those items which it considers to be its trade fixtures in any request for
Landlord's approval of alterations. Any alterations not designated as such in
Tenant's request shall be deemed not to be trade fixtures. Except as expressly
provided above, all Initial Improvements constructed under Appendix C shall
become the property of Landlord upon installation, and shall be surrendered to
Landlord with the Premises at the termination of this Lease or of Tenant's right
to possession.
The following requirements shall apply to all Work:
(1) Prior to commencement, Tenant shall furnish to Landlord
building permits and certificates of insurance reasonably satisfactory
to Landlord, unless such Work is to be performed by Landlord.
(2) Tenant shall perform all Work so as to maintain peace and
harmony among other contractors serving the Project and shall avoid
unreasonable interference with other work to be performed or services
to be rendered in the Project.
(3) The Work shall be performed in a good and workmanlike manner,
meeting the standard for construction and quality of materials in the
Building, and shall comply with all insurance requirements and all
applicable governmental laws, ordinances and regulations ("Governmental
Requirements").
(4) Tenant shall perform all Work so as to minimize or prevent
disruption to other tenants, and Tenant shall comply with all
reasonable requests of Landlord in response to complaints from other
tenants.
(5) Tenant shall perform all Work in compliance with Landlord's
"Policies, Rules and Procedures for Construction Projects" in effect at
the time the Work is performed.
(6) Tenant shall permit Landlord to supervise all Work. Landlord
may charge a supervisory fee not to exceed seven and one-half percent
(7.5%) of labor, material, and all other actual out-of-pocket costs of
the Work, if Landlord's employees or contractors directly perform the
Work and the total cost of such Work exceeds $10,000.00.
(7) Upon completion, Tenant shall furnish Landlord with
contractor's affidavits and full and final statutory waivers of liens
from all contractors and subcontractors, as-built plans and
specifications, and
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receipted bills covering all labor and materials, and all other close-
out documentation required in Landlord's "Policies, Rules and
Procedures for Construction Projects".
B. Damage to Systems. If any part of the mechanical, electrical or
other systems in the Premises shall be damaged, Tenant shall promptly notify
Landlord thereof in writing, and Landlord shall repair such damage promptly
after receipt of such notice. Landlord may also at any reasonable time make any
repairs or alterations which Landlord deems reasonably necessary for the safety
or protection of the Project, or which Landlord is required to make by any court
or pursuant to any Governmental Requirement. Tenant shall at its expense make
all other repairs necessary to keep the Premises, and Tenant's fixtures and
personal property, in good order, condition and repair; to the extent Tenant
fails to do so within ten (10) business days (or such longer period of time as
is reasonably necessary so long as Tenant is diligently pursuing the completion
of such repairs) after written demand by Landlord (or with no demand in the case
of an emergency), Landlord may make such repairs itself. The cost of any repairs
made by Landlord on account of Tenant's default (beyond any applicable cure
period), or on account of the mis-use or neglect by Tenant or its invitees,
contractors or agents anywhere in the Project, shall become Additional Rent
payable by Tenant on demand.
C. No Liens. Tenant has no authority to cause or permit any lien or
encumbrance of any kind to affect Landlord's interest in the Project; any such
lien or encumbrance shall attach to Tenant's interest only. If any mechanic's
lien shall be filed or claim of lien made for work or materials furnished to
Tenant, then Tenant shall at its expense within ten (10) business days
thereafter either discharge or contest the lien or claim. If Tenant contests the
lien or claim, then Tenant shall (i) within such ten (10) business day period,
provide Landlord adequate security for the lien or claim by bonding in
accordance with the Texas Property Code, (ii) contest the lien or claim in good
faith by appropriate proceedings that operate to stay its enforcement, and (iii)
pay promptly any final adverse judgment entered in any such proceeding. If
Tenant does not comply with these requirements, Landlord may discharge the lien
or claim, and the amount paid, as well as attorney's fees and other out-of-pocke
expenses incurred by Landlord, shall become Additional Rent payable by Tenant on
demand.
D. Ownership of Improvements. Except as otherwise provided in Section
5A above, all Work as defined in this Section 5, partitions, hardware,
equipment, machinery and all other improvements and all fixtures except trade
fixtures, constructed in the Premises by either Landlord or Tenant, (i) shall
become Landlord's property upon installation without compensation to Tenant,
unless Landlord consents otherwise in writing, and (ii) shall at Landlord's
option either (a) be surrendered to Landlord with the Premises at the
termination of the Lease or of Tenant's right to possession, or (b) be removed
in accordance with Subsection 5E below, such election to be made by Landlord at
the time it gives its consent to the performance of such construction. Any items
identified as "trade fixtures" on the Initial Improvement Plans as approved by
Landlord shall remain the sole property of Tenant.
E. Removal at Termination. Upon the termination of this Lease or
Tenant's right of possession, Tenant shall remove from the Building its trade
fixtures, furniture, moveable equipment and other personal property (including
Tenant's security system), any improvements which Landlord elects shall be
removed by Tenant pursuant to Section 5D, and any improvements made by Tenant to
any portion of the Building or the Project other than the Premises. Tenant shall
repair all damage caused by the installation or removal of any of the foregoing
items. If Tenant does not remove such property within ten (10) business days
after notice from Landlord to do so, then Tenant shall be conclusively presumed
to have, at Landlord's election (i) conveyed such property to Landlord without
compensation or (ii) abandoned such property, and Landlord may dispose of or
store any part thereof in any manner at Tenant's sole cost, without waiving
Landlord's right to claim from Tenant all expenses arising out of Tenant s
failure to remove the property, and without liability to Tenant or any other
person. Landlord shall have no duty to be a bailee of any such personal
property. If Landlord elects abandonment, Tenant shall pay to Landlord, upon
demand, any expenses incurred for removal, repair or disposition.
6. USE OF PREMISES. Subject to Section 7 below, Tenant shall use the
Premises only for general office and research and development purposes and, to
the extent related thereto, sales, on-site training, telemarketing and support
and general customer service. Tenant shall not allow any use of the Premises
which will negatively affect the cost of coverage of Landlord's insurance on the
Premises. Tenant shall not allow any inflammable or explosive liquids or
materials to be kept on the Premises other than as permitted under Section 27
below. Tenant shall not allow any use of the Premises which would cause the
value or utility of any part of the Premises to
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diminish or would interfere with any other tenant or with the operation of the
Project by Landlord or would violate any Governmental Requirement. Tenant shall
not permit any nuisance or waste upon the Premises, or allow any offensive noise
or odor in or around the Premises.
If any governmental authority shall deem the Premises to be a "place of
public accommodation" under the Americans with Disabilities Act or any other
comparable law as a result of Tenant's use, Tenant shall either modify its use
to cause such authority to rescind its designation or be responsible for any
alterations, structural or otherwise, required to be made to the Building
(including common areas thereof) or the Premises under such laws.
7. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES. Tenant shall comply
with all Governmental Requirements applying to its use of the Premises. Tenant
shall also comply with all reasonable rules established for the Project from
time to time by Landlord and furnished to Tenant. The present rules and
regulations are contained in Appendix B, and any changes thereto shall be
provided to Tenant in writing. Failure by another tenant to comply with the
rules or failure by Landlord to enforce them shall not relieve Tenant of its
obligation to comply with the rules or make Landlord responsible to Tenant in
any way, unless Landlord is arbitrary in its enforcement of the rules. Landlord
shall use reasonable efforts to apply the rules and regulations uniformly with
respect to Tenant and tenants in the Project. Landlord shall not enact any
future rules or amendments thereto which would have an unreasonably adverse
effect on any Project tenant, including Tenant. In the event of alterations and
repairs performed by Tenant, Tenant shall comply with the provisions of Section
5 of this Lease and also Landlord's "Policies, Rules and Regulations for
Construction Projects".
8. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE.
A. Waiver of Claims. To the extent permitted by law, Tenant waives any
claims it may have against Landlord or its officers, directors, employees or
agents for business interruption or damage to property sustained by Tenant as
the result of any act or omission of Landlord, to the extent typically covered
under policies of "All Risks" Property Insurance.
To the extent permitted by law, Landlord waives any claims it may have
against Tenant or its officers, directors, employees or agents for loss of rents
(without waiving Tenant's obligation to pay Rent) or damage to property
sustained by Landlord as the result of any act or omission of Tenant, to the
extent typically covered under policies of "All Risks" Property Insurance.
B. Indemnification. Tenant shall indemnify, defend and hold harmless
Landlord and its officers, directors, representatives, employees and agents
against any claim by any third party for injury to any person or damage to or
loss of any property occurring in the Project and arising from the use or
occupancy of the Premises or from any other act or omission or negligence of
Tenant or any of Tenant's employees or agents. Tenant's obligations under this
section shall survive the termination of this Lease.
Landlord shall indemnify, defend and hold harmless Tenant and its
officers, directors, representatives, employees and agents against any claim by
any third party for injury to any person or damage to or loss of any property
occurring in the Project and arising from any act or omission or negligence of
Landlord or any of Landlord's employees or agents. Landlord's obligations under
this section shall survive the termination of this Lease.
Both parties agree to immediately notify the other of any claim for
which indemnity is provided hereunder.
C. Tenant's Insurance. Tenant shall maintain insurance as follows,
with such other terms, coverages and insurers, as Landlord shall reasonably
require from time to time:
(1) Commercial General Liability Insurance, with (a) Contractual
Liability including the indemnification provisions contained in this
Lease, (b) a severability of interest endorsement, (c) limits of not
less than Two Million Dollars ($2,000,000) combined single limit per
occurrence and not less than Two Million Dollars ($2,000,000) in the
aggregate for bodily injury, sickness or death, and property damage,
and umbrella coverage of not less than Five Million Dollars
($5,000,000).
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(2) Property Insurance against "All Risks" of physical loss
covering the replacement cost of all improvements, fixtures and
personal property. Tenant waives all rights of subrogation, and
Tenant's property insurance shall include a waiver of subrogation in
favor of Landlord and its employees and agents.
(3) Workers' compensation or similar insurance in form and amounts
required by law, and Employer's Liability with not less than the
following limits:
Each Accident $500,000
Disease--Policy Limit $500,000
Disease--Each Employee $500,000
Such insurance shall contain a waiver of subrogation provision in
favor of Landlord and its employees and agents.
Tenant's insurance shall be primary and not contributory to that
carried by Landlord, its agents, or mortgagee. Landlord, and if any, Landlord's
building manager or agent, mortgagee and ground lessor shall be named as
additional insureds as respects to insurance required of the Tenant in Section
8C(1). The company or companies writing any insurance which Tenant is required
to maintain under this Lease, as well as the form of such insurance, shall at
all times be subject to Landlord's approval, and any such company shall be
licensed to do business in the state in which the Building is located. Such
insurance companies shall have an A.M. Best rating of A VI or better.
Tenant shall cause any contractor of Tenant performing work on the
Premises to maintain insurance as follows, with such other terms, coverages and
insurers, as Landlord shall reasonably require from time to time:
(1) Commercial General Liability Insurance, including contractor's
liability coverage, contractual liability coverage, completed
operations coverage, broad form property damage endorsement, and
contractor's protective liability coverage, to afford protection with
limits, for each occurrence, of not less than One Million Dollars
($1,000,000) with respect to personal injury, death or property damage.
(2) Workers' compensation or similar insurance in form and amounts
required by law, and Employer's Liability with not less than the
following limits:
Each Accident $500,000
Disease--Policy Limit $500,000
Disease--Each Employee $500,000
Such insurance shall contain a waiver of subrogation provision in
favor of Landlord and its employees and agents.
Tenant's contractor's insurance shall be primary and not contributory
to that carried by Tenant, Landlord, their agents or mortgagees. Tenant and
Landlord, and if any, Landlord's building manager or agent, mortgagee or ground
lessor shall be named as additional insured on Tenant's contractor's insurance
policies.
D. Insurance Certificates. Tenant shall deliver to Landlord
certificates evidencing all required insurance no later than five (5) business
days prior to the Commencement Date and each renewal date. Each certificate will
provide for thirty (30) days prior written notice of cancellation to Landlord
and Tenant.
E. Landlord's Insurance. Landlord shall maintain (i) "All-Risk"
property insurance, including loss of rents, on the Building in an amount equal
to the then-current replacement cost thereof, exclusive of excavation and
foundation costs, and with Landlord's reasonable deductible, and (ii) Commercial
General Liability insurance policies covering the common areas of the Building
and the Project, each with such terms, coverages and conditions (except as
provided above) as are normally carried by reasonably prudent owners of
properties similar to the Project. With respect to property insurance, Landlord
and Tenant mutually waive all rights of subrogation, and the respective
"All-Risk" coverage property insurance policies carried by Landlord and Tenant
shall contain enforceable waiver of subrogation endorsements.
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9. FIRE AND OTHER CASUALTY.
A. Termination. If a fire or other casualty causes substantial damage
to the Building or the Premises, Landlord shall engage a registered architect to
certify within one (1) month of the casualty to both Landlord and Tenant the
amount of time needed, using standard working methods, to restore the Building
and the Premises to tenantability acceptable in Tenant's reasonable discretion,
as measured by Tenant's ability to continue its operations and maintain parking
for and access to the Premises in the same manner as before the casualty. If the
time needed exceeds nine (9) months from the casualty, or two (2) months
therefrom if the restoration would begin during the last twelve (12) months of
the Lease, then in the case of the Premises, either Landlord or Tenant may
terminate this Lease, and in the case of the Building, Landlord may terminate
this Lease, by notice to the other party within ten (10) days after the
notifying party's receipt of the architect's certificate. The termination shall
be effective thirty (30) days from the date of the notice and Rent shall be paid
by Tenant to that date, with an abatement for any portion of the Premises which
has been untenantable after the casualty.
B. Restoration. If a casualty causes damage to the Building or the
Premises but this Lease is not terminated for any reason, then subject to the
rights of any mortgagees or ground lessors, Landlord shall obtain the applicable
insurance proceeds (without regard to any deductible, which shall be included in
Operating Costs) and diligently restore the Building and the Premises subject to
then-current Governmental Requirements within the time period certified to by
Landlord's Architect. Tenant shall replace its damaged improvements, personal
property and fixtures to the extent of its insurance coverage therefor, as
required hereunder. Rent shall be abated on a per diem basis during the
restoration for any portion of the Premises which is untenantable.
10. EMINENT DOMAIN. If a part of the Project is taken by eminent
domain or deed in lieu thereof which is so substantial that the Premises cannot
reasonably be used by Tenant for the operation of its business, Tenant is unable
to access the Premises or Tenant no longer has adequate parking for its
Premises, then either party may terminate this Lease effective as of the date of
the taking by written notice to the other. Rent shall abate from the date of the
taking in proportion to any part of the Premises taken. The entire award for a
taking of any kind shall be paid to Landlord. Tenant may pursue a separate award
for its personal property, trade fixtures and moving expenses in connection with
the taking, but only if such recovery does not reduce the award payable to
Landlord. All obligations accrued to the date of the taking shall be performed
by the party liable to perform said obligations, as set forth herein.
11. RIGHTS RESERVED TO LANDLORD. Except as set forth below, Landlord
may exercise at any time any of the following rights respecting the operation of
the Project without liability to the Tenant of any kind:
A. Name. To change the name or street address of the Project, the
street address of the Building or the suite number(s) of the Premises upon not
less than thirty (30) days prior written notice to Tenant. In the event of any
such change, Landlord shall reimburse Tenant for the reasonable and anticipated
costs associated with reprinting business cards, letterhead or other printed
items containing information to be changed.
B. Signs. To install and maintain any signs within the Project and on
the exterior and in the interior of the Building, and to approve at its sole
discretion, prior to installation, any of Tenant's signs in the Premises visible
from the common areas or the exterior of the Building. Notwithstanding the
foregoing, Landlord agrees that Tenant shall have the right to install, at
Tenant's expense (but which may be reimbursed out of Landlord's Contribution
under Appendix C), its signage on the exterior of the Building and on a shared
monument sign located within the Project common areas at the entrance to the
Project off of U.S. Highway 183 (provided Landlord is able to obtain
governmental approval for such sign), subject to (i) Landlord's signage and
architectural guidelines applicable to the Project, as previously provided to
Tenant, and (ii) Landlord's reasonable approval as to the size, location and
design thereof pursuant to the Tenant Improvement Agreement. Tenant shall be
solely responsible for and shall obtain all sign permits and other governmental
approvals required for its signage.
C. Window Treatments. To approve, at its reasonable discretion but
without unreasonable delay, prior to installation, any shades, blinds,
ventilators or window treatments of any kind, as well as any lighting within the
Premises that may be visible from the exterior of the Building or any interior
common area.
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D. Keys. To retain and use at any time passkeys to enter the Premises
or any door within the Premises, subject to Tenant's reasonable security needs.
Tenant shall not alter or add any lock or bolt without first informing Landlord
and providing Landlord with keys or other means of access.
E. Access. Subject to Tenant's reasonable security needs, and upon
not less than 24 hours prior notice to Tenant (except in case of emergency), to
have access to inspect the Premises during normal business hours, and to perform
its obligations, or make repairs, alterations, additions or improvements, as
permitted by this Lease, without any unreasonable interference with Tenant's
operations.
F. Preparation for Reoccupancy. To decorate, remodel, repair, alter
or otherwise prepare the Premises for reoccupancy at any time after Tenant
abandons the Premises, without relieving Tenant of any obligation to pay Rent.
G. Heavy Articles. To approve the weight, size, placement and time
and manner of movement within the Building of any safe, central filing system or
other heavy article of Tenant's property. Tenant shall move its property
entirely at its own risk.
H. Show Premises. To show the Premises to prospective purchasers,
tenants, brokers, lenders, investors, rating agencies or others at any
reasonable time, provided that Landlord gives prior notice to Tenant, does not
materially interfere with Tenant's use of the Premises, and, in the case of a
prospective tenant, any such visit occurs only during the last twelve (12)
months of the Term.
I. Relocation of Tenant. To relocate the Tenant, upon thirty days'
prior written notice, from a separately demised portion of the Premises equal to
or less than 5,000 Rentable Square Feet in size (the "Old Premises") to another
area in the applicable building (the "New Premises"), provided that:
(1) the size of the New Premises is at least equal to the size of
the Old Premises and (i) in the event of a partial relocation,
contiguous space within the Old Premises on any single floor must
remain intact; and (ii) if the Rentable Square Feet within the New
Premises is greater than the Old Premises, Base Rent and Tenant's
Proportionate Share shall be increased proportionately, not to exceed a
five percent (5%) increase;
(2) Landlord pays all cost of moving the Tenant and improving the
New Premises to the standard of the Old Premises. Tenant shall
cooperate with Landlord in all reasonable ways to facilitate the move,
including supervising the movement of files or fragile equipment,
designating new locations for furniture, equipment and new telephone
and electrical outlets, and determining the color of paint in the New
Premises.
J. Use of Lockbox. To designate a lockbox collection agent for
collections of amounts due Landlord. In that case, the date of payment of Rent
or other sums shall be the date of the agent's receipt of such payment or the
date of actual collection if payment is made in the form of a negotiable
instrument thereafter dishonored upon presentment. However, Landlord may reject
any payment for all purposes as of the date of receipt or actual collection by
mailing to Tenant within 21 days after such receipt or collection a check equal
to the amount sent by Tenant.
K. Repairs and Alterations. To make repairs or alterations to the
Project or the Building and in doing so transport any required material through
the Premises, to temporarily close entrances, doors, corridors, elevators and
other facilities in the Project or the Building, to open any ceiling in the
Premises, or to temporarily suspend services or use of common areas in the
Project or the Building. Landlord may perform any such repairs or alterations
during Business Hours, except that Tenant may require any work in the Premises
to be done after Business Hours if such work would unreasonably interfere with
Tenant's right to quiet enjoyment of the Premises. Landlord may do or permit any
work on any nearby building, land, street, alley or way. Notwithstanding the
foregoing, Landlord shall use all reasonable efforts to ensure that such repairs
and alterations (i) do not result in any diminution in the quality and character
of the services provided by Landlord under the Lease or the physical condition
of the Premises or Project, Tenant having relied upon such quality and character
as a material inducement to enter into the
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Lease, and (ii) are performed in such a manner so as to prevent any unreasonable
interference with Tenant's use of the Premises or Project and minimize any
unreasonable inconvenience to Tenant and its customers and invitees.
L. Landlord's Agents. If Tenant is in default under this Lease beyond
any applicable cure period, possession of Tenant's funds or negotiation of
Tenant's negotiable instrument by any of Landlord's agents shall not waive any
breach by Tenant or any remedies of Landlord under this Lease.
M. Building Services. To install, use and maintain through the
Premises, pipes, conduits, wires and ducts serving the Building, provided that
such installation, use and maintenance does not unreasonably interfere with
Tenant's use of the Premises.
N. Other Actions. To take any other action which Landlord deems
reasonable in connection with the operation, maintenance or preservation of the
Project or the Building and which does not unreasonably disturb, interfere with
or inconvenience Tenant.
12. TENANT'S DEFAULT. Any of the following shall constitute a default
by Tenant:
A. Rent Default. Tenant fails to pay any Rent when due, and, in the
case of the first and second such failure in any twelve (12) month period during
the Term of the Lease, such failure continues for ten (10) days after written
notice from Landlord;
B. Assignment/Sublease or Hazardous Substances Default. Tenant
defaults in its obligations under Section 17 Assignment and Sublease or Section
28 Hazardous Substances;
C. Other Performance Default. Tenant fails to perform any other
obligation to Landlord under this Lease, and, in the case of only the first
three (3) such failures during any Fiscal Year of the Term of this Lease, this
failure continues for ten (10) business days after written notice from Landlord,
except that if Tenant begins to cure its failure within the ten (10) business
day period but cannot reasonably complete its cure within such period, then, so
long as Tenant continues to diligently attempt to cure its failure, the ten (10)
business day period shall be extended to such period as is reasonably necessary
to complete the cure;
D. Credit Default. One of the following credit defaults occurs:
(1) Tenant commences any proceeding under any law relating to
bankruptcy, insolvency, reorganization or relief of debts, or seeks
appointment of a receiver, trustee, custodian or other similar official
for the Tenant or for any substantial part of its property, or any such
proceeding is commenced against Tenant and either remains undismissed
for a period of thirty days or results in the entry of an order for
relief against Tenant which is not fully stayed within seven (7)
business days after entry;
(2) Tenant becomes insolvent or bankrupt, does not generally pay
its debts as they become due, or admits in writing its inability to pay
its debts, or makes a general assignment for the benefit of creditors;
(3) Any third party obtains a levy or attachment under process of
law against Tenant's leasehold interest, unless Tenant immediately
bonds around such action.
13. LANDLORD REMEDIES.
A. Termination of Lease or Possession. If Tenant defaults, Landlord
may elect by notice to Tenant either to terminate this Lease or to terminate
Tenant's possession of the Premises without terminating this Lease. In either
case, Tenant shall immediately vacate the Premises and deliver possession to
Landlord, and Landlord may repossess the Premises and may, at Tenant's sole
cost, remove any of Tenant's signs and any of its other property, without
relinquishing its right to receive Rent or any other right against Tenant.
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B. Lease Termination Damages. If Landlord terminates the Lease due to
an uncured Tenant default, Tenant shall pay to Landlord all Rent due on or
before the date of termination, plus the aggregate Rent that would have been
payable from the date of termination through the Termination Date, reduced by
the fair market rental value of the Premises calculated as of the date of
termination for the same period, taking into account anticipated vacancy prior
to reletting, reasonable and customary reletting expenses and market
concessions, both discounted to present value at the rate of eight percent (8%)
per annum. If Landlord shall relet any part of the Premises for any part of such
period before such present value amount shall have been paid by Tenant or
finally determined by a court (and Landlord shall use reasonable efforts to do
so), then the amount of Rent payable pursuant to such reletting (taking into
account vacancy prior to reletting and any reasonable reletting expenses or
concessions) shall be deemed to be the reasonable rental value for that portion
of the Premises relet during the period of the reletting, unless determined to
the contrary in a final court judgment.
C. Possession Termination Damages. If Landlord terminates Tenant's
right to possession without terminating the Lease due to an uncured Tenant
default, and Landlord takes possession of the Premises itself, Landlord shall
use all reasonable efforts to relet any part of the Premises for such Rent, for
such time, and upon such terms as Landlord in its sole discretion shall
determine, without any obligation to do so prior to renting other vacant areas
in the Project. Any proceeds from reletting the Premises shall first be applied
to the reasonable out-of-pocket expenses of reletting, including redecoration,
repair, alteration, advertising, brokerage, legal, and other reasonably
necessary expenses. If the reletting proceeds after payment of expenses are
insufficient to pay the full amount of Rent under this Lease, Tenant shall pay
such deficiency to Landlord monthly upon demand as it becomes due. Any excess
proceeds shall be retained by Landlord.
D. Remedies Cumulative.
(1) Landlord. All of Landlord's remedies under this Lease shall be
in addition to all other remedies Landlord may have at law or in
equity. Waiver by Landlord of any breach of any obligation by Tenant
shall be effective only if it is in writing, and shall not be deemed a
waiver of any other breach, or any subsequent breach of the same
obligation. Landlord's acceptance of payment by Tenant shall not
constitute a waiver of any breach by Tenant, and if the acceptance
occurs after termination of the Lease or of Tenant's right to
possession, the acceptance shall not affect such termination.
Acceptance of payment by Landlord after commencement of a legal
proceeding or final judgment shall not affect such proceeding or
judgment. Landlord may advance such monies and take such other actions
for Tenant's account as reasonably may be required to cure or mitigate
any default uncured by Tenant. Tenant shall immediately reimburse
Landlord for any such advance, and such sums shall bear interest at the
default interest rate under Section 2D(2) above until paid.
(2) Tenant. All of Tenant's remedies under this Lease shall be in
addition to all other remedies Tenant may have at law or in equity.
Waiver by Tenant of any breach of any obligation by Landlord shall be
effective only if it is in writing, and shall not be deemed a waiver of
any other breach, or any subsequent breach of the same obligation.
Tenant's acceptance of payment by Landlord shall not constitute a
waiver of any breach by Landlord. Acceptance of payment by Tenant after
commencement of a legal proceeding or final judgment shall not affect
such proceeding or judgment.
E. WAIVER OF TRIAL BY JURY. EACH PARTY WAIVES TRIAL BY JURY IN THE
EVENT OF ANY LEGAL PROCEEDING BROUGHT BY THE OTHER IN CONNECTION WITH THIS
LEASE. EACH PARTY SHALL BRING ANY ACTION AGAINST THE OTHER IN CONNECTION WITH
THIS LEASE IN A FEDERAL OR STATE COURT LOCATED IN TRAVIS COUNTY, TEXAS, CONSENTS
TO THE JURISDICTION OF SUCH COURTS, AND WAIVES ANY RIGHT TO HAVE ANY PROCEEDING
TRANSFERRED FROM SUCH COURTS ON THE GROUND OF IMPROPER VENUE OR INCONVENIENT
FORUM.
F. Litigation Costs. The non-prevailing party shall pay the
prevailing party's reasonable attorneys' fees and other costs in enforcing this
Lease, whether or not suit is filed.
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14. SURRENDER. Upon termination of this Lease or Tenant's right to
possession, Tenant shall return the Premises to Landlord in good order and
condition, ordinary wear and tear and casualty damage excepted. If Landlord
requires Tenant to remove any alterations as agreed specifically in advance by
the parties or as otherwise required under this Lease, then Tenant shall remove
the alterations in a good and workmanlike manner and restore the Premises to its
condition prior to their installation.
15. HOLDOVER. Tenant shall have no right to holdover possession of the
Premises after the expiration or termination of this Lease without Landlord's
prior written consent, which consent may be withheld in Landlord's sole and
absolute discretion. If, however, Tenant retains possession of any part of the
Premises after the Term, Tenant shall become a month-to-month tenant for the
entire Premises upon all of the terms of this Lease as might be applicable to
such month-to-month tenancy, except that Tenant shall pay all of Base Rent and
Operating Cost Share Rent at one hundred fifty percent (150%) of the rate in
effect immediately prior to such holdover, computed on a monthly basis for each
full or partial month Tenant remains in possession. If Tenant fails to surrender
the Premises and Landlord has given Tenant at least thirty (30) days' prior
written notice of Landlord's anticipated damages, Tenant shall also pay Landlord
all of Landlord's actual direct and consequential damages (but not punitive
damages) resulting from Tenant's holdover. No acceptance of Rent or other
payments by Landlord under these holdover provisions shall operate as a waiver
of Landlord's right to regain possession upon demand, or any other of Landlord's
remedies.
16. SUBORDINATION TO GROUND LEASES AND MORTGAGES.
A. Subordination. Provided the conditions set forth below are
satisfied, this Lease shall be subordinate to any present or future ground lease
or mortgage respecting the Building or any other portion of the Project, and any
amendments to such ground lease or mortgage, at the election of the ground
lessor or mortgagee as the case may be, effected by notice to Tenant in the
manner provided in this Lease. The subordination shall be effective upon such
notice, provided that such ground lessor or mortgagee agrees not to disturb
Tenant's quiet possession of the Premises so long as Tenant is not in default
under the Lease. At the request of Landlord, ground lessor or mortgagee, Tenant
shall execute and deliver to the requesting party any reasonable documents
provided to establish the subordination of this Lease as aforesaid, provided
such document includes Tenant's non-disturbance rights described in the
immediately preceding sentence. Any mortgagee has the right, at its option, to
subordinate its mortgage to the terms of this Lease, without notice to, nor the
consent of, Tenant.
B. Termination of Ground Lease or Foreclosure of Mortgage. If any
ground lease is terminated or mortgage foreclosed or deed in lieu of foreclosure
given and the ground lessor, mortgagee, or purchaser at a foreclosure sale shall
thereby become the owner of the Building, Tenant shall attorn to such ground
lessor or mortgagee or purchaser without any deduction or setoff by Tenant, and
this Lease shall continue in effect as a direct lease between Tenant and such
ground lessor, mortgagee or purchaser. The ground lessor or mortgagee or
purchaser shall be liable as Landlord only during the time such ground lessor or
mortgagee or purchaser is the owner of the Building. At the request of Landlord,
ground lessor or mortgagee, Tenant shall execute and deliver within ten (10)
days of the request any document furnished by the requesting party to evidence
Tenant's agreement to attorn, provided such document includes Tenant's
non-disturbance rights described above.
C. Security Deposit. Any ground lessor, mortgagee or purchaser of the
Premises shall be responsible for the return of any security deposit by Tenant
only to the extent the security deposit is received by such ground lessor,
mortgagee or purchaser.
D. Notice and Right to Cure. The Building is subject to any ground
lease and mortgage identified with name and address of ground lessor or
mortgagee in Appendix D to this Lease (as the same may be amended from time to
time by written notice to Tenant). Tenant agrees to send by registered or
certified mail to any ground lessor or mortgagee identified either in such
Appendix or in any later notice from Landlord to Tenant a copy of any notice of
default sent by Tenant to Landlord. Any such ground lessor or mortgagee shall
have the right to cure such default in the time periods provided to Landlord
under this Lease.
E. Definitions. As used in this Section 16, "mortgage" shall include
"deed of trust" and "mortgagee" shall include "beneficiary" under such deed of
trust, "mortgagee" shall include the mortgagee of any ground lessee,
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and "ground lessor", "mortgagee", and "purchaser at a foreclosure sale" shall
include, in each case, all of its successors and assigns, however remote.
17. ASSIGNMENT AND SUBLEASE.
A. In General. Tenant shall not, without the prior consent of Landlord
in each case, which consent shall not be unreasonably withheld or unduly
conditioned or delayed, (i) make or allow any assignment or transfer, by
operation of law or otherwise, of any part of Tenant's interest in this Lease,
(ii) grant or allow any lien or encumbrance, by operation of law or otherwise,
upon any part of Tenant's interest in this Lease, (iii) sublet any part of the
Premises, or (iv) permit anyone other than Tenant and its employees to occupy
any part of the Premises. Unless otherwise consented to in writing by Landlord,
Tenant shall remain primarily liable for all of its obligations under this
Lease, notwithstanding any assignment or transfer. No consent granted by
Landlord shall be deemed to be a consent to any subsequent assignment or
transfer, lien or encumbrance, sublease or occupancy. Tenant shall pay all of
Landlord's reasonable attorneys' fees and other expenses incurred in connection
with any consent requested by Tenant or in reviewing any proposed assignment or
subletting. Any assignment or transfer, grant of lien or encumbrance, or
sublease or occupancy without Landlord's prior written consent (which, if
requested, has not been reasonably withheld, delayed or conditioned) shall be
void. Unless otherwise consented to in writing by Landlord, if Tenant shall
assign this Lease or sublet at least one-third (_) of the then-current total
Rentable Square Footage of the Premises (excluding any assignment or sublease
under Section 17D below), any rights of Tenant to renew this Lease, extend the
Term or to lease additional space in the Project shall be extinguished thereby
and will not be transferred to the assignee or subtenant, all such rights being
personal to the Tenant named herein.
B. Landlord's Consent. Landlord will not unreasonably withhold, delay
or condition its consent to any proposed assignment or subletting. It shall be
reasonable for Landlord to withhold its consent to any assignment or sublease if
(i) Tenant is in default under this Lease beyond any applicable cure period,
(ii) the proposed assignee or sublessee is (a) a tenant in the Project or (b) an
affiliate of such a tenant or (c) a party that Landlord has actually pursued and
is actively negotiating with as a prospective tenant in the Project, (iii) the
financial responsibility, nature of business (including, without limitation, a
proposed use of the Premises as a telemarketing center or other
parking-intensive use), and character of the proposed assignee or subtenant, as
compared to typical tenants of a comparable size in office projects in the
Austin suburban market, are not all reasonably satisfactory to Landlord, (iv) in
the reasonable judgment of Landlord, the purpose for which the assignee or
subtenant intends to use the Premises (or a portion thereof) is not in keeping
with Landlord's reasonable standards for the Project or the Building or are in
violation of the terms of this Lease or any other leases in the Project, (v) the
proposed assignee or subtenant is a government entity (other than a research
consortium funded by a government entity), or (vi) in the event of an assignment
(and not a sublease), the proposed assignment is for less than the entire
Premises or for less than the remaining Term of the Lease.
C. Procedure. Tenant shall notify Landlord of any proposed assignment
or sublease at least thirty (30) days prior to its proposed effective date. The
notice shall include the name and address of the proposed assignee or subtenant
and its partners in a case of a partnership, a copy of the terms of the proposed
assignment or sublease, and sufficient information to permit Landlord to
determine the financial responsibility and character of the proposed assignee or
subtenant. As a condition to any effective assignment of this Lease, the
assignee shall execute and deliver in form reasonably satisfactory to Landlord
at least fifteen (15) days prior to the effective date of the assignment, an
assumption of all of the obligations of Tenant under this Lease. As a condition
to any effective sublease, subtenant shall execute and deliver in form
satisfactory to Landlord at least fifteen (15) days prior to the effective date
of the sublease, an agreement to comply with all of Tenant's obligations under
this Lease, and at Landlord's option, an agreement (except for the economic
obligations which subtenant will undertake directly to Tenant) to attorn to
Landlord under the terms of the sublease in the event this Lease terminates
before the sublease expires.
D. Related Entities. Notwithstanding any provision of this Section 17,
if no default on the part of Tenant has occurred and is continuing, Tenant may
assign this Lease to an entity into which Tenant is merged or consolidated or to
an entity to which substantially all of Tenant's outstanding shares of capital
stock or substantially all of Tenant's assets are transferred, or Tenant may
sublet a portion of the Premises to an entity of which Tenant owns at least
twenty-five percent (25%) of the outstanding capital stock thereof or other
equity ownership interests
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therein, without first obtaining Landlord's written consent, if Tenant notifies
Landlord at least ten (10) business days prior to the proposed transaction,
providing information satisfactory to Landlord in order to determine the net
worth both of the successor entity and of Tenant immediately prior to such
assignment, and showing the net worth of the successor to be at least equal to
the net worth of Tenant as of the date of this Lease.
E. [Intentionally Deleted].
F. Recapture. Landlord may, by giving written notice to Tenant within
fifteen (15) days after receipt of Tenant's notice of assignment or subletting
of at least one-third (_) of the then-current total Rentable Square Footage of
the Premises, terminate this Lease with respect to the space described in
Tenant's notice, as of the effective date of the proposed assignment or sublease
and all obligations under this Lease as to such space shall expire except as to
any obligations that expressly survive any termination of this Lease.
18. CONVEYANCE BY LANDLORD. If Landlord shall at any time transfer its
interest in the Building or this Lease and such transferee expressly assumes all
of Landlord's obligations hereunder arising after the date of such transfer,
Landlord shall be released of any obligations occurring after such transfer,
except the obligation to return to Tenant any security deposit not delivered to
its transferee, and Tenant shall look solely to Landlord's successors for
performance of such obligations. This Lease shall not be affected by any such
transfer.
19. ESTOPPEL CERTIFICATE. Tenant shall, within ten (10) days of
receiving a request from Landlord (but no more than three (3) times in one
Fiscal Year), execute, acknowledge in recordable form, and deliver to Landlord
or its designee a certificate stating, subject to a specific statement of any
applicable exceptions, that the Lease as amended to date is in full force and
effect, that the Tenant is paying Rent and other charges on a current basis, and
that to the best of the knowledge of Tenant, Landlord has committed no uncured
defaults and Tenant has no offsets or claims. Tenant may also be required to
state the date of commencement of payment of Rent, the Commencement Date, the
Termination Date, the Base Rent, the current Operating Cost Share Rent estimate,
the status of any improvements required to be completed by Landlord, the amount
of any security deposit, and such other matters as may be reasonably requested.
Failure to deliver such certificate and statement within the time required shall
be conclusive evidence against Tenant that this Lease, with any amendments
identified by Landlord, is in full force and effect, that there are no uncured
defaults by Landlord, that not more than one month's Rent has been paid in
advance, that Tenant has not paid any security deposit, and that Tenant has no
claims or offsets against Landlord. Within ten (10) days of receiving a request
from Tenant, Landlord shall execute, acknowledge and deliver to Tenant an
estoppel certificate in substantially the form set forth above.
20. SECURITY DEPOSIT. Tenant shall deposit with Landlord on the date of
this Lease, security (the "Security Deposit") for the performance of all of its
obligations in the amount set forth on the Schedule. At Tenant's option, the
form of such Security Deposit shall be either a cashier's check made payable to
Landlord, or an unconditional and irrevocable letter of credit (the "Letter of
Credit"). If in the form of a Letter of Credit, such Letter of Credit shall be
(i) in the form attached hereto as Appendix G, (ii) naming Landlord and its
successors and assigns as beneficiary, (iii) expressly allowing Landlord to draw
upon it at any time from time to time by delivering to the issuer notice that
Landlord is entitled to draw thereunder, (iv) drawable on an FDIC-insured
financial institution reasonably satisfactory to Landlord, and (v) redeemable in
the state of Texas. If Tenant does not provide Landlord with a substitute Letter
of Credit complying with all of the requirements hereof at least ten (10) days
before the stated expiration date of the current Letter of Credit, then Landlord
shall have the right to draw upon the current Letter of Credit and hold the
funds drawn as the Security Deposit. If Tenant defaults under this Lease,
Landlord may use any part of the Security Deposit to make any defaulted payment,
to pay for Landlord's cure of any defaulted obligation, or to compensate
Landlord for any loss or damage resulting from any default. To the extent any
portion of the Security Deposit is used, Tenant shall within five (5) business
days after demand from Landlord restore the Security Deposit to its full amount.
If in the form of a cash deposit, Landlord may keep the Security Deposit in its
general funds and shall not be required to pay interest to Tenant on the deposit
amount. If Tenant shall perform all of its obligations under this Lease and
return the Premises to Landlord at the end of the Term, Landlord shall return
all of the remaining Security Deposit to Tenant within thirty (30) days after
the end of the Term. The Security Deposit shall not serve as an advance payment
of Rent or a measure of Landlord's damages for any default under this Lease.
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If Landlord transfers its interest in the Project or this Lease,
Landlord may transfer the Security Deposit to its transferee. Upon such
transfer, Landlord shall have no further obligation to return the Security
Deposit to Tenant, and Tenant's right to the return of the Security Deposit
shall apply solely against Landlord's transferee, provided such transferee
expressly assumed the obligation to return such Security Deposit in accordance
with this Lease.
21. FORCE MAJEURE. Landlord shall not be in default under this Lease to
the extent Landlord is unable to perform any of its obligations on account of
any strike or labor problem, energy shortage, governmental pre-emption or
prescription, national emergency, or any other cause of any kind beyond the
reasonable control of Landlord ("Force Majeure").
22. NOTICES. All notices, consents, approvals and similar
communications to be given by one party to the other under this Lease, shall be
given in writing, mailed or personally delivered as follows:
A. Landlord. To Landlord as follows:
CarrAmerica Realty, L.P.
t/a Riata Corporate Park
8240 North MoPac, Suite 105
Austin, Texas 78759
Attn: Market Officer
with a copy to:
CarrAmerica Realty Corporation
1700 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attn: Lease Administration
or to such other person at such other address as Landlord may designate by
notice to Tenant.
B. Tenant. To Tenant as follows:
Pervasive Software, Inc.
8834 Capital of Texas Highway North
Suite 300
Austin, Texas 78759
Attn: Vice President - Administration/CFO
with a copy to:
Jenkens & Gilchrist
600 Congress Avenue
Suite 2200
Austin, Texas 78701
Attn: J. Bradley Greenblum, Esq.
or to such other person at such other address as Tenant may designate by notice
to Landlord.
Mailed notices shall be sent by United States certified or registered
mail, or by a reputable national overnight courier service, postage prepaid.
Mailed notices shall be deemed to have been given on the earlier of actual
delivery or three (3) business days after posting in the United States mail in
the case of registered or certified mail, and one business day in the case of
overnight courier.
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23. QUIET POSSESSION. So long as Tenant shall perform all of its
obligations under this Lease, Tenant shall enjoy peaceful and quiet possession
of the Premises without hindrance of any manner from Landlord or any mortgagee
or any party claiming by or through the Landlord.
24. REAL ESTATE BROKER. Tenant represents to Landlord that Tenant has
not dealt with any real estate broker with respect to this Lease except for
Landlord's Real Estate Broker and Tenant's Real Estate Broker, as listed in the
Schedule, and no other broker is in any way entitled to any broker's fee or
other payment in connection with this Lease. Tenant and Landlord shall each
indemnify and defend the other against any claims by any other broker or third
party for any payment of any kind in connection with this Lease arising out of
the activities of the indemnifying party.
25. MISCELLANEOUS.
A. Successors and Assigns. Subject to the limits on Tenant's
assignment contained in Section 17, the provisions of this Lease shall be
binding upon and inure to the benefit of all successors and assigns of Landlord
and Tenant.
B. Date Payments Are Due. Except for payments to be made by Tenant
under this Lease which are due upon demand or are due in advance (such as Base
Rent), Tenant shall pay to Landlord any amount owed hereunder for which Landlord
renders a statement of account within ten business days of Tenant's receipt of
Landlord's written statement specifying in detail the amount owed.
C. Meaning of "Landlord", "Re-Entry, "including" and "Affiliate". The
term "Landlord" means only the owner of the Building and the lessor's interest
in this Lease from time to time. The words "re-entry" and "re-enter" are not
restricted to their technical legal meaning. The words "including" and similar
words shall mean "without limitation." The word "affiliate" shall mean a person
or entity controlling, controlled by or under common control with the applicable
entity. "Control" shall mean the power directly or indirectly, by contract or
otherwise, to direct the management and policies of the applicable entity.
D. Time of the Essence. Time is of the essence of each provision of
this Lease.
E. No Option. This document shall not be effective for any purpose
until it has been executed and delivered by both parties; execution and delivery
by one party shall not create any option or other right in the other party.
F. Severability. The unenforceability of any provision of this Lease
shall not affect any other provision.
G. Governing Law. This Lease shall be governed in all respects by the
laws of the state in which the Project is located, without regard to the
principles of conflicts of laws.
H. Lease Modification. Tenant agrees to modify this Lease in any way
requested by a mortgagee which does not cause increased expense to Tenant or
otherwise materially adversely affect Tenant's interests under this Lease.
I. No Oral Modification. No modification of this Lease shall be
effective unless it is a written modification signed by both parties.
J. Landlord's Default; Landlord's Right to Cure Tenant's Default. If
Landlord breaches any of its obligations under this Lease, Tenant shall notify
Landlord in writing and shall take no action respecting such breach so long as
Landlord promptly begins to cure the breach and diligently pursues such cure to
its completion. Notwithstanding the foregoing, if Landlord's breach has a
material adverse effect on Tenant's business operations within the Premises and
Landlord has not cured such breach within thirty (30) days of Tenant's written
notice to Landlord thereof, then Tenant shall have the right to notify Landlord
in writing a second time as to such breach. If Landlord has not cured such
breach within ten (10) days of such second notice, then Tenant shall have the
right
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to cure such breach on its own and may deduct the reasonable cost thereof (plus
interest at the rate specified in Section 2.D(2) above until repaid) from up to
thirty percent (30%) of Tenant's next (and, if necessary, subsequent) payments
of Base Rent, provided that the repair work performed in order to effect such
cure must occur within a portion of the Premises located in a Project building
in which Tenant does not share occupancy with any other tenant. Landlord may
cure any Tenant default not timely cured by Tenant; any expenses incurred shall
become Additional Rent due from Tenant on demand by Landlord.
K. Captions. The captions used in this Lease shall have no effect on
the construction of this Lease.
L. Authority. Landlord and Tenant each represents to the other that it
has full power and authority to execute and perform this Lease.
M. Landlord's Enforcement of Remedies. Landlord may enforce any of its
remedies under this Lease either in its own name or through an agent.
N. Entire Agreement. This Lease, together with all Appendices,
constitutes the entire agreement between the parties. No representations or
agreements of any kind have been made by either party which are not contained in
this Lease.
O. Landlord's Title. Landlord's title shall always be paramount to the
interest of the Tenant, and nothing in this Lease shall empower Tenant to do
anything which might in any way impair Landlord's title.
P. Light and Air Rights. Landlord does not grant in this Lease any
rights to light and air in connection with the Building or the Project. Landlord
reserves to itself, all land within the Project, the Building below the improved
floor of each floor of the Premises, the Building above the ceiling of each
floor of the Premises, the exterior of the Premises and the areas on the same
floor outside the Premises, along with the areas within the Premises required
for the installation and repair of utility lines and other items required to
serve other tenants of the Building.
Q. Singular and Plural. Wherever appropriate in this Lease, a singular
term shall be construed to mean the plural where necessary, and a plural term
the singular. For example, if at any time two parties shall constitute Landlord
or Tenant, then the relevant term shall refer to both parties together.
R. No Recording by Tenant. Tenant shall not record in any public real
estate records any memorandum or any portion of this Lease.
S. Exclusivity. Landlord does not grant to Tenant in this Lease any
exclusive right except the right to occupy its Premises.
T. No Construction Against Drafting Party. The rule of construction
that ambiguities are resolved against the drafting party shall not apply to this
Lease.
U. Survival. All obligations of Landlord and Tenant under this Lease
shall survive the termination of this Lease.
V. Rent Not Based on Income. No rent or other payment in respect of
the Premises shall be based in any way upon net income or profits from the
Premises. Tenant may not enter into or permit any sublease or license or other
agreement in connection with the Premises which provides for a rental or other
payment based on net income or profit.
W. Building Manager and Service Providers. Landlord may perform any of
its obligations under this Lease through its employees or third parties hired by
the Landlord.
X. Late Charge and Interest on Late Payments. Without limiting the
provisions of Section 12A, if Tenant fails to pay any installment of Rent or
other charge to be paid by Tenant pursuant to this Lease within ten
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(10) business days after the same becomes due and payable, then Tenant shall pay
a late charge equal to the greater of five percent (5%) of the amount of such
payment or $250. In addition, interest shall be paid by Tenant to Landlord on
any late payments of Rent from the date due until paid at the rate provided in
Section 2D(2). Such late charge and interest shall constitute Additional Rent
due and payable by Tenant to Landlord upon the date of payment of the delinquent
payment referenced above.
Y. Tenant's Financial Statements. Within ten (10) business days after
Landlord's specific written request therefor (but not more frequently than once
per calendar quarter), Tenant shall deliver to Landlord the current audited
annual and unaudited quarterly financial statements of Tenant, and annual
audited financial statements of the two (2) years prior to the current year's
financial statements, each annual statement with an opinion of a certified
public accountant and including a balance sheet and profit and loss statement,
all prepared in accordance with generally accepted accounting principles
consistently applied.
Z. Usury Savings. All agreements between Landlord and Tenant, whether
now existing or hereafter arising and whether written or oral, are hereby
expressly limited so that in no contingency or event whatsoever shall the amount
contracted for, charged or received by Landlord for the use, forbearance or
retention of money hereunder or otherwise exceed the maximum amount which
Landlord is legally entitled to contract for, charge or collect under the
applicable state or federal law. If, from any circumstance whatsoever,
fulfillment of any provision hereof at the time performance of such provision
shall be due shall involve transcending the limit of validity prescribed by law,
then the obligation to be fulfilled shall be automatically reduced to the limit
of such validity, and if from any such circumstance Landlord shall ever receive
as interest or otherwise an amount in excess of the maximum that can be legally
collected, then such amount which would be excessive interest shall be applied
to the reduction of rent hereunder, and if such amount which would be excessive
interest exceeds such rent, then such additional amount shall be refunded to
Tenant.
AA. WAIVER OF WARRANTIES. TENANT HEREBY WAIVES THE BENEFIT OF ALL
IMPLIED WARRANTIES WITH RESPECT TO THE PREMISES INCLUDING, WITHOUT LIMITATION,
ANY IMPLIED WARRANTY THAT THE PREMISES ARE SUITABLE FOR ANY COMMERCIAL OR OTHER
PARTICULAR PURPOSE.
26. UNRELATED BUSINESS INCOME. If Landlord is advised by its counsel at
any time that any part of the payments by Tenant to Landlord under this Lease
may be characterized as unrelated business income under the United States
Internal Revenue Code and its regulations, then Tenant shall enter into any
amendment proposed by Landlord to avoid such income, so long as the amendment
does not require Tenant to make more payments or accept fewer services from
Landlord, than this Lease provides.
27. HAZARDOUS SUBSTANCES. Except as provided below, Tenant shall not
cause or permit any Hazardous Substances to be brought upon, produced, stored,
used, discharged or disposed of in or near the Project unless Landlord has
consented to such storage or use in its sole discretion. "Hazardous Substances"
include those hazardous substances described in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section
9601 et seq., the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
Section 6901 et seq., any other applicable federal, state or local law, and the
regulations adopted under these laws. If any lender or governmental agency shall
require testing for Hazardous Substances in the Premises, Tenant shall pay all
reasonable costs for such testing. Tenant agrees to indemnify and hold Landlord
harmless from all claims, demands, actions, liabilities, costs, expenses,
damages and obligations of any nature arising from the contamination of the
Project with Hazardous Substances as a result of or arising out of the use or
occupancy of the Premises by Tenant. The foregoing indemnification shall survive
the termination or expiration of this Lease for a period of two (2) years
thereafter. Tenant may use and store in the Premises janitorial supplies and
other items as are necessary in the normal operation of Tenant's business in the
Premises ("Necessary Hazardous Substances"), provided Tenant (i) uses and stores
all Necessary Hazardous Substances in accordance with all applicable
Governmental Requirements; (ii) indemnifies and holds Landlord harmless from any
claims, costs or damages arising from the presence of any Necessary Hazardous
Substances in the Building; and (iii) pays any increased insurance premiums
arising from the presence of any Necessary Hazardous Substances in the Building.
Landlord shall use its reasonable best efforts to prohibit other tenants and
visitors in the Project from causing or permitting contamination
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of the Project with Hazardous Substances as aforesaid, provided Landlord shall
not be liable to Tenant or any other party in the event such contamination
occurs.
28. EXCULPATION. Landlord shall have no personal liability under this
Lease; its liability shall be limited to its interest in the Building, and shall
not extend to any other property or assets of the Landlord. In no event shall
any officer, director, employee, agent, shareholder, partner, member or
beneficiary of Landlord be personally liable for any of Landlord's obligations
hereunder.
29. LANDLORD'S LIEN. LANDLORD SHALL HAVE AND TENANT HEREBY GRANTS TO
LANDLORD A CONTINUING SECURITY INTEREST FOR ALL RENT AND OTHER SUMS OF MONEY
BECOMING DUE HEREUNDER FROM TENANT, UPON ALL EQUIPMENT, FIXTURES, FURNITURE, AND
OTHER PERSONAL PROPERTY OF TENANT SITUATED ON THE PREMISES (BUT NOT TENANT'S
INTANGIBLE PROPERTY, INTELLECTUAL PROPERTY OR BOOKS AND RECORDS), WHICH IS
LOCATED AT 12365 RIATA TRACE PARKWAY, BUILDING II, AUSTIN, TEXAS, AND SUCH
PROPERTY SHALL NOT BE REMOVED THEREFROM WITHOUT THE CONSENT OF LANDLORD UNTIL
ALL ARREARAGES IN RENT AS WELL AS ANY AND ALL OTHER SUMS OF MONEY THEN DUE TO
LANDLORD HEREUNDER SHALL FIRST HAVE BEEN PAID AND DISCHARGED. PRODUCTS OF
COLLATERAL ARE ALSO COVERED. IN THE EVENT OF A DEFAULT UNDER THIS LEASE,
LANDLORD SHALL HAVE, IN ADDITION TO ANY OTHER REMEDIES PROVIDED HEREIN OR BY
LAW, ALL RIGHTS AND REMEDIES UNDER THE UNIFORM COMMERCIAL CODE, INCLUDING
WITHOUT LIMITATION THE RIGHT TO SELL THE PROPERTY DESCRIBED IN THIS PARAGRAPH AT
PUBLIC OR PRIVATE SALE UPON FIVE (5) DAYS NOTICE TO TENANT. TENANT HEREBY AGREES
TO EXECUTE SUCH OTHER INSTRUMENTS NECESSARY OR DESIRABLE IN LANDLORD'S
DISCRETION TO PERFECT THE SECURITY INTEREST HEREBY CREATED. ANY STATUTORY LIEN
FOR RENT IS NOT HEREBY WAIVED, THE EXPRESS CONTRACTUAL LIEN HEREIN GRANTED BEING
IN ADDITION AND SUPPLEMENTARY THERETO. LANDLORD AND TENANT AGREE THAT THIS LEASE
AND SECURITY AGREEMENT SERVES AS A FINANCING STATEMENT AND THAT A COPY OR
PHOTOGRAPHIC OR OTHER REPRODUCTION OF THIS PORTION OF THIS LEASE MAY BE FILED OF
RECORD BY LANDLORD AND HAVE THE SAME FORCE AND EFFECT AS THE ORIGINAL. THIS
SECURITY AGREEMENT AND FINANCING STATEMENT ALSO COVERS FIXTURES LOCATED AT THE
PREMISES, AND MAY BE FILED FOR RECORD IN THE REAL ESTATE RECORDS. TENANT
WARRANTS THAT THE COLLATERAL SUBJECT TO THE SECURITY INTEREST GRANTED HEREIN IS
NOT PURCHASED OR USED BY TENANT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES.
LANDLORD'S LIENS AS AFORESAID SHALL BE SUBORDINATE TO A SINGLE INSTITUTIONAL
LENDER DESIGNATED BY TENANT AND ANY LENDER PROVIDING PURCHASE MONEY OR EQUIPMENT
LEASING FINANCING TO TENANT.
30. SATELLITE DISH. Tenant may at its sole cost install, maintain, and
from time to time replace a satellite dish (a "Dish") on the roof of the
Building, provided that Tenant shall obtain Landlord's prior reasonable approval
of the proposed size, weight and location of the Dish and method for fastening
the Dish to the roof, and that Tenant will at its sole cost comply with all
Governmental Requirements and the conditions of any bond or warranty maintained
by Landlord on the roof. Landlord may supervise any roof penetration. Tenant
shall repair any damage to the Building caused by Tenant's installation,
maintenance, replacement, use or removal of the Dish. The Dish shall remain the
property of Tenant, and Tenant may remove the Dish at its cost at any time
during the Term. Tenant shall remove the Dish at its cost upon expiration or
termination of the Lease. Tenant shall protect, defend, indemnify and hold
harmless Landlord from and against claims, damages, liabilities, costs and
expenses of every kind and nature, including attorneys' fees, incurred by or
asserted against Landlord arising out of Tenant's installation, maintenance,
replacement, use or removal of the Dish.
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IN WITNESS WHEREOF, the parties hereto have executed this Lease.
LANDLORD:
CARRAMERICA REALTY, L.P., a Delaware
limited partnership, t/a Riata
Corporate Park
By: CarrAmerica Realty GP Holdings,
Inc., a Delaware corporation,
General Partner
By: /s/ PHILIP L. HAWKINS
------------------------
Name: PHILIP L. HAWKINS
------------------------
Title: MANAGING DIRECTOR
------------------------
TENANT:
PERVASIVE SOFTWARE INC., a Delaware
corporation
By: /s/ JOHN FARR
-----------------------------
Name: John Farr
-----------------------------
Title: Director of Finance
-----------------------------
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APPENDIX A
LEGAL DESCRIPTION OF THE PROJECT
Lots 4, 5, 6, 7 and 9, Amended Plat, Riata Section Two, Block B, recorded in
Book 98, Page 19, of the Plat Records of Travis County, Texas.
A-1
<PAGE>
APPENDIX A-1
SITE PLAN OF THE PROJECT
[MAP]
A-1
<PAGE>
APPENDIX B
RULES AND REGULATIONS
1. Tenant shall not place anything, or allow anything to be placed
near the glass of any window, door, partition or wall which may, in Landlord's
reasonable judgment, appear unsightly from outside of the Building.
2. The Building directory shall be available to Tenant solely to
display names of Tenant's departments and department heads and their location in
the Building, which display shall be as directed by Landlord.
3. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by any tenant or used by any tenant for any
purposes other than for ingress to and egress from the Premises. Tenant shall
lend its full cooperation to keep such areas free from all obstruction and in a
clean and sightly condition and shall move all supplies, furniture and equipment
as soon as received directly to the Premises and move all such items and waste
being taken from the Premises (other than waste customarily removed by employees
of the Building) directly to the shipping platform at or about the time arranged
for removal therefrom. The halls, passages, exits, entrances, elevators,
stairways, balconies and roof are not for the use of the general public and
Landlord shall, in all cases, retain the right to control and prevent access
thereto by all persons whose presence in the judgment of Landlord, reasonably
exercised, shall be prejudicial to the safety, character, reputation and
interests of the Building. Neither Tenant nor any employee or invitee of Tenant
shall go upon the roof of the Building, provided that such parties may go upon
the roof of the Building, subject to Landlord's prior reasonable approval and
requirements, in order to install any equipment otherwise permitted under the
Lease.
4. The toilet rooms, urinals, wash bowls and other apparatuses shall
not be used for any purposes other than that for which they were constructed,
and no foreign substance of any kind whatsoever shall be thrown therein, and to
the extent caused by Tenant or its employees, the expense of any breakage,
stoppage or damage resulting from the violation of this rule shall be borne by
Tenant.
5. Tenant shall not cause any unnecessary janitorial labor or services
by reason of Tenant's carelessness or indifference in the preservation of good
order and cleanliness.
6. Except as contemplated in the Initial Improvement Plans, Tenant
shall not install or operate any refrigerating, heating or air conditioning
apparatus (other than a household-type refrigerator), or carry on any mechanical
business without the prior written consent of Landlord, not to be unreasonably
withheld, delayed or conditioned; use the Premises for housing, lodging or
sleeping purposes; or permit preparation or warming of food in the Premises
(warming of coffee and individual meals with employees and guests excepted).
Tenant shall not occupy or use the Premises or permit the Premises to be
occupied or used for any purpose, act or thing which is in violation of any
Governmental Requirement or which may be dangerous to persons or property.
7. Other than as permitted under the Lease, Tenant shall not bring
upon, use or keep in the Premises or the Building any kerosene, gasoline or
inflammable or combustible fluid or material, or any other articles deemed
hazardous to persons or property, or use any method of heating or air
conditioning other than that supplied or approved by Landlord, which approval
shall not be unreasonably withheld, delayed or conditioned.
8. Landlord shall have sole power to direct electricians as to where
and how wires are to be introduced, provided that Tenant may direct the location
of telephone wires after notifying Landlord in writing as to the location of
such wires. No boring or cutting for wires is to be allowed without the consent
of Landlord. The location of telephones, call boxes and other office equipment
affixed to the Premises shall be subject to the approval of Landlord.
9. Subject to Tenant's reasonable security needs (but provided
Landlord has a means of access to all portions of the Premises at all times), no
additional locks shall be placed upon any doors, windows or transoms in or to
the Premises. Tenant shall not change existing locks or the mechanism thereof.
Upon termination of the lease, Tenant shall deliver to Landlord all keys and
passes for offices, rooms, parking lot and toilet rooms which shall have been
furnished Tenant.
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In the event of the loss of keys so furnished, Tenant shall pay
Landlord the actual costs therefor. Tenant shall not make, or cause to be made,
any such keys and shall order all such keys solely from Landlord and shall pay
Landlord for the actual cost of any keys in addition to the initial sets of keys
furnished by Landlord for each lock, as required by Tenant.
10. Tenant shall not install linoleum, tile, carpet or other floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord.
11. No furniture, packages, supplies, equipment or merchandise will be
received in the Building or carried up or down in any elevator, except between
such hours and in such elevator as shall be designated by Landlord, and with
such padding or other precautions as may be required by Landlord and which has
been approved with respect to other tenants in the Project, if applicable.
Tenant shall not take or permit to be taken in or out of other entrances of the
Building any item normally taken in or out through any trucking concourse or
service doors.
12. Tenant shall use all reasonable efforts to cause all doors to the
Premises to be closed and securely locked and shall turn off all utilities,
lights and machines before leaving the Building at the end of the day.
13. Without the prior written consent of Landlord, Tenant shall not use
the name of the Project or any picture of the Project in connection with, or in
promoting or advertising the business of, Tenant, except Tenant may use the
address of the Building as the address of its business.
14. Tenant shall cooperate fully with Landlord to assure the most
effective operation of the Premises' or the Building's heating and air
conditioning, and shall refrain from attempting to adjust any controls, other
than room thermostats installed for Tenant's use. Tenant shall keep corridor
doors closed in any multi-tenant building it occupies in the Project.
15. Tenant assumes full responsibility for protecting the Premises from
theft, robbery and pilferage, which may arise from a cause other than Landlord's
negligence, which includes keeping doors locked and other means of entry to the
Premises closed and secured.
16. Peddlers, solicitors and beggars shall be reported to the office of
the Project or as Landlord otherwise requests.
17. Tenant shall not advertise the business, profession or activities
of Tenant conducted in the Project in any manner which violates the letter or
spirit of any code of ethics adopted by any recognized association or
organization pertaining to such business, profession or activities.
18. No bicycle or other vehicle and no animals or pets shall be allowed
in the Premises, halls, freight docks, or any other parts of the Building,
except that blind persons may be accompanied by "seeing eye" dogs.
Notwithstanding the foregoing, Tenant may, at its expense, install bicycle racks
in Tenant's shipping and receiving room for use by Tenant's employees. Tenant
shall not make or permit any noise, vibration or odor to emanate from the
Premises, or do anything therein tending to create, or maintain, a nuisance, or
do any act tending to injure the Building or the Project.
19. Tenant acknowledges that Building or Project security problems may
occur which may require the employment of extreme security measures in the day-
to-day operation of the Building or the Project.
Accordingly:
(a) Landlord may, at any time, or from time to time, or for
regularly scheduled time periods, as deemed advisable by Landlord and/or its
agents, in their reasonable discretion, require by written notice to Tenant that
persons entering or leaving the Building or the Project identify themselves to
watchmen or other employees designated by Landlord, by registration,
identification or otherwise.
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(b) Tenant agrees that it and its employees will cooperate fully
with Building and Project employees in the implementation of any and all
security procedures.
(c) Such security measures shall be the sole responsibility of
Landlord, and Tenant shall have no liability for any action taken by Landlord in
connection therewith, it being understood that Landlord is not required to
provide any security procedures and shall have no liability for such security
procedures or the lack thereof.
20. Tenant shall not do or permit the manufacture or sale of any
fermented, intoxicating or alcoholic beverages without obtaining written consent
of Landlord.
21. Tenant shall not disturb the quiet enjoyment of any other tenant.
22. Except as permitted under the Lease, Tenant shall not provide any
janitorial services or cleaning without Landlord's written consent and then only
subject to supervision of Landlord and at Tenant's sole responsibility and by
janitor or cleaning contractor or employees at all times satisfactory to
Landlord.
23. Landlord may retain a pass key to the Premises and be allowed
admittance thereto at all times to enable its representatives to examine the
Premises from time to time and to exhibit the same, subject to the terms of the
Lease.
24. No equipment, mechanical ventilators, awnings, special shades or
other forms of window covering shall be permitted either inside or outside the
windows of the Premises without the prior written consent of Landlord (which,
with respect to items located inside the windows of the Premises, shall not be
unreasonably withheld, delayed or conditioned), and then only at the expense and
risk of Tenant, and they shall be of such shape, color, material, quality,
design and make as may be approved by Landlord.
25. Tenant shall not during the term of this Lease canvas or solicit
other tenants of the Building for any purpose, except in the ordinary course of
Tenant's business.
26. Tenant shall not install or operate any phonograph, musical or
sound- producing instrument or device, radio receiver or transmitter, TV
receiver or transmitter, or similar device in the Building, nor install or
operate any antenna, aerial, wires or other equipment inside or outside the
Building, nor operate any electrical device from which may emanate electrical
waves which may interfere with or impair radio or television broadcasting or
reception from or in the Building or elsewhere, without in each instance the
prior written approval of Landlord. The use thereof, if permitted, shall be
subject to control by Landlord to the end that others shall not be disturbed.
Notwithstanding the foregoing, Tenant's employees may operate ordinary
household-type radios within offices in the Premises, and Tenant may operate
ordinary household-type televisions in conference rooms in the Premises.
27. Tenant shall promptly cause all rubbish and waste to be removed
from the Premises.
28. Tenant shall not exhibit, sell or offer for sale, Rent or exchange
in the Premises or at the Project any article, thing or service, except those
ordinarily embraced within the use of the Premises specified in Section 6 of
this Lease, without the prior written consent of Landlord.
29. Tenant shall list all furniture, equipment and similar articles
Tenant desires to remove from any multi-tenant building within the Premises and
deliver a copy of such list to Landlord and procure a removal permit from the
Office of the Building authorizing Building employees to permit such articles to
be removed.
30. Tenant shall consult with Landlord regarding the loading capacity
of any floors in the Premises or any public corridors or elevators in the
Building, and Tenant shall be liable for any damage covered by any overloading
unless Tenant obtained Landlord's prior authorization for same.
31. Tenant shall not do any painting in the Premises, or mark, paint,
cut or drill into, drive nails or screws into, or in any way deface any part of
the Premises or the Building, outside or inside, without the prior
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written consent of Landlord, except as approved in the Initial Improvement
Plans, as necessary in the ordinary course of business or as commonly done in
decorating or equipping office space (such as message and white boards), subject
to Section 5A of the Lease.
32. Except as otherwise provided herein, whenever Landlord's consent,
approval or satisfaction is required under these Rules, then unless otherwise
stated, any such consent, approval or satisfaction must be obtained in advance,
such consent or approval may be granted or withheld in Landlord's reasonable
discretion, and Landlord's satisfaction shall be determined in its reasonable
judgment. In addition, Landlord shall enforce these Rules on a non-
discriminatory basis.
33. Tenant and its employees shall cooperate in all fire drills
conducted by Landlord in the Building.
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APPENDIX C
TENANT IMPROVEMENT AGREEMENT
1. INITIAL IMPROVEMENTS. Landlord has heretofore delivered to Tenant
those certain plans for construction of the base building (the "Base Building
Work") as prepared by Good, Fulton & Farrell Architects and dated November 20,
1997 (revised January 15, 1998) (the "Base Building Plans"). Tenant shall,
within ten (10) days after the date of the Lease, either provide comments to
such Base Building Plans or approve the same. Tenant shall be deemed to have
approved such Base Building Plans if it does not provide comments on such Base
Building Plans within the required time period. Tenant may only comment on the
Base Building Plans to the extent they conflict with the specifications set
forth in Appendix C-1 and Appendix C-2 attached hereto. If Tenant provides
Landlord with comments to the initial draft of the Base Building Plans, Landlord
shall provide revised Base Building Plans to Tenant incorporating Tenant's
comments within one (1) week after receipt of Tenant's comments. Tenant shall
within one (1) week after receipt then either provide comments to such revised
Base Building Plans or approve such Base Building Plans. Tenant shall be deemed
to have approved such revised Base Building Plans if Tenant does not provide
comments on such Base Building Plans within the required time period. The
process described above shall be repeated, if necessary, until the Base Building
Plans have been finally approved by Tenant.
Landlord shall cause to be performed the improvements (the "Initial
Improvements") in the Premises in accordance with plans and specifications
mutually approved by Tenant and Landlord as set forth below and incorporating
such mutually-approved Base Building Plans (the "Initial Improvement Plans"),
which approvals shall not be unreasonably withheld, delayed or conditioned. The
Initial Improvements above Base Building Work shall be performed at the Tenant's
cost, subject to the Landlord's Contribution (hereinafter defined). Base
Building Work shall include, without limitation, installation of fiber optics,
cabling, a four (4) inch conduit linking Buildings 6, 7, 8 and 9 within the
Project to accommodate Tenant's communications and data cabling, and shower
facilities on the first (1st) floor of the Building, all as set forth in the
Base Building Plans. Landlord and Tenant agree that the building shell plans for
Building 7 and Building 9 will be generally consistent with the Base Building
Plans.
Tenant shall cause the Initial Improvement Plans to be prepared, at
Tenant's cost, by a registered professional architect (currently contemplated to
be RTG Partners, Inc.), and mechanical and electrical engineer(s). Such
engineer(s) shall be reasonably approved in advance by the Landlord. Prior to
close-of-business on May 1, 1998, Tenant shall furnish the initial draft of the
Initial Improvement Plans to Landlord for Landlord's review and approval.
Landlord shall within two (2) weeks after receipt either provide comments to
such Initial Improvement Plans or approve the same. Landlord shall be deemed to
have approved such Initial Improvement Plans if it does not provide comments on
such Initial Improvement Plans within the required time period. If Landlord
provides Tenant with comments to the initial draft of the Initial Improvement
Plans, Tenant shall provide revised Initial Improvement Plans to Landlord
incorporating Landlord's comments within one (1) week after receipt of
Landlord's comments. Landlord shall within one (1) week after receipt then
either provide comments to such revised Initial Improvement Plans or approve
such Initial Improvement Plans. Landlord shall be deemed to have approved such
revised Initial Improvement Plans if Landlord does not provide comments on such
Initial Improvement Plans within the required time period. The process described
above shall be repeated, if necessary, until the Initial Improvement Plans have
been finally approved by Landlord. Tenant hereby agrees that the Initial
Improvement Plans for the Initial Improvements shall comply with all applicable
Governmental Requirements. Landlord's approval of any of the Initial Improvement
Plans (or any modifications or changes thereto) shall not impose upon Landlord
or its agents or representatives any obligation with respect to the design of
the Initial Improvements or the compliance of such Initial Improvements or the
Initial Improvement Plans with applicable Governmental Requirements except with
respect to Landlord's Base Building Work.
Landlord, with consultation of Tenant, shall select a contractor to
perform the construction of the Initial Improvements, provided that Tenant, at
its option, may require Landlord to select Flynn Construction as the contractor.
Landlord shall use commercially reasonable efforts to cause the Initial
Improvements to be substantially completed, except for minor "Punch List" items,
on or before the Estimated Completion Date specified in this Appendix C, subject
to Tenant Delay (as defined in Section 4 hereof) and Force Majeure.
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Landlord, or an agent of Landlord, shall provide project management
services in connection with the construction of the Initial Improvements and the
Change Orders (hereinafter defined). Such project management services shall be
performed, at Tenant's cost, for a fee of two percent (2%) of all direct "hard"
costs related to the construction of the Initial Improvements and the Change
Orders up to $20.00 per Rentable Square Foot of the Building, to be deducted
from Landlord's Contribution. During the course of construction of the Initial
Improvements, Landlord or its agent shall provide Tenant with monthly
construction progress reports.
2. CHANGE ORDERS. If, prior to the Commencement Date, Tenant shall
require improvements or changes (individually or collectively, "Change Orders")
to the Premises in addition to, revision of, or substitution for the Initial
Improvements, Tenant shall deliver to Landlord for its approval plans and
specifications for such Change Orders. Within five (5) business days of
Landlord's receipt thereof, Landlord shall either approve of the plans for
Change Orders or advise Tenant of the revisions required, or else Landlord shall
be deemed to have approved such plans. Tenant shall revise and redeliver the
plans and specifications to Landlord within five (5) business days of Landlord's
advice or Tenant shall be deemed to have abandoned its request for such Change
Orders. Tenant shall pay for all preparations and revisions of plans and
specifications, and the construction of all Change Orders, subject to Landlord's
Contribution.
3. LANDLORD'S CONTRIBUTION. Landlord shall contribute an amount up to
$2,238,305 ("Landlord's Contribution") toward the costs incurred for the Initial
Improvements and Change Orders, including costs for engineering and
architectural services and permitting and construction management fees. Landlord
has no obligation to pay for costs of the Initial Improvements or Change Orders
in excess of Landlord's Contribution. If the cost of the Initial Improvements
and/or Change Orders exceeds the Landlord's Contribution, Tenant shall pay such
overage to Landlord on a prorata basis as construction of the Initial
Improvements and/or Change Orders progresses, within thirty (30) days after
invoice. If Landlord's Contribution exceeds the total cost paid by Landlord
toward the cost of the Initial Improvements and the Change Orders as of the
Commencement Date, then, at Tenant's option, such excess shall be applied within
sixty (60) days after the Completion Date as follows: (i) a maximum of Five and
No/100 Dollars ($5.00) per Rentable Square Foot shall be applied as a credit
against Tenant's actual moving expenses and actual costs for its signage, phone
systems and cabling [provided that no more than Two and No/100 Dollars ($2.00)
per Rentable Square Foot out of such excess may be applied as a credit against
Tenant's actual moving expenses], and (ii) in the event any excess remains after
application under clause (i) preceding, a maximum of One and No/100 Dollar
($1.00) per Rentable Square Foot shall be applied as a credit against Tenant's
first required payment of Base Rent.
The Landlord Contribution amount set forth above is based on a base
contribution amount of $25.00 per Rentable Square Foot within the Premises,
proportionately reduced to reflect the preset delayed Commencement Dates for
certain portions of the Premises as set forth in Section 2 of Appendix F. In the
event Tenant triggers an earlier Commencement Date for any portion of the
Premises by occupying such portion earlier than the preset dates, the Landlord
Contribution shall be increased proportionately and paid within thirty (30) days
after such occupancy. In addition, in the event the Rentable Square Footage of
the Premises is adjusted under Section 1C of this Lease, the Landlord
Contribution shall be adjusted accordingly.
4. COMMENCEMENT DATE DELAY.
A. The Commencement Date shall not occur until the earlier of the
first Monday following the date Initial Improvements have been substantially
completed (such date, the "Completion Date") or Tenant's occupancy and
conducting of business in the Premises after the Completion Date, except to the
extent that any delay in the Completion Date shall be directly caused by any one
or more of the following (a "Tenant Delay"):
(a) Tenant's request for Change Orders whether or not any such
Change Orders are actually performed; or
(b) Contractor's performance of any Change Orders; or
(c) Tenant's request for materials, finishes or installations
requiring unusually long lead times; or
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(d) Tenant's delay in reviewing, revising or approving plans
and specifications beyond the periods set forth herein; or
(e) Tenant's delay in providing information critical to the normal
progression of the project. Tenant shall provide such information as soon as
reasonably possible, but in no event longer than seven (7) days after receipt of
such request for information from the Landlord; or
(f) Tenant's delay in making payments to Landlord for costs of the
Initial Improvements and/or Change Orders in excess of the Landlord's
Contribution; or
(g) Any other act or omission by Tenant, its agents, contractors
or persons employed by any of such persons.
If the Completion Date is delayed for any reason, then Landlord shall cause
Landlord's Architect to certify the date on which the Initial Improvements would
have been completed but for such Tenant Delay, or were in fact completed without
any Tenant Delay, which certified date shall be the Completion Date for all
purposes under this Lease. Tenant Delays shall not include any delays caused by
Landlord's delay in reviewing, revising or approving plans and specifications
beyond the periods set forth herein.
B. If the Completion Date has not occurred by the "Estimated
Completion Date", subject to Tenant Delay and Force Majeure, as Tenant's sole
remedy (other than Tenant's termination right set forth below), Landlord shall
pay to Tenant as liquidated damages (or Tenant may deduct as liquidated damages
from its first and, if necessary, subsequent payments of Base Rent) one (1)
day's rent (calculated at a daily rate based on a 30-day month) plus $2,000.00
for each day that the Completion Date is delayed beyond the Estimated Completion
Date. Although Landlord and Tenant recognize that the damages which will be
suffered by Tenant should Landlord fail to timely complete the Initial
Improvements will be difficult to determine with precision, Landlord and Tenant
nevertheless covenant and agree that the liquidated damages to which Tenant is
entitled hereunder are a reasonable forecast of the damages which will be
suffered by Tenant by reason of Landlord's delay. The "Estimated Completion
Date" shall mean November 15, 1998, plus (i) the number of calendar days, if
any, after January 31, 1998 until and including the date of this Lease, and (ii)
the number of calendar days, if any, after March 1, 1998, until and including
the date of final approval of the Initial Improvement Plans.
C. If the Completion Date has not occurred within one hundred twenty
(120) days after the "Estimated Completion Date", subject to Tenant Delay and
Force Majeure delay, then Tenant, in addition to its rights under Section 4.B
above but otherwise as its sole remedy, may terminate this Lease by written
notice to Landlord, in which event the parties hereto shall have no liability or
further obligation under this Lease, and Landlord shall immediately refund the
Security Deposit to Tenant.
D. In the event Tenant requires Landlord to use Flynn Construction as
the contractor for construction of the Initial Improvements, the "Completion
Date" as used in the preceding two paragraphs shall mean the date the Base
Building Work has been substantially completed.
5. ACCESS BY TENANT PRIOR TO COMMENCEMENT OF TERM. Landlord at its
discretion may permit Tenant and its agents to enter the Premises prior to the
Commencement Date to prepare the Premises for Tenant's use and occupancy without
incurring Rent obligations solely as a result of such entry. Any such permission
shall constitute a license only, conditioned upon Tenant's:
(a) working in harmony with Landlord and Landlord's agents,
contractors, workmen, mechanics and suppliers and with other tenants and
occupants of the Building;
(b) obtaining in advance Landlord's approval (not to be unreasonably
withheld, conditioned or delayed) of the contractors proposed to be used by
Tenant and depositing with Landlord in advance of any work the contractor's
affidavit for the proposed work and the waivers of lien from the contractor and
all subcontractors and suppliers of material; and
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(c) furnishing Landlord with such insurance as Landlord may reasonably
require against liabilities which may arise out of such entry.
Landlord shall not be liable in any way for any injury, loss or damage
which may occur to any of Tenant's property or installations in the Premises
prior to the Commencement Date unless resulting from Landlord's gross negligence
or willful misconduct. Tenant shall protect, defend, indemnify and save harmless
Landlord from all liabilities, costs, damages, fees and expenses arising out of
the activities of Tenant or its agents, contractors, suppliers or workmen in the
Premises or the Building. Any entry and occupation permitted under this Section
shall be governed by Section 5 and all other terms of the Lease, including,
without limitation, Section 3B of the Lease.
6. MISCELLANEOUS. Terms used in this Appendix C shall have the
meanings assigned to them in the Lease. The terms of this Appendix C are subject
to the terms of the Lease.
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APPENDIX C-1
SHELL CONDITION
Riata Corporate Park buildings shall have the following shell conditions in
place and ready for Tenant's use:
. Electrical power ceiling distribution grid. Note: Landlord reserves the
right to separately meter the Tenant's premises.
. Suspended acoustical tile grid stocked on floor.
. All HVAC central distribution ducts, mixing boxes, thermostat controls,
perimeter flex duct, perimeter slot and grid diffusers, return air
ceiling plenum work ("saddle" type diffusers to be a tenant improvement
item).
. Separate telephone and data distribution rooms on each floor, with
necessary power for communications equipment and plywood mounting
boards.
. Potable water at the designated points of entry for entire building.
. All "core" functions including, but not limited to, restrooms, recessed
(chilled water) drinking fountains, HVAC room(s), telephone and
electrical rooms, finished elevator lobbies, exit signs at corridors,
all fire and life safety equipment, etc.
. Sprinkler grid; dropped heads with chrome semi-recessed nozzles (1/220
square feet allocation).
. 2'x 4' "second look" lay-in ceiling panels stocked on each lease space
floor.
. 2 tubed parabolic light features stocked on each lease space floor
(1/80 square feet allocation).
. Blinds installed - in plastic bags.
. Exterior walls and Basic configuration of core walls and columns -
drywall/tape & float (not painted).
. Shell building 2'x 4' "lay in" light fixtures are 2 tube T-8 electrical
ballast fixtures at 80 square feet per fixture.
. Shell building design calls for 15 CFM per person.
. Shell electrical design provides 8.0 watts per square foot actually
available for Tenant use after lighting and HVAC loads are
accommodated.
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APPENDIX C-2
BASE BUILDING PROFILE
Electric
. City of Austin - Single feed.
. 277/480 volt, 3 phase, 4 wire, 60 hertz service.
. 8 watts per square foot for Tenant's use for lighting and power.
. Service switchboard shall be configured to allow the addition of at
least one additional switch for future connection.
Floor Loading and Structural Features
. Increased floor loading capacity in the center of the building allows
for file rooms, etc.
HVAC
. Three 105 ton Variable Air Volume (VAV) air cooling roof-top units.
General Features
. Variable air volume offering approximately 20 separately controlled
climate/comfort zones per floor.
. 60 separate thermostats (1 per zone).
. Direct Digital Controls (DDC) energy management system allows morning
warm up, morning cool down, night setback and optimum start and stop.
. After-hours operation by zone.
. Outside air intake to enhance indoor air quality.
. Low emissivity 1" insulated dual pane glazing for energy conservation.
Fiber Optic Capability
. Telephone service.
. Single feed - Time Warner.
Elevators
. Three (3) 3,000 lb. hydraulic passenger elevators rated at 150 feet per
minute.
. Enhanced passenger cab finishes.
. Security card access for after-hours operation.
Security Features
. Card-key systems throughout for entry into building and elevators.
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. Elevators are designed with card-key interlock in order to provide for
additional access control to the tenant floors.
. Card-key access control system can be expanded to permit access control
to individual office suites as well as particular offices or
departments within the premises.
. Two-way intercoms strategically located at the building entrances and
elevator cabs provide for direct voice communication provided on a 24-
hour a day, seven day per week basis.
. Metal halide site lighting providing an average of 1 foot candles.
Life Safety Systems - State of the Art
. Automatic fire sprinkler system.
. Fire alarm system including smoke detectors and sprinkler system flow
switches.
. Stand-by battery pack powered lighting.
Construction Methods and Materials
. The fully sprinklered building conforms to "type II one hour"
construction throughout.
. The building primarily consists of a precast concrete structure.
. Exterior walls are a combination of precast concrete with carefully
designed finishes and patterns, green vision glass, and aluminum
panels.
. Suns screens are provided to protect the non-recessed portions of the
glass and to add subtle detail and shadow patterns to the building
face.
. Additional details added to the top floor glazing through the use of
vertical fin elements.
. Vision glass is green low "E" dual pane for noise control, insulating
qualities and energy efficiency.
. Roof top equipment is screened by an extension of the building wall,
which also emphasizes the sophisticated interlocking design of the
project.
. Latest technology roofing and insulating materials ensure a low
maintenance, energy efficient and weather tight roof.
. A monumental portal provides protection for the entry into the two-
story lobby.
. An elegant steel and concrete stair provides direct access from the
lobby to the second floor.
Lobby
. Two story "atrium" entry lobby.
. Grand stair to second floor with open balcony.
. Polished stone flooring.
. Matched wood veneers at elevator lobby walls.
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Plaza Area
. Shaded outdoor meeting areas with arbor shelters.
. Flowering native trees and shrubs.
. Textured walks and planter walls.
. Comfortable seating and picnic areas.
Other Points
. Satellite dishes can be accommodated on the roof of the Building in
accordance with CarrAmerica guidelines and at Tenant's expense, as
provided in Section 30 of the Lease.
. Tenant's need for backup diesel generator can be accommodated on pad at
grade at rear of Building and at Tenant's expense.
. Separate mail and vending area on ground floor.
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APPENDIX D
MORTGAGES OR GROUND LEASES CURRENTLY AFFECTING THE PROJECT
None.
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APPENDIX E
COMMENCEMENT DATE CONFIRMATION
Landlord: CarrAmerica Realty, L.P., a Delaware limited partnership
t/a Riata Corporate Park
Tenant: Pervasive Software Inc., a Delaware corporation
This Commencement Date Confirmation is made by Landlord and Tenant
pursuant to that certain Lease dated as of _________, 199__ (the "Lease") for
certain premises known as Riata Corporate Park Building 8 (the "Premises"). This
Confirmation is made pursuant to Item 9 of the Schedule to the Lease.
1. Lease Commencement Date, Termination Date. Landlord and Tenant
hereby agree that the Commencement Date of the Lease is _____________, 199__,
and the Termination Date of the Lease is _______________, _____.
2. Acceptance of Premises. Tenant has inspected the Premises (or
applicable portion thereof) and affirms that the Premises (or such portion(s)
thereof known as Suite(s) _______) is acceptable in all respects in its current
"as is" condition, subject to the "punch list"-type items shown on Exhibit A
attached hereto.
3. Incorporation. This Confirmation is incorporated into the Lease,
and forms an integral part thereof. This Confirmation shall be construed and
interpreted in accordance with the terms of the Lease for all purposes.
TENANT:
PERVASIVE SOFTWARE INC.,
a Delaware corporation
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
LANDLORD:
CARRAMERICA REALTY, L.P., a Delaware
limited partnership
By: CarrAmerica Realty GP Holdings,
Inc., a Delaware corporation,
General Partner
By:
---------------------
Name:
---------------------
Title:
---------------------
E-1
<PAGE>
APPENDIX F
SPECIAL PROVISIONS
1. EXTENSION OPTION. Subject to Subsection 1C below, Tenant may at its
option extend the Term of this Lease for the entire Premises for two (2)
successive periods of five (5) years each. Each such period is called a "Renewal
Term", and the first such five (5) year period is called the "First Renewal
Term" and the second such five (5) year period is called the "Second Renewal
Term". Each Renewal Term shall be upon the same terms contained in this Lease,
excluding the provisions of Appendix C of this Lease and except for the payment
of Base Rent during the Renewal Term; and any reference in the Lease to the
"Term" of the Lease shall be deemed to include any Renewal Term and apply
thereto, unless it is expressly provided otherwise. Tenant shall have no
additional extension options.
A. The Base Rent during a Renewal Term shall be the greater of
(i) the average Base Rent over the initial Term of the Lease, or (ii) the then
prevailing market rate (including rent concessions typical for the relevant
market as set forth below) for a comparable term commencing on the first day of
the Renewal Term for tenants of comparable size and creditworthiness for
comparable space (including the extent of tenant improvements) in the Project
and other first-class office buildings in the Austin Northwest and Far Northwest
suburban markets, as reasonably determined by Landlord based upon independent
market research reports.
B. To exercise its option, Tenant must deliver an initial
non-binding notice to Landlord not more than eighteen (18) months nor less than
twelve (12) months prior to the proposed commencement of the Renewal Term.
Within forty-five (45) days of Landlord's receipt of Tenant's initial
non-binding notice, Landlord shall calculate and inform Tenant of the Base Rent
for the Premises during the Renewal Term. Such calculation shall be final and
shall not be recalculated at the actual commencement of the Renewal Term. Tenant
shall give Landlord final binding notice of its intent to exercise its option to
extend within thirty (30) days after receiving Landlord's written calculation of
Base Rent. If Tenant fails to give either its initial nonbinding notice or its
final binding notice timely, Tenant will be deemed to have waived its option to
extend. In the event Landlord fails to timely provide Tenant with its Base Rent
calculation as aforesaid, Tenant may notify Landlord thereof. If Landlord fails
to provide such calculation within thirty (30) days of such notice, Tenant may
notify Landlord thereof a second time. If Landlord still does not provide such
calculation within thirty (30) days of such second notice, then Base Rent for
the Renewal Term shall be deemed to be the average Base Rent over the initial
Term of the Lease.
C. Tenant's option to extend this Lease is subject to the
conditions that: (i) on the date that Tenant delivers its final binding notice
exercising an option to extend, Tenant is not in default under this Lease after
the expiration of any applicable notice and cure periods, and (ii) Tenant shall
not have assigned this Lease, or sublet any portion of the Premises under a
sublease which is in effect at any time during the final 12 months of the
initial Term or First Renewal Term, as applicable, except for an assignment
pursuant to Section 17D of the Lease or a sublease of less than one-third (_) of
the then-current total Rentable Square Footage of the Premises.
D. Tenant agrees to accept the Premises at the commencement of
the Renewal Term in its then-present condition, "AS IS" and "WITH ALL FAULTS."
2. HOLD/TAKE SPACE. Notwithstanding anything to the contrary in the
Lease, the "Premises" as of the Commencement Date shall consist of 70,000
Rentable Square Feet in the Building (the "Initial Space"). Thereafter,
additional portions of the Building shall be added to the "Premises" as follows:
10,000 Rentable Square Feet commencing six (6) months after the Commencement
Date (the "First Take Space") or upon Tenant's occupancy of such space,
whichever is sooner; an additional 8,000 Rentable Square Feet commencing twelve
(12) months after the Commencement Date or upon Tenant's occupancy of such
space, whichever is sooner (the "Second Take Space"); and an additional 3,332
Rentable Square Feet commencing eighteen (18) months after the Commencement Date
or upon Tenant's occupancy of such space, whichever is sooner (the "Third Take
Space"). No later than June 1, 1998, Tenant shall notify Landlord in writing as
to Tenant's desired location of the Initial Space, First Take Space, Second Take
Space and Third Take Space in the Building. Landlord will then cause Landlord's
Architect to delineate such spaces on the Initial Improvement Plans and to
verify the square footage thereof.
F-1
<PAGE>
3. EXPANSION OPTIONS.
A. First Expansion Option. Tenant shall have the option of
expanding the Premises to include a portion of Building 7 or Building 9 (the
"First Expansion Space"), as determined by Landlord pursuant to the provisions
below. Tenant may exercise this option by delivering written notice thereof to
Landlord on or not greater than thirty (30) days before the last day of the
second (2nd) Lease Year. Within thirty (30) days after Tenant's notice as
aforesaid, Landlord shall notify Tenant of the location of the First Expansion
Space (which shall be within either Building 7 or Building 9 in the Project),
the size of the First Expansion Space (actual delivery of which shall be not
greater than 25,000 contiguous rentable square feet nor less than 15,000
contiguous rentable square feet) and the date Landlord estimates it will deliver
the First Expansion Space to Tenant (which shall be not more than forty-eight
(48) months following the Commencement Date nor less than thirty-six (36) months
following the Commencement Date). The Tenant Improvement Agreement set forth in
Appendix C shall apply to the First Expansion Space, except that (i) the Initial
Improvements shall be only those improvements to be performed within the First
Expansion Space, (ii) "Commencement Date" shall be changed to "Expansion
Commencement Date", and (iii) the amount of the Landlord's Contribution per
Rentable Square Foot for the First Expansion Space shall be equal to (a) $25.00
x Y/120 x Z, where Y equals the number of calendar months between the Expansion
Commencement Date and the end of the initial 10-year Term and Z equals the
number of Rentable Square Feet within the First Expansion Space, less (b) the
total amount of monetary concessions granted to prior third party tenant(s) of
the First Expansion Space for tenant improvement allowances, moving expenses,
signage and phone systems and cabling. Except as expressly modified herein, all
other terms of the Lease shall apply to the First Expansion Space to the same
extent as if such space were originally included in the definition of the
Premises.
B. Second Expansion Option. Tenant shall have the option of
expanding the Premises to include a portion of Building 7 or Building 9 (the
"Second Expansion Space"), as determined by Landlord pursuant to the provisions
below. Tenant may exercise this option by delivering written notice thereof to
Landlord on or not greater than thirty (30) days before the last day of the
fourth (4th) Lease Year. Within thirty (30) days after Tenant's notice as
aforesaid, Landlord shall notify Tenant of the location of the Second Expansion
Space (which shall be within either Building 7 or Building 9 in the Project, in
Landlord's sole discretion, provided that Landlord will consider Tenant's
preference that such space be located adjacent to the First Expansion Space or
at least in the same building as the First Expansion Space, without any
obligation on Landlord to do so), the size of the Second Expansion Space (which
shall be not greater than 20,000 contiguous rentable square feet nor less than
10,000 contiguous rentable square feet) and the date Landlord estimates it will
deliver the Second Expansion Space to Tenant (delivery of which shall be not
more than seventy-two (72) months following the Commencement Date nor less than
sixty (60) months following the Commencement Date). The Tenant Improvement
Agreement set forth in Appendix C shall apply to the Second Expansion Space,
except that (i) the Initial Improvements shall be only those improvements to be
performed within the Second Expansion Space, (ii) "Commencement Date" shall be
changed to "Expansion Commencement Date", and (iii) the amount of the Landlord's
Contribution per Rentable Square Foot for the Second Expansion Space shall be
equal to (a) $25.00 x Y/120 x Z, where Y equals the number of calendar months
between the Expansion Commencement Date and the end of the initial 10-year Term
and Z equal the number of Rentable Square Feet within the Second Expansion
Space, less (b) the total amount of monetary concessions granted to prior third
party tenant(s) of the Second Expansion Space for tenant improvement allowances,
moving expenses, signage, phone systems and cabling and lease termination fees.
Except as expressly modified herein, all other terms of the Lease shall apply to
the Second Expansion Space to the same extent as if such space were originally
included in the definition of the Premises.
C. Lease Amendment to Reflect Expansion. Promptly after Tenant's
exercise of its expansion options under Subsection 3A and/or Subsection 3B of
this Appendix F, Landlord shall execute and deliver to Tenant an amendment to
the Lease to reflect changes in the Premises, Base Rent, Tenant's Proportionate
Share and any other appropriate terms changed by the addition of the First
Expansion Space or Second Expansion Space, as applicable. The amendment shall
also specify any additional electrical equipment to be used in the Expansion
Space, the consumption costs, if applicable, for which Tenant will owe pursuant
to Section 4C of the Lease. Within fifteen (15) days thereafter, Tenant and
Landlord shall execute the amendment with any changes that may be mutually
agreed upon.
F-2
<PAGE>
4. RIGHT OF FIRST REFUSAL. Subject to Subsection 4B below, Landlord
hereby grants to Tenant for the term of the Lease (as same may be extended) a
right of first refusal for the balance of the building in which the First
Expansion Space is (or will be) located (the "RFR Space"), to be exercised in
accordance with Subsection A below. For purposes of this Section 4 of Appendix
F, the building in which the First Expansion Space is (or will be) located shall
be as designated by Landlord pursuant to Subsection 3A above or, if such
designation has not yet occurred, as otherwise designated by Landlord in writing
to Tenant with or prior to the First Landlord's RFR Notice (defined below).
A. In the event Landlord receives a bona fide offer from a
third party to lease all or a portion of the RFR Space acceptable to Landlord,
or Landlord makes a legitimate bona fide offer to a third party with respect to
all or a portion of the RFR Space acceptable to such third party, Landlord shall
so notify Tenant ("Landlord's RFR Notice"), identifying the available RFR Space
and accompanied by a copy of such offer. Tenant shall notify Landlord within
seven (7) business days of receipt of Landlord's RFR Notice whether it desires
to lease the RFR Space on the terms set forth in the copy of the offer
accompanying Landlord's RFR Notice. If Tenant does not notify Landlord within
said 7-business day period that it will lease the RFR Space, Landlord shall be
free to lease such space to such third party on the terms of the offer made by
or to such party and Tenant shall have no further right of first refusal for
such RFR Space unless and until, after either the term of any lease (or any
renewal thereof) between Landlord and such third party expires or such third
party affirmatively and finally rejects such space without entering into a lease
therefor, Landlord again receives from or makes a mutually acceptable bona fide
offer to a third party for the lease of such RFR Space. If Tenant exercises its
right of first refusal with respect to the RFR Space, such space shall be added
to the Premises for all purposes of this lease for the remaining Term of the
Lease on (a) the terms specified in the copy of the offer accompanying
Landlord's RFR Notice, and (b) the terms of this Lease to the extent that they
do not conflict with the terms specified in the copy of the offer accompanying
Landlord's RFR Notice. Tenant's refusal of a portion of RFR Space shall in no
way affect Tenant's right of first refusal as set forth herein with respect to
the balance of the RFR Space.
B. Tenant's right of first refusal as set forth above is subject
to the conditions that: (i) on the date that Tenant delivers its notice
exercising its right of first refusal, Tenant is not in default under this Lease
after the expiration of any applicable notice and cure periods, and (ii) Tenant
shall not have assigned the Lease, or sublet any portion of the Premises under a
sublease which is in effect at any time during the period commencing with
Tenant's delivery of its notice and ending on the date the RFR Space is added to
the Premises, except for an assignment or sublease pursuant to Section 17D of
the Lease or subleases of less than one-third (1/3) of the then-current total
Rentable Square Footage of the Premises.
C. Promptly after Tenant's exercise of its right of first refusal
under this Paragraph 4, Landlord shall execute and deliver to Tenant an
amendment to the Lease to reflect changes in the Premises, Base Rent, Tenant's
Proportionate Share and any other appropriate terms changed by the addition of
the RFR Space. Within fifteen (15) days after Tenant's receipt of an accurate
amendment from Landlord, Tenant shall execute and return the amendment.
5. TERMINATION OPTION. Tenant may at its option terminate this Lease
in its entirety (the "Termination Option") effective as of the last day of the
seventh (7th) Lease Year (the "Early Termination Date") by delivering written
notice of its intent to terminate this Lease (the "Termination Notice") to
Landlord on or before the date twelve (12) months prior to the Early Termination
Date accompanied by payment of one-half (1/2) of the Termination Fee (defined
below). The other one-half (1/2) of the Termination Fee shall be paid by Tenant
to Landlord on the earlier to occur of Tenant's vacation of the Premises or the
Early Termination Date. If Tenant fails to timely deliver its Termination Notice
and pay the initial one-half (1/2) of the Termination Fee, Tenant will be deemed
to have waived such Termination Option. If (i) there are any uncured defaults by
Tenant under this Lease as of the date Tenant delivers the Termination Notice or
as of the Early Termination Date, or (ii) Tenant's exercise of its expansion
and/or right of first refusal rights under this Appendix F or any other
expansion of the Premises has resulted in the "Premises" under this Lease
totalling more than 152,331 Rentable Square Feet in Buildings 6, 7, 8 and 9 as
of the Early Termination Date, the Termination Option shall be void, and the
Lease shall remain in effect. If Tenant properly exercises its Termination
Option, this Lease shall terminate as of the Early Termination Date, with all
remaining obligations of the parties thereupon extinguished in full. In the
event the Premises consists of Building 8 only as of the Early Termination
Date, the "Termination Fee" shall equal $2,290,000.00. In the event the Premises
F-3
<PAGE>
has expanded beyond Building 8 as of the Early Termination Date, whether
pursuant to this Appendix F or otherwise, then the Termination Fee as aforesaid
shall increase by the following amounts: (a) the total aggregate amount of
Landlord's Contribution for such expansion space, plus any other monetary
concession granted to Tenant for such space under the terms of this Lease or
otherwise (e.g., moving expenses, equipment allowances, rent credits, etc.),
which would be unamortized as of the Early Termination Date, assuming that such
total aggregate amount were to be fully amortized over the term of the Lease (as
amended) applicable to the expansion space, using an interest rate of 10% per
annum, plus (b) the difference between (i) the total amount of Base Rent which
would have been due and payable by Tenant for such expansion space over the
period from the term commencement date for such expansion space until the Early
Termination Date, using the average Base Rent per square foot per year for such
space from such expansion commencement date until the originally scheduled
Termination Date of the Lease applicable to such expansion space, less (ii) the
total amount of Base Rent actually paid by Tenant for such shorter period with
respect to such expansion space, plus (c) the sum of the monthly installments of
Base Rent and Operating Cost Share Rent which would have been payable in the
first four (4) full calendar months following the Early Termination Date with
respect to such expansion space. Any amendment to the Lease done in connection
with expansion of the Premises shall contain a recalculation of the Termination
Fee in accordance with the foregoing, provided that such recalculation shall be
self-operative upon such expansion of the Premises, without regard to whether
same is addressed in a Lease amendment.
F-4
<PAGE>
APPENDIX G
FORM OF LETTER OF CREDIT
[Letterhead of Financial Institution]
IRREVOCABLE LETTER OF CREDIT
No. _____________
_____________________, ____
CarrAmerica Realty, L.P.
t/a Riata Corporate Park,
as Landlord under the Lease
referred to below
8240 North MoPac, Suite 105
Austin, Texas 78759
Attn: Market Officer
Gentlemen:
1. We hereby establish, at the request and for the account of
Pervasive Software Inc. (the "Tenant"), in your favor as Landlord ("Landlord"),
or any successor or assign of Landlord, under that certain Lease between
Landlord and Tenant, dated as of ____________________, 1998 (the "Lease"), and
Landlord's successors and assigns, our Irrevocable Letter of Credit No. ______,
in the amount of U.S. $175,000.00 (the "Stated Amount"), as more fully set forth
hereinafter, effective immediately and expiring at the close of banking business
at our [office address of Financial Institution] office on _____________________
(the "Stated Expiration Date").
2. Funds under this Letter of Credit are available to you against
your sight draft(s) drawn on us, stating on its face: "Drawn under [Name of
Financial Institution] Irrevocable Letter of Credit No. ______" and
accompanied by your written, completed and executed certificate in the form
attached hereto as Schedule 1 with appropriate insertions. Such draft(s) and
certificate(s) shall be dated the date of presentation, which shall be made at
any time during our business hours on a Business Day (as hereinafter defined) at
our main office located at _________________________, _______, Texas
(Attention: _________________), or at any other office of ours located in
________, Texas, that may be designated by us by written notice delivered to
you. If we receive your draft(s) and certificate(s) at such office, we shall,
by no later than 11:00 a.m., ________, Texas time, on the third Business Day
following the date of such demand, make payment to you of the amount demanded.
All payments hereunder shall be made in immediately available funds to the
Landlord at the address set forth above in Austin, Texas. "Business Day" shall
mean any day other than a Saturday, Sunday, or other day on which national
banks in the city in which is located the office of the Landlord or [Name of
Financial Institution] are authorized or required by law to close.
3. You may make multiple drawings hereunder; provided, however, that
each drawing honored by us hereunder shall reduce the amount available under
this Letter of Credit by the amount of such drawing. Drawings hereunder shall
never exceed the Stated Amount.
4. This Letter of Credit shall automatically terminate upon the
earliest of (i) our honoring of the final drawing available to be made
hereunder, (ii) the surrender to us by you of this Letter of Credit for
cancellation, or (iii) the Stated Expiration Date hereof.
G-1
<PAGE>
5. Drawings on this Letter of Credit shall be delivered with the
appropriate form of certificate attached hereto and all other communications
with respect hereto shall be in writing and shall be addressed to us at the
address set forth above, specifically referring to the number of this Letter of
Credit and shall be deemed made when actually received by us.
6. Except as expressly provided herein, this Letter of Credit is
subject to the Uniform Customs and Practices for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500 (the "UCP"). To
the extent applicable, provisions of the UCP shall prevail; this Letter of
Credit shall be governed by and construed in accordance with the laws of the
United States of America and the State of Texas, including the Business and
Commerce Code as in effect in the State of Texas on the date hereof.
7. We hereby agree that drafts drawn and presented in conformance with
the terms hereof shall be duly honored.
Very truly yours,
[Name of Financial Institution]
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
G-2
<PAGE>
Schedule 1
to Letter of Credit
CERTIFICATE FOR DRAWING
Capitalized terms used, but not otherwise defined herein, shall have
the meanings ascribed to them in that certain Irrevocable Letter of Credit No.
______ (the "Letter of Credit") dated ____________, _____, issued by
_______________________________(the "Issuer") for the benefit of the
undersigned (the "Landlord").
The undersigned, a duly authorized officer of the Landlord, hereby
certifies to the Issuer, with reference to the Letter of Credit, that:
(1) The Landlord is the Landlord under the Lease.
[One of the following two provisions is to be selected depending
upon Landlord's rationale for making a drawing under the Letter of
Credit:]
(2) The Landlord is making a drawing under the Letter of Credit
with respect to a payment due under the Lease which has not been
received by the Landlord after default and lapse of any applicable
notice and cure period.
(3) The amount which is due and payable under the Lease and which
shall be due and payable under the Letter of Credit following the date
of presentation of the sight draft accompanying this Certificate, is
$___________________, and the amount of such sight draft does not
exceed the current amount of the Letter of Credit.
[or]
(2) The term of the Lease has not expired and the Landlord is
making a drawing under the Letter of Credit with respect to Tenant's
failure to provide an identical renewal or replacement letter of credit
at least thirty (30) days prior to the expiration of the Letter of
Credit.
IN WITNESS WHEREOF, the Landlord has executed and delivered this
Certificate as of the ____ day of _______________________, 199_.
,
------------------------------
as the Landlord
By:
---------------------
Name:
---------------------
Title:
---------------------
G-3
<PAGE>
EXHIBIT 10.11
AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT
("AGREEMENT")
THIS AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT WITH LETTER OF
CREDIT SUBLIMIT as amended, modified and supplemented from time to time, (the
"Agreement") dated as of February 28, 1998 (the "Effective Date"), is by and
between PERVASIVE SOFTWARE INC. ("Borrower"), and CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION formerly known as TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a
national banking association (the "Bank") and is effective as of the Effective
Date.
PRELIMINARY STATEMENT
The Bank and Borrower have entered into an Amendment and Restatement of
Agreement dated as of March 31, 1997 (the "Credit Agreement"). The Bank and the
Borrower have agreed to amend and restate and replace the Credit Agreement to
the extent set forth herein, in order to among other things, renew, increase and
extend a $4,000,000.00 revolving line of credit to Borrower.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the Bank and the Borrower hereby agree to
amend, restate and replace the Credit Agreement to read and be as follows:
1. THE LOANS.
REVOLVING CREDIT NOTE 1.1.A Subject to the terms and conditions hereof, Bank
agrees to make loans ("Revolving Loan" or "Revolving Loans") to Borrower from
time to time before the Termination Date, not to exceed at any one time
outstanding the lesser of the Borrowing Base or $4,000,000.00 (the
"Commitment"). Borrower has the right to borrow, repay and reborrow. The Loans
may only be used for financing timing differences in cash flow or to fund
acquisitions. Chapter 15 of the Texas Credit Code will not apply to this
Agreement, the Revolving Note or any Revolving Loan. Revolving Loans shall take
the form of advances under the Revolving Note (as hereinafter defined) (each and
all advances hereinafter referred to as "Revolving Loan" or "Revolving Loans"),
or issuances of standby letters of credit ("Standby L/Cs") by Bank. Standby L/Cs
issued by Bank hereunder are hereafter referred to as "Letter of Credit"
("L/C"). The Revolving Loans will be evidenced by, and will bear interest and be
payable as provided in, the promissory note of Borrower dated the Effective Date
(together with any and all renewals, extensions, modifications and replacements
thereof and substitutions therefor, the "Revolving Note"), which is given in
renewal, increase, modification and extension of that certain promissory note
dated March 31, 1997 in the original principal amount of $2,000,000.00, maturing
on March 31, 1998 (including all prior notes of which said note represents a
renewal, extension, modification, increase, substitution, rearrangement or
replacement thereof, the "Renewed Note"). The parties hereto agree that there is
as of the Effective Date an outstanding principal balance of $-0- under the Note
and $50,000 in L/C Obligations outstanding, leaving a balance as of the
Effective Date of $3,950,000.00 under the Commitment available for Loans and
issuance of L/C's subject to the terms and conditions of this Agreement. The
"Note" as used in the Credit Agreement shall also refer to the "Note" as used in
this Amendment. "Termination Date" means the earlier of: (a) September 30, 1999;
or (b) the date specified by Bank pursuant to Section 6.1 hereof.
LETTERS OF CREDIT 1.1.B.
(i) Subject to the approval of the Bank, Letters of Credit may be issued
from time to time on and after the Effective Date, but not including the
Termination Date for the account of any of the Borrowers and in favor of
such Person or Persons as may be designated by any Borrower. Each Letter
of Credit shall have an expiration date of no later than the Termination
Date in the case of Standby L/C's;
(ii) As a condition precedent to the issuance of any Letter of Credit, Bank
shall have received an application ("Application" or "Applications")
substantially in the form of, in the case of Standby L/C's, Exhibit A
attached hereto, duly completed and executed by the Borrower in Proper
Form not less than two (2) Business Day(s) prior to the date on which
the Letter of Credit is to be issued;
(iii) The Commitment shall be reduced by an amount equal to the sum of: (a)
the face amount of all outstanding Letters of Credit; and (b) the amount
of any unreimbursed drawings or other amounts owing to the Bank under or
in respect of any Letter of Credit or Application (items (a) and (b) are
hereinafter collectively referred to as the "L/C Obligations") such
that, on any date, the sum of (x) all Loans outstanding on such date and
(y) all L/C Obligations on such date does not exceed the Commitment;
(iv) The total aggregate amount of "L/C Obligations" shall never exceed
$500,000.00;
(v) The issuance of each Letter of Credit shall be subject to the following
conditions precedent: (a) no Event of Default has occurred and is
continuing; and (b) each request by Borrower for the issuance of a
Letter of Credit shall be deemed to be a representation to that effect
and to the further effect that the representations and warranties
contained in Section 3 of the Agreement are true and correct as of the
date of such request as if made on and as of such date; and (c) Bank
receives an Application in Proper Form and any and all other such
agreements and documents reasonably required by the Bank in connection
with such Letter of Credit;
(vi) Each and all of any of the Borrower's liabilities and obligations under
or in connection with any Letter of Credit is secured by the Collateral
securing the Note and the Bank is entitled to all rights, powers,
benefits, privileges and remedies granted under any provision of the
Security Documents and all other Loan Documents or by law or in equity;
(vii) In consideration for the issuance of each Letter of Credit, the Borrower
agrees to pay to the Bank a letter of credit issuance fee ("Fee") in
respect of such Letter of Credit in an amount equal to the greater of:
(a) in the case of Standby L/C's one and one-half percent (1 1/2%) per
annum on the face amount of such Letter of Credit; and (b) the minimum
fee for such Letter of Credit established by the Bank from time to time
and in effect as of the date on which such Letter of Credit is to be
issued. The Fee shall be paid to the Bank at its main offices to the
attention of the Manager, Documentary Services Division in advance of
issuance of the Letter of Credit;
(viii) Bank may, but is not required to do so, make advances under the Note
without notice to any Borrower to make payment on any Letter of Credit;
and
(ix) Letters of Credit shall be for business purposes.
1.1.C. Bank has issued a L/C (not under the Commitment, "Stand-alone L/C") in
the amount of $126,000.00, issued October 3, 1996 with an expiry date of
November 30, 1999, No. I-465222, with Colina West Limited as the beneficiary.
COMMITMENT FEE 1.2 Borrower will pay a commitment fee (computed on the basis of
the actual number of days elapsed in a year comprised of 360 days of 1/8% per
annum on the daily average difference between the Commitment and the principal
balance of the Revolving Note, from the date hereof to the Termination Date. The
Commitment fee is due and payable quarterly, on the last day of each third month
after the Effective Date, in arrears.
PAST DUE AMOUNTS 1.3 Each past due amount due to Bank in connection with the
Loan Documents will bear interest from its due date until paid at the Highest
Lawful Rate unless the applicable Loan Document provides otherwise.
CONFIRMATION OF SECURITY INTERESTS 1.4. Borrower confirms and ratifies each of
the liens, security interests and other interests granted in each and all
security agreements executed in connection with, related to, or securing the
Renewed Note as extending to and securing the Loans, the Notes and the L/C's
including but not limited to each of those interests and liens described in the
following listed Security Agreements. Borrower further agrees and acknowledges
that the terms "secured indebtedness" and "indebtedness secured hereby" as used
in any security agreement including any supplemental security agreements
executed in connection with or related to, or securing the Renewed Note, or any
other indebtedness of Borrower to Bank, including but not limited to the
following security agreements executed by Borrower and delivered to Bank:
Security Agreement - Accounts and General Intangibles executed as of September
18, 1996; Security Agreement - Inventory executed as of September 18, 1996; the
Security Agreement - Equipment and Fixtures executed as of March 31, 1997
including any Supplemental Security Agreements supplementing any of the
foregoing, and any other security agreements previously executed by Borrower and
delivered to Bank and not released by Bank and all security agreements executed
as of the Effective Date (each and all "Security Agreements") include, but are
not limited to, each and all indebtedness of all character and kind related to
or evidenced by the Renewed Note, the L/Cs, the Notes and related to the Loan
Documents.
Page 1 of 6 Pages
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2. CONDITIONS PRECEDENT.
ALL LOANS 2.1 Bank is not obligated to make any Loan or to issue any Letter of
Credit unless: (a) Bank has received the following, duly executed and in Proper
Form: (1) a Request for Revolving Loan, substantially in the form of Exhibit B,
not later than one (1) Business Day before the date (which shall also be a
Business Day) of the proposed Revolving Loan; provided however, Bank may accept
and act upon verbal advance requests received from a Borrower's representative
reasonably believed by Bank to be authorized to make such requests; (2) for the
issuance of any Letter of Credit, a duly executed Application in Proper Form by
Borrowers within the time set forth in Section 1.1.B.(ii); and (3) such other
documents as Bank reasonably may require; (b) no Event of Default exists; and
(c) the making of the Loan is not prohibited by, or subjects Bank to any penalty
or onerous condition under any Legal Requirement.
3. REPRESENTATIONS AND WARRANTIES. To induce Bank to enter into this Agreement
and to make the Loans, Borrower represents and warrants as of the Effective Date
and the date of each request for a Loan that each of the following statements is
and shall remain true and correct throughout the term of this Agreement:
ORGANIZATION AND STATUS 3.1 Borrower and each Subsidiary of Borrower is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; has all power and authority to conduct its
business as presently conducted, and is duly qualified to do business and in
good standing in each jurisdiction in which the nature of the business conducted
by it makes such qualification desirable. Borrower has no Subsidiary other than
those listed on Annex II and each Subsidiary is owned by Borrower in the
percentage set forth on Annex II. If Borrower is subject to the Texas Revised
Partnership Act ("TRPA"), Borrower agrees that Bank is not required to comply
with Section 3.05(d) of TRPA and agrees that Bank may proceed directly against
one or more partners or their property without first seeking satisfaction from
partnership property.
FINANCIAL STATEMENTS 3.2 All financial statements delivered to Bank are complete
and correct and fairly present, in accordance with generally accepted accounting
principles, consistently applied ("GAAP"), the financial condition and the
results of operations of Borrower and each Subsidiary of Borrower as at the
dates and for the periods indicated. No material adverse change has occurred in
the assets, liabilities, financial condition, business or affairs of Borrower or
any Subsidiary of Borrower since the dates of such financial statements. To the
extent that financial information provided by Borrower or a Subsidiary of
Borrower consists of pro-forma or projected data for future periods, Bank
acknowledges that such data shall be based on good faith estimates and
assumptions which may vary from actual results actually achieved for such
periods. Neither Borrower nor any Subsidiary of Borrower is subject to any
instrument or agreement materially and adversely affecting its financial
condition, business or affairs.
ENFORCEABILITY 3.3 The Loan Documents are legal, valid and binding obligations
of the Parties enforceable in accordance with their respective terms, except as
may be limited by bankruptcy, insolvency and other similar laws affecting
creditors' rights generally. The execution, delivery and performance of the Loan
Documents have all been duly authorized by all necessary action; are within the
power and authority of the Parties; do not and will not violate any Legal
Requirement, the Organizational Documents of the Parties or any agreement or
instrument binding or affecting the Parties or any of their respective Property.
COMPLIANCE 3.4 Borrower and each Subsidiary of Borrower has filed all applicable
tax returns and paid all taxes shown thereon to be due, except those for which
extensions have been obtained and those which are being contested in good faith
and for which adequate reserves have been established. Borrower and each
Subsidiary of Borrower is in compliance with all applicable Legal Requirements
and manages and operates (and will continue to manage and operate) its business
in accordance with good industry practices. Neither Borrower nor any Subsidiary
of Borrower is in default in the payment of any other indebtedness or under any
agreement to which it is a party. The Parties have obtained all consents of and
registered with all Governmental Authorities or other Persons required to
execute, deliver and perform the Loan Documents.
LITIGATION 3.5 Except as previously disclosed to Bank in writing, there is no
litigation or administrative proceeding pending or, to the knowledge of
Borrower, threatened against, nor any outstanding judgment, order or decree
affecting Borrower or any Subsidiary of Borrower before or by any Governmental
Authority.
TITLE AND RIGHTS 3.6 Borrower and each Subsidiary of Borrower has good and
marketable title to its Property, free and clear of any Lien except for Liens
permitted by this Agreement and the other Loan Documents. Except as otherwise
expressly stated in the Loan Documents or permitted by this Agreement, the Liens
of the Loan Documents will constitute valid and perfected first and prior Liens
on the Property described therein, subject to no other Liens whatsoever.
Borrower and each Subsidiary of Borrower possesses all permits, licenses,
patents, trademarks and copyrights required to conduct its business. All
easements, rights-of-way and other rights necessary to maintain and operate
Borrower's Property have been obtained and are in full force and effect.
REGULATION U; BUSINESS PURPOSE 3.7 None of the proceeds of any Loan will be used
to purchase or carry, directly or indirectly, any margin stock or for any other
purpose which would make this credit a "purpose credit" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System. All Loans
will be used for business, commercial, investment or other similar purpose and
not primarily for personal, family, or household use or primarily for
agricultural purposes as such terms are used in Chapter One of the Texas Credit
Code.
ENVIRONMENT 3.8 Borrower and each Subsidiary of Borrower have complied with
applicable Legal Requirements in each instance in which any of them have
generated, handled, used, stored or disposed of any hazardous or toxic waste or
substance, on or off its premises (whether or not owned by any of them). Neither
Borrower nor any Subsidiary of Borrower has any material contingent liability
for non-compliance with environmental or hazardous waste laws. Neither Borrower
nor any Subsidiary of Borrower has received any notice that it or any of its
Property or operations does not comply with, or that any Governmental Authority
is investigating its compliance with, any environmental or hazardous waste laws.
INVESTMENT COMPANY ACT/PUBLIC UTILITY HOLDING COMPANY ACT 3.9 Neither Borrower
nor any Subsidiary of Borrower is an "investment company" within the meaning of
the Investment Company Act of 1940 or a "holding company" or an "affiliate" of a
"holding company" or a "public utility" within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
STATEMENTS BY OTHERS 3.10 All statements made by or on behalf of Borrower, any
Subsidiary of Borrower or any other of the Parties by any officer, or other
person authorized by Borrower or acting on Borrower's behalf with Borrower's
knowledge, in connection with any Loan Document constitute the joint and several
representations and warranties of Borrower hereunder.
4. AFFIRMATIVE COVENANTS -- BORROWER AND SUBSIDIARIES. Borrower agrees to do,
and if necessary cause to be done, and cause its Subsidiaries to do, each of the
following:
CORPORATE FUNDAMENTALS 4.1 (a) Pay when due all taxes and governmental charges
of every kind upon it or against its income, profits or Property, unless and
only to the extent that the same shall be contested in good faith and adequate
reserves have been established therefor; (b) Renew and keep in full force and
effect all of its licenses, permits and franchises; (c) Do all things necessary
to preserve its corporate existence and its qualifications and rights in all
jurisdictions where such qualification is necessary or desirable; (d) Comply
with all applicable Legal Requirements; and (e) Protect, maintain and keep in
good repair its Property and make all replacements and additions to its Property
as may be reasonably necessary to conduct its business properly and efficiently.
INSURANCE 4.2 Maintain insurance with such reputable financially sound insurers,
on such of its Property and personnel, in such amounts and against such risks as
is customary with similar Persons or as may be reasonably required by Bank, and
furnish Bank satisfactory evidence thereof promptly upon request. These
insurance provisions are cumulative of the insurance provisions of the other
Loan Documents. Bank must be named as a beneficiary, loss payee or additional
insured of such insurance as its interest may appear and Borrower must provide
Bank with copies of the policies of insurance and a certificate of the insurer
that the insurance required by this section may not be canceled, reduced or
affected in any manner without 30 days' prior written notice to Bank. Provided,
however, that in the case of any inventory Collateral that is maintained at a
location permitted under the Loan Documents which is not owned or leased
premises of Borrower, Borrower shall not be required to insure such inventory.
FINANCIAL INFORMATION 4.3 Furnish to Bank in Proper Form (i) the financial
statements prepared in conformity with GAAP on consolidated and consolidating
bases and the other information described in, and within the times required by,
Exhibit C, Reporting Requirements, Financial Covenants and Compliance
Certificate attached hereto and incorporated herein by reference; (ii) within
the time required by Exhibit C, Exhibit C signed and certified by the
Page 2 of 6 Pages
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controller, director of finance, president or chief financial officer of
Borrower; (iii) promptly after such request is submitted to the appropriate
Governmental Authority, any request for waiver of funding standards or extension
of amortization periods with respect to any employee benefit plan; (iv) copies
of special audits, studies, reports and analyses prepared for the management of
Borrower by outside parties and (v) such other information relating to the
financial condition and affairs of the Borrower and guarantors and their
Subsidiaries as Bank may request from time to time in its reasonable discretion.
MATTERS REQUIRING NOTICE 4.4 Notify Bank immediately, upon acquiring knowledge
of (a) the institution or threatened institution of any lawsuit or
administrative proceeding which, if adversely determined, might materially
adversely affect Borrower; (b) any material adverse change in the assets,
liabilities, financial condition, business or affairs of Borrower; (c) any Event
of Default; or (d) any reportable event or any prohibited transaction involving
potentially material adverse effect in connection with any employee benefit
plan.
INSPECTION 4.5 Permit Bank and its affiliates to inspect and photograph its
Property, to examine and copy its files, books and records, and to discuss its
affairs with its officers and accountants, at such times and intervals and to
such extent as Bank reasonably requests.
ASSURANCES 4.6 Promptly execute and deliver any and all further agreements,
documents, instruments, and other writings that Bank may request to cure any
defect in the execution and delivery of any Loan Document or more fully to
describe particular aspects of the agreements set forth or intended to be set
forth in the Loan Documents.
CERTAIN CHANGES 4.7 Notify Bank at least 30 days prior to the date that any of
the Parties changes its name or the location of its chief executive office or
principal place of business or the place where it keeps its books and records or
the location of any of the Collateral.
EXHIBIT D 4.8 Comply with each of the other affirmative covenants set forth in
Exhibit C.
5. NEGATIVE COVENANTS. The Borrower will not, and no Subsidiary of Borrower
will:
INDEBTEDNESS 5.1 Create, incur, or permit to exist, or assume or guarantee,
directly or indirectly, or become or remain liable with respect to, any
Indebtedness, contingent or otherwise unless there is a permitted amount set
forth in Exhibit C, except: (a) Indebtedness to Bank, or secured by Liens
permitted by this Agreement, or otherwise approved in writing by Bank, and
renewals and extensions (but not increases) thereof; and (b) current accounts
payable and unsecured current liabilities, not the result of borrowing, to
vendors, suppliers and Persons providing services, for expenditures for goods
and services normally required by it in the ordinary course of business and on
ordinary trade terms.
LIENS 5.2 Create or permit to exist any Lien upon any of its Property now owned
or hereafter acquired, or acquire any Property upon any conditional sale or
other title retention device or arrangement or any purchase money security
agreement; or in any manner directly or indirectly sell, assign, pledge or
otherwise transfer any of its accounts or other Property, unless there is a
permitted amount set forth in Exhibit C, except: (a) Liens, not for borrowed
money, arising in the ordinary course of business; (b) Liens for taxes not
delinquent or being contested in good faith by appropriate proceedings; (c)
Liens in effect on the date hereof and disclosed to Bank in writing, so long as
neither the indebtedness secured thereby nor the Property covered thereby
increases; and (d) Liens in favor of Bank, or otherwise approved in writing by
Bank (which shall be deemed to include any lien specifically permitted by this
Agreement). Notwithstanding anything to the contrary herein, Borrower will not,
and no Subsidiary of Borrower will permit any Lien on any inventory that secures
the Loans unless Bank shall provide Borrower with Bank's prior written consent.
FINANCIAL AND OTHER COVENANTS 5.3 Fail to comply with the required financial
covenants and other covenants described, and calculated as set forth, in Exhibit
C. Unless otherwise provided on Exhibit C, all such amounts and ratios will be
calculated: (a) on the basis of GAAP; and (b) on a consolidated basis.
Compliance with the requirements of Exhibit C will be determined as of the dates
of the financial statements to be provided to Bank.
CORPORATE CHANGES 5.4 In any single transaction or series of transactions,
directly or indirectly: (a) liquidate or dissolve; (b) be a party to any merger
or consolidation; (c) sell or dispose of any interest in any of its
Subsidiaries, or permit any of its Subsidiaries to issue any additional equity
other than to Borrower; (d) sell, convey or lease all or any substantial part of
its assets, except for sale of inventory in the ordinary course of business.
NATURE OF BUSINESS; MANAGEMENT 5.5 Change the nature of its business or enter
into any business which is substantially different from the business in which it
is presently engaged, or permit any change in its Chief Executive Officer ,
unless approved in writing by Bank.
AFFILIATE TRANSACTIONS 5.6 Enter into any transaction or agreement with any
Affiliate except upon terms substantially similar to those obtainable from
wholly unrelated sources.
SUBSIDIARIES 5.7 Form, create or acquire any Subsidiary (other than as disclosed
in Annex II).
LOANS AND INVESTMENTS 5.8 Unless otherwise provided on Exhibit C, make any
advance, loan, extension of credit, or capital contribution to or investment in,
or purchase, any stock, bonds, notes, debentures, or other securities of, any
Person, except: (a) readily marketable direct obligations of the United States
of America or any agency thereof with maturities of one year or less from the
date of acquisition; (b) fully insured certificates of deposit with maturities
of one year or less from the date of acquisition issued by any commercial bank
operating in the United States of America having capital and surplus in excess
of $50,000,000.00; (c) commercial paper of a domestic issuer if at the time of
purchase such paper is rated in one of the two highest rating categories of
Standard and Poor's Corporation or Moody's Investors Service; or (d) a mutual
fund predominantly invested in investments described in (a), (b), and (c).
6. EVENTS OF DEFAULT AND REMEDIES.
REMEDIES 6.1 IF ANY EVENT OF DEFAULT OCCURS, then Bank may do any or all of the
following: (1) declare the Obligations to be immediately due and payable without
notice of acceleration or of intention to accelerate, presentment and demand or
protest, all of which are hereby expressly waived; (2) without notice to any
Obligor, terminate the Commitment and accelerate the Termination Date; (3) set
off, in any order, against the indebtedness of Borrower under the Loan Documents
any debt owing by Bank to Borrower (whether such debt is owed individually or
jointly), including, but not limited to, any deposit account, which right is
hereby granted by Borrower to Bank; and (4) exercise any and all other rights
pursuant to the Loan Documents, at law, in equity or otherwise; PROVIDED,
HOWEVER, that Borrower shall have a period of 10 days to cure ("Cure Period")
any default that consists of delay in delivery of financial statements or
reports, or curable failure to maintain a financial covenant set out in Exhibit
D. During the Cure Period, and Event of Default shall be deemed to have occurred
and be continuing until cured, but Bank shall not exercise any of the remedies
set out in this section EXCEPT THAT Bank shall not be obligated to fund any Loan
under the Commitment. If an Event of Default subject to a Cure Period is not
fully cured during such Cure Period, then Bank shall have all the rights and
remedies provided for in this Note, the Loan Documents and otherwise as if such
Cure Period had in no way existed, and Borrower expressly agrees that all
actions taken by Bank thereafter shall relate back to the first date of the
Event of Default for all purposes.
EVENTS OF DEFAULT 6.2 Each of the following is an "Event of Default":
(a) Any Obligor fails to pay any principal of or interest on the Note or under
any application or any other obligation under any Loan Document as and when due;
or
(b) Any Obligor or any Subsidiary of Borrower fails to pay at maturity, or
within any applicable period of grace, any principal of or interest on any other
borrowed money obligation or fails to observe or perform within any applicable
period of grace any term, covenant or agreement contained in any agreement or
obligation by which it is bound; or
(c) Any representation or warranty made in connection with any Loan Document was
incorrect, false or misleading when made; or
(d) Any Obligor violates any covenant contained in any Loan Document; or
(e) An event of default occurs under any other Loan Document; or
Page 3 of 6 Pages
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(f) Final judgment for the payment of money is rendered against Obligor or any
Subsidiary of Borrower and remains undischarged for a period of 30 days during
which execution is not effectively stayed; or
(g) The sale, encumbrance or material abandonment (except as otherwise expressly
permitted by this Agreement ) of any of the Collateral or the making of any
levy, seizure, garnishment, sequestration or attachment thereof or thereon; or
the loss, theft, substantial damage, or destruction of any material portion of
such Property; or
(h) Any order is entered in any proceeding against Borrower or any Subsidiary of
Borrower decreeing the dissolution, liquidation or split-up thereof, and such
order shall remain in effect for 30 days; or
(i) Any Obligor or any subsidiary of Borrower makes a general assignment for the
benefit of creditors or shall petition or apply to any tribunal for the
appointment of a trustee, custodian, receiver or liquidator of all or any
substantial part of its business, estate or assets or shall commence any
proceeding under any bankruptcy, insolvency, dissolution or liquidation law of
any jurisdiction, whether now or hereafter in effect; or any such petition or
application shall be filed or any such proceeding shall be commenced against any
Obligor or any subsidiary of Borrower and the Obligor or such subsidiary by any
act or omission shall indicate approval thereof, consent thereto or acquiescence
therein, or an order shall be entered appointing a trustee, custodian, receiver
or liquidator of all or any substantial part of the assets of any Obligor or any
subsidiary of Borrower or granting relief to any Obligor or any subsidiary of
Borrower or approving the petition in any such proceeding, and such order shall
remain in effect for more than 30 days; or any Obligor or any subsidiary of
Borrower shall fail generally to pay its debts as they become due or suffer any
writ of attachment or execution or any similar process to be issued or levied
against it or any substantial part of its property which is not released,
stayed, bonded or vacated within 30 days after its issue or levy; or
(j) Any Obligor or any Subsidiary of Borrower conceals or removes any part of
its Property, with intent to hinder, delay or defraud any of its creditors,
makes or permits a transfer of any of its Property which may be fraudulent under
any bankruptcy, fraudulent conveyance or similar law; or makes any transfer of
its Property to or for the benefit of a creditor at a time when other creditors
similarly situated have not been paid; or
(k) A material adverse change occurs in the assets, liabilities, financial
condition, business or affairs of any Obligor (determined on a consolidated
basis).
REMEDIES CUMULATIVE 6.3 No remedy, right or power of Bank is exclusive of any
other remedy, right or power now or hereafter existing by contract, at law, in
equity, or otherwise, and all remedies, rights and powers are cumulative.
7. MISCELLANEOUS.
NO WAIVER 7.1 No waiver of any default or Event of Default will be a waiver of
any other default or Event of Default. No failure to exercise or delay in
exercising any right or power under any Loan Document will be a waiver thereof,
nor shall any single or partial exercise of any such right or power preclude any
further or other exercise thereof or the exercise of any other right or power.
The making of any Loan during either the existence of any default or Event of
Default, or subsequent to the occurrence of an Event of Default will not be a
waiver of any such default or Event of Default. No amendment, modification or
waiver of any Loan Document will be effective unless the same is in writing and
signed by the Person against whom such amendment, modification or waiver is
sought to be enforced. No notice to or demand on any Person shall entitle any
Person to any other or further notice or demand in similar or other
circumstances.
NOTICES 7.2 All notices required under the Loan Documents shall be in writing
and either delivered against receipt therefor, or mailed by registered or
certified mail, return receipt requested, in each case addressed to the address
shown on the signature page hereof or to such other address as a party may
designate. Except for the notices required by Section 2.1, which shall be given
only upon actual receipt by Bank, notices shall be deemed to have been given
(whether actually received or not) when delivered (or, if mailed, on the next
Business Day).
GOVERNING LAW/ARBITRATION 7.3
(a) UNLESS OTHERWISE SPECIFIED THEREIN, EACH LOAN DOCUMENT IS GOVERNED BY TEXAS
LAWS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. To the maximum
extent permitted by law, any controversy or claim arising out of or relating to
the Loans or any Loan Document, including but not limited to any claim based on
or arising from an alleged tort or an alleged breach of any agreement contained
in any of the Loan Documents, shall, at the request of any party to the Loan or
Loan Documents (either before or after the commencement of judicial
proceedings), be settled by mandatory and binding arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association (the
"AAA Rules") and pursuant to Title 9 of the United States Code, or if Title 9
does not apply, the Texas General Arbitration Act. In any arbitration
proceeding: (i) all statutes of limitations which would otherwise be applicable
shall apply; and (ii) the proceeding shall be conducted in the city in which the
office of Bank originating the Loans is located (i.e., Austin, Texas), by a
single arbitrator if the amount in controversy is $1 million or less, or by a
panel of three arbitrators if the amount in controversy (including but not
limited to all charges, principal, interest fees and expenses) is over $1
million. Arbitrators are empowered to resolve any controversy by summary rulings
substantially similar to summary judgments and motions to dismiss. Arbitrators
may order discovery conducted in accordance with the Federal Rules of Civil
Procedures. All arbitrators will be selected by the process of appointment from
a panel, pursuant to the AAA Rules. Any award rendered in the arbitration
proceeding will be final and binding, and judgment upon any such award may be
entered in any court having jurisdiction.
(b) If any party to the Loan Documents files a proceeding in any court to
resolve any controversy or claim, such action will not constitute a waiver of
right of such party or a bar to right of any other party to seek arbitration
under the provisions of this Section or that of any other claim or controversy,
and the court shall, upon motion of any party to the proceeding, direct that the
controversy or claim be arbitrated in accordance with this Section.
(c) No provision of, or the exercise of any rights under, this Section shall
limit or impair the right of any party to the Loan Documents before, during or
after any arbitration proceeding to: (i) exercise self-help remedies including
but not limited to setoff or repossession; (ii) foreclose any Lien on or
security interest in any Collateral; or (iii) obtain relief from a court of
competent jurisdiction to prevent the dissipation, damage, destruction,
transfer, hypothecation, pledging or concealment of assets or Collateral
including, but not limited to attachments, garnishments, sequestrations,
appointments of receivers, injunctions or other relief to preserve the status
quo.
(d) To the maximum extent permitted by applicable law and the AAA Rules, neither
Bank nor any Obligor or any Affiliate, officer, director, employee, attorney, or
agent of either shall have any liability with respect to, and Bank and each
Obligor waives, releases, and agrees not to sue any of them upon, any claim for
any special, indirect, incidental and consequential damages suffered or incurred
by such Person in connection with, arising out of, or in any way related to,
this Agreement or any of the other Loan Documents. Each of Bank and each Obligor
waives, releases, and agrees not to sue each other or any of their Affiliates,
officers, directors, employees, attorneys, or agents for punitive damages in
respect of any claim in connection with, arising out of, or in any way related
to, this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the other Loan Documents.
Nothing contained herein, however, shall be construed as a waiver of any
Obligor's or the Bank's right to compel arbitration of disputes pursuant to
subparagraphs (a) and (b), above.
(e) Nothing herein shall be considered a waiver of the right or protections
afforded Bank by 12 U.S.C. 91, Texas Banking Code Art. 342-609 or any similar
statute.
(f) Each party agrees that any other party may proceed against any other liable
Person, jointly or severally, or against one or more of them, less than all,
without impairing rights against any other liable Persons. A party shall not be
required to join the principal Obligor or any other liable Persons (e.g.,
sureties or guarantors) in any proceeding against any Person. A party may
release or settle with one or more liable Persons as the party deems fit without
releasing or impairing right to proceed against any Persons not so released.
SURVIVAL; PARTIES BOUND; TERM OF AGREEMENT 7.4 All representations, warranties,
covenants and agreements made by or on behalf of Borrower in connection with the
Loan Documents will survive the execution and delivery of the Loan Documents;
will not be affected by any investigation made by any Person, and will bind
Borrower and the successors, trustees, receivers and assigns of Borrower and
will benefit the successors and assigns of Bank; provided that Bank's agreement
to make Loans to Borrower or issue Letters of Credit will not inure to the
benefit of any successor or assign of Borrower. Except as otherwise provided
herein, the term of this Agreement will be until the later of the final maturity
of the Revolving Note or the last expiry date of any Letter of Credit, whichever
is later, and the full and final payment of all amounts due under the Loan
Documents.
DOCUMENTARY MATTERS 7.5 This Agreement may be executed in several identical
counterparts, on separate counterparts; each counterpart will constitute an
original instrument, and all separate counterparts will constitute but one and
the same instrument. The headings and captions in the Loan Documents have been
included solely for convenience and should not be considered in construing the
Loan Documents. If any provision of any Loan Document is invalid, illegal or
unenforceable in any respect under any applicable law, the remaining provisions
will remain effective. The Loans and all other obligations and indebtedness of
Borrower to Bank are entitled to the benefit of the Loan Documents.
EXPENSES 7.6 Any provision to the contrary notwithstanding, and whether or not
the transactions contemplated by this Agreement are consummated, Borrower agrees
to pay on demand all reasonable out-of-pocket expenses (including, without
limitation, reasonable fees and expenses of counsel for Bank) in
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connection with the negotiation, preparation, execution, filing, recording,
modification, supplementing and waiver of the Loan Documents and the making,
servicing and collection of the Loans. Borrower agrees to pay Bank's standard
Documentation Preparation and Processing Fee for preparation, negotiation and
handling of this Agreement, at customary rates charged by the Bank for the
services.
INDEMNIFICATION 7.7 THE BORROWER AGREES TO INDEMNIFY, DEFEND AND HOLD BANK
HARMLESS FROM AND AGAINST ANY AND ALL LOSS, LIABILITY, OBLIGATION, DAMAGE,
PENALTY, JUDGMENT, CLAIM, DEFICIENCY AND EXPENSE (INCLUDING INTEREST, PENALTIES,
ATTORNEYS' FEES AND AMOUNTS PAID IN SETTLEMENT) TO WHICH THE BANK MAY BECOME
SUBJECT ARISING OUT OF OR BASED UPON THE LOAN DOCUMENTS, ANY LOAN OR THE
RECEIPT, HANDLING, PAYMENT AND APPLICATION OF THE MONIES RECEIVED IN CONNECTION
WITH THE COLLECTION ACCOUNT, INCLUDING THAT RESULTING FROM BANK'S OWN
NEGLIGENCE, EXCEPT AND TO THE EXTENT CAUSED BY BANK'S GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT.
NATURE OF OBLIGATIONS 7.8 If more than one Borrower executes this Agreement, all
of the representations, warranties, covenants and agreements of Borrower shall
be joint and several obligations of all Borrowers.
USURY NOT INTENDED 7.9 Borrower and Bank intend to conform strictly to
applicable usury laws. Therefore, the total amount of interest (as defined under
applicable law) contracted for, charged or collected under this Agreement or any
other Loan Document will never exceed the Highest Lawful Rate. If Bank contracts
for, charges or receives any excess interest, it will be deemed a mistake. Bank
will automatically reform the Loan Document or charge to conform to applicable
law, and if excess interest has been received, Bank will either refund the
excess to Borrower or credit the excess on any unpaid principal amount of the
Note or any other Loan Document. All amounts constituting interest will be
spread throughout the full term of the Loan Document or applicable Note in
determining whether interest exceeds lawful amounts.
RIGHTS OF BORROWER AND BANK 7.10 Bank has not exercised any control, and Bank
shall not exercise any control, over Borrower in the determination of which of
Borrower's creditors Borrower will pay or which payments Borrower will make in
the ordinary course of Borrower's business. Borrower, alone, shall exercise such
judgment and determination. Nothing contained herein, however, shall, in any
manner, affect, limit or impair the rights or remedies of Bank under this
Agreement or any other Loan Documents as otherwise provided by applicable law,
whether with regard to realization on the Collateral, rights of set off,
compensation or otherwise.
SECURITY INTEREST IN ACCOUNTS RECEIVABLES OF NON-U.S. SUBSIDIARIES 7.11 The
Bank, does not have, nor does any other party, a Security Interest in Accounts
Receivables invoiced by non-U.S. subsidiaries of the Borrower.
NO COURSE OF DEALING 7.12 NO COURSE OF DEALING BY BORROWER WITH BANK, NO COURSE
OF PERFORMANCE AND NO TRADE PRACTICES OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE
MAY BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS
AGREEMENT.
8. DEFINITIONS. Unless the context otherwise requires, capitalized terms used
in Loan Documents and not defined elsewhere shall have the meanings provided by
GAAP, except as follows:
Affiliate means, as to any Person, any other Person (a) that directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, such Person; (b) that directly or indirectly
beneficially owns or holds five percent (5%) or more of any class of voting
stock of such Person; or (c) five percent (5%) or more of the voting stock of
which is directly or indirectly beneficially owned or held by the Person in
question. The term "control" means to possess, directly or indirectly, the power
to direct the management and policies of a Person, whether through the ownership
of voting securities, by contract, or otherwise. Bank is not under any
circumstances an Affiliate of Borrower or any of its Subsidiaries.
Accounts means all accounts as such term is defined in the Texas Business and
Commerce Code, which represent amounts payable for goods and services provided
to Account Debtors by Borrower.
Authority Documents means certificates of authority to transact business,
certificates of good standing, borrowing resolutions (with secretary's
certificate), secretary's certificates of incumbency, and other documents which
empower and enable Borrower or its representatives to enter into agreements
evidenced by Loan Documents or evidence such authority.
Business Day means a day when the main office of Bank is open for the conduct of
commercial lending business.
Collateral means all Property, tangible or intangible, real, personal or mixed,
now or hereafter subject to Security Documents, or intended so to be.
Corporation means corporations, partnerships, limited liability companies, joint
ventures, joint stock associations, associations, banks, business trusts and
other business entities.
Government Accounts means receivables owed by the U.S. government or by
government of any state, county, municipality, or other political subdivision as
to which Bank's security interest or ability to obtain direct payment of
proceeds is governed by any federal or state statutory requirements other than
those of the UCC, including, without limitation, the Federal Assignment of
Claims Act of 1940, as amended.
Governmental Authority means any foreign governmental authority, the United
States of America, any state of the United States and any political subdivision
of any of the foregoing, and any agency, department, commission, board, bureau,
court or other tribunal having jurisdiction over Bank or any Obligor, or any
Subsidiary of Borrower or their respective Property.
Highest Lawful Rate means the maximum nonusurious rate of interest permitted to
be charged by applicable Federal or Texas law (whichever permits the higher
lawful rate) from time to time in effect. If Chapter One of the Texas Credit
Code establishes the Highest Lawful Rate, the Highest Lawful Rate is the
"indicated rate ceiling" as defined in that Chapter.
Indebtedness means and includes (a) all items which in accordance with GAAP
would be included on the liability side of a balance sheet on the date as of
which Indebtedness is to be determined (excluding capital stock, surplus,
surplus reserves and deferred credits); (b) all guaranties, endorsements and
other contingent obligations in respect of, or any obligations to purchase or
otherwise acquire, Indebtedness of others, and (c) all Indebtedness secured by
any Lien existing on any interest of the Person with respect to which
indebtedness is being determined, in Property owned subject to such Lien,
whether or not the Indebtedness secured thereby has been assumed.
Legal Requirement means any law, ordinance, decree, requirement, order,
judgment, rule, regulation (or interpretation of any of the foregoing) of, and
the terms of any license or permit issued by, any Governmental Authority.
Lien shall mean any mortgage, pledge, charge, encumbrance, security interest,
collateral assignment or other lien or restriction of any kind, whether based on
common law, constitutional provision, statute or contract.
Loan Documents means this Agreement, the Notes, the agreements, documents,
instruments and other writings contemplated by this Agreement or listed on Annex
I, all other assignments, deeds, guaranties, pledges, instruments, certificates
and agreements now or hereafter executed or delivered to the Bank pursuant to
any of the foregoing, and all amendments, modifications, renewals, extensions,
increases and rearrangements of, and substitutions for, any of the foregoing.
Obligations means all principal, interest and other amounts which are or become
owing under this Agreement, the Note or any other Loan Document.
Obligor means each Borrower and any guarantor, surety, co-signer, general
partner or other person who may now or hereafter be obligated to pay all or any
part of the Obligations.
Organizational Documents means, with respect to a corporation, the certificate
of incorporation, articles of incorporation and bylaws of such corporation; with
respect to a limited liability company, the articles of organization,
regulations and other documents establishing such entity, with respect to a
partnership, joint venture, or trust, the agreement, certificate or instrument
establishing such entity; in each case including all modifications and
supplements thereof as of the date of the Loan Document referring to such
Organizational Document and any and all future modifications thereof which are
consented to by Bank.
Parties means all Persons other than Bank executing any Loan Document.
Person means any individual, Corporation, trust, unincorporated organization,
Governmental Authority or any other form of entity.
Proper Form means in form and substance satisfactory to the Bank.
Property means any interest in any kind of property or asset, whether real,
personal or mixed, tangible or intangible.
Security Documents means those Security Agreements listed on Annex I and all
supplements, modifications, amendment, extensions thereof and all other
agreements hereafter executed and delivered to Bank to secure the Loans.
Subordinated Debt means any Indebtedness subordinated to Indebtedness due Bank
pursuant to a written subordination agreement in Proper Form by and among Bank,
subordinated creditor and Borrower which at a minimum must prohibit: (a) any
action by subordinated creditor which will result in an occurrence of an Event
of Default or default under this Agreement, the subordination agreement or the
subordinated Indebtedness; and (b) upon the happening of any Event of Default or
default under any Loan Document, the subordination agreement, or any instrument
evidencing the subordinated Indebtedness (i) any payment of principal and
interest on the subordinated Indebtedness; (ii) any act to compel payment of
principal or interest on subordinated Indebtedness; and (iii) any action to
realize upon any Property securing the subordinated Indebtedness.
Page 5 of 6 Pages
<PAGE>
Subsidiary means, as to a particular parent Corporation, any Corporation of
which 50% or more of indicia of equity rights is directly or indirectly owned by
such parent Corporation or by one or more Persons controlled by, controlling or
under common control with such parent Corporation.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN BANK AND THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF BANK AND THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN BANK AND THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
BORROWER: PERVASIVE SOFTWARE INC.
By: /s/ JOHN FARR
-----------------------------------------------------------------------------
Name: John Farr
---------------------------------------------------------------------------
Title: Director of Finance
--------------------------------------------------------------------------
Address: 8834 Capitol of Texas Hwy., Ste. 300 Austin 78759
------------------------------------------------------------------------
BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
formerly known as
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/ DONNA DAY
-----------------------------------------------------------------------------
Name: Donna Day
---------------------------------------------------------------------------
Title: Vice President
--------------------------------------------------------------------------
Address: 700 Lavaca Austin, Texas 78701
------------------------------------------------------------------------
EXHIBITS: ANNEXES:
I Loan Documents
A Application for Standby Letter of Credit II Subsidiaries
B Request for Loan
C Reporting Requirements, Financial Covenants,
and Compliance Certificate
Page 6 of 6 Pages
<PAGE>
EXHIBIT B
REQUEST FOR LOAN
LETTERHEAD OF PERVASIVE SOFTWARE INC.
Chase Bank of Texas, National Association
700 Lavaca
Austin, TX 78701
Re: Request for Loan under Agreement
Attention: Donna Tanner-Day
Gentlemen:
This letter confirms our oral or telephonic request of _________________, 19__,
for a Revolving Loan in accordance with that certain Amendment and Restatement
of Credit Agreement with Letter of Credit Sublimit as amended, restated and
supplemented from time to time, the "Agreement") dated as of the Effective Date
between you and us. Any term defined in the Agreement and used in this letter
has the same meaning as in the Agreement.
The proposed Revolving Loan is to be: an Alternate Base Rate Loan or a LIBOR
Loan (and if a LIBOR Loan, the Calculation Certificate for Determination of
LIBOR Spread is attached), and is to be in the amount of $______________ and is
to be made on _________________________, 19__, which is a Business Day at least
_____ Business Days after the date of this letter. The proceeds of the proposed
Revolving Loan should be (check one):
[_] deposited into account number __________________ with the Bank.
[_] ________________________________________________________________.
The undersigned hereby certifies that:
(1) The representations and warranties made by the Borrower or by any
other Person in the Agreement and the other Loan Documents are
true and correct on and as of this date as though made on this
date.
(2) The proposed Loan complies with all applicable provisions of the
Agreement.
(3) No Event of Default has occurred and is continuing.
Sincerely,
PERVASIVE SOFTWARE INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
EXHIBIT B Page 1 of 1
<PAGE>
ANNEX I
LOAN DOCUMENTS
"Loan Documents" includes, but is not limited to, the following:
1. Agreement
2. Applications
3. Revolving Note
4. Financial Statements of Borrower as required by Exhibit C
5. Compliance Certificate
6. Security Agreements, in Proper Form, covering:
Accounts and General Intangibles, Inventory, Equipment
7. Financing Statements
8. UCC search
9. Certified Copies of Organizational and Authority Documents
10. Insurance policies and certificates
Loan Documents - ANNEX I Page 1 of 1
<PAGE>
EXHIBIT C to Agreement between
PERVASIVE SOFTWARE INC. ("Borrower") and Chase Bank of Texas, National
Association formerly known as Texas Commerce Bank National Association ("Bank")
dated the Effective Date as same may be amended, restated and supplemented
in writing.
REPORTING REQUIREMENTS, FINANCIAL COVENANTS AND
COMPLIANCE CERTIFICATE FOR CURRENT REPORTING PERIOD
ENDING ________, 199_ ("END DATE")
A. Reporting Period. Borrower will provide this Exhibit completed in Proper
Form with each financial statement delivered under the Agreement.
THIS REPORT IS FOR THE QUARTER ("REPORTING PERIOD")
ENDING _______, 199_ ("END DATE").
BORROWER'S FISCAL YEAR ENDS ON _________, 19__.
<TABLE>
<CAPTION>
=================================================================================================================================
B. Financial Reporting. Borrower will provide the following financial information within the times indicated: Compliance
=================================================================================================================================
WHO WHEN DUE WHAT (Circle):
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BORROWER (i) Within 120 days of GAAP financial statements (balance Yes No
Borrower's fiscal year end sheet, income, cash flow) audited with
unqualified opinion by independent CPAs
satisfactory to Bank, with Compliance
Certificate and Securities and Exchange
Commission Form 10-K
-------------------------------------------------------------------------------------
(ii) Within 45 days of each Unaudited consolidated financial Yes No
quarter End Date including statements accompanied by Compliance
FYE quarter Certificate and Securities and Exchange
Commission Form 10-Q
-------------------------------------------------------------------------------------
(iii) Within 30 days of Accounts receivable aging and listing; Yes No
each month end including and accounts payable aging and listing
FYE month if any
outstandings equal to or
exceeding $2,000,000.00
under the Revolving Loan
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
=================================================================================================================================
C. FINANCIAL COVENANTS. Borrower will comply with the following financial covenants, applying GAAP, the Compliance
definitions in Section 8, and the calculations and adjustments from the Actual Reported column below:
- --------------------------------------------------------------------------------------------------------------
REQUIRED. Each applies at all times and is ACTUAL REPORTED. As of End Date or for reporting period (Circle)
reported as indicated: specified for financial test, as appropriate: Yes No
=================================================================================================================================
<S> <C> <C>
1. Maintain a Tangible Net Worth as adjusted Stockholders' Equity $_________ Yes No
of at least $19.500,000.00 as of Minus: Goodwill $_________
December 31, 1997 increased quarterly by Other Intangible Assets $_________
(a) 75% of Borrower's net income generated Loans/Advances to
after December 31, 1997 with the increased Equity holders $_________
minimum TNW requirement beginning with the Loans to Affiliates $_________
March 31, 1998 calculation and continuing Plus: Subordinated Debt $_________
thereafter on the last day of each quarter;
(b) 100% of all equity increases resulting = Tangible Net Worth as adjusted $_________
from issuance of additional stock and
acquisitions and decreased by acquired R&D
write-offs and amortization of goodwill up to
$4,000,000.00 annually.
- ---------------------------------------------------------------------------------------------------------------------------------
2. Maintain a Quick Ratio of at least 1.5:1.0
at the end of each quarter. $_____________ /$______________ = $_________ Yes No
Current Assets Current Liabilities Quick Ratio
(less inventory) (including Bank
Indebtedness outstanding
on the Revolving Note)
- ---------------------------------------------------------------------------------------------------------------------------------
3. Capital expenditures shall not exceed the Capital expenditures will exclude any capital expenditures
following without prior written consent from associated with any merger or acquisition that has been Yes No
the Bank: approved by the bank.
$3,600,000 for the Fiscal Year
Ending June 30, 1998.
$8,000,000 for the Fiscal Year
Ending June 30, 1999.
10% of gross revenues for the prior four (4)
fiscal quarters beginning with the fiscal
quarter ending September 30, 1999 and each
fiscal quarter thereafter.
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=================================================================================================================================
D. Other Required Covenants to be maintained and to be certified. COMPLIANCE CERTIFICATE Compliance
=================================================================================================================================
REQUIRED ACTUAL REPORTED
(Circle)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(i) No change in Chief Executive Officer of Borrower,
without prior written consent of Bank. Yes No
- ---------------------------------------------------------------------------------------------------------------------------------
(ii) No additional debt in excess of $500,000.00 at any Yes No
time other than normal trade debt; capital leases;
Indebtedness secured by purchase money liens to acquire
fixed assets; financing insurance premiums for ordinary
coverages; or debt consented to in advance by Bank, which
consent shall be given unless Bank believes in its good
faith discretion that Borrower, giving effect to such
consent, shall be subject to a lower credit grade under
its normal standards than such grade as it was of the
Effective Date.
- ---------------------------------------------------------------------------------------------------------------------------------
(iii) No additional Liens, other than in favor of Bank, Yes No
in excess of $500,000.00, without prior written consent
of Bank
- ---------------------------------------------------------------------------------------------------------------------------------
(iv) An annual field analysis will be performed by Yes No
Bank's Audit and Asset Management Division if: (1) there
are any outstandings equal to or exceeding $2,000,000.00
under the Revolving Loan; and/or (2) the Borrower
defaults on any covenant in this Agreement
- ---------------------------------------------------------------------------------------------------------------------------------
(v) No cash acquisitions in an amount exceeding Yes No
$4,000,000.00 or acquisitions utilizing the Bank
Commitment, without the prior written consent of the Bank.
=================================================================================================================================
</TABLE>
EXHIBIT C Page 1 of 2 Pages
<PAGE>
THE ABOVE SUMMARY REPRESENTS SOME OF THE COVENANTS AND AGREEMENTS CONTAINED IN
THE AGREEMENT AND DOES NOT IN ANY WAY RESTRICT OR MODIFY THE TERMS AND
CONDITIONS OF THE AGREEMENT. IN CASE OF CONFLICT BETWEEN THIS EXHIBIT AND THE
AGREEMENT, THE AGREEMENT SHALL CONTROL.
The undersigned certifies that the above information and computations are true
and correct and not misleading as of the date hereof, and that since the date of
the Borrower's most recent Compliance Certificate (if any):
No default or Event of Default has occurred under the Agreement during
the current Reporting Period, or been discovered from a prior period,
and not reported.
A default or Event of Default (as described below) has occurred during
the current Reporting Period or has been discovered from a prior period
and is being reported for the first time and:
was cured on _______________.
was waived by Bank in writing on ___________.
is continuing.
Description of Event of Default:
---------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Executed _________, 19__.
BORROWER: PERVASIVE SOFTWARE INC.
SIGNATURE:
----------------------------------------------------------------------
NAME:
---------------------------------------------------------------------------
TITLE: (CFO, Director of Finance, Controller or President)
--------------------------------------------------------------------------
ADDRESS:
------------------------------------------------------------------------
EXHIBIT C Page 2 of 2
<PAGE>
ANNEX II
SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiary Name Where
and Address Incorporated % Owned
- --------------- ------------ -------
<S> <C> <C>
Pervasive Software European Service and Support Center Ireland 100.0%
4th Floor
18-19 College Green
Dublin 2
Ireland
Pervasive Software GmbH Germany 100.0%
Hessenring 1221
D-61348 Bad Homburg
Germany
Pervasive Software FSC Inc. Barbados 100.0%
8834 Capital of Texas Hwy. N., Suite 300
Austin, Texas 78759
Pervasive Software Co. Ltd. (formerly Btrieve Technologies Japan, Ltd.) Japan 80.5%
Mas. Mita Building
2-15-8 Inamoto-Cho
Chiyoda-Ku
Tokyo, Japan 101
</TABLE>
NOTE: Bank is aware that Borrower is presently attempting to restructure its
operations in Japan. Such restructuring may involve the acquisition of the
remaining 19.5% interest in Pervasive Software Co. Ltd. OR the winding down of
the affairs of Pervasive Software Co. Ltd. and the creation of a new
wholly-owned subsidiary to serve as the Borrower's operating entity in Japan.
Bank hereby consents to the above without further notice from the Borrower.
<TABLE>
<S> <C> <C>
Pervasive Software N.V. Belgium 100.0%
Airport Blvd. Office Park
Bessenveldstraat 25A
B-1831 Diegem
Belgium
Pervasive Software, Ltd. U.K. 100.0%
Victoria House,
Desborough Street
High Wycombe
Buckinghamshire
England H8 112NF
Pervasive Software North Asia, Ltd. Hong Kong 100.0%
3208 Shell Tower
Times Square
Causeway Bay
Hong Kong
Subsidiary planned to be formed as of Agreement Effective Date and
permitted under Agreement (Names are subject to change) Where
Incorporated % Owned
------------ -------
Pervasive Software Southern Europe France 100.0%
Rue des Trois Fontanots
20 espalanade Charles De Gaulle
92000 Nanterre
France
</TABLE>
NOTE: Will be incorporated in France as a S.A.R.L. Currently operating as a
branch of the Borrower.
Pervasive Software International Inc.
NOTE: A U.S. holding company which will own all foreign subsidiaries and branch
operations.
ANNEX II Page 1 of 1
<PAGE>
PROMISSORY NOTE
(this "Note")
U.S. $4,000,000.00 February 28, 1998 ("Date")
FOR VALUE RECEIVED, PERVASIVE SOFTWARE INC. ("Borrower"), promises to pay to
the order of CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, formerly known as TEXAS
COMMERCE BANK NATIONAL ASSOCIATION ("Bank") on or before September 30, 1999 (the
"Termination Date"), at its banking house at 712 Main Street, P.O. Box 2558,
Houston, Harris County, TX 77252-2558, or at such other location as Bank may
designate, in lawful money of the United States of America, the lesser of: (i)
the principal sum of FOUR MILLION AND NO/100THS UNITED STATES DOLLARS (U.S.
$4,000,000.00) (the "Maximum Loan Total"); or (ii) the aggregate unpaid
principal amount of all loans made by Bank to Borrower pursuant to the terms of
the Credit Agreement (as hereinafter defined) (each such loan being a "Loan"),
which may be outstanding on the Termination Date. Each Loan shall be due and
payable on the maturity date agreed to by Bank and Borrower with respect to such
Loan (the "Maturity Date"). In no event shall any Maturity Date fall on a date
after the Termination Date. Subject to the terms and conditions of this Note
and the Loan Documents, Borrower may borrow, repay and reborrow all or any part
of the credit provided for herein at any time before the Termination Date, there
being no limitation on the number of Loans made so long as the total unpaid
principal amount at any time outstanding does not exceed the Maximum Loan Total.
"Alternate Base Rate" shall mean for any day, a rate per annum (rounded upwards,
if necessary, to the next higher 1/16 of 1%) equal to the greatest of: (a) the
Prime Rate or (b) the Federal Funds Effective Rate in effect on such day plus
1/4 of 1%. For purposes hereof, "Prime Rate" shall mean the rate of interest
per annum determined from time to time by the Bank as its prime rate in effect
at its principal office in Houston, Texas and thereafter entered in the minutes
of its Loan and Discount Committee; each change in the Prime Rate shall be
effective on the date such change is determined; without special notice to the
Maker or any other person or entity. THE PRIME RATE IS A REFERENCE RATE AND
DOES NOT NECESSARILY REPRESENT THE LOWEST OR BEST RATE ACTUALLY CHARGED TO ANY
CUSTOMER AND ANY STATEMENT, REPRESENTATION OR WARRANTY IN THAT REGARD OR TO THAT
EFFECT IS EXPRESSLY DISCLAIMED BY BANK. PAYEE MAY MAKE LOANS AT RATES OF
INTEREST AT, ABOVE OR BELOW THE PRIME RATE. "Federal Funds Effective Rate"
shall mean, for any day, the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for the day of such
transactions received by the Bank from three Federal funds brokers of recognized
standing selected by Bank. If for any reason the Bank shall have determined
(which determination shall be conclusive absent manifest error) that it is
unable to ascertain the Federal Funds Effective Rate for any reason, including
the inability or failure of the Bank to obtain sufficient quotations in
accordance with the terms thereof, the Alternate Base Rate shall be determined
without regard to clause (b) of the first sentence of this definition, as
appropriate, until the circumstances giving rise to such inability no longer
exist. Any change in the Alternate Base Rate due to a change in the Prime Rate
or the Federal Funds Effective Rate shall be effective on the effective date of
such change in the Prime Rate or the Federal Funds Effective Rate, respectively.
"Alternate Base Rate Loan" means a Loan which bears interest at a rate
determined by reference to the Alternate Base Rate.
"Assessment Rate" means, for any date, the annual rate (rounded upwards, if not
already a whole multiple of 1/16 of 1%, to the next higher 1/16 of 1%) most
recently estimated by the Bank as the then current net annual assessment rate
that will be employed in determining amounts payable by the Bank to the Federal
Deposit Insurance Corporation for insurance by the Corporation of time deposits
made in dollars at its domestic offices.
"Board" means the Board of Governors of the Federal Reserve System of the United
States.
"Borrowing Date" means any Business Day on which Bank shall make a Loan
hereunder.
"Business Day" means a day: (i) on which Bank and commercial banks in New York
City are generally open for business; and (ii) with respect to LIBOR Loans, on
which dealings in United States Dollar deposits are carried out in the interbank
markets.
"Highest Lawful Rate" means the maximum nonusurious rate of interest from time
to time permitted by applicable law. If Texas law determines the Highest Lawful
Rate, Bank has elected the "indicated" (weekly) ceiling as defined in the Texas
Credit Code or any successor statute. Bank may from time to time, as to current
and future balances, elect and implement any other ceiling under such Code
and/or revise the index, formula or provisions of law used to compute the rate
on this open-end account by notice to Borrower, if and to the extent permitted
by, and in the manner provided in such Code.
"Interest Period" means the period commencing on the Borrowing Date and ending
on the Maturity Date, consistent with the following provisions. The duration of
each Interest Period shall be: (a) in the case of an Alternate Base Rate Loan, a
period of up to 90 days unless any portion thereof is converted to a LIBOR Loan
hereunder; and (b) in the case of a LIBOR Loan, a period of up to one, two or
three months; in each case as
Page 1 of 5 Pages
<PAGE>
selected by Borrower in accordance with the terms of this Note. Borrower's
choice of Interest Period is subject to the following limitations: (i) No
Interest Period shall end on a date after the Termination Date; and (ii) If the
last day of an Interest Period would be a day other than a Business Day, the
Interest Period shall end on the next succeeding Business Day (unless the
Interest Period relates to a LIBOR Loan and the next succeeding Business Day is
in a different calendar month than the day on which the Interest Period would
otherwise end, in which case the Interest Period shall end on the next preceding
Business Day).
"LIBOR Loan" means a Loan which bears interest at a rate determined by reference
to the LIBOR Rate.
"LIBOR Rate" means a per annum interest rate determined by Bank by dividing: (i)
the average rate per annum (rounded upwards, if necessary, to the next 1/16 of
1%) of the rates per annum at which United States dollar deposits in an amount
comparable to the principal amount of the LIBOR Loan to which such LIBOR Rate is
applicable for a term equal to or substantially equal to the Interest Period are
offered by Bank to prominent banks in the London interbank market at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of the applicable Interest Period; by (ii) Statutory Reserves.
"LIBOR Spread" means a spread of the following basis points (100 basis points
equaling 1.00%), based upon the Borrower's ratio of Total Funded Liabilities to
EBITDA as of the most recent fiscal quarter End Date (March 31, June 30,
September 30 and December 31) as defined and calculated in accordance with the
attached Exhibit A:
============================================================
Total Funded Liabilities LIBOR Spread
/ EBITDA (basis points)
------------------------------------------------------------
if .74 or less then 150
------------------------------------------------------------
if .75 to 1.49 then 175
------------------------------------------------------------
if 1.50 or more then 200
============================================================
"Loan Documents" means this Note and any document or instrument evidencing,
securing, guaranteeing or given in connection with this Note, including, but not
limited to, that certain Amendment and Restatement of Credit Agreement dated as
of February 28, 1998 entered into by and between Borrower and Bank (as may be
amended from time to time, the "Credit Agreement").
"Obligations" means all principal, interest and other amounts which are or
become owing under this Note or any other Loan Document.
"Obligor" means Borrower and any guarantor, surety, co-signer, general partner
or other person who may now or hereafter be obligated to pay all or any part of
the Obligations.
Specified Non-Cash Charges means all non-cash charges to the Borrower's income
statement (not reflected as depreciation or amortization) (a) resulting from
stock option transactions; or (b) as agreed in writing by Bank in its sole
discretion, upon Borrower's request.
"Statutory Reserves" means the difference (expressed as a decimal) of the number
one minus the aggregate of the maximum reserve percentages (including, without
limitation, any marginal, special, emergency, or supplemental reserves)
expressed as a decimal established by the Board and any other banking authority
to which Bank is subject to, with respect to the LIBOR Rate, for Eurocurrency
Liabilities (as defined in Regulation D of the Board). Such reserve percentages
shall include, without limitation, those imposed under such Regulation D. LIBOR
Loans shall be deemed to constitute Eurocurrency Liabilities and as such shall
be deemed to be subject to such reserve requirements without benefit of or
credit for proration, exceptions or offsets which may be available from time to
time to any bank under such Regulation D. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
Loans may be either Alternate Base Rate Loans or LIBOR Loans, as selected
by Borrower in accordance with the terms of this Note. Borrower shall pay
interest on the unpaid principal amount of each Alternate Base Rate Loan at a
rate per annum equal to the lesser of: (i) the Alternate Base Rate in effect
from time to time (the "Effective Alternate Base Rate"); or (ii) the Highest
Lawful Rate. Accrued interest on each Alternate Base Rate Loan is due and
payable on the last day of each month and at the Maturity Date.
Borrower shall pay interest on the unpaid principal amount of each LIBOR
Loan for the Interest Period with respect thereto at a rate per annum equal to
the lesser of: (i) the LIBOR Rate plus the LIBOR Spread (the "Ratio Effective
LIBOR Rate") (the Initial Effective LIBOR Rate or the Ratio Effective LIBOR
Rate, whichever applies, is hereinafter sometimes the "Effective LIBOR Rate");
or (ii) the Highest Lawful Rate. Accrued interest on each LIBOR Loan is due on
the last day of each Interest Period applicable thereto and on any prepayment
(on the amount prepaid).
If at any time the effective rate of interest which would otherwise be
payable on any Loan evidenced by this Note exceeds the Highest Lawful Rate, the
rate of interest to accrue on the unpaid principal balance of such Loan during
all such times shall be limited to the Highest Lawful Rate, but any subsequent
reductions in such interest rate shall not become effective to reduce such
interest rate below the Highest Lawful Rate until the total amount of interest
accrued on the unpaid principal balance of such Loan equals the total amount of
interest which would have accrued if the Effective Alternate Base Rate, or
Effective LIBOR Rate, whichever is applicable, had at all times been in effect.
Page 2 of 5 Pages
<PAGE>
Each LIBOR Loan shall be in an amount not less than $500,000.00 and an
integral multiple of $100,000.00.
Interest shall be computed on the basis of the actual number of days
elapsed and a year comprised of 360 days.
The unpaid principal balance of this Note at any time will be the total
amounts advanced by Bank, less the amount of all payments or prepayments of
principal. Absent manifest error, the records of Bank will be conclusive as to
amounts owed.
Loans shall be made on Borrower's irrevocable notice to Bank, given not
later than 10:00 A.M. (Houston time) on, in the case of LIBOR Loans, the third
Business Day prior to the proposed Borrowing Date or, in the case of Alternate
Base Rate Loans, the Business Day of the proposed Borrowing Date. Each notice
of a requested borrowing (a "Notice of Requested Borrowing") under this
paragraph may be oral or written, and shall specify: (i) the requested amount;
(ii) proposed Borrowing Date; (iii) whether the requested Loan is to be an
Alternate Base Rate Loan or LIBOR Loan; and (iv) Interest Period for the LIBOR
Loan. If any Notice of Requested Borrowing shall be oral, Borrower shall
deliver to Bank prior to the Borrowing Date a confirmatory written Notice of
Requested Borrowing.
Borrower may on any Business Day prepay the outstanding principal amount of
any Alternate Base Rate Loan, in whole or in part, without penalty or premium.
Borrower shall have the right to prepay any LIBOR Loan, subject to Borrower's
indemnity and reimbursement set out hereinafter.
Provided that no Event of Default has occurred and is continuing, Borrower
may elect to continue all or any part of any LIBOR Loan beyond the expiration of
the then current Interest Period relating thereto by providing Bank at least
three Business Day's written or telecopy notice of such election, specifying the
Loan or portion thereof to be continued and the Interest Period therefor and
whether it is to be an Alternate Base Rate Loan or LIBOR Loan provided that any
continuation as a LIBOR Loan shall not be less than $500,000.00 and shall be in
an integral multiple of $100,000.00. If an Event of Default shall have occurred
and be continuing, the Borrower shall not have the option to elect to continue
any such LIBOR Loan or to convert Alternate Base Rate Loans into LIBOR Loans.
Provided that no Event of Default has occurred and is continuing, Borrower may
elect to convert any Alternate Base Rate Loan at any time or from time to time
to a LIBOR Loan by providing Bank at least three Business Day's written or
telecopy notice of such election, specifying each Interest Period therefor. Any
conversion of Alternate Base Rate Loans shall not result in a borrowing of LIBOR
Loans in an amount less than $500,000.00 and in integral multiples of
$100,000.00.
If at any time Bank determines in good faith (which determination shall be
conclusive) that any change in any applicable law, rule or regulation or in the
interpretation, application or administration thereof makes it unlawful, or any
central bank or other governmental authority asserts that it is unlawful, for
Bank or its foreign branch or branches to maintain any LIBOR Loan by means of
dollar deposits obtained in the London interbank market (any of the above being
described as a "LIBOR Event"), then, at the option of Bank, the aggregate
principal amount of all LIBOR Loans outstanding shall be prepaid; however the
prepayment may be made with an Alternate Base Rate Loan. Upon the occurrence of
any LIBOR Event, and at any time thereafter so long as such LIBOR Event shall
continue, the Bank may exercise its aforesaid option by giving written notice
thereof to Borrower within 30 days after Bank's determination that a LIBOR Event
has occurred).
If any domestic or foreign law, treaty, rule or regulation (whether now in
effect or hereinafter enacted or promulgated, including Regulation D of the
Board) or any interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof (whether or
not having the force of law): (a) changes, imposes, modifies, applies or deems
applicable any reserve, special deposit or similar requirements in respect of
any LIBOR Loan; or (b) imposes on Bank or the interbank eurocurrency deposit and
transfer market or the market for domestic bank certificates or deposit any
other condition affecting any such LIBOR Loan; and the result of any of the
foregoing is to impose a cost to Bank of agreeing to make, funding or
maintaining any such LIBOR Loan or to reduce the amount of any sum receivable by
Bank in respect of any such Loan, then Bank may notify Borrower in writing of
the happening of such event and Borrower shall upon demand pay to Bank such
additional amounts as will compensate Bank for such costs as determined by Bank.
In no event shall the additional costs exceed the costs of an Alternate Base
Rate loan. Without prejudice to the survival of any other agreement of Borrower
under this Note, the obligations of Borrower under this paragraph shall survive
the termination of this Note.
Borrower will indemnify Bank against, and reimburse Bank on demand for, any
loss, cost or expense incurred or sustained by Bank (including without
limitation any loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by Bank to fund or maintain
LIBOR Loans) as a result of: (a) any payment or prepayment (whether permitted by
Bank or required hereunder or otherwise) of all or a portion of any LIBOR Loan
on a day other than the Maturity Date of such Loan; (b) any payment or
prepayment, whether required hereunder or otherwise, of any LIBOR Loan made
after the delivery of a Notice of Requested Borrowing but before the applicable
Borrowing Date if such payment or prepayment prevents the proposed Loan from
becoming fully effective; or (c) the failure of any LIBOR Loan to be made by
Bank due to any action or inaction of Borrower. Such funding losses and other
costs and expenses shall be calculated and billed by Bank and such bill shall,
as to the costs incurred, be conclusive absent manifest error.
Page 3 of 5 Pages
<PAGE>
All past-due principal and interest on this Note, will, at Bank's option,
bear interest at the lesser of Highest Lawful Rate, or a rate per annum equal to
the Alternate Base Rate plus three percent (3%).
In addition to all principal and accrued interest on this Note, Borrower
agrees to pay: (a) all reasonable costs and expenses incurred by Bank and all
owners and holders of this Note in collecting this Note through probate,
reorganization, bankruptcy or any other proceeding; and (b) reasonable
attorney's fees if and when this Note is placed in the hands of an attorney for
collection.
Borrower and Bank intend to conform strictly to applicable usury laws.
Therefore, the total amount of interest (as defined under applicable law)
contracted for, charged or collected under this Note will never exceed the
Highest Lawful Rate. If Bank contracts for, charges or receives any excess
interest, it will be deemed a mistake. Bank will automatically reform the
contract or charge to conform to applicable law, and if excess interest has been
received, Bank will either refund the excess to Borrower or credit the excess on
the unpaid principal amount of this Note. All amounts constituting interest
will be spread throughout the full term of this Note in determining whether
interest exceeds lawful amounts.
If any Event of Default (as defined in the Credit Agreement) occurs, then
Bank may do any or all of the following: (i) cease making Loans hereunder; (ii)
declare the Obligations to be immediately due and payable, without notice of
acceleration or of intention to accelerate, presentment and demand or protest or
notice of any kind, all of which are hereby expressly waived; (iii) set off, in
any order, against the Obligations any debt owing by Bank to any Obligor,
including, but not limited to, any deposit account, which right is hereby
granted by each Obligor to Bank; and (iv) exercise any and all other rights
under the Loan Documents, at law, in equity or otherwise.
No waiver of any default is a waiver of any other default. Bank's delay in
exercising any right or power under any Loan Document is not a waiver of such
right or power.
Each Obligor severally waives notice, demand, presentment for payment,
notice of nonpayment, notice of intent to accelerate, notice of acceleration,
protest, notice of protest, and the filing of suit and diligence in collecting
this Note and all other demands and notices, and consents and agrees that its
liabilities and obligations will not be released or discharged by any or all of
the following, whether with or without notice to it or any other Obligor, and
whether before or after the stated maturity hereof: (i) extensions of the time
of payment; (ii) renewals; (iii) acceptances of partial payments; (iv) releases
or substitutions of any collateral or any Obligor; and (v) failure, if any, to
perfect or maintain perfection of any security interest in any collateral. Each
Obligor agrees that acceptance of any partial payment will not constitute a
waiver and that waiver of any default will not constitute waiver of any prior or
subsequent default.
Where appropriate the neuter gender includes the feminine and the masculine
and the singular number includes the plural number.
Borrower represents and agrees that: all Loans evidenced by this Note are
and will be for business, commercial, investment or other similar purpose and
not primarily for personal, family, or household use as such terms are used in
the Texas Finance Code. Borrower represents and agrees that each of the
following statements is true unless the box preceding that statement is checked
and initialed by Borrower and Bank: [ ] (i) No advances will be used primarily
for agricultural purposes as such term is used in the Texas Credit Code. [ ]
(ii) No advances will be used for the purpose of purchasing or carrying any
margin stock as that term is defined in Regulation U of the Board.
Notwithstanding anything contained herein or in any other Loan Document, if this
is a consumer credit obligation (as defined or described in 12 C.F.R. 227,
Regulation AA, promulgated by the Board), the security for this credit
obligation will not extend to any non-possessory security interest in household
goods (as defined in Regulation AA) other than a purchase money security
interest, and no waiver of any notice contained herein or therein will extend to
any waiver of notice prohibited by Regulation AA.
Chapter 346 of the Texas Finance Code (and any successor enactment) shall
not apply to this Note or to any Loan evidenced by this Note.
This Note is governed by Texas law. If any provision of this Note is
illegal or unenforceable, that illegality or unenforceability will not affect
the remaining provisions of this Note. BORROWER AND BANK AGREE THAT THE COUNTY
IN WHICH BANK'S PRINCIPAL OFFICE IS LOCATED IN TEXAS IS PROPER VENUE FOR ANY
ACTION OR PROCEEDING BROUGHT BY BORROWER OR BANK, WHETHER IN CONTRACT, TORT, OR
OTHERWISE. ANY ACTION OR PROCEEDING AGAINST BORROWER MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT IN SUCH COUNTY TO THE EXTENT NOT PROHIBITED BY APPLICABLE
LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW BORROWER HEREBY IRREVOCABLY (A)
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY
OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT
FORUM. BORROWER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED
OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED BELOW.
BANK MAY SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW AND MAY BRING ANY
ACTION OR PROCEEDING AGAINST BORROWER OR WITH RESPECT TO ANY OF ITS PROPERTY IN
COURTS IN OTHER PROPER JURISDICTIONS OR VENUES.
Page 4 of 5 Pages
<PAGE>
For purposes of this Note, any assignee or subsequent holder of this Note
will be considered the "Bank," and each successor to Borrower will be considered
the "Borrower."
Each Borrower and cosigner represents that if it is not a natural person,
it is duly organized and validly existing and in good standing under the laws of
the state of its incorporation or organization; has full power to own its
properties and to carry on its business as now conducted; is duly qualified to
do business and is in good standing in each jurisdiction in which the nature of
the business conducted by it makes such qualification desirable; and has not
commenced any dissolution proceedings. Each Borrower and cosigner that is
subject to the Texas Revised Partnership Act ("TRPA") agrees that Bank is not
required to comply with Section 3.05(d) of the TRPA and agrees that Bank may
proceed directly against one or more partners or their property without first
seeking satisfaction from partnership property. Each Borrower and cosigner
represents that if it conducts business under an assumed business or
professional name it has properly filed Assumed Name Certificate(s) in the
office(s) required by Chapter 36 of the Texas Business and Commerce Code. Each
of the persons signing below as Borrower or cosigner represents that he/she has
full requisite power and authority to execute and deliver this Note to Bank on
behalf of the party for whom he/she signs and to bind such party to the terms
and conditions of this Note and that this Note is enforceable against such
party.
NO COURSE OF DEALING BETWEEN BORROWER AND BANK, NO COURSE OF PERFORMANCE,
NO TRADE PRACTICES, AND NO EXTRINSIC EVIDENCE OF ANY NATURE MAY BE USED TO
CONTRADICT OR MODIFY ANY TERM OF THIS NOTE OR ANY OTHER LOAN DOCUMENT.
THIS NOTE AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, Borrower has executed this Note effective the day,
month and year first aforesaid.
BORROWER: PERVASIVE SOFTWARE INC.
By: /s/ JOHN FARR
-----------------------------------------------
Name: John Farr
---------------------------------------------
Title: Director of Finance
--------------------------------------------
& Asst. Corp. Secretary
(Bank's signature is provided as its acknowledgment of the above as the final
written agreement between the parties and as its agreement with each Borrower
subject to TRPA that Bank is not required to comply with Section 3.05(d) of
TRPA.)
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
formerly known as
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/ DONNA DAY
--------------------------------------
Name: Donna T. Day
------------------------------------
Title: Vice President
-----------------------------------
Page 5 of 5 Pages
<PAGE>
EXHIBIT A to Promissory Note between
PERVASIVE SOFTWARE INC. ("Borrower") and Chase Bank of Texas, National
Association
formerly known as Texas Commerce Bank National Association ("Bank")
dated as of February 28, 1998.
CALCULATION CERTIFICATE FOR DETERMINATION OF LIBOR SPREAD.
THIS CALCULATION IS FOR THE QUARTER ENDING ______________________, 199___.
<TABLE>
<CAPTION>
================================================================================================================
Total Funded Liabilities to EBITDA for the 12 Most + YTD this - YTD last Total
months ending at each fiscal quarter End Date ----- ---------- ---------- -----
Recent Year Year
------ ---- ----
FYE
---
<S> <C> <C> <C> <C> <C>
Net income $______ $______ $______ $______
Plus: Depreciation $______ $______ $______ $______
Amortization $______ $______ $______ $______
Interest Expense $______ $______ $______ $______
Tax Expense $______ $______ $______ $______
Specified Non-
Cash Charges $______ $______ $______ $______
Equals: EBITDA = $______ $______ $______ $______
As of fiscal quarter End Date:
Loans from Bank $___________
Plus: Other Liabilities
for borrowed money
(excluding normal trade debts) $___________
Equals: Total Funded Liabilities = $
===========
$_________________________ / $__________ =__________
Total Funded Liabilities EBITDA Ratio
================================================================================================================
</TABLE>
The undersigned certifies that the above information and computations are
true and correct and not misleading as of the date hereof, and that since the
date of the Borrower's most recent Calculation Certificate (if any):
No default or Event of Default has occurred under the Agreement during the
current Reporting Period, or been discovered from a prior period, and not
reported.
A default or Event of Default (as described below) has occurred during the
current Reporting Period or has been discovered from a prior period and is
being reported for the first time and:
was cured on ___________________________________.
was waived by Bank in writing on ______________________________.
is continuing.
Description of Event of Default:___________________________________________
___________________________________________________________________________
___________________________________________________________________________
Executed _________________________, 19__.
BORROWER: PERVASIVE SOFTWARE INC.
SIGNATURE:
----------------------------------------------------------------------
NAME:
---------------------------------------------------------------------------
TITLE: (CFO, Director of Finance, Controller or President)
--------------------------------------------------------------------------
ADDRESS:
------------------------------------------------------------------------
EXHIBIT A Page 1 of 1
<PAGE>
EXHIBIT 21.1
PERVASIVE SOFTWARE INC.
SUBSIDIARIES OF THE REGISTRANT
Pervasive Software Co., Ltd. -- Japan
Pervasive Software GmbH -- Germany
Pervasive Software N.V. -- Belgium
Pervasive Software (Ireland) Limited -- Ireland
Pervasive Software Limited -- United Kingdom
Pervasive Software North Asia Limited -- Hong Kong
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-37347) pertaining to the 1997 Stock Incentive Plan and the Employee
Stock Purchase Plan of Pervasive Software Inc. of our report dated July 17,
1998, with respect to the consolidated financial statements and related
financial statement schedule of Pervasive Software Inc. included in the Annual
Report (Form 10-K) for the year ended June 30, 1998.
/s/ ERNST & YOUNG LLP
Austin, Texas
September 25, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 15,587
<SECURITIES> 4,943
<RECEIVABLES> 5,604
<ALLOWANCES> (300)
<INVENTORY> 350
<CURRENT-ASSETS> 28,100
<PP&E> 6,508
<DEPRECIATION> (2,841)
<TOTAL-ASSETS> 32,643
<CURRENT-LIABILITIES> 8,285
<BONDS> 0
0
0
<COMMON> 26,270
<OTHER-SE> (2,291)
<TOTAL-LIABILITY-AND-EQUITY> 32,643
<SALES> 36,700
<TOTAL-REVENUES> 36,700
<CGS> 5,292
<TOTAL-COSTS> 28,064
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (37)
<INCOME-PRETAX> 3,917
<INCOME-TAX> 1,101
<INCOME-CONTINUING> 2,722
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,722
<EPS-PRIMARY> .26
<EPS-DILUTED> .18
</TABLE>
